T H E P O W E R T O
make things
happen
A N N U A L R E P O R T A N D A C C O U N T S 2 0 1 6
A G G R E K O P L C
Contents
02
O U R I N V E S T M E N T
C A S E
W H A T O U R C U S T O M E R N E E D S
K E Y O U T P U T S
70
C O R P O R A T E
G O V E R N A N C E
04
O U R B U S I N E S S
T O D A Y
18
H O W W E
C R E A T E V A L U E
O V E R V I E W
Introducing Aggreko
Our investment case
Performance highlights
Our business today
A personal perspective from our CEO
B U S I N E S S S T R A T E G Y
The power to drive major sporting events*
Our global markets
The power to connect communities*
How we create value
How we make things happen
Our strategic priorities
The power to build a new product*
P E R F O R M A N C E R E V I E W
How we performed – our key performance indicators
Group and business unit reviews
Financial review
The power to help rocket testing*
Risk factors that could affect business performance
Assessment of prospects and viability
The power to keep the beat*
Making a massive difference
G O V E R N A N C E
Chairman’s introduction
Audit Committee report
Ethics Committee report
Nomination Committee report
Remuneration Committee report
Statutory disclosures
Statement of Directors’ responsibilities
A C C O U N T S & O T H E R I N F O R M A T I O N
Independent auditors’ report
Group income statement
Group statement of comprehensive income
Group balance sheet
Group cash flow statement
Reconciliation of net cash flow to movement
in net debt
Group statement of changes in equity
Notes to the Group accounts
Company balance sheet
Company statement of comprehensive income
Company statement of changes in equity
Notes to the Company accounts
Shareholder information
Definition and calculation of non GAAP measures
Financial summary
Glossary
Pages 1-69 comprise the Strategic report
* Pages 11, 16, 32, 50 and 62 case studies demonstrate
how we make things happen
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AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
01
Around the world, people, businesses and countries
are striving for a better future. A future that needs power.
That’s why at Aggreko, we work round the clock,
making sure our customers get the power, heating and
cooling they need, whenever they need it – delivered with
our trademark passion, unrivalled international experience
and local knowledge. From urban development to
unique commercial projects and humanitarian
emergencies, we bring our expertise and equipment
to any location, from the world’s busiest cities
to some of the most remote places on earth.
Every project is different, so we listen first and design
a system around our customers, delivering our service
and support anywhere, to any scale. Transforming
the lives and livelihoods of individuals, organisations
and communities across the globe.
Aggreko has the power to make things happen.
C A S E S T U D I E S
The case studies throughout this report demonstrate
the work our employees do for our customers every day.
F I N D O U T M O R E
Visit our website to find out more about Aggreko
www.aggreko.com/about-us
V I E W A N D D O W N L O A D
T H E 2 0 1 6 R E P O R T
www.annualreport2016.aggreko.com
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02 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
O V E R V I E W
Our investment case
Our objective is to remain the leading provider
of modular, mobile power and related solutions,
delivering long-term value to shareholders,
outstanding service to customers and
rewarding careers to our employees.
M A R K E T
S T R A T E G I C P R I O R I T I E S
The business operates in markets that are diverse
both by geography and sector
Defined strategic priorities:
Customer, Technology, Efficiency & People
We work across 12 major sectors including Oil & Gas,
Petrochemical & Refining, Utilities and Events
In emerging markets there is a structural power deficit
creating a clear market demand
Clear path to growth
Business focused on margins and returns
R E A D M O R E A B O U T O U R M A R K E T S
P A G E 1 2
R E A D M O R E A B O U T O U R S T R A T E G I C P R I O R I T I E S
P A G E 2 7
C O M P E T I T I V E A D V A N T A G E S
S H A R E H O L D E R R E T U R N S
People & culture
Priority is to invest for long-term growth
Technology
Expertise
Scale
Financial strength
Will invest in bolt-on acquisitions where opportunities
for growth or adjacencies (for example a cooling business
may also drive demand for power)
Sustainable ordinary dividend policy
Where excess capital beyond these priorities
will look to distribute to Shareholders
R E A D M O R E A B O U T O U R C O M P E T I T I V E A D V A N T A G E S
P A G E 2 2
U S E F U L L I N K S F O R S H A R E H O L D E R S
P A G E S 1 7 6
Performance highlights
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
03
RE VENUE
£1,515m
2015: £1,561m
ADJUSTED PRO FIT BEFO RE TA X 3
£221m
2015: £252m
2016 REP O RTED PRO FIT BEFO RE TA X 4
£172m
2015: £226m
ADJUSTED DILUTED EP S 3
ADJUSTED O PER ATING PRO FIT 3
61.95p
2015: 71.68p
£248m
2015: £275m
2016 REP O RTED DILUTED EP S 4
2016 REP O RTED O PER ATING PRO FIT4
48.86p
2015: 63.45p
£199m
2015: £249m
ADJUSTED RE TURN ON CAPITAL EMPLOYED 2 , 3
DIVIDEND PER SHARE1
13%
2015: 16%
27.12p
2015: 27.12p
2016 RE TURN O N C A PITAL EMPLOYED 2
10%
2015: 15%
M A T E R I A L I T Y
This report and financial statements aims to provide a fair, balanced and understandable
assessment of our business model, strategy, performance and prospects in relation
to material financial, economic, social, environmental and governance issues.
The material focus areas were determined considering the following:
• Matters that are critical to achieving our strategic objectives
• Key risks identified through our risk management process
• Feedback from key stakeholders during the course of the year
1 The Board is recommending a final dividend of 17.74 pence per Ordinary Share, which when added to the interim
dividend of 9.38 pence, gives a total for the year of 27.12 pence per Ordinary Share.
2 Calculated by dividing operating profit for the year by the average net operating assets as at 1 January,
30 June and 31 December.
3 Adjusted numbers exclude exceptional items. Exceptional items are explained in Note 7 to the accounts.
4 Reported is per the Accounts on pages 126 to 175.
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04 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
O V E R V I E W
Our business today
We are a global company organised into two
business units. This enables us to focus on our
customers, developing market leading products,
whilst more efficiently delivering our expertise
and equipment across the globe.
We operate in around 100 countries through
208 sales and service centres and with around
7,000 permanent and temporary employees.
G L O B A L L Y O R G A N I S E D T O S E R V E O U R C U S T O M E R S ’ N E E D S
K E Y
Rental
Solutions
Power
Solutions
Offices/
Service centres
Rental Solutions includes our businesses in North America,
Europe, Australia Pacific and Mexico. Power Solutions includes
all our other businesses around the world.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
05
R E A D M O R E A B O U T R E N T A L S O L U T I O N S
P A G E S 1 9 A N D 4 1
R E A D M O R E A B O U T P O W E R S O L U T I O N S
P A G E S 1 9 A N D 4 2
R E N T A L S O L U T I O N S
P O W E R S O L U T I O N S
A transactional business serving a broad range of
sectors in developed markets. It provides power,
heating and cooling to a number of customer types who
need it quickly and typically for a short period of time.
Operating in emerging markets, we typically serve
both industrial and utility customers with larger,
longer-term and often complex solutions
to fulfil their power requirements.
K E Y S E C T O R F O C U S %
K E Y S E C T O R F O C U S %
1
11
10
8
9
7
2
3
6
4
5
1 Petrochemical & Refining
2 Oil & Gas
3 Events
4 Utilities
5 Manufacturing
6 Services
7 Contracting
8 Construction
9 Mining
10 Shipping
11 Other
18
11
11
11
9
8
8
6
5
3
10
1
8 9
7
6
5
4
3
2
1 Utilities
2 Oil & Gas
3 Mining
4 Events
5 Construction
6 Manufacturing
7 Petrochemical & Refining
8 Military
9 Other
(excluding pass-through fuel)
59
14
7
2
4
4
1
2
7
RE VENUE £M
£629m
43% of group
RE VENUE £M*
£826m
57% of group
*excluding pass-through fuel
W H O A R E O U R C U S T O M E R S ? A S E L E C T I O N :
C O N T R A C T O R
Needs to run a specific piece of equipment requiring a generator
– for example a crane. Orders the same equipment every time,
doesn’t need consultation just needs a quick and reliable supplier.
E V E N T
Needs a team who understand the complexities of an event –
the timelines that need to be followed, challenges around a small
footprint for the required generation, or quieter equipment (for example
during a major golf tournament where concentration is vital).
E M E R G E N C Y
Can be a hospital needing back up power if their redundancy fails,
or a food manufacturer that needs to keep their product at a precise
temperature during an outage. Need quick response and reliability.
P E T R O C H E M I C A L & R E F I N I N G T U R N A R O U N D
A complex job needing an engineering solution. If a refinery
needs to perform maintenance it can need assistance in keeping
everything at a stable temperature and maintaining throughput
often involving complex solutions. Our engineers will work with
the customer’s engineers to design a solution.
M I N I N G
A mining customer needs equipment for the length of the mine.
Commodity prices can vary greatly over this time so they value a
capex free solution with flexibility to scale up or down depending
on any movements in price.
P O O R T R A N S M I S S I O N
Countries with poor transmission grids need flexible generation
sources that can be set up as small power stations, often with
mini power grids to support them, around the areas where
energy is demanded.
B A S E L O A D I S S U E S
When a country has established baseload issues they often need
a reliable source of generation to cover the gap while they resolve
the longer-term issues. They can be sensitive to the total cost
of energy, which is why having engines with the best possible
efficiency is important.
Note: Power Solutions industrials customers tend to be of a similar
type to Rental Solutions customers, albeit with a longer duration.
S U P P O R T E D B Y A S T R O N G I N F R A S T R U C T U R E
Dedicated sales force – Leading technology
Efficient support functions – Established distribution network
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06 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
O V E R V I E W
A personal perspective from our CEO
The work underway
across the business
is beginning to
take effect
WATCH CHRIS’ VIDEO ONLINE:
ir.aggreko.com/investors/financial-results-centre
A R E V I E W O F 2 0 1 6
Market conditions have been challenging,
with ongoing lower oil price and broader
commodity weakness; lower emerging
market growth; and no lessening of the
competitive pressures in the market.
The repricing of legacy contracts in
Mozambique early in the year and latterly
in Argentina, placed further pressure on
our performance. Notwithstanding these,
I was pleased with the underlying
business, particularly our strong order
intake of over 1GW and the growth we
saw in some of our markets, Russia being
a good example. We also made good
progress on our strategic priorities of
Customer, Technology and Efficiency.
There is more to do in 2017 but I am
confident that this important work is
on track and will better equip Aggreko
to grow successfully, even in more
difficult market conditions.
There is no doubt that 2016 was
a challenging year. However,
I am confident that we are taking
the right actions to position this
business for the future and I am
excited by the results that we are
beginning to see from our work
on our strategic priorities.
Chris Weston
Chief Executive Officer
2016
Jan
In January I visited our North
American business to better
understand the impact of
the low oil price on US shale
operators and our performance
in the Oil & Gas sector. I met
a number of customers
throughout the week, across the
sector, including in downstream
Petrochemical and Refining.
Meeting our customers is always
an invaluable opportunity
and hearing first hand the
challenges they are facing also
reinforced the importance of
the changes we are making
through our strategic priorities.
On a slightly different theme,
I particularly enjoyed meeting
the Aggreko team preparing for
the Superbowl and seeing the
impressive set up for that event.
Feb
Lee Hee-beo, President and CEO of the
PyeongChang Organising Committee
of the Olympic Games and Aggreko’s
Robert Wells at the signing ceremony
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
07
The safety, wellbeing
and engagement of
our people is one of
our strategic priorities
SEE MORE HERE:
www.aggreko.com
I spent a few weeks on
an extensive tour of our
locations across Asia, visiting
our businesses in China,
Japan, Korea and Singapore.
Weather caused travel problems
but also provided a reminder
of the extreme conditions
that our equipment has to
operate in. It is important
I get around the business as
much as possible to speak
with our employees directly.
Ensuring that our people are
safe in what they do, motivated
and engaged, is important to
me and a key factor in providing
the outstanding service, quickly,
all over the world.
People are one of our strategic
priorities and something that
we have focused on throughout
the year. The appointment of
Anna Filipopoulos, our new
Group HR Director, has bought
an added professionalism and
focus in this area.
In South Korea, I met the
organising committee for
the PyeongChang 2018 Winter
Olympics, the contract for
which we signed in December
2016. Our Global Events team,
supported by our local team in
Seoul, put in a huge amount of
work to win this contract and
I am delighted that they have
been successful.
Apr
2016 revenue in
Argentina £130m
Following a number of weeks
spent meeting investors after
our full year results, I travelled
to South America. In Argentina,
where we have a large contract
with the government-owned
utility, I spent some time with
the Secretary of Energy, our
ultimate customer, and also
with the British Ambassador.
It was very apparent that the
new government is approaching
the chronic power shortage in
the country differently and that
this could present us with both
a risk and an opportunity.
Our business in Brazil has had
to cope with a difficult few
years in the face of a substantial
economic slowdown and political
upheaval, but our employees
have continued to work tirelessly
for our customers. In Rio, I visited
our depot and shared lunch
with our technicians, following
which they took me to see the
Olympic athlete’s food hall, for
which we were providing the
cooling. The hall was huge,
covering about three football
pitches, and presented a complex
challenge to cool it to acceptable
temperatures. I am always
impressed with the capability and
work of our people, particularly
when seen live on the ground,
and the dedication and passion
that they show.
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08 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
O V E R V I E W
A personal perspective from our CEO continued
May
Russia 2016 Adjusted
revenue growth of 28%1
Russia has been an area of strong
growth over the last few years and
in 2016 revenue increased 28%1.
In May, I visited the team there
to congratulate them on their
results and better understand
their growth plans for the future.
It is an interesting market,
largely focused on the Oil & Gas
sector, which has continued
to grow strongly as customers
move from owning to renting
equipment, thereby protecting
their balance sheets in a weak
commodity environment.
Given the extreme temperatures,
it can be a challenge for our
customers to find equipment that
will operate reliably. Our G3 diesel
and QSK60 gas engines, the
older, workhorses of our fleet,
perform very well in this harsh
environment; the Russian
business is taking these sets from
around the Group as we start to
introduce our Next Generation
Gas engine to the wider market.
Gas installation at Taylakovskoye
oil field in Western Siberia
Jun
HFO market
opportunity 2GW
The launch of our medium speed
Heavy Fuel Oil (HFO) engine,
and broader discussion of our
technology agenda generated
a huge amount of interest,
both internally and externally.
Technology is one of our strategic
priorities. Our aim is to provide
our customers with the lowest
possible cost of power and
technology, fuel type and engine
efficiency are key to achieving
this. As the market has become
more competitive, technology
has become a key differentiator
and Aggreko is in a strong
position to take advantage.
Our diesel G3+ engine is the
most fuel efficient on the
market, so customers have
less fuel to pay for; this can be
a material saving, many millions
of pounds, particularly when
they are generating electricity
continuously. We launched
our HFO engine in response to
market research and customer
demand; HFO is more widely
available than gas and cheaper
than diesel, so for many of our
customers it is a more economic
way of generating power. As such,
we think it will open up further
opportunities for us.
Medium speed HFO leaving our
Manufacturing facility in Dumbarton
1 Excludes the impact of currency.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
09
Some of our fixed site
generators in Argentina
Aug
Efficiency is one of our
strategic priorities and clearly
this repricing has substantially
changed the economics of the
Argentinian contracts. We have
commenced a piece of work
to look at the cost base of
the Power Solutions business
and how we could operate
more efficiently.
August began on a negative
note as one of our contracts
in Argentina extended at
substantially lower prices than
we had achieved historically.
Our contracts in Argentina
were signed prior to 2012 when
the country had a significantly
higher risk profile and restrictive
exchange controls. As a result
the pricing was significantly
higher than current levels in
the Power Solutions Utility
market. This introduced some
uncertainty around the future of
the other contracts in Argentina,
which I am pleased we have
gained more clarity on recently.
Sep
Our order intake for
the year is over 1GW
SEE MORE HERE:
www.aggreko.com
Aggreko employees on site
in Mozambique
The signing of a 40MW gas
contract in Mozambique took
our order intake for the year over
1GW. I was delighted by this,
particularly as the intake included
a high percentage demand
for our new diesel G3+ engine,
demonstrating the importance
of fuel efficiency to our customers.
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10 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
O V E R V I E W
A personal perspective from our CEO continued
Oct
Having seen further weakness
in the North American business
driven by the tough market
conditions in Oil & Gas and
Petrochemical & Refining, we
commenced a further in depth
review of the business, with
particular focus on the existing
and future opportunities in the
shale basins. As part of this review,
we have impaired some of our
specialised Oil & Gas equipment
and recently announced that we
will take further steps to right size
our business, including depot
closures and some role removals.
It is important to support the
North American team as they
make these changes, and for
me to talk with our people
directly. I visited the Houston
office and our Gulf operations in
Lake Charles, Baton Rouge and
New Orleans to speak with our
people and thank them for their
hard work in a very tough market
and to talk enthusiastically about
Aggreko’s future.
An oil facility powered by Aggreko
in North America
Nov
The gathering of our Senior
Leadership Team in Edinburgh
provided the opportunity
to discuss current business
performance, a number of
strategic issues and plan our
activities for the coming year.
We also worked together on
the launch of our new purpose,
values and behaviours. Culture is
an intangible, but important part
of our business, and our new
framework, Always Orange,
embodies the passion, innovation,
expertise and teamwork that we
want to continue to develop and
which underpins the delivery
of our strategy.
Earlier in the year we completed
a large project to understand
better what our customers
expected from us. This ‘voice of
the customer’ work has allowed
us to more meaningfully segment
customers and therefore
understand their needs and
expectations. In November we
launched our new CRM system
in the UK. The full deployment
of this system has begun and
will cover both office and field
operations. It will provide us with
a clearer view of our customers,
their preferences, the service
they require and their history
with us. It will transform our
sales process. It will automate
our field operations and fleet
management. When fully
deployed it will make it easier
for customers to do business
with Aggreko and it will give
us a powerful online presence.
Our updated values framework, Always Orange
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
11
T H E P O W E R T O
drive major
sporting events
T O D D F A S A N O / P R O J E C T M A N A G E R , T E X A S
I’ve worked for Aggreko for years. This was
my fourth Ryder Cup and tenth event for the
PGA. It takes a year to plan an event like this
and they are all unique. For example, this
Ryder Cup was significantly larger than the last,
and the location meant we had to prepare for
cooling during the day and heating at night.
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12 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
B U S I N E S S S T R A T E G Y
Our global markets
Strong prospects for
long-term growth
In developed markets, power and related
products, like heating and cooling, are
an essential part of everyday life and are
taken for granted until they are not there.
In emerging markets power helps
countries to industrialise and enhance
living standards via for example
hospitals to provide medical care and
schools to educate future generations.
Demand for Aggreko’s services is generally
created by Events, the supply and demand
gap or commodities: our customers
often need a fast and flexible solution.
Events may be frequent, such as a local
utility needing power as they do planned
maintenance, or they may be infrequent,
such as a large-scale power shortage,
for example in Guam. The nature of
the demand differs by country and
industrial sector. We address the market
through our two business units which
are well positioned to help our customers
and each of which has strong prospects
for long-term growth. Being global allows
us to quickly move resources between
the two business units in response to
customer demand.
We have listed some of the key growth
drivers across Aggreko over the page.
These are often related and interact
within a market to define that market.
8
K E Y D R I V E R S
A C R O S S O U R B U S I N E S S
1
GDP growth
GLOBAL GD P GROW TH (%)
6
5
4
3
2
1
0
-1
2007
2008 2009 2010 2011 2012
2013
2014 2015 2016 2017 2018 2019
2020
Source: IMF, October 2016
As an economy grows, so
does demand for power.
As businesses grow they can
rent additional power, heating
and cooling rather than lose
productivity; this is also more
capital efficient.
Our Power Solutions Industrial
and Rental Solutions markets
have historically grown as a
country’s economy grows.
The average GDP growth of
the countries in which we
operate is forecast to be around
2% per annum in Rental
Solutions and 4% per annum in
Power Solutions Industrial over
the next few years (Source: IMF,
October 2016). In 2016, whilst
average GDP growth was 1.7%
in Rental Solutions, revenue
decreased 8%; this apparent
market underperformance was
driven by the low oil price and
resultant weakness in Oil & Gas
and Petrochemical & Refining,
key sectors for the business,
particularly in North America.
Elsewhere, other sectors have
been stronger, particularly
in Europe.
The market in Power Solutions
Utility is generally linked to
the power shortfall – the
difference between supply
and demand – in a particular
country. The customer is
normally the state-owned
utility; and in order for them
to make a purchase decision
our analysis suggests that
GDP growth typically needs to
be around 5% for conversion
from an enquiry into a contract.
These customers require
base load, peaking and in
some cases, backup power.
There are a wide variety of
factors that influence the
decision to purchase electricity
and they vary between
countries. In recent years, lower
commodity prices, in particular
oil, has significantly affected
the tax receipts in some
commodity rich countries
around the world and therefore
their ability to afford power;
in other countries, the lower
oil price has made power
more affordable.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
13
2
Population growth
& industrialisation
As populations continue to grow and urbanise, and as
industrialisation drives economic growth, demand for electricity
increases. Electrification rates are typically low in many emerging
market countries and even in those places where electricity is
available, reliability is often poor. These countries may have plans
for permanent capacity, but raising the significant funding that is
required can take a considerable period of time to realise and the
amount of investment required can be challenging to obtain from
traditional sources; it typically takes between 5 and 10 years for
a new permanent plant to be commissioned. Delays in realising
new capacity, ageing infrastructure and reliance on intermittent
hydropower can also exacerbate an existing shortfall. Meanwhile,
the global population is forecast to grow by over 1% per annum
until 2020, and double this rate in the least developed countries
according to the United Nations; therefore, the power shortfall
is likely to increase.
GLOBAL POPULATION ( BILLION)
8
7
6
5
4
3
2
1
0
2007 2008 2009 2010 2011 2012
2013
2014 2015 2016 2017 2018 2019
2020
Source: World Bank Development Indicators
3
Propensity to rent
Customers have the choice to either buy, rent or live with less
power than they require; our competitors are not just rental
companies but also equipment manufacturers. Where the
need is urgent or for a short time, customers tend to rent.
There is a growing awareness of the benefits of outsourcing.
In deciding whether to rent or buy, customers consider issues
such as the tax treatment of assets and the availability and
cost of finance for purchasing equipment. Often a benefit of
renting our equipment is that it frees up a customer’s balance
sheet and allows them to focus on their core business.
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14 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
B U S I N E S S S T R A T E G Y
Our global markets continued
5
Reliability
of supply
In Power Solutions Industrial, our customers are typically
looking for electricity where the grid is unstable and they
seek backup, or where the grid doesn’t exist. The largest
customers in this segment tend to be in Oil & Gas and Mining
and are often in remote locations.
In the Utility business, the decision by governments to purchase
power using flexible solutions is usually a political one and given
slower economic growth in recent years, the opportunity
cost of not having electricity is less acute; businesses that are
growing, but that are unable to rely on utility power or where it
is simply unavailable, are seeking alternative sources of electricity.
The structural shortfall creates substantial opportunities for
Aggreko and we will continue to win work by understanding
the market, customer needs and offering solutions that meet
their requirements.
4
Ageing
infrastructure
In emerging markets,
investment in new and
replacement permanent
power infrastructure has not
kept pace with demand and
so frequent breakdowns and
damaging power cuts have
resulted, with many regions
remaining off-grid entirely.
Delays in realising new
capacity, ageing infrastructure
and reliance on intermittent
hydropower can also
exacerbate the existing shortfall.
In the long term, the drivers of
growth – increasing demand
for electricity and insufficient
investment in permanent
supply – are structural.
Capital markets are less
willing to support long-term
infrastructure projects in these
markets, particularly when
de-carbonisation and ageing
infrastructure in developed
countries requires trillions
of dollars in investment.
6
Fragmented
competition
We compete with a number
of regional companies, and we
have several competitors who
cover a wider geographical area
within Power Solutions Utility,
but we believe we are the only
company with a truly global
footprint. In Rental Solutions,
our competitors are either
privately-owned specialist
rental businesses, divisions
of large plant hire companies
or OEM (Original Equipment
Manufacturer) dealerships;
few provide the sector specific
solutions that Aggreko does.
Over the past few years, we
have seen an increase in the
larger general rental companies
moving into speciality sectors,
including power, heating and
cooling. This tends to affect us
at the lower end of the market
– the price sensitive, equipment
only customers, rather than
the full solution customers.
However, we are aware that
this poses a potential threat to
us and therefore our strategic
priorities are designed to
address this.
In every market across
Power Solutions there
are a number of regional,
national and local businesses.
Since 2012, overall demand in
the market has been lower and
therefore there has been an
oversupply, which has increased
competitive tension in some
markets. Another competitive
force that we face in the utility
market is for a share of a
government’s budget. In most
emerging market countries,
the utilities are state controlled
and money spent on power
is money that cannot be
spent elsewhere.
A number of items differentiate
us from our competitors:
our global scale and large
fleet, which facilitates fast
deployment and economies
of scale; our technology, which
is often the most efficient in
the market; and our expertise,
which has been built over
50 years. Over the last year
we have not seen a significant
change in the competitive
landscape in Power Solutions.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
15
7
Natural disasters
and geopolitical
emergencies
Reactive demand is caused by events that happen
infrequently and cause a power shortage for a period of time.
This is impossible to predict, but important work to support;
reputation and fleet availability are essential to be able
to respond to such an emergency. Typically this type of
work is in response to a natural disaster or in post-conflict
reconstruction and military support. Examples include Japan
where we provided power following the 2011 earthquake and
tsunami, Hurricane Matthew in North America in 2016 and
our military support in Iraq and Afghanistan.
8
Frequency of
major events
High value, but low frequency events change the size of
the market on a temporary basis with a need for short-term
power, heating and cooling solutions. Typically these are major
sporting occasions like the Olympic Games, FIFA World Cup and
Commonwealth Games. Our global scale, expertise and excellent
reputation in executing these events means that we are well
placed to win contracts for these events. In the last year we have
won contracts for the Olympic Winter Games PyeongChang 2018
and the 2018 Gold Coast Commonwealth Games in Australia.
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16 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
B U S I N E S S S T R A T E G Y
T H E P O W E R T O
connect
communities
M A R C I O M A R Q U E S / O P E R A T I O N S M A N A G E R
We’re connecting power to the Amazonas
for the first time. Some of these communities
are so remote that we’re having to transport our
diesel generators on barges down the Amazon,
and move them from there. A challenge for
an Operations Manager like me, but this will
transform the lives of the communities we reach.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
17
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18 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
B U S I N E S S S T R A T E G Y
How we create value
Our business model
Our customers are the focus of everything that we do and
investing in our resources enables us to deliver solutions
that provide them with the power to make things happen.
W H A T O U R
C U S T O M E R N E E D S
R E L I A B I L I T Y
S P E E D O F R E S P O N S E
L O W E S T T O T A L C O S T
O F E N E R G Y
S E C T O R A N D A P P L I C A T I O N
S P E C I F I C E X P E R T I S E
O U R S E C T O R F O C U S
Utilities
Oil, Gas and Petrochemicals
Events
Manufacturing
Mining
Shipping
Services
Construction
W H A T S E T S U S A P A R T
P E O P L E & C U L T U R E
• Around 7,000 skilled employees
• Customer focused culture
E X P E R T I S E
• 50 years of operational experience
and engineering capability
• Significant sector specific expertise
S C A L E
• Large fleet available worldwide
• Quick response while maintaining
optimum utilisation
T E C H N O L O G Y
• Range of new products offering
customers the lowest overall
cost of energy
• Mobile, modular, standardised fleet
F I N A N C I A L
• Strong balance sheet
• Minimised capital cost
R E A D M O R E A B O U T O U R R E S O U R C E S
P A G E 2 2
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
19
O U R C U S T O M E R J O U R N E Y I S D E S C R I B E D O N P A G E S 2 0 A N D 2 1
1
Search
& contact
2
Refine
& select
3
4
Dispatch, transport
& installation
Ongoing
support
5
End of
project
6
Prepare for the
next customer
W E A R E O R G A N I S E D I N T O T H R E E U N I T S
T O B E S T S E R V I C E O U R C U S T O M E R S
K E Y O U T P U T S
O F W H A T W E D O
R E N T A L S O L U T I O N S
T H E V A L U E W E C R E A T E
We operate in developed markets and provide solutions and equipment for
customers who either operate it themselves or contract us to provide a full
turn-key solution. We retain responsibility for servicing and maintenance.
It’s a multi-product offering including power adjacencies, such as
heating, cooling, oil-free air and load-banks and we serve a diverse sector
base. Contracts tend to be short term, with 48 days being the average length.
We estimate our share of the Rental Solutions market is around 25%.
RE VENUE £M
£629m
P O W E R S O L U T I O N S
I N D U S T R I A L
Our Industrial business operates in emerging markets serving
customers in sectors such as Oil & Gas, Petrochemical & Refining
and Mining. Initial contracts are on average around three
months, and are often more complex in nature than those in our
Rental Solutions business. Typically we will work with our Industrial
customers to develop a solution to a complex problem and then
rent our equipment for the customers to operate themselves.
RE VENUE £M
£262m
U T I L I T Y
Our Utility business also serves emerging markets, acting as a power
provider, installing and operating modular, mobile power plants.
We will charge for providing the generating capacity and the electricity
we produce, but will typically pass the cost of fuel straight through to our
customers, or they will provide fuel themselves. Contracts on average
in the Utility business are 14 months in length and many will extend
further into the future. We estimate our share of this market is around 40%.
RE VENUE £M
£564m
e x clu d i n g p a s s - t h r o u g h f u e l1
1 Pass-through fuel relates to Power Solutions Utility contracts in Brazil and Mozambique where we provide
fuel on a pass-through basis. Pass-through fuel revenue in 2016 was £60 million (2015: £60 million).
S U P P O R T I N G
I N D U S T R Y
A N D C O M M E R C E
P R O V I D I N G P O W E R
F O R C O U N T R I E S
A N D C O M M U N I T I E S
E N A B L I N G
M A J O R E V E N T S
A R O U N D T H E W O R L D
I N N O V A T I N G T O B U I L D
S U S T A I N A B L E
B U S I N E S S
S T R O N G B R A N D A N D
G O O D R E P U T A T I O N
R E W A R D I N G
C A R E E R S
S H A R E H O L D E R
R E T U R N S
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20 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
B U S I N E S S S T R A T E G Y
How we create value continued
Our customer journey
The contact points we will have with our customers.
S E A R C H &
C O N T A C T
1
R E F I N E &
S E L E C T
2
D I S P A T C H , T R A N S P O R T ,
I N S T A L L A T I O N
3
Customers will find us through our
website, word of mouth, advertising or
existing relationships. Our sales team
also specialise in approaching potential
customers and offering solutions before
problems arise.
If the customer requires we will meet
with the customer on site to thoroughly
assess what they need. We then draw up
a proposal which they will evaluate.
Otherwise the customer will simply order
the product they want by phone, at one
of our locations or via our website.
When the customer chooses our solution,
we will mobilise to their timescales.
We will install, test and handover the
equipment or site to the customer
by their deadline.
It is normally a matter of hours or days
to get the solution fully installed.
The contracts in Rental Solutions last
on average 48 days.
R E N T A L
P O W E R
P O W E R
R E N T A L
P O W E R
P O W E R
R E N T A L
P O W E R
P O W E R
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
I N D U S T R I A L
U T I L I T Y
I N D U S T R I A L
U T I L I T Y
I N D U S T R I A L
U T I L I T Y
Our sales team works with potential
customers to demonstrate the value of
our products and the bespoke solutions
we can offer. Most Utility customers will
generate a tender, which we and others
will then respond to. We will meet with
the customer, understand their needs
and then present the best solution.
The scale of our Utility projects mean
these proposals are often detailed,
including all logistics and civil works.
We conduct a site survey and any other
additional exploratory work needed and
then design a technical solution and draw
up a plan to meet the customer needs.
We will provide a quote on this basis.
If this is a tender process, the bid often
consists of a two envelope system,
opened in front of a bid committee.
Given the size and scale of these works
there may be further negotiations
before the contract is signed.
Equipment is shipped from the nearest
service centre, hub or another project
which has recently demobilised and
usually travels by sea, rail and road to
the site. It can take from days to weeks
or months to install, test and handover
the solution.
In Utility we will usually operate the
site, but the customer will often be
responsible for providing the fuel.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
21
O N G O I N G
S U P P O R T
4
E N D O F
P R O J E C T
5
P R E P A R I N G F O R T H E
N E X T C U S T O M E R
6
Most of our customers will choose to
run the equipment themselves, after our
engineers have explained the operating
procedures. Our service engineers are
on hand for any additional support that
is needed, and our remote monitoring
system alerts us to any potential
maintenance issues before they occur.
When the customer has finished with
the equipment they will let our team
know. We will then arrange to pick up
the equipment at a convenient time.
We take the equipment back to
our service centres, where we service
it to make sure it’s ready for the
next customer.
R E N T A L
P O W E R
P O W E R
R E N T A L
P O W E R
P O W E R
R E N T A L
P O W E R
P O W E R
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
S O L U T I O N S
I N D U S T R I A L
U T I L I T Y
I N D U S T R I A L
U T I L I T Y
I N D U S T R I A L
U T I L I T Y
Unlike our other businesses, we typically
operate our Power Solutions Utility
facilities, which are run by Aggreko
employees, and sell the power that we
generate to the customer. Our on-site
teams are a mixture of experienced
Aggreko veterans who rotate between
countries, and local people who we
train to operate our equipment.
When the contract reaches its end our
customers will have the option to extend.
On average 30% of our customers in
any one year will decide to off-hire
their contract.
If a customer does off-hire we will
remove our equipment and remediate
the site to leave it as we found it.
Equipment that comes off-hire will
go back to a service centre or hub
where it will be serviced or upgraded.
At the end of their useful life our
1MW diesel engines can be upgraded,
improving fuel efficiency and at a
lower capital cost than a new engine.
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22 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
B U S I N E S S S T R A T E G Y
How we make things happen
Using our resources
O U R R E S O U R C E S
W H A T S E T S U S A P A R T
P E O P L E & C U L T U R E
E X P E R T I S E
We have a highly skilled, passionate and
professional workforce of around 7,000 temporary
and permanent employees worldwide with
a strong can-do and customer focused culture.
We have over 50 years of operational experience
and expertise in sector specific and complex projects.
When this is combined with our engineering capability
it gives us a unique understanding of our customer needs
and the ability to deliver whilst managing risk.
S C A L E
T E C H N O L O G Y
Our scale and global reach allow us to serve customers
in around 100 countries today. Aggreko is geographically
spread so we are close to both our existing and potential
customers across the world. Having a large fleet available
means we can respond quickly when we need to while
also running at good utilisation levels. Combined, our
breadth and scale means we have a diversified portfolio
and an inherent risk management mechanism.
We have a fleet that is mobile, modular and standard
in design so that it can serve any customer, anywhere in
the world. We partner strategically with key suppliers to
develop market leading products aimed at reducing the
overall cost of power for our customers. Our key focus is
fuel efficiency, as this is the largest cost to our customers.
F I N A N C I A L
The Group has a strong balance sheet
with good financial flexibility.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
23
P E O P L E & C U L T U R E
People are our greatest asset; their passion and commitment
are a critical contributor to our success. They are highly skilled
and are used to reacting quickly; they respond effectively under
pressure; do a professional job; and above all, deliver it in a safe
manner. These attributes underpin the dynamic, customer
focused culture for which Aggreko is known. We are focused
on providing an environment in which our people can flourish
and make a massive difference.
H E A LT H , S A F E T Y A N D E N V I R O N M E N T ( H S E )
R E A D M O R E A B O U T H S E
P A G E 6 6
E T H I C S A N D I N T E G R I T Y
R E A D M O R E A B O U T E T H I C S A N D I N T E G R I T Y
P A G E 6 9
S O C I A L C O N T R I B U T I O N
R E A D M O R E A B O U T S O C I A L C O N T R I B U T I O N
P A G E 6 9
L E A D E R S H I P
Our Senior Leadership Team (SLT) comprises our top 70 managers
and was formed in 2015. During the year, our CEO, Chris Weston,
hosted two meetings. These are a valuable opportunity for
engagement with the Executive Committee and the top team
and it allows the SLT to hear updates on the operations, financials
and business priorities first hand. They also provide a forum for
wider input into the Group strategy.
During the first meeting of the year, the team worked on our
culture, purpose and values. We reviewed other companies from
around the world and determined those that articulated their
purpose and values well and which resonated with us, whilst
reflecting on what it means to work for Aggreko. At the second
meeting in November, we received an update on the culture work
and planned together how best to launch it into the organisation.
In addition, we considered key strategic topics for the Group, such
as how to best foster innovation and how to better leverage our
fixed cost base. The outputs of these meetings were taken away
by working groups for further development and implementation.
A L W A Y S O R A N G E
Aggreko is a strong and unique business and our culture reflects
that. Following the reorganisation in 2015, a significant piece
of work was commenced to refresh our culture, including our
purpose, values and behaviours, to ensure that it could best
support our business transformation and growth. We believe that
in defining these we are setting ourselves up for a sustainable and
profitable future, where we can capitalise on market opportunities
and create an even better place to work. The work has taken over
six months to complete and has engaged employees around
the world and at all levels of the business, with workshops, input
from our online community and healthy debate at the Executive
Committee and SLT levels. Our Orange Champions, individuals
at different levels across the Group, have been an instrumental
testing ground as the work has developed and are ideally placed
as we work to embed the new culture into the organisation.
The result is a clear purpose for the
Group, underpinned by four values and
associated behaviours. Our values are:
ic
m
a
n
y
d
e
B
B e expert
Always
orange
e innovative
B
B E D Y N A M I C
B
e
t
o
g
e
t
h
er
We use our entrepreneurial passion to deliver and
we thrive on making great things happen.
B E E X P E R T
We use our blend of experience, expertise and
planning to keep us ahead of the game.
B E T O G E T H E R
We ask the best of each other and harness our scale
and diverse skills to grow stronger together.
B E I N N O V A T I V E
We learn from the world for a better today
and for great leaps tomorrow.
Together these embody our culture:
Always Orange.
O U R P U R P O S E
We believe in the positive impact of power and the
ability to control temperature. We believe it opens
up opportunity and creates potential for individuals,
communities, industries and societies all over the world.
Together and over time, we believe our
services make a massive difference.
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24 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
B U S I N E S S S T R A T E G Y
How we make things happen continued
Using our resources
S A F E T Y A N D S E C U R I T Y
R E W A R D F O R P E R F O R M A N C E
Given that we operate in many areas of the world which can be
categorised as high risk, we consider the safety and security of our
employees working in these locations to be our most critical issue.
Aggreko’s remuneration arrangements seek to support the
delivery of our business strategy by attracting, retaining and
motivating talented people at all levels.
During the year, we further enhanced our Group security
function and embedded standard tools and processes which
were introduced in 2015. We also have an ongoing partnership
with external advisers, who provide us with the on-the-ground
knowledge that we need to make decisions on our operations
in high risk areas; this includes a mobile phone app which allows
our people to check the latest advice for any country around
the world and automatically updates key advice for the country
which they are in. It also has the capability to track travellers and
an added ‘alarm’ function, which triggers an emergency response.
Our business involves electrical equipment which can pose
safety issues when not handled properly. We have a number
of established policies and protocols designed to protect our
employees and customers, including effective training, testing and
risk assessments. This year, we identified a higher than expected
incidence of safety issues as a result of manual handling activities
and after a thorough investigation we are implementing new
processes across the organisation.
R E A D M O R E A B O U T S A F E T Y A N D S E C U R I T Y R I S K
P A G E S 5 7 A N D 5 8
T A L E N T M A N A G E M E N T
Learning and development
Learning and development continues to be an area of focus
and is built around the core capabilities required by the business.
We firmly believe that investment in our employees has a direct
and positive impact on our employee retention rates and the
engagement levels of our staff. It is essential that our people
are properly trained and each part of the business has training
programmes in place to provide our employees with the
necessary skills to perform their role; training is a combination
of on-the-job learning and specific skill development through
training courses. In 2016, we appointed a Global Learning and
Talent Management Director to further develop an effective
programme that will develop capability across the organisation.
Over 2016, we delivered over 173,000 hours of training across the
Group. Many of our training programmes are tailored specifically
for Aggreko employees and utilise case studies and examples
taken from employee experience. Throughout the year, we have
renewed our focus on training and have been working to overhaul
our existing programmes, refreshing them for the changes across
the business and enhancing our tools and capabilities to enable
them to be delivered in a more efficient and easily digestible form.
These new programmes were launched in December 2016.
We also recognise that localisation of talent provides many
benefits to the Group and to the communities in which we
operate, which is why we actively recruit local people wherever
possible, training them and providing them with career
opportunities with the Group. Across the Group Aggreko
employs over 106 different nationalities. We also use programmes
like Aggreko University (Ivory Coast), SelecTech (USA) and our
apprenticeship programme at our Dumbarton manufacturing
and technology facility (UK) to develop the skills of school-leavers.
Pay for performance and rewarding value creation is at the
heart of Aggreko’s remuneration approach. The Company’s
remuneration policy is aligned with the key objectives of
growing earnings and delivering strong returns on capital
employed. These metrics are used for the Group’s long-term
incentive scheme and senior managers’ annual bonuses.
During the year, we undertook a Shareholder consultation
exercise on proposals to better align Executive reward with
strategy, as well as retain key talent through our current business
transformation. The Company’s proposals will be subject to a
Shareholder vote at the 2017 AGM.
We encourage all employees to own shares in the Company and
currently 1,872 people participate in the Sharesave programme.
R E A D M O R E A B O U T R E M U N E R A T I O N P O L I C Y
P A G E 9 5
S U C C E S S I O N P L A N N I N G
Whilst retaining our talent is important, identifying potential
future roles for them and then training them appropriately
is key in ensuring that the Group continues to have effective
management well into the future. Succession planning was
historically not formally done beyond the Executive Committee
level; following the reorganisation of the Group and the
headcount reduction that we underwent during 2015, we
have now rolled out a new succession planning process, which
encompass the Senior Leadership Team and their direct reports.
Work is underway to implement this.
E N G A G E M E N T
We are proud that so many of our employees enjoy what they
do and we seek to increase employee satisfaction through more
than just financial incentives. We encourage mobility between
countries and business units by prioritising internal transfers and
ensuring that positions are advertised internally.
In 2015, we used PULSE surveys to measure employee sentiment
across the business. This year we launched ‘Be Heard’, a quarterly
survey to capture sentiment across the Group on a more regular
basis. Each member of the Senior Leadership Team receives their
division’s results and is then able to address concerns quickly;
the total results are also circulated to the Group. In terms of
tracking engagement levels, we assess three areas: Say, whether
an employee is an advocate for Aggreko; Stay, whether an
employee remains loyal and committed to the business; and
Strive, whether an employee does the best that they can within
their team. The responses can be distilled down into an overall
employee engagement score, which for the most recent survey
was 72%. Within this, 85% of people said they are proud to work
for Aggreko.
R E A D M O R E A B O U T E M P L O Y E E T U R N O V E R
P A G E 3 7
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
25
Internal communications continues to be an area of focus.
Our Director of Communications joined us in the year with
responsibility for developing an internal communications and
engagement programme to ensure that our people understand
our strategic priorities and know what role they can play in
helping to transform our business. Particular focus has been
on empowering managers to brief their teams more effectively.
Encouragingly we have already seen an improvement with 68%
of those surveyed in October 2016 feeling that they have ”access
to communication that helps me do my job more effectively”,
an increase from March 2016 – with all key comparator measures
improving since March.
We currently purchase most of our temperature control
equipment externally to suit the needs of local markets.
Fleet is managed on a real time basis across the world and is
transferable across all sectors and applications, which enables us
to optimise utilisation and therefore its deployment and returns.
Fleet is at the heart of any rental business; it is the core of
the service we offer and managing it effectively is necessary
to ensure the long-term sustainability of our business.
Designing and assembling our own fleet gives us a unique
competitive advantage:
• Optimised to meet our particular operational requirements;
E X P E R T I S E
• Designed for reliability and longevity;
• Capital cost advantage through economies of scale and
not paying the final assembly margin;
• React quickly to customer requirements with lead times
of only a few months from engine order to the equipment
being in the fleet.
K E Y A T T R I B U T E S O F O U R E Q U I P M E N T
Safe
Durable and mobile – capable of being lifted and
transported hundreds of times during its life
Ability to work in extreme conditions,
both temperature and altitude
Fuel efficient
Quiet
Reliable
Compliant with environmental and safety regulations
within the markets in which we operate
R E A D M O R E A B O U T T E C H N O L O G Y
I N O U R B U S I N E S S P R I O R I T I E S
P A G E S 2 7 T O 3 1
It has taken over 50 years to develop the enormous strength and
depth of expertise throughout the business. At the regional levels
our sales and commercial teams are local experts, highly trained
and understand the financial, regulatory and environmental
logistics of operating in their markets; similarly, our engineers
and technicians are trained to problem solve in the most difficult
situations and to keep our equipment operating.
We have built a team of specialist engineers at our in-house
manufacturing and technology facility in Dumbarton, Scotland.
They intimately understand the requirements of the environment
in which the fleet operates and have core skills around speed
of deployment, reliability and flexibility which, over the years,
have provided us with a strong competitive advantage. In the
last few years we have strengthened and developed our capability
to adapt to the market environment, including bringing in new
expertise on product development, new technologies, service
engineering and procurement. We operate equipment for its
useful life; we do not build our equipment to sell. This gives a
powerful incentive to maintain it well, which gives a longer life
and better reliability.
S C A L E
Our scale and global reach, which allows us to serve customers
in around 100 countries, means that we are close to, and aware
of, market opportunities as they arise. We are able to ensure that
fleet is always available and therefore are able to respond quickly,
whilst running at good levels of utilisation to generate strong
returns on capital. Importantly, given the risk of operating in some
of our markets, our scale means that we have a diversified portfolio
and an inherent risk management mechanism.
Our scale also provides a capital cost advantage on our equipment
and enables us to work closely with suppliers on technology
development. Technology is an important enabler for our business
and we have built a competitive advantage by working with our
suppliers to provide market-leading technology in a modular,
flexible format. When you consider that for diesel customers,
on average 80% of the cost of our solution is fuel, then providing
products that are market leading in fuel efficiency can provide a
significant competitive advantage. Additionally, we are continually
identifying and developing new product lines providing our
customers alternatives. For example, our new medium speed
HFO engine will allow customers to use a more affordable fuel
source than the traditional diesel product, with better availability
than gas.
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26 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
B U S I N E S S S T R A T E G Y
How we make things happen continued
Using our resources
T E C H N O L O G Y – O U R D E S I G N A N D A S S E M B L Y C A P A B I L I T Y
238
PERMANENT
DUMBARTO N EMPLOYEES
2015: 235
Purpose-built facility with
the ability to flex volume
Flexible employee base
238 permanent staff and
60 contractors
Design and assembly with
50 years’ experience
Major sub-assembly bought in
from key strategic suppliers
• Engine c.50%
• Alternator c.10%
• Container c.5%
80%
C OST O F MA JO R
SUB -ASSEMBLIES
2015: 80%
20,744
P OWER UNITS
AVAIL ABLE
2015: 20,774
9,666MW
P OWER IN
THE FLEE T
2015: 9,818MW
2,255 MW of power in
Rental Solutions
7,411 MW of power in
Power Solutions
6,800 units of power that are
common to both business units
Focus on fuel efficiency in new and
upgraded fleet, and affordable
sources of fuel in new products
Refurbished and upgraded diesel
for c.75% of original cost per MW
In the fleet within
10-12 weeks of order
£241m
FLEE T C A PE X
IN 2016
2015: £237m
F I N A N C I A L
The Group has sufficient facilities to meet our funding
requirements over the medium term. At 31 December 2016,
these facilities totalled £1,035 million in the form of private
placement notes and committed bank facilities arranged
on a bilateral basis with a number of international banks
with whom we have strong relationships. These facilities have
a range of maturities and are conditional on maintaining
compliance with the covenants below.
The Group does not consider these covenants restrictive
and under normal business conditions looks to operate
the business with net debt/EBITDA ratio of around one times.
The Group believes that this is the appropriate level given
the characteristics of the Group, including the inherently
risky nature of where we operate, in particular in the
Power Solutions Utility business.
F u n d i n g s o u r c e
I n t e r n a t i o n a l
B a n k s &
U S P r i v a t e
P l a c e m e n t s
C o v e n a n t s
E B I T D A ≥ 4 x
i n t e r e s t
N e t d e b t /
E B I T D A ≤ 3 x
P e r f o r m a n c e
a s a t
D e c e m b e r 2 0 1 6
E B I T D A t o
i n t e r e s t : 2 0 x
N e t d e b t /
E B I T D A : 1 . 2 x
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
27
Our strategic priorities
How we are responding to our customers’ needs
How we are responding
to our customers’ needs
Our markets are dynamic and always changing; to make
sure we are well placed to maximise these opportunities
we are focused on the four priorities below:
C U S T O M E R
T E C H N O L O G Y
Understanding the needs of our customers and
tailoring sales and service channels to them,
whilst focusing on key sectors and developing
related applications and solutions.
We are focused on reducing the overall cost
of power to our customers. This will be achieved
by developing market leading products
and working with strategic partners.
E F F I C I E N C Y
P E O P L E
Through streamlining our cost base and
optimising the deployment of resources we will
maintain our reliability whilst lowering the cost
for our customers. Improvements in our systems
and processes will also lower our costs and
make doing business with us easier.
It is our people’s passion, skill, professionalism
and can-do attitude for which we are known.
We are providing an environment where our people
can flourish and make the greatest possible
difference to our performance.
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28 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
B U S I N E S S S T R A T E G Y
Our strategic priorities continued
The power to make things happen
Aggreko is a growth business
Our objective is to remain the leading global provider
of power, heating and cooling that is efficient, modular and
mobile. In order to deliver our objectives we have clear
priorities under which plans are being implemented
across both of our business units. During the year, we added
People to our three existing priorities; therefore the priorities are:
Customer, Technology, Efficiency and People.
C U S T O M E R
T E C H N O L O G Y
• Tailoring sales and service channels to customers
• In Power Solutions focus is: Improving fuel efficiency
• Focusing on key sectors
• Developing and deploying relevant solutions
• Evaluating bolt-on M&A opportunities
and range of energy source to reduce the overall
cost of power for our customers
• In Rental Solutions the focus is reliability and capability
• Developing market-leading products
• Strengthening relationships with strategic partners
I M P R O V I N G
C U S T O M E R S E R V I C E
U S I N G T E C H N O L O G Y T O R E D U C E
T H E O V E R A L L C O S T O F P O W E R
The actions that we are taking will provide a more tailored
service to customers by more effectively allocating our
resources and being smarter about the way we meet
customer needs.
• Implementing global and national account management
for our larger customers; we are uniquely positioned to
provide the service globally.
• Introducing an enhanced customer relationship management
(CRM) system, provided by SalesForce, to better understand
customer requirements, history and service provision which
will benefit both customer service and sales.
All customers value reliability and speed of deployment,
but in our Utility business the total cost of energy is critically
important. Technology, and our technical capability, has a
key role to play and will improve our competitive position.
• 200MW of the next generation of gas engine produced,
which offers a 10 percentage point improvement in fuel
consumption over our existing gas engine, which equates
to c.£5 million of savings a year for a customer running
80MW of gas as base load.
• 25% of the diesel fleet upgraded to the market leading G3+,
with plans to convert the full fleet by 2020.
• Using the data provided by our CRM to improve how we go
to market; including customer analysis, how and where we
deploy our sales resource and how we train them effectively.
• The introduction of a new website and improved digital
offering in March 2017. This will particularly benefit our
more transactional customers; providing a more agile and
cost-effective sales channel and better service proposition.
• Pursuing adjacent products to power, such as the acquisition
of DRYCO, a moisture control business, this year. These kinds
of acquisitions expand our product range and expertise can
often be rolled out across the business. They also often allow
us to sell power generation as part of the solution.
• Developing strategic partnerships to deliver opportunities in
bridging to permanent power and service and repowering.
• Work is ongoing to develop enhanced versions of the G3+
and the next generation gas engine.
• Launching new products incorporating new fuel types
and renewables. Field trial underway of a medium speed
HFO solution and a solar-diesel hybrid now available.
• Working closely with our suppliers – taking established
but leading technology from our suppliers and using
our expertise to package in a modular format.
• Reducing the total cost of ownership of our products,
through looking not only at the build cost but also the
ongoing planned and unplanned maintenance.
• Built a clear technology roadmap for the next five years,
covering three fuels (diesel, gas, HFO).
• In Rental Solutions working on sector specific equipment
where market opportunities are available.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
29
What we expect to deliver
Through careful investment in organic and inorganic growth,
we remain committed to the following targets:
• Revenue – growth ahead of our markets
• Margins – around 20% in the medium term
• Return on capital – around 20% in the medium term
T O F I N D O U T M O R E V I S I T O U R K P I S O N P A G E 3 4
E F F I C I E N C Y
P E O P L E
• Streamlining our cost base
• Improving processes and systems
• Evolving our culture
• Training and developing our people
• Health, safety, wellbeing and security
O P T I M I S I N G D E P L O Y M E N T
O F R E S O U R C E S
C U L T I V A T I N G A N
E F F E C T I V E O R G A N I S A T I O N
Our people are at the heart of the great service Aggreko
provides. Selecting the right people, continuous development,
and training for capability are important areas we continue
to improve. Coupled with an intent to foster a safe, supportive
and stimulating environment for our employees to ensure
that Aggreko continues to be known for its people and the
quality of service that we provide to our customers.
• Evolving our culture and developing our purpose and values
to bring our people together, inspire them and ensure that
together we can make things happen.
• Introducing new training programmes to upskill our people
and working to identify key talent across the organisation,
which combined with strong succession planning, will
strengthen us for the future.
• Safety is critical to ensuring our people are well, safe and secure
and that we deliver the best possible service to our customers.
We are continuing to invest in health and safety.
Efficiency is a critical priority; the actions that we are taking
will enhance our capability and improve our competitive
position whilst providing customers the best possible
service at the lowest possible cost. We have a range of
immediate priorities, but as with any efficiency focus
it is a continuous process.
• Improving Group procurement practices to better leverage
our global spend through supplier rationalisation and
improved terms. This is expected to deliver £40 million of
savings by the end of 2017, with potential for incremental
savings beyond this.
• Further automating fleet management; this will be facilitated
by remote monitoring and will improve utilisation and returns
by allowing a move to condition based servicing.
• Streamlining back office processes across Finance, Human
Resources, Rental Centres and Information Technology.
• Right sizing the depot network; in some cases market
investment is not proportionate to the opportunity and
we need to correct this.
• Looking at how our customers use our services and identifying
where we can improve processes or use new technology to
improve efficiency.
• Improving efficiency of project delivery, particularly in our
Utility business.
• Assessing manpower mix in our Power Solutions business,
increasing the proportion of local workforce; this has the
added benefit of providing jobs, training and skills to local
people. This benefits the Utility business in particular, where
we may have only one site in a country for a short-term contract.
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30 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
B U S I N E S S S T R A T E G Y
Our strategic priorities continued
The power to make things happen
Achievements in the year:
Over 100 workstreams are in place
working on initiatives under the
strategic priorities. During the year,
we have achieved the following:
C U S T O M E R
T E C H N O L O G Y
• Completed ‘Voice of the customer’ work
across both business units to really understand
existing and potential customer needs.
• Began implementation of the new CRM system,
with global roll-out planned for 2017.
• Overhauled the customer website with first launch in early
2017 and roll-out planned globally through the year.
• Successful field trial of the Next Generation Gas engine
with soft launch into the fleet.
• Developed a medium speed HFO package which went
on field trial with a customer at the end of the year.
• Made significant progress in developing our
solar-diesel hybrid product.
CRM
24/7
Case study:
Implementation of a new Customer Relationship Management
(CRM) system
Case study:
Solar-diesel hybrid
Following our extensive customer surveys last year, we identified
that whilst we offer a high standard of customer service, it is
a ‘one size fits all’ approach which is not appropriate to all of
our markets. We are implementing a new CRM system, using
SalesForce as a service provider, which will allow us to better
tailor and personalise the service we provide our customers,
and more efficiently delivering the outputs they need.
In June 2016, we launched a solar-diesel hybrid product,
which couples modular solar panels with our diesel generators.
Solar cannot provide power output 24/7, but combined with our
diesel product it becomes an optimal solution for customers with
enough land to have a solar array. There are clear environmental
benefits to the product, but it also reduces the cost by up to 10%
compared to a stand-alone diesel solution.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
31
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E F F I C I E N C Y
P E O P L E
• We have removed 700 permanent roles to right-size
functional support, delivering £35 million of savings in 2016.
• Full roll-out of remote monitoring across Rental Solutions.
• Embedded a new procurement function which
generated £20 million of savings in 2016.
• Developed our purpose, values and behaviours.
• Strengthened our training and development capability.
• Completed succession planning to three levels
below the Group CEO.
ROC
Values
Case study:
Rolling out the ROC (Remote Operating Centre)
Case study:
Development of our Purpose and Values
In 2016, we rolled out remote monitoring across our Rental
Solutions fleet after success in North America. The ROC connects
all of our equipment on-hire to a central monitoring centre
which can track performance, system issues and the need for
any maintenance. As a result we’ve been able to reduce the cost
of breakdowns, lower the need for extra equipment needed for
back up and improve our customer satisfaction.
Over the last twelve months we have looked to evolve our
culture and refresh our purpose and values. To do this we’ve
consulted with employees at all levels of the organisation,
across the world to understand their views. This has shaped
a new framework for Aggreko – Always Orange, which
was launched in early 2017 and will help to bring together
our global employee base.
32 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
B U S I N E S S S T R A T E G Y
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
33
T H E P O W E R T O
build a new
product
J O H N C A M P B E L L / P R O G R A M M E M A N A G E R , D U M B A R T O N
The latest project I’m working
on is our new medium speed HFO (Heavy
Fuel Oil) product. This is a new engine for
Aggreko. HFO fuel is cheaper than diesel
and more widely available then gas – so it’s
just another way we are reducing the
total cost of energy for our customers.
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P E R F O R M A N C E R E V I E W
How we performed – our key performance indicators
We have modified the KPIs that we report externally
in order that they are more aligned to how the business
operates and to our strategy.
This year we have aligned how
we measure our performance
against our strategic priorities.
The operational areas of Customer,
Technology, Efficiency and People and
their related KPIs provide a clear tool
to measure the delivery of our strategic
priorities; the remaining financial KPIs
are directly impacted by this performance
and are the resulting outcome.
C U S T O M E R
C U S T O M E R L O Y A L T Y
Measure
Net Promoter Score.
Relevance
It is important that we understand the extent to which we meet
our customers’ needs. Net Promoter Score (NPS) measures the
proportion of our customers who think we do an excellent job
against those who think we are average or worse.
Target
Sustainable improvements in the NPS over time.
Performance
In 2016, the NPS score was stable on the high level achieved
in 2015. We see this as a good performance and the Strategic
Priority around the customer should only work to improve this
in the future.
N E T P R O M O T E R S C O R E
63%
16
15
14
13
12
63%
63%
58%
64%
62%
R E A D M O R E A B O U T O U R C U S T O M E R I N I T I A T I V E S
P A G E 2 8
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
35
C U S T O M E R
T E C H N O L O G Y
F L E E T S I Z E A N D C O M P O S I T I O N
Measure
Total power fleet size (in MW), split between engine type
(Diesel, Diesel G3+, Gas, Next Generation Gas (NGG), HFO).
Relevance
Our strategy is to grow ahead of the market. To remain
competitive we need to lower the total cost of energy to our
customers. The best way to do this is through more fuel efficient
engines or alternative sources of energy.
Target
Increasing proportions of our market leading products in fuel
efficiency, the diesel G3+ and Next Generation Gas engine.
Additionally, an increasing proportion of our new medium speed
HFO engine, in line with market demand.
Performance
In 2016, we upgraded 267 diesel sets to the G3+, produced
over 200MW of our Next Generation Gas engine and started
production of our HFO product.
P O W E R F L E E T C O M P O S I T I O N
9,666MW
Diesel
Diesel G3+
Gas
NGG
HFO
R E A D M O R E A B O U T O U R T E C H N O L O G Y I N I T I A T I V E S
P A G E 2 8
C U S T O M E R A C T I V I T Y
Measure
Utility order intake and off-hire rate.
Relevance
The Utility order intake and utilisation rate are influenced by
a wide range of factors but taken in context, they can be an
indicator of how our strategy, sales approach and pricing are
being received in the market. We track new orders won (MWs)
and the off-hire rate, which is the number of MWs that off-hire
during the year, divided by the number of MWs on-hire at the
beginning of the year.
Target
We aim to increase our order intake on an annual basis, subject
to market conditions; our off-hire rate is often outside our control,
however we aim to keep it as low as possible, noting that the
historic average is around 30%.
Performance
During 2016, we had an order intake of over 1GW. While we believe
some of this may be a result of the lower oil price impacting
the affordability of our diesel engines, it also coincides with the
implementation of our business priorities which have focused
on customer, efficiency and technology.
P O W E R S O L U T I O N S U T I L I T Y O R D E R I N T A K E
1,057MW
16
15
14
13
12
P O W E R S O L U T I O N S U T I L I T Y O F F - H I R E R A T E
30%
16
15
14
13
12
1,057
640
757
725
1,029
30%
23%
32%
39%
35%
R E A D M O R E A B O U T O U R C U S T O M E R I N I T I A T I V E S
P A G E 2 8
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36 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
How we performed – our key performance indicators continued
E F F I C I E N C Y
C A P I T A L A C T I V I T Y
P O W E R S O L U T I O N S I N D U S T R I A L U T I L I S A T I O N
Measure
Rental Solutions utilisation; Industrial utilisation; Utility utilisation,
order intake and off-hire rate.
63%
Relevance
We are a capital intensive business and in order to generate
strong returns on our capital investment our fleet needs to be
well utilised. Across our businesses we use physical utilisation as a
metric (average MWs on-hire divided by the total fleet size in MW).
Target
In our Rental Solutions and Power Solutions Industrial
businesses we are targeting utilisation of between 60-70%,
whilst in our Power Solutions Utility business we target over 80%.
Performance
In our Utility business we had a strong order intake, and so ended
2016 very close to our target utilisation levels. The utilisation level
of our diesel fleet in the last quarter of the year was actually at
83%, above our target. Rental Solutions had a difficult year, with
the downturn in oil related sectors in North America impacting
the utilisation level.
16
15
14
13
12
P O W E R S O L U T I O N S U T I L I T Y U T I L I S A T I O N
79%
16
15
14
13
12
R E N T A L S O L U T I O N S U T I L I S A T I O N
52%
16
15
14
13
12
R E A D M O R E A B O U T E F F I C I E N C Y
P A G E 2 9
63%
65%
65%
62%
67%
79%
77%
76%
74%
80%
52%
55%
57%
57%
60%
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
37
K E Y
Metrics that are used for remuneration
P E O P L E
S A F E T Y
E M P L O Y E E S A T I S F A C T I O N
Measure
Lost Time Injury Frequency Rate (LTIFR).
Measure
Employee turnover.
Relevance
Rigorous safety processes are absolutely essential if we are to
avoid accidents or incidents which could cause injury to people
and damage to property and reputation. The main KPI we use to
measure safety performance is Lost Time Injury Frequency Rate
(LTIFR) which takes the number of lost time injuries and divides
by the number of man hours worked. A lost time accident is a
work related injury/illness that results in an employee’s inability
to work the day after the initial injury/illness.
Target
Continued reduction in accident rates.
Performance
During 2016, the LTIFR rate increased. In our investigations we
found the majority of the increase related to manual handling
activities and so we have been working with an external service
provider to develop a company specific manual handling
programme, which should reverse this trend.
L O S T T I M E I N J U R Y F R E Q U E N C Y R A T E
Relevance
It is the attitude, skill and motivation of our people which makes
the difference between mediocre and excellent performance.
We monitor permanent employee turnover as a reasonable
proxy for how employees feel. It is measured as the number of
employees who left the Group (other than through redundancy)
during the period as a proportion of the total average employees
during the period.
Target
We aim to keep permanent employee turnover below historic
levels in order to retain the skill base that we have developed.
Performance
This year employee turnover was 2% lower than the prior year.
E M P L O Y E E T U R N O V E R
9%
0.45
16
15
14
13
12
16
15
14
13
12
0.45
0.39
0.40
0.68
0.94
9%
11%
13%
11%
12%
R E A D M O R E A B O U T O U R P E O P L E
P A G E 2 9
R E A D M O R E A B O U T H E A L T H & S A F E T Y
P A G E 6 6
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38 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
How we performed – our key performance indicators continued
G R O U P F I N A N C I A L P E R F O R M A N C E
R E V E N U E G R O W T H
O P E R A T I N G P R O F I T M A R G I N
Measure
Revenue growth excluding the impact of currency movements
and pass-through fuel.
Measure
Adjusted operating profit margin, i.e. pre-exceptional items and
excluding pass-through fuel.
Relevance
As a business that is exposed to different cycles, we look
at revenue growth over time and compare this to how the
market has performed in order to deliver Shareholder value.
This is calculated as the adjusted revenue growth over the
previous year.
Target
Our medium-term strategy is to grow ahead of our markets.
Relevance
Our business has a large fixed cost base due to our fleet, therefore
strong operating profit margins demonstrate variable cost control
and leverage of the fixed asset base. This is calculated as adjusted
operating profit divided by adjusted revenue.
Target
Our medium-term strategy is for Group operating profit margins
to be around 20%.
Performance
Revenue declined in Utility as a result of the off-hire of a large
contract in Mozambique at the start of 2016, as well as repricing
in our Argentina contracts. In Rental Solutions revenue declined
with the downturn in oil related sectors in North America.
For more details refer to the Performance Management
Statement on page 40.
Performance
The Operating Profit Margin was impacted by the revenue
impacts of Utility off-hires and repricing in Argentina, as
well as lower pricing in oil related sectors in North America.
Refer to Performance Management Statement on page 40.
A D J U S T E D O P E R A T I N G P R O F I T M A R G I N
A D J U S T E D R E V E N U E G R O W T H
(10%)
16
15
14
13
12
16%
16
15
14
13
12
(10)%
(3)%
9%
–
21%
16%
18%
21%
24%
25%
R E A D M O R E A B O U T O U R M A R K E T S
P A G E 1 2
R E A D M O R E A B O U T O U R S T R A T E G Y
P A G E 2 7
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
39
K E Y
Metrics that are used for remuneration
G R O U P F I N A N C I A L P E R F O R M A N C E
R E T U R N O N C A P I T A L E M P L O Y E D
E A R N I N G S P E R S H A R E
Measure
Adjusted return on capital employed (ROCE), i.e. pre-exceptional
items.
Relevance
In a business as capital intensive as Aggreko’s, profitability alone
is not an adequate measure of performance: it is perfectly possible
to be generating good margins, but poor value for Shareholders,
if assets (and in particular, fleet) are being allocated incorrectly.
We calculate ROCE by dividing operating profit pre-exceptional
items for a period by the average of the net operating assets as
at 1 January, 30 June and 31 December.
Target
Our medium-term target is for ROCE to be around 20%.
Performance
Performance is explained in the Performance Management
Statement on page 40.
R E T U R N O N C A P I T A L E M P L O Y E D
Measure
Adjusted EPS, i.e. pre-exceptional items.
Relevance
We believe that EPS, while not perfect, is an accessible measure
of the returns we are generating as a Group for our Shareholders,
and comprises both revenue growth and trading margins.
So, for the Group as a whole, the key measure of short-term
financial performance is diluted EPS, pre-exceptional items.
EPS is calculated based on profit attributable to equity
Shareholders (adjusted to exclude exceptional items) divided
by the diluted weighted average number of Ordinary Shares
ranking for dividend during the relevant period.
Target
Whilst we are exposed to different cycles and EPS varies
accordingly, we aim to grow EPS in line with our strategic aims.
Performance
Performance is explained in the Performance Management
Statement on page 40.
13%
16
15
14
13
12
D I L U T E D E P S
61.95p
16
15
14
13
12
13%
16%
19%
21%
24%
61.95p
71.68p
82.49p
92.03p
100.40p
R E A D M O R E A B O U T O U R O P E R A T I N G A S S E T S
P A G E 4 8
R E A D M O R E A B O U T O U R E A R N I N G S P E R S H A R E
P A G E 1 4 5
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40 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Group performance review
Reported Group revenue was down 3% on prior year with
Rental Solutions up 2% and Power Solutions Industrial and
Utility down 2% and 8% respectively.
Reported revenue and operating profit include the translational
impact of currency as Aggreko’s revenues and profits are earned
in a number of different currencies (most notably the US Dollar)
which are then translated and reported in Sterling. The movement
in exchange rates in the period had the translational impact
of increasing revenue by £122 million and operating profit by
£1 million. This was driven by the strength of the US Dollar against
Sterling partially offset by the weakness of the Argentinian Peso
against Sterling.
In addition, the Group reports separately fuel revenue from
contracts in our Power Solutions Utility business in Brazil and
Mozambique where we manage fuel on a pass-through basis
on behalf of our customers. The reason for the separate reporting
is that fuel revenue on these contracts is entirely dependent
on fuel prices and volumes of fuel consumed, and these can
be volatile and may distort the view of the performance of the
underlying business. In 2016, fuel revenue from these contracts
was £60 million (2015: £60 million) with nil operating profit
(2015: loss of £1 million).
Group revenue excluding the impact of currency movements
and pass-through fuel decreased 10% on the prior year.
Rental Solutions revenue excluding the impact of currency
was down 8% driven by the continued decline in North America
in upstream Oil & Gas and softness in the Petrochemical &
Refining sector from the start of 2016, following a strong 2015.
In Europe and Australia Pacific Rental Solutions grew year on
year. Power Solutions revenue excluding the impact of currency
and pass-through fuel was down 12%. Within this, our Industrial
business revenue decreased 9% primarily due to the comparatives
including revenue from the European Games, excluding this,
revenue was in line with prior year. Power Solutions Utility revenue
was down 13% driven by the off-hire of 173MW of our gas-fuelled
plants in Mozambique at the beginning of the year where
permanent power came online and a reduction in Argentina,
reflecting pricing on contract extensions.
During the year, the Group incurred exceptional costs of
£49 million (2015: £26 million) which are split: Rental Solutions
£40 million (2015: £10 million), Power Solutions Utility £6 million
(2015: £11 million) and Power Solutions Industrial £3 million
(2015: £5 million). £30 million of the charge in Rental Solutions
relates to the impairment of assets used in the Oil & Gas sector
in North America, with the remaining costs across the Group
relating to the focus on our business priorities and are explained
on page 45.
Pre-exceptional items the Group operating margin was 16%
(2015: 18%). Group operating margin post-exceptional items was
13% (2015: 16%). Rental Solutions margin pre-exceptional items
was down eight percentage points (down thirteen percentage
points on a post-exceptional basis) reflecting the decline in
North America referred to above. Power Solutions Industrial
margin on a pre and post-exceptional item basis was down three
percentage points reflecting the incremental benefit from the
European Games in the prior year numbers. Power Solutions Utility
margin was up seven percentage points on a pre-exceptional
items basis (up eight percentage points post-exceptional items)
driven by: higher utilisation; lower indirect tax costs; lower service
material costs and a lower depreciation charge. This lower
depreciation charge related to transformers and switchgear, the
useful lives of which were adjusted as a result of our annual fleet
review (refer to page 48 for more details). Of this margin increase
there were some one-off benefits, notably in indirect tax and
service material costs, with an underlying increase in the margin
of four percentage points.
The lower Group margin as well as an increase in net operating
assets, driven by an increased level of Power Solutions Utility
overdue debt, impacted the Group return on capital employed
(ROCE), which on a pre-exceptional items basis was 13% (2015: 16%).
Group ROCE post-exceptional items was 10% (2015: 15%).
The Group delivered profit before tax and exceptional items
of £221 million (2015: £252 million). Diluted earnings per share
(DEPS) pre-exceptional items was 61.95 pence, 14% lower than
the prior year. Profit before tax and post-exceptional items was
£172 million (2015: £226 million) and diluted earnings per share
post-exceptional items was 48.86 pence (2015: 63.45 pence).
D I V I D E N D S
Reflecting our continued confidence in the strength and
prospects of the business, the Group is proposing to maintain
the final dividend at 17.74 pence per share. Subject to Shareholder
approval this will result in a full year dividend of 27.12 pence
(2015: 27.12 pence) per Ordinary Share; this equates to dividend
cover pre-exceptional items of 2.3 times (2015: 2.6 times).
Dividend cover post-exceptional items is 1.8 times (2015: 2.3 times).
C A S H F L O W A N D B A L A N C E S H E E T
During the year, we generated an operating cash inflow of
£388 million (2015: £461 million). The reduction in operating cash
inflow is mainly driven by working capital outflows of £119 million.
The majority of the working capital outflow is due to an increase
in trade debtors in our Power Solutions Utility business and
inventory relating to the production of our medium speed HFO
and gas products (this movement is explained in more detail
in the Financial Review on page 48). Fleet capital expenditure
was £241 million (2015: £237 million), of which £46 million was
invested in our next generation gas fleet, £15 million in our new
HFO product and £51 million to continue the refurbishment
programme of our diesel fleet to the more fuel efficient, higher
output G3+ engine, which now makes up around 25% of the
Power Solutions Utility diesel fleet.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
41
Net debt was £649 million at 31 December 2016, £160 million
higher than the prior year. £114 million of this movement relates
to currency movements, notably the weakening of Sterling against
the US Dollar. The increase excluding currency of £46 million
(2015: £23 million decrease) was driven by cash flow from operating
activities in the year of £388 million (2015: £461 million), capital
expenditure of £263 million (2015: £254 million), the acquisition of
DRYCO of £22 million (2015: acquisition of ICS £18 million), ordinary
dividend payments of £69 million (2015: £69 million) as well as
proceeds from sale of property, plant and equipment, purchase
of shares, interest and tax payments. This resulted in net debt to
EBITDA of 1.2 times compared to 0.9 times at December 2015,
with the majority of the year on year movement relating to foreign
exchange translation.
O U T L O O K
In Rental Solutions, our North American business is showing signs
of stabilisation after a difficult 2016. Most sectors are up on the
prior year to date and the higher oil price is giving ground for
cautious optimism. We expect our Europe and Australia Pacific
businesses to continue to perform well throughout 2017.
B U S I N E S S U N I T P E R F O R M A N C E R E V I E W
R E N T A L S O L U T I O N S
In Power Solutions, the Industrial business is expected to
perform well, driven by two of our largest businesses, the
Middle East and Eurasia.
In Power Solutions Utility, the pipeline remains healthy and
is well spread geographically, although at this early stage in
the year the order intake has been lower than in the prior year.
Results in this division will also reflect the material impact of
pricing renegotiations in Argentina, our last legacy contract.
Fleet capital expenditure is expected to be £300 million, with
investments in HFO and in our more fuel efficient diesel engines.
As usual, this spend will be flexed as required depending on
market conditions.
We expect to see growth across the Group, augmented by
incremental annualised cost savings of £25 million from the
second half (with a similar one off charge). However, this will be
more than offset by the significant impact of Argentina and as
a result we expect full year profit before tax and pre-exceptional
items to be lower than last year.
Revenue
Operating Profit
Pre-exceptional items £ million
Operating margin pre-exceptional items
2016
629
2015
618
Post-exceptional items £ million
629
618
Operating margin post exceptional items
Change
excl.
currency
(8)%
(8)%
Change
2%
2%
Change
excl.
currency
(55)%
Change
(50)%
(88)%
(89)%
2016
52
8%
12
2%
2015
102
16%
92
15%
Our Rental Solutions business had a challenging year with revenue
excluding the impact of currency down 8% on the prior year and
operating profit (excluding exceptional items) declining by 55%.
The decline in operating profit relative to the decline in revenue is
primarily due to rate pressure in the North American Oil & Gas
and Petrochemical & Refining sectors driven by the lower oil
price. Pricing in these sectors was down by around 30% and 8%
respectively, which despite us taking action to reduce our cost
base had a significant impact on the margins of this business.
Rental revenue excluding the impact of currency decreased
by 9% and services revenue decreased by 5%. Within rental
revenue, power decreased by 16% and oil free air was down
12%. Offsetting this, we saw good growth in temperature control
with revenue up 7% including the acquisitions of ICS in 2015 and
DRYCO in 2016, as well as good base business growth of 4%.
Revenue in our North American business excluding currency was
down 18%. The decline that affected us from quarter two 2015 in
upstream Oil & Gas continued through 2016 in the shale basins,
offshore Gulf of Mexico and the Canadian Oil Sands. We continue
to service all these markets and see an ongoing market
opportunity especially if the oil price stabilises at current relatively
higher levels. The team continues to identify opportunities to
balance utilisation and pricing in this changing environment,
however the utilisation of the specialist equipment that we use
in the shale basins remains at sub-optimal levels. As a result we
have reviewed the carrying value of these small gas generators
and have taken an impairment charge of £30 million (more details
are included in the Financial Review on page 45). In addition, we
have taken the recent decision to close three depots and further
reduce headcount to right size our Oil & Gas cost base which will
generate savings of £2.5 million. Our Petrochemical & Refining
sector also had a weak year with revenues declining 18%, following
a strong year of 25% growth in 2015.
In our Australia Pacific business, revenue excluding currency
increased 11% driven by a four-month 108MW emergency
response contract in Tasmania. The business also secured a
20MW contract for two years in South Australia and deployed
21MW of gas engines to the Granny Smith goldmine in April 2016,
for a 10-year contract.
Across Europe, nearly all countries grew year-on-year despite the
lower oil price having an impact on our businesses in Scotland
and the Nordics. Our Continental European business saw revenue
excluding currency increasing 5% aided by good growth in France
and the Netherlands. The Northern European business also saw
growth with revenue excluding currency increasing 9%, driven
by the construction and telecoms sectors.
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42 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Group performance review continued
P O W E R S O L U T I O N S
Revenue
Operating Profit
Pre-exceptional items £ million
Industrial
Utility excl. pass-through fuel
Pass-through fuel
Total Power Solutions
2016
262
564
60
886
2015
Change
267
616
60
943
(2)%
(9)%
–%
(6)%
Operating margin
Industrial
Utility excl. pass-through fuel
Total Power Solutions excl. pass-through fuel
Change
excl.
pass-
through
fuel and
currency
(9)%
(13)%
(10)%
(12)%
2016
2015
Change
32
164
–
196
12%
29%
24%
41
133
(1)
173
(21)%
23%
100%
14%
15%
22%
20%
Revenue
Operating Profit
Post-exceptional items £ million
Industrial
Utility excl. pass-through fuel
Pass-through fuel
Total Power Solutions
2016
262
564
60
886
2015
Change
267
616
60
943
(2)%
(9)%
–%
(6)%
Operating margin
Industrial
Utility excl. pass-through fuel
Total Power Solutions excl. pass-through fuel
Change
excl.
pass-
through
fuel and
currency
(9)%
(13)%
(10)%
(12)%
2016
2015
Change
29
158
–
187
11%
28%
23%
36
122
(1)
157
(21)%
31%
100%
20%
14%
20%
18%
Change
excl.
pass-
through
fuel and
currency
(28)%
37%
100%
20%
Change
excl.
pass-
through
fuel and
currency
(28)%
49%
100%
28%
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
43
Overall, our Power Solutions business saw revenue excluding
pass-through fuel and currency decline by 12% and on the same
basis operating profit pre-exceptional items increase by 20%.
Revenue in our Industrial business excluding currency decreased
by 9% and operating profit pre-exceptional items by 28%.
Operating margin pre-exceptional items was 12% (2015: 15%) with
2015 benefiting from the European Games. Our Utility business
saw revenue excluding the impact of currency and pass-through
fuel decreasing 13% and operating profit on the same basis
and excluding exceptional items up 37%. Operating margin
pre-exceptional items was seven percentage points higher at
29% (2015: 22%).
Revenue excluding the impact of currency in our Industrial
business unit decreased 9% with rental revenue down 7% and
services revenue down 15%. The comparatives included revenue
from the European Games, excluding this, revenue was in line
with the prior year. On a geographic basis we continued to see
growth in Eurasia and Africa and a steady performance in the
Middle East. In Eurasia we saw growth across both the diesel and
gas markets, with strong order intake in gas. Order intake across
Eurasia in 2016 was 299MW (2015: 125MW). Our revenues in the
Middle East were down in Qatar, Saudi Arabia and the UAE largely
offset by good growth in Bahrain and Oman. These performances
were offset by more difficult trading conditions in Asia and Latin
America, in particular Singapore, Brazil and Chile. Since we began
implementing our business priorities we have closed five depots in
Latin America, with a further six locations downsized. In addition,
we have reduced headcount and the fleet size. Despite the action
we have already taken excluding the European Games margins
have remained static since 2014 and we are continuing to look
at the infrastructure to support this business as we explain in the
update of our business priorities on pages 27 to 31.
Our Utility business saw revenue excluding currency and pass-
through fuel decrease by 13% driven by the off-hire of 173MW
of our gas-fuelled plants in Mozambique at the beginning
of the year and a reduction in pricing in Argentina following
contract extensions. Operating margin pre-exceptional items
increased to 29% (2015: 22%) driven by higher utilisation, lower
indirect tax costs, lower service material costs and a lower
depreciation charge, related to transformers and switchgear,
the useful lives of which were adjusted as a result of our annual
fleet review (refer to page 48 for more details). Operating margin
post-exceptional items was 28% (2015: 20%).
Order intake for the year was 1,057MW (2015: 640MW)
with contracts signed at terms consistent with our Group
medium-term return targets of around 20%. New business
included 200MW in Zimbabwe, 357MW in Brazil, 100MW in
Benin, 40MW in the Bahamas and 30MW in Mali. At the year
end, our order book was over 67,000MW months, the equivalent
of 22 months’ revenue at the current run-rate (2015: 14 months).
The increase reflects the 15-year duration of 143MW of the Brazilian
contract wins. The off-hire rate for the year was 30% (2015: 24%)
driven by the Mozambique off-hire.
Our largest utility contracts are in Argentina where we have
been operating since 2008. These are the last significant legacy
contracts, signed at a time when the industry dynamics were
different and the risk of operating in Argentina was higher
including strict foreign exchange controls and bond defaults.
There are two types of contracts in our market: fixed sites
and standby sites. 174MW of fixed site contracts have recently
been extended to the end of 2017. The price for extensions
is a material reduction against the original contract prices.
We currently have 214MW of standby contracts that have been
extended until February and March 2017 and in due course,
we would expect these to off-hire.
In addition, the customer has recently run a tender for 200MW
of standby volume, which we understand will replace all
standby volumes currently in the market. This tender replaces
an abandoned process in November 2016 at which point all
competitors’ pricing was disclosed making the current process
very competitive.
The overall Utility debtor book is discussed on page 48,
however the most challenging payment situation in 2016 has
been in Venezuela given its dependency on oil export revenues.
However, discussions with both our customers (PDVSA and
Corpoelec) are regular and constructive and latterly we have
received significant payments from both customers in December
and January and converted $19 million of the PDVSA overdue
balance into a debt instrument (more details are contained in
Note 17 to the Accounts).
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44 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Financial review
A summarised Income Statement for 2016 as well as related ratios
are set out below. The first table excludes exceptional items and
the second table includes exceptional items.
Movement
pre-exceptional items
Change
excl.
pass-
through
fuel and
currency
(10)%
(11)%
2016
pre-
exceptional
items
£m
2015
pre-
exceptional
items
£m
1,515
248
(27)
221
(63)
158
1,561
275
(23)
252
(69)
183
Change
(3)%
(10)%
(17)%
(12)%
8%
(13)%
61.95
71.68
(14)%
16%
13%
18%
16%
(2)pp
(3)pp
Revenues
Operating profit
Net
interest expense
Profit before tax
Taxation
Profit after tax
Diluted earnings
per share
(pence)
Operating
margin
ROCE
C U R R E N C Y T R A N S L A T I O N
The movement in exchange rates in the period had the
translational impact of increasing revenue by £122 million and
operating profit by £1 million. This was driven by the strength of the
US Dollar against Sterling partially offset by the weakness of the
Argentinian Peso against Sterling. Currency translation also gave
rise to a £220 million increase in the value of net assets as a result
of year on year movements in the exchange rates. Set out in the
table below are the principal exchange rates which affected the
Group’s profits and net assets.
(per £ Sterling)
Average
Year end
Average
Year end
2016
2015
Principal Exchange Rates
United States
Dollar
Euro
UAE Dirhams
Australian Dollar
Brazilian Reals
Argentinian
Peso
Russian Rouble
(Source: Bloomberg)
1.36
1.22
4.98
1.83
4.74
20.00
91.04
1.23
1.17
4.53
1.71
4.01
19.61
75.23
1.53
1.38
5.61
2.03
5.10
14.17
93.52
1.48
1.36
5.44
2.03
5.87
19.18
109.42
Movement
post-exceptional items
Change
excl.
pass-
through
fuel and
currency
(10)%
(21)%
2016
post-
exceptional
items
£m
2015
post-
exceptional
items
£m
1,515
199
(27)
172
(47)
125
1,561
249
(23)
226
(64)
162
Change
(3)%
(20)%
(17)%
(24)%
25%
(23)%
48.86
63.45
(23)%
13%
10%
16%
15%
(3)pp
(5)pp
Revenues
Operating profit
Net
interest expense
Profit before tax
Taxation
Profit after tax
Diluted earnings
per share
(pence)
Operating
margin
ROCE
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
45
R E C O N C I L I A T I O N O F A D J U S T E D M O V E M E N T T O R E P O R T E D M O V E M E N T
The tables below reconcile the reported and adjusted revenue and operating profit movements:
2016
£m
624
(60)
–
564
2016
£m
158
–
–
6
R E V E N U E
2016
£m
629
–
–
629
As reported
Pass-through fuel
Currency impact
Adjusted
O P E R A T I N G P R O F I T
RS
2015
£m
Change
%
2%
618
–
64
682
PSI
PSU
Group
2016
£m
262
–
–
2015
£m
Change
%
267
(2)%
–
21
2015
£m
Change
%
(8)%
676
(60)
37
653
2016
£m
1,515
(60)
–
2015
£m
Change
%
1,561
(3)%
(60)
122
(8)%
262
288
(9)%
(13)%
1,455
1,623
(10)%
RS
PSI
PSU
Group
As reported
Pass-through fuel
Currency impact
Exceptional items
Adjusted
2016
£m
2015
£m
Change
%
12
–
–
40
52
92
–
12
10
114
(88)%
(55)%
2016
£m
29
2015
£m
Change
%
36
(21)%
–
–
3
32
–
3
5
44
(28)%
164
2015
£m
Change
%
121
1
(14)
11
119
33%
37%
2016
£m
199
–
–
49
248
2015
£m
Change
%
249
(20)%
1
1
26
277
(11)%
Note (i) RS – Rental Solutions; PSI – Power Solutions Industrial; PSU – Power Solutions Utility.
Note (ii) the currency impact is calculated by taking 2015 numbers in local currency and retranslating them at 2016 average rates.
E X C E P T I O N A L I T E M S
T A X A T I O N
The definition of exceptional items is contained within Note 1
of the Accounts. An exceptional charge of £19 million before tax
was recorded in the year to 31 December 2016 in respect of the
Group’s business priorities implementation. These costs include
employment costs, professional fees, severance costs and facility
closure costs directly related to the implementation.
Given the continued decline in the Oil & Gas sector in
North America management reviewed the carrying value
of small gas generators used in the Oil & Gas market.
These generators are used only in North America. In assessing
the impairment management determined the recoverable
amount of the assets, and compared this to the carrying amount.
The future cash flows were estimated based on the most up
to date business forecast including assumptions around rates,
utilisation, costs and discounted using discount rates that
reflected current market assessments. As a result of this an
impairment charge of £30 million before tax was recorded in
the year to 31 December 2016. This represents a small percentage
(3%) of the net book value of the total rental fleet.
I N T E R E S T
The net interest charge of £27 million was £4 million higher than
last year reflecting higher average net debt year on year including
the impact of the weakening of Sterling against the Dollar with
over 70% of our debt being Dollar denominated to match the
profile of our earnings. Interest cover, measured against rolling
12-month EBITDA (Earnings Before Interest, Taxes, Depreciation
and Amortisation), remained strong at 20 times (2015: 24 times)
relative to the financial covenant attached to our borrowing
facilities that EBITDA should be no less than four times interest.
Tax Strategy
We operate in an increasingly complex global environment, doing
business in around 100 countries, many of which have uncertain
or volatile tax regimes. To ensure that our tax affairs are correctly
and consistently managed, Aggreko’s tax strategy is applied to all
taxes, both direct and indirect in all countries in which we operate.
Whilst our current tax strategy has been in place for a number of
years, it is reviewed and revalidated annually and would be revised
as appropriate to reflect any material changes within the Group
or in tax legislation.
Our strategy is to ensure that we pay, in a timely manner, the
appropriate amount of tax commensurate with the activities
performed in each country in which we operate.
In particular, we recognise the importance of the tax we pay to
the economic development of the countries in which we operate.
We aim to be transparent in terms of the geographic spread of
where we pay tax with a breakdown provided in figures 1-3 below.
In applying the strategy, we undertake to comply with the
applicable tax legislation in all countries in which we operate
and, where appropriate, we will seek to utilise any available
legislative reliefs.
O U R A P P R O A C H T O W A R D S D E A L I N G W I T H
T A X A U T H O R I T I E S
We seek to build good working relationships with local tax
authorities based on trust, respect and professionalism. We will
proactively engage, either directly or through local advisers, with
the authorities to ensure that our business and tax positions are
understood and to confirm our tax positions in a timely manner.
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46 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Financial review continued
T A X G O V E R N A N C E
Our tax governance framework is encompassed within a set of
documented policies and procedures covering the application of
the strategy and operational aspects of tax. Ultimate responsibility
for tax risk and tax operations rests with our Chief Financial Officer
with day-to-day responsibility delegated to the Director of Tax
and the tax function. To ensure that we fully understand our tax
obligations and keep up to date with changing legislation and
practice, advisory and technical support is provided by large
accounting firms with which the Group has a long association.
The use of our auditors for advisory work is not permitted.
A P P R O A C H T O T A X R I S K
The Group’s appetite for risk, including tax risk is reviewed
regularly by the Group Risk Committee and is ratified annually
by the Board. Given the risk profile of many countries in which we
operate, we seek to structure our tax affairs in a way that has a low
degree of risk. Only the Director of Tax is permitted to consider
any tax planning opportunities and permission to implement any
planning must be obtained from the Board or Finance Committee
as appropriate. We do not actively seek to implement any tax
planning that is not driven by commercial aims or where the
sole aim is to deliver tax benefit.
T A X M A N A G E M E N T A N D P R O V I S I O N I N G
Given the complex, uncertain and often volatile nature of the
tax environment in many of the countries in which we operate,
local compliance and governance is a key area of focus. This is
particularly so for our Power Solutions business, where we may
only be in a country for a temporary period. While we will always
seek to manage our tax affairs to agree and confirm our tax
positions in a timely manner, it can often take some time to
settle our tax position and uncertainties may exist with respect
to complex or changing legislation. We may therefore need to
create tax provisions for any potential uncertain or contentious tax
positions. These provisions are based on reasonable estimates of
the possible outcomes and management then uses its judgement
to determine the appropriate level of provision taking into account
that differences of interpretation may arise depending on a
number of different factors.
As at 31 December 2016, we had tax provisions totalling £39 million
of which £37 million is in respect of direct taxes and £2 million for
indirect taxes (2015: £61 million, £48 million for direct and £13 million
for indirect taxes). The reduction in provisions between 2015 and
2016 is as a result of closing out historic exposures in the Middle East,
settling a tax technical dispute in the UK and settling our tax affairs
for 2014 and 2015 in Indonesia under a tax amnesty. The remaining
provisions are principally held to manage the tax impact of
potential historic tax exposures largely in connection with long
running contracts in Africa, an ongoing dispute in Asia following
a change in interpretation of legislation and potential transfer
pricing risks faced by the Group on challenges from various tax
authorities as to the basis on which we transact internationally
across the Group. In order to ensure that all potential risks are
properly understood and mitigated, we ensure that our local
tax filings are made on a timely basis, appropriate advice is taken
and that we proactively work with local tax authorities when
issues arise.
The risk that the application of management judgements and
estimates in our tax forecasting fails to represent a true and fair
view of our tax position is an area that receives significant focus
from management, tax advisers and the external auditors. In order
to mitigate this, our tax position is internally reviewed four times
per year by the Group tax team and any unanticipated variances
to the forecast are reconciled and explained. The tax position of
the legal entity that contracts the majority of the Power Solutions
work and so contributes the largest proportion of our tax charge
is reviewed monthly. In addition to the work done by our external
auditors to confirm the appropriateness of our tax provisioning,
tax is a matter that is regularly considered and discussed by
the Audit Committee. Our Internal Audit team also periodically
reviews management’s assessment on the effectiveness of tax
controls defined on the Group risk register and will also consider
any relevant tax risks through their location based core assurance
programme and report these to management as appropriate.
L E G I S L A T I V E C H A N G E
Through the course of 2016 we continued to closely monitor
developments in the OECD’s work on Base Erosion and Profit
Shifting (‘BEPS’) and Country-By-Country Reporting (‘CBCR’).
We do not expect that any of our tax arrangements should be
materially impacted by any legislative changes arising from the
BEPS recommendations. The benefit previously derived from
our US financing arrangements is reduced as a result of this,
however the small impact on our ETR is offset by other changes
in our profit mix. We do however recognise that the interpretation
of new legislation can be subjective in the period immediately
following implementation and we will therefore continue to
follow developments in this area.
We are closely following developments arising as a result of the
UK’s decision to leave the EU. Our review work undertaken so far,
shows that Brexit will have little impact for our business and we
will continue to monitor both of these areas.
Taxes Paid
In 2016, Aggreko’s worldwide operations resulted in direct and
indirect taxes of £215 million (2015: £217 million1) being paid to tax
authorities in the various countries where we operate. This amount
represents all corporate taxes paid on operations, payroll taxes
paid and collected, import duties, sales taxes and other local taxes.
F I G U R E 1 :
T O T A L T A X E S P A I D B Y R E G I O N (£M)
80
70
60
50
40
30
20
10
0
1 2015 amounts have been restated to include VAT and payroll taxes collected
in North America.
Africa
Asia
Australia
Pacific
Europe
Latin
America
Middle
East
North
America
2016
2015
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
47
F I G U R E 2 :
T O T A L C O R P O R A T E T A X E S P A I D
A N D C O L L E C T E D B Y R E G I O N (£M)
30
25
20
15
10
5
0
-5
Africa
Asia
Australia
Pacific
Europe
Latin
America
Middle
East
North
America
2016
2015
As a result of a reduction in post-exceptional profit before taxation
(PBT) from £226 million to £172 million corporate taxes paid in 2016
decreased by £27 million to £64 million. In addition to the overall
reduction in PBT driving down corporate tax paid, the movement
is also driven by one off cash tax payments in Africa in 2015 that
did not repeat in 2016; the inclusion of WHT paid in Asia included
in 2016 for the first time as confirmation of payment was received
and the reduction in North America principally driven by a large
tax refund that was received following retrospectively enacted
legislation extending the accelerated tax depreciation regime.
F I G U R E 3 :
T O T A L I N D I R E C T T A X E S P A I D
A N D C O L L E C T E D B Y R E G I O N (£M)
50
45
40
35
30
25
20
15
10
5
0
Africa
Asia
Australia
Pacific
Europe
Latin
America
Middle
East
North
America
2016
2015
Overall our indirect tax costs have increased by £25 million
to £151 million paid in 2016. The main contributors to the
increase were currency controls in Mozambique which delayed
VAT refunds due resulting in an increase in Africa; the level of
VAT refunded to us in the UK reduced due to lower level of
purchasing at our manufacturing plant and increased sales tax
payments in Argentina as a result of signing new contracts with
YPF and as a result of the weakening Peso.
Tax Charge
The Group’s pre-exceptional effective corporation tax rate
for the year was 28% (2015: 27% pre-exceptional items) based
on a tax charge of £63 million (2015: £69 million pre-exceptional
items) on a pre-exceptional profit before taxation of £221 million
(2015: £252 million pre-exceptional items).
Further information, including a tax reconciliation of the
current year tax charge, is shown at Note 10 in the Annual Report
and Accounts.
Looking beyond 2016, the effective tax rate will depend principally
on whether there are any changes in tax legislation in the Group’s
most significant countries of operation, the geographical mix of
profits and the resolution of open issues.
Reconciliation of Income statement tax charge and cash tax paid
The Group’s total cash taxes borne and collected were £215 million,
reflecting £151 million of non-corporate taxes and £64 million
of corporate taxes. The latter cash tax figure differs from the
post-exceptional tax charge reported in the income statement of
£47 million by £17 million with the two figures reconciled below:
Cash taxes paid
Non-corporate taxes
Corporate tax paid
Movements in deferred tax
Differences relating to timing of tax payments – US
Differences relating to timing of tax payments – Argentina
Other differences relating to timing of payment of taxes
Post-exceptional corporate tax charge
per income statement
£ million
215
(151)
64
(20)
13
(6)
(4)
47
C A P I T A L S T R U C T U R E & D I V I D E N D S
The objective of Aggreko’s strategy is to deliver long-term value to
Shareholders whilst maintaining a balance sheet structure that
safeguards the Group’s financial position through economic cycles.
Given the risk profile of the Group we believe gearing of around
one times net debt to EBITDA is appropriate, recognising from
time to time it may be higher for a period of time as investment
opportunities present themselves. From a capital allocation
perspective our priority is to invest in organic growth. As well as
investing organically, there are opportunities for growth through
acquisition, both for scale and capability including adjacencies
such as temperature control and loadbanks. Acquisitions are
subject to our disciplined capital allocation process and will have
to meet appropriate hurdle rates of return. Whilst the priorities are
investment to generate growth we recognise the importance of
maintaining the dividend. Finally, as and when the opportunity
arises, we will look at returning surplus capital to Shareholders.
The retained earnings of the Company as at 31 December 2016 are
£428 million and the majority of these earnings are distributable.
Subject to Shareholder approval, the proposed final dividend
of 17.74 pence will result in a full year dividend of 27.12 pence
(2015: 27.12 pence) per Ordinary Share, giving dividend cover (Basic
EPS pre-exceptional items divided by full year declared dividend)
of 2.3 times (2015: 2.6 times). Dividend cover post-exceptional items
is 1.8 times (2015: 2.3 times).
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48 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Financial review continued
C A S H F L O W
The net cash inflow from operations during the year totalled
£388 million (2015: £461 million). The reduction in cash inflow
from operations was mainly driven by a working capital outflow of
£119 million as explained below. This funded capital expenditure
of £263 million (2015: £254 million). Of the £263 million, £241 million
(2015: £237 million) was spent on fleet of which £46 million was
invested in our next generation gas fleet, £15 million in our new
HFO product and £51 million to refurbish our diesel fleet to the
more fuel efficient, higher output G3+ engine.
Net debt was £649 million at 31 December 2016, £160 million
higher than the prior year, £114 million of which was translational
driven by the devaluation of Sterling against the US Dollar.
This resulted in net debt to EBITDA of 1.2 times compared to
0.9 times at December 2015, with the impact of currency being
the main driver of the increase, and in line with our stated target
range of around one times.
The £119 million working capital outflow in the year
(2015: £80 million outflow) was made up of increases in trade
and other receivables of £81 million and in inventory of £21 million,
and a decrease in trade and other payables of £17 million.
Inventory increased because of the timing of next generation
gas and HFO engine purchases.
The main driver of the increase in trade and other receivables is
our Power Solutions Utility business, where debtor days increased
to 150 days (2015: 123 days) although they have improved on the
position at the time of the Interim results (June 2016: 164 days).
This increase in debtor days from 2015 is driven by Corpoelec
in Venezuela and a handful of debtors in Africa that are taking
longer than we would like to clear, although none of the
customers dispute the debt and we were pleased to have
received a payment post year end from Corpoelec.
The Power Solutions Utility bad debt provision at 31 December
2016 was $63 million. This was $71 million at December 2015,
however, this balance included $11 million relating to one of our
customers in Venezuela (PDVSA) where we have signed $19 million
of private placement notes that are now required to be disclosed
under other receivables rather than trade receivables (this is
explained in Note 17 of the accounts).
N E T O P E R A T I N G A S S E T S
The net operating assets of the Group (including goodwill) at
31 December 2016 totalled £2,124 million, £417 million higher than
2015. Excluding the impact of currency net operating assets are
£77 million higher. The main components of net operating assets
are detailed in the table below.
2015 Movement
£ million
Rental fleet
Property & plant
Inventory
Net trade
debtors
2016
1,203
106
247
1,049
90
189
454
320
Movement
excl. the
impact of
currency
(5)%
2%
10%
20%
15%
17%
30%
42%
A key measure of Aggreko’s performance is the return (expressed
as adjusted operating profit) generated from average net
operating assets (ROCE). In 2016, the ROCE decreased to 13%
compared with 16% in 2015. Excluding the impact of currency
ROCE decreased circa 2 percentage points driven by an increase
in operating assets and a reduction in operating margin.
P R O P E R T Y , P L A N T A N D E Q U I P M E N T
Rental fleet accounts for £1,203 million, or around 92%, of the
net book value of property, plant and equipment used in our
business. The great majority of equipment in the rental fleet is
depreciated on a straight-line basis to a residual value of zero over
eight years, with some classes of ancillary rental fleet depreciated
over 10 and 12 years. The annual fleet depreciation charge of
£261 million (2015: £259 million) relates to the estimated service
lives allocated to each class of fleet asset. Asset lives are reviewed
at the start of each year and changed if necessary to reflect
current thinking amongst other things on their remaining lives
in light of technological change, prospective economic utilisation
and the physical condition of the assets. During this year’s review,
the depreciation life for transformers/switchgears was increased
to 12 years from eight years to reflect external views on the useful
life of these assets, equipment testing carried out internally and
our experience to date. This lowered depreciation by £12 million
in the year to 31 December 2016 compared to 2015.
A C Q U I S I T I O N O F D R Y C O L L C
On 9 September 2016, the Group acquired substantially all of the
trade and assets used in connection with DRYCO LLC, a specialist
in moisture control, drying, heating and cooling applications
within the shipping, manufacturing, food processing, construction
and industrial painting industries in North America. The total
consideration was £22 million.
S H A R E H O L D E R S ’ E Q U I T Y
Shareholders’ equity increased by £253 million to £1,368 million,
represented by the net assets of the Group of £2,017 million before
net debt of £649 million. The movements in Shareholders’ equity
are analysed in the table below:
Movements in Shareholders’ equity
£ million
£ million
As at 1 January 2016
Profit for the financial year
post-exceptional items
Dividend2
Retained earnings
Employee share awards
Purchase of treasury shares
Re-measurement of retirement benefits
Currency translation
Movement in hedging reserve
Other
As at 31 December 2016
125
(69)
1,115
56
8
(8)
(29)
220
1
5
1,368
2 Reflects the final dividend for 2015 of 17.74 pence per share (2015: 17.74 pence) and
the interim dividend for 2016 of 9.38 pence per share (2015: 9.38 pence) that were
paid during the year.
Post-tax profit (pre-exceptional items) of £158 million in the year
represents a return of 12% on Shareholders’ equity (2015: 16%)
which compares to an estimated Group weighted average cost
of capital of 9%. Return post-exceptional items is 9% (2015: 14%).
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
49
P E N S I O N S
Pension arrangements for our employees vary depending on
best practice and regulation in each country. The Group operates
a defined benefit scheme for UK employees, which was closed
to new employees joining the Group after 1 April 2002. Most of
the other schemes in operation around the world are varieties
of defined contribution schemes.
Under IAS 19: ‘Employee Benefits’, Aggreko has recognised
a pre-tax pension deficit of £30 million at 31 December 2016
(2015: £2 million) which is determined using actuarial assumptions.
The increase in the pension deficit is primarily driven by a
decrease in corporate bond yields resulting in a lower discount
rate which has increased the value placed on the liabilities of the
scheme compounded by an increase in inflation expectations.
Although the deficit has increased it still only represents 2% of
net assets.
The main assumptions used in the IAS 19 valuation for the previous
two years are shown in Note 30 of the Annual Report & Accounts.
The sensitivities regarding these assumptions are shown in the
table below.
Liquidity and funding
The Group maintains sufficient facilities to meet its funding
requirements over the medium term. At 31 December 2016,
these facilities totalled £1,035 million in the form of committed
bank facilities arranged on a bilateral basis with a number of
international banks and private placement lenders. The financial
covenants attached to these facilities are that EBITDA should be
no less than four times interest and net debt should be no more
than three times EBITDA; at 31 December 2016, these stood at
20 times and 1.2 times respectively. The Group does not expect
to breach these covenants in the year from the date of approval
of these financial statements.
The Group expects to be able to arrange sufficient finance to meet
its future funding requirements. It has been the Group’s custom
and practice to refinance its facilities in advance of their maturity
dates, providing that there is an ongoing need for those facilities.
Net debt amounted to £649 million at 31 December 2016
(2015: £489 million) and, at that date, undrawn committed facilities
were £402 million. The maturity profile of the borrowings is
detailed in Note 18 in the Annual Report & Accounts.
Increase/
(decrease)
0.5%
(0.5)%
0.5%
1 year
Assumption
Rate of increase
in salaries
Discount rate
Inflation (0.5%
increases
on pensions
increases,
deferred
revaluation and
salary increases)
Longevity
T R E A S U R Y
Deficit
(£m)
Income
statement cost
(£m)
Change
Change
Interest rate risk
The Group’s policy is to manage the exposure to interest rates
by ensuring an appropriate balance of fixed and floating rates.
At 31 December 2016, £385 million of the net debt of £649 million
was at fixed rates of interest resulting in a fixed to floating rate net
debt ratio of 59:41 (2015: 66:34).
(2)
(21)
(20)
(5)
–
(1)
Foreign exchange risk
The Group is subject to currency exposure on the translation into
Sterling of its net investments in overseas subsidiaries. In order to
reduce the currency risk arising, the Group uses direct borrowings
in the same currency as those investments. Group borrowings are
predominantly drawn down in the currencies used by the Group,
namely US Dollar, Euros, Canadian Dollar, Mexican Peso, Brazilian
Reals and Russian Rouble.
(1)
–
The Group manages its currency flows to minimise foreign
exchange risk arising on transactions denominated in foreign
currencies and uses forward contracts and forward currency
options, where appropriate, in order to hedge net currency flows.
The Group’s operations expose it to a variety of financial risks
that include liquidity, the effects of changes in foreign currency
exchange rates, interest rates, and credit risk. The Group has a
centralised treasury operation whose primary role is to ensure
that adequate liquidity is available to meet the Group’s funding
requirements as they arise, and that financial risk arising from
the Group’s underlying operations is effectively identified
and managed.
The treasury operations are conducted in accordance with
policies and procedures approved by the Board and are reviewed
annually. Financial instruments are only executed for hedging
purposes, and transactions that are speculative in nature are
expressly forbidden. Monthly reports are provided to senior
management and treasury operations are subject to periodic
internal and external review.
Credit risk
Cash deposits and other financial instruments give rise to credit
risk on amounts due from counterparties. The Group manages
this risk by limiting the aggregate amounts and their duration
depending on external credit ratings of the relevant counterparty.
In the case of financial assets exposed to credit risk, the carrying
amount in the balance sheet, net of any applicable provision for
loss, represents the amount exposed to credit risk.
Insurance
The Group operates a policy of buying cover against the material
risks which the business faces, where it is possible to purchase
such cover on reasonable terms. Where this is not possible, or
where the risks would not have a material impact on the Group
as a whole, we self-insure.
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50 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
T H E P O W E R T O H E L P
rocket
testing
D A R Y L P O O L / M A N A G E R , T E C H N I C A L S E R V I C E S
I’m used to variety as an Aggreko engineer but
this was probably my biggest challenge to date.
We used 400 tonnes of chillers, six air handlers
and a warehouse that moved on rails to cool
a 235-foot rocket to 33 degrees Fahrenheit.
This meant NASA could test the rocket in low
temperatures and make sure it was ready
to launch whatever the weather.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
51
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52 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Risk factors that could affect business performance
Risks
The Group recognises the importance
of identifying and actively managing the
financial and non-financial risks facing
the business. We want our people to feel
empowered to take advantage of attractive
opportunities, yet we want them to do so
within the risk appetite set by the Board.
It is important that we have in place a robust,
repeatable risk management framework
to facilitate this.
A P P R O A C H T O M A N A G I N G R I S K
Following on from the work completed in 2015 to revise
and refresh our approach to risk management, this year we
have focused on embedding the improved process. Our risk
management framework delivers an effective and efficient
approach to the management of risk, whilst making a positive
contribution to effective decision-making and business growth.
The Group’s Register of Principal Risks is the foundation
upon which the Group’s risk management process is built.
This is compiled based upon registers of principal risks held
within our two Business Units and our Central Functions.
A Group Risk function has been established to facilitate the
effective and consistent implementation of the risk framework
and a Group Risk Committee was established during the year.
The Group’s risk appetite has been reviewed and refreshed by the
Group Risk Committee during 2016 and approved by the Board.
We continue to monitor management of risk against this appetite
and will review our risk appetite annually.
R E A D M O R E A B O U T O U R A P P R O A C H T O M A N A G I N G R I S K ,
R O L E S A N D R E S P O N S I B I L I T I E S
P A G E S 5 5 T O 6 0
R I S K A P P E T I T E
The Group has financial targets in place and is focused on growing
the business; we are willing to accept higher levels of risk where
we deem the likelihood of success to be achievable and the level
of reward commensurate but within clear boundaries as set by
the Executive and approved by the Board.
Risk appetite has been articulated for each of the risk categories
in the Risk Categorisation Model and has been communicated
to management to guide the consideration as to whether further
risk mitigation activities are required for specific risks identified.
F O C U S D U R I N G T H E Y E A R
In 2016 we focused our risk management efforts on further
embedding the framework into the business. Risk ownership
has improved and actions are being taken to increase the
effectiveness of preventative measures and mitigating activities.
B R E X I T
As with other businesses, we are closely following developments
relating to Brexit, although our business in the UK and Europe
makes up a relatively small part of the Group. A weaker Pound has
increased the Sterling value of our revenue and assets, the majority
of which are denominated in US Dollars. The Sterling values of our
debt and borrowing facilities have increased by similar amounts,
so our debt headroom has remained steady. More broadly, we
believe it is too early to determine the impact of the UK leaving
the European Union on the Group’s activities, although we
do not expect this to have a material impact on the Group.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
53
R I S K M A N A G E M E N T F R A M E W O R K
1.
Identify
4.
Monitor
Risk
Appetite
2.
Prioritise
3.
Assess
1
I D E N T I F Y
2
P R I O R I T I S E
3
A S S E S S
4
M O N I T O R
Identify the risk events
or missed opportunities
which could have a material
impact on the ability
of Aggreko to meet its
business objectives.
Prioritise risks based on
the impact to the business
should they occur and the
likelihood of occurrence
both before and after
consideration of control,
design and operation.
Impact scoring is determined
by considering several
factors: Financial; HSE;
Operational; Reputational;
and Regulatory.
Assess each risk to determine
whether further actions
are required to effectively
manage the risk to within the
Group’s risk appetite. Where
necessary, further actions
are captured and tracked
to completion.
Monitor each risk using
relevant KPIs, where
available and through
regular management
review of actions identified.
R I S K C A T E G O R I S A T I O N M O D E L
Any risk identified within the business can be
categorised within the following model. The model
assists with the identification and consolidation process
and is the basis for how we articulate our risk appetite.
Strategic Risk
Operational Risk
Hazard Risk
Compliance Risk
Financial Risk
Risks related to
the Company’s
ability to deliver on
business priorities.
Risks arising from people,
processes and systems
impacting upon efficient
and effective operations.
Risks related to the
wellbeing of our people
and the wider stakeholders
with whom we interact.
Risks related to
non-compliance
with government and
regulatory requirements
in the jurisdictions in
which we operate.
• People, Organisation
• Asset Life Cycle
• Health & Safety
• Ethics
& Culture
• Mergers & Acquisitions
• Technology
• Market Dynamics
• Service Delivery
• Security
• Supply Chain
• Contractual
• Information Technology
• Information Security
• Environment
• Corporate Governance
• Laws and Regulations
Risks which might impact
upon our ability to meet
our financial expectations
and obligations.
• FX and Interest
Rate Volatility
• Liquidity and Funding
• Credit Risk
• Tax
• Financial Management
and Control
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54 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Risk summary
K E Y T O R I S K S U M M A R Y T A B L E
Customer
Technology
Efficiency
People
Risk
Primary strategic
area affected
Primary KPIs
impacted
Change in 2016
S T R A T E G I C R I S K
RISKS REL ATED TO THE C O MPANY ’S ABILIT Y TO D ELIVER O N OUR STR ATEGIC PRIO RITIES
Market conditions –
Rental Solutions
Market dynamics –
Power Solutions
Challenging market
conditions reduce
volume and profitability
in our Rental Solutions
business.
Changes in market
dynamics result in major
contracts maturing without
equivalent replacement.
Change management
relating to our
strategic priorities
Failure to deliver the
expected benefits
from our strategic priorities.
Talent management
Failure to attract, retain and
develop key employees.
Technology –
market introduction
Ineffective new product
market introduction
hinders growth.
• Revenue growth
• Margins
• Returns
• Capital efficiency
• Fleet size
and composition
• Capital efficiency
• Revenue growth
• Margins
• Returns
• Employee satisfaction
• Fleet size and composition
• Capital efficiency
• Revenue growth
O P E R A T I O N A L R I S K
RISKS ARISIN G FRO M PEO PLE , PRO CESSES AND SYSTEMS IMPAC TIN G UP O N EFFICIENT AND EFFEC TIVE O PER ATIO NS
Cyber Security
A cyber security breach
leads to a loss of data, a
loss of data integrity or a
disruption to operations.
• Revenue growth
• Customer loyalty
• Earnings per share
H A Z A R D R I S K
RISKS REL ATED TO THE WELLBEIN G O F OUR PEO PLE AND THE WID ER STAKEH O LD ERS WITH WH O M WE INTER AC T
Security
Health & Safety
Environment
A security incident occurs
which affects our people,
our assets or our operations.
A health and safety
incident occurs which
results in serious illness,
injury or death.
An environmental incident
occurs due to a failure in
project execution.
• Fleet size and composition
• Safety
• Revenue growth
• Safety
• Customer loyalty
• Revenue growth
• Safety
• Employee turnover
C O M P L I A N C E R I S K
RISKS REL ATED TO N O N - C O MPLIAN CE WITH GOVERNMENT AND REGUL ATO RY REQUIREMENTS IN THE JURISDIC TIO NS IN WHICH WE O PER ATE
Failure to conduct
business dealings
with integrity
and honesty
An employee or person
acting on our behalf makes
a payment which is or is
perceived to be a bribe.
• Customer loyalty
• Revenue growth
• Operating profit margin
F I N A N C I A L R I S K
RISKS WHICH MIGHT IMPAC T UP O N OUR ABILIT Y TO MEE T OUR FINAN CIAL E X PEC TATIO NS AND O BLIG ATIO NS
Taxation
Failure to collect
payments or to
recover assets
Unanticipated tax liabilities
in developing countries.
Non-payment by customers
or the seizure of assets.
• Earnings per share
• Capital efficiency
• Margins
• Returns
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
55
Principal risks and uncertainties
The Directors have carried out a robust assessment of the principal risks and uncertainties facing
Aggreko, including those which would threaten our business model, our future performance, and
our solvency and liquidity. These are as set out over the following pages. This list is not exhaustive;
our operations are large and geographically diverse and the list might change, as something
that seems immaterial today assumes greater importance tomorrow.
The order in which they are presented is aligned to our risk categorisation model.
S T R A T E G I C
M A R K E T C O N D I T I O N S – R E N T A L S O L U T I O N S
E XECUTIVE RESP ONSIBLE: BRUCE P O O L , PRESIDENT RENTAL SO LUTIONS
Risk
Background and impact
Mitigation
Challenging market
conditions reduce volume
and profitability in our
Rental Solutions business.
North America is the largest Area in Rental Solutions
and Oil & Gas and Petrochemical & Refining are its
largest market sectors, so any change in market
conditions for these sectors has a significant impact
on Rental Solutions revenue and profit.
• Implementation of our strategic priorities, including
a revised business model for the Rental Solutions
business aligned to our key sectors and development
of our sales force capabilities.
• Reorganisation of our business in North America
including realignment of the sales force around
customer sectors to improve diversification.
• Development of our Temperature Control business
(including acquisitions in this area) help to offset
slower growth in power.
• Global footprint and fleet homogeneity allows
us to move fleet between businesses.
• In-house manufacturing of equipment enables
us to quickly adjust capital expenditure to react
to downturns.
• Market monitoring and analysis using external data
where appropriate to reflect economic conditions
in future forecasts.
Changes during 2016: As noted in our commentary on performance in the Rental Solutions business on page 41, this risk caused a significant impact in
2016. The lower oil price reduced the demand for temporary power from customers in the Oil & Gas sectors, particularly in the North American market.
In future we anticipate that any future impact would be lower as these conditions have been factored into our future forecasts. The higher the oil price,
the lower we expect the impact of this risk to be.
Read more about Rental Solutions performance on page 41.
M A R K E T D Y N A M I C S – P O W E R S O L U T I O N S
E XECUTIVE RESP ONSIBLE: NIC O L AS FOURNIER, MANAGING DIREC TO R P OWER SO LUTIONS
Changes in market dynamics
result in major contracts
maturing without equivalent
replacement.
A change in market dynamics could have a material
effect on revenues and profit.
The impact of low commodity prices on the economies
of developing countries has reduced their capacity
to pay for temporary power.
Customer buying power has increased as a result
of increased competition for power projects.
• As part of the change programme running within the
business, there are specific initiatives to improve the
sales capability within the Power Solutions business
whilst reducing the overall cost base to allow us to
remain competitive.
• Technology improvements make our offering
more competitive as we improve fuel efficiency
and provide alternative fuel technology allowing
us to reduce the overall cost of energy.
• Project pipeline and fleet utilisation form a part
of the monthly business reviews.
• Diverse customer base to minimise exposure
to any single geography.
Changes during 2016: We have been successful in signing extensions in Bangladesh and Venezuela during 2016. In addition, we have taken on 1,057MW
of new orders over the course of 2016. The successful implementation of our business priorities will stand us in good stead to continue to adequately
mitigate this risk area. In January 2017, we announced that the Government of Argentina had extended 174MW of our fixed site contracts (originally
180MW) until 31 December 2017. 214MW of our standby contracts (originally 270MW) were also extended until the end of February or March 2017.
However, the outlook for our contracts in Argentina remains uncertain.
Read more about Power Solutions performance on page 42.
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56 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Principal risks and uncertainties continued
S T R A T E G I C C O N T I N U E D
C H A N G E M A N A G E M E N T R E L A T I N G T O O U R S T R A T E G I C P R I O R I T I E S
E XECUTIVE RESP ONSIBLE: TOM ARMSTRONG,
GROUP CHIEF INFO RMATION O FFICER & PRO GR AMME DIREC TO R
Risk
Background and impact
Mitigation
Failure to deliver the
expected benefits from
our strategic priorities.
The market environment in which we operate has
become more challenging. In recognition of a need to
evolve, we have outlined a number of business initiatives
which we are undertaking in order to better position the
Group for the future.
• The programme continues to have senior leadership
focus and sponsorship.
• A programme management office is in place
with executive management leadership providing
challenge, assurance and risk oversight.
If we do not successfully execute these in a timely and
sustainable manner, it could result in a material impact
on projected future revenue and profit.
• Formal project management disciplines, appropriate
resourcing and management reporting of each
initiative are in place.
Changes during 2016: We have made good progress towards delivery of the business initiatives identified previously and have good governance
in place to ensure the initiatives are fully delivered. However, we recognise the criticality of the phase we are in, hence the heightened risk identified.
Read more about Strategic Priorities on page 27.
T A L E N T M A N A G E M E N T
E XECUTIVE RESP ONSIBLE: ANNA FILIP O P OULOS, GROUP HUMAN RESOURCES DIREC TO R
Failure to attract, retain and
develop key employees.
Aggreko knows that it is people who make the
difference between great performance and mediocre
performance. This is true at all levels within the business.
• Talent management review which covers
the management population and fosters
people development.
We are keenly aware of the need to attract the right
people, establish them in their roles and manage their
development.
• Succession planning exercise completed during 2016.
• We reward people well for good performance and
have in place a Long-term Incentive Plan.
Failure to do so could result in loss of productivity and
intellectual capital, increased recruitment costs and
lower staff morale.
Changes during 2016: Group staff turnover (excluding redundancies) is lower than last year. However, staff turnover has increased in a couple of
key areas of the business and we are taking action to address this. During 2016, we continued with our plans to complete a comprehensive talent
management and succession planning review and have taken steps to address opportunities for improvement which the review identified.
Read more about People on page 23.
T E C H N O L O G Y – M A R K E T I N T R O D U C T I O N
E XECUTIVE RESP ONSIBLE: NIC O L AS FOURNIER, MANAGING DIREC TO R P OWER SO LUTIONS
Ineffective new product
development and market
introduction hinders growth.
New product development and its introduction into
our fleet is one of our key business initiatives. We are
continuing to evolve our product offering to include:
engines with greater fuel efficiency (e.g. Next Generation
Gas); alternative fuel technology (e.g. Heavy Fuel Oil); and
renewable technology (e.g. Diesel/Solar hybrid).
To introduce new products effectively we need to
ensure that we understand the markets where there
is likely to be demand. In addition, we need to develop
the appropriate expertise to successfully commission
and operate our fleet, whilst ensuring that the
technical capability of our sales teams is appropriate
to adequately manage customer expectations.
• Rigorous new product introduction process
operating to identify and resolve any product
performance issues prior to roll out.
• Market intelligence gathered and utilised to
formulate a marketing strategy for new products.
• Training delivered to the sales team on the product,
market opportunities and commercial risks
associated with new technology.
• Sales champions identified for new technology
in each region.
• Monitoring of pipeline conducted on a monthly basis.
Changes during 2016: 2016 saw considerable focus on and investment in the development of our HFO and NGG offerings which are due to be
introduced to the market in 2017.
Read more about the technology developments taking place as part of our Strategic Priorities on page 28.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
57
O P E R A T I O N A L
C Y B E R S E C U R I T Y
E XECUTIVE RESP ONSIBLE: TOM ARMSTRONG,
GROUP CHIEF INFO RMATION O FFICER & PRO GR AMME DIREC TO R
Risk
Background and impact
Mitigation
A cyber security incident
leads to a loss of data, a loss
of data integrity or a disruption
to operations.
A cyber security incident may be caused by an external
attack, internal attack or by user error.
• IT security lead appointed, responsible for the
IT security plan.
Such an incident may lead to the loss of commercially
sensitive data, a loss of data integrity within our systems
or the loss of financial assets through fraud.
A successful cyber attack on our systems could also
result in us not being able to deliver service to our
customers, As a result, we could suffer reputational
damage, revenue loss and financial penalties.
• A cyber security forum has been formed to monitor
relevant risks and controls in this area.
• Cyber security health check review completed
by a third-party expert with results implemented
through the security plan.
• Suite of security technology in place including
antivirus and malware software, firewalls, email
scanning and internet monitoring.
• Monthly monitoring and regular review of
user privileges.
Changes during 2016: The incidence of cyber security breaches continues to increase globally. We have strengthened our incident response capabilities
through the retention of a third-party provider. Our cyber security forum is now in place and is overseeing several improvement initiatives in this area.
H A Z A R D
S E C U R I T Y
E XECUTIVE RESP ONSIBLE: CHRIS WESTON, CHIEF E XECUTIVE O FFICER
A security incident occurs
which affects our people,
assets, or our operations.
The risk that a security incident occurs which adversely
impacts upon the wellbeing of our people, the security
of our assets, affects our reputation or our ability to
generate revenue.
• The Group Security team under the direction of
the Group Head of Security provides guidance and
direction on the appropriate security requirements
for our operations.
• The Group Security team monitors the security
environments in the countries in which we operate
and ensures that the appropriate risk mitigation
measures are in place.
• Employees have access to information on what is
required for them to be adequately equipped for
the security environment in which they operate.
• The Group Security team monitors alerts from
independent security information providers on
any incidents which may affect our staff.
• Security risks are monitored closely by the Executive
management team with monthly briefings provided
by the Head of Security.
• Specific security plans are created for locations
in High Risk Areas.
• In some cases, insurance against losses has
been procured.
Changes during 2016: The overall level of risk has not materially changed in the year, however, we continued to face specific security challenges
in Iraq, Libya, Venezuela and Yemen. In addition, we are cognisant of the increased threat from terrorism across our areas of operations.
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58 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Principal risks and uncertainties continued
H A Z A R D C O N T I N U E D
H E A L T H & S A F E T Y
E XECUTIVE RESP ONSIBLE: CHRIS WESTON, CHIEF E XECUTIVE O FFICER
Risk
Background and impact
Mitigation
A health and safety incident
occurs which results in serious
illness, injury or death.
We have a number of staff operating in high risk
locations. Aside from those security considerations,
issues facing personnel include: poor road infrastructure,
a lack of availability of healthcare and exposure to
contagious diseases. We also operate within high risk
customer sites such as offshore oil and wind platforms
and at mine sites.
Operationally, the business of the Group involves
transporting, installing and operating large amounts
of heavy equipment, which produces lethal voltages
or very high pressure air and involves the use of millions
of litres of fuel. All of these could cause serious damage
to our people and third parties if not handled with
appropriate caution.
• We have a proactive operational culture with health
and safety at the top of our agenda. Our global policy
has been communicated across the organisation in
all languages.
• HSE management system including KPIs which are
reviewed by the Board on a regular basis.
• We work very closely with our customers, employees
and health and safety authorities, to evaluate
and assess health and safety risks to ensure that
health and safety procedures are developed and
rigorously followed.
• Where health matters are of concern, we implement
stringent testing procedures and restrict access to
our sites.
• Comprehensive site induction materials are provided
to all visitors and staff rotating into a new country.
• Defensive driving training is provided in high risk
countries whilst journey management is an important
part of our HSE system.
• Our equipment is subject to rigorous testing prior
to it being utilised. Comprehensive training materials
are compiled and communicated to relevant staff.
Changes during 2016: No material changes in 2016. We have rolled out an online risk identification tool which allows tracking of health and safety risks
and incidents to allow improvements to be made. As our new fleet is developed, risk assessments have been conducted in order to identify any specific
health and safety considerations.
Read more about Health and Safety on page 66.
An environmental incident
occurs due to a failure in
project execution.
E N V I R O N M E N T
E XECUTIVE RESP ONSIBLE: CHRIS WESTON, CHIEF E XECUTIVE O FFICER
We are committed to exploring new ways of reducing
our impact on the environment by reducing emissions
and improving efficiency. We comply with all air quality
regulatory requirements for emissions and have a
technology roadmap, looking at bio-fuels, fuel cells
and hybrids. Aggreko and its customers handle a
considerable quantity of diesel fuel on a daily basis.
Despite our best efforts, there remains a possibility
that accidental fuel spills could occur with a resultant
environmental impact.
This may be caused by an equipment failure or
human error.
• Equipment designed to minimise the risk of
fluid spillage and to quickly alert operators when
a spillage may have occurred.
• All equipment is subject to regular review
and maintenance.
• HSE representatives monitor spill levels and identify
risk areas in order that proactive preventative steps
can be taken.
• Spill prevention procedures are in place in all
Aggreko sites where large quantities of fuel are stored.
• Following any spillage, an incident report is compiled
and any learnings communicated across the Group.
Changes during 2016: No material changes in 2016. We have operated well within our target during 2016 and have plans in place to further improve
our equipment design and spill response plans.
Read more about Environmental Management on page 66.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
59
C O M P L I A N C E
F A I L U R E T O C O N D U C T B U S I N E S S D E A L I N G S
W I T H I N T E G R I T Y A N D H O N E S T Y
E XECUTIVE RESP ONSIBLE: PE TER KENNERLE Y, GROUP LEG AL DIREC TO R & C OMPANY SECRE TARY
Risk
Background and impact
Mitigation
An employee or person
acting on our behalf makes
a payment which is or is
perceived to be a bribe.
The scale and global nature of much of our business
exposes us to risks of unethical behaviour.
This risk is particularly relevant due to the following
factors:
• We operate in several countries with perceived
high levels of corruption;
• We participate in tenders for high value contracts
involving public procurement; and
• Our business model involves the use of third-party
sales consultants/agents in some countries where
we do not have a permanent presence.
We are aware of the potential reputational and
financial impact of such behaviour and we
have in place a robust compliance programme
to mitigate our exposure to this risk.
• Anti-bribery and corruption framework designed
in line with UK Government guidance and
implemented across the Group.
• Ethics policy in place with which employees,
agents and sales consultants are required to comply.
• Training of employees and third-party sales
consultants on anti-bribery and corruption policies
and procedures.
• Board-level leadership through our Ethics Committee
which oversees the compliance policies and
procedures and aims to foster a culture of integrity
and honesty in all of our business dealings.
• Due diligence undertaken on sales consultants
and agents. Once appointed we regularly monitor
their performance, audit payments and refresh
due diligence at least every two years.
• Head of Compliance and Internal Audit monitor
compliance with policy requirements in this area.
• An independent whistle-blowing system is in
place which allows employees to report concerns
confidentially and anonymously. All reports received
are fully investigated.
Changes during 2016: We have continued to strengthen our compliance programme in 2016 having delivered online training to all employees and
face-to-face training with the senior management teams and completed the roll out of the Supplier Code of Conduct.
Read more about Ethics and Integrity on page 69.
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60 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Principal risks and uncertainties continued
F I N A N C I A L
T A X A T I O N
E XECUTIVE RESP ONSIBLE: C ARO LE CR AN, CHIEF FINANCIAL O FFICER
Risk
Background and impact
Mitigation
Unanticipated tax liabilities
in developing countries.
Due to Aggreko’s extensive geographic footprint we are
exposed to tax risk as follows:
• Group Tax Director supported by regional tax teams
across the business.
• We fail to understand our responsibilities with
respect to registration, tax filings and/or the extent
of our liabilities.
• We may be subject to taxation that we did not
anticipate when we began working in some
developing countries where tax regimes may be
subject to frequent change and there is a lack
of precedent or guidance.
• Local external tax advisers are consulted before and
subsequent to entry into a new jurisdiction to allow
us to identify specific tax/customs requirements
and to appropriately manage our tax affairs.
• The Group Tax team is involved in the review
of all proposals which would involve operating
in a new country.
• Regular monitoring of compliance obligations within
the countries in which we operate.
Changes during 2016: Although there have been changes in the level of risk (both positive and negative) in some of the jurisdictions in which we operate,
overall our net risk remains broadly similar to that of last year.
F A I L U R E T O C O L L E C T P A Y M E N T S O R T O R E C O V E R A S S E T S
E XECUTIVE RESP ONSIBLE: C ARO LE CR AN, CHIEF FINANCIAL O FFICER
Non-payment by customers
or the seizure of assets.
The Group has some large contracts in emerging
market countries where payment practices can
be unpredictable or where their liquidity has been
adversely affected by a fall in commodity prices. There is
a risk that we do not obtain payment for a large project
(or combination of projects) and/or that a material value
of assets are confiscated.
We take a rigorous approach to credit risk management
and to date have not suffered a significant loss.
A customer’s non-payment would result in an increased
bad debt provision or write-off of the debt. Should our
assets be seized, we would also lose future revenue and
profit associated with that equipment whilst having to
write off its residual value.
A related risk is that of excessive delays in customer
collections impacting cash flows.
• Regular monitoring of the risk profile and debtor
position for large contracts.
• Mitigation techniques will vary from customer to
customer, but include obtaining advance payments,
letters of credit, and in some cases insurance
against losses.
• The scale of our business and the deliberate diversity
of our customer portfolio makes it less likely that any
bad debt or equipment seizure would be material
to the Group’s balance sheet.
Changes during 2016: Our risk in this area has risen slightly in 2016 with debtor days increasing since a year ago. However, we have not suffered
a significant loss in this area during 2016 and have made progress with the most challenging of the overdue debt in Venezuela.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
61
A S S E S S M E N T O F P R O S P E C T S A N D V I A B I L I T Y
Demand for Aggreko’s services is created by events with the
nature of the demand differing by country and therefore we
address the market through our two business units, as described
earlier. The Rental Solutions business is linked to local economies
and commodity cycles and varies in size and nature from country
to country. The Power Solutions Industrial business is driven by
local economies in developing markets whilst Power Solutions
utilities is driven by growth of mini-projects work and shortfalls
in permanent capacity caused by:
• Ageing power infrastructure;
• Hydro-shortages;
• Social pressures; and
• Economic growth.
The factors which could affect Aggreko’s growth are
discussed regularly by both the Executive Committee and the
Board. The 12 principal risks, which the Board concluded could
affect business performance are set out on the previous pages.
With the above as background, the Board approached the
viability assessment as follows:
• It took the decision to carry out the assessment over
a three-year period to 2019. Although the prospects of the
Group are considered over a longer period, three years was
deemed appropriate because:
– The Group’s funding requirement can be forecast with
sufficient accuracy over the viability period.
– The Group expects to be able to arrange sufficient finance
to meet its funding requirements over the viability period.
– Our historical Power Solutions Utility off-hire rate of 30%
suggests an average contract life cycle of three years.
Rental Solutions and Power Solutions Industrial typically
provide little to no visibility given the shorter-term hire periods
relative to Power Solutions Utility.
• It stress-tested the Group’s strategic plans out to 2019 by
modelling scenarios linked to its principal risks.
• In order to reflect the possibility that more than one principal
risk might affect the business at one time a combination
scenario was also modelled.
The results of this stress-testing showed that, due to the diversity
of our business and strength of our balance sheet, the Group
would be able to withstand the impact of these scenarios
occurring over the period by making adjustments to its
operating plans within the normal course of business.
Based on the results of this analysis, the Directors have
a reasonable expectation that the Group will be able to
continue in operation and meet its liabilities as they fall
due over the three-year period of their detailed assessment.
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62 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
63
T H E P O W E R T O
keep the beat
G R E G S H E P H E R D / E V E N T S P R O J E C T M A N A G E R
In May 2016 we ran the power for the Eurovision
song contest in Sweden, using only vegetable oil
as a fuel source. We knew that the environmental
impact meant a lot to the organisers and using
our technologically superior fleet, we were
able to offer a unique, completely sustainable
solution which met all of their needs.
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64 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Making a massive difference
The power to make things happen
Aggreko’s role in society
We live in a world reliant on electricity;
it is an essential part of everyday life.
The UN estimates that one in five people still
lack access to modern electricity and states
that energy is central to nearly every major
challenge and opportunity the world faces
today. For example, power helps ensure
survival in hospitals and educate children
in schools, whilst also helping to improve
people’s quality of life through simple
appliances such as air conditioning units
and fridges. At Aggreko, we believe in the
positive impact of power and the ability to
control temperature. We believe it opens
up opportunity and creates potential for
individuals, communities, industries and
societies all over the world. Together and
over time, we believe our services can
make a massive difference.
I have gained lots of technical knowledge
and experience from Aggreko . . . they have
also given us safety advice that we can
apply in our normal life.
H T E T Y E S W E / M E C H A N I C A L T E C H N I C I A N ,
M Y I N G Y A N , M Y A N M A R
In our Power Solutions Industrial and Rental Solutions
businesses, we provide electricity, heating and cooling
to individual businesses across many sectors, whilst
our Power Solutions Utility business typically provides
electricity to government utilities to support a country’s grid
infrastructure; in each case we act as a catalyst for business and
economic growth. We also service the sport and entertainment
industry and have powered some of the world’s most famous
events, such as the Olympics and the FIFA World Cup.
R E A D M O R E A B O U T O U R A C T I V I T I E S I N 2 0 1 6 A T
W W W . A G G R E K O . C O M
It is important that we conduct ourselves with integrity at all
times. We are committed to ensuring we conduct our business
dealings ethically and safely and we aim to minimise our impact
on the environment whilst working to support our customers
and their communities.
T H E P O W E R T O M A K E T H I N G S H A P P E N :
T R A N S F O R M I N G A C O M M U N I T Y
In 2015 Aggreko installed 95MW of gas power to the Myingyan
district in Myanmar. The site provides reliable and constant
electricity to a district that would normally experience
intermittent power failure during the dry season. This has
supported the local community and economic needs,
including schools and one of the country’s largest steel
mills. Furthermore, through employing local people we are
implementing an effective knowledge transfer programme
to up-skill the local workforce and provide them with
transferable skills for the future.
A year on, we spoke directly to local people about the benefits
of having Aggreko working alongside them. First, having
reliable electricity has meant that they can use appliances such
as fridges and air conditioning, which has improved quality of
life. Previously they used candles and cooked with firewood,
which caused poor air quality and was a fire risk. Second,
having electricity also means that the school can provide air
conditioning and therefore remain open when it is very hot,
improving education levels. Third, electricity has benefited
businesses too, leading to increased productivity and income.
Finally, those technicians that work for Aggreko have directly
benefited from technical training, improved foreign language
skills and safety tips to use in their everyday life.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
65
O U R A P P R O A C H T O S U S T A I N A B I L I T Y
Sustainability reporting is an evolving process and one that we are developing. During the year,
we appointed a manager who is responsible for sustainability reporting and messaging.
Following this, we undertook a benchmark study to understand where we need to prioritise
our activity. We are in the early stages of developing our approach to sustainability, particularly
in “Our People” and “Social Contribution”. The Group is committed to ensuring that our success
also brings long-term social and economic benefits to the communities and countries where
we operate and we are now working on a plan for implementation during 2017.
R E S P O N D I N G T O O U R C U S T O M E R S
The provision of electricity, heating and cooling are essential
activities in our global economy; however, they come
with challenges, particularly environmental challenges.
We are committed to growing our business and supporting
our customers. As a consequence of the fuel sources that we
use in our products, it is inevitable that some of our activities
will have an impact on the environment.
Our equipment and processes are designed to comply with
applicable laws, regulations and industry standards wherever we
operate in the world. We innovate both in response to customer
demand and to improve the efficiency of our products and
therefore reduce their environmental impact where we can.
As fuel is the greatest element of cost in producing power,
particularly diesel, we have worked to improve the fuel efficiency
of our diesel engines and continue to do so under our strategic
priorities. In the last couple of years we have introduced new
technology for our customers in the Oil & Gas sector whereby
we are able to take the gas by-product from wells and rather
than burn it as a waste product, use it to run our gas generators.
A growing area of our business is supporting low-carbon
emissions generation such as wind and hydro; renewable energy
is intermittent and we help to make these solutions viable.
W H A T M A T T E R S M O S T
There are four areas of sustainability focus within the business:
H E A L T H , S A F E T Y A N D
E N V I R O N M E N T A L M A N A G E M E N T
Priorities
E T H I C S
A N D I N T E G R I T Y
Priorities
Ensure the health and safety of our people and others at work
Ensure we operate with integrity and honesty
Minimise our environmental impact
Be accountable and transparent with regards
to our environmental footprint
Outcome for the business
Maintain our reputation for consideration of health,
safety and environmental matters
Gain commercial benefit
R E A D M O R E A B O U T H S E
P A G E 6 6
Make sure that we are in compliance
with laws and regulations
Outcome for the business
Maintain our reputation for integrity
R E A D M O R E A B O U T E T H I C S A N D I N T E G R I T Y
P A G E 9 0
S O C I A L C O N T R I B U T I O N
Priorities
Engage with local communities
and work in partnership
Recruit, train and develop local people
O U R P E O P L E
Priorities
Promote equal opportunities
Provide career and personal development
through engagement
Participate in activities that make a difference
Ensure security whilst at work
Outcome for the business
Build business longevity
Gain new talent for the organisation
Operate with due regard for human rights
Outcome for the business
Attract and retain the best people
R E A D M O R E A B O U T S O C I A L C O N T R I B U T I O N
P A G E 6 9
R E A D M O R E A B O U T P E O P L E
P A G E 2 3
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66 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Making a massive difference continued
H E A L T H , S A F E T Y A N D E N V I R O N M E N T
C O N T E X T
Our activities, the generation of electricity, cool air and heat,
while essential to the global economy, produce waste and
greenhouse gases and can present risks to the health and
safety of our operational teams and others. We are committed
to minimising these wherever possible, which not only reduces
harm to the environment and keeps people safe, but helps us
to gain commercial benefit.
O U R A P P R O A C H
Aggreko’s equipment is designed to function in all
environments. By careful design and use of the most suitable
technology, we manage all of our operations in such a
manner to ensure minimal negative impact on our people,
our neighbours and the environment in which we operate.
We take a robust approach, considering each element of
Health, Safety and the Environment in our product design,
system design, client interfaces and employee training.
H S E P O L I C Y
The Executive Director with overall responsibility for HSE is
Chris Weston, Chief Executive Officer, and our commitment to
HSE is reflected in our Global Health & Safety and our Environment
Policy Statements. Our CEO is supported by the Group Head
of HSE, whose responsibility is to ensure that the HSE policy,
standards and procedures are effective and implemented
throughout Aggreko. Each business lead is also accountable
for HSE in their area. The Board and the Executive Committee
are committed to ensuring that the necessary organisation
exists and resources are available to facilitate the achievement
of our HSE goals, which are monitored on a monthly basis.
We recognise our responsibility to understand and effectively
manage any risks associated with our operations, which could
potentially affect people and the environment. Aggreko is
committed to monitoring and ensuring the effectiveness of
designed control measures and taking action as appropriate.
Furthermore, Aggreko complies with legal requirements as
a minimum and takes a transparent approach to the reporting
and investigation of any incidents that may occur.
S A F E T Y
A rigorous approach to risk management is absolutely essential if
we are to avoid accidents which could cause injury to people and
damage to property and reputation. Through the organisation’s
risk management process we have identified key HSE risk factors
and have put mitigating actions in place.
Our Energy Safety Rules are designed to ensure that anyone
working on our equipment and systems is safeguarded from the
potential hazards associated with energy sources. All operational
employees undertake detailed training to ensure understanding
of the hazards and the necessary control measures required to
work on our equipment and systems safely. Each employee must
attain a level of achievement suitable to their responsibilities
before being allowed to work unsupervised.
Through detailed analysis of our workplace injuries, we have
identified a need to improve our approach to managing manual
handling activities. We have engaged a recognised world leader
in this area to help Aggreko develop an in-house programme to
reduce manual handling injuries.
We recognise that best practice in safety management requires
the right culture and to allow us to better understand and
manage this critical element, we will be using the Health & Safety
Laboratory’s safety climate survey, to ensure that we maintain the
right approach to managing HSE.
Aggreko monitors safety performance relating to workplace
injuries using “Lost Time Injury Frequency Rate” (LTIFR), where
any injury resulting in a lost working day beyond the day of the
accident is included. Our LTIFR for 2016 was 0.45, (2015: 0.39).
We are disappointed with the increase in lost time injuries
reported this year and it goes against the positive downward
trend in our LTIFR over the five years. The increase has been largely
driven by an increase in manual handling incidents, so we have
put in place a manual handling training programme for Q1 2017
to improve employee understanding and awareness of the
importance of correct manual handling.
R E A D M O R E A B O U T O U R S A F E T Y R I S K S
P A G E 5 7
E M I S S I O N S - T O - A I R
Emissions-to-air are an inevitable by-product of hydrocarbon
fuelled engines. Over the years, as engines have become more
efficient and legislation to limit emissions has become stricter,
emissions have reduced sharply. Aggreko works in cooperation
with the manufacturers of engines in order to meet new
emission requirements.
It is essential for us to manage emissions-to-air and to ensure
that we meet new emissions requirements in order to enable
us to continue operating in a number of countries. It is equally
important that we play our part in helping to reduce the
global environmental impact of burning hydrocarbons.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
67
C A R B O N D I O X I D E E M I S S I O N S
R E F R I G E R A N T E M I S S I O N S
In accordance with the timelines set out by the Montreal protocol,
Aggreko has phased out chlorofluorocarbon (CFC) plant from its
temperature control rental fleet and is in the process of phasing
out hydrochlorofluorocarbon (HCFC) plant. Hydrofluorocarbon
(HFC) product, the replacement for CFC and HCFC, is available
across our full equipment range and has been adopted as
standard for all new fleet.
M I N I M I S I N G N O I S E
Noise pollution is another important environmental factor that
we take very seriously. We aim to provide helpful solutions to
our customers, minimising the noise associated with producing
power, heat or cool air.
We have built a competitive advantage through a fleet that
minimises external noise. This is done through the use of
custom-built acoustic enclosures as well as high performance
isolation and attenuation systems. In addition, in designing a
Power Solutions Utility site, we aim to position the equipment
such that the noise it does produce has the least effect on the
immediate environment.
W A S T E A N D R E - C Y C L I N G
In the normal course of our business, we regularly have to
replace consumables such as engine oil and filters. If these are not
appropriately disposed of, they can cause environmental damage
such as leakage into the ground water and contamination of the
local water supplies. If left unattended, they are also unsightly
and typically not biodegradable. Therefore, it is imperative that
we remove and safely dispose of our waste products.
These are normally returned to our service centres where they are
safely disposed of, or re-cycled where appropriate. On our project
sites we have procedures in place to collect waste on-site and then
site-specific arrangements are made for the safe handling of these
items. We commit to returning our project sites to the condition in
which we found them, and therefore work very hard to minimise
the impact we have.
In 2016, 99% of our greenhouse gas emissions came from the
operation of our fleet. Three main factors drive our emissions: the
fuel type our customers use; the pattern of their usage; and the
fuel efficiency of our fleet.
We are constantly exploring new ways of reducing emissions from
our fleet and increasing fuel efficiency. Over the last few years
have gradually increased the use of more environmentally friendly
gas fuelled generators. Gas generators now represent 10% of our
fleet. Natural gas is a fossil fuel, but it is more environmentally
friendly, with emissions of sulphur dioxide that are negligible
in comparison to coal or oil and levels of NOx and CO2 that are
significantly lower. Where gas fuel is essentially a by-product of
production, such as in US shales, or derived from a biological
source, we can help reduce CO2 and greenhouse gas.
In addition to the work we have undertaken developing natural
gas-powered generators, we are regularly reviewing product
technologies, looking for advances that we can adopt into our
product portfolio. We have a technology roadmap that is looking
at bio-fuels and fuel cells and we are currently developing a
solar-diesel hybrid generator.
On page 119 we have set out a more detailed analysis of our
greenhouse gas emissions for 2016 and 2015 in the format
required by the Companies Act 2006.
R E A D M O R E A B O U T O U R G R E E N H O U S E G A S E M I S S I O N S
P A G E 1 1 9
E X H A U S T G A S E S A N D P A R T I C U L A T E S
In an increasing number of countries, air quality regulations
stipulate emission standards for new equipment. Generally,
countries allow mobile equipment already operating to
continue to do so for its useful life; this is called “grandfathering”.
All our engine suppliers produce engines which comply with the
latest emissions standards and we gradually introduce these new
engines to our fleet. Our generator range to meet USA engine
emissions for the Tier 4 Interim level is complete, with 700 units
in use. The next step in the USA legislation programme to reduce
emissions is called Tier 4 Final and we have now introduced the
first 150 generators into our rental fleet in line with this stringent
specification. The European engine emissions regulations are
different to the USA and the current level in the EU is referred to
as Stage 3a. We also have a complete product range of generator
products to meet this standard.
We continue to work closely with engine manufacturers and
primary technology developers to derive appropriate solutions
for these requirements.
To further reduce emissions-to-air for specific projects, we have
developed an after-treatment that can be applied to our existing
fleet at our customers’ request. In Japan we have used a special
unit to reduce NOx by 90%, in order to meet Japanese air quality
standards. This technology can be readily applied globally as an
operational bolt on to our standard equipment.
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68 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
P E R F O R M A N C E R E V I E W
Making a massive difference continued
S T A T E M E N T O N U N I T E D N A T I O N S
P A R I S C O N F E R E N C E
C A S E S T U D Y :
H A R N E S S I N G T I D A L E N E R G Y
The Canadian marine industry has very strict requirements
regarding the use of power generation on marine vessels.
We have used our experience to work with our customer
in the Bay of Fundy to provide power equipment for the
transportation, placement, testing and commissioning of its
2MW tidal turbine. This cutting edge technology is designed
to capture energy from the highest tides in the world by using
huge turbines resting on the sea floor and once commissioned,
will provide clean energy to the people of Nova Scotia.
The United Nations Climate Change Conference held in 2015
resulted in a global agreement to pursue efforts to limit the
increase in global temperature to 1.5°C and we acknowledge
the ratification of the Paris Agreement on Climate Change.
To support this, most countries have already outlined how
they propose to control their emissions of greenhouses gases
typically for the period up to 2030. For many developing
countries the commitments made are conditional on
receiving funding.
Overall in the energy sector the agreement will increase the
emphasis on:
• Reducing greenhouse gas emissions from burning
fossil fuels by:
– more efficient generation and distribution;
– the increased use of natural gas (that has a lower carbon
ratio than diesel or coal);
• Renewables including solar, wind and biogas as part of
the energy mix; and
• Stopping highly polluting practices like flaring gas and
either processing the gas for general use or burning it in
a controlled and therefore cleaner way to produce power.
There are likely to be some local legislation and incentives
to drive these changes. For many developing countries the
priority will remain providing affordable power and accessing
the associated social and economic benefit.
We will continue to work with our customers both in the
developed and developing markets to provide solutions
that will support their commitments to lower emissions.
This is North America’s first successful
grid-connected tidal turbine, an innovative
step towards a lower carbon future.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
69
C O M M U N I T Y I N V E S T M E N T
We actively engage in supporting the local communities we
work in and we do this in a number of ways. We are proactive
in recruiting locally from the community; for example, in Myingyan
in Myanmar, 77% of the workforce is comprised of local staff.
We provide extensive on-the-job training for new recruits and give
them the skills to become technicians. We also get the benefit of
highly skilled staff, trained on our own equipment. It helps us build
relationships in the local community which are very important
when we might be operating a contract for a number of years.
Our charitable donations are largely focused on the education
and wellbeing of children.
C A S E S T U D Y :
1 0 Y E A R S S U P P O R T I N G B O O K A I D
This year is the 10th year that Aggreko has supported Book Aid
International, a charity promoting literacy in Africa. Book Aid
has provided hundreds of thousands of books to schools and
libraries across the continent. In celebration of this milestone,
a number of people from across the business helped pack
boxes with some of the 10,000 books we’ve committed
to fund in the 10th anniversary year, which will be sent to
10 African countries including Cameroon, Kenya, Tanzania,
Uganda, Zambia and Zimbabwe.
Over the last 10 years, Aggreko have
made it possible to send over 150,000
books to Africa – but that’s not all –
they have helped refurbish libraries
and train teachers.
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E T H I C S & I N T E G R I T Y
C O N T E X T
Aggreko conducts its business with integrity and honesty.
We are proud that we have a reputation for conducting
business fairly and professionally. Maintaining these values
in all of our business dealings is key to our success.
R E A D M O R E A B O U T O U R A P P R O A C H
T O E T H I C S A N D I N T E G R I T Y
P A G E 9 0
O U R P E O P L E
C O N T E X T
People are our greatest asset; their passion and commitment
are a critical contributor to our success. We are focused on
providing an environment in which we provide our people
with the power to make things happen.
R E A D M O R E A B O U T O U R P E O P L E
P A G E 2 3
S O C I A L C O N T R I B U T I O N
C O N T E X T
Aggreko is fortunate to work in a wide variety of countries
and our social contribution is one way of giving back to
the community. It’s about supporting the communities in
which we work, whilst being respectful of different cultures.
O U R A P P R O A C H
Each year, Aggreko engages in a number of initiatives which
support the communities in which we work. During 2016,
Aggreko contributed to a range of charitable, community
and disaster relief organisations. Our policy encourages
employees to support local initiatives, particularly those
relating to children’s welfare, education and social health
projects, and is based on giving donations to many
organisations which are involved with the communities
in which we work. During the year, we undertook an audit
of our community investment and we have identified a
number of areas for improvement. A community investment
strategy is being developed for implementation in 2017.
70 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Chairman’s introduction
O V E R V I E W
2016 has been another challenging year for Aggreko. We have had
to deal with continuing low oil prices, commodity weaknesses
and re-pricing of several legacy contracts. All of these factors have
caused downward pressure on the Group’s financial performance.
It takes time to adjust to these pressures, but the Board and I are
in agreement that our strategic priorities of customer, technology,
efficiency and people will position Aggreko for a strong financial
performance in the future.
H O W G O V E R N A N C E S U P P O R T S O U R
S T R A T E G I C P R I O R I T I E S
Delivering on our strategic priorities is crucial to our success.
The Board has focused on supporting our strategy by ensuring
we have the right governance framework in place to monitor the
execution of our strategic priorities. During the year, the Board
received regular updates from the Programme Management
Officer on each strategic priority and took time out from the usual
Board calendar to spend a day focusing on strategy, identifying
key actions to ensure we deliver on those priorities. We also agreed
on a new set of strategic KPIs, designed to measure success
against each of our priorities of customer, technology, efficiency
and people. You can read more about our new KPIs on page 34.
T H E B O A R D I S P L E A S E D W I T H T H E I N I T I A T I V E S
L A U N C H E D I N 2 0 1 6 T H A T A R E D E L I V E R I N G
A G A I N S T O U R S T R A T E G I C P R I O R I T I E S .
R E A D M O R E A B O U T T H E S E I N I T I A T I V E S
P A G E S 2 7 T O 3 1
B O A R D C H A N G E S
In March 2017, we were delighted to announce the appointments
of Barbara Jeremiah and Miles Roberts as Non-executive Directors.
Barbara is currently a Non-executive Director of two North
American based companies, Russel Metals and Allegheny
Technologies, having recently retired as Chairwoman of Boart
Longyear, a US based company in the minerals drilling sector.
Barbara brings extensive international non-executive experience
largely in the US and Australia together with an executive career
in the mining, exploration and energy industries. Barbara will
join the Ethics, Nomination and Remuneration Committees.
Miles brings substantial international business experience
as a Chief Executive and Finance Director. Miles is currently
Chief Executive Officer of DS Smith Plc, a FTSE international
packaging group with operations in nearly 40 countries.
Prior to this, Miles was Group Chief Executive of McBride plc,
having served as the Group Finance Director before that.
An engineer by background and also a chartered accountant,
Miles will join the Audit and Nomination Committees.
In April 2016, after almost nine years of service, Robert MacLeod
stepped down from the Board. During his time with Aggreko,
Robert performed a vital role as Audit Committee Chairman,
overseeing our external audit tender process and making a
valuable contribution to the Board as Non-executive Director.
I would like to thank Robert for his service and contribution
to Aggreko and wish him well for the future.
K E N H A N N A
C H A I R M A N
This year the Board has focused on
supporting our strategy and ensuring
we have the right governance framework
in place to successfully execute that strategy
Compliance with the UK Corporate Governance Code
Aggreko is committed to maintaining high standards
of corporate governance; it is the way we do business and
it is at the core of everything we do. Summarised on the
page opposite and explained in detail throughout this
report, we have described the key elements which we believe
are essential for good corporate governance. We follow the
UK Corporate Governance Code (the “Code”), as published
by the Financial Reporting Council in September 2014 and
are pleased to report that Aggreko has complied in full with
all relevant provisions of the Code throughout the year. We are
also in compliance with the 2016 version of the Code, which
will apply to Aggreko’s financial year ending December 2017.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
71
F O R M A T I O N O F A G R O U P R I S K C O M M I T T E E
This year the Board agreed to establish a Group Risk Committee
under the chairmanship of our Chief Financial Officer and made
up of the Executive Committee members. Although the Board
retains overall responsibility for our risk framework, the Group Risk
Committee performs an important role, focusing on embedding
the risk framework within the management teams and ensuring
key controls are in place for each of our principal risks. I am
pleased with the work of the Group Risk Committee to date;
you can read more about their role and interaction with the
Board and Audit Committee during 2016 on page 82.
though further work was required around succession and talent
management. We anticipate that the work to refresh our culture
will make an impact following the launch of our refreshed culture
in Q2 2017 and we agreed some further actions which we will
report on next year. The review also found that Board meetings
were effective and well run, with good relationships between
members and open debate. We did identify some administrative
areas for efficiency improvements and agreed actions for 2017.
You can read more about the Board evaluation on page 81.
D I V I D E N D
T H E G R O U P R I S K C O M M I T T E E P E R F O R M S
A N I M P O R T A N T R O L E I N E M B E D D I N G O W N E R S H I P
O F T H E R I S K S W I T H O U R M A N A G E R S .
The Board is pleased to recommend a final dividend for the
year ended 31 December 2016 of 17.74 pence (2015: 17.74 pence).
When added to the interim dividend of 9.38 pence this results
in a full year dividend of 27.12 pence (2015: 27.12 pence).
B O A R D E V A L U A T I O N
L O O K I N G A H E A D T O 2 0 1 7
I personally conducted the Board evaluation this year, through
individual meetings with each Board Member, the Rental
Solutions President, Managing Director for Power Solutions and
Company Secretary. We focused on the issues raised last year
by the externally facilitated review in relation to competitors,
market landscape, risk, succession and talent management.
We also looked at Board meeting effectiveness. The review
concluded that we have made good progress against the
actions in relation to competitors, market landscape and risk,
The Board will continue to closely monitor progress against our
strategic priorities of customer, technology, efficiency and people,
ensuring that they are supported by appropriate governance
structures. These priorities are an investment in our future and will
protect Aggreko’s position as the leading global provider of power,
heating and cooling that is efficient, modular and mobile.
Finally, I would like to thank our employees for the unwavering
commitment and hard work during a challenging year.
L E A D E R S H I P
A C C O U N T A B I L I T Y
Your Board rigorously challenges strategy, performance,
responsibility and accountability to ensure that every
decision we make is of the highest quality.
All of our decisions are discussed within the context
of the risks involved. Effective risk management
is central to achieving our strategic objectives.
R E A D M O R E A B O U T O U R L E A D E R S H I P
P A G E 7 5
R E A D M O R E A B O U T O U R A C C O U N T A B I L I T Y
P A G E 8 2
E F F E C T I V E N E S S
R E L A T I O N S W I T H S H A R E H O L D E R S
Your Board continuously evaluates the balance of
skills, experience, knowledge and independence of
the Directors. We ensure that all new Directors receive
a tailored induction programme and we scrutinise
our performance in an annual effectiveness review.
Maintaining strong relationships with our Shareholders,
both private and institutional, is crucial to achieving
our aims. We hold events throughout the year
to maintain an open dialogue with our investors.
R E A D M O R E A B O U T O U R E F F E C T I V E N E S S
P A G E 8 0
R E A D M O R E A B O U T S H A R E H O L D E R S ’ R E L A T I O N S
P A G E 8 4
R E M U N E R A T I O N
Having a formal and transparent procedure for
developing policy on remuneration for Executive Directors
is crucial. Our remuneration policy aims to attract,
retain and motivate by linking reward to performance.
R E A D M O R E A B O U T O U R R E M U N E R A T I O N
P A G E 9 4
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72 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Our Board
K E N H A N N A
Chairman
C H R I S W E S T O N
Chief Executive Officer
C A R O L E C R A N
Chief Financial Officer
Appointed:
Non-executive Director in October 2010 and
Chairman in April 2012.
Appointed:
January 2015.
Appointed:
June 2014.
Experience
Ken has international experience, bringing
financial and leadership expertise to Aggreko.
He possesses knowledge of many different
business sectors and is an experienced senior
executive and leader, promoting robust debate
and a culture of openness in the Boardroom.
Ken is also currently Chairman of Inchcape Plc
and Chairman of Shooting Star CHASE Charity.
Until 2009, Ken spent five years as Chief Financial
Officer of Cadbury Plc. He has also held
positions as Operating Partner for Compass
Partners, Group Chief Executive at Dalgety Plc,
Group Finance Director of United Distillers Plc
and Group Finance Director of Avis Europe
Plc. He is also a fellow of the Institute of
Chartered Accountants.
Experience
Chris has experience at a senior level in the
energy industry, proven leadership skills in a
large international business and has consistently
succeeded in driving performance and growth
in his career.
Prior to his appointment as Chief Executive
Officer in January 2015, Chris was Managing
Director, International Downstream at
Centrica plc, where he was the Executive Director
responsible for the Group’s largest division.
In this role Chris was operationally responsible
for both British Gas in the UK and Direct Energy
in the USA. He joined Centrica in 2001 after
a successful career in the telecoms industry,
working for both Cable & Wireless and One.Tel.
Before that, Chris served in the Royal Artillery.
He has a BSc in Applied Science, as well as an
MBA and PhD from Imperial College London.
Chris was also appointed as a Non-executive
Director of the Royal Navy in January 2017.
Experience
Carole has corporate finance and accounting
experience acquired over a number of years in
senior financial roles with considerable exposure
to emerging markets. Carole was appointed to
the Board as Chief Financial Officer on 1 June 2014.
Having joined Aggreko in 2004, her previous
roles include Group Financial Controller and
Director of Finance. A key member of the senior
management team, Carole has worked to align
financial strategies with the strategic direction
of the business. Carole was also appointed
as a Non-executive Director of Halma plc on
1 January 2016.
Prior to joining Aggreko, Carole spent seven years
at BAE Systems, in a range of senior financial
positions, including four years in Australia.
Carole is also a chartered accountant, having
trained at KPMG whilst working in their audit
divisions in the UK and Australia.
R U S S E L L K I N G
Senior Independent Director
D A M E N I C O L A B R E W E R
Non-executive Director
U W E K R U E G E R
Non-executive Director
Appointed:
Non-executive Director in February 2009 and
Senior Independent Director in April 2014.
Appointed:
February 2016.
Appointed:
February 2015.
Experience
Russell brings international experience,
acquired across a number of sectors including
mining and chemicals, together with strong
experience in strategy.
Experience
Nicola Brewer brings extensive geo-political
and diplomatic experience to Aggreko,
having worked in many of the developing
regions in which we operate.
An experienced Non-executive Director,
Russell currently sits on the boards of
Spectris Plc as Senior Independent Director
and Remuneration Committee Chairman and
Interserve plc as Senior Independent Director.
He is also Chairman of Hummingbird Resources
plc. Prior to this, Russell spent eight years at
Anglo American Plc, latterly as Chief Strategy
Officer and spent 20 years in senior roles at ICI.
Nicola is currently Vice Provost at University
College London, responsible for international
strategy. She is a trustee of Prince Harry’s
southern African charity, Sentebale. In her
previous diplomatic career, she worked in
Mexico, India and France, was a member of
the Foreign and Commonwealth Office Board
from 2004 to 2007, and was High Commissioner
to South Africa, Lesotho and Swaziland from
2009 to 2013. As a member of the board of the
Department for International Development,
she supervised all UK bilateral aid programmes
in Africa, Asia, Eastern Europe, the Middle East
and Latin America.
Experience
Uwe brings expertise of the engineering, services
and renewable energy sectors. He is a physicist
with a PhD and an honorary professorship
from the University of Frankfurt and an honorary
PhD from Heriot-Watt University. Most of his
career has been spent leading engineering
and consulting organisations.
Uwe is currently Chief Executive Officer of
WS Atkins plc. He also sits on the boards of
SUSI Partners AG and Ontex S.A. and lectures
at the University of Frankfurt on renewable
energy. Before joining WS Atkins plc, Uwe was
Chief Executive Officer of Oerlikon, Senior Advisor
at Texas Pacific Group, President of Cleantech
Switzerland, and held various senior leadership
positions at Hochtief AG.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
73
K E Y T O C O M M I T T E E M E M B E R S H I P
Audit
Remuneration
Nomination
Ethics
P E T E R K E N N E R L E Y
Company Secretary
Appointed:
October 2008.
Peter is our Group Legal Director &
Company Secretary.
Further details appear on page 74.
Other Directors who served during 2016:
R O B E R T M A C L E O D
Non-executive Director and
Chairman of the Audit Committee
until 28 April 2016.
B O A R D A T T E N D A N C E
I N 2 0 1 6
Name of Director
Board
meetings
%
attended
Ken Hanna
Chris Weston
Carole Cran
Nicola Brewer
Russell King
Uwe Krueger
Diana Layfield
Robert MacLeod1
Ian Marchant
A
6
6
6
6
6
6
6
2
6
B
6
6
6
6
6
6
6
2
6
100%
100%
100%
100%
100%
100%
100%
100%
100%
A – maximum number of meetings Director
could have attended.
B – actual number of meetings Director attended.
Robert MacLeod retired from the Board on
1
28 April 2016.
D I A N A L A Y F I E L D
Non-executive Director
I A N M A R C H A N T
Non-executive Director
Appointed:
May 2012.
Appointed:
November 2013.
Experience
Diana brings extensive international experience
and detailed understanding of how to operate
successfully across emerging markets, particularly
in Africa and Asia. She also brings experience in
sales, technology and strategy.
Diana is Vice President, Next Billion Users at
Google Inc, developing products and services
for users in emerging markets, and in Fintech.
Before joining Google, she was Chief Executive,
Africa Region for Standard Chartered Plc
and held a number of senior leadership roles
over 11 years at Standard Chartered. Prior to
Standard Chartered, Diana was Chief Executive
Officer of Finexia Ltd, a technology firm, and a
consultant with McKinsey & Co, an international
strategy consulting firm. Diana has a BA
from the University of Oxford and a Master’s
degree in International Economics and Public
Administration from Harvard University.
Experience
Ian brings knowledge of the domestic and
international energy markets, along with
a substantial understanding of associated
strategic, financial and regulatory issues.
Until his retirement in June 2013, Ian
spent 21 years at SSE Plc, most recently
as Chief Executive, and prior to that as
Finance Director.
Ian is an experienced Non-executive Director,
currently serving as Chairman of John Wood
Group Plc and former Chairman of Infinis Energy
Plc. He is also Chairman of Maggies Cancer
Charity, a Member of the Prince’s Council of the
Duchy of Cornwall, Honorary President of RZSS,
Chairman of the advisory board of the Centre
of Energy Policy at Strathclyde University
and former Chairman of Scotland’s 2020
Climate Group.
B A R B A R A J E R E M I A H
Non-executive Director
M I L E S R O B E R T S
Non-executive Director
Appointed:
March 2017.
Appointed:
March 2017.
Experience
Barbara brings extensive international
Non-executive experience largely in the USA
and Australia together with an executive career
in the mining, exploration and energy industries.
An experienced Non-executive Director, Barbara
currently sits on the Board of Russel Metals and
Allegheny Technologies having recently retired
as Chairwoman of Boart Longyear, a US based
company in the minerals drilling sector. Until her
retirement in 2009, Barbara spent over 30 years
in a number of roles in Alcoa Inc. (now demerged
into Alcoa and Arconic Inc.), the world leader
in the production of aluminium and related
products. Her roles in Alcoa included Assistant
General Counsel, VP Corporate Development
and Executive VP in charge of strategy and
M&A. Barbara is an American citizen with a
BA in political science and is a qualified lawyer.
Experience
Miles brings extensive international business
experience both as a Chief Executive and
Finance Director.
Miles is currently Chief Executive Officer of
DS Smith Plc, a FTSE international packaging
group with operations in nearly 40 countries.
Prior to joining DS Smith Plc in 2010, Miles was
Group Chief Executive of McBride plc having
previously been Group Finance Director.
Prior to this, Miles worked for Costain Group
plc and Vivendi UK. He also has non-executive
experience, having served on the boards of
Poundland Group plc as Senior Independent
Director and Care UK plc as a Non-executive
Director. Miles has a degree in Engineering
and is also a chartered accountant.
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74 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Our Executive Committee
The Executive Committee operates under the direction and authority
of the Chief Executive Officer; it is responsible for supporting him in all aspects
of his role. Each member has been assigned individual responsibility for the
principal risks and uncertainties outlined in the Strategic Report. They also
sponsor and have overall accountability for delivering against the initiatives
designed to underpin our strategic priorities of customer, technology,
efficiency and people to enhance our existing competitive advantages.
1 C H R I S W E S T O N
4 T O M A R M S T R O N G
6 B R U C E P O O L
8 V O L K E R S C H U L T E
Chief Executive Officer
Appointed: January 2015.
Tenure with Aggreko: 2 years.
Full biography appears on
page 72.
2 C A R O L E C R A N
Chief Financial Officer
Appointed: June 2014.
Tenure with Aggreko: 12 years.
Full biography appears on
page 72.
3 N I C O L A S F O U R N I E R
Managing Director,
Power Solutions
Appointed: November 2015.
Tenure with Aggreko: 1 year.
Nicolas has responsibility
for the leadership of the
Power Solutions business and
overseeing the delivery of our
strategic priorities (Customer,
Efficiency and Technology)
within Power Solutions.
Group Chief Information Officer
& Programme Director
President,
Rental Solutions
Group Manufacturing and
Technology Director
Appointed: August 2015.
Tenure with Aggreko: 15 years.
Appointed: December 2015.
Tenure with Aggreko: 18 years.
Appointed: August 2015.
Tenure with Aggreko: 2 years.
Tom has responsibility for
the implementation of our
strategic priorities (Customer,
Technology, Efficiency and
People) programme designed
to enhance our competitive
advantage and deliver sustainable
growth. Tom is also responsible
for the Programme Management
Office (PMO).
Bruce has responsibility for the
leadership of the Rental Solutions
business and Group Sales &
Marketing. He is also responsible
for overseeing the delivery of our
strategic priorities in relation to
Customer and Efficiency within
Rental Solutions.
7 A N N A F I L I P O P O U L O S
5 D A N I B B E T S O N
Group Business
Development Director
Appointed: October 2016.
Tenure with Aggreko: 8 years.
Dan has responsibility for
global business development,
M&A coordination and Group
strategy. This new position on the
Executive Committee will provide
a critical focus on securing growth
and maximising opportunities
into the future.
Group Human
Resources Director
Appointed: April 2016.
Tenure with Aggreko:
less than 1 year.
Anna has responsibility for
human resources and internal
communications, focusing
on talent and leadership
development, employee
engagement and culture.
She is responsible for overseeing
the delivery of the strategic
priority in relation to People.
Volker is responsible for building
on our current engineering
capability in Dumbarton and
focusing on enhancing our
product strategy, product
development and product
management with the objective
of delivering market leading
products to our customers.
9 P E T E R K E N N E R L E Y
Group Legal Director &
Company Secretary
Appointed: October 2008.
Tenure with Aggreko: 8 years.
Peter has overall responsibility
for the management of legal and
ethical risk and for supporting
the Board in setting and
maintaining standards
of corporate governance.
2
3
1
4
6
7
5
8
9
Leadership
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
75
Executive/Independent Non-executive composition of Board
Gender of senior management*
D I V E R S I T Y M E T R I C S A T 3 1 D E C E M B E R 2 0 1 6
1
Executive
Non-executive*
No.
%
2
5
29%
71%
2
* As required by Code provision B.1.2, this
calculation excludes the Chairman when
looking at the Independent Non-executive
composition of the Board.
1
2
Male
Female
No.
56
13
%
81%
19%
* We have selected the composition of our
Senior Leadership Team as we believe
this to be a better reflection of our senior
management structure than the composition
of our subsidiary companies, which is made up
of 96 males and 11 females. The Senior Leadership
Team is made up of direct reports of the
Executive Committee and other key roles.
Gender of Board
Gender of permanent employees
1
Male
Female
No.
%
5
3
62%
38%
1
2
Male
Female
No.
%
5,207 84%
974
16%
2
Tenure of Non-executive Directors
Nationality diversity of permanent employees*
1
3
0-3 years
3-6 years
6-9 years
2
No.
%
2 40%
2 40%
1 20%
6 7
1
European (inc. Russia)
5
4
North American
Latin American
2
Asian
African
3
Australian
Middle Eastern
%
28%
20%
19%
17%
10%
5%
1%
* There are 106 nationalities across Aggreko’s
permanent employees.
Sector experience of Board
Customer
Finance
Energy
Geo-politics/diplomacy
88%
50%
Operational
Technology
75%
25%
63%
13%
How we divide up our responsibilities
Chairman
Responsible for leading the Board, its effectiveness and governance. Setting the agenda
to take full account of the issues and concerns of the Directors and ensuring the links
between the Shareholders, Board and management are strong.
Chief Executive Officer
Chief Financial Officer
Responsible for the day-to-day leadership, management and control of the Group,
for recommending the Group strategy to the Board and ensuring that the strategy
and decisions of the Board are implemented via the Executive Committee.
Responsible for the day-to-day management of the financial risk of the Group and
providing general support to the Chief Executive Officer including the operational
performance of the business and chairing the Group Risk Committee.
Senior Independent Director
Provides a sounding board for the Chairman, acts as an intermediary for the other
Directors when necessary and is available to meet with Shareholders.
Independent Non-executive Directors
Constructively challenge the Executive Directors and monitor the delivery of
the Group strategy within the risk and control environment set by the Board.
Company Secretary
Supports the Chairman and Chief Executive Officer and is available to all Directors
for advice and support. Informs the Board and Committees on governance matters
and responsible for development of corporate governance policies.
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76 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Leadership continued
R O L E O F T H E B O A R D A N D C O M M I T T E E S
The Board is responsible for the long-term success of the Group.
It sets our strategy and oversees its implementation, ensuring
decisions made reflect our risk appetite. It provides leadership and
direction and has responsibility for corporate governance and the
overall financial performance of the Group. The Board is supported
in this role by its principal committees, outlined in the table below.
To retain control of key decisions, the Board has a schedule
of matters reserved for the Board that only it can approve,
with other matters, responsibilities and authorities delegated
to its Committees.
R E A D O U R S C H E D U L E O F M A T T E R S R E S E R V E D F O R T H E B O A R D :
I R . A G G R E K O . C O M / I N V E S T O R S
Board
A U D I T
C O M M I T T E E
R E M U N E R A T I O N
C O M M I T T E E
N O M I N A T I O N
C O M M I T T E E
E T H I C S
C O M M I T T E E
Monitors and reviews
the integrity of Aggreko’s
financial statements,
the relationship with the
external auditor, internal
auditor and oversight of our
systems for internal control
and risk management.
Determines the
remuneration for the
Chairman, Executive
Directors and the Executive
Committee members
and oversees Aggreko’s
overall remuneration
policy, strategy
and implementation.
Monitors and reviews
the composition and
balance of the Board
and its Committees to
ensure Aggreko has the
right structure, skills and
experience in place for
the effective management
of the Group.
Monitors compliance and
oversees the effectiveness
of our ethical policies and
procedures to ensure
that Aggreko conducts
its business with integrity
and honesty and in
accordance with the law.
C O M M I T T E E R E P O R T
P A G E 8 6
C O M M I T T E E R E P O R T
P A G E 9 4
C O M M I T T E E R E P O R T
P A G E 9 2
C O M M I T T E E R E P O R T
P A G E 9 0
CEO
D I S C L O S U R E
C O M M I T T E E
F I N A N C E
C O M M I T T E E
A L L O T M E N T
C O M M I T T E E
E X E C U T I V E
C O M M I T T E E
G R O U P R I S K
C O M M I T T E E
Responsible for
funding and
treasury decisions.
Responsible for
decisions regarding
the allotment
of shares.
Responsible for
compliance with
Market Abuse
Regulation and
supports the Board
in approving the
final form of any
announcement or
statement relating
to the performance
of the Group.
K E Y T O C O M M I T T E E S
Non-Board
Board
Responsible for the
implementation of
our risk framework,
and processes for risk
reporting, including
reporting the Group’s
register of principal
risks to the Board.
Operates under
the direction and
authority of the CEO.
It is responsible for
supporting the CEO
in all aspects of his
role. The Executive
Committee also
sponsors and has
overall accountability
for delivering against
the initiatives designed
to underpin the new
business priorities
and enhance our
existing competitive
advantages.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
77
B O A R D M E E T I N G S I N 2 0 1 6
Jan 16
Feb 16
Mar 16
Apr 16
May 16
Jun 16
Jul 16
Aug 16
Sep 16
Oct 16
Nov 16
Dec 16
B O A R D M E E T I N G S
In 2016, the Board held six scheduled meetings and one
ad hoc meeting. The ad hoc meeting was held by telephone
in September to ensure the Board was kept up to speed
on material developments. At each scheduled meeting
the Board received reports from:
• The CEO on strategic, operational and business developments
and health and safety;
• The CFO on the performance of the business, capital structure,
fleet, budget, treasury and investor relations; and
• Each of the Board Committees on matters discussed
at their meetings.
The Board also received reports on our ethics compliance
framework and new technology and product updates.
In addition to the regular items, the key areas of focus were:
Topic
Strategy
Activity/Discussion
Actions arising
Progress
Monitor progress
against our
strategic priorities.
One day strategy
review session.
Identified and agreed areas of focus within Rental Solutions,
Power Solutions, distributed energy and technology to assist in
delivering against our priorities. Added people to our strategic priorities.
Received regular
updates from
the Programme
Management Office
on progress against
the strategic priorities
and initiatives
underpinning them.
Customer: approved and launched a new CRM system and online
web presence.
Technology: approved customer field trials of next generation
gas and HFO products. Developing prospects for our solar-diesel
hybrid product.
Efficiency: approved and rolled out new site performance
management tool, allowing us to move towards condition
based maintenance in 2017. Generated procurement based
savings of c£20 million.
Review KPIs.
New set of strategic KPIs approved to monitor progress against
our strategic priorities.
Monitor
opportunities
for acquisitions.
Refreshed and agreed
our M&A strategy.
Bolt-on acquisition of DRYCO, a specialist in moisture control, drying,
heating and cooling applications within the shipping, manufacturing,
food processing, construction and industrial painting industries.
Reviewed a number
of opportunities
in 2016.
R E A D M O R E A B O U T O U R B U S I N E S S P R I O R I T I E S P A G E 2 7 A N D O U R K P I S P A G E 3 4
Following the
detailed review
in 2015, continue
to monitor best
practice and refine
the risk management
framework
as appropriate.
Approved the establishment of a Group Risk Committee, chaired
by our CFO and made up of the Executive Committee members
to assist with oversight of our risk management process and to
further embed risk management within our management teams.
Ensured that our principal risks are aligned to key controls and
form part of the assurance and internal audit programme.
Reviewed our principal risk register in June and December.
Risk
management
and internal
control
Review the Group
risk register, risk
appetite and
effectiveness of the
risk management
process to ensure
we have a robust
risk management
framework which
delivers an effective
and efficient
approach to risk
management and
positively contributes
to effective decision
making.
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78 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Leadership continued
In addition to the regular items, the key areas of focus were:
Topic
Activity/Discussion
Actions arising
Progress
Risk
management
and internal
control
continued
Leadership
and
employees
Monitoring legacy
contracts.
Regular updates
from Power Solutions
Managing Director.
Detailed analysis undertaken on the macroeconomic background,
power market and power strategy in countries such as Argentina,
with significant legacy contracts. Close monitoring of tenders
and successes with modelling of different scenarios for our
current contracts.
R E A D M O R E A B O U T O U R R I S K S
P A G E 5 2
Succession planning. Review succession
plans in place for
Executive Committee,
Senior Leadership Team
and direct reports.
Executive off-site meeting held with focus on team development.
New succession plans approved.
Employee
engagement
and culture.
Ongoing training
and development
for Board members.
R E A D M O R E A B O U T
N I C O L A B R E W E R ’ S I N D U C T I O N
P A G E 8 0
Governance
Discussed format
for Board evaluation
in 2016.
Impact of new
Market Abuse
Regulation.
Review culture and
agree plan to refresh.
Reviewed Executive Committee work on employee purpose, values
and behaviours. Launch of culture refresh planned for early 2017.
Review all
employee share
save arrangements.
Encourage interaction
between Board
members and
employees across
the Group.
Induction for
Nicola Brewer.
Agreed format for
Chairman’s review with
one to one sessions with
each Board member.
Reviewed existing
policies and processes
to assess ability to
comply with the
new regulation.
Approved all employee share save offer.
Board visit to Houston head office and Pearland in June 2016.
Board workshop at Manufacturing and Technology site in Dumbarton
in April 2016 on the design and launch plan for the new medium
speed HFO engine.
Induction complete.
R E A D M O R E A B O U T O U R
V I S I T T O N O R T H A M E R I C A
P A G E 7 9
Completed implementation of the action points identified as part of
the 2015 review.
Agreed 2017 action plan for the Board.
Adopted new policies and procedures for monitoring and handling
of inside information. Provided training to Directors and employees
affected by the new regulation.
R E A D M O R E A B O U T O U R B O A R D E V A L U A T I O N
P A G E 8 1
Shareholders Strong engagement
with stakeholders
and investors.
Actively support
engagement
opportunities
and understand
investor views.
Reviewed the outcome of the investor audit, which gathered
detailed feedback from our Shareholders.
Technology “teach in” at Manufacturing and Technology facility in
Dumbarton in September 2016. This gave investors and analysts an
overview of our technology agenda and current progress against it.
Sought views from our main Shareholders on a new remuneration
policy. The new policy will be put to Shareholders for approval at
the AGM in 2017.
R E A D M O R E A B O U T O U R S H A R E H O L D E R E N G A G E M E N T P R O G R A M M E
P A G E 8 4
Governance in action:
Board meeting in North America,
June 2016
Site visits give the Board key insights
into the business; at least one meeting
each year is held at a location outside
London or Glasgow to give the Directors
an opportunity to review operations
and meet local employees.
Aggreko’s Pearland facility
in Texas, North America
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
79
In June 2016, the Board met in Houston, the head office location
for our Rental Solutions business. During their visit, the Directors
received presentations from the Rental Solutions President
and management team in North America and a detailed update
on progress against our strategic initiatives in the Rental Solutions
business. There were also presentations from the management
team for temperature control and Aggreko Process Services;
an engineering team within temperature control whose purpose
is to resolve process bottlenecks associated with temperature
issues. The Board also hosted a dinner with the Rental Solutions
management team to give the Board an opportunity to engage
with the presenters informally.
The Board also visited our Pearland facility for a “management
walk” to learn about safety at the site. They also met with some
of the local employees based there, to hear their views about
working for Aggreko and answer questions.
Aggreko’s Pearland facility is a 13 acre site, housing our largest
service centre in the North American business, as well as
national temperature control repair and support centre, Aggreko
Process Services and a training facility. Pearland has the largest
temperature control testing capacity in the Americas with four
test stands totalling 2,500 tons of capacity and the service centre
generates the largest revenue in the North America business.
There are over 100 employees working at this site and it was one
of Aggreko’s first locations in North America. Pearland’s business
sectors include Petrochemical Refineries, Building Services
and Construction and Events hosted in or around Houston.
As part of Nicola Brewer’s induction process, Nicola also visited
our offices at New Iberia with Ken Hanna. During discussion
groups with employees, Ken explained his role as Chairman and
answered questions, whilst Nicola gave her thoughts on joining
Aggreko. The visit included a tour of the major repair facility and
an introduction to some of the new products being developed
for the North American business, including the first Tier 4 diesel
oil-free air compressor. Ken and Nicola also visited the local service
centre, discussed some of the challenges facing this business
with employees and toured the Rental Centre, learning about the
initiatives underway at the Rental Centre to improve administrative
efficiencies. Finally they visited the Remote Operations Centre.
K E Y P R I O R I T I E S F O R 2 0 1 7
• Continue to closely monitor the work of the Programme
Management Office to ensure the initiatives underpinning
the strategic priorities deliver the expected benefits within
the agreed timescales.
• Monitor the roll out of the re-branded culture around the
organisation to ensure all employees are aware of the launch
and understand their role in embedding the culture into
the organisation.
• Receive regular updates from the Group Risk Committee
to ensure this Committee provides the intended level of
support on risk management and integrated assurance.
• Plan a board visit to Southern Africa to provide key insights into
the Power Solutions business in Africa for the Board, engage
with local employees and visit a local site.
• Implement the actions identified in the 2016 board evaluation.
• Ensure thorough induction programmes for Barbara Jeremiah
and Miles Roberts.
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80 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Effectiveness
G O V E R N A N C E I N A C T I O N :
N I C O L A B R E W E R ’ S I N D U C T I O N
Our induction programme aims to give new Non-executive
Directors a thorough grounding in Aggreko’s business,
on a Group and business unit basis, areas of significant risk
and a clear understanding of their role and responsibilities.
Key elements include meeting the Executive Directors, senior
management in the Group and senior management within the
business units and spending time with the Company Secretary
to ensure an understanding of directors’ duties, conflicts of
interest, corporate governance, Board procedures, Group
policies and the use of our electronic Board packs.
Visiting our main sites for briefings on Group strategy and the
business units forms an important part of the induction process.
During Nicola Brewer’s induction to Aggreko, Nicola visited
a number of locations around the Group.
Induction, development
and support
We make sure that all new Directors
receive a full, formal and tailored induction
on joining the Board. We also plan our
Board calendar to ensure that Directors
are able to visit different business locations
and are briefed on a wide range of topics
throughout the year. These topics range
from those with particular relevance
for our business, such as world energy
demand, to more general matters such
as developments in corporate governance.
We recognise that our Directors have
a diverse range of experience, and
so we encourage them to attend
external seminars and briefings
that will assist them individually.
My induction programme was extremely
comprehensive. It helped me to learn
about the different aspects of the business
and absorb its culture. This enabled me
to start contributing to Board discussions
more quickly and confidently.
D A M E N I C O L A B R E W E R
Non-executive Director
China – Shanghai
Nicola met with the North
Asia management team,
receiving an overview of their
business, visiting the Shanghai
Depot and meeting with an
equipment supplier.
Scotland – Dumbarton
As part of a Board visit to the
Manufacturing and Technology
site, Nicola attended a
workshop on the design
and launch plan for the new
medium speed HFO engine.
UAE – Dubai
Nicola met with the Middle
East management team for
an overview of the business
and went on a site tour of the
Jebel Ali office and depot.
North America – Houston,
Pearland and New Iberia
See page 79 for information
on the Board’s visit to Houston
and Pearland and Nicola’s visit
to New Iberia.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
81
T H I S Y E A R ’ S B O A R D E V A L U A T I O N E X E R C I S E
In line with the UK Corporate Governance Code, we undertake
a formal and rigorous annual evaluation of our own performance
and that of our Committees and individual Directors each year.
We operate a three-year cycle of Chairman’s review,
Company Secretary’s review and externally facilitated review.
Aggreko’s last externally facilitated evaluation took place in 2015,
so this year the review was carried out by the Chairman.
Board evaluation framework
Step one
Briefing and preparation
• The Chairman presented a paper to the Board outlining
• Key areas of focus for the 2016
the proposed evaluation process for 2016.
Step two
One to one discussions
Step three
Presentation
of findings
and discussion
Step four
• The Chairman conducted one to one discussions with each
member of the Board, the Company Secretary, Managing
Director for Power Solutions and President for Rental Solutions.
Both the Managing Director for Power Solutions and President
for Rental Solutions regularly attend Board meetings.
• The Chairman prepared a draft discussion document on the
key areas discussed.
Insights, conclusions
and actions for 2017
Good progress has been made against the three main topics
raised last year.
Strategic issues (including competitiveness and
market landscape)
• We have reviewed the market landscape, our competitors and
implications for our strategy.
• We received regular updates on technology in 2016, including
updates on the progress of HFO and solar diesel, with further
items scheduled for 2017.
• New strategic KPIs were approved in 2016, further information
can be found on page 34.
Risk and control
• Group Risk Committee established.
• Risk register reviewed in June and December.
Succession and talent management
• Although some progress had been made and the
appointment of a new Group HR Director had made a good
impact, actions remained ongoing in relation to succession and
talent management and further actions were agreed for 2017.
• Successful Board visits to Dumbarton, Houston and
Pearland in 2016.
evaluation included:
– Our response to the three
main topics raised last year
(strategic issues, risk and
control, succession and
talent management).
– Board and meeting
effectiveness.
• The Board discussed the findings
as a group, noted progress made
against the actions for 2016 and
agreed actions for 2017.
• The evaluation also examined the
current workings of the Board to
identify potential improvements.
Board and Meeting Effectiveness
• Well run meetings allowed
time for discussion of the
issues, debate was respectful
and the Board was balanced.
Good relationship between
Board members and the
attendance at meetings of the
Power Solutions Managing
Director and Rental Solutions
President was valuable.
• Some constructive points
were raised in relation to
Board meeting administration,
actions were agreed to improve
efficiency for 2017.
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82 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Accountability
Risk management and
internal control
The Board is responsible for the Group’s
risk management framework and internal
control systems. The Group operates
defined internal control systems across
finance, operations and compliance, with
key controls identified and assessed across
the year. Group Risk, Group Internal Audit
and internal control teams operate within
the business to monitor and assess the
effective operation of these controls.
The Board, via the Audit Committee
and our new Group Risk Committee,
monitors the internal control systems on
an ongoing basis. The process is designed
to manage rather than eliminate risk,
and can only provide reasonable and
not absolute assurance against material
misstatement or loss.
Following an extensive update in 2015, the Board has focused
on embedding the improved risk management process into
the Group. This year the Board has spent some time challenging
the alignment of key controls to our principal risks and ensuring
the effectiveness of those controls by reviewing them as part of
our assurance and internal audit programme. For example, the
Internal Audit team has undertaken audit reviews around the
change management relating to our strategic priorities, providing
challenge over the effectiveness of controls and identifying
opportunities for improvement.
The objective of our risk framework is to provide the Board,
Audit Committee and Executive Committee with a useful
management tool to capture, assess and proactively manage
the risks we face. Our risk management process also ensures that
we take account of our business model and strategy to ensure
alignment with our risk appetite, framework and controls. In turn,
this enables us to fully comply with the UK Corporate Governance
Code requirement for a viability statement.
G R O U P R I S K C O M M I T T E E :
To ensure sufficient oversight of our risk management process and
to further embed it within our management teams, we formed
the Group Risk Committee in 2016. This Committee is chaired by
our CFO, Carole Cran, and is attended by our Executive Committee
members. The Group Risk Committee met twice in 2016.
The Group Risk Committee’s primary role is the implementation
of our risk framework. This includes review of the Group Register
of Principal Risks, with challenge given to the prioritisation and
management of individual risks as appropriate. In future, the
Group Risk Committee will also oversee efforts to align assurance
activity across the Group. Following each meeting, reports are
made to the Audit Committee and Board. The reports to the
Audit Committee focus on the effectiveness of the control
environment for our risks. The reports to the Board focus on
agreeing the register of principal risks and any changes to the risk
management framework, including proposals for amendments
to the risk appetite.
R I S K A P P E T I T E :
Our approach to risk appetite has been developed in line with
the UK Corporate Governance Code. By articulating the type and
level of risk we are willing to take in order to achieve our strategic
objectives, we aim to support consistent, risk-informed decision
making across the Group. We have defined our risk appetite for
each of the categories of risk as shown on page 53 of this report.
Our risk appetite has been incorporated into our risk management
framework and the Group Risk Committee and Board monitor
whether we are operating within our appetite through review
of a series of agreed metrics and a review of the register of
principal risks.
R I S K M A N A G E M E N T F R A M E W O R K :
A full review of the Group register of principal risks was completed
during June and July 2016 for our interim reporting. This exercise
was undertaken again at the year end. Details of the process the
Board has in place to identify, evaluate and manage principal
risks can be found in the risk section of the Strategic Report.
This process has been in place for the period under review and
up to the date of approval of the Annual Report and Accounts.
In addition, we monitor the effectiveness of the risk management
framework and internal control systems on an ongoing basis.
No significant failings or weaknesses have been identified.
Further detail on the process for monitoring the effectiveness
of our risk management framework and control environment
can be found in the Audit Committee Report.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
83
G O V E R N A N C E I N A C T I O N :
F A I R , B A L A N C E D A N D U N D E R S T A N D A B L E R E P O R T I N G
The Board recognises its responsibility to present a fair,
balanced and understandable assessment of Aggreko in
all of our reporting obligations. This responsibility covers the
Annual Report and extends to the interim report and other
regulatory announcements.
For the 2016 Annual Report, this process included:
• Comprehensive management and statutory accounts
processes, with written confirmations provided by the
regional senior management teams on the “health”
of the financial control environment;
The Directors consider this Annual Report, taken as a whole, to
be fair, balanced and understandable, providing the information
necessary for Shareholders to assess the Company’s position
and performance, business model and strategy. In arriving at
this position, the Board asked the Audit Committee to review
and confirm the process we have in place to support this
assessment. The Audit Committee confirmed that we have
a robust approach in place to support the fair, balanced and
understandable assessment.
• Detailed reviews of the Annual Report and Accounts
undertaken at different levels of the Group and by the senior
management team that aim to ensure consistency and
overall balance;
• A verification process, involving our internal audit team,
dealing with the factual content of the Annual Report;
• A key accounting judgements paper covering contract and
tax provisions, along with a summary of any changes in our
accounting policies for 2016; and
• Both the Audit Committee and Board received an early draft
of the Annual Report to enable time for review and comment.
“ The Directors consider this Annual Report, taken as a whole,
to be fair, balanced and understandable.”
R E A D M O R E I N O U R A U D I T C O M M I T T E E R E P O R T
P A G E 8 6
R I S K M A N A G E M E N T F R A M E W O R K – R O L E S A N D R E S P O N S I B I L I T I E S
Ultimate
Responsibility
Board
Oversight
Audit Committee
(makes recommendations
to the Board)
Management & Monitoring
Group Risk Committee
(makes recommendations
to the Audit Committee and Board)
Ownership
Business Units, Senior Leadership Team
and Group Functions
(supported by Group Risk)
• Ultimate responsibility for risk management and internal control
• Approves the risk management framework
• Approves the risk appetite and monitors compliance
• Approves the Group register of principal risks
• Approves the viability statement
• Responsible for reviewing the effectiveness of the Group’s
systems for internal control and risk management
• Reviews and challenges the risk management framework
• Reviews the effectiveness of the control environment
• Reviews the effectiveness of and approves the approach
for the viability statement
• Responsible for implementing and embedding risk management
and internal controls
• Defines the risk management process to be followed by the
business (including risk appetite)
• Reviews and challenges the Group register of principal risks ensuring
controls identified are operating and tracks closure of items
• Facilitates risk process, collating risk registers and consolidating
the Group risk register
• Aligns assurance activity
• Responsible for identification, prioritisation, assessment
and monitoring of risk which may arise in the business
• Risks and associated controls are owned and operated
by management
• Risk registers are maintained and form the basis of the
Group risk register
R E A D A B O U T O U R R I S K S A N D V I A B I L I T Y S T A T E M E N T
P A G E 5 2
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84 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Relations with Shareholders
S H A R E H O L D E R E N G A G E M E N T C A L E N D A R 2 0 1 6
M A R C H
A P R I L
M A Y
J U N E
Roadshows in the UK
following the preliminary
results announcement
Roadshows on the
east coast of the
USA & Canada
Citi Business
Services Conference
AGM
Bank of America
Merrill Lynch Business
Services Conference
Conference calls and
meetings with investors
following the first quarter
trading update
Technology
Capital Markets Day
in Dumbarton
W H A T O U R S H A R E H O L D E R S H A V E A S K E D U S A B O U T T H I S Y E A R
Power Solutions Utility pipeline and prospects
Legacy contracts and key extensions in Power Solutions Utility
Exposure to Oil & Gas and emerging markets
Strategic priorities
Performance outlook
Organisational changes and morale
Cash flow, capital expenditure, debt and dividend cover
Shareholder returns
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
85
K E Y T O C O M M I T T E E A C T I V I T I E S
Interim results
Full year results
Trading update
Investor meetings
AGM
Site visit
S H A R E H O L D E R E N G A G E M E N T C A L E N D A R 2 0 1 6
A U G U S T
S E P T E M B E R
O C T O B E R
N O V E M B E R
D E C E M B E R
Roadshows in the
UK and France
following the
interim results
Rental Solutions
investor visit
with Barclays
Interim year
financial results
Conference calls
and meetings with
investors following
the interim results
Roadshows on the
east coast of the
USA & Canada
following the
interim results
Roadshow on the
west coast
of the USA
Conference calls
and meetings with
investors following
the third quarter
trading update
Credit Suisse
European
Business Services
and Transport
Conference
Understanding what analysts and investors think about us,
and in turn, helping these audiences understand our business,
is a key part of driving our business forward and we actively
seek dialogue with the market. We do so via investor roadshows,
attending investor conferences, hosting capital markets
days and our regular reporting. The Board receives regular
updates on the views of Shareholders through briefings and
reports from Investor Relations, the Chief Executive Officer,
Chief Financial Officer and the Company brokers. In addition,
our Senior Independent Director, Russell King, is available to
meet Shareholders if they wish to raise any issues separately.
During the year, the Investor Relations team and senior
management conducted almost 460 meetings, met or spoke
to over 400 institutions and participated in seven conferences.
Meetings are conducted by at least one of the Chairman,
Chief Executive Officer, Chief Financial Officer or a member
of the Investor Relations team and these meetings occurred
in a number of key locations around the world; during the
year we met investors in the UK, USA, Canada and France.
In future we aim to include broader management in investor
meetings throughout the year, to allow investors to gain
a broader perspective of management and the business.
Results and other news releases such as contract wins and
changes to our strategy are published via the London Stock
Exchange’s Regulatory News Service (RNS). Any announcement
published via RNS is also available on the Group’s Investor
Relations website at ir.aggreko.com/investors; a subscription
service is available for interested parties to receive these updates
by email. We continually seek to enhance our communications
and alongside the publication of this report we have refreshed
our corporate and investor relations websites.
The Group has an office in London, where the Investor
Relations team is based, and maintains ongoing relations
with analysts and investors through telephone calls and
meetings. Throughout 2016, we have continued to maintain
open and transparent communication with analysts and
investors through meetings, presentations, conferences and
site visits. In June 2016, we hosted a capital markets day on
our technology strategic priority, at our Manufacturing and
Technology facility in Dumbarton, Scotland.
During the year, the Chairman of the Remuneration Committee
held a number of consultations with Shareholders around
the development of the new remuneration policy, Long Term
Incentive Plans and general performance of the business.
Read more about our new remuneration policy and Long-Term
Incentive Plans on page 94.
We also enjoy meeting and engaging in discussion with our private
Shareholders at the Company’s Annual General Meeting (AGM).
The 2017 AGM will be held in Glasgow on Thursday, 27 April 2017.
R E A D M O R E A B O U T O U R S T R A T E G Y P A G E 2 7
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86 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Audit Committee report
I N T R O D U C T I O N B Y I A N M A R C H A N T ,
A U D I T C O M M I T T E E C H A I R M A N
Ensuring the integrity of the Group’s financial statements and
determining whether the judgements taken by management
are appropriate, are key to the workings of the Committee.
This report provides an overview of the significant issues we
considered. This report also shares some insight into the work
we have undertaken this year to assess the independence and
effectiveness of the external auditor and oversee the Group’s
systems for internal control and risk management.
The Committee is currently made up of three Independent
Non-executive Directors, including myself as Chairman. I have
been a member of the Committee since November 2013 and
was appointed as Chairman of the Committee in April 2016.
I am a chartered accountant and, prior to my appointment
as Chief Executive of SSE (2002 to 2015), I served as Finance
Director of SSE for four years and of Southern Electric for two
and a half years. As a Committee, we bring an appropriate
balance of financial and accounting experience, together
with a deep understanding of Aggreko’s business and market
sector. Diana Layfield and I are the members of the Committee
identified with recent and relevant financial experience.
In 2016 we held three scheduled meetings. The meetings are
aligned to the Group’s financial reporting timetable, to allow
sufficient time for full discussion of key topics and enable early
identification and resolution of risks and issues. We invited the
Chairman, Chief Executive Officer and Chief Financial Officer to
attend our meetings in 2016, together with the Group Financial
Controller, Director of Internal Audit and the KPMG Audit Partner.
R O L E O F A U D I T C O M M I T T E E
• Monitor the integrity of the financial statements, including
reviewing significant financial reporting issues and judgements
alongside the findings of the external auditor.
• Review the effectiveness of the Group’s systems for internal
control, financial reporting and risk management.
• Advise the Board on the effectiveness of the fair, balanced and
understandable review of the Annual Report.
• Oversee the relationship with the external auditor, external
audit process, nature and scope of the external audit, including
their appointment, effectiveness, independence and fees.
• Oversee the nature and scope of internal audit, ensuring
coordination with the activities of the external auditor.
I A N M A R C H A N T
A U D I T C O M M I T T E E C H A I R M A N
The role of the Audit Committee is
to ensure the integrity of the Group’s
financial reporting and provide oversight
of our systems for internal control
and risk management
A R E A S O F A C T I V I T Y I N 2 0 1 6
• Oversaw the transition of external auditor responsibilities from
PricewaterhouseCoopers to KPMG to ensure independence was
maintained and a successful 2016 external audit.
• Provided oversight on the effectiveness of our risk management process,
ensuring effective controls were in place for each risk.
• Reviewed and agreed approach to accounting policies for product
development expenditure and the impact of new accounting standards.
• Reviewed our cyber security arrangements with the Chief Information
Officer and agreed actions, including employee training, for 2017.
• Managed the transition of responsibilities for the Chairmanship of the
Committee from Robert MacLeod to Ian Marchant.
M E M B E R S I N 2 0 1 6
Meetings attended
Ian Marchant – Audit Committee Chairman from 29 April 2016
Robert MacLeod – Audit Committee Chairman until 28 April 20161
M A I N A C T I V I T I E S O F T H E A U D I T C O M M I T T E E
D U R I N G T H E Y E A R
Russell King – Senior Independent Director
Diana Layfield – Non-executive Director
1 Robert MacLeod retired from the Board on 28 April 2016.
A R E A S O F F O C U S F O R 2 0 1 7
• Continue to monitor the status of internal audit actions.
• Continue risk management oversight with presentations scheduled
from the Directors of Finance for Power Solutions and Rental Solutions
and Group Treasurer on treasury risk management.
• Review our terms of reference to take account of the 2016 update to
the UK Corporate Governance Code and rule changes to the Disclosure
and Transparency Rules, both of which will apply to our 2017 year end.
F I N A N C I A L R E P O R T I N G
During the course of the year, the Committee met with the
external auditors and management as part of the 2016 Annual and
Interim Report approval process. We reviewed the draft financial
statements and considered a number of supporting papers,
including: information presented by management on significant
accounting judgements to ensure all issues raised have been
properly dealt with; key points of disclosure and presentation to
ensure adequacy, clarity and completeness; external audit reports;
documentation prepared to support the viability statement
and going concern statements given on pages 61 and 132;
and information presented by management on the process
underpinning the fair, balanced and understandable assessment
and confirmation made by the Board on page 83.
A U D I T C O M M I T T E E T E R M S O F R E F E R E N C E :
I R . A G G R E K O . C O M / I N V E S T O R S
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
87
Areas of focus
• We reviewed and agreed the accounting for product
development expenditure. As part of the strategic priorities
review, the Board concluded that a lower cost of energy
is critical to most of our customers and our investment in
technology is a key enabler in this area. Therefore, the Board
increased investment in product development work, resulting
in an intangible asset of £5 million for development expenditure
being recognised. More detail is included in the accounting
policies on page 134 and in Note 30.A2 to the Accounts on
page 159.
• We reviewed the impact of IFRS 15, a new accounting standard
applying to revenue for contracts with customers, effective for
accounting periods on or after 1 January 2018. The main changes
we expect from adopting IFRS 15 are included on page 132.
• We reviewed the appropriateness of the carrying value of
specialist property, plant and equipment for the Oil & Gas
market in North America. Given the continued decline in the
Oil & Gas sector in North America, management reviewed
the carrying value of small gas generators used in this market
We reviewed management’s assumptions and rationale for an
impairment review, examining the recoverable amount of the
assets compared to the carrying amount, projected future cash
flows and key assumptions and sensitivities for the impairment
assessment. KPMG also explained their audit process to test the
impairment assessment. We agreed that an impairment charge
of £30 million was appropriate. More details are included in
Notes 7 and 15 to the Accounts on pages 142 and 147.
• We reviewed the European Securities and Markets Authority
guidelines on Alternative Performance Measures to ensure
our disclosures were fully compliant with the new guidance.
KPMG carried out their work using an overall materiality of
£11 million, as stated in their report on page 122, and confirmed
to the Committee that there were no material unadjusted
misstatements. We also agreed with the external auditor that
they would inform us of any unadjusted misstatements above
£0.5 million, as well as misstatements below that amount that
warranted reporting for qualitative reasons. None were reported
to the Committee. The Committee also reviewed the coverage
of internal audit and external audit from a risk and geographic
perspective. Following completion of the above steps, we agreed
to recommend the approval of the 2016 Annual and Interim
Reports to the Board.
The primary areas of judgement considered by the Committee in relation to the 2016 Annual Report were:
How did the Audit Committee
address the judgement?
The Committee addressed contract provisions
by considering an accounting judgements paper
at the August 2016 and March 2017 meetings,
which was tabled by the Chief Financial Officer.
This detailed the latest position of debtors
outstanding at the half year and year end and
gave an assessment of the likelihood of collecting
future payments. We discussed in detail the
main movements in provisions and assessed
the adequacy of all of the provisions. KPMG
reported on these contract provisions at both
the August 2016 and March 2017 meetings in the
context of the half year review and the year end
audit respectively. In addition, the Committee is
aware that the Board and Executive Committee
receives a report on contract exposures each
month and has assessed the Group’s processes
for calculating and regularly monitoring contract
risk provisions.
The Committee addressed tax provisions by
considering an accounting judgements paper at
both the August 2016 and March 2017 meetings,
which was tabled by the Chief Financial Officer.
We discussed the changes to the provisions
in detail and assessed their adequacy overall.
KPMG reported on these provisions at the
August 2016 meeting in the context of the half
year review, and at the March 2017 meetings in
the context of the year end audit. We have also
monitored and assessed the Group’s processes
for calculating and regularly monitoring
tax provisions.
Conclusion and outcome
We concluded that the
judgements and estimates were
reasonable and appropriate.
Overall the contract provision
agreed for 31 December 2016
was $63 million, $8 million
lower than 31 December 2015.
This movement is explained
on page 48.
More information on our
risk profile and mitigation
for failure to collect payment
or to recover assets can be
found on page 60.
We concluded that the
judgements and estimates were
reasonable and appropriate.
Overall the tax provision agreed
for 31 December 2016 was £39
million (2015: £61 million).
More information on Aggreko’s
tax strategy and payments
in 2016 can be found in the
financial review on page 45.
More information on our risks
can be found on page 60.
Area of judgement
Reporting issue
Contract provisions –
Power Solutions Utility
Direct and indirect
tax provisions
One of the biggest risks facing the
Group is non-payment by customers
under some of the larger contracts
in our Power Solutions Utility
business. Contract receivables and
associated specific provisions within
Power Solutions Utility is a key risk
for the Group, and one of the areas
of particular external audit focus.
The Group policy is to consider each
significant debtor and customer
individually, within the relevant
environment to which it relates,
taking into account a number
of factors, in accordance with
accounting standards.
The Group’s tax strategy is to
manage all taxes, both direct
and indirect, such that we pay
the appropriate amount of tax in
each country where we operate
whilst ensuring that we respect the
applicable tax legislation and utilise
where appropriate any legislative
reliefs available. However, given the
varied, complex and often uncertain
nature of tax rules in certain countries,
in particular in those in which we
have our Power Solutions business,
we recognise that it makes sense
to carry an appropriate level of
provision for both direct and indirect
taxes. The tax team monitors the
status of tax risks monthly and
in detail at the half and full year.
This monitoring process together
with consideration of any relevant
legislative change is then used to
determine the appropriate level
of provisions.
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88 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Audit Committee report continued
Non-audit services
To safeguard the objectivity and independence of the external
auditor from becoming compromised, the Committee has
a formal policy governing the engagement of the external
auditor to provide non-audit services. Non-audit services are
normally limited to assignments that are closely related to
the annual audit or where the work is of such a nature that a
detailed understanding of the Group is necessary. Any proposal
to use the external auditor for non-audit work requires prior
approval of the Chief Financial Officer and depending on the
nature of the service and fee involved, authorisation may also
be required from the Committee Chairman or the Committee.
At our March 2017 meeting, we updated our non-audit services
policy to take account of a new FRC ethical standard, deleting
the section of the policy in relation to permitted non-audit
taxation work.
The non-audit services policy is available on our website at:
ir.aggreko.com/investors/corporate-governance
Non-audit fees are monitored by the Committee and this year
we were satisfied that all non-audit work undertaken was in
line with our policy and did not detract from the objectivity
and independence of the external auditor. The majority of
the non-audit work carried out by KPMG during the year
related to investor relations services and tax. As a percentage
of the overall audit fee for the year, other assurance services
and non-audit fees are 36% (2015: 16% (services provided by
PricewaterhouseCoopers)). The increase in percentage for
non-audit services provided by KPMG in 2016 relates to investor
relations work provided by Makinson Cowell; no further work
will be undertaken by Makinson Cowell in 2017. Further details
of the fees paid to the external auditor are set out in Note 6 to
the accounts on page 142.
R I S K M A N A G E M E N T A N D I N T E R N A L C O N T R O L
Aggreko’s objective is to have a strong and regularly monitored
control environment. The Board assumes ultimate responsibility
for the effective management of risk across the Group,
determining our risk appetite as well as ensuring that each
business unit implements appropriate internal controls. The Board
has delegated responsibility for oversight of risk management to
the Committee. The Committee provides oversight by reviewing
the effectiveness of the Group’s systems for internal control, risk
management and financial reporting. In 2016 we worked closely
with the newly established Group Risk Committee, receiving
regular reports from the Group Risk Committee, which enabled
us to review and challenge the risk management framework,
review the effectiveness of the control environment and approve
the methodology for the viability statement. We also requested
individual updates on countries receiving a low internal control
score for their financial control environment, to understand the
remedial actions in place. Those countries will be monitored
closely in 2017 to ensure improvements are realised.
E X T E R N A L A U D I T O R
The Committee is responsible for making recommendations to
the Board in relation to the appointment of the external auditor.
We also approve the audit plan, terms of engagement and fees
and assess their effectiveness.
Audit plan
KPMG presented their audit plan at the August 2016 meeting
and an update at the December 2016 meeting, setting out the
scope and objectives of the audit together with an overview of the
planned approach, an assessment of the Group’s risks and controls
and proposed areas of audit focus. In setting the audit plan,
KPMG work with Internal Audit and management at a Group and
business unit level to identify risk areas for the audit to determine
where audit effort should be focused.
Tenure
KPMG were appointed by Shareholders as the Group’s Statutory
Auditor in 2016 following a formal tender process. The external
audit contract will be put out to tender at least every 10 years.
The Committee recommends the appointment of KPMG for 2017.
We believe the independence and objectivity of the external
auditor and the effectiveness of the audit process are safeguarded
and strong. The Company has complied with the Statutory Audit
Services Order for the financial year under review.
Effectiveness
As mentioned in our report last year, we identified the
2016 financial year as a potential period of increased audit
effectiveness risk given the transition of the statutory auditor
from PricewaterhouseCoopers to KPMG. The Committee met
with KPMG on a number of occasions without management
present and the Committee Chairman also maintained regular
contact with the audit partner throughout the year. This enabled
the Committee to closely monitor the transition of responsibilities,
and ensure independence was maintained and a successful
external audit of the 2016 Annual Report.
We also used an internal questionnaire sent to Committee
members, the Business Unit Finance Directors and Group
Functional Heads in December 2016; respondents were asked
to rate KPMG effectiveness in a number of areas, including
calibre of external audit firm, quality of processes, audit team,
audit scope, communications, technical expertise and audit
governance/independence. Results were collated and presented
at the March 2017 meeting of the Committee for discussion.
Management concluded that there had been appropriate focus
and challenge on the primary areas of audit risk and assessed
the quality of the audit process to be effective. The Committee
concurred with this view.
The FRC’s Audit Quality Review team selected to review the
audit of Aggreko’s 2015 financial statements as part of their 2016
annual inspection of audit firms. The focus of the review and
their reporting is on identifying areas where improvements are
required rather than highlighting areas performed to or above
the expected level. The review refers to the work performed by our
previous external auditor, PricewaterhouseCoopers. The Chairman
of the Committee received a full copy of the findings and met
with PricewaterhouseCoopers to close out the points raised by the
review and reported back to the Committee on this discussion.
The Committee reviewed the findings at their December meeting
and agreed an action plan with KPMG to ensure that the matters
identified by the AQR have been addressed in the audit of the
2016 financial statements where relevant.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
89
Internal Audit continue to play a key role in assisting the
Committee and in 2016 we asked Internal Audit to provide
assurance over management’s assessment of the effectiveness
of the operation of controls within the Group risk register.
This assessment was based upon the results of audits undertaken
across the year, by reflecting on the outstanding audit issue
database and in cooperation with the business unit controls
teams. No variances which would impact the risk scoring were
identified in 2016. The Committee found this exercise useful and
will ask Internal Audit to complete a similar exercise annually
going forward.
Further detail on our risk management framework can be
found in the accountability section of the Corporate Governance
Report on page 82 and the risk section of the Strategic Report
on page 52.
Financial control
A key area of focus for the Committee is the Group’s financial
controls. We aim to ensure that the same high standards are
applied throughout the business with the framework set at Group
level. Across the Group, there is a strong focus on training and
development and this helps to underline the standards that we
require. We then monitor this process through regular financial
control reviews and a financial control checklist. This also enables
us to set targets, identify and monitor areas for improvement.
We agreed financial control deliverables for 2016, these included
embedding our financial control framework into the new business
structure, meeting set targets for internal audit gradings and
providing assurance to the Committee that financial controls are
in place for applicable items on the Group Risk Register. At the
end of the year, we reviewed progress for 2016 and agreed to
adopt a revised financial controls checklist, focusing on critical
controls, which we would closely monitor in 2017. Our financial
control priorities for 2017 have been set after going through the
following process:
• Setting out the key challenges for financial control and then
reviewing the control environment and risk mitigation in place
to help address these challenges;
• Reviewing the 2016 financial control checklist scores for all
of our locations globally and cross referring them against the
2016 internal audit reports;
• The Financial Leadership Team reviewed the above data and
analysis to set clear priorities for 2017; and
• The Chief Financial Officer then presented the priorities to
the Audit Committee.
The key priorities for 2017 include actions to roll out the new
financial controls checklist, establishing a new review process
for month end and quarter end files, with close monitoring
and additional support as required for our high risk locations,
supporting the roll out of our new procurement policy and
providing support to management in the closure of internal
audit actions.
Viability statement
The Committee reviewed management’s work in conducting
a robust assessment of those risks which could threaten our
business model and the future performance or liquidity of
Aggreko, including our resilience to the threats of viability posed
by those risks in severe but plausible scenarios. This assessment
included stress and sensitivity analyses of these risks to enable
us to evaluate the impact of a severe but plausible combination
of risks. We then considered whether additional financing
would be required in such eventualities. We also considered the
review period and alignment with the Group’s strategic plans
and internal long-term forecasts. Based on this analysis, we
recommended to the Board that it could approve the viability
statement included on page 61.
I N T E R N A L A U D I T
Internal Audit undertakes financial, operational and strategic
audits across the Aggreko Group using a risk based methodology
and in accordance with the changing risk profile of the Company.
The Committee reviewed and agreed the programme of 2016
internal audit work, including the proposed approach, coverage,
and allocation of resources. We also reviewed progress, audit
results and remedial actions during the year through reports at
each meeting. In 2016, we closely monitored the status of internal
audit actions, focusing on the proper closure of actions, making
recommendations to management and requesting detailed
updates where appropriate.
The Committee assessed the effectiveness of the internal audit
function by reviewing their reports, progress against the 2016
plan, and meeting with the Director of Internal Audit without
management being present. In line with the Institute of Internal
Auditors’ guidance, we undertook an external evaluation of
Internal Audit in 2016. Although the review found internal audit to
be effective, it was agreed that the balance between geographic
and thematic audits should be addressed, with an increased focus
on thematic audits in 2017.
S P E A K I N G U P
The Group Ethics Policy, supported by a separate Speaking
Up Policy, encourages all employees to report any potential
improprieties in ethical standards via our international
whistle-blowing hotline. All matters reported are investigated
and where appropriate, we ask Internal Audit to investigate
the issue and report to us on the outcome. We also receive
reports on hotline call volumes and the general nature and
location of matters reported. We review these processes each
year, and can confirm that they are appropriate for the size and
scale of the Group.
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90 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Ethics Committee report
I N T R O D U C T I O N B Y K E N H A N N A ,
E T H I C S C O M M I T T E E C H A I R M A N
Aggreko conducts its business with integrity, honesty and
transparency. We expect all Aggreko employees, consultants
and those acting on behalf of Aggreko to adopt these standards.
We are proud that we have a reputation for conducting business
fairly and professionally and we are committed to maintaining
these values in all of our business dealings.
We recognise that our business is exposed to risks of unethical
conduct because of the nature and value of many of our contracts
and because standards of integrity are not consistent across all
the countries in which we operate. However, we believe we have
a robust compliance programme in place which allows us to
manage these risks effectively.
The effectiveness of the compliance programme is monitored
by the Ethics Committee.
The Ethics Committee is currently made up of two Independent
Non-executive Directors, with myself as Chairman. I have been a
member of the Committee since its first meeting in February 2011
and became Chairman of the Committee in April 2012.
In 2016 we held three meetings. We invited the Head of
Compliance, Group Legal Director and Chief Executive Officer
to attend all meetings.
R O L E O F E T H I C S C O M M I T T E E
• Advise the Board on the development of strategy and policy
on ethical matters.
• Advise the Board on steps to be taken to establish a culture of
integrity and honesty in all of the Company’s business dealings.
• Oversee the Company’s policies and procedures for the
identification, assessment, management and reporting
of ethical risk.
• Oversee the Company’s policies and procedures to prevent
persons associated with the Company from engaging in
unethical behaviour.
• Monitor and review the operation of the Company’s ethics
policies and procedures.
• Monitor and review all payments made to third-party
K E N H A N N A
E T H I C S C O M M I T T E E C H A I R M A N
The role of the Ethics Committee
is to ensure that Aggreko conducts
business with integrity and transparency
and in accordance with the law
A R E A S O F A C T I V I T Y I N 2 0 1 6
• Approved the implementation of revised Gifts, Entertainment and
Hospitality, Charitable Donations and Sponsorship policies.
• Reviewed the implementation of a new online ethics training
programme for all employees and enhanced ethics training for
senior management teams.
• Monitored the introduction of a Supplier Code of Conduct setting out
the standards expected from suppliers to Aggreko.
• Instructed an independent maturity assessment of the
compliance programme.
• Received briefings from the business units in relation to their approach
to managing compliance risks within their respective business units.
M E M B E R S I N 2 0 1 6
Meetings attended
Ken Hanna – Ethics Committee Chairman
Diana Layfield – Non-executive Director
Dame Nicola Brewer – Non-executive Director
sales consultants.
Ian Marchant – Non-executive Director1
1 Ian Marchant stepped down as a Member of this Committee in April 2017,
following his appointment as Audit Committee Chairman.
A R E A S O F F O C U S F O R 2 0 1 7
• Oversee the full integration of the risk based due diligence into the
supply chain processes.
• Oversee the full integration of risk based measures designed to manage
modern slavery risks in the supply chain.
• Oversee the completion of a global risk assessment of bribery and
corruption risks.
M A I N A C T I V I T I E S O F T H E E T H I C S C O M M I T T E E
D U R I N G T H E Y E A R
Ethics policies
In 2016, we introduced revised versions of our Gifts, Entertainment
& Hospitality Policy, Charitable Donations Policy and Sponsorship
Policy. These policies were amended to reflect the structural
changes to the business following the reorganisation and to take
account of recommendations made following a risk assessment
and review of the effectiveness of the ethics policies. Whilst the
policies were working well in ensuring that all employees comply
with the high ethical standards expected throughout Aggreko,
we introduced certain improvements to ensure that the policies
remain robust and continue to meet the needs of the business.
We provided training to all employees on the revised policies
to ensure all employees remain alert to potential risks.
E T H I C S C O M M I T T E E T E R M S O F R E F E R E N C E :
I R . A G G R E K O . C O M / I N V E S T O R S
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
91
Ethics training
We are committed to providing regular training on ethical issues
to employees in order to ensure that employees remain alert to
risks and are regularly reminded of the standards expected by
Aggreko. This approach applies equally to the Board as it does
to all employees across the business. In 2016 we launched a
new online ethics training course which has been successfully
completed by all employees across the business. This online
training was also supplemented by ethics workshops delivered
by the Head of Compliance to the Board and senior management
teams highlighting examples of potential areas of risk and
discussing how to mitigate these risks. The Committee received
briefings on the progress of this training throughout the business.
Third-party monitoring
We recognise that it is not just our employees who could be
exposed to ethics risks but our third-party sales consultants
are also exposed to risk. The conduct of our third-party sales
consultants remains one of the most significant risks to Aggreko.
The number of third-party sales consultants used by the business
has reduced over the last few years but there is a continued
requirement for third parties to help support some areas of the
business. We have risk management measures in place which
require all third-party sales consultants engaged by Aggreko to
conduct business in compliance with the standards set out in
our ethics policy and allow us to monitor compliance with these
requirements. We also have controls in place in relation to the
remuneration of sales consultants and we monitor all payments
to sales consultants. At the first meeting of each year, we receive
a briefing on all payments made to sales consultants during the
prior year to ensure that the payments were appropriate and
in line with policy requirements. We also received a briefing
from the President for Rental Solutions and Managing Director
for Power Solutions this year with a specific emphasis on
understanding how they manage the potential risks associated
with the use of third-party sales consultants.
We recognise that there are also other categories of third-party
supplier relationships which potentially could also attract risk
for the business. In response to this risk we introduced a Supplier
Code of Conduct setting out the standards we require from
all suppliers to Aggreko. All new suppliers to Aggreko are now
required to confirm compliance with this Code of Conduct.
Effectiveness of the compliance programme
We are committed to ensuring that our compliance programme
remains robust and is in line with best practice. In 2016 we
instructed an independent maturity assessment on the
compliance programme. This assessment has recently been
completed and provided comfort that the programme
is working well to effectively manage risk. The assessment
highlighted some areas where further improvements could
be introduced to enhance the compliance programme,
which we will work to address in 2017.
A N O V E R V I E W O F O U R C O M P L I A N C E P R O G R A M M E
Our compliance programme is coordinated by our full-time
Head of Compliance with support from the business units and
the central functions.
Our compliance programme has a number of elements designed
to ensure that we effectively manage compliance risks:
Ethics Policy
Every employee receives a copy of the Ethics Policy when they
join Aggreko. We also regularly require employees to complete
a compliance statement confirming that they have complied
with and will continue to comply with our Ethics Policy and
the relevant laws as part of the online ethics training.
Training
Every employee receives training, which is refreshed every
two years via our multi-lingual online ethics compliance training
programme. This online training is supplemented by additional
ethics workshops with senior management to ensure they remain
alert to risks.
Third-party risks
All of our sales consultants are comprehensively reviewed before
they are engaged by Aggreko and this exercise is refreshed at least
every two years. Our sales consultants are contractually required to
comply with our Ethics Policy and we require our sales consultants
to confirm compliance with the policy annually. We also provide
ethics training to our sales consultants to ensure they remain alert
to potential risks. We also have controls in place in relation to the
remuneration of consultants and we monitor all payments to sales
consultants to ensure that the remuneration structure does not
incentivise unethical behaviour.
As mentioned earlier in the report, we have also recently
introduced a Supplier Code of Conduct with which we now
require all new suppliers to confirm compliance.
Gifts, entertainment and hospitality
We have a clear approval process for gifts, entertainment and
hospitality offered by, or given to, Aggreko employees. All gifts,
entertainment and hospitality above a nominal value are recorded
centrally and monitored by the Head of Compliance.
Sponsorship and charitable donations
We have a clear approval process for sponsorships and charitable
donations made by Aggreko. All sponsorships and charitable
donations require senior management approval and are recorded
centrally and monitored by the Head of Compliance.
Speaking up
We encourage all employees to speak up if they have any
concerns. We have an independent compliance hotline operated
by an external agency. This multi-lingual hotline is available to
all employees and allows any employee who has any concerns
to report them on an anonymous basis. All reports are followed
up, and we regularly analyse the types of reports we receive.
Where appropriate, our Group Internal Audit team is asked
to investigate the issue and report on the outcome.
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I N T R O D U C T I O N B Y K E N H A N N A ,
N O M I N A T I O N C O M M I T T E E C H A I R M A N
Monitoring and reviewing the composition and balance of the
Board and its committees is key to the role of the Committee.
By doing so we ensure that Aggreko has the right structure,
skills and diversity for the effective management of the Group.
The Nomination Committee is currently made up of all of the
Non-executive Directors, each of whom is independent, in
addition to myself as Chairman. I have been Chairman of the
Committee since my appointment as Chairman of Aggreko in
April 2012, although I would not chair the Committee when it is
dealing with succession to the chairmanship of Aggreko. We also
invited the Chief Executive Officer to attend our meetings in 2016.
In 2016 we held two formal meetings; the members also
had several informal meetings and discussions on succession
planning, reappointment of Directors and the search for
new Non-executive Directors.
R O L E O F N O M I N A T I O N C O M M I T T E E
• Review the structure, size and composition (including skills,
knowledge, experience, diversity and balance of Executive
and Non-executive) of the Board and its Committees and make
recommendations to the Board with regard to any changes.
• Identify and nominate for the approval of the Board, candidates
to fill Board vacancies.
• Keep under review the time commitment expected from the
Chairman and the Non-executive Directors.
92 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Nomination Committee report
K E N H A N N A
N O M I N A T I O N C O M M I T T E E C H A I R M A N
The Nomination Committee’s role is to
monitor and review the composition and
balance of the Board and its committees
to ensure Aggreko has the right structure,
skills and diversity for the effective
management of the Group
A R E A S O F A C T I V I T Y I N 2 0 1 6
• Oversaw a review of the succession plans for the Executive Committee
and Senior Leadership Team.
• Completed the appointment and induction of Nicola Brewer as an
Independent Non-executive Director.
• Recommended the extension of the appointments of two
Independent Non-executive Directors.
M E M B E R S I N 2 0 1 6
Meetings attended
Ken Hanna – Nomination Committee Chairman
Nicola Brewer – Non-executive Director
Russell King – Senior Independent Director
Uwe Krueger – Non-executive Director
Diana Layfield – Non-executive Director
Robert MacLeod – Non-executive Director1
Ian Marchant – Non-executive Director
1 Robert MacLeod retired from the Board on 28 April 2016.
A R E A S O F F O C U S F O R 2 0 1 7
• Review succession plans for the Board.
• Appointment and inductions for our new Independent
Non-executive Directors.
• Identify a suitable candidate or candidates to succeed Russell King as
Senior Independent Director and Remuneration Committee Chairman.
N O M I N A T I O N C O M M I T T E E T E R M S O F R E F E R E N C E :
I R . A G G R E K O . C O M / I N V E S T O R S
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
93
M A I N A C T I V I T I E S O F T H E N O M I N A T I O N C O M M I T T E E D U R I N G T H E Y E A R
Succession planning
The Committee met with the Chief Executive Officer and Group
HR Director to review succession plans. The focus of these
discussions was to review our succession planning strategy and
ensure robust plans were in place for the Executive Committee
and their direct reports. The Committee reviewed profiles for
these positions during the year, taking into account the needs of
the business and identifying any gaps. The Committee will keep
succession planning under close review in 2017 to implement the
actions identified by the Board evaluation.
The Committee also monitors a schedule on the length of tenure
of the Chairman and Non-executive Directors and the mix and
skills of the Directors. The Committee is satisfied that adequate
succession planning is in place for the Board and will keep
succession planning under review.
Board composition and diversity
Our policy is to have a Board which represents a wide range
of backgrounds, skills and experiences. We believe that a
balanced Board is better equipped to consider matters from a
broader perspective. Diversity is not just a matter of measurable
statistics in relation to gender or ethnicity; diversity of outlook
and approach is also important, though far harder to measure.
We also need a range of skills from technical adherence and
operational experience to governance and regulatory matters
to understand the markets in which we operate. We also need
a balance of long corporate memory and new insights from
other fields. There needs to be both challenge and support too.
When selecting new Directors, we take all these considerations
into account, as well as professional background to ensure that
we appoint the best people for the relevant roles.
Three out of eight of our Board roles at 31 December 2016 were
held by women, but diversity is not simply a matter of gender.
We recognise the benefits of greater diversity and will continue to
take account of this when considering any particular appointment,
although we do not set any particular targets. Diversity also
extends beyond the Boardroom and we support management
in their efforts to build a more diverse organisation. You can read
more about our diversity statistics for the Group on page 75.
Reappointment of Directors
Since the Committee’s last report, the Company has extended
the terms of appointment for Ian Marchant and Russell King.
Russell King has served as a Non-executive Director since
February 2009; we therefore reviewed his extension with
particular care. We concluded that his tenure had not
compromised his independence in any way, and it was important
that we should retain his experience of Aggreko, both as Senior
Independent Director and as Chairman of the Remuneration
Committee, for a further year. We also considered the number
and nature of Russell’s other commitments – details of which
are set out in his biography on page 72 – particularly his roles on
the boards of three other listed companies. We were satisfied
that Russell’s other commitments do not detract from his ability
to perform his role at Aggreko. In coming to this conclusion,
we noted that: first, in our view, the companies involved are not
unusually complex, nor are they in regulated sectors; second,
his respective positions as chairman, senior independent director
and remuneration committee chairman of those companies
strengthen, rather than detract from, the experience he brings
Aggreko; third, he has not missed a Board or Committee meeting
within the last three years and has reduced his commitments
in 2016. Moreover, he has in practice made an invaluable
contribution to the Board and its commitments.
The Committee unanimously recommends the re-election
of each of our Directors at our 2017 Annual General Meeting.
In making this recommendation, we evaluated each Director
in light of their performance, commitment to the role, and
capacity to discharge their responsibilities fully, given their
time commitments to other companies.
Appointment of Non-executive Directors
During the year, the Committee undertook a broad review
of the non-executive profile of the Board, including skills,
experience, tenure and diversity. We decided to search for two
new Non-executive Directors to strengthen our Board overall and
add to our succession planning. We appointed Lygon Group, an
independent search firm with no other connection to Aggreko,
to assist in identifying suitable candidates. In March 2017 we were
delighted to announce the appointments of Barbara Jeremiah
and Miles Roberts as Non-executive Directors.
Barbara is currently a non-executive Director of two North
American based companies, Russel Metals and Allegheny
Technologies, having recently retired as chairwoman of Boart
Longyear, a US based company in the minerals drilling sector.
Barbara brings extensive international non-executive experience
largely in the US and Australia together with an executive career
in the mining, exploration and energy industries. Barbara is also
a qualified lawyer, with a BA in political science and will join the
Ethics, Nomination and Remuneration Committees.
Miles brings substantial international business experience as
a chief executive and finance director. Miles is currently chief
executive officer of DS Smith Plc, a FTSE international packaging
group with operations in nearly 40 countries. Prior to this, Miles
was group chief executive of McBride plc, having served as the
group finance director before that. An engineer by background
and also a chartered accountant, Miles will join the Audit and
Nomination Committees.
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94 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Annual remuneration statement
Annual remuneration statement
Policy report
Annual report on remuneration
94
99
106
I N T R O D U C T I O N B Y R U S S E L L K I N G ,
R E M U N E R A T I O N C O M M I T T E E C H A I R M A N
During the last few years Aggreko has undergone a considerable
amount of change both internally, as we have recruited a
new leadership team, and externally, as we have responded to
changing economic and competitive circumstances. During this
time our Remuneration Policy has ceased to be aligned with the
strategy of the business and the Committee therefore decided
to conduct a full review of the Remuneration Policy a year earlier
than required.
In conducting our review, we sought to continue our practice
of clear alignment of executive reward with Shareholder value
creation and incentivising management – whilst accepting
that the reward mechanisms and targets used had to reflect
the economic and market realities facing the business.
The Policy set out in this report is consistent with rewarding our
executives for achieving the targets required of a business that
is in transition from a period of extraordinary growth to one that
has matured, albeit with a consistently strong competitive position
and good growth and return potential over time. The Committee
has been focused on ensuring that the Policy is very closely linked
to, and supportive of, the Company’s strategy. In this regard it
reflects a number of factors:
• The new management team is very focused on returning
the business to growth against a background of negligible
LTIP vesting over the last four cycles, no significant bonus
payments and no salary increases for Executive Directors for
two years. The Committee needs to keep the management
team motivated and ensure that we can attract further
high quality talent;
R U S S E L L K I N G
R E M U N E R A T I O N C O M M I T T E E C H A I R M A N
In revising the Remuneration Policy the
Committee has focused on ensuring that
executive incentives remain closely aligned
with Company strategy and performance
A R E A S O F A C T I V I T Y I N 2 0 1 6
• Consulted with major Shareholders and governance bodies on new
Remuneration Policy.
• Finalised framework for new incentive arrangements.
• Set targets for Annual Bonus Plan, both financial and personal/
strategic objectives.
M E M B E R S I N 2 0 1 6
Meetings attended
• Market dynamics indicate lower returns as pre-2012 high margin
legacy contracts come to an end, for example in Argentina; and
Russell King – Remuneration Committee Chairman
Ken Hanna – Company Chairman
Uwe Krueger – Non-executive Director
Ian Marchant – Non-executive Director
A R E A S O F F O C U S F O R 2 0 1 7
• Adjudicate outcomes for the 2016 Annual Bonus for financial and
personal/strategic objectives.
• Set targets for the 2017 Annual Bonus Plan, both financial and
personal/strategic objectives.
• Reflect feedback from Shareholder consultation in proposed
amendments to incentive framework.
• Secure Shareholder approval for new Restricted Share Plan, new
all-employee share option schemes and revised Remuneration Policy
at the 2017 AGM.
• Approve targets for the 2017 grants under the Long-term Incentive Plan.
• Approve awards under the Long-term Incentive Plan and new
Restricted Share Plan.
R E M U N E R A T I O N C O M M I T T E E T E R M S O F R E F E R E N C E :
I R . A G G R E K O . C O M / I N V E S T O R S
• The business strategy requires increased investment in
corporate capabilities and more capital deployed in developing
new products.
The Policy contains one new element, restricted shares, and a
modification to the current elements, to both reflect the value
in restricted shares, and the future financial targets for the
business which result in lower ROCE. EPS will now be measured
as a nominal growth target rather than growth above RPI,
although the targets will be broadly similar at threshold.
• Reduced annual bonus potential from 175% of salary to 125%
of salary paid in cash;
• Reduced LTIP awards from 300% to 200% of salary subject
to three-year performance with phased vesting over three,
four, and five years, with vesting for threshold performance
set at 25% of maximum;
• The introduction of annual awards of restricted shares of up
to 75% of salary with vesting subject to continued employment
over three years and no share release until the fifth anniversary
of the award. The Committee retains discretion to reduce
or withhold outstanding awards in the event of exceptional
circumstances, and can apply malus and clawback as with
the LTIP;
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
95
• Increased personal shareholding requirements from 200%
to 400% of salary; and
• Modified performance ranges for the LTIP expressed as
nominal growth targets rather than growth above RPI.
Threshold performance will be at a similar level, whereas
the maximum has been reduced to reflect a growth profile
consistent with a maturing business. The Committee will
retain the flexibility to modify each of these targets for each
new plan cycle during the policy period but for 2017 the
targets will be:
– EPS (75%) – average nominal EPS growth of 5% to 12%
per annum; and
– ROCE (25%) – 15% to 20% measured in final year of plan.
It is the Committee’s view that the modifications made
will greatly improve the linkage between remuneration and
the Company’s strategy without increasing the quantum of
incentives at target (circa £2.4 million for the CEO) and that
it will reduce the maximum (from circa £4.6 million to £4 million).
As Remuneration Committee Chairman I fully understand that
our proposals might be viewed as non-standard but I am also
convinced that they represent a very tailored and appropriate
approach that ensures close alignment with rewarding the
management for delivering growth in Shareholder value.
For a Company like Aggreko with a highly capable leadership
team guiding the business through a challenging period,
I consider it important that we retain their enthusiasm,
keep them motivated with incentives that are within reach,
and enable us to continue to attract great talent globally.
O U R R E M U N E R A T I O N S T R A T E G Y
O U R A I M
The aim of Aggreko’s remuneration policy is to reward executives
for delivering the principal objective – delivering long-term value
to our Shareholders.
Our reward package for Executive Directors comprises:
• a fixed element:
– salary;
– pension; and
– benefits,
generally based on market median for companies of similar size
and complexity
• a variable element:
– annual bonus, based on demanding annual performance
targets, both financial and personal;
– long-term incentives, based on long-term strategic financial
performance; and
– restricted shares.
R E A D O U R R E M U N E R A T I O N P O L I C Y
O N P A G E 9 9 .
B A L A N C E O F E L E M E N T S
We aim to balance these elements so that:
• the majority of executive remuneration is linked to Aggreko’s
financial performance;
• there is a heavier weighting on long-term performance than
on short-term performance; and
• we use a balanced portfolio of measures which are designed
to reflect our goal of delivering sustainable profit growth over
the long term. We plan to achieve this by focusing on our
four business priorities of the customer, technology, efficiency
and people.
So for example, the potential future reward opportunities for
the Chief Executive Officer are as follows:
Chris Weston
Maximum
On-target
Minimum
25%
42%
64%
14%
23%
36%
23%
19%
£1,563k
16%
39%
38%
£2,406k
£4,000k
£0
£1 million
£2 million
£3 million
£4 million
Salary, pension, benefits
Restricted shares
Annual bonus
LTIP
R E A D T H E F U L L S C E N A R I O A N A L Y S I S
F O R B O T H E X E C U T I V E D I R E C T O R S O N P A G E 1 0 4 .
O U T C O M E F O R 2 0 1 6
S I N G L E F I G U R E T O T A L P A Y F O R E X E C U T I V E D I R E C T O R S
The following table shows a summary of total remuneration for 2016 for each of the Executive Directors:
LTIP
Carole Cran1
Chris Weston1
Base
Salary
£
412,000
750,000
Benefits
£
84,2472
25,035
Annual
Bonus
£
107,120
202,500
PSP
£
CIP
£
Sharesave
£
–
–
16,149
–
–
–
Pension
£
82,400
Other
£
Total
£
–
701,916
225,000
706,6203
1,909,155
1 Full details of the total remuneration and an explanation of each component are set out on pages 106 to 109.
2 Owing to the significant amount of time spent in London, based on UK legislation, Carole Cran has established a second place of employment in London. As a result,
any home to London office travel costs either reimbursed, or paid on Carole’s behalf are taxable.
3 As explained on page 89 of our Annual Report 2015, Chris Weston was granted an award of shares on 30 March 2015. 50% of the shares were released on 1 April 2016.
R E A D T H E F U L L D E T A I L S I N T H E A N N U A L R E P O R T O N R E M U N E R A T I O N
P A G E 1 0 6
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96 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Annual remuneration statement continued
O U R R E M U N E R A T I O N C O M M I T T E E
P E R F O R M A N C E O U T C O M E S F O R 2 0 1 6
Determining the remuneration for the Executive Directors and
Executive Committee members is key to the workings of the
Committee. We oversee Aggreko’s overall remuneration policy,
strategy and implementation to ensure that the policy is aligned
with the key objectives of growing earnings and delivering strong
returns on capital employed.
The Remuneration Committee is currently made up of four
Independent Non-executive Directors, including myself as
Chairman of the Committee. Peter Kennerley is secretary to
the Committee. We also invite the Chief Executive Officer,
Group HR Director and Group Reward Director to attend
our meetings.
In 2016, we held four meetings of the Committee.
Our role is as follows:
Performance and annual bonus
In line with our remuneration policy, Aggreko operates an
annual bonus plan with the aim of focusing Executive Directors
on achieving demanding annual targets relating to Company
financial performance and personal/strategic objectives.
Chris Weston, Chief Executive Officer earned 27% out of a
maximum 175% of salary, while Carole Cran, Chief Financial Officer
earned 26% out of a maximum of 175% of salary.
I explain below how the Committee set bonus targets for 2016,
how we assessed performance against those targets, and how
we decided on the level of bonus to be paid.
For 2016, annual bonus payments were determined as to
80% based on financial performance and 20% based on
personal/strategic objectives.
• Determine and agree with the Board the policy for
The 80% financial element was measured as follows:
• 75% against D-EPS; and
• 25% against operating cash flow.
The 20% personal/strategic element was based on personal
objectives set individually for each Director by the Committee.
Each included measurable improvements in safety indicators and
agreed outcomes for set strategic objectives specific to their roles.
The financial measure to which we give most emphasis is D-EPS.
The threshold D-EPS for 2016, at which level Executive Directors
would start to receive bonus, was set at 56.51 pence, with
target D-EPS at 59.48 pence. The actual outcome was 49.74 pence
(on a constant currency basis), which meant that no bonus was
payable for that element. We have set out the details of all of the
2016 targets and outcomes for the financial and personal/strategic
objectives on pages 107 and 108, but in summary:
• as D-EPS fell short of budget, none of that element will
be payable;
• as Group operating cash flow fell short of budget, none of that
element will be payable; and
• each of the Executive Directors largely met their
personal/strategic goals for the year.
Twenty-five percent of the bonus is deferred in Aggreko shares
for three years.
Full details of the performance outcomes for the Annual Bonus
are set out on page 107.
R E A D M O R E A N D S E E O U R B O N U S E N T I T L E M E N T
A N D O U T C O M E T A B L E S P A G E 1 0 7
remuneration for the Chairman, Executive Directors and
Executive Committee.
• Within the terms of the remuneration policy, determine
the total individual remuneration package for the
Chairman, each Executive Director and each member of the
Executive Committee, including base salary, pension, benefits,
annual bonus and long-term incentives.
• Determine, having taken appropriate legal advice, the
level of any payment made to the Chairman, Executive
Directors or members of the Executive Committee by
way of compensation for, or otherwise in connection with,
loss of office or employment.
• Approve the design of, and determine targets for, performance
related pay schemes operated by the Company and approve
the total annual payments made under such schemes.
• Review the design of all share incentive plans for approval by
the Board and Shareholders. For any plan, determine each
year the overall amount of awards, along with the individual
awards to Executive Directors and members of the Executive
Committee. In the case of any retention or new joiner awards
to employees below the Executive Committee, retrospectively
approve awards.
• Determine the policy for and scope of pension arrangements
for each Executive Director and members of the
Executive Committee.
• Oversee any major changes in employee benefits structures
throughout the Group.
• Agree the policy for authorising claims for expenses from
the Directors.
O U R R E M U N E R A T I O N P O L I C Y
This year we are asking Shareholders to approve a new
remuneration policy which includes amendments to the
structure of our variable pay (including seeking approval for a new
Restricted Share Plan); annual bonus and long-term incentives.
We explain the main changes on pages 97 and 98. We are also
seeking Shareholder approval to replace the Company’s existing
all-employee Sharesave option schemes, which will expire
in April 2017, with new Sharesave schemes. Full details of the
new policy are set out in the Policy Report on page 99.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
97
Performance and LTIPs
In 2017 awards will vest under our previous LTIP Scheme, which
was introduced in 2004. These are the last awards which will
vest under this scheme and Carole Cran is the only Executive
Director who participated in the scheme. Based on performance
to 31 December 2016, she will receive the Minimum Match Award
under the Co-Investment Plan.
Summary of proposed changes to short and long-term incentives
The Committee proposes the following changes to Aggreko
Executive Director incentives:
• Increased minimum executive shareholding requirements;
doubled from 200% to 400% of salary.
• Maximum annual bonus opportunities reduced from 175%
to 125% of salary, payable in cash.
The awards which vest in April 2017 were granted in 2014,
and are subject to demanding performance conditions based
on real (i.e. excluding inflation) D-EPS annualised growth
of 3-10% and return on capital employed (ROCE) of 20-25%
measured over a three-year period to 31 December 2016.
In summary, during that period real D-EPS showed no growth,
and as a result, none of the shares subject to the D-EPS growth
criterion will vest; average ROCE was 16% as against a target
range of 20-25%, and similarly none of the shares subject to the
ROCE condition will vest. Therefore, none of the performance
element of the 2014 awards will vest; only the Minimum Match
element, equivalent to 15% of salary at the time of grant will vest
for Carole Cran. Further details of LTIPs which vested in 2016 are
included in the table on page 109.
C H A N G E S I N R E M U N E R A T I O N P O L I C Y
This year we will be asking our Shareholders to approve
a new remuneration policy for Executive Directors at our
Annual General Meeting. I explain below the background to,
and the reasons for, the proposed changes to the Company’s
executive remuneration policy.
C O N T E X T F O R C H A N G E
Aggreko’s current remuneration policy was approved
by Shareholders at the 2015 AGM and has governed the
way we have paid our Directors over the last two years.
Although we are able to operate the existing remuneration policy
for an additional year, the Committee has taken the opportunity
over the last few months to undertake a comprehensive review
of our remuneration arrangements with the aim of ensuring
that pay reinforces the Company’s strategy, whilst continuing
to motivate and retain executive talent at this critical time
for Aggreko. The Committee has noted outcomes from the
recent Investment Association Remuneration Working Group
consultation and subsequent changes to the IA guidelines, and
in particular the call for flexibility in determining a remuneration
policy which is tailored to individual company circumstances.
Our proposal is considered by the Committee to be appropriate
for Aggreko at this time; incentivising short and long-term
performance through continued use of the annual bonus and
Long-term Incentive Plan (LTIP) respectively (albeit with lower
opportunities), and using awards of restricted shares and much
higher personal shareholding requirements to strengthen
Shareholder alignment and talent retention. Overall maximum
variable pay would fall by 16%, whilst time horizons would be
extended, with over 40% of variable remuneration only realisable
after five years (cf. 20% currently).
During 2016, we consulted with the majority of our major
Shareholders, representing over 50% of our issued share capital,
on these proposed changes. The new remuneration policy and
new Restricted Share Plan to be presented to Shareholders for
approval at our 2017 Annual General Meeting take into account
the feedback from these consultations.
• Maximum annual LTIP opportunities reduced from 300%
to 200% of salary, subject to three-year performance and
vested shares (post tax) being released in three equal tranches,
over three, four and five years. Vesting for threshold set at
25% of maximum.
• Annual awards of restricted shares of up to 75% of salary
(i.e. equivalent to half the reduction in annual bonus and LTIP
opportunities), to be awarded under a new Restricted Share
Plan, with vesting subject to continued employment over a
three-year period but no shares released to participants until
the fifth anniversary of award. The Committee would also
retain discretion to reduce or restrict vesting of outstanding
awards in exceptional circumstances, including, in the event
that the total annual dividend is less than the total dividend
declared in respect of the immediately preceding financial year,
or the Company has breached its net debt/EBITDA covenant
as set out in its banking facilities, at the end of the financial
year. Other exceptional circumstances if relevant would be
the subject of consideration at the time of vesting. Malus and
clawback would apply as with the annual bonus and LTIP.
No material changes are proposed to the policy regarding other
elements of remuneration, such as salary, pension and benefits,
at this time. Executive Director salaries were subject to the usual
review process by the Committee at the end of the financial year.
Details are provided on page 107.
In formulating this proposed approach to remuneration,
the Committee carefully considered the advantages and
shortcomings of the existing remuneration structure, as well as
the purpose and link of each element to Aggreko’s new strategy.
The aim is to achieve a relatively simple, balanced incentive
structure with measures and targets that incentivise Executives
to really drive Shareholder value.
Annual bonus
The annual bonus structure has remained broadly consistent
for a number of years, with the majority linked to Group financial
performance, as measured by underlying D-EPS. An element
based on personal/ strategic performance was introduced in 2015
to recognise the importance of non-financial KPIs in enabling
long-term sustainable profit growth. One-quarter of any bonus
earned is currently deferred in Aggreko shares for three years.
Under our proposal for 2017, the maximum opportunity for
Executive Directors will be reduced from 175% to 125% of salary,
with any amount earned payable in cash. Shareholder alignment
currently provided by the bonus deferral mechanism will be
strengthened through annual awards of restricted shares which
are realised by participants over a longer period (five versus
three years), as well as higher personal shareholding requirements.
The annual bonus for 2017 will operate with financial
performance – measured against D-EPS – accounting for 80% of
the potential opportunity and the remaining 20% measured on
performance against personal/strategic objectives. Further details
can be found on page 112. It is intended that targets will continue
to be disclosed on a retrospective basis to allow Shareholders to
make an informed voting decision on the bonus structure and
outcomes each year.
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98 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Annual remuneration statement continued
Consideration of restricted shares for Executive Directors is
one of the proposals put forward by the IA Remuneration
Working Group. The Committee believes that using restricted
shares is appropriate at this time for Aggreko and that requiring
the accumulation of meaningful holdings of shares will help
strengthen Shareholder alignment and provide a clear link to
absolute share price performance. A significant proportion of pay
will also continue to be linked to short and long-term financial and
non-financial performance indicators under existing incentives.
The proposed maximum annual restricted share opportunity
is set at a level which broadly maintains the fair value of
Executive Director remuneration, but which significantly
reduces maximum realisable variable pay, and reduces
the volatility in pay that we have seen at Aggreko over the last
eight years. Additionally, the proposed holding period on the
restricted share element will result in over 40% of the CEO and
CFO’s variable remuneration not being realised until five years,
compared to 20% under the current structure.
Shareholding guidelines
To support shareholder alignment and ensure that Executive
Directors hold meaningful interests in Aggreko shares, the
Committee is proposing to double the personal shareholding
requirements from 200% to 400% of salary. Executive Directors
will be expected to achieve the guideline over a period of five
years, and will be expected to retain at least 50% of vested
incentives (post-tax) until such guidelines have been met.
Pay reviews for 2017
There have been no salary increases for Executive Directors
for two years and none are proposed for 2017.
In conclusion
Notwithstanding current economic and market headwinds,
Aggreko’s priority remains delivering sustainable profit
growth for the long term. We plan to achieve this by focusing
on customers, technology and efficiency, underpinned by
continuing investment in our people capability. We have
exciting projects and developments in all these areas, and will
continue to communicate these to Shareholders as we progress.
The Committee sees the proposed remuneration arrangements
as prudent at this stage in Aggreko’s evolution, in this critical
transition year, and an important contribution to maintaining
the focus on short and long-term targets, and retaining the
talent we need to deliver attractive Shareholder value growth.
Long-term Incentive Plan (LTIP)
The LTIP was approved at the 2015 AGM following
Shareholder consultation at the time. Changes approved
included simplification through removal of the matching
element, a reduction in maximum opportunity, the
introduction of a mandatory post-vesting holding period,
and the introduction of clawback provisions. Vesting of
LTIP shares is based on three-year EPS and ROCE targets.
The purpose of the LTIP is to align the interests of management
with those of Shareholders in growing the value of the business
over the long term. Although the Committee believes that the
LTIP can still help achieve this objective, business and broader
economic circumstances are now very different to those faced
a few years ago, and a policy which has the same EPS targets
for each cycle is no longer considered appropriate.
Like many companies with a diverse global footprint, Aggreko is
susceptible to external factors impacting performance, and the
Committee has been conscious of the difficulty in setting robust
stretching and achievable long-term targets. Going forward,
we will be guided by Aggreko’s new overriding goal of growing
ahead of the markets in which we operate, at attractive margins
and returns. The Committee also believes in the business case
for reducing maximum bonus and LTIP opportunities.
The Committee proposes to reduce the maximum annual
LTIP opportunity for Executive Directors from 300% to 200%
of salary. Performance would continue to be measured against
three-year underlying EPS and ROCE, with vested awards
(post-tax) released to participants in equal tranches after three,
four and five years. Threshold vesting would be 25% of the
maximum award under each element, in line with market
practice. The introduction of restricted shares will ease the
difficulty with setting robust targets, promote Shareholder
alignment, and incentivise participants to make the necessary
changes to drive value over the next five years.
The Committee will set both the EPS growth targets and
the ROCE targets for future awards each year. The EPS range
is expressed as a nominal growth rate over the three-year
performance period, while the ROCE target is an absolute value,
to be delivered in the final year of the three-year plan.
In respect of the 2017 awards, the Committee is proposing
an average nominal EPS growth performance range of 5%
to 12% per annum. For ROCE the Committee is proposing a
final year ROCE performance range of between 15% and 20%.
Restricted shares
The Committee proposes to introduce annual awards of
restricted shares of up to 75% of salary to Executive Directors,
complementing the 150% of salary reduction in annual bonus
and LTIP. It is intended that restricted shares normally vest
based on continued employment within the Group over a
period of three years, at which time the shares will be owned
by the Executive Directors, but will not normally be released
until a further two years after vesting – a total period of five
years. The Committee will also retain discretion to reduce
or withhold awards in exceptional circumstances to ensure
pay and performance remain aligned.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
99
Policy report
This section of our report describes each component of Aggreko’s remuneration policy for
Directors and has been prepared in accordance with Part 4 of Schedule 8 to the Large and
Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 (as amended).
Subject to approval at the AGM, this policy will replace the current policy (which was approved
by Shareholders at the 2015 AGM) and is expected to apply for three years from 27 April 2017.
Aggreko’s proposed new remuneration policy for Executive Directors
Fixed pay
B A S E S A L A R Y
B E N E F I T S
P U R P O S E A N D L I N K T O S T R A T E G Y
P U R P O S E A N D L I N K T O S T R A T E G Y
Designed to be competitive in the market in which the individual
is employed. Expatriate and relocation packages designed to
ensure a geographically mobile management population related
to business needs.
O P E R A T I O N
Includes healthcare benefits, life assurance cover, a company car
(or an allowance in lieu). Where appropriate, we would provide
an expatriate package, including bearing the cost of any local
taxes payable on any expatriate benefits, relocation costs, living
allowances and school fees. The Company will also bear any UK
tax that Executive Directors resident overseas incur as a result of
carrying out their duties in the UK.
Any reasonable business related expenses (including tax thereon)
can be reimbursed if determined to be a taxable benefit.
Executive Directors are eligible for other benefits which are
introduced for the wider workforce on broadly similar terms.
O P P O R T U N I T Y
Benefits vary by role and local practice, and are reviewed
periodically relative to market.
Benefits (excluding travel and related taxes) payable to Executive
Directors did not exceed 10% of salary during the most recent
financial year. In line with market practice, it is not anticipated that
in normal circumstances the cost of benefits provided will exceed
this level over the next three years.
The Committee retains the discretion to approve a higher cost
in exceptional circumstances (e.g. relocation) or in circumstances
where factors outside the Company’s control have changed
materially (e.g. increases in insurance premiums, provider costs
or taxes).
P E R F O R M A N C E M E T R I C S
None.
To attract and retain talent by ensuring base salaries are
competitive in the talent market(s) relevant to each individual.
We aim to pay the market median for standard performance
and within the market top quartile for top quartile performance,
or to recruit outstanding candidates.
O P E R A T I O N
Base salaries are generally reviewed annually; in determining the
appropriate level of adjustment, we take into account: Company
performance; the individual’s responsibilities and contribution
to the business; salary levels for comparable roles at relevant
comparators; and salary increases more broadly across the Group.
For the Chief Executive Officer and the Chief Financial Officer,
the benchmark we use is the 20 companies either side of
Aggreko in the FTSE based on the average market capitalisation
over the previous 12 months.
If we were to appoint other Executive Directors we would use a
similar benchmarking approach but supplemented by market
data from our advisers. This recognises that comparability is
harder to gauge and less formulaic for these roles.
O P P O R T U N I T Y
Any base salary increases are applied in line with the outcome
of the annual review.
The Chief Executive Officer will have the highest base salary
of all Executive Directors, and the maximum salary for the
Chief Executive Officer may be within the top quartile of
Chief Executive Officer salaries for the FTSE+/-20 comparators.
P E R F O R M A N C E M E T R I C S
None, although continued good performance is a factor
considered when reviewing salaries.
P E N S I O N
P U R P O S E A N D L I N K T O S T R A T E G Y
To provide relevant statutory benefits and be competitive
in the market in which the individual is employed.
O P E R A T I O N
All Executive Directors are entitled to a defined-contribution
pension. They can opt to take a cash payment in lieu of all or
part of their pension.
O P P O R T U N I T Y
Contributions of between 20% and 30% of salary per annum
except where limited by local practice.
For new hires, the pension contribution will be up to 20% of salary
per annum.
P E R F O R M A N C E M E T R I C S
None.
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100 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Policy report continued
Variable pay
A N N U A L B O N U S S C H E M E
L O N G - T E R M I N C E N T I V E P L A N
P U R P O S E A N D L I N K T O S T R A T E G Y
P U R P O S E A N D L I N K T O S T R A T E G Y
To focus Executive Directors on achieving demanding
annual targets relating to Company performance.
To align the interests of management with those of Shareholders
in growing the value of the business over the long term.
The key changes proposed by the Committee with regard
to Annual Bonus are set out on page 97.
O P E R A T I O N
Performance measures and targets are set at the start of the year
and are weighted to reflect the balance of Group, and where
appropriate business unit, responsibilities for each executive.
At the end of the year, the Committee determines the extent
to which these have been achieved. The Committee has
the ability to exercise discretion to adjust for factors outside
management control.
Bonus payments will be paid in cash.
Malus and/or clawback provisions apply as described on page 102.
O P P O R T U N I T Y
The maximum annual bonus opportunity for Executive Directors
is 125% of salary. The financial element of the bonuses start to
be earned for threshold performance (for which 25% of target
bonus is paid), rising on a straight-line to deliver 50% of maximum
for on-budget performance.
P E R F O R M A N C E M E T R I C S
Performance is assessed annually with 20% of the maximum
bonus potential based on personal/strategic objectives aligned
to the Company’s KPIs and 80% on challenging budget and
stretch targets for Group and business unit financial performance.
The current measure for financial performance is EPS, but may
vary each year depending on business context and strategy.
All measures will be weighted appropriately according to business
priorities, with generally more weighting on earnings growth
than other factors. The personal/strategic objectives, accounting
for 20% of the annual bonus, have previously covered customer
service, safety and internal leadership and are quantified wherever
possible. If the personal/strategic objectives are achieved but
EPS is below threshold performance, then the Committee has the
discretion to reduce, if appropriate to zero, the personal/strategic
element that would otherwise have been paid.
Further details of the performance measures proposed for
the 2017 annual bonus are set out in the Annual report on
remuneration on page 112.
Vesting of awards is subject to performance conditions based on
the long-term financial performance of the Group; the value of the
awards is based on both the proportion vesting (i.e. the Company’s
financial performance) and the movement in the share price over
the vesting period.
The key changes proposed by the Committee with regard to the
LTIP are set out on pages 97 and 98.
O P E R A T I O N
The LTIP comprises a single Performance Share Plan (PSP).
Awards are normally granted annually. Award levels and
performance conditions are reviewed from time to time to ensure
they remain appropriate and aligned with Shareholder interests.
Awards normally vest after three years, subject to performance
and continued office or employment. A proportion of shares
which vest will be subject to a further retention period of up to
two years, with one-third being released (post-tax) on vesting
and a further third being released after each of one and two years
from vesting. The holding period will end early on a takeover,
scheme of arrangement or winding-up of the Company, upon the
death of an individual or in exceptional circumstances on such
other date determined by the Committee. On vesting, participants
will be entitled to the equivalent of any dividends on the shares
between grant and vesting or the earlier of the date of exercise
of an option and the expiry of any holding period.
Malus and/or clawback provisions apply to awards as described
on page 102.
O P P O R T U N I T Y
The PSP provides for a nil-cost conditional award of shares
worth up to an aggregate limit of 200% of salary per annum
for Executive Directors.
P E R F O R M A N C E M E T R I C S
The performance measures for the PSP are based on Group
performance. For 2017 it is proposed to use Earnings per Share
and Return on Capital Employed. The targets are set by the
Committee each year.
The Committee retains discretion to modify the LTIP outcome
in circumstances where strict application of the performance
conditions would produce a result inconsistent with our
remuneration principles, where the formulaic outcome does not
genuinely reflect the underlying performance of the Company,
or where necessary to avoid unintended consequences.
Any material upward discretion would be subject to prior
consultation with the Company’s major Shareholders.
The Committee also retains discretion to include additional or
alternative performance measures, weightings and/or targets in
future years to take account of the Company’s key strategic and
operational aims and targets, and business outlook at that time.
Further details of LTIP award sizes and targets proposed for 2017
are provided in the Annual report on remuneration on page 113.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
101
Other
R E S T R I C T E D S H A R E S (N E W F O R 2 0 1 7)
S H A R E S A V E
P U R P O S E A N D L I N K T O S T R A T E G Y
P U R P O S E A N D L I N K T O S T R A T E G Y
To align the interests of management with those of Shareholders
in protecting and growing the value of the business over the
long term and provide a clear link between absolute Shareholder
returns and realised reward.
Vesting of awards is subject to continued employment over a
period of three years with vested shares (post-tax) being released
to participants a further two years after vesting. Shares will vest at
a value that recognises the dividends that would have accrued to
them during the three-year vesting period and in respect of shares
held under an option until the earlier of the date of exercise and
the expiry of the holding period.
The vesting of awards may, at the discretion of the Committee,
be subject to the satisfaction of a general underpin.
The key elements proposed by the Committee with regard
to awards of restricted shares under our new Restricted Share Plan
(RSP) are set out on pages 97 and 98.
O P E R A T I O N
To align the interests of employees and Shareholders by
encouraging all employees to own Aggreko shares.
O P E R A T I O N
This is an all-employee scheme whereby all eligible employees
including Executive Directors invited by the Board to participate
may save up to £500 (or local currency equivalent) per month
over a period of two to five years. Higher monthly savings may
be permitted in line with any changes to the statutory limits
applying to UK SAYE share option schemes.
Options under the Sharesave Option Schemes and the
US Stock Purchase Plan are granted at a discount of 20%
and 15% respectively.
O P P O R T U N I T Y
Savings currently capped at £500 a month (or local currency
equivalent). Higher savings may be permitted in line with the
statutory limit for UK schemes.
Award levels will be reviewed from time to time to ensure they
remain appropriate and aligned with Shareholder interests.
P E R F O R M A N C E M E T R I C S
None.
The shares which vest will (after the deduction of any tax) normally
be subject to a further retention period of two years. The holding
period will end early on a takeover, scheme of arrangement or
winding-up of the Company, upon the death of an individual or
in exceptional circumstances on such other date determined by
the Committee. On vesting participants will be entitled to the
equivalent of any dividends on the shares between grant and
vesting and in respect of shares held under an option until the
earlier of the date of exercise and the expiry of the holding period.
The vesting of awards may, at the discretion of the Committee,
also be subject to the satisfaction of a general underpin.
The Committee will have discretion to decide that awards
should not vest or only partially vest in exceptional circumstances,
including in the event that the total annual dividend is less
than the total dividend declared in respect of the immediately
preceding financial year, or the Company has breached its net
debt/EBITDA covenant as set out in its banking facilities, at the end
of the financial year. Other exceptional circumstances if relevant
would be the subject of consideration at the time of vesting.
Malus and clawback provisions apply to awards as described
on page 102.
O P P O R T U N I T Y
The RSP provides for a nil-cost conditional award of shares
to Executive Directors worth up to an aggregate limit of
75% of salary per annum.
P E R F O R M A N C E M E T R I C S
A general underpin may be applied at the discretion of
the Committee.
Note: RSP awards can only be made up to a maximum
limit of 75% of salary for Executive Directors, but up to
100% (and 200% in exceptional circumstances) for other
employees as detailed on page 104.
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G O V E R N A N C E
Policy report continued
P A Y M E N T S F R O M O U T S T A N D I N G A W A R D S
A M O U N T T O B E S U B J E C T T O M A L U S / C L A W B A C K
Executive Directors remain eligible to receive payment
under any contractual arrangement agreed prior to the
approval and implementation of the remuneration policy,
i.e. before 27 April 2017. In particular, they will be entitled to
receive any awards vesting under the incentive arrangements
included in the remuneration policy approved at the Company’s
2015 Annual General Meeting.
Where malus/clawback applies as a result of a misstatement or
error, the amount will generally be based on the additional value
which the Committee considers has been granted to, vested in,
or received by the relevant individual as a result of the relevant
misstatement or error. Where the malus/clawback applies for any
other reason, it will be the amount that the Committee decides
is appropriate.
S A T I S F A C T I O N O F C L A W B A C K
The Committee has wide discretion in deciding how any clawback
will be satisfied, including:
• reducing the amount of any future bonus which would
otherwise be payable;
• reducing the extent to which any subsisting awards under the
LTIP and RSP vest;
• reducing the extent to which subsisting awards under any other
share incentive plan vest;
• reducing the number of any deferred bonus shares and
LTIP awards which have vested and so are no longer subject
to performance conditions but are subject to post-vesting
deferral provisions;
• requiring the relevant individual to pay the amount of clawback
to the Company; and
• deducting the amount from the relevant individual’s salary
or from any other payment to be made by the Company.
If the relevant individual is required to repay any additional value,
the Committee may consider whether that amount should take
into account any income tax and national insurance contributions
(or their equivalent) paid by the relevant individual and any
possibility of him reclaiming such income tax and national
insurance contributions.
P E R F O R M A N C E M E A S U R E S E L E C T I O N A N D
A P P R O A C H T O T A R G E T S E T T I N G
The measures used under the Annual Bonus Scheme reflect the
Company’s key financial objectives for the year. The Committee
considers that EPS (used in both the Annual Bonus Plan and LTIP)
is an objective and well-accepted measure of the Company’s
performance which reinforces the strategic objective of achieving
profitable growth.
Targets for the Annual Bonus Scheme are tied to the Annual
Budgets set by the Board and have due regard to external
forecasts. Performance targets are set to be stretching but
achievable and take into account the economic environment
in a given year. Generally, bonuses will start to be earned at
performance levels of 10% below Budget, with a straight-line
to Budget, and then increase on a straight-line until they reach
capped levels, which will generally be around 15% above Budget.
Under the LTIP, Group D-EPS is complemented by ROCE to
reflect the need to balance growth and returns. Targets applying
to the LTIP are reviewed annually, based on a number of
internal and external reference points to ensure they remain
appropriately stretching.
The Committee also retains discretion to include additional or
alternative performance measures, weightings and/or targets in
future years to take account of the Company’s key strategic and
operational aims and targets, and business outlook at that time.
M A L U S A N D C L A W B A C K
Payments and awards under the Annual Bonus Scheme,
Long-term Incentive Plan and Restricted Share Plan are
subject to malus and clawback as described below.
The Committee has discretion to decide at any time prior to the
third anniversary of the date of payment of a bonus or the vesting
of an award under the LTIP and RSP that the relevant individual
shall be subject to malus/clawback if:
• the Committee forms the view that the Company materially
misstated its financial results for whatever reason; or
• the Committee forms the view that in assessing any
Performance Condition and/or any other condition imposed
on the bonus or award such assessment was based on an error,
or on inaccurate or misleading information or assumptions; or
• the relevant individual ceases to be a Director or employee
of Aggreko as a result of gross misconduct or the Committee
is of the view that the relevant individual could have been
summarily dismissed by reason of his gross misconduct; or
• any other circumstance(s) or event(s) arise which the Committee
considers to be sufficiently exceptional to justify the operation
of malus/clawback. (Clawback in exceptional circumstances is
a new feature to the Policy.)
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
103
Aggreko’s remuneration policy for Non-executive Directors and Chairman
Non-executive Directors
P U R P O S E A N D L I N K T O S T R A T E G Y
To attract and retain Non-executive Directors with an appropriate
degree of skills, experience, independence and knowledge of the
Company and its business.
O P E R A T I O N
Fee levels for Non-executive Directors are generally reviewed by
the Board annually. Remuneration comprises an annual fee for
acting as a Non-executive Director and serving as a member of
any Committees. Additional fees are paid in respect of service
as chairman of a committee or as Senior Independent Director.
When reviewing fees, reference is made to fees for the same
comparator group as used for Executive Directors, information
provided by a number of remuneration surveys, the extent of
the duties performed and the size of the Company.
O P P O R T U N I T Y
Any fee increases are applied in line with the outcome of the
annual review. Currently the maximum aggregate annual
fee for all Non-executive Directors, including the Chairman,
provided in the Company’s articles of association is £900,000.
P E R F O R M A N C E M E T R I C S
None.
Chairman
P U R P O S E A N D L I N K T O S T R A T E G Y
To attract and retain a Chairman to provide effective leadership
for the Board.
O P E R A T I O N
Remuneration for the Chairman comprises an annual fee for
acting as Chairman, and serving as Chairman or as a member
of any Committees. The Remuneration Committee sets the
Chairman’s remuneration, subject to review when appropriate.
When reviewing fees, reference is made to fees for the same
comparator group as used for Executive Directors, information
provided by a number of remuneration surveys, the extent of
the duties performed and the size of the Company.
O P P O R T U N I T Y
Any fee increases are applied in line with the outcome
of the annual review. Currently the maximum aggregate
annual fee for all Non-executive Directors, including the Chairman,
provided in the Company’s articles of association is £900,000.
P E R F O R M A N C E M E T R I C S
None.
I N C E N T I V E S A N D B E N E F I T S F O R
N O N - E X E C U T I V E D I R E C T O R S A N D C H A I R M A N
Non-executive Directors and the Chairman do not participate
in incentive arrangements or receive other remuneration
in addition to their fees. However, where appropriate the
Company may provide additional benefits in kind (for example,
reimbursement of travel costs and taxes thereon), which are not
expected to exceed 20% of the annual fee in any year.
A P P R O A C H T O R E C R U I T M E N T R E M U N E R A T I O N
The Company’s approach to remuneration for newly appointed
Directors is identical to that for existing Directors. As a matter of
practicality, we recognise that it may be necessary to pay within
the market top quartile salaries in order to attract candidates
of the quality the business needs. New Executive Directors will
be invited to participate in incentive plans on the same basis
as existing Executive Directors. However, the Committee may
alter the performance measures, performance period, reference
salary and vesting period of the annual bonus, LTIP or RSP,
subject to the rules of the plans, if the Committee determines
that the circumstances of the recruitment merit the alteration.
The Committee will explain the rationale for any such changes.
Where appropriate the Company will offer to pay reasonable
relocation expenses for new Executive Directors in line with
the Company’s policies described above.
It is not the Company’s policy to offer sign-on payments, but
where the Remuneration Committee considers it is necessary
to do so in order to recruit a particular individual, it may offer
compensation for amounts of variable remuneration foregone,
provided the fair value is no greater. In doing so, the Committee
will consider all relevant factors including time to vesting,
delivery vehicle (cash vs. shares vs. options), any performance
conditions attached to the awards and the likelihood of the
conditions being met. In order to facilitate such compensation,
the Committee may rely on the exemption contained in Listing
Rule 9.4.2, which allows for the grant of awards in exceptional
circumstances to facilitate the recruitment of a Director.
Where the Company is considering the promotion of senior
management to the Board, the Committee may, at its discretion,
agree that any commitments made before promotion will
continue to be honoured whether or not consistent with the
policy prevailing at the time the commitment is fulfilled.
In recruiting a new Non-executive Director, the Remuneration
Committee will use the policy as set out in the table on this
page. A base fee in line with the prevailing fee schedule would
be payable for acting as a Non-executive Director and serving as
a member of any Committees, with additional fees payable for
acting as Chairman of a Committee or as Senior Independent
Director. In recruiting a new Chairman of the Board, the fee
offered would be inclusive of serving on any Committees.
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104 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Policy report continued
P A Y - F O R - P E R F O R M A N C E : S C E N A R I O A N A L Y S I S
The graphs below provide estimates of the potential future
reward opportunities for Executive Directors, and the potential
split between the different elements of remuneration under
three different performance scenarios: ‘Minimum’, ‘Target’
and ‘Maximum’.
Chris Weston
Maximum
On-target
Minimum
25%
42%
64%
Carole Cran
Maximum
On-target
Minimum
26%
43%
65%
14%
23%
36%
23%
19%
£1,563k
38%
£2,406k
16%
£4,000k
14% 23%
23% 19%
35%
£888k
15%
37%
£1,351k
£2,227k
39%
Potential reward opportunities illustrated on this page are
based on the proposed new policy we are asking Shareholders
to approve, applied to the base salary in force at 1 January 2017.
For the annual bonus, the amounts illustrated are those potentially
receivable in respect of performance for 2017. It should be noted
that the LTIP and RSP awards granted in a year do not normally
vest until the third anniversary of the date of grant. The projected
value of LTIP and RSP amounts excludes the impact of share
price movement. In illustrating potential reward opportunities
the assumptions in the table below are made.
£0
£1 million
£2 million
£3 million
£4 million
Salary, pension, benefits
Restricted shares
Annual bonus
LTIP
A S S U M P T I O N S F O R P O T E N T I A L F U T U R E R E W A R D O P P O R T U N I T I E S
Fixed pay
Annual bonus
LTIP
Maximum
Target
Minimum
Latest base pay, pension
and ongoing benefits
Latest base pay, pension
and ongoing benefits
Latest base pay, pension
and ongoing benefits
Maximum annual bonus
On target annual bonus
No annual bonus
Performance warrants
full vesting
Performance warrants
25% of maximum vesting
Threshold not achieved,
so no amount vesting
RSP
Full vesting
Full vesting
Full vesting
C O N S I D E R A T I O N O F S H A R E H O L D E R V I E W S
During 2016, we consulted with our Shareholders on the
proposed changes to our Remuneration Policy. The new
remuneration policy reflects the results of these consultations.
The Committee also receives regular updates on the views of
investors and corporate governance matters. This ensures that
best practice principles are taken account of by the Committee
to assist them with their decision making.
We welcome an open dialogue with Shareholders and
will continue to consult with major Shareholders before
implementing any significant changes to the Remuneration Policy.
E M P L O Y M E N T C O N D I T I O N S E L S E W H E R E
I N T H E C O M P A N Y
The policy and practice with regard to the remuneration of
senior executives below the Board is broadly consistent with
that for the Executive Directors. Our senior executive population
will be invited to participate in the LTIP and new RSP, at varying
percentage levels of salary under the LTIP. Different award levels
of up to 100% of salary (200% in exceptional circumstances) may
apply below Board under the RSP. This would be on a case by case
basis, typically as part of a retention package or to compensate
for lost long-term incentives on recruitment of a senior executive.
RSP awards may also vest earlier (or later) than the third
anniversary of grant and may be subject to a shorter holding
period or no holding period.
In making remuneration decisions, the Remuneration Committee
also considers the pay and employment conditions elsewhere
in the Group, and is informed of changes to broader employee
pay. The Remuneration Committee does not specifically consult
with employees over the effectiveness and appropriateness of
the remuneration policy or use any remuneration comparison
measurements, although as members of the Board they receive
the results of the Company’s periodical employee satisfaction
survey which includes questions covering remuneration.
S E R V I C E C O N T R A C T S A N D P O L I C Y O N P A Y M E N T
F O R L O S S O F O F F I C E
It is the Company’s policy to provide for 12 months’ notice for
termination of employment for Executive Directors, to be given
by either party. For Executive Directors who have been newly
recruited from outside the Group, the period would normally
be six months, increasing to 12 months after 12 months’ service.
The Company’s policy is to limit severance payments on
termination to pre-established contractual arrangements; if the
Company believes it appropriate to protect its interests, it may
also make additional payments in exchange for non-compete/
non-solicitation terms which are above and beyond those in the
Director’s contract of employment. Typically, these will serve to
extend the non-compete period for up to three years from the
date of termination. The Committee has discretion to contribute
towards outplacement services and the legal fees for any
departing Director to the extent it considers appropriate.
Under normal circumstances, the Company may terminate the
employment of an Executive Director by making a payment in
lieu of notice equivalent to basic salary and benefits for the notice
period at the rate current at the date of termination. In case
of gross misconduct, a provision is included in the Executive’s
contract for immediate dismissal with no compensation payable.
Copies of the service contracts of the Executive Directors and
copies of the letters of appointment of the Non-executive
Directors are available for inspection at the registered office
of the Company.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
105
T R E A T M E N T O F L O N G - T E R M I N C E N T I V E
A W A R D S A N D O P T I O N S O N T E R M I N A T I O N
O F E M P L O Y M E N T A N D C O R P O R A T E E V E N T S
U N D E R T H E L T I P A N D R S P
In the event an Executive Director leaves for reasons of death,
ill-health, injury, disability, redundancy, retirement with the
agreement of the Company, or their employing company
or business ceasing to be a member or undertaking of the
Group or other such event as the Committee determines
(the good leaver reasons), then awards held for less than one
year will normally lapse. The Committee may determine that
the circumstances are, in its opinion, sufficiently exceptional in
which case an award may vest to the extent determined by the
Committee (having regard to the performance conditions in the
case of an LTIP award and the period during which the participant
was employed) and subject to any other additional terms and
conditions that the Committee may determine.
LTIP and RSP awards held by a good leaver for at least one year
will normally be pro-rated for time and will vest on the normal
vesting date. The Committee has discretion to allow an award
to vest on a date following cessation based (in the case of LTIP
awards) on performance over the original performance period
(or if the award vests early on cessation, a curtailed performance
period) as determined by the Committee.
For all other leavers, outstanding LTIP and RSP awards will
normally lapse.
Upon the occurrence of a takeover, change of control pursuant
to a scheme of arrangement or winding-up (a Corporate Event),
LTIP and RSP awards held for less than one year will normally
lapse unless either they are released and exchanged for
equivalent awards on an internal reorganisation or reconstruction.
The Committee may determine that the circumstances are,
in its opinion, sufficiently exceptional in which case an award may
vest to the extent determined by the Committee (having regard,
in the case of LTIP awards, to the performance conditions) and
subject to any other additional terms and conditions that the
Committee may determine.
Awards granted at least 12 months prior to the date of the
Corporate Event will vest to the extent (in the case of LTIP awards
only) that, in the opinion of the Committee, the Performance
Conditions have been satisfied at that time or would have been
satisfied were it not for the relevant Corporate Event.
Awards may, at the discretion of the Committee, vest early on
a demerger to the extent (in the case of LTIP awards only) that,
in the opinion of the Committee, the Performance Conditions
have been satisfied at that time or would have been satisfied
and subject to any other additional terms and conditions that the
Committee may determine. Awards will normally be exchanged
for new awards on an internal reorganisation or reconstruction
unless the Committee allow them to vest on the basis which
would apply on a takeover.
The Committee retains discretion to vary the extent to which and
the date when awards vest on a case by case basis, following a
review of circumstances, to ensure fairness for both Shareholders
and participants. The Committee also retains the discretion to
vary the number of shares and/or exercise price of options and
awards on or following any variation to the Company’s share
capital or upon the payment of a special dividend or demerger
in accordance with the rules of the relevant plan.
Options held under the Sharesave plans will vest and become
exercisable in accordance with the rules of the relevant plan
and the governing legislation (to the extent applicable) upon
cessation of employment or the occurrence of a Corporate Event.
The Committee reserves the right to make additional payments,
which it considers fair and reasonable, to satisfy any existing legal
obligation and/or to settle any claim for damages or by way of
settlement or compromise of any claim arising on or as a result
of termination.
T R E A T M E N T O F A N N U A L B O N U S O N T E R M I N A T I O N
O F E M P L O Y M E N T A N D C O R P O R A T E E V E N T S
The Committee has discretion to determine that in the event
an Executive Director leaves the Company, bonus payments
may be paid once performance has been measured and on
a pro-rated basis for the time spent in active employment with
the Company.
S H A R E O W N E R S H I P G U I D E L I N E S
The Committee has a policy of encouraging Executive Directors
to acquire and retain a material number of shares in the Company,
with the objective of further aligning their long-term interests
with those of other Shareholders. The minimum requirement for
Executive Directors is currently 200% of salary. The Committee
proposes to increase this to 400% of salary.
Shares that count towards achieving these guidelines include:
• shares beneficially owned by an Executive Director or by
a connected person, as recognised by the Committee;
• deferred bonus shares and LTIP awards which have vested
and so are no longer subject to performance conditions
but are subject to post-vesting deferral provisions; and
• shares held under any restricted stock plan or any plan
established under Listing Rule 9.4.2.
Executive Directors are expected to build their shareholding
over a five-year period (retaining at least 50% of vested incentives
(post-tax) until such guidelines have been met), but are not
required to make personal share purchases if awards do not vest
through failing to meet performance conditions. For example,
a newly-appointed Director may not reach the required level
within the period, depending on the Company’s performance
against target over the period. If so, the Committee will review
the circumstances and agree an appropriate forward plan.
The Committee retains the discretion to grant dispensation
from these requirements in exceptional circumstances.
There is no particular requirement for Non-executive Directors
to hold shares but they are encouraged to acquire a holding
over time.
Directors’ shareholdings are included in the table in the
Implementation Report on page 110.
P E R I O D F O R P O L I C Y
The policy is intended to take effect from 27 April 2017, being
the date of the Company’s 2017 Annual General Meeting.
The Committee is satisfied that the proposed new remuneration
policy is in the best interests of Shareholders and does not
promote excessive risk-taking. The Committee retains discretion
to make non-significant changes to the policy without reverting
to Shareholders.
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106 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Annual report on remuneration
In the following section of our report, we explain how we have implemented Aggreko’s remuneration policy during 2016.
The policy in place for the year was the one which was approved by Shareholders at Aggreko’s 2015 Annual General Meeting.
Brief details of all elements other than variable pay are given above on pages 99 and 103. The policy in place for the year for variable
pay is different from the proposed new policy set out on pages 100 and 101, which we are asking Shareholders to approve in April
2017. The changes between the two relate to the amendment to the annual bonus and long-term incentive arrangements we plan to
introduce. These changes are explained on pages 97 and 98. We have given brief details of the previous policy for variable pay below,
but full details of all elements of the policy can be found in Aggreko’s 2014 Report and Accounts, pages 98 to 104, which is available
on our website at ir.aggreko.com/investors.
S I N G L E T O T A L F I G U R E O F R E M U N E R A T I O N ( A U D I T E D )
The table below sets out a single figure for the total remuneration received by each Director for the years ended 31 December 2016
and 31 December 2015.
Executive Directors
Carole Cran
Carole Cran
Chris Weston
Chris Weston1
Non-executive Directors
Nicola Brewer2
Ken Hanna
Ken Hanna
Russell King
Russell King
Uwe Krueger
Uwe Krueger3
Diana Layfield
Diana Layfield
Robert MacLeod4
Robert MacLeod
Ian Marchant
Ian Marchant
2016 Total
2015 Total
Year
2016
2015
2016
2015
2016
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
2016
2015
Base Salary/
Fees £ Benefits £
84,2475
412,000
Annual
Bonus £
107,120
412,000
750,000
750,000
51,537
342,000
340,250
101,000
100,500
61,000
55,500
61,000
60,500
26,481
80,500
74,462
60,500
99,0066
–
25,035 202,500
22,853
–
–
–
–
–
751
712
–
–
–
–
277
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
1,879,480
110,310 309,620
1,859,750
122,571
–
LTIP
PSP £
CIP £
Sharesave £ Pension £
Other £
Total £
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,149
18,089
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
16,149
18,089
–
–
82,400
82,400
–
–
701,916
611,495
– 225,000 706,6207 1,909,155
4,271 225,000
483,3928
1,485,516
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
51,537
342,000
340,250
101,000
100,500
61,751
56,212
61,000
60,500
26,481
80,500
74,739
60,500
307,400 706,620 3,329,579
4,271
307,400
483,392 2,795,473
1 Chris Weston’s remuneration for 2015 is from date of appointment, 2 January 2015.
2 Nicola Brewer’s remuneration for 2016 is from date of appointment, 25 February 2016.
3 Uwe Krueger’s remuneration for 2015 is from date of appointment, 1 February 2015.
4 Robert MacLeod’s remuneration for 2016 is to date of resignation as a Director, 28 April 2016.
5 Owing to the significant amount of time spent in London, based on UK legislation, Carole Cran has established a second place of employment in London. As a result,
any home to London office travel costs either reimbursed, or paid on Carole’s behalf are taxable.
6 As explained in Note 5 above, Carole Cran’s home to London office travel costs either reimbursed, or paid on Carole’s behalf are taxable. The 2015 amount has been
restated to include travel costs of £4,188 and associated taxes of £12,343 relating to 2015 but which were processed in 2016.
7 As explained on page 89 of our Annual Report 2015, Chris Weston was granted an award of shares on 30 March 2015. 50% of the shares were released on 1 April 2016 –
a total of 63,979 shares. Chris Weston was entitled to a further 1,631 shares equivalent to the dividends on the shares between grant and vesting. The value is based on
the share price on 1 April 2016 of 1077 pence.
8 As set out on page 97 of our Annual Report 2014, Chris Weston received an amount of £483,392 to compensate him for his annual bonus from his previous employer
he forfeited as a result of his resignation. This was paid as 75% in cash and the balance in Aggreko shares. The shares are shown in the table of Directors’ shareholdings
on page 110.
The figures have been calculated as follows:
• Base salary/fees: amount earned for the year. See Base salary on page 107.
• Benefits: the taxable value of benefits received in the year. See Benefits on page 107.
• Annual bonus: the total bonus earned on performance during the year. See Annual bonus scheme on pages 107 and 108.
• 2016 remuneration for LTIPs refers to share awards granted on 16 April 2014 subject to a performance period ended 31 December 2016 and which are due to vest
on 16 April 2017. The value is based on the average share price over the last quarter of 2016 of 859 pence. See Long-term Incentive Plan on pages 108 and 109.
• 2015 remuneration for LTIPs refers to share awards granted on 5 August 2013 subject to a performance period ended 31 December 2015 which vested on 5 August 2016.
The value is based on the share price on 5 August 2016 of 1071 pence.
• Sharesave: the value is based on the market price of an Aggreko share on the date of grant, less the option price, multiplied by the number of options.
• Pension: the amount of any Company pension contributions and cash in lieu. See Pensions on page 109.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
107
Base salary
The base salaries for Executive Directors as at 1 January 2017, 1 January 2016 and 1 January 2015 were as follows:
Executive Director
Position
Carole Cran
Chris Weston
Chief Financial Officer
Chief Executive Officer
1 January
2017
£
412,000
750,000
Increase1
%
0
0
1 January
2016
£
412,000
750,000
Increase
%
0
0
1 January
2015
£
412,000
750,000
1 The increase across the Group for 2016 was 7.4%. There have been no salary increases for Executive Directors for two years and none are proposed for 2017.
Benefits
Chris Weston received healthcare benefits; Carole Cran did not receive any healthcare benefits. Both Executive Directors were also
provided with life assurance cover, income protection, accident insurance and a car allowance. Carole Cran received reimbursement
of the cost of travelling to the London office and associated taxes.
The following table shows those benefits that the Committee considers significant:
Executive Director
Carole Cran
Chris Weston
Car/fuel
£
12,000
12,000
Travel
£
36,460
–
Tax
£
32,3351
–
Other
£
3,452
13,035
Total
£
84,247
25,035
1 Owing to the significant amount of time spent in London, based on UK legislation, Carole Cran has established a second place of employment in London. As a result,
any home to London office travel costs either reimbursed, or paid on Carole’s behalf are taxable.
Annual bonus scheme
The maximum bonus opportunity for 2016 for both Executive Directors was 175% of salary.
Bonus payments are payable as to 75% in cash, and as to 25% deferred into shares for three years unless, at the discretion of the
Committee, the individual leaves with the Company’s consent. The Committee has discretion to reduce the number of shares that
can vest in the event of gross misconduct or material misstatement of the accounts.
The targets under the 2016 annual bonus scheme were based as to 80% on financial performance measures set against the annual
budget at the start of the year and as to 20% against personal/strategic objectives.
Financial performance measures
The financial objectives for the Chief Executive Officer (Chris Weston) and the Chief Financial Officer (Carole Cran) were measured
as to 75% against D-EPS and as to 25% against operating cash flow.
For these financial measures, Executive Directors would start to earn a bonus at threshold performance, calculated as a percentage
below budget, increasing to half of the maximum that could be earned under that element at budget on a straight-line basis.
The bonus would then increase on a straight-line basis to the maximum, calculated as a percentage above budget.
The table below shows the performance against budget of each of the financial performance measures used for calculating the
Annual Bonus for 2016:
Measure
Threshold
Budget
Maximum
Outcome
D-EPS growth
Operating cash flow
56.51p
£468.4m
95
90
59.48p
65.43p
£520.44m
£572.48m
110
110
49.74p1
£333.1m1
84
64
0
0
% budget
% budget
% budget
% maximum
of element
1 The reported D-EPS and operating cash flow have been adjusted to a constant currency basis.
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108 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Annual report on remuneration continued
Personal/strategic performance measures
Each Director was set three personal objectives, which included measurable improvements in safety indicators and agreed outcomes
for set strategic objectives specific to their roles. Against each of these personal objectives he or she could achieve the maximum bonus
entitlements detailed in the table below (35% of salary in total).
Chris Weston’s objectives included delivery of the Aggreko 18 initiatives with a particular focus on technology and cost/procurement
savings. Carole Cran’s objectives included developing a risk management framework and working with the business finance leads to
tightly manage cost. The Committee reviewed performance against these measures for each Director, and the table below shows the
Committee’s assessment of each personal/strategic objective achieved as a percentage of salary.
Executive Director
Carole Cran
(maximum % achievable)
Chris Weston
(maximum % achievable)
Personal/strategic objective achieved as a percentage of salary
Risk
Management
framework
%
Cost
Management
%
Leadership
Development
%
Aggreko 18
%
11
14
–
–
11
14
–
–
–
–
5
7
–
–
13.5
17.5
Safety
%
4
7
8.5
10.5
Total
%
26
35
27
35
The table below sets out the total bonus entitlement for each Executive Director for 2016:
Executive Director
Carole Cran
Chris Weston
D-EPS growth
Operating cash flow
Personal objectives
Total payable1
Total
max bonus
% salary
Max
bonus
% salary
Outcome
% salary
Max
bonus
% salary
Outcome
% salary
Max
bonus
% salary
Outcome
% salary
175
175
105
105
0
0
35
35
0
0
35
35
26
27
% salary
£
26
27
107,120
202,500
1 The total bonus includes the 25% deferred shares element.
Long-term Incentive Plan (LTIP)
The LTIP awards which are due to vest on 16 April 2017 were granted in 2014 under the old LTIP, which expired in 2014. The old LTIP
consists of two distinct elements: the Performance Share Plan (PSP) and the Co-investment Plan (CIP).
The PSP is a nil-cost conditional award of shares which vest depending on performance against the targets; it provides for
annual awards of performance shares up to an aggregate limit of 100% of salary in normal circumstances and 200% of salary
in exceptional circumstances.
The CIP is a Co-investment plan, whose purpose it is to encourage executives to buy and hold shares in the Company.
Participants can subscribe to purchase Aggreko shares up to a value of 30% of their salary, each year that they are invited to join the
CIP; if they hold those shares for three years (or, if earlier, the date that their CIP award vests), they will be entitled to receive a minimum
award of one share for every two they subscribed (the Minimum Match), plus a performance related award of a further three shares
for every two they subscribed. The Minimum Match is not subject to performance conditions.
The PSP and CIP are both measured against performance over three financial years and they share the same performance criteria.
These are the real compound annual growth rate of Diluted Earnings per Share (D-EPS), and Return on Capital Employed (ROCE).
The performance criteria for the LTIP awards granted in 2014 were as follows:
• 75% of the award was based on CPI inflation-adjusted compound annual growth in D-EPS over the three-year performance
measurement period in a range of 3% to 10%. No performance shares would be awarded against this element if performance
was below 3% and awards would increase straight-line to the maximum at 10% growth; and
• 25% of the award was based on average ROCE over the performance period in a range of 20% to 25%. No performance shares
would be awarded against this element if performance was below 20% and awards would increase straight-line to the maximum
at 25% ROCE.
In addition to the above, and to reward truly exceptional performance, the number of shares awarded to participants in both elements
of the 2014 LTIP might be increased by between one and two times if the real compound annual growth in D-EPS over the three-year
performance measurement period was in a range of 10% to 20%.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
109
The performance period for the 2014 LTIP awards ended on 31 December 2016. Over the period:
• Aggreko’s aggregate D-EPS was 217.6 pence, which is the equivalent of no growth. Since this was less than the threshold of 3%,
no shares will vest under this performance measure; and
• Aggreko’s actual average ROCE for the period was 16%. Since this was less than the threshold of 20%, no shares will vest under this
performance measure.
Accordingly, only the Minimum Match will vest.
The table below shows:
• the resulting vesting of the 2014 LTIP awards for Carole Cran. These are due to vest in April 2017; and
• by way of comparison the vesting of the 2013 LTIP awards which vested in August 2016.
Executive Director
Year of grant
Vested
Market price
£
Carole Cran
Carole Cran
2014
2013
–
–
–
–
Value
£
–
–
Vested
1,880
1,689
Market price
£
859p
1071p
Value
£
16,149
18,089
Total value
£
16,149
18,089
Performance Share Plan
Co-Investment Plan
Carole Cran’s 2014 LTIP awards were granted on 16 April 2014.
Carole Cran’s 2013 LTIP awards were granted on 5 August 2013 and vested on 5 August 2016.
The value of the 2014 LTIP on vesting is based on the average price of Aggreko shares over the last quarter of 2016 of 859 pence.
The value of the 2013 LTIP on vesting is based on the market price of Aggreko shares on date of vesting, 5 August 2016, of 1071 pence.
Pensions
Executive Directors participate in pension schemes or receive cash in lieu with a value appropriate to the median practice in
their country.
Carole Cran is a member of the Aggreko Group Personal Pension Plan, which is a defined contribution scheme. Chris Weston is entitled
to a Company contribution of 30% and Carole Cran is entitled to a Company contribution of 20% of salary, but she may elect to take
all or part of the Company contribution in the form of a cash payment in lieu. Contributions paid by the Company under the defined
contribution plans during the year are as follows:
Executive Director
Carole Cran
Chris Weston
Paid to
pension
£
18,665
2016
Paid cash
£
63,735
–
225,000
Total
£
82,400
225,000
Paid to
pension
£
37,340
–
2015
Paid cash
£
45,060
225,000
Total
£
82,400
225,000
Non-executive Directors (including the Chairman)
The Board determines the remuneration policy and level of fees for the Non-executive Directors, within the limits set out in the
Articles of Association. The Remuneration Committee recommends remuneration policy and level of fees for the Chairman of the
Board (although the Chairman of the Board does not take part in discussions concerning his remuneration). Remuneration comprises
an annual fee for acting as a Chairman or Non-executive Director of the Company. Additional fees are paid to Non-executive Directors
in respect of service as Chairman of the Audit and Remuneration Committees and as Senior Independent Director. The Chairman
and Non-executive Directors are not eligible for bonuses, retirement benefits or to participate in any share scheme operated by the
Company. The Chairman’s fee has not increased since April 2015 and the fees for the Non-executive Directors have not increased
since July 2015.
The fees for the Chairman and Non-executive Directors as at 1 January 2017 and 1 January 2016 were as follows:
Role
Chairman fee
Non-executive Director base fee
Committee Chairman additional fee
Senior Independent Director additional fee
1 January 2017
£
Increase
%
1 January 2016
£
342,000
61,000
20,000
20,000
0
0
0
0
342,000
61,000
20,000
20,000
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110 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Annual report on remuneration continued
S H A R E A W A R D S G R A N T E D I N 2 0 1 6 ( A U D I T E D )
In May 2016, Executive Directors were granted awards of shares under the 2015 Long-term Incentive Plan, in each case with a value
equivalent to 300% of salary. The three-year performance period over which D-EPS and ROCE performance will be measured began
on 1 January 2016 and will end on 31 December 2018. None of the awards granted under the LTIP are eligible to vest until 9 May 2019.
The performance criteria for the LTIP awards granted in 2016 are as follows:
• 75% of the award is based on three-year cumulative D-EPS as compared to three-year compound growth in real (RPI-adjusted)
D-EPS. No performance shares will be awarded against this element if performance is below an equivalent of RPI+3% per annum
growth. Awards will then start to vest above that level and will increase straight-line to a maximum at an equivalent of RPI+15%
per annum growth; and
• 25% of the award is based on average ROCE over the performance period in a range of 20% to 25%. No performance shares will be
awarded against this element if performance is less than 20% and awards will increase straight-line to the maximum at 25% ROCE.
A proportion of shares which vest will be subject to a further retention period of up to two years in accordance with the rules of the LTIP.
The table below shows details of interests awarded to Executive Directors under the LTIP during 2016:
Executive Director
Carole Cran
Chris Weston
Shares
114,976
Face Value1
£
1,235,992
209,302
2,249,997
% vesting
on minimum
performance
–
–
1 Face value of LTIP is the maximum number of shares that would vest if all performance targets are met multiplied by the average market price over the five business days
prior to the date of grant of 9 May 2016, which was used to determine the number of shares awarded, being 1075 pence.
A R R A N G E M E N T S W I T H P A S T D I R E C T O R S ( A U D I T E D )
Vesting of LTIP awards to former Executive Directors
The table below shows awards to former Executive Directors which vested in 2016:
Co-Investment Plan
Market price
on vesting
date
£
1067p
940p
1164p
Shares
2,906
2,644
5,787
Value
£
31,007
24,854
67,361
Date of vesting
5 August 2016
19 October 2016
23 May 2016
Former Executive Director
Debajit Das
Debajit Das
David Taylor-Smith
E X I T P A Y M E N T S
There were no exit payments during the year.
D I R E C T O R S ’ S H A R E H O L D I N G S ( A U D I T E D )
As at 31 December 2016, the shareholdings of the Directors were as follows:
Director
Carole Cran
Chris Weston5
Nicola Brewer
Ken Hanna
Russell King
Uwe Krueger
Diana Layfield
Robert MacLeod6
Ian Marchant
Shares
counting
towards
guidelines
(A + B)
13,865
106,488
Current
shareholding
% salary4
31
130
(A) Shares
owned
outright1
(B) Shares
held subject
to deferral
Shares held
subject to
performance
conditions2
Options held
not subject to
performance
conditions3
Proposed
shareholding
guidelines
% salary
4,082
71.715
227,807
348,534
–
2,168
400
400
9,783
34,773
1,450
19,303
3,688
3,000
2,855
18,582
3,331
1 This includes shares held by connected persons.
2 Shares held subject to performance comprise LTIP awards over shares.
3 Options held under the Sharesave Plan.
4 Percentage is calculated using a share price of 918 pence as at 31 December 2016. Under the Company’s share ownership guidelines, Executive Directors will have a period
of five years to achieve the shareholding guideline of not less than four times base salary.
5 Chris Weston’s holding comprises 63,979 of the shares awarded on 30 March 2015 (the remainder of the shares awarded on 30 March 2015 were released on 1 April 2016
and are included in Column B) and 25% of his annual bonus forfeited from his previous employer which was deferred into shares (7,736 shares), as set out on page 97
of our 2014 Report and Accounts.
6 Robert MacLeod’s holding is at date of resignation as a Director, 28 April 2016.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
111
There have been no changes in the Directors’ interests in Ordinary Shares between 31 December 2016 and 7 March 2017.
Carole Cran and Chris Weston, as employees of the Company, have an interest in the holdings of the Aggreko Employee Benefit Trust
(the ‘EBT’) as potential beneficiaries. The EBT is a trust established to distribute shares to employees of the Company and its subsidiaries
in satisfaction of awards granted under the Aggreko Long-term Incentive Plans and Sharesave Schemes. At 31 December 2016,
the trustees of the EBT held a total of 1,048,816 Aggreko plc Ordinary Shares (2014: 535,538) and the holding at the date of this report
is 1,042,090. The dividend has been waived on these shares.
C O M P A R I S O N O F C O M P A N Y P E R F O R M A N C E
The graph below shows the value, at 31 December 2016, of £100 invested in Aggreko’s shares on 31 December 2008 compared
with the current value of the same amount invested in the FTSE 350 Index. The FTSE 350 Index is chosen because Aggreko has
been a constituent member of this group over the entire period.
Company performance
500
£470
450
400
350
300
250
200
150
100
50
0
£342
£409
£408
£363
£212
£130
£100
£100
£148
£144
£161
£194
£196
£225
£197
£231
£231
Aggreko
FTSE 350 Index
Dec 08
Dec 09
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Dec 16
For comparative purposes, the remuneration of the Director undertaking the role of Chief Executive Officer for the same financial years
is set out below:
Year
2009
2010
2011
2012
2013
2014
2015
2016
CEO
Rupert Soames
Rupert Soames
Rupert Soames
Rupert Soames
Rupert Soames
Angus Cockburn
Chris Weston
Chris Weston
Single Figure of
Total Remuneration
£
Annual Bonus payout
against maximum
%
Long-term incentive
vesting rates against
maximum opportunity
%
2,555,850
5,839,209
8,501,865
2,685,840
1,779,144
1,290,906
1,485,516
1,909,155
63.2
100
82.4
6.4
49.6
42.4
0
15
100
100
100
100
72.5
5.8
0
0
Angus Cockburn was Interim Chief Executive from 25 April to 30 September 2014, and his emoluments have been calculated on the
assumption that he held the role for the full year at the rates of remuneration in place on 30 September 2014.
The 2015 figure for Chris Weston includes an amount of £483,392 to compensate him for his annual bonus from his previous employer
he forfeited as a result of his resignation. The 2016 figure includes an amount of £706,620 to compensate him for the forfeiture of
long-term incentives from his previous employer.
The data for this table was taken from the Remuneration Reports for the relevant years and adjusted to take account of the actual
share price on date of vesting for the LTIP.
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112 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Annual report on remuneration continued
P E R C E N T A G E C H A N G E I N R E M U N E R A T I O N O F C E O
The table below shows the change in remuneration of the Chief Executive Officer in comparison to the average change in remuneration
of employees within the Group central functions over that period.
Year
Salary/fees
Benefits
Bonus
Percentage change for CEO Percentage change for Group central functions
0
9.5
n/m
7.8
22.7
n/m
The comparator group relates to the employees within the Group central function in the UK (122 employees), rather than all Group
employees. As in the previous year, we have chosen this group because the Committee believes that it provides a sufficiently large
comparator group to give a reasonable understanding of underlying increases, whilst reducing the distortion that would arise
from including all of the many countries in which the Group operates, with their different economic conditions. Neither the CEO
or employees within the Group central function in the UK received a bonus in 2015 and therefore, the percentage change in bonus
is not meaningful.
R E L A T I V E I M P O R T A N C E O F S P E N D O N P A Y
The graph below shows Aggreko’s profit after tax, pre-exceptional items, dividend, and total employee pay expenditure for the financial
years ended 31 December 2015 and 31 December 2016, and the percentage change.
Profit after tax £m
Dividend £m
Total employee pay expenditure £m
−14%
–1%
+7%
16
15
£158m
£183m
16
15
£69m
£70m
16
15
£355m
£331m
0
100
200
300
400
0
100
200
300
400
0
100
200
300
400
Dividends are the interim and final dividends paid in respect of the financial year ended 31 December 2015 and the interim dividend
paid and the final dividend recommended in respect of the financial year ended 31 December 2016. The total employee pay
expenditure increase is due to year on year exchange rate movement.
I M P L E M E N T A T I O N O F R E M U N E R A T I O N P O L I C Y I N 2 0 1 7
The Committee intends to implement the Remuneration Policy in 2017 as follows:
Base salaries and fees
Base salaries for Executive Directors were reviewed by the Committee in December 2016; details are set out on page 107.
The Committee intends to next review the salaries in December 2017. Fees for the Chairman and Non-executive Directors
will next be reviewed in 2018.
Pensions and benefits
Pensions and benefits will continue in line with policy.
Annual bonus
The Committee set annual bonus targets for the Executive Directors as follows:
Executive Director
Carole Cran
Chris Weston
D-EPS
Personal
objectives
Total
max bonus
(% salary)
Max bonus
% salary
On-budget
bonus
% salary
Max bonus
% salary
125
125
100
100
50
50
25
25
The personal objectives were set individually for each Director. All include agreed outcomes for set strategic objectives specific to
their roles.
We have not disclosed full details of all objectives or financial targets in this report, as we consider them to be commercially sensitive.
It is, however, our intention to disclose financial budget numbers in next year’s Annual report on remuneration.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
113
Long-term Incentive Plan
Subject to the approval of the changes to the Long-term Incentive Plan by Shareholders at the Company’s 2017 Annual General Meeting,
the Committee proposes to approve the grant of 2017 LTIP awards to Executive Directors with a face value of 200% of salary.
The performance criteria for the 2017 LTIP will be as follows:
• 75% of the award will be based on three-year D-EPS growth, with 25% of shares awarded against this element for D-EPS growth of
5% per annum. Awards will then continue to vest above that level and will increase straight-line to a maximum for 12% per annum
growth; and
• 25% of the award will be based on final year ROCE in the range of 15% to 20%, with 25% of shares awarded against this element
if 2019 ROCE is equal to 15%. Awards will increase straight-line to the maximum at 20% ROCE in 2019.
The shares which vest will be released to participants in equal tranches after three, four and five years in accordance with the
rules of the LTIP.
Awards are expected to be granted in May 2017 after the Company’s 2017 Annual General Meeting.
Restricted Shares
Subject to the approval of the new Restricted Share Plan (RSP) by Shareholders at the Company’s 2017 Annual General Meeting,
the Committee proposes to approve the grant of 2017 RSP awards to Executive Directors with a face value of 75% of salary.
The shares will be released after five years, subject to continued employment over a three-year period or otherwise upon leaving
the Company as a good leaver.
C O N S I D E R A T I O N B Y T H E D I R E C T O R S O F M A T T E R S R E L A T I N G T O
D I R E C T O R S ’ R E M U N E R A T I O N
The Committee re-appointed Kepler Associates, a brand of Mercer, as the principal external adviser to the Committee for 2016.
The fees paid to Kepler Associates in respect of work that materially assisted the Committee in 2016 are shown in the table below:
Adviser
Kepler Associates
Appointed by
Russell King
on behalf of
the Committee
Services provided
to the Committee
Fees paid by
the Company
for the Services
Review of LTIP Award Calculations
£78,960
Advice on DRR disclosure
Advice on current market practice
Benchmarking of Executive pay
Advice on design of new
incentive arrangements
Charged on a
time/cost basis
Other Services
Benchmarking of
Non-executive Director
Fees and specific
below-Board roles
Advice on remuneration
for below-Board executives
Except as provided above, Kepler Associates do not provide any other services to the Group. They are a member of the
Remuneration Consultants Group and a signatory to its code of conduct. Taking these factors into account, the Committee is
satisfied as to the impartiality and objectivity of their advice. They were also chosen because of their existing knowledge of the
Group’s remuneration arrangements.
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114 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Annual report on remuneration continued
S T A T E M E N T O F S H A R E H O L D E R V O T I N G
The following table shows the results of the advisory vote on the 2015 Remuneration Report at the 28 April 2016 AGM.
For
Against
Total votes cast (excluding withheld votes)
Votes withheld1
Total votes cast (including withheld votes)
Remuneration Report
Total number of votes
% of votes cast
170,985,554
1,826,364
172,811,918
1,519,590
174,331,508
98.94
1.06
100
–
–
1 A withheld vote is not a vote in law and is not counted in the calculation of the proportion of votes cast for and against a resolution.
The Policy Report was last submitted to Shareholders at the 2015 AGM when 98.88% voted in favour.
D I R E C T O R S ’ S E R V I C E C O N T R A C T S
Each of the Directors will be proposed for election or re-election at the Company’s Annual General Meeting to be held on 27 April 2017.
The Executive Directors are employed under contracts of employment with Aggreko plc. The Remuneration Committee sets notice
periods for the Executive Directors at 12 months or less. The principal terms of the Executive Directors’ service contracts (which have
no fixed term) are as follows:
Notice period
Executive Director
Position
Effective date of contract
From Director
From Company
Carole Cran
Chris Weston
Chief Financial Officer
1 June 2014
Chief Executive Officer
2 January 2015
12 months
12 months
12 months
12 months
Non-executive Directors are appointed for a term of three years, subject to three months’ notice from either party.
The dates of the Chairman’s and Non-executive Directors’ appointments are as follows:
Non-executive Director
Position
Effective date of contract
Nicola Brewer
Ken Hanna
Barbara Jeremiah
Russell King
Uwe Krueger
Diana Layfield
Ian Marchant
Miles Roberts
1 Replaces earlier contract.
Non-executive Director
25 February 2016
Chairman
Non-executive Director
Non-executive Director
Non-executive Director
29 April 20151
7 March 2017
2 February 20151
1 February 2015
Non-executive Director
1 May 20151
Non-executive Director
1 November 20161
Non-executive Director
7 March 2017
n/a
Unexpired term
as at 31 December 2016
2 years 2 months
1 year 4 months
n/a
1 month
1 year 1 month
1 year 4 months
2 years 10 months
E X T E R N A L A P P O I N T M E N T S
It is the Board’s policy to allow the Executive Directors to accept directorships of other quoted companies. Any such directorships must
be formally approved by the Chairman of the Board. Directors are generally permitted to retain any earnings from these appointments.
During the year, Carole Cran was appointed as a Non-executive Director of Halma plc. Fees for 2016 in relation to this appointment were
£51,000. Chris Weston did not hold any external directorships of other quoted companies.
This Report was approved by the Board on 7 March 2017.
Signed on behalf of the Board.
Russell King
Chairman of the Remuneration Committee
7 March 2017
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
115
Statutory disclosures
D I R E C T O R S ’ R E P O R T A N D S T R A T E G I C R E P O R T
S H A R E C A P I T A L
The Directors’ Report and Strategic Report for the year ended
31 December 2016 comprise pages 70 to 121 and pages 1 to 69 of
this report, together with the sections incorporated by reference.
We have included some of the matters normally included in the
Directors’ Report which we consider to be of strategic importance
in the Strategic Report on pages 1 to 69. Specifically these are:
• Future Business Developments on page 27; and
• Risk Information on the Use of Financial Instruments on
page 158.
Disclosures in relation to Listing Rule LR 9.8.4R, where applicable,
are included on pages 94 to 98 in relation to long-term
incentive plans and on page 118 in relation to the dividend
waiver arrangements in place for our Employee Benefit Trust.
Both the Directors’ Report and Strategic Report have been
presented in accordance with applicable company law,
and the liabilities of the Directors in connection with those
reports are subject to the limitations and restrictions provided.
Other information to be disclosed in the Directors’ Report is
given in this section.
M A N A G E M E N T R E P O R T
The Strategic Report and the Directors’ Report together include
the ‘management report’ for the purposes of Disclosure and
Transparency Rule (DTR) 4.1.8R.
On 31 December 2016, the Company had in issue 256,128,201
Ordinary Shares of 4329⁄395 pence each, 188,251,587 Deferred
Shares of 984⁄775 pence each, 18,352,057,648 Deferred Shares
of 1⁄775 pence each, 182,700,915 Deferred Shares of 618⁄25 pence
each and 573,643,383,325 Deferred Shares of 1⁄306125 pence each
comprising 29.43%, 40.77%, 0.56%, 29.19% and 0.04% respectively
of the Company’s issued share capital. Details of the changes in
issued share capital during the year are shown in Note 23 to the
accounts on page 153.
M A T E R I A L S H A R E I N T E R E S T S
As at 31 December 2016, the Company had received notifications
of the following major shareholdings, representing 3% or more
of the voting rights attached to the issued Ordinary Share capital
of the Company:
Shareholder
AKO Capital LLP
Baillie Gifford
Number
of shares
% of total
voting rights
12,781,545
12,584,169
The Capital Group Companies LLP
13,446,515
Deutsche Bank AG
19,458,562
Mackenzie Financial Corporation
10,255,385
Prudential Plc
A E H Salvesen*
9,351,326
7,878,044
4.99
4.91
5.25
7.60
4.00
3.65
3.08
2 0 1 7 A N N U A L G E N E R A L M E E T I N G
*
Including immediate family and trustee interests.
The Company’s Annual General Meeting will be held at 11.00 am
on 27 April 2017 at the Radisson Blu Hotel, 301 Argyle Street,
Glasgow G2 8DL. The Notice of Meeting is available on the
Shareholder information pages of our website.
D I V I D E N D S
The interim dividend of 9.38 pence per Ordinary Share was
paid on 30 September 2016. The Directors recommend a final
dividend of 17.74 pence per Ordinary Share in respect of the year,
making a total for the year of 27.12 pence per Ordinary Share
(2015: 27.12 pence), payable on 24 May 2017 to Shareholders on
the register at the close of business on 21 April 2017.
D I V I D E N D P A Y M E N T S A N D D R I P
In 2015, we introduced a Dividend Reinvestment Plan (DRIP)
for Shareholders. This allows Shareholders to purchase
additional shares in Aggreko with their dividend payment.
Further information and a mandate can be obtained from
our Registrars, Capita, whose details are set out on page 176
and the Shareholder information pages of our website.
Between 31 December 2016 and 7 March 2017, the Company
received the following notifications of major shareholdings.
Shareholder
Deutsche Bank AG
Deutsche Bank AG
Deutsche Bank AG
Deutsche Bank AG
Deutsche Bank AG
Date
03/01/2017
15/02/2017
23/02/2017
27/02/2017
28/02/2017
Number
of shares
% of total
voting rights
17,077,012
19,067,886
20,872,398
17,983,634
17,927,419
6.67
7.44
8.15
7.02
6.99
The Directors are not aware of any other material interests
amounting to 3% or more in the share capital of the Company.
R I G H T S A N D O B L I G A T I O N S A T T A C H E D T O S H A R E S
Subject to applicable statutes (in this section referred to as the
Companies Acts) and to any rights conferred on the holders of
any other shares, any share may be issued with or have attached
to it such rights and restrictions as the Company may by ordinary
resolution decide or, if no such resolution has been passed or
so far as the resolution does not make specific provision, as the
Board may decide.
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116 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Statutory disclosures continued
The Deferred Shares confer no right to participate in the profits
of the Company.
On a return of capital on a winding-up (excluding any intra-Group
reorganisation on a solvent basis), holders of Deferred Shares are
entitled to be paid the nominal capital paid up or credited as paid
up on such Deferred Shares after paying to the holders of the
Ordinary Shares the nominal capital paid up or credited as paid
up on the Ordinary Shares held by them respectively, together
with the sum of £100,000,000 on each Ordinary Share.
The Board may deduct from any dividend or other moneys
payable to a member by the Company on or in respect of any
shares all sums of money (if any) presently payable by him to the
Company on account of calls or otherwise in respect of shares of
the Company. The Board may also withhold payment of all or any
part of any dividends or other moneys payable in respect of the
Company’s shares from a person with a 0.25% interest (as defined
in the Articles) if such a person has been served with a restriction
notice (as defined in the Articles) after failure to provide the
Company with information concerning interests in those shares
required to be provided under the Companies Acts.
V A R I A T I O N O F R I G H T S
Subject to the provisions of the Companies Acts, rights attached to
any class of shares may be varied either with the consent in writing
of the holders of not less than three-fourths in nominal value of
the issued shares of that class (excluding any shares of that class
held as Treasury Shares) or with the sanction of a special resolution
passed at a separate general meeting of the holders of those
shares. The necessary quorum applying to any such separate
general meeting is two persons holding or representing by proxy
not less than one-third in nominal value of the issued shares of the
class (excluding any shares of that class held as Treasury Shares),
(but at any adjourned meeting one holder present in person
or by proxy (whatever the number of shares held by him) will
constitute a quorum); every holder of shares of the class present
in person or by proxy (excluding any shares of that class held as
Treasury Shares) is entitled on a poll to one vote for every share of
the class held by him (subject to any rights or restrictions attached
to any class of shares) and any holder of shares of the class present
in person or by proxy may demand a poll.
V O T I N G
Subject to any special terms as to voting upon which any
shares may be issued or may for the time being be held and to
any other provisions of the Articles of Association for the Company
(‘the Articles’), on a show of hands every member who is present
in person or by proxy or represented by a corporate representative
at a general meeting of the Company has one vote.
On a poll, every member who is present in person or by proxy or
represented by a corporate representative has one vote for every
share of which he or she is the holder. In the case of joint holders
of a share the vote of the senior who tenders a vote, whether in
person or by proxy, is accepted to the exclusion of the votes of the
other joint holders and, for this purpose, seniority is determined
by the order in which the names stand in the register in respect
of the joint holding.
The holders of the Deferred Shares are not entitled to receive
notice of any general meeting of the Company or to attend,
speak or vote at any such meeting.
R E S T R I C T I O N S O N V O T I N G
No member is, unless the Board otherwise decides, entitled in
respect of any share held by him to vote (either personally or by
proxy or by a corporate representative) at any general meeting of
the Company or at any separate general meeting of the holders
of any class of shares in the Company if any calls or other sums
presently payable by him in respect of that share remain unpaid
or if he is a person with a 0.25% interest (as defined in the Articles)
and he has been served with a restriction notice (as defined in
the Articles) after failure to provide the Company with information
concerning interests in those shares required to be provided
under the Companies Acts.
The Company is not aware of any agreement between holders
of securities that may result in restrictions on voting rights.
D I V I D E N D S A N D O T H E R D I S T R I B U T I O N S
Subject to the provisions of the Companies Acts, the Company
may by ordinary resolution from time to time declare dividends
in accordance with the respective rights of the members, but no
dividend can exceed the amount recommended by the Board.
Subject to the provisions of the Companies Acts, the Board may
pay such interim dividends as appear to the Board to be justified
by the financial position of the Company and may also pay any
dividend payable at a fixed rate at intervals settled by the Board
whenever the financial position of the Company, in the opinion
of the Board, justifies its payment. If the Board acts in good faith,
it shall not incur any liability to the holders of any shares for any
loss they may suffer in consequence of the payment of an interim
or fixed dividend on any other class of shares ranking pari passu
with or after those shares.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
117
R E S T R I C T I O N S O N T R A N S F E R O F S E C U R I T I E S
I N T H E C O M P A N Y
There are no restrictions on the transfer of securities in the
Company, except that:
• certain restrictions may from time to time be imposed
by laws and regulations (for example, insider trading
laws), in particular we operate a share dealing code which
requires Directors of the Company and certain employees
to obtain the approval of the Company before dealing in
the Company’s Ordinary Shares; and
• the Deferred Shares are not transferable except in accordance
with the paragraph headed “Powers in relation to the Company
issuing or buying back its own shares” below or with the written
consent of the Directors.
The Company is not aware of any agreements between holders
of securities that may result in restrictions on the transfer
of securities.
A R T I C L E S O F A S S O C I A T I O N
Our Articles are available on our website at ir.aggreko.com/investors.
Unless expressly specified to the contrary in the Articles,
the Articles may be amended by a special resolution of the
Company’s Shareholders.
A P P O I N T M E N T A N D R E P L A C E M E N T O F D I R E C T O R S
The rules for the appointment and replacement of Directors are
contained in the Company’s Articles. They include: the number
of Directors must not be less than two or more than 15, the
Board may appoint any person to be a Director; any Director
so appointed by the Board shall hold office only until the next
general meeting and shall then be eligible for election; each
Director must retire from office at the third Annual General
Meeting after the Annual General Meeting at which he was last
elected. However, in line with the UK Corporate Governance Code,
all Directors will stand for annual election at the 2017 AGM.
A Director may be removed by special resolution of the Company.
In addition, the office of a Director must be vacated if: (i) he
resigns his office by notice in writing delivered to the office or
tendered at a meeting of the Board; or (ii) by notice in writing
he offers to resign and the Board resolves to accept such offer;
or (iii) his resignation is requested by all of the other Directors
and all of the other Directors are not less than three in number;
or (iv) a registered medical practitioner who is treating that
Director gives a written opinion to the Company stating that that
Director has become physically or mentally incapable of acting
as a Director and may remain so for more than three months;
or (v) by reason of a Director’s mental health, a court makes
an order which wholly or partly prevents that Director from
personally exercising any powers or rights which that Director
would otherwise have; or (vi) he is absent without the permission
of the Board from meetings of the Board (whether or not an
alternate Director appointed by him attends) for six consecutive
months and the Board resolves that his office is vacated; or
(vii) he becomes bankrupt or compounds with his creditors
generally; or (viii) he is prohibited by law from being a Director;
or (ix) he ceases to be a Director by virtue of the Companies Acts
or is removed from office pursuant to the Articles.
D I R E C T O R S ’ C O N F L I C T S O F I N T E R E S T
The Company has procedures in place for monitoring and
managing conflicts of interest. Should a Director become aware
that they, or their connected parties, have an interest in an existing
or proposed transaction with Aggreko, they should notify the
Board in writing or at the next Board meeting. Directors have
a continuing duty to update any changes to these conflicts.
P O W E R S O F T H E D I R E C T O R S
Subject to the provisions of the Companies Acts, the Articles and
to any directions given by the Company in general meeting by
special resolution, the business of the Company is managed by
the Board, which may exercise all the powers of the Company
whether relating to the management of the business of the
Company or not. In particular, the Board may exercise all the
powers of the Company to borrow money and to mortgage or
charge all or any part of the undertaking, property and assets
(present and future) and uncalled capital of the Company and
to issue debentures and other securities, whether outright or
as collateral security for any debt, liability or obligation of the
Company or any third party.
P O W E R S I N R E L A T I O N T O T H E C O M P A N Y
I S S U I N G O R B U Y I N G B A C K I T S O W N S H A R E S
The Directors were granted authority at the last Annual General
Meeting held in 2016 to allot relevant securities up to a nominal
amount of £4,126,149 in connection with an offer by way of a rights
issue. That authority will apply until the earlier of 30 June 2017 and
the conclusion of the Annual General Meeting for 2017. At this
year’s Annual General Meeting, Shareholders will be asked to grant
an authority to allot relevant securities up to a nominal amount
of £4,126,149, such authority to apply until the end of next year’s
Annual General Meeting (or, if earlier, until the close of business
on 30 June 2018).
A special resolution will also be proposed to renew the Directors’
power to make non-pre-emptive issues for cash up to a nominal
amount of £1,237,844.
The Company was also authorised at the Annual General Meeting
held in 2016 to make market purchases of up to 25,612,820
Ordinary Shares. This authorisation will expire on the earlier of
the conclusion of the Annual General Meeting of the Company
for 2017 and 30 June 2017.
A special resolution will also be proposed at this year’s Annual
General Meeting to renew the Directors’ authority to repurchase
the Company’s Ordinary Shares in the market. The authority will
be limited to a maximum of 25,612,820 Ordinary Shares and sets
the minimum and maximum prices which may be paid.
The Company may at any time, without obtaining the sanction
of the holders of the Deferred Shares:
(a) appoint any person to execute on behalf of any holder of
Deferred Shares a transfer of all or any of the Deferred Shares
(and/or an agreement to transfer the same) to the Company
or to such person as the Directors may determine, in any case
for not more than one penny for all the Deferred Shares then
being purchased from him; and
(b) cancel all or any of the Deferred Shares so purchased
by the Company in accordance with the Companies Acts.
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G O V E R N A N C E
Statutory disclosures continued
S E C U R I T I E S C A R R Y I N G S P E C I A L R I G H T S
I N D E M N I T Y O F O F F I C E R S
No person holds securities in the Company carrying special rights
with regard to control of the Company.
R I G H T S U N D E R T H E E M P L O Y E E S H A R E S C H E M E
Estera Trust (Jersey) Limited, as Trustee of the Aggreko Employees’
Benefit Trust, holds 0.73% of the issued share capital of the
Company as at 7 March 2017 on trust for the benefit of the
employees and former employees of the Group and their
dependants. The voting rights in relation to these shares are
exercised by the Trustee and there are no restrictions on the
exercise of the voting of, or the acceptance of any offer relating
to, the shares. The Trustee is obliged to waive all dividends on
the shares unless requested to do otherwise by the Company
in writing.
G O I N G C O N C E R N A N D V I A B I L I T Y S T A T E M E N T S
The going concern statement is included on page 132 of the
financial statements.
The viability statement is included on page 61 of the
Strategic Report.
C H A N G E O F C O N T R O L
The Company has in place a number of agreements with
advisers, financial institutions and customers which contain
certain termination rights which would have an effect on a
change of control. The Directors believe these agreements to
be commercially sensitive and that their disclosure would be
seriously prejudicial to the Company; accordingly, they do not
intend disclosing specific details of these. In addition, all of the
Company’s share schemes contain provisions which in the event
of a change of control, would result in outstanding options
and awards becoming exercisable, subject to the rules of the
relevant schemes.
There are no agreements between the Company and its
Directors or employees providing for compensation for loss
of office or employment that occurs because of a takeover bid.
D I S C L O S U R E O F I N F O R M A T I O N
T O T H E C O M P A N Y ’ S A U D I T O R
In accordance with Section 418 of the Companies Act 2006 the
Directors who held office at the date of approval of this Directors’
Report confirm that, so far as they are each aware, there is no
relevant audit information (as defined by Section 418(3) of the
Companies Act 2006) of which the Company’s Auditor is unaware;
and each Director has taken all the steps that he ought to have
taken as a Director to make himself aware of any relevant audit
information and to establish that the Company’s Auditor is aware
of that information.
Under Article 154 of the Articles, the Company may indemnify
any Director or other officer against any liability, subject to the
provisions of the Companies Acts, and the Articles grant an
indemnity to the Directors against any liability for the costs of
legal proceedings where judgement is given in their favour.
Under the authority conferred by Article 154, the Company has
granted indemnities to Directors and officers of the Company
and its subsidiaries. The indemnities do not apply to any claim
which arises out of fraud, default, negligence or breach of
fiduciary duty or trust by the indemnified person.
In addition, the Company may purchase and maintain for
any Director or other officer, insurance against any liability.
The Company maintains appropriate insurance cover against
legal action brought against its Directors and officers and the
Directors and officers of its subsidiaries.
E Q U A L O P P O R T U N I T I E S
Aggreko is committed to promoting equal opportunities for
all, irrespective of disability, ethnic origin, gender or any other
considerations that do not affect a person’s ability to perform
their job. Our policies for recruitment, training, career development
and promotion of employees are based on the suitability of the
individual and give those who are disabled equal treatment
with the able bodied where appropriate. Employees disabled
after joining the Group are given suitable training for alternative
employment with Aggreko or elsewhere.
H U M A N R I G H T S
As we continue to grow our business in developing countries, we
recognise that human rights are a concern in many regions that
we operate in. We have a responsibility to all of our stakeholders,
to ensure that all of our interactions with them meet or exceed the
standards of compliance set out in our ethics policies, approach
to equal opportunities, health and safety policies, environmental
policies and grievance mechanisms, all of which are explained
in detail throughout this report. We have also identified safety,
emissions and talent management as matters to be considered
as part of the principal risks facing the business. Whilst all these
matters are linked, to a greater or lesser extent, to human rights,
we prefer to address them as part of our operations, rather than
as a separate issue. We continue to evaluate all potential risks
and do not think that human rights present material issues for
our business.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
119
P E N S I O N S
The assets of the UK defined-benefit pension fund are
controlled by the Directors of Aggreko Pension Scheme Trustee
Limited; they are held separately from the assets of the Company
and invested by independent fund managers. These segregated
funds cannot be invested directly in the Company. Four trustees
have been appointed by the Company and, in addition, two
member-nominated trustees have been appointed. This fund
was closed to new employees joining the Group after 1 April 2002;
new UK employees are now offered membership of a Group
Personal Pension Plan.
G R E E N H O U S E G A S E M I S S I O N S
In line with the Companies Act 2006, we are reporting on our
greenhouse gas (GHG) emissions. We have used the method
outlined in the GHG Protocol Corporate Accounting and
Reporting Standard (revised edition), using the location-based
scope 2 calculation method, together with the latest emission
factors from recognised public sources including Defra,
the International Energy Agency, the US Energy Information
Administration, the US Environmental Protection Agency
and the Intergovernmental panel on Climate Change.
T O T A L G H G E M I S S I O N S B Y G H G P R O T O C O L S C O P E
tCO2e/year
Scope 1
Scope 2
Scope 3
Total
2016
2015
15,183,091
17,209
2,810,623
18,010,923
15,486,377
18,987
2,849,565
18,354,928
In line with previous years, the results show that 99% of
GHG emissions arise from the operation of our fleet when it
is out on rent. There are three main factors driving our annual
GHG emissions: the fuel type our customers use; the pattern
of their usage; and the fuel efficiency of the fleet.
In 2016, we emitted 18,010,923 tonnes of CO2e, a decrease of 1.9%
over 2015. In line with best practice, our GHG accounting systems
include an estimate of the upstream GHG emissions associated
with fuel supply chains; in 2016 this contributed 14.8% of
combustion emissions, accounting for 93% of scope 3 emissions.
As a result of a 1.3% decrease in running hours, a recorded
decrease of 2.4% in GHG emissions is reported for the Aggreko
fleet in 2016. This very slight disparity is due to two factors; a small
shift in the ratio of running hours from generators with low energy
outputs to larger machines and a reduction of running hours
associated with generators powered by HFO.
In terms of the non-fleet activities, emissions associated with
company owned vehicles and business travel have decreased.
Conversely, emissions from third-party vehicle use and activities
on our premises have increased, with the largest increases
documented in third-party road freight logistics.
The intensity ratio expresses the GHG impact per unit of
physical activity or economic output, with a declining intensity
ratio reflecting a positive performance improvement. In 2013,
we chose Revenue Intensity as the most suitable metric for our
business for then and future years.
As can be seen from the chart below, relative emissions have
increased slightly, with a 1.1% increase in the emissions per
thousand GBP revenue from 2015.
T O T A L G H G E M I S S I O N S B Y F L E E T / N O N - F L E E T
R E V E N U E I N T E N S I T Y R A T I O t C O2e / T H O U S A N D £
tCO2e/year
Fleet
Non-fleet
Total
2016
2015
17,746,040
264,883
18,010,923
18,186,552
168,376
18,354,928
16
15
14
13
12
11.89
11.76
11.84
12.30
9.50
In addition, during the year we undertook an Energy Saving
Opportunities Scheme (ESOS) assessment in line with the
UK Environment Agency requirements and can confirm that
we are compliant with the Regulations.
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120 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
G O V E R N A N C E
Statutory disclosures continued
B R A N C H E S
Subsidiaries of the Company have established branches
in a number of different countries in which they operate.
A U D I T O R
Resolutions appointing KPMG as the Company’s and Group’s
auditor and authorising the Audit Committee to determine their
remuneration will be proposed at the Annual General Meeting.
A P P R O V A L O F T H E S T R A T E G I C R E P O R T A N D
D I R E C T O R S ’ R E P O R T
The Strategic Report set out on pages 1 to 69 and Director’s
Report set out on pages 70 to 121 were approved by the Board
on 7 March 2017 and have been signed by the Company Secretary
on behalf of the Board.
Peter Kennerley
Group Legal Director & Company Secretary
I M P O R T A N T E V E N T S S I N C E 3 1 D E C E M B E R 2 0 1 6
There have been no important events affecting the Company
or any subsidiary since 31 December 2016.
7 March 2017
P O L I T I C A L D O N A T I O N S
No political donations were made during the financial year
(2015: nil).
Statement of Directors’ responsibilities
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
121
The Directors are responsible for the maintenance and integrity
of the Company’s website. Legislation in the United Kingdom
governing the preparation and dissemination of financial
statements may differ from legislation in other jurisdictions.
The Directors consider that the Annual report and accounts,
taken as a whole, is fair, balanced and understandable and
provides the information necessary for Shareholders to assess
a Company’s position and performance, business model
and strategy.
Each of the Directors, whose names and functions are listed on
pages 72 to 73 confirm that, to the best of their knowledge:
• the Group financial statements, which have been prepared in
accordance with IFRSs as adopted by the EU, give a true and
fair view of the assets, liabilities, financial position and profit
of the Group; and
• the Management Report contained in the Strategic Report
and Directors’ Report includes a fair review of the development
and performance of the business and the position of the
Group, together with a description of the principal risks and
uncertainties that it faces.
By order of the Board.
Chris Weston
Chief Executive Officer
Carole Cran
Chief Financial Officer
The Directors are responsible for preparing the Annual Report
and the financial statements in accordance with applicable
law and regulations.
Company law requires the Directors to prepare financial
statements for each financial year. Under that law the Directors
have prepared the Group financial statements in accordance
with International Financial Reporting Standards (IFRSs) as
adopted by the European Union, and the parent Company
financial statements in accordance with United Kingdom
Generally Accepted Accounting Practice (United Kingdom
Accounting Standards), including FRS 101 ‘Reduced Disclosure
Framework’ and applicable law. Under company law the
Directors must not approve the financial statements unless
they are satisfied that they give a true and fair view of the state
of affairs of the Group and the Company and of the profit or loss
of the Group for that period.
In preparing these financial statements, the Directors are
required to:
• select suitable accounting policies and then apply
them consistently;
• make judgements and accounting estimates that are
reasonable and prudent;
• state whether IFRSs as adopted by the European Union and
applicable UK Accounting Standards including FRS101 have
been followed, subject to any material departures disclosed
and explained, in the Group and parent company financial
statements respectively; and
• prepare the financial statements on the going concern basis
unless it is inappropriate to presume that the Company will
continue in business.
The Directors are responsible for keeping adequate accounting
records that are sufficient to show and explain the Company’s
transactions and disclose with reasonable accuracy at any time
the financial position of the Company and the Group and enable
them to ensure that the financial statements and the Directors’
Remuneration Report comply with the Companies Act 2006
and, as regards the Group financial statements, Article 4 of the
IAS Regulation. They are also responsible for safeguarding the
assets of the Company and the Group and hence for taking
reasonable steps for the prevention and detection of fraud
and other irregularities.
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122 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Independent auditors’ report to the members of Aggreko plc only
Opinions and conclusions arising
from our audit
1 O U R O P I N I O N O N T H E F I N A N C I A L
S T A T E M E N T S I S U N M O D I F I E D
We have audited the financial statements of Aggreko Plc for
the year ended 31 December 2016 set out on pages 126 to 175.
In our opinion:
• the financial statements give a true and fair view of the
state of the Group’s and of the parent company’s affairs as
at 31 December 2016 and of the Group’s profit for the year
then ended;
• the Group financial statements have been properly prepared
in accordance with International Financial Reporting Standards
as adopted by the European Union;
• the parent company financial statements have been properly
prepared in accordance with UK Accounting Standards,
including FRS 101 Reduced Disclosure Framework; and
• the financial statements have been prepared in accordance
with the requirements of the Companies Act 2006; and,
as regards the Group financial statements, Article 4 of the
IAS Regulation.
A S U M M A R Y O F O U R A P P R O A C H
1
Full audit coverage:
90% of pbt
2
Materiality:
5% of pbt
(before exceptionals)
3
Audit coverage:
valuation of PS Utility
receivables and tax
1
Our audit covered 90% of the Group’s profit before
tax and exceptionals and was carried out in Glasgow,
Dubai, Russia, Argentina, Houston and Brazil.
2
Overall Group materiality: £11 million which represents
5% of profit before tax this year before exceptional items.
3
The valuation of Power Systems Utility receivables
and the provisioning for tax in overseas locations
are the areas of most significant audit effort given
the judgements involved in these areas.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
123
2 O U R A S S E S S M E N T O F R I S K S O F M A T E R I A L M I S S T A T E M E N T
In arriving at our audit opinion above on the financial statements the risks of material misstatement that had the greatest effect
on our audit in decreasing order of audit significance, were as follows:
The area of focus
Our approach
Valuation of Power Solutions Utility overdue receivables (£261 million, 2015: £196 million):
Refer to page 87 (Audit Committee Report), page 135 (accounting policy) and pages 136 and 148 (financial disclosures)
The Group has significant trade
receivables with customers of the
Group’s Power Solutions Utility business
where customers operate in higher risk
territories, including territories where risk
of customer default (the customer often
being the government) is high. In these
territories, cash receipts are volatile and
unpredictable, resulting in significant
judgement being applied in the
Group’s assessment of the recoverability
of these receivables.
Our audit procedures included testing the Group’s controls over the receivables collection
processes and considering the receipt of cash after the year end. We selected customers
of the Power Solutions Utility business for review to ensure we covered more than 75%
of the overdue amounts receivable in relation to that business at the year end. For these
customers, we discussed with the Directors’ experience of collections in relevant countries,
sought evidence of the status of receivables from the latest communications with the
relevant customer (including deposits and guarantees) where available and challenged
the provisioning in light of this information, the Group’s experience historically and our
knowledge of in-country exposures. We also considered the adequacy of the Group’s
disclosures in this area.
Taxation provisions for significant potential or contentious tax assessments (£39 million, 2015: £61 million):
Refer to page 87 (Audit Committee Report), page 134 (accounting policy) and pages 136 and 143 (financial disclosures)
Accruals for tax contingencies require
the Directors to make judgements and
estimates in relation to tax risks. This is
one of the key judgemental areas that
our audit is concentrated on due to
the Group operating in a certain tax
jurisdictions and the complexities and
uncertainties of local and international
tax legislation.
The tax matters are at various stages,
from preliminary discussions with tax
authorities through to tax tribunal or
court proceedings where the matters
can take many years to resolve. The risk
to the financial statements is that the
eventual resolution of a matter with tax
authorities is at an amount materially
different to the accrual.
Our audit procedures included:
Together with our own tax specialists, we considered any large or unusual items
affecting the effective tax rate and whether or not any current year items would
indicate a requirement for further accruals.
In considering the judgements and estimates of tax accruals, we used our own tax
specialists including local tax team input where necessary to assess and challenge
the Group’s tax positions. This included the assessment of its correspondence with the
relevant tax authorities, the Group’s external tax advisers and third parties. We also used
our knowledge and experience of the application of the international and local legislation
by the relevant authorities and courts in order to challenge the positions taken by
the Directors.
We also analysed and challenged through our use of tax specialists with knowledge of
the specific tax regimes in question the assumptions used to determine the tax accruals
and tested the accuracy of calculations.
We have also considered the adequacy of the Group’s tax disclosures.
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124 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Independent auditors’ report
3 O U R A P P L I C AT I O N O F M AT E R I A L I T Y
A N D A N O V E R V I E W O F T H E S C O P E
O F O U R A U D I T
Materiality for the Group financial statements as a whole was
set at £11 million. Materiality is determined with reference to a
benchmark of Group profit before tax, normalised to exclude the
exceptional items. Our materiality was based on profit before
tax and exceptional items of £221 million, of which it represents
5%. We have chosen profit before tax before exceptional
items because it excludes the non-recurring distorting impact
of exceptional items such as reorganisation costs and
impairment charges.
We reported to the Audit Committee any corrected or
uncorrected misstatements identified exceeding £500,000,
in addition to any other identified misstatements that warranted
reporting on qualitative grounds. This level was selected and
agreed with the Audit Committee as, given the nature and scale
of operations, adjustments under this level were not deemed
to be of specific interest to them.
The Group audit team instructed component auditors in
Argentina, Brazil, and Russia as to the significant areas to be
covered, including the relevant risks detailed above and the
information to be reported back. In addition, the Group audit
team instructed audit teams in Dubai and Singapore to complete
aspects of work in support of the work the Group team completed
in the US and UK over the most significant components.
We completed specific risk focused audit procedures over revenue
at one component in Mozambique. The Group audit team
approved the component materialities, which were set in the
range from £7 million to £9 million, having regard to the mix of size
and risk profile of the Group across the components. The Group
team performed procedures on the items excluded from Group
profit before tax and exceptional items. The components not
included were not individually financially significant enough
to require an audit for Group reporting purposes, and did not
present specific individual risks that needed to be addressed.
The Group audit team visited the component location in Dubai,
including to assess the audit risk and strategy. Telephone calls
were also held with the component auditors in Argentina, Brazil,
Dubai and Russia. On these calls, the findings reported to the
Group audit team were discussed in more detail, and any further
work required by the Group audit team was then performed by
the component auditor as relevant. The Group team remotely
reviewed the work completed by the team in Dubai.
S C O P I N G O F O U R A U D I T
% Revenue by scope
1 2
1 Specific risk focused audit
procedures over revenue
2 Scoped out of our audit
3
3 Full audit
% Profit before tax by scope
12
3
1 Specific risk focused audit
procedures over revenue
2 Scoped out of our audit
3 Full audit
% Net assets by scope
12
3
1 Specific risk focused audit
procedures over revenue
2 Scoped out of our audit
3 Full audit
%
3
25
72
%
1
9
90
%
1
16
83
The remaining 25% of total Group revenue, 9% of Group profit
before tax and 16% of total Group assets is represented by a
number of reporting components, none of which individually
represented more than 4% of any of total Group revenue,
Group profit before tax or total Group assets.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
125
4 O U R O P I N I O N O N O T H E R M A T T E R S
P R E S C R I B E D B Y T H E C O M P A N I E S
A C T 2 0 0 6 I S U N M O D I F I E D
In our opinion:
• the part of the Directors’ Remuneration Report to be audited
has been properly prepared in accordance with the Companies
Act 2006; and
• the information given in the Strategic Report and the
Directors’ Report for the financial year is consistent with the
financial statements.
Based solely on the work required to be undertaken in the
course of the audit of the financial statements and from
reading the Strategic Report and the Directors’ Report:
• we have not identified material misstatements in those reports;
and
• in our opinion, those reports have been prepared in accordance
with the Companies Act 2006.
5 W E H A V E N O T H I N G T O R E P O R T O N T H E
D I S C L O S U R E S O F P R I N C I P A L R I S K S
Based on the knowledge we acquired during our audit, we have
nothing material to add or draw attention to in relation to:
• the Directors’ statement of risk factors that could affect
financial performance on page 61, concerning the principal
risks, their management, and, based on that, the Directors’
assessment and expectations of the Group’s continuing in
operation over the three years to 2019; or
• the disclosures in Note 1 of the financial statements concerning
the use of the going concern basis of accounting.
6 W E H A V E N O T H I N G T O R E P O R T
I N R E S P E C T O F T H E M A T T E R S
O N W H I C H W E A R E R E Q U I R E D
T O R E P O R T B Y E X C E P T I O N
Under ISAs (UK and Ireland) we are required to report to you if,
based on the knowledge we acquired during our audit, we have
identified other information in the annual report that contains
a material inconsistency with either that knowledge or the
financial statements, a material misstatement of fact, or that is
otherwise misleading.
In particular, we are required to report to you if:
• we have identified material inconsistencies between the
knowledge we acquired during our audit and the Directors’
statement that they consider that the annual report and
financial statements taken as a whole is fair, balanced and
understandable and provides the information necessary for
Shareholders to assess the Group’s position and performance,
business model and strategy; or
• the Audit Committee Report does not appropriately address
matters communicated by us to the audit committee.
Under the Companies Act 2006 we are required to report to you
if, in our opinion:
• adequate accounting records have not been kept by the parent
company, or returns adequate for our audit have not been
received from branches not visited by us; or
• the parent company financial statements and the part of
the Directors’ Remuneration Report to be audited are not in
agreement with the accounting records and returns; or
• certain disclosures of Directors’ remuneration specified by law
are not made; or
• we have not received all the information and explanations we
require for our audit.
Under the Listing Rules we are required to review:
• the Directors’ Statements, set out on pages 132 and 61,
in relation to going concern and longer-term viability; and
• the part of the Corporate Governance Statement on
pages 70 to 83 relating to the Company’s compliance with
the 11 provisions of the 2014 UK Corporate Governance Code
specified for our review.
We have nothing to report in respect of the above responsibilities.
Scope and responsibilities
As explained more fully in the Directors’ Responsibilities
Statement set out on page 121, the Directors are responsible
for the preparation of the financial statements and for being
satisfied that they give a true and fair view. A description of
the scope of an audit of financial statements is provided on
the Financial Reporting Council’s website at www.frc.org.uk/
auditscopeukprivate. This report is made solely to the Company’s
members as a body and is subject to important explanations
and disclaimers regarding our responsibilities, published on our
website at www.kpmg.com/uk/auditscopeukco2014a, which are
incorporated into this report as if set out in full and should be
read to provide an understanding of the purpose of this report,
the work we have undertaken and the basis of our opinions.
John Luke
(Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
319 St Vincent Street
Glasgow
G2 5AS
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126 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Group income statement
For the year ended 31 December 2016
Revenue
Cost of sales
G R O S S P R O F I T
Distribution costs
Administrative expenses
Other income
O P E R A T I N G P R O F I T
Net finance costs
– Finance cost
– Finance income
P R O F I T B E F O R E T A X A T I O N
Taxation
Profit for the year
Total before
exceptional
items
2016
£ million
Exceptional
items
(Note 7)
2016
£ million
Total before
exceptional
items
2015
£ million
2016
£ million
1,515
(664)
851
(430)
(182)
9
248
(29)
2
221
(63)
158
–
(30)
(30)
–
(19)
–
(49)
–
–
(49)
16
(33)
1,515
(694)
821
(430)
(201)
9
199
(29)
2
172
(47)
125
1,561
(676)
885
(429)
(186)
5
275
(25)
2
252
(69)
183
Exceptional
items
2015
£ million
–
2015
£ million
1,561
(1)
(1)
(4)
(21)
–
(26)
–
–
(26)
5
(21)
(677)
884
(433)
(207)
5
249
(25)
2
226
(64)
162
Notes
4
2
4
9
5
10
All profit for the year is attributable to the owners of the Company.
Basic earnings per share (pence)
Diluted earnings per share (pence)
12
12
61.98
61.95
(13.10)
(13.09)
48.88
48.86
71.73
71.68
(8.24)
(8.23)
63.49
63.45
Group statement of comprehensive income
For the year ended 31 December 2016
Profit for the year
O T H E R C O M P R E H E N S I V E I N C O M E / ( L O S S )
Items that will not be reclassified to profit or loss
Remeasurement of retirement benefits
Taxation on remeasurement of retirement benefits
Items that may be reclassified subsequently to profit or loss
Cash flow hedges
Taxation on cash flow hedges
Net exchange gains/(losses) offset in reserves
Other comprehensive gain/(loss) for the year (net of tax)
Total comprehensive income for the year
2016
£ million
2015
£ million
125
162
(29)
5
1
–
220
197
322
4
(1)
–
–
(68)
(65)
97
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
127
Group balance sheet (Company number: SC177553)
As at 31 December 2016
N O N - C U R R E N T A S S E T S
Goodwill
Other intangible assets
Property, plant and equipment
Deferred tax asset
C U R R E N T A S S E T S
Inventories
Trade and other receivables
Cash and cash equivalents
Derivative financial instruments
Current tax assets
T O T A L A S S E T S
C U R R E N T L I A B I L I T I E S
Borrowings
Derivative financial instruments
Trade and other payables
Current tax liabilities
Provisions
N O N - C U R R E N T L I A B I L I T I E S
Borrowings
Derivative financial instruments
Deferred tax liabilities
Retirement benefit obligation
T O T A L L I A B I L I T I E S
Net assets
S H A R E H O L D E R S ’ E Q U I T Y
Share capital
Share premium
Treasury shares
Capital redemption reserve
Hedging reserve (net of deferred tax)
Foreign exchange reserve
Retained earnings
Total Shareholders’ equity
Notes
13
30.A2
15
22
16
17
3
30.A4
18
30.A4
20
21
18
30.A4
22
30.A5
23
24
2016
£ million
2015
£ million
159
24
1,309
51
1,543
247
656
44
1
20
968
2,511
(60)
(2)
(299)
(58)
(1)
(420)
(633)
(5)
(55)
(30)
(723)
(1,143)
1,368
42
20
(14)
13
(3)
71
1,239
1,368
118
16
1,139
30
1,303
189
476
48
1
33
747
2,050
(31)
(1)
(259)
(64)
(8)
(363)
(506)
(6)
(58)
(2)
(572)
(935)
1,115
42
20
(9)
13
(4)
(149)
1,202
1,115
The financial statements on pages 126 to 168 were approved by the Board of Directors on 7 March 2017 and signed on its behalf by:
K Hanna
Chairman
C Cran
Chief Financial Officer
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128 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Group cash flow statement
For the year ended 31 December 2016
O P E R A T I N G A C T I V I T I E S
Profit for the year
Adjustments for:
Exceptional items
Exceptional – impairment charge
Tax
Depreciation
Amortisation of intangibles
Finance income
Finance cost
Profit on sale of PPE
Share-based payments (i)
Changes in working capital (excluding the effects of exchange differences on consolidation):
Increase in inventories
Increase in trade and other receivables
Decrease in trade and other payables
Cash flows relating to exceptional items
Cash generated from operations
Tax paid
Interest received
Interest paid
Net cash generated from operating activities
C A S H F L O W S F R O M I N V E S T I N G A C T I V I T I E S
Acquisitions (net of cash acquired)
Purchases of property, plant and equipment (PPE)
Purchase of other intangible assets
Proceeds from sale of PPE
Net cash used in investing activities
C A S H F L O W S F R O M F I N A N C I N G A C T I V I T I E S
Net proceeds from issue of Ordinary Shares
Increase in long-term loans
Repayment of long-term loans
Net movement in short-term loans
Dividends paid to Shareholders
Return of capital to Shareholders
Purchase of treasury shares
Net cash used in financing activities
N E T ( D E C R E A S E ) / I N C R E A S E I N C A S H A N D C A S H E Q U I V A L E N T S
Cash and cash equivalents at beginning of the year
Exchange gain/(loss) on cash and cash equivalents
Cash and cash equivalents at end of the year
Notes
2016
£ million
2015
£ million
125
19
30
47
281
4
(2)
29
(9)
6
(21)
(81)
(17)
(23)
388
(64)
2
(28)
298
(22)
(263)
(5)
23
(267)
–
393
(373)
18
(69)
–
(8)
(39)
(8)
32
1
25
7
7
2
29
2
3
162
26
–
64
277
4
(2)
25
(5)
6
(25)
(29)
(26)
(16)
461
(91)
2
(26)
346
(18)
(254)
–
17
(255)
2
454
(452)
(11)
(69)
(1)
–
(77)
14
26
(8)
32
(i) This relates to the employee share awards within the statement of changes in equity excluding £2 million included as exceptional items.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
129
Reconciliation of net cash flow to movement in net debt
For the year ended 31 December 2016
(Decrease)/increase in cash and cash equivalents
Cash (inflow)/outflow from movement in debt
Changes in net debt arising from cash flows
Exchange loss
Movement in net debt in year
Net debt at beginning of year
Net debt at end of year
Notes
2016
£ million
2015
£ million
(8)
(38)
(46)
(114)
(160)
(489)
(649)
14
9
23
(18)
5
(494)
(489)
18
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130 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Group statement of changes in equity
For the year ended 31 December 2016
As at 31 December 2016
Attributable to equity holders of the Company
Ordinary
Share
capital
£ million
Share
premium
account
£ million
Treasury
shares
£ million
Capital
redemption
reserve
£ million
Notes
42
–
20
–
(9)
–
13
–
Foreign
exchange
reserve
(translation)
£ million
(149)
Hedging
reserve
£ million
(4)
Balance at 1 January 2016
Profit for the year
Other comprehensive
(loss)/income:
Transfers from hedging reserve
to fixed assets
Fair value gains on foreign
currency cash flow hedge
Fair value gains on interest
rate swaps
Currency translation differences (i)
Remeasurement of retirement
benefits (net of tax)
Total comprehensive
income for the year ended
31 December 2016
Transactions with owners:
Purchase of treasury shares
Employee share awards
30.A5
Issue of Ordinary Shares
to employees under share
option schemes
Dividends paid during 2016
11
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8)
–
3
–
(5)
(14)
Retained
earnings
£ million
1,202
Total
equity
£ million
1,115
125
125
–
–
–
–
(3)
3
1
220
–
–
–
–
220
–
(24)
(24)
220
101
322
–
–
–
–
–
–
8
(3)
(69)
(64)
(8)
8
–
(69)
(69)
–
(3)
3
1
–
–
1
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Balance at 31 December 2016
42
20
13
(3)
71
1,239
1,368
(i) Included in currency translation differences of the Group are exchange losses of £117 million arising on borrowings denominated in foreign currencies designated as hedges
of net investments overseas, and exchange gains of £337 million relating to the translation of overseas results and net assets. The currency translation difference is explained
in the Financial Review on page 44.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
131
As at 31 December 2015
Attributable to equity holders of the Company
Notes
Ordinary
Share
capital
£ million
Share
premium
account
£ million
42
–
20
–
Foreign
exchange
reserve
(translation)
£ million
(81)
Hedging
reserve
£ million
(4)
Retained
earnings
£ million
1,102
Total
equity
£ million
1,078
162
162
Balance at 1 January 2015
Profit for the year
Other comprehensive
(loss)/income:
Transfers from hedging reserve
to revenue
Fair value gains on foreign
currency cash flow hedge
Fair value gains on interest
rate swaps
Currency translation differences (i)
Remeasurement of retirement
benefits (net of tax)
Total comprehensive (loss)/
income for the year ended
31 December 2015
Transactions with owners:
Employee share awards
Issue of Ordinary Shares
to employees under share
option schemes
Treasury
shares
£ million
(14)
–
–
–
–
–
–
–
–
5
–
–
5
(9)
Capital
redemption
reserve
£ million
13
–
–
–
–
–
–
–
–
–
–
–
–
13
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(3)
2
1
–
–
–
–
–
–
–
–
(4)
–
–
–
–
(68)
–
–
–
–
–
3
(68)
165
–
–
–
–
–
8
(3)
(1)
(69)
(65)
(149)
1,202
(3)
2
1
(68)
3
97
8
2
(1)
(69)
(60)
1,115
Return of capital to Shareholders
Dividends paid during 2015
11
Balance at 31 December 2015
42
20
(i) Included in currency translation differences of the Group are exchange losses of £18 million arising on borrowings denominated in foreign currencies designated as hedges
of net investments overseas and exchange losses of £50 million relating to the translation of overseas results and net assets.
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132 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
1 A C C O U N T I N G P O L I C I E S
The Company is a public limited company which is listed on
the London Stock Exchange and is incorporated and domiciled in
the UK. The address of the registered office is 120 Bothwell Street,
Glasgow G2 7JS, UK.
The principal accounting policies applied in the preparation
of these consolidated financial statements are set out below.
These policies have been consistently applied to all years
presented, unless otherwise stated.
Basis of preparation
The Group financial statements have been prepared in
accordance with International Financial Reporting Standards
as adopted by the European Union (EU IFRS), IFRIC interpretations
and the Companies Act 2006 applicable to companies
reporting under EU IFRS. The financial statements have been
prepared under the historical cost convention, as modified by
the revaluation of certain financial assets and financial liabilities
(including derivative instruments) at fair value.
The preparation of financial statements in conformity with
EU IFRS requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts
of the revenues and expenses during the reporting period.
Although these estimates are based on management’s best
knowledge of the amount, event or actions, actual results
ultimately may differ from those estimates.
Adjusted measures
The Directors assess the performance of the Group and its
reportable segments based on ‘adjusted measures’. These
measures are used for internal performance management and
are believed to be most appropriate for explaining underlying
performance to users of the accounts including Shareholders
of the Company and other stakeholders. The adjusted measures
in relation to profit exclude exceptional items. These exceptional
items are explained on pages 133 and 142. In comparing
performance year on year we also exclude the impact of currency
and pass-through fuel, The Group reports separately fuel revenue
from contracts in our Power Solutions Utility business in Brazil
and Mozambique where we manage fuel on a pass-through basis
on behalf of our customers. The reason for the separate reporting
is that fuel revenue on these contracts is entirely dependent
on fuel prices and volumes of fuel consumed, and these can
be volatile and may distort the view of the performance of the
underlying business.
Going concern
The Directors are confident that it is appropriate for the going
concern basis to be adopted in preparing the financial statements
for the foreseeable future. The Group balance sheet shows
consolidated net assets of £1,368 million (2015: £1,115 million)
and the Company has sufficient reserves to continue making
dividend payments. Whilst the net debt increased in the year to
£649 million (2015: £489 million), there is a headroom under our
committed facilities of £402 million at the year end. £114 million
of the increase in net debt relates to currency movements.
More detail is contained on page 136 on liquidity, funding
and capital management.
Changes in accounting policy and disclosures
(a) New and amended standards adopted by the Group
There are no new IFRSs or IFRICs that are effective for the
first time this year that have a material impact on the Group.
(b) New standards, amendments and interpretations
issued but not effective for the financial year beginning
1 January 2016 and not early adopted
IFRS 15, ‘Revenue from contracts with customers’ deals with
revenue recognition and establishes principles for reporting useful
information to users of financial statements about the nature,
amount, timing and uncertainty of revenue and cash flows arising
from an entity’s contracts with customers. Revenue is recognised
when a customer obtains control of a good or service and thus
has the ability to direct the use and obtain benefits from the
good or service. The standard replaces IAS 18 ‘Revenue’ and IAS 11
‘Construction contracts’ and related interpretations. The standard
is effective for annual periods beginning on or after 1 January
2018. The Group has substantially completed its assessment of
the impact of this standard and the main changes we expect
from adopting IFRS 15 are:
• Mobilisation costs will be amortised over the contact period
instead of being recognised as incurred as equipment is
mobilised before power is produced. Demobilisation costs,
if they can be measured reliably, will also be amortised
over the contract period instead of being recognised as
incurred at the end of the contract. There is a difference in
the definition of contract period for mobilisation costs and
demobilisation costs. In the former the contract period is
re-assessed for agreed extensions. In the latter the contract
period is re-assessed if there is a high probability of an extension
however it doesn’t need to be agreed with the customer.
• Mobilisation and demobilisation income (where timing is
specifically stipulated in the contract in order to match the
timing of associated costs) will be recognised during the period
of provision of power.
• Judgement will be required around whether there is any
restriction in recognising variable revenue due to penalty
clauses in the contracts, however the probability of this is small.
• On some contracts there may be more than one performance
obligation, however we expect the impact of this to be small.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
133
1 A C C O U N T I N G P O L I C I E S CONTINUED
IFRS 9, ‘Financial instruments’ addresses the classification,
measurement and recognition of financial assets and liabilities.
The standard is effective for accounting periods beginning on
or after 1 January 2018. We do not expect this standard to have
a material impact on the Group.
If contracts do not contain specific clauses for mobilisation and
demobilisation costs then mobilisation costs are recognised as
incurred as equipment is mobilised before power is produced
and demobilisation costs are recognised as incurred at the end of
the contract. If contracts contain a specific clause for mobilisation
and demobilisation then the revenue and costs are matched.
IFRS 16, ‘Leases’ applies to annual periods beginning on or after
1 January 2019. IFRS 16 requires lessees to recognise a lease
liability reflecting future lease payments and a ‘right-of-use asset’
for virtually all lease contracts. The Group will assess the impact
of IFRS 16 closer to the implementation date, however the main
impact is expected to be the recognition of up to £92 million
of operating leases (refer to Note 26) as right of use assets
with a corresponding liability. This standard has not yet been
endorsed by the EU.
There are no other IFRSs or IFRIC interpretations that are not yet
effective that would be expected to have a material impact on
the Group.
Basis of consolidation
The Group financial statements consolidate the financial
statements of Aggreko plc and all its subsidiaries for the year
ended 31 December 2016. Subsidiaries are those entities over
which the Group has control. The Group controls an entity when
the Group is exposed to, or has rights to, variable returns through
its power over the entity. Subsidiaries are fully consolidated from
the date on which control is transferred to the Group. They are
deconsolidated from the date that control ceases.
The Group uses the acquisition method of accounting to account
for business combinations. The consideration transferred for the
acquisition of a subsidiary is the fair value of the assets transferred,
the liabilities incurred and the equity interests issued by the
Group. The consideration transferred includes the fair value of
any asset or liability resulting from a contingent consideration
arrangement. Acquisition related costs are expensed as incurred.
Identifiable assets and liabilities and contingent liabilities assumed
in a business combination are measured initially at their fair values
at the acquisition date.
Inter-company transactions, balances and unrealised gains
on transactions between Group companies are eliminated.
Unrealised losses are also eliminated. Accounting policies of
subsidiaries have been changed where necessary to ensure
consistency with the policies adopted by the Group.
Revenue recognition
Revenue for the Group represents the amounts earned from
the supply of temporary power, temperature control, oil-free
compressed air and related services and excludes sales taxes
and intra-Group revenue. Revenue can comprise a fixed rental
charge and a variable charge related to the usage of assets or
other services (including pass-through fuel). The Group earns a
fixed charge on certain contracts by providing agreed levels of
power generation capacity to the customer and this is recognised
when availability criteria in the contract are met. Variable charges
are earned as the Group provides power or rental and associated
services in accordance with contractual arrangements and are
recognised as the power is produced or the service is provided.
Revenue is accrued or deferred at the balance sheet date
depending on the period covered by the most recent invoice
issued and the contractual terms.
Segmental reporting
Operating segments are reported in a manner consistent with the
internal reporting provided to the chief operating decision maker.
The chief operating decision maker has been identified as the plc
Board of Directors.
Aggreko has two business units: Rental Solutions and Power
Solutions. Within Power Solutions we serve both Utility and
Industrial customers. Aggreko therefore has three segments
comprising: Rental Solutions, Power Solutions – Industrial and
Power Solutions – Utility. A description of these business units
is contained on pages 5 and 19. This is reflected by the Group’s
divisional management and organisational structure and the
Group’s internal financial reporting systems.
Central administrative costs are allocated between segments
based on revenue.
Exceptional items
Exceptional items are items which individually or if of a similar
type, in aggregate, need to be disclosed by virtue of their size
or incidence if the financial statements are to be properly
understood. To monitor our financial performance we use a profit
measure that excludes exceptional items. We exclude these items
because, if included, these items could distort understanding of
our performance for the year and comparability between periods.
The income statement has been presented in a columnar format,
which separately highlights exceptional items. This is intended to
enable users of the financial statements to determine more readily
the impact of exceptional items on the results of the Group.
These costs are explained in Note 7 to the Accounts.
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated
depreciation and impairment losses. Cost includes purchase
price, and directly attributable costs of bringing the asset
into the location and condition where it is capable for use.
Borrowing costs are not capitalised since the assets are
assembled over a short period of time.
Freehold properties are depreciated on a straight-line basis
over 25 years. Short leasehold properties are depreciated
on a straight-line basis over the terms of each lease.
Other property, plant and equipment are depreciated on a
straight-line basis at annual rates estimated to write off the
cost of each asset over its useful life from the date it is available
for use. Assets in the course of construction are not depreciated.
Non-rental fleet assets which are contract specific are depreciated
over the life of the contract. The periods of depreciation are
reviewed on an annual basis and the principal periods used
are as follows:
Rental fleet
Vehicles, plant and equipment
8 to 12 years
4 to 15 years
During this year, the depreciation life for transformers/switchgears
was increased to 12 years from 8 years to reflect external views
on the useful life of these assets, equipment testing carried out
internally and our experience to date. This lowered depreciation
by £12 million in the year 31 December 2016 compared to 2015.
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134 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
1 A C C O U N T I N G P O L I C I E S CONTINUED
Intangibles
Intangible assets acquired as part of a business combination
are capitalised, separately from goodwill, at fair value at the date
of acquisition if the asset is separable or arises from contractual
or legal rights and its fair value can be measured reliably.
Amortisation is calculated on a straight-line method to allocate the
fair value at acquisition of each asset over their estimated useful
lives as follows: customer relationships: 10 years; non-compete
agreements: over the life of the non-compete agreements.
The useful life of intangible assets is reviewed on an annual basis.
Goodwill
On the acquisition of a business, fair values are attributed to
the net assets acquired. Goodwill arises where the fair value of
the consideration given for a business exceeds the fair value of
such assets. Goodwill arising on acquisitions is capitalised and is
subject to impairment reviews, both annually and when there are
indicators that the carrying value may not be recoverable.
For the purpose of the impairment testing, goodwill is allocated
to each of the Group’s cash-generating units expected to benefit
from the synergies of the combination. Cash-generating units
to which goodwill has been allocated are tested for impairment
annually, or more frequently when there is an indication that
the unit may be impaired. If the recoverable amount of the
cash-generating unit is less than the carrying amount of the
unit, then the impairment loss is allocated first to reduce the
carrying amount of any goodwill allocated to the unit and then
to the other assets of the unit pro-rata on the basis of the carrying
amount of each asset in the unit.
An impairment loss recognised for goodwill is not reversed in
a subsequent period. Any impairment of goodwill is recognised
immediately in the income statement.
Research and development costs
All research expenditure is charged to the income statement
in the period in which it is incurred.
Development expenditure is charged to the income statement
in the period in which it is incurred unless it relates to the
development of a new product or technology and it is incurred
after the technical feasibility and commercial viability of the
product has been proven, the development cost can be
measured reliably, future economic benefits are probable and
the Group intends, and has sufficient resources to complete the
development and to use or sell the assets. Any such capitalised
development expenditure is amortised on a straight-line basis
so that it is charged to the income statement over the expected
useful life of the resulting product or technology, which is
currently deemed to be between three to six years.
Impairment of property, plant and equipment
and other intangible assets (excluding goodwill)
Property, plant and equipment and other intangible assets are
amortised/depreciated and reviewed for impairment whenever
events or changes in circumstances indicate that the carrying
amount may not be recoverable. An impairment loss is recognised
for the amount by which the asset’s carrying amount exceeds
its recoverable amount. The recoverable amount is the higher of
an asset’s fair value less costs to sell and value in use. Value in use
is calculated using estimated cash flows. These are discounted
using an appropriate long-term pre-tax interest rate. For the
purposes of assessing impairment, assets are grouped at the
lowest levels for which there are separately identifiable cash flows
(cash-generating units).
Foreign currencies
Items included in the financial statements for each of the Group’s
entities are measured using the currency of the primary economic
environment in which the entity operates (functional currency).
The Group’s consolidated financial statements are presented in
Sterling, which is the Group’s presentational currency.
At individual Company level, transactions denominated in foreign
currencies are translated at the rate of exchange on the day the
transaction occurs. Assets and liabilities denominated in foreign
currency are translated at the exchange rate ruling at the balance
sheet date. Non-monetary assets are translated at the historical rate.
In order to hedge its exposure to certain foreign exchange risks, the
Group enters into forward contracts and foreign currency options.
On consolidation, assets and liabilities of subsidiary undertakings
are translated into Sterling at closing rates of exchange.
Income and cash flow statements are translated at average rates
of exchange for the period. Gains and losses from the settlement
of transactions and gains and losses on the translation of
monetary assets and liabilities denominated in other currencies
are included in the income statement.
Derivative financial instruments
This accounting policy is included in Note 30 – Notes to the Group
Accounts – appendices.
Taxation
Deferred tax
Deferred tax is provided in full, using the liability method, on
temporary differences arising between the tax base of assets and
liabilities and their carrying amounts in the financial statements.
In principle, deferred tax liabilities are recognised for all taxable
temporary differences and deferred tax assets are recognised to
the extent that it is probable that taxable profits will be available
against which deductible temporary differences can be utilised.
Such assets and liabilities are not recognised if the temporary
difference arises from goodwill, negative goodwill nor from the
acquisition of an asset, which does not affect either taxable or
accounting income. Deferred tax is determined using tax rates
(and laws) that have been enacted or substantively enacted by the
balance sheet date and are expected to apply when the related
deferred tax asset is realised or the deferred tax liability is settled.
Deferred tax is charged or credited in the income statement,
except when it relates to items credited or charged directly to
equity, in which case the deferred tax is also dealt with in equity.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
135
Trade receivables
Trade receivables are recognised initially at fair value (which is
the same as cost). An impairment is recorded for the difference
between the carrying amount and the recoverable amount
where there is objective evidence that the Group will not be able
to collect all amounts due. Significant financial difficulties of
the debtor, probability that the debtor will enter bankruptcy or
financial reorganisation and default, or large and old outstanding
balances, particularly in countries where the legal system is not
easily used to enforce recovery, are considered indicators that
the trade receivable is impaired. When a trade receivable is
uncollectible it is written off against the provision for impairment
of trade receivables.
Trade payables
Trade payables are recognised initially at fair value (which is the
same as cost).
Provisions
Provisions are recognised where a legal or constructive obligation
has been incurred which will probably lead to an outflow of
resources that can be reasonably estimated. Provisions are
recorded for the estimated ultimate liability that is expected to
arise, taking into account the time value of money where material.
As at 31 December 2016, provisions totalled £1 million
(2015: £8 million) and they relate to the Group business priorities
implementation. The provisions are generally in respect of
employee related costs. These provisions are detailed in Note 21.
A contingent liability is disclosed where the existence of the
obligation will only be confirmed by future events, or where the
amount of the obligation cannot be measured with reasonable
reliability. Contingent assets are not recognised, but are disclosed
where an inflow of economic benefits is probable.
Share-based payments
This accounting policy is included in Note 30 – Notes to the Group
Accounts – appendices.
Cash and cash equivalents
Cash and cash equivalents comprise cash on hand, deposits with
a maturity of three months or less and short-term overdrafts.
Borrowings
Borrowings are recognised initially at fair value, net of transaction
costs incurred. Borrowings are subsequently stated at amortised
cost. Any difference between the proceeds, net of transaction
costs, and the redemption value is recognised in the income
statement over the period of the borrowings using the effective
interest rate.
1 A C C O U N T I N G P O L I C I E S CONTINUED
Deferred tax is provided on temporary differences arising on
investments in subsidiaries, except where the timing of the
reversal of the temporary difference is controlled by the Group
and it is probable that the temporary difference will not reverse
in the foreseeable future.
Provision for income taxes, mainly withholding taxes, which could
arise on the remittance of retained earnings, principally relating
to subsidiaries, is only made where there is a current intention
to remit such earnings.
Current tax
The charge for current tax is based on the results for the year
as adjusted for items, which are non-assessable or disallowed.
It is calculated using taxation rates that have been enacted or
substantially enacted by the balance sheet date.
Inventories
Inventories are valued at the lower of cost and net realisable
value, using the weighted average cost basis. Cost of raw
materials, consumables and work in progress includes the cost
of direct materials and, where applicable, direct labour and those
overheads that have been incurred in bringing the inventories to
their present location and condition.
Inventory is written down on a case by case basis if the anticipated
net realisable value declines below the carrying amount of the
inventories or to take account of inventory losses. Net realisable
value is the estimated selling price less cost to completion and
selling expenses. When the reasons for a write-down of the
inventory have ceased to exist, the write-down is reversed.
Employee benefits
Wages, salaries, social security contributions, paid annual leave
and sick leave, bonuses and non-monetary benefits are accrued
in the year in which the associated services are rendered by the
employees of the Group. Where the Group provides long-term
employee benefits, the cost is accrued to match the rendering
of the services by the employees concerned.
The Group operates a defined benefit pension scheme and
a number of defined contribution pension schemes. The cost
for the year for the defined benefit scheme is determined
using the attained age method with actuarial updates to
the valuation being carried out at each balance sheet date.
Remeasurements are recognised in full, directly in retained
earnings, in the period in which they occur and are shown in the
statement of comprehensive income. The current service cost of
the pension charge, interest income on scheme assets, interest
on pension scheme liabilities and administrative expenses are
included in arriving at operating profit.
The retirement benefit obligation recognised in the balance
sheet is the present value of the defined benefit obligation at
the balance sheet date less the fair value of the scheme assets.
The present value of the defined benefit obligation is determined
by discounting the estimated future cash flows using interest rates
of high-quality corporate bonds.
Contributions to defined contribution pension schemes are
charged to the income statement in the period in which they
become chargeable.
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136 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
1 A C C O U N T I N G P O L I C I E S CONTINUED
Key assumptions, estimations and
significant judgements
The Group uses estimates and makes judgements in the
preparation of its Accounts. The most sensitive areas affecting
the Accounts are discussed below.
Trade receivables
The trade receivables accounting policy is on page 135.
The approach to exercising judgement in this area is to consider
each significant debtor and customer individually, within the
relevant environment to which it relates, taking into account
a number of factors, in accordance with accounting standards.
The majority of the contracts the Group enters into are small
relative to the size of the Group and, if a customer fails to pay a
debt, this is dealt with in the normal course of business. However,
some of the contracts the Group undertakes in developing
countries are very large, and are in jurisdictions where payment
practices can be unpredictable. The Group monitors the risk
profile and debtor position of all such contracts regularly, and
deploys a variety of techniques to mitigate the risks of delayed
or non-payment; these include securing advance payments
and guarantees. As a result of the rigorous approach to risk
management, historically the Group has had a low level of
bad debt write-offs although the risk of a major default is
high. When a trade receivable is uncollectable it is written
off against the provision for impairment of trade receivables.
At 31 December 2016, the provision for impairment of trade
receivables in the balance sheet was £67 million (2015: £64 million).
More detail can be found in the financial review on page 48 and
in Note 17 to the Accounts.
Taxation
Aggreko’s tax charge is based on the profit for the year and the
applicable tax rates in force at the balance sheet date. As well
as corporation tax, Aggreko is subject to indirect taxes such
as sales and employment taxes across the tax jurisdictions in
which the Group operates. The varying nature and complexity
of the tax laws requires the Group to review its tax positions
and make appropriate judgements at the balance sheet date.
Due to the uncertain nature of the tax environment in many
of the countries in which we operate, it can take some time
to settle our tax position. We therefore create appropriate tax
provisions for significant potential or contentious tax positions
and these are measured using the most likely outcome method.
Provisions are considered on an individual basis.
As at 31 December 2016, we had tax provisions totalling £39 million
of which £37 million is in respect of direct taxes and £2 million
for indirect taxes (2015: £61 million, £48 million for direct and
£13 million for indirect taxes). Principally the uncertain direct
tax items relate to potential historic tax exposures largely
in connection with long running contracts in our Power
Solutions business, an ongoing dispute in Asia following a
change in interpretation of legislation and various potential
transfer pricing risks faced by the Group on challenges from
various tax authorities as to the basis on which we transact
internationally across the Group.
Due to the uncertainty associated with such tax positions, it is
possible that at a future date, on conclusion of these open tax
positions, the final outcome may vary significantly. Whilst a range
of outcomes is reasonably possible, based on management’s
historic experience of these issues, we believe a likely range
of outcomes is additional liabilities of up to £10 million and
a reduction in liabilities of around £15 million. The range of
sensitivities depends upon quantification of the liability, risk of
technical error and difference in approach taken by tax authorities
in different jurisdictions. In addition, the recognition of deferred
tax assets is dependent upon an estimation of future taxable
profits available against which deductible temporary differences
can be utilised.
Other areas of judgement and consideration
IFRIC 4 ‘Determining whether an arrangement
constitutes a lease’
The Directors have considered the requirements of IFRIC 4
‘Determining whether an arrangement constitutes a lease’.
IFRIC 4 requires that any arrangement that is dependent on the
use of a specific asset or assets; and that conveys a right to use
the asset is accounted for as a lease. The Directors have concluded
that none of the Group’s contracts are dependent on the use of
a specific asset or assets.
Hyperinflationary environments
The Group operates in Venezuela which is considered a
hyperinflationary environment. The Group does not consider that
the provisions of IAS 29 ‘Financial Reporting in Hyperinflationary
Economies’ apply to the Group’s operations in Venezuela as the
functional currency of the Venezuelan operation is US Dollars.
Financial risk management
Financial risk factors
The Group’s operations expose it to a variety of financial risks
that include liquidity, the effects of changes in foreign currency
exchange rates, interest rates and credit risk. The Group has a
centralised treasury operation whose primary role is to ensure
that adequate liquidity is available to meet the Group’s funding
requirements as they arise, and that financial risk arising from the
Group’s underlying operations is effectively identified and managed.
The treasury operations are conducted in accordance with policies
and procedures approved by the Board and are reviewed annually.
Financial instruments are only executed for hedging purposes and
transactions that are speculative in nature are expressly forbidden.
Monthly reports are provided to senior management and treasury
operations are subject to periodic internal and external review.
Liquidity, funding and capital management
The intention of Aggreko’s strategy is to deliver long-term value
to its Shareholders whilst maintaining a balance sheet structure
that safeguards the Group’s financial position through economic
cycles. Total capital is equity as shown in the Group balance sheet.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
137
1 A C C O U N T I N G P O L I C I E S CONTINUED
Given the proven ability of the business to fund organic growth
from operating cash flows, and the nature of our business model,
we believe it is sensible to run the business with a modest amount
of debt. We say ‘modest’ because we are strongly of the view that
it is unwise to run a business which has high levels of operational
gearing with high levels of financial gearing. Given the above
considerations, we believe that a Net Debt to EBITDA ratio of
around one times is appropriate for the Group over the longer
term. This is well within our covenants to lenders which stand
at three times Net Debt to EBITDA.
At the end of 2016, Net Debt to EBITDA was 1.2 times
(31 December 2015: 0.9 times).
The Group maintains sufficient facilities to meet its normal
funding requirements over the medium term. At 31 December
2016, these facilities totalled £1,035 million in the form of
committed bank facilities arranged on a bilateral basis with a
number of international banks and private placement notes.
The financial covenants attached to these facilities are that EBITDA
should be no less than four times interest and net debt should
be no more than three times EBITDA; at 31 December 2016, these
stood at 20 times and 1.2 times respectively. The Group does
not expect to breach these covenants in the year from the date
of approval of these financial statements. The Group expects to
be able to arrange sufficient finance to meet its future funding
requirements. It has been the Group’s custom and practice to
refinance its facilities in advance of their maturity dates, providing
that there is an ongoing need for those facilities. Net debt
amounted to £649 million at 31 December 2016 and, at that date,
undrawn committed facilities were £402 million. The maturity
profile of the borrowings is detailed in Note 18 in the Annual
Report and Accounts.
Interest rate risk
The Group’s policy is to manage the exposure to interest rates
by ensuring an appropriate balance of fixed and floating rates.
At 31 December 2016, £385 million of the net debt of £649 million
was at fixed rates of interest resulting in a fixed to floating rate
net debt ratio of 59:41 (2015: 66:34). The Group monitors its interest
rate exposure on a regular basis by applying forecast interest
rates to the Group’s forecast net debt profile after taking into
account its existing hedges. The Group also calculates the impact
on profit and loss of a defined interest rate shift for all currencies.
Based on the simulations performed, the impact on profit or loss
of a +/– 100 basis-point shift, after taking into account existing
hedges, would be £3 million (2015: £2 million). The sensitivity
analysis is performed on a monthly basis and is reported to
the Board.
Foreign exchange risk
The Group is subject to currency exposure on the translation
of its net investments in overseas subsidiaries into Sterling.
In order to reduce the currency risk arising, the Group
uses direct borrowings in the same currency as those
investments. Group borrowings are predominantly drawn
down in the currencies affecting the Group, namely US Dollar,
Euros, Canadian Dollar, Mexican Peso, Brazilian Real and
Russian Rouble.
The Group manages its currency flows to minimise foreign
exchange risk arising on transactions denominated in foreign
currencies and uses forward contracts where appropriate in
order to hedge net currency flows.
The positive impact of currency increased our revenues by
£122 million (2015: £22 million) and operating profit by £1 million
(2015: £6 million) for the year ended 31 December 2016. The Group
monitors the impact of exchange closely and regularly carries out
sensitivity analysis. For every 5% movement in the US Dollar to
GBP exchange rate there is an approximate impact of £4 million
(2015: £7 million) in operating profit in terms of translation.
Currency translation also gave rise to a £220 million increase in
reserves as a result of year on year movements in the exchange
rates (2015: decrease of £68 million). For every 5% movement in
the Dollar, there is an approximate impact in equity of £25 million
(2015: £23 million) arising from the currency translation of external
borrowings which are being used as a net investment hedge.
However, this will be offset by a corresponding movement in
the equity of the net investment being hedged.
The principal exchange rates which impact the Group’s profit
and net assets are set out in the Financial Review on page 44.
Credit risk
Cash deposits and other financial instruments give rise to credit
risk on amounts due from counterparties. The Group manages
this risk by limiting the aggregate amounts and their duration
depending on external credit ratings of the relevant counterparty.
In the case of financial assets exposed to credit risk, the carrying
amount in the balance sheet, net of any applicable provisions for
loss, represents the amount exposed to credit risk.
Management of trade receivables
The management of trade receivables is the responsibility of
the operating units, although they report monthly to Group on
debtor days, debtor ageing and significant outstanding debts.
At an operating unit level a credit rating is normally established
for each customer based on ratings from external agencies.
Where no ratings are available, cash in advance payment terms
are often established for new customers. Credit limits are
reviewed on a regular basis. Some of the contracts undertaken
in our Power Solutions Utility business are substantial, and are
in jurisdictions where payment practices can be unpredictable.
The Group monitors the risk profile and debtor-position of all
such contracts regularly, and deploys a variety of techniques
to mitigate the risks of delayed or non-payment; these include
securing advance payments, bank guarantees and various types
of insurance. On the largest contracts, all such arrangements are
approved at Group level. Contracts are reviewed on a case by
case basis to determine the customer and country risk.
Insurance
The Group operates a policy of buying cover against the material
risks which the business faces, where it is possible to purchase
such cover on reasonable terms. Where this is not possible, or
where the risks would not have a material impact on the Group
as a whole, we self-insure.
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138 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
2 P R O C E E D S F R O M S A L E O F P R O P E R T Y , P L A N T A N D E Q U I P M E N T
In the cash flow statement, proceeds from sale of PPE comprise:
Net book amount
Profit on sale of PPE
Proceeds from sale of PPE
Profit on sale of PPE is shown within other income in the income statement.
3 C A S H A N D C A S H E Q U I V A L E N T S
Cash at bank and in hand
Short-term bank deposits
Bank overdrafts (Note 18)
Cash and cash equivalents
2016
£ million
2015
£ million
14
9
23
12
5
17
2016
£ million
2015
£ million
43
1
(19)
25
29
19
(16)
32
The effective interest rate on short-term bank deposits was 7% (2015: 29%); these deposits have a maturity of less than 90 days.
Cash is only held in banks which have been approved by Group Treasury.
Cash and bank overdrafts include the following for the purposes of the cash flow statement:
Cash and cash equivalents
Bank overdrafts (Note 18)
4 S E G M E N T A L R E P O R T I N G
2016
£ million
2015
£ million
44
(19)
25
48
(16)
32
As a result of the Business Priorities review it was decided that it was more appropriate to manage a number of our contracts in Brazil
and Iraq as part of the Power Solutions Utility business instead of the Power Solutions Industrial business. As a result, operational and
management control of these contracts was transferred from Power Solutions Industrial to Power Solutions Utility from 1 January 2016.
Accordingly, the comparatives figures have been restated. The impact was to reduce the previously stated Power Solutions Industrial
balances and results by the amounts shown below and to increase the Power Solutions Utility balances and results.
Revenue (£ million)
Operating profit (£ million)
Depreciation and amortisation (£ million)
Capital expenditure (£ million)
Net operating assets (£ million)
Average number of employees
2015
32
5
6
–
35
338
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
139
4 S E G M E N T A L R E P O R T I N G CONTINUED
(A) Revenue by segment
Power Solutions
Industrial
Utility
Rental Solutions
Group
External revenue
2016
£ million
2015
Restated
£ million
262
624
886
629
1,515
267
676
943
618
1,561
(i)
Inter-segment transfers or transactions are entered into under the normal commercial terms and conditions that would also be available to unrelated third parties.
All inter-segment revenue was less than £1 million.
(B) Profit by segment
Power Solutions
Industrial
Utility
Rental Solutions
Operating profit pre-exceptional items
Exceptional items (Note 7)
Operating profit post-exceptional items
Finance costs – net
Profit before taxation
Taxation
Profit for the year
(C) Depreciation and amortisation by segment
Trading profit
Gain on sale of PPE
Operating profit
2016
£ million
2015
Restated
£ million
2016
£ million
2015
£ million
2016
£ million
2015
Restated
£ million
31
158
189
50
239
40
130
170
100
270
1
6
7
2
9
1
2
3
2
5
32
164
196
52
248
(49)
199
(27)
172
(47)
125
41
132
173
102
275
(26)
249
(23)
226
(64)
162
Power Solutions
Industrial
Utility
Rental Solutions
Group
Before
exceptional
charges
2016
£ million
Impairment
charges
(Note 7)
2016
£ million
Total
2016
£ million
2015
Restated
£ million
63
127
190
95
285
–
–
–
30
30
63
127
190
125
315
61
134
195
86
281
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140 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
4 S E G M E N T A L R E P O R T I N G CONTINUED
(D) Capital expenditure on property, plant and equipment and intangible assets by segment
Power Solutions
Industrial
Utility
Rental Solutions
Group
2016
£ million
2015
Restated
£ million
43
144
187
94
281
50
124
174
90
264
Capital expenditure comprises additions of property, plant and equipment (PPE) of £263 million (2015: £254 million), additions of
intangible assets of £5 million (2015: £nil), acquisitions of PPE of £10 million (2015: £6 million), and acquisitions of intangible assets
of £3 million (2015: £4 million).
(E) Assets/(liabilities) by segment
Power Solutions
Industrial
Utility
Rental Solutions
Group
Tax and finance payable
Derivative financial instruments
Borrowings
Retirement benefit obligation
Total assets/(liabilities) per balance sheet
(F) Average number of employees by segment
Power Solutions
Industrial
Utility
Rental Solutions
Group
Assets
Liabilities
2016
£ million
2015
Restated
£ million
2016
£ million
2015
Restated
£ million
491
1,169
1,660
779
2,439
71
1
–
–
392
934
1,326
660
1,986
63
1
–
–
2,511
2,050
(44)
(177)
(221)
(94)
(315)
(117)
(7)
(674)
(30)
(1,143)
(8)
(190)
(198)
(81)
(279)
(126)
(7)
(521)
(2)
(935)
2016
Number
2015
Restated
Number
1,326
2,269
3,595
2,495
6,090
1,283
2,635
3,918
2,515
6,433
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
141
4 S E G M E N T A L R E P O R T I N G CONTINUED
(G) Geographical information
North America
UK
Continental Europe
Eurasia
Middle East
Africa
Asia
Auspac
Latin America
Non-current assets exclude Deferred tax.
(H) Reconciliation of net operating assets to net assets
Net operating assets
Retirement benefit obligation
Net tax and finance payable
Borrowings and derivative financial instruments
Net assets
5 P R O F I T B E F O R E T A X A T I O N
The following items have been included in arriving at profit before taxation:
Staff costs (Note 8)
Cost of inventories recognised as an expense (included in cost of sales)
Depreciation of property, plant and equipment
Impairment of property, plant and equipment
Amortisation of intangibles (included in administrative expenses)
Gain on disposal of property, plant and equipment
Trade receivables impairment (included in administrative expenses)
Operating lease rentals payable
Revenue
Non-current assets
2016
£ million
2015
£ million
2016
£ million
2015
£ million
337
82
123
41
144
243
164
80
301
1,515
364
74
129
31
146
341
143
64
269
1,561
286
101
110
61
264
231
130
69
240
274
78
96
23
183
209
136
47
227
1,492
1,273
2016
£ million
2015
£ million
2,124
(30)
(46)
2,048
(680)
1,368
1,707
(2)
(63)
1,642
(527)
1,115
2016
£ million
2015
£ million
355
91
281
30
4
(9)
5
38
331
91
277
–
4
(5)
14
37
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142 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
6 A U D I T O R S ’ R E M U N E R A T I O N
Audit services
Fees payable to the Company’s auditor for the audit of the Company’s annual accounts and
consolidated financial statements
Fees payable to the Company’s auditor and its associates for other services:
– The audit of the Company’s subsidiaries
– Other assurance related services
– Other (Note (iii))
– Tax compliance
– Tax advice
2016
£000
2015
£000
224
784
72
230
56
–
283
672
70
–
76
3
(i)
In the year ended 31 December 2016, KPMG LLP replaced PricewaterhouseCoopers as the Group’s auditors, therefore the 2016 fees above relate to KPMG LLP and the
2015 fees relate to PricewaterhouseCoopers.
(ii) In addition to the above services, the Group’s auditors acted as auditor to the Group’s defined benefit pension scheme. The appointment of auditors to this pension scheme
and the fees paid in respect of the audit and for any other services are agreed by the Trustee of the scheme, who act independently from the management of the Group.
The aggregate fees paid to the Group’s auditors for audit and non-audit services to the pension scheme during the year were £8k (2015: pwc £10k).
(iii) Other relates to Investor Relation Services (this work has stopped from 1 January 2017).
7 E X C E P T I O N A L I T E M S
The definition of exceptional items is contained within Note 1 of the 2016 Annual Report and Accounts. An exceptional charge of
£19 million before tax was recorded in the year to 31 December 2016 in respect of the Group’s business priorities implementation.
The business strategy is set out on pages 11 to 33 of the 2016 Annual Report. The costs comprise £11 million of employee related
costs, £7 million of professional fees and £1 million of property related costs. The employee costs relate to severance costs as well
as the costs of employees who are working full time on the business priorities implementation. This exceptional charge can be
split into Rental Solutions £10 million, Power Solutions – Industrial £3 million and Power Solutions – Utility £6 million.
Given the continued decline in the Oil & Gas sector in North America, management reviewed the carrying value of small gas generators
used in the Oil & Gas market (685 gas generators rated at 300KW or below). These generators are used only in North America.
In assessing the impairment, management determined the recoverable amount of the assets based on value in use, and compared this
to the carrying amount. As a result of this, an impairment charge of £30 million before tax was recorded in the Rental Solutions business
unit in the year to 31 December 2016. The future cash flows were estimated in the period to the end of the useful life of the generators
based on the most up to date business forecast including assumptions around rates, utilisation, and costs and discounted using
a discount rate of 8.10% after taxation. The net book value of these specific generators, which is not impaired, is £10 million.
8 E M P L O Y E E S A N D D I R E C T O R S
Staff costs for the Group during the year:
Wages and salaries (including severance costs)
Social security costs
Share-based payments
Pension costs – defined contribution plans
Pension costs – defined benefit plans (Note 30.A6)
Full details of Directors’ remuneration are set out in the Remuneration Report on page 94.
The key management comprises Executive and Non-executive Directors.
Short-term employee benefits
Post-employment benefits
Share-based payments
2016
£ million
2015
£ million
306
31
8
8
2
355
277
34
8
10
2
331
2016
£ million
2015
£ million
3
–
1
4
4
1
1
6
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
143
9 N E T F I N A N C E C H A R G E
Finance costs on bank loans and overdrafts
Finance income on bank balances and deposits
1 0 T A X A T I O N
Analysis of charge in year
Current tax expense:
– UK corporation tax
– Overseas taxation
Adjustments in respect of prior years:
– UK
– Overseas
Deferred taxation (Note 22):
– temporary differences arising in current year
– movements in respect of prior years
2016
£ million
2015
£ million
(29)
2
(27)
(25)
2
(23)
Total before
exceptional
items
2016
£ million
Exceptional
items (i)
(Note 7)
2016
£ million
Total before
exceptional
items
2015
£ million
Exceptional
items
2015
£ million
2016
£ million
2015
£ million
7
73
80
–
(8)
72
(13)
4
63
(1)
(4)
(5)
–
–
(5)
(11)
–
(16)
6
69
75
–
(8)
67
(24)
4
47
6
78
84
(5)
3
82
(16)
3
69
(2)
(3)
(5)
–
–
(5)
–
–
(5)
4
75
79
(5)
3
77
(16)
3
64
(i) Exceptional items are explained in Note 7 and comprise costs of £19 million relating to the business priorities implementation (2015: £26 million) and £30 million relating
to asset impairment (2015: £nil). Of these costs, £45 million are tax deductible (2015: £24 million) and result in an exceptional credit of £16 million (2015: £5 million).
The tax (charge)/credit relating to components of other comprehensive income is as follows:
Deferred tax on hedging reserve movements
Deferred tax on retirement benefits
2016
£ million
2015
£ million
–
5
5
–
(1)
(1)
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144 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
1 0 T A X A T I O N CONTINUED
Variances between the current tax charge and the standard 20% UK corporate tax rate when applied to profit on ordinary activities
for the year are as follows:
Profit before taxation
Tax calculated at 20% standard UK corporate tax rate
Differences between UK and overseas tax rates
Effect of intra group financing
Expenses not tax effected
Income not subject to tax
Chargeable gains
Impact of deferred tax rate changes
Tax on current year profit
Prior year adjustments – current tax
Prior year adjustments – deferred tax
Total tax on profit
Effective tax rate
Profit before taxation
Tax calculated at 20.3% standard UK corporate tax rate
Differences between UK and overseas tax rates
Effect of intra group financing
Expenses not tax effected
Income not subject to tax
Tax on current year profit
Prior year adjustments – current tax
Prior year adjustments – deferred tax
Total tax on profit
Total before
exceptional
items
2016
£ million
Exceptional
items
(Note 7)
2016
£ million
221
44
24
(2)
4
(3)
2
(2)
67
(8)
4
63
(49)
(10)
(7)
–
1
–
–
–
(16)
–
–
(16)
2016
£ million
172
34
17
(2)
5
(3)
2
(2)
51
(8)
4
47
28%
32%
28%
Total before
exceptional
items
2015
£ million
Exceptional
items
2015
£ million
2015
£ million
252
(26)
226
51
20
(3)
5
(5)
68
(2)
3
69
(5)
–
–
–
–
(5)
–
–
(5)
46
20
(3)
5
(5)
63
(2)
3
64
Effective tax rate
27%
20%
28%
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
145
11 D I V I D E N D S
Final paid
Interim paid
2016
£ million
2016
per share (p)
2015
£ million
2015
per share (p)
45
24
69
17.74
9.38
27.12
45
24
69
17.74
9.38
27.12
In addition, the Directors are proposing a final dividend in respect of the financial year ended 31 December 2016 of 17.74 pence per share
which will absorb an estimated £45 million of Shareholders’ funds. It will be paid on 24 May 2017 to Shareholders who are on the register
of members on 21 April 2017.
1 2 E A R N I N G S P E R S H A R E
Basic earnings per share have been calculated by dividing the earnings attributable to ordinary Shareholders by the weighted
average number of shares in issue during the year, excluding shares held by the Employee Share Ownership Trusts which are
treated as cancelled.
Profit for the year (£ million)
Weighted average number of Ordinary Shares in issue (million)
Basic earnings per share (pence)
2016
125
255
48.88
For diluted earnings per share, the weighted average number of Ordinary Shares in issue is adjusted to assume conversion of all
potentially dilutive Ordinary Shares. These represent share options granted to employees where the exercise price is less than the
average market price of the Company’s Ordinary Shares during the year. The number of shares calculated as above is compared
with the number of shares that would have been issued assuming the exercise of the share options.
Profit for the year (£ million)
Weighted average number of Ordinary Shares in issue (million)
Adjustment for share options
Diluted weighted average number of Ordinary Shares in issue (million)
Diluted earnings per share (pence)
2016
125
255
–
255
48.86
2015
162
256
63.49
2015
162
256
–
256
63.45
Aggreko plc assesses the performance of the Group by adjusting earnings per share, calculated in accordance with IAS 33, to exclude
items it considers to be non-recurring and believes that the exclusion of such items provides a better comparison of business
performance. The calculation of earnings per Ordinary Share on a basis which excludes exceptional items is based on the following
adjusted earnings.
Profit for the year
Exclude exceptional items
Profit for the year pre-exceptional items
An adjusted earnings per share figure is presented below.
Basic earnings per share pre-exceptional items (pence)
Diluted earnings per share pre-exceptional items (pence)
2016
£ million
2015
£ million
125
33
158
162
21
183
61.98
61.95
71.73
71.68
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146 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
1 3 G O O D W I L L
Cost
At 1 January
Acquisitions (Note 29)
Exchange adjustments
At 31 December
Accumulated impairment losses
Net book value
Goodwill impairment tests
Goodwill has been allocated to cash-generating units (CGUs) as follows:
Power Solutions
Industrial
Utility
Rental Solutions
Group
2016
£ million
2015
£ million
118
7
34
159
–
159
130
7
(19)
118
–
118
2016
£ million
2015
Restated
£ million
60
16
76
83
159
34
9
43
75
118
During 2016, a number of contracts in Brazil were switched from Power Solutions Industrial (PSI) to Power Solutions Utility (PSU).
The result of this was to switch Goodwill of £7 million from PSI to PSU.
Goodwill is tested for impairment annually or whenever there is an indication that the asset may be impaired. Goodwill is monitored
by management at an operating segment level. The recoverable amounts of the CGUs are determined from value in use calculations
which use cash flow projections based on the five-year strategic plan approved by management. The key assumptions for value in use
calculations are those relating to expected changes in revenue (utilisation and rates) and the cost base, discount rates and long-term
growth rates are as follows:
Power Solutions Industrial
Power Solutions Utility
Rental Solutions
2016
Post-tax
discount
rate
Pre-tax
discount
rate
Long-term
growth
rate
8.7%
8.7%
8.7%
12.0%
12.0%
12.0%
3%
3%
3%
EBITDA
95
291
147
2015
Post-tax
discount
rate
Pre-tax
discount
rate
Long-term
growth
rate
8.2%
8.2%
8.2%
10.6%
10.6%
10.6%
2%
2%
2%
EBITDA
102
266
188
Values in use were determined using current year cash flows, a prudent view of the medium-term business strategy and excludes any
growth capital expenditure. A terminal cash flow was calculated using a long-term growth rate of 3%. On the basis that the business
carried out by all CGUs is closely related and assets can be redeployed around the Group as required, a consistent Group discount rate
has been used for all CGUs.
As at 31 December 2016, based on internal valuations, Aggreko plc management concluded that the values in use of the CGUs exceeded
their net asset value with the highest headroom value being £2 billion and the lowest £240 million. Given these headroom numbers
the Directors consider that there is no reasonably possible change in the key assumptions made in their impairment assessment that
would give rise to an impairment.
1 4 O T H E R I N T A N G I B L E A S S E T S
Refer to Note 30.A2.
1 5 P R O P E R T Y , P L A N T A N D E Q U I P M E N T
Year ended 31 December 2016
Cost
At 1 January 2016
Exchange adjustments
Additions
Acquisitions (Note 29)
Disposals
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Exchange adjustments
Charge for the year
Impairment charge (Note 7)
Disposals
At 31 December 2016
Net book values:
At 31 December 2016
At 31 December 2015
Year ended 31 December 2015
Cost
At 1 January 2015
Exchange adjustments
Additions
Acquisitions
Disposals
At 31 December 2015
Accumulated depreciation
At 1 January 2015
Exchange adjustments
Charge for the year
Disposals
At 31 December 2015
Net book values:
At 31 December 2015
At 31 December 2014
Assets in course of construction are included within Rental fleet.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
147
Freehold
properties
£ million
Short
leasehold
properties
£ million
Rental
fleet
£ million
Vehicles,
plant and
equipment
£ million
Total
£ million
81
10
–
–
–
91
27
6
3
–
–
36
55
54
19
1
3
–
(1)
22
13
1
2
–
–
16
6
6
2,778
568
241
10
(122)
3,475
1,729
361
261
30
(109)
2,272
1,203
1,049
97
23
19
–
(3)
136
67
12
15
–
(3)
91
45
30
2,975
602
263
10
(126)
3,724
1,836
380
281
30
(112)
2,415
1,309
1,139
Freehold
properties
£ million
Short
leasehold
properties
£ million
Rental
fleet
£ million
Vehicles,
plant and
equipment
£ million
Total
£ million
77
1
3
–
–
81
23
1
3
–
27
54
54
20
(1)
1
–
(1)
19
13
(1)
2
(1)
13
6
7
2,599
14
237
5
(77)
2,778
1,513
23
259
(66)
1,729
1,049
1,086
89
1
13
1
(7)
97
59
1
13
(6)
67
30
30
2,785
15
254
6
(85)
2,975
1,608
24
277
(73)
1,836
1,139
1,177
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148 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
1 6 I N V E N T O R I E S
Raw materials and consumables
Work in progress
1 7 T R A D E A N D O T H E R R E C E I V A B L E S
Trade receivables
Less: provision for impairment of receivables
Trade receivables – net
Prepayments
Accrued income
Other receivables (Note (i))
Total receivables
2016
£ million
2015
£ million
242
5
247
184
5
189
2016
£ million
2015
£ million
521
(67)
454
38
109
55
656
384
(64)
320
26
96
34
476
(i)
In September 2016, the Group signed £14 million of private placement notes with one customer in Venezuela (PDVSA) to progress clearing the overdue debt. This resulted in
a financial instrument which replaced the net trade receivable balance. The financial instrument was booked at fair value which reflects our estimation of the recoverability
of these notes. This fair value was estimated to be £8 million which when compared to the carrying amount of the net trade receivable of £6 million (Gross receivable of
£14 million less bad debt provision of £8 million) resulted in a release to the income statement of £2 million. This financial instrument is included in other receivables.
(ii) The value of trade and other receivables quoted in the table above also represent the fair value of these items.
The carrying amounts of the Group’s trade and other receivables are denominated in the following currencies:
Sterling
Euro
US Dollar
Other currencies
Movements on the Group’s provision for impairment of trade receivables are as follows:
At 1 January
Net provision for receivables impairment
Transfer to other receivables (refer to Note (i) above)
Utilised
Receivables written off during the year as uncollectible
Exchange
At 31 December
2016
£ million
2015
£ million
19
98
340
199
656
20
54
248
154
476
2016
£ million
2015
£ million
64
5
(8)
(5)
(3)
14
67
55
14
–
(1)
(3)
(1)
64
Credit quality of trade receivables
The table below analyses the total trade receivables balance per operating segment into fully performing, past due and impaired.
31 December 2016
Power Solutions
Industrial
Utility
Rental Solutions
Group
Fully performing
£ million
Past due
£ million
Impaired
£ million
Total
£ million
42
48
90
65
155
30
209
239
60
299
7
52
59
8
67
79
309
388
133
521
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
149
1 7 T R A D E A N D O T H E R R E C E I V A B L E S CONTINUED
31 December 2015
Power Solutions
Industrial
Utility
Rental Solutions
Group
Fully performing
Restated
£ million
Past due
Restated
£ million
Impaired
Restated
£ million
Total
Restated
£ million
31
35
66
42
108
17
148
165
47
212
9
48
57
7
64
57
231
288
96
384
During 2016, a number of contracts in Brazil and Iraq were switched from Power Solutions Industrial (PSI) to Power Solutions Utility (PSU).
The impact was to reduce the previously stated balances in PSI and increase the balances in PSU as follows: Fully performing £2 million,
Past due £5 million, Impaired £nil and total £7 million. More details can be found in Note 4.
Ageing of past due but not impaired trade receivables
Less than 30 days
Between 30 and 60 days
Between 60 and 90 days
Greater than 90 days
2016
£ million
2015
£ million
71
51
34
143
299
67
40
28
77
212
The Group assesses credit quality as explained below:
Power Solutions – Industrial
This is a high transaction intensive business and the majority of the contracts in this business are small relative to the size of the
Group. There is no concentration of credit risk in this business and there are a large number of customers who are unrelated and
internationally dispersed.
The management of trade receivables is the responsibility of the operating units, although they report monthly to Group on
debtor days, debtor ageing and significant outstanding debts. At an operating unit level a credit rating is normally established for
each customer based on ratings from external agencies. Where no ratings are available, cash in advance payment terms are often
established for new customers. Credit limits are reviewed on a regular basis. The effectiveness of this credit process has meant that
the Group has historically had a low level of bad debt in this business. Receivables written off during the year as uncollectible as a
percentage of total gross debtors was 1% (2015: 1%).
Power Solutions – Utility
This business concentrates on medium to very large contracts. Customers are mainly state owned utilities in emerging markets.
In many instances the contracts are in jurisdictions where payment practices can be unpredictable. The Group monitors the risk profile
and debtor position of all such contracts regularly, and deploys a variety of techniques to mitigate the risks of delayed or non-payment;
these include securing advance payments, bonds and guarantees. On the largest contracts, all such arrangements are approved at a
Group level. Contracts are reviewed on a case by case basis to determine the customer and country risk. To date the Group has also had
a low level of bad debt in the Power Solutions – Utility business although the risk of a major default is high.
The total trade receivables balance as at 31 December 2016 for our Power Solutions – Utility business was £309 million (2015: £230 million).
Within this balance, receivable balances totalling £53 million (2015: £59 million) had some form of payment cover attached to them.
This payment cover guards against the risk of customer default rather than the risk associated with customer disputes. The risk
associated with the remaining £256 million (2015: £171 million) is deemed to be either acceptable or payment cover is not obtainable
in a cost-effective manner.
Rental Solutions
This business is similar to the Power Solutions Industrial business above and the management of trade receivables is similar.
Again the Group has historically had a low level of bad debt in the Rental Solutions business. Receivables written off during the year
as uncollectible as a percentage of total Gross Debtors was 2% (2015: 3%).
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150 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
1 8 B O R R O W I N G S
Non-current
Bank borrowings
Private placement notes
Current
Bank overdrafts
Bank borrowings
Total borrowings
Short-term deposits
Cash at bank and in hand
Net borrowings
Overdrafts and borrowings are unsecured.
(i) Maturity of financial liabilities
The maturity profile of the borrowings was as follows:
Within 1 year, or on demand
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Greater than 5 years
2016
£ million
2015
£ million
329
304
633
19
41
60
693
(1)
(43)
649
253
253
506
16
15
31
537
(19)
(29)
489
2016
£ million
2015
£ million
60
97
150
127
178
81
693
31
–
195
70
56
185
537
(ii) Borrowing facilities
The Group has the following undrawn committed floating rate borrowing facilities available at 31 December 2016 in respect of which
all conditions precedent had been met at that date:
Expiring within 1 year
Expiring between 1 and 2 years
Expiring between 2 and 3 years
Expiring between 3 and 4 years
Expiring between 4 and 5 years
Expiring after 5 years
(iii) Interest rate risk profile of financial liabilities
Refer to Note 30.A3.
(iv) Interest rate risk profile of financial assets
Refer to Note 30.A3.
(v) Preference share capital
Refer to Note 30.A3.
2016
£ million
2015
£ million
–
178
1
189
34
–
402
30
–
117
78
160
–
385
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
151
1 9 F I N A N C I A L I N S T R U M E N T S
Refer to Note 30.A4.
(i) Fair values of financial assets and financial liabilities
Refer to Note 30.A4.
(ii) Summary of methods and assumptions
Refer to Note 30.A4.
(iii) Derivative financial instruments
Refer to Note 30.A4.
(iv) The exposure of the Group to interest rate changes when borrowings reprice
Refer to Note 30.A4.
2 0 T R A D E A N D O T H E R P A Y A B L E S
Trade payables
Other taxation and social security payable
Other payables
Accruals
Deferred income
The value of trade and other payables quoted in the table above also represents the fair value of these items.
2 1 P R O V I S I O N S
At 1 January 2016
New provisions
Utilised
At 31 December 2016
Analysis of total provisions
Current
Non-current
Total
2016
£ million
2015
£ million
88
13
68
113
17
77
8
63
97
14
299
259
Business
priorities
programme
£ million
8
1
(8)
1
1
–
1
The provisions for the business priorities implementation programme are generally in respect of employee related costs for employees
working entirely on the programme. The provision is expected to be fully utilised by the end of 2017.
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152 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
2 2 D E F E R R E D T A X
31 December 2016
Fixed asset timing differences
Retirement benefit obligations
Overseas tax on unremitted earnings
Tax losses
Derivative financial instruments
Other temporary differences
31 December 2015
Fixed asset timing differences
Retirement benefit obligations
Overseas tax on unremitted earnings
Tax losses
Derivative financial instruments
Other temporary differences
At 1 January
2016
£ million
Credit/(debit)
to income
statement
2016
£ million
Credit to other
comprehensive
income
2016
£ million
Exchange
differences
2016
£ million
At 31 December
2016
£ million
(69)
–
(1)
19
1
22
(28)
(1)
–
–
21
–
–
20
–
5
–
–
–
–
5
(1)
–
–
–
–
–
(1)
(71)
5
(1)
40
1
22
(4)
At 1 January
2015
£ million
Credit/(debit)
to income
statement
2015
£ million
Debit to other
comprehensive
income
2015
£ million
Exchange
differences
2015
£ million
At 31 December
2015
£ million
(71)
1
–
18
1
20
(31)
11
–
(1)
1
–
2
13
–
(1)
–
–
–
–
(1)
(9)
–
–
–
–
–
(9)
(69)
–
(1)
19
1
22
(28)
Changes to the UK corporation tax rates were substantively enacted as part of Finance Bill 2015 (on 26 October 2015) and Finance Bill 2016
(on 7 September 2016). These include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and to 17% from
1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected in these
financial statements.
A deferred tax liability of £1 million (2015: £1 million) has been recognised in respect of unremitted earnings. The deferred tax relates
to non-recoverable withholding tax which will be suffered on dividends to be paid in 2017.
No other deferred tax liability has been recognised in respect of unremitted earnings of subsidiaries. It is likely that the majority of the
overseas earnings will qualify for the UK dividend exemption and the Group can control the distribution of dividends by its subsidiaries.
In some countries, local tax is payable on the remittance of a dividend. Were dividends to be remitted from these countries, the
additional tax payable would be £13 million.
The movements in deferred tax assets and liabilities (prior to offsetting of balances within the same jurisdiction as permitted by IAS 12)
during the period are shown below. Deferred tax assets and liabilities are only offset where there is a legally enforceable right of offset
and there is an intention to settle the balances net.
Deferred tax assets are recognised to the extent that the realisation of the related deferred tax benefit through future taxable profits
is probable. The Group did not recognise deferred tax assets of £11 million (2015: £6 million) of which £11 million (2015: £6 million) relates
to carried forward tax losses as our forecasts indicate that these assets will not reverse in the near future.
Deferred tax assets of £33 million (2015: £18 million) have been recognised in respect of entities which have suffered a loss in either
the current or preceding period. Deferred tax assets have been recognised on the basis it is probable there will be future taxable
profits against which they can be utilised. The majority of these assets can be carried forward indefinitely.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
153
2 2 D E F E R R E D T A X CONTINUED
Deferred tax assets and liabilities
Fixed asset timing differences
Retirement benefit obligations
Overseas tax on unremitted earnings
Tax losses
Derivative financial instruments
Other temporary differences
Total
Offset of deferred tax positions
Net deferred tax
31 December 2016
31 December 2015
Assets
£ million
Liabilities
£ million
Net
£ million
Assets
£ million
Liabilities
£ million
Net
£ million
12
5
–
40
1
22
80
(29)
51
(83)
–
(1)
–
–
–
(84)
29
(55)
(71)
5
(1)
40
1
22
(4)
–
(4)
9
–
–
19
1
22
51
(21)
30
(78)
–
(1)
–
–
–
(79)
21
(58)
(69)
–
(1)
19
1
22
(28)
–
(28)
The net deferred tax liability due after more than one year is £4 million (2015: liability of £28 million).
2 3 S H A R E C A P I T A L
(i) Ordinary Shares of 4329⁄395 pence (2015: 4329⁄395 pence)
At 1 January
256,128,201
12,378
256,118,395
12,378
2016
Number of
shares
2016
£000
2015
Number of
shares
2015
£000
Share conversion (1 Ordinary Share for every 21.4 B Shares as at
28 May 2015)
At 31 December
(ii) Deferred Ordinary Shares of 618⁄25 pence (2015: 618⁄25 pence)
–
–
9,806
–
256,128,201
12,378
256,128,201
12,378
At 1 January and 31 December
182,700,915
12,278
182,700,915
12,278
(iii) Deferred Ordinary Shares of 1⁄775 pence (2015: 1⁄775 pence)
At 1 January and 31 December
18,352,057,648
237
18,352,057,648
237
(iv) Deferred Ordinary Shares of 984⁄775 pence (2015: 984⁄775 pence)
At 1 January and 31 December
188,251,587
17,147
188,251,587
17,147
(v) B Shares of 984⁄775 pence (2015: 984⁄775 pence)
At 1 January
Transfer to capital redemption reserve
Share conversion
At 31 December
(vi) Deferred Ordinary Shares 1⁄306125 pence (2015: 1⁄306125 pence)
At 1 January
Share conversion
At 31 December
–
–
–
–
–
–
–
–
573,643,383,325
19
1,989,357
(1,778,422)
(210,935)
–
–
–
– 573,643,383,325
573,643,383,325
19 573,643,383,325
181
(162)
(19)
–
–
19
19
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154 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
2 4 T R E A S U R Y S H A R E S
Treasury shares
2016
£ million
2015
£ million
(14)
(9)
Interests in own shares represents the cost of 1,048,816 of the Company’s Ordinary Shares (nominal value 4329/395 pence).
Movement during the year was as follows:
1 January
Purchase of shares (Note (i))
Long-term Incentive Plan Maturity
Sharesave maturity
Deferred shares and restricted stock
Shares in relation to dividends on deferred shares and restricted stock
31 December
(i) Purchased at an average share price of £11.46.
These shares represent 0.4% of issued share capital as at 31 December 2016 (2015: 0.2%).
2016
Number of
shares
2015
Number of
shares
535,538
824,036
700,000
–
(76,728)
(78,430)
(560)
(210,068)
(106,206)
(3,228)
–
–
1,048,816
535,538
These shares were acquired by a Trust in the open market using funds provided by Aggreko plc to meet obligations under the
Long-term Incentive Arrangements and Aggreko Sharesave Plans. The costs of funding and administering the scheme are charged
to the income statement of the Company in the period to which they relate. The market value of the shares at 31 December 2016 was
£10 million (31 December 2015: £5 million).
2 5 C A P I T A L C O M M I T M E N T S
Contracted but not provided for (property, plant and equipment)
2 6 O P E R A T I N G L E A S E C O M M I T M E N T S – M I N I M U M L E A S E P A Y M E N T S
Commitments under non-cancellable operating leases expiring:
Within one year
Later than one year and less than five years
After five years
Total
2 7 P E N S I O N C O M M I T M E N T S
Refer to Note 30.A5.
2016
£ million
2015
£ million
22
10
2016
£ million
2015
£ million
26
49
17
92
22
37
12
71
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
155
2 8 I N V E S T M E N T S I N S U B S I D I A R I E S
The subsidiary undertakings of Aggreko plc at the year end, and the main countries in which they operate, are shown below.
All companies are wholly owned and, unless otherwise stated, incorporated in UK or in the principal country of operation and
are involved in the supply of temporary power, temperature control and related services.
All shareholdings are of Ordinary Shares or other equity capital.
Company
Aggreko Algeria SPA*
Aggreko Angola Lda
Country of
Incorporation
Registered address
Algeria
Extension La Zone Des Activities, N 01, Adrar, Algeria
Angola
Rua 21 Jan, Qunintalao Escola de Enfermagem,
Bairro Morro Bento III, District of Samba, Luanda, Angola
Aggreko Argentina S.R.L.
Argentina
465, 2D, Av. L.N. Alem, Buenos Aires, 1001, Argentina
Aggreko Generators Rental Pty Limited
Australia
101, Woodlands Drive, Braeside, VIC, 3195, Australia
Aggreko Belgium NV
Belgium 7, Smallandlaan, Antwerpen, 2660, Belgium
Aggreko Energia Locacao de Geradores Ltda
Brazil
3500, Av. das Américas, – Ed Toronto 2000 –
6° Andar – Barra da Tijuca, Rio de Janeiro, 22640-102, Brazil
Aggreko Cameroon S.R.L.
Aggreko Canada Inc
Cameroon
Centre des Affaires Flatters, Rue Flatters, BP 4999, Bonanjo, Doula, Cameroon
Canada
199, Bay Street, Suite 2800, Commerce Court West, Toronto, ON, M5L1A9, Canada
Aggreko Financial Holdings Limited +
Cayman Islands
Aggreko Chile Limitada
Aggreko (Shanghai) Energy Equipment
Rental Company Limited
Aggreko Colombia SAS
89, Nexus Way, Camana Bay, PO Box 31106, Grand Cayman, KY1-1205,
Cayman Islands
Galvarino 9450, Parque Industrial Buenaventura, Quilicura,
Region Metropolitana, Santiago, Chile
Building 16, No 99 HuaJia Road, SongJiang District, Shanghai, 201611,
Shanghai, 201611, China
Chile
China
Colombia
Parque Industrial Gran Sabana Vereda Tibitoc Lote M Unidad 67-A,
Tocancipa, Colombia
Aggreko Power Solutions Colombia SA ESP
Colombia
Parque Industrial Gran Sabana, Carretera Snrto Zipaquira Lote 67, Tocancipa –
Cundinamarca, Colombia
Aggreko Costa Rica S.A.
Aggreko Cote d’Ivoire S.A.R.L.
Aggreko (Middle East) Limited**
Aggreko DRC S.P.R.L.
Aggreko Dominican Republic SRL
Costa Rica
Centro Corporativo Forum I, Torre G, Piso 1, Santa Ana, San José, Costa Rica
Cote d’Ivoire
Vridi Canal – Base Centrale thermique à gaz, Abidjan, Cote d’Ivoire
Cyprus
3 Themistokli Dervi, Julia House, P.C. 1066, Nicosia, Cyprus
Democratic
Republic of the
Congo
Dominican
Republic
50, Avenue Goma- Commune de la Gombe, Kinshasa
Paseo de los Locutores No. 53, Santo Domingo, Dominican Republic
Aggreko Energy Ecuador CIA
Ecuador
E 2324, Rumipamba y Av. Amazonas, Quito, NA, Ecuador
Aggreko Finland Oy
Aggreko France SARL
Aggreko Gabon S.A.R.L.
Aggreko Deutschland GmbH
Aggreko Hong Kong Limited
Finland
Hatanpaan Valtatie 13, Tampere, Finland
France
5, Rue Boole, Saint-Michel sur Orge, 91240, France
Gabon
Residence Du Golf, Libreville, BP: 4568, Gabon
Germany
62, Barbarastraße, Dorsten, 46282, Germany
Hong Kong
Lots 1845 and 1846 in DD125 Ho Tsuen,Yuen Long, N.T. Hong Kong, SAR,
Hong Kong, 00852, Hong Kong
Aggreko Energy Rental India Private Limited +++
India
“The Chambers”, Office No 501, Plot No 4/12/13, Viman Nagar, Pune, 411014, India
PT Aggreko Energy Services
Aggreko Ireland Limited
Aggreko Italia S.R.L.
Aggreko Japan Limited
Indonesia
Jl. Danau Cincin Utara Block E No 10-B, Lantai 2, Papanggo Tanjung Priok
Jakarta Utara DKI, Jakarta Raya, 14340, Indonesia
Ireland
6th Floor, South Bank House, Barrow Street, Dublin, Ireland
Italy
29, Via A. Einstein, Assago (MI), 20090, Italy
Japan
2-42-6 Ikebukuro, Toshima-Ku, Japan
Aggreko Kenya Energy Rentals Limited
Kenya
Plot 12100, Tulip House, Mombasa Road, P.O. Box 10729, 00100, Nairobi, Kenya
Aggreko Malaysia SDN BHD
Aggreko Mali S.A.R.L.
Aggreko Africa Limited
Malaysia
Level 8 Symphony House Berhad Pusat Dagangan Dana 1 Jalan PJU 1A/46,
Petaling Jaya, 47301, Malaysia
Mali
Bamako-Lafiabougou ACI 2000, Immcuble Samassa 1 Etage porte 02
Mauritius
co/o Abax Corporate Services Ltd, 6th Floor, Tower A, 1 CyberCity, Mauritius
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156 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
2 8 I N V E S T M E N T S I N S U B S I D I A R I E S CONTINUED
Company
Aggreko Energy Mexico SA de CV
Aggreko Services Mexico SA de CV
Aggreko SA de CV ++++
Country of
Incorporation
Registered address
Mexico
8, Carretera Coacalco Tultepec, Estado de Mexico, 55717, Mexico
Mexico
8, Carretera Coacalco Tultepec, Estado de Mexico, 55717, Mexico
Mexico Mar Cantabrico No. 20, Co. Popotla C.P. 11400, Mexico, D.F., Mexico
Aggreko Mocambique Limitada
Mozambique
7 Andar, Av. 24 de Julho, No 7, Bairro Polana Cimento, Distrito Urbano 1,
Maputo, Mozambique
Aggreko Myanmar Co Limited
Myanmar
No. 112 (First Floor), 49th Street, Pazundaung Township, Yangon, Myanmar
Aggreko Namibia Energy Rentals (Pty) Ltd
Namibia
344 Independence Avenue, Windhoek, Namibia
Aggreko (NZ) Limited
Aggreko Projects Limited
New Zealand
Level 8, 188 Quay Street, Auckland, 1010, New Zealand
Nigeria
27 Festival Road, Victoria Island, Lagos, Nigeria
Aggreko Gas Power Generation Limited ++++
Nigeria
27 Festival Road, Victoria Island, Lagos, Nigeria
Aggreko Norway AS
Norway
44, Dragonveien, Bygg 31, Oslo, Norway
Aggreko Energy Rentals Panama SA
Aggreko Generator Rentals (PNG) Limited
Panama
Patton, Moreno & Asvat offices in Capital Plaza Building, 8th floor,
Roberto Motta y Costa del Este Avenue, Panama, PA, 507, Panama
Papua New
Guinea
c/- Ashurst PNG, Level 4, Mogoru Moto Building, Champion Parade,
Port Moresby, National Capital District, Papua New Guinea
Aggreko Peru S.A.C.
Peru
Avenida Elmer Faucett 4800, Callao, Peru
Aggreko Energy Rental Solutions Inc.
Philippines
Level 10-1 Fort Legend Tower, 31st Street & 3rd Avenue,
Bonifacio Global City Taguig, 1634, Philippines
Aggreko Polska Spolka Zorganiczana
Poland
Fort Ordona 6 street, Czosnow, 05-152, Poland
Aggreko South East Europe S.R.L.
Romania
Soseaua de Centura 7A, Tunari, Ilfov, 077180, Romania
Aggreko Eurasia LLC
Aggreko Rwanda Limited
Aggreko Senegal S.A.R.L.
Russia
Building 1, House 8, 2nd km Stariy Tobolsky Trakt, Tyumen, 625000, Russian Federation
Rwanda
1st Floor, Omega House, Boulevard de los, Nyarugenge, Rwanda
Senegal
Route De Ngor 29912, Dakar, Senegal
Aggreko (Singapore) PTE Limited
Singapore
8B Buroh Street, Singapore, 627532
Aggreko Energy Rental South Africa
(Proprietary) Limited
Aggreko South Korea Limited
Aggreko Iberia SA
South Africa
2 Eglin Road, Sunninghill, 2157, South Africa
South Korea
Unit 3203 S-Trenue, 37 Gukjegeumyung-ro 2-gil, Yeongdeungpo-gu, Seoul,
Republic of Korea
Spain
35-37, Avinguda Torre Mateu, Pol.Industrial Can Salvatella, Barbera del Valles,
08210, Spain
Aggreko Sweden AB
Sweden
Box 16285, Stockholm, 103 25, Sweden
Aggreko Energy Rentals Tanzania Limited
Tanzania
Ubungo Plaza Unit 209, 2nd Floor, PO Box 158, Dar Es Salaam, Tanzania
Aggreko (Thailand) Limited
Thailand
Central World, 29th Floor, Rama I Road, Pathumwan Sub-district,
Pathumwan District, Bangkok, Thailand
Aggreko Americas Holdings B.V. +
The Netherlands
Amstelveenseweg 760, 1081 JK Amsterdam, Netherlands
Aggreko Euro Holdings B.V. +
The Netherlands
Amstelveenseweg 760, 1081 JK Amsterdam, Netherlands
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
157
2 8 I N V E S T M E N T S I N S U B S I D I A R I E S CONTINUED
Company
Country of
Incorporation
Registered address
Aggreko Rest of the World Holdings B.V. +
The Netherlands
Amstelveenseweg 760, 1081 JK Amsterdam, Netherlands
Aggreko (Investments) B.V. ++
The Netherlands
3, Fuutweg, Haven 461b, Klundert, 4791PB, Netherlands
Aggreko Nederland B.V.
The Netherlands
3, Fuutweg, Haven 461b, Klundert, 4791PB, Netherlands
Aggreko International Power Projects B.V.
The Netherlands
Aggreko Power Solutions Trinidad Limited
Aggreko Trinidad Limited
Republic of
Trinidad &
Tobago
Republic of
Trinidad &
Tobago
Between Roundabouts 7 and 8, Opposite Red Sea Housing, PO Box 17576,
Jebel Ali, Dubai, United Arab Emirates
129-131 Abercromby Street, Port of Spain, Trinidad and Tobago
5/7 Sweet Briar Road, St. Clair, Trinidad and Tobago
Aggreko Enerji ve Isi Kontrol Ticaret Anonim Sirketi
Turkey
EGS Business Park B2 Blok Kat:6 D:227 Yeşilköy, Bakırköy, Istanbul, Turkey
Aggreko Middle East Limited FZE
Aggreko Finance Limited +
Aggreko Holdings Limited +
Aggreko International Projects Holdings Limited +
Aggreko International Projects Limited***
Aggreko Pension Scheme Trustee Limited
Aggreko Russia Finance Limited ++
Aggreko UK Finance Limited ++
Aggreko UK Limited
Aggreko US Limited
Aggreko Generators Limited ++++
Aggreko Luxembourg Holdings
Dunwilco (680) Limited ++++
Golden Triangle Generators Limited
Aggreko Uruguay S.A.
Aggreko Holdings Inc +
Aggreko USA LLC +
Aggreko LLC
UAE
E-LOB Office No E2-112F-40, PO Box 52462, Hamriyah Free Zone, Sharjah,
United Arab Emirates
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
UK
120 Bothwell Street, Glasgow, G2 7JS, Scotland, United Kingdom
120 Bothwell Street, Glasgow, G2 7JS, Scotland, United Kingdom
120 Bothwell Street, Glasgow, G2 7JS, Scotland, United Kingdom
120 Bothwell Street, Glasgow, G2 7JS, Scotland, United Kingdom
120 Bothwell Street, Glasgow, G2 7JS, Scotland, United Kingdom
120 Bothwell Street, Glasgow, G2 7JS, Scotland, United Kingdom
120 Bothwell Street, Glasgow, G2 7JS, Scotland, United Kingdom
Overburn Avenue, Dumbarton, G82 2RL, Scotland, United Kingdom
120 Bothwell Street, Glasgow, G2 7JS, Scotland, United Kingdom
120 Bothwell Street, Glasgow, G2 7JS, Scotland, United Kingdom
120 Bothwell Street, Glasgow, G2 7JS, Scotland, United Kingdom
120 Bothwell Street, Glasgow, G2 7JS, Scotland, United Kingdom
Aggreko House Orbital 2, Voyager Drive, Cannock, Staffordshire, WS11 8XP,
England, United Kingdom
Uruguay
675, Of 20, Peatonal Sarandi, Montevideo, Uruguay
USA Wilmington Trust SP Services Inc, 1105 N. Market Street, Suite 1300, Wilmington DE,
19801, United States
USA
USA
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, DE, 19801, United States
The Corporation Trust Company, Corporation Trust Center, 1209 Orange Street,
Wilmington, DE, 19801, United States
Aggreko de Venezuela C.A.
Venezuela
Av. Venezuela Edif. Lamaletto, piso 5, oficina Unica, El Rosal, Caracas
* Joint Venture: Aggreko ownership is 49%, remainder is held by RedMed.
** Registered in Cyprus.
*** Administered from Dubai and registered in the UK.
+
++ Finance Company.
+++ The financial year end of Aggreko Energy Rental India Private Limited is 31 March due to local taxation requirements.
++++ Dormant Company.
Intermediate holding companies.
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158 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
2 9 A C Q U I S I T I O N S
DRYCO LLC
On 9 August 2016, the Group completed the acquisition of the
business and assets of DRYCO LLC, a specialist in moisture control,
drying, heating and cooling applications within the shipping,
manufacturing, food processing, construction and industrial
painting industries in North America.
In order to qualify for hedge accounting, the Group is required to
document in advance the relationship between the item being
hedged and the hedging instrument. The Group is also required
to document and demonstrate an assessment of the relationship
between the hedged item and the hedging instrument, which
shows that the hedge will be highly effective on an ongoing basis.
This effectiveness testing is re-performed at each period end to
ensure that the hedge remains highly effective.
The purchase consideration, paid in cash was £22 million.
The revenue and operating profit included in the consolidated
income statement from 9 August 2016 to 31 December 2016
contributed by DRYCO LLC was £6 million and £3 million
respectively. Had DRYCO LLC been consolidated from 1 January
2016, the consolidated income statement for the year ended
31 December 2016 would show revenue and operating profit
of £13 million and £4 million respectively.
The acquisition method of accounting has been adopted and
the goodwill arising on the purchase has been capitalised.
Acquisition related costs of £0.1 million have been expensed
in the period and are included within administrative expenses
in the income statement.
The details of the transaction and fair value of assets acquired
are shown below:
Intangible assets
Property, plant and equipment
Trade and other receivables
Trade and other payables
Net assets acquired
Goodwill
Consideration per cash flow statement
Fair value
£ million
3
10
3
(1)
15
7
22
Goodwill represents the value of synergies arising from the
integration of the acquired business. Synergies include direct cost
savings and the reduction of overheads as well as the ability to
leverage Aggreko systems and access to assets.
3 0 N O T E S T O T H E G R O U P A C C O U N T S –
A P P E N D I C E S
30.A1 Accounting policies
Derivative financial instruments
The activities of the Group expose it directly to the financial
risks of changes in forward foreign currency exchange rates
and interest rates. The Group uses forward foreign exchange
contracts, and interest rate swap contracts to hedge these
exposures. The Group does not use derivative financial
instruments for speculative purposes.
Derivatives are initially recorded and subsequently measured at
fair value, which is calculated using standard industry valuation
techniques in conjunction with observable market data. The fair
value of interest rate swaps is calculated as the present value of
estimated future cash flows using market interest rates and the
fair value of forward foreign exchange contracts is determined
using forward foreign exchange market rates at the reporting
date. The treatment of changes in fair value of derivatives
depends on the derivative classification. The Group designates
derivatives as hedges of highly probable forecasted transactions
or commitments (‘cash flow hedge’).
Cash flow hedges
Changes in the fair value of derivative financial instruments that
are designated, and effective, as hedges of future cash flows
are recognised directly in equity and any ineffective portion is
recognised immediately in the income statement. If the cash
flow hedge is of a firm commitment or forecasted transaction
that subsequently results in the recognition of an asset or a
liability, then, at the time the asset or liability is recognised, the
associated gains or losses on the derivative that had previously
been recognised in equity are included in the initial measurement
of the asset or liability. For hedges of transactions that do not result
in the recognition of an asset or a liability, amounts deferred in
equity are recognised in the income statement in the same period
in which the hedged item affects net profit and loss.
Changes in the fair value of derivative financial instruments that
do not qualify for hedge accounting are recognised in the income
statement as they arise.
Hedge accounting is discontinued when the hedging instrument
no longer qualifies for hedge accounting. At that time any
cumulative gain or loss on the hedging instrument recognised in
equity is retained in equity until the forecasted transaction occurs.
If a hedged transaction is no longer expected to occur, the net
cumulative gain or loss recognised in equity is transferred to the
income statement.
Overseas net investment hedges
Certain foreign currency borrowings are designated as hedges
of the Group’s overseas net investments, which are denominated
in the functional currency of the reporting operation.
Exchange differences arising from the retranslation of the net
investment in foreign entities and of borrowings are taken to
equity on consolidation to the extent the hedges are deemed
effective. All other exchange gains and losses are dealt with
through the income statement.
Share-based payments
IFRS 2 ‘Share-based Payment’ has been applied to all grants of
equity instruments. The Group issues equity-settled share-based
payments to certain employees under the terms of the Group’s
various employee-share and option schemes. Equity-settled
share-based payments are measured at fair value at the date of
the grant. The fair value determined at the grant date of equity-
settled share-based payments is expensed on a straight-line basis
over the vesting period, based on an estimate of the shares that
will ultimately vest. Fair value is measured using the Black-Scholes
option-pricing model.
Own shares held under trust for the Group’s employee share
schemes are classed as Treasury shares and deducted in arriving
at Shareholders’ equity. No gain or loss is recognised on disposal of
Treasury shares. Purchases of own shares are disclosed as changes
in Shareholders’ equity.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
159
30.A1 Accounting policies continued
Leases
Leases where substantially all of the risks and rewards of ownership are not transferred to the Group are classified as operating leases.
Rentals under operating leases are charged against operating profit on a straight-line basis over the term of the lease.
Dividend distribution
Dividend distribution to the Company’s Shareholders is recognised as a liability in the Group’s financial statements in the period
in which the dividends are approved by the Company’s Shareholders. Interim dividends are recognised when paid.
30.A2 Other intangible assets
Year end 31 December 2016
Cost
At 1 January 2016
Acquisitions (Note 29)
Additions
Exchange adjustments
At 31 December 2016
Accumulated amortisation
At 1 January 2016
Charge for the year
Exchange adjustments
At 31 December 2016
Net book values
At 31 December 2016
At 31 December 2015
Customer
relationships and
non-compete
agreements
£ million
Development
expenditure
£ million
Total
£ million
42
3
–
11
56
26
4
7
37
19
16
–
–
5
–
5
–
–
–
–
5
–
42
3
5
11
61
26
4
7
37
24
16
Amortisation charges in the year mainly comprised amortisation of assets arising from business combinations and have been recorded
in administrative expenses.
Year end 31 December 2015
Cost
At 1 January 2015
Acquisitions
Exchange adjustments
At 31 December 2015
Accumulated amortisation
At 1 January 2015
Charge for the year
Exchange adjustments
At 31 December 2015
Net book values
At 31 December 2015
At 31 December 2014
(i) All intangible assets in 2015 relate to customer relationship and non-compete agreements.
Total
(Note (i))
£ million
42
4
(4)
42
24
4
(2)
26
16
18
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A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
30.A3 Borrowings
(i) Interest rate risk profile of financial liabilities
The interest rate profile of the Group’s financial liabilities at 31 December 2016, after taking account of the interest rate swaps used
to manage the interest profile, was:
Currency:
US Dollar
Canadian Dollars
Peruvian Sol
South African Rand
Mexican Pesos
Russian Roubles
Brazil Reals
Indian Rupees
Japanese Yen
Romanian Lieu
Colombian Peso
Euro
Mozambican Metical
Other currencies
As at 31 December 2016
Currency:
US Dollar
Canadian Dollars
New Zealand Dollars
South African Rand
Mexican Pesos
Russian Roubles
Brazil Reals
Indian Rupees
Singapore Dollars
Romanian Lieu
Colombian Peso
Other currencies
Floating
rate
£ million
Fixed
rate
£ million
Total
£ million
116
42
6
6
13
40
11
13
6
8
6
26
9
6
385
–
–
–
–
–
–
–
–
–
–
–
–
–
501
42
6
6
13
40
11
13
6
8
6
26
9
6
308
385
693
Floating
rate
£ million
Fixed
rate
£ million
Total
£ million
124
25
2
5
10
9
10
8
6
7
4
6
321
–
–
–
–
–
–
–
–
–
–
–
445
25
2
5
10
9
10
8
6
7
4
6
Fixed rate debt
Weighted
average
interest rate
%
Weighted
average period
for which
rate is fixed
Years
4.3
3.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
Fixed rate debt
Weighted
average
interest rate
%
Weighted
average period
for which
rate is fixed
Years
4.3
4.9
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
As at 31 December 2015
216
321
537
The floating rate financial liabilities principally comprise debt which carries interest based on different benchmark rates depending
on the currency of the balance and are normally fixed in advance for periods between one and three months.
The weighted average interest rate on fixed debt is derived from the fixed leg of each interest rate swap and coupons applying to fixed
rate private placement notes.
The effect of the Group’s interest rate swaps is to classify £81 million (2015: £67 million) of borrowings in the above table as fixed rate.
The notional principal amount of the outstanding interest rate swap contracts at 31 December 2016 was £81 million (2015: £67 million).
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
161
30.A3 Borrowings continued
(ii) Interest rate risk profile of financial assets
Currency:
US Dollar
Euro
Brazilian Real
Fijian Dollar
Australian Dollar
Saudi Riyal
Indonesian Rupiah
Nigerian Naira
Other currencies
At 31 December 2016
Currency:
US Dollar
Euro
Brazilian Real
Argentinian Peso
Australian Dollar
Other currencies
At 31 December 2015
Cash at bank
and in hand
£ million
Short-term
deposits
£ million
Total
£ million
4
5
3
3
2
3
5
3
15
43
6
5
1
3
1
13
29
–
–
1
–
–
–
–
–
–
1
–
–
2
17
–
–
19
4
5
4
3
2
3
5
3
15
44
6
5
3
20
1
13
48
All of the above cash and short-term deposits are floating rate and earn interest based on relevant LIBID (London Interbank Bid Rate)
equivalents or market rates for the currency concerned.
(iii) Preference share capital
Authorised:
2016
Number
2016
£000
2015
Number
2015
£000
Redeemable preference shares of 25p each
199,998
50
199,998
50
No redeemable preference shares were allotted as at 31 December 2016 and 31 December 2015. The Board is authorised to determine
the terms, conditions and manner of redemption of redeemable shares.
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A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
30.A4 Financial instruments
As stated in our accounting policies Note 30.A1 on page 158 the activities of the Group expose it directly to the financial risks of changes
in foreign currency exchange rates and interest rates. The Group uses forward foreign exchange contracts and interest rate swap
contracts to hedge these exposures. The movement in the hedging reserve is shown in the Statement of Changes in Equity.
(i) Fair values of financial assets and financial liabilities
The following table provides a comparison by category of the carrying amounts and the fair values of the Group’s financial assets and
financial liabilities at 31 December 2016. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement date. Market values have been used to determine fair values.
Primary financial instruments held or issued to finance the Group’s operations:
Current borrowings and overdrafts
Non-current borrowings
Short-term deposits
Cash at bank and in hand
Derivative financial instruments held:
Interest rate swaps
Forward foreign currency contracts
Trade receivables
PDVSA private placement notes
Trade payables
(ii) Summary of methods and assumptions
2016
2015
Book value
£ million
Fair value
£ million
Book value
£ million
Fair value
£ million
(60)
(633)
1
43
(5)
(1)
521
8
88
(60)
(633)
1
43
(5)
(1)
521
8
88
(31)
(506)
19
29
(6)
–
384
–
77
(31)
(506)
19
29
(6)
–
384
–
77
Interest rate swaps and foreign currency derivatives
Fair value is based on market price of these instruments at the balance sheet date. In accordance with IFRS 13, interest rate swaps are
considered to be level 2 with fair value being calculated at the present value of estimated future cash flows using market interest rates.
Forward foreign currency contracts are considered to be level 1 as the valuation is based on quoted market prices at the end of the
reporting period.
Current borrowings and overdrafts/short-term deposits
The fair value of short-term deposits and current borrowings and overdrafts approximates to the carrying amount because of the short
maturity of these instruments.
Non-current borrowings
In the case of non-current borrowings, the fair value approximates to the carrying value reported in the balance sheet.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
163
30.A4 Financial instruments continued
(iii) Derivative financial instruments
Numerical financial instruments disclosures are set out below. Additional disclosures are set out in the financial review and accounting
policies relating to risk management.
Current:
Forward foreign currency contracts – cash flow hedge
Non-current:
Interest rate swaps – cash flow hedge
2016
2015
Assets
£ million
Liabilities
£ million
Assets
£ million
Liabilities
£ million
1
–
1
(2)
(5)
(7)
1
–
1
(1)
(6)
(7)
Net fair values of derivative financial instruments
The net fair value of derivative financial instruments that are designated as cash flow hedges at the balance sheet date was:
Interest rate swaps
Forward foreign currency contracts
2016
£ million
2015
£ million
(5)
(1)
(6)
(6)
–
(6)
The net fair value gains at 31 December 2016 on open forward exchange contracts that hedge the foreign currency risk of future
anticipated revenues are £nil (2015: £nil) and that hedge the foreign currency risk of future anticipated expenditure are losses of £1 million
(2015: £nil). These will be allocated to expenditure when the forecast expenditure occurs. The net fair value liabilities at 31 December 2016
on open interest swaps that hedge interest risk are £5 million (2015: liabilities of £6 million). These will be debited to the income statement
finance cost over the remaining life of each interest rate swap.
Hedge of net investment in foreign entity
The Group has designated as a hedge of the net investment in its overseas subsidiaries foreign currency denominated borrowings
as detailed in the table below. The fair value of these borrowings were as follows:
US Dollar
Canadian Dollars
New Zealand Dollars
Euro
Singapore Dollars
Russian Roubles
2016
£ million
2015
£ million
491
42
–
26
–
40
440
25
2
–
6
9
A foreign exchange loss of £117 million (2015: loss of £18 million) on translation of the borrowings into Sterling has been recognised
in exchange reserves.
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A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
30.A4 Financial instruments continued
(iv) The exposure of the Group to interest rate changes when borrowings reprice is as follows:
As at 31 December 2016
Total borrowings
Effect of interest rate swaps and other fixed rate debt
As at 31 December 2015
Total borrowings
Effect of interest rate swaps and other fixed rate debt
<1 year
£ million
1-5 years
£ million
>5 years
£ million
Total
£ million
60
–
60
552
(304)
248
81
(81)
–
693
(385)
308
<1 year
£ million
1-5 years
£ million
>5 years
£ million
Total
£ million
31
–
31
321
(136)
185
185
(185)
–
537
(321)
216
As at 31 December 2016 and 31 December 2015, all of the Group’s floating debt was exposed to repricing within three months of the
balance sheet date. The Group’s interest rate swap portfolio is reviewed on a regular basis to ensure it is consistent with Group policy
as described on page 137.
The effective interest rates at the balance sheet date were as follows:
Bank overdrafts
Bank borrowings
Private placement
2016
8.2%
3.1%
4.2%
2015
7.5%
2.1%
4.2%
Maturity of financial liabilities
The table below analyses the Group’s financial liabilities and net-settled derivative financial liabilities into the relevant maturity groupings
based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in the table are the
contractual undiscounted cash flows.
As at 31 December 2016
Borrowings
Derivative financial instruments
Trade and other payables
As at 31 December 2015
Borrowings
Derivative financial instruments
Trade and other payables
No trade payable balances have a contractual maturity greater than 90 days.
<1 year
£ million
1-2 years
£ million
2-5 years
£ million
>5 years
£ million
61
2
90
153
100
–
–
100
485
5
–
490
103
–
–
103
<1 year
£ million
1-2 years
£ million
2-5 years
£ million
>5 years
£ million
33
1
76
110
–
–
–
–
330
6
–
336
234
–
–
234
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
165
30.A4 Financial instruments continued
Derivative financial instruments settled on a gross basis
The table below analyses the Group’s derivative financial instruments which will be settled on a gross basis into relevant maturity
groupings based on the remaining period at the balance sheet date to the contractual maturity date. The amounts disclosed in
the table are the contractual undiscounted cash flows.
As at 31 December 2016
Forward foreign exchange contracts – cash flow hedges
Outflow
Inflow
As at 31 December 2015
Forward foreign exchange contracts – cash flow hedges
Outflow
Inflow
<1 year
(123)
122
(1)
<1 year
(91)
91
–
All of the Group’s forward foreign currency exchange contracts are due to be settled within one year of the balance sheet date.
30.A5 Pensions
Overseas
Pension arrangements for overseas employees vary, and schemes reflect best practice and regulation in each particular country.
The charge against profit is the amount of contributions payable to the defined contribution pension schemes in respect of the
accounting period. The pension cost attributable to overseas employees for 2016 was £6 million (2015: £8 million).
United Kingdom
The Group operates pension schemes for UK employees. The Aggreko plc Pension Scheme (‘the Scheme’) is a funded, contributory,
defined benefit scheme. Assets are held separately from those of the Group under the control of the Directors of Aggreko Pension
Scheme Trustee Limited. The Scheme is subject to valuations at intervals of not more than three years by independent actuaries.
The Trustee of the Scheme has control over the operation, funding and investment strategy of the Scheme but works closely with
the Company to agree funding and investment strategy.
A valuation of the Scheme was carried out as at 31 December 2014 using the Attained Age method to determine the level of
contributions to be made by the Group. The actuaries adopted a valuation basis linked to market conditions at the valuation date.
Assets were taken at market value. The major actuarial assumptions used were:
Return on investments
Growth in average pay levels
Increase in pensions
3.6%
4.8%
3.2%
At the valuation date, the market value of the Scheme’s assets (excluding AVCs) was £92 million which was sufficient to cover 92%
of the benefits that had accrued to members, after making allowances for future increases in earnings.
As part of the valuation at 31 December 2014, the Company and the trustees agreed upon a Schedule of Contributions and a Recovery
Plan. Company contributions for benefits building up in the future increased from 35.9% to 41.0% on 1 February 2016. To address the
Scheme deficit the Company has already made additional contributions of £1.25 million in 2015 and 2016 and plans to make further
additional contributions of £1.25 million each year until 2022. Employee contributions are 6% of pensionable earnings.
The Group has the right to a refund of any pension surplus at the end of the scheme and as such has not recognised an additional
liability in accordance with IFRIC 14.
The Scheme closed to all new employees joining the Group after 1 April 2002. New employees are given the option to join a defined
contribution scheme. Contributions of £2 million were paid to the Scheme during the year (2015: £2 million). There are no outstanding
or prepaid balances at the year end.
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166 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
30.A5 Pensions continued
An update of the Scheme was carried out by a qualified independent actuary using the latest available information for the purposes
of this statement. The major assumptions used in this update by the actuary were:
Rate of increase in salaries
Rate of increase in pensions in payment
Rate of increase in deferred pensions
Discount rate
Inflation assumption
Longevity at age 65 for current pensioners (years)
Men
Women
Longevity at age 65 for future pensioners (years)
Men
Women
The assets in the Scheme were:
Equities
– UK Equities
– Overseas Equities
– Diversified Growth
– Absolute Return
Property
Index-linked Bonds
Fixed interest Bonds
Bonds
Cash
Total
31 Dec
2016
31 Dec
2015
5.0%
3.4%
3.5%
2.7%
3.5%
24.2
26.8
26.8
29.5
4.9%
3.3%
3.4%
3.9%
3.4%
24.0
26.7
26.7
29.4
Value at
31 Dec
2016
£ million
9
13
8
8
–
49
–
18
–
105
Value at
31 Dec
2015
£ million
8
12
7
8
–
37
–
17
1
90
Value at
31 Dec
2014
£ million
8
11
7
7
1
34
5
16
2
91
The amounts included in the balance sheet arising from the Group’s obligations in respect of the Scheme are as follows:
Fair value of assets
Present value of funded obligations
Liability recognised in the balance sheet
2016
£ million
2015
£ million
2014
£ million
105
(135)
(30)
90
(92)
(2)
91
(98)
(7)
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
167
30.A5 Pensions continued
Movement in defined benefit liability during the year:
Balance at 1 January
Included in income statement
Service cost
Interest cost
Interest income
Included in statement of comprehensive income
Remeasurements
– Effect of changes in financial assumptions
– Effect of experience adjustments
– Return on plan assets (excluding interest income)
Other
Employer contributions
Benefits paid
Defined
benefit obligation
Fair value of
Scheme assets
Net defined
benefit liability
2016
£ million
2015
£ million
2016
£ million
2015
£ million
2016
£ million
2015
£ million
(92)
(98)
90
(2)
(4)
–
(6)
(40)
–
–
(40)
–
3
3
(2)
(4)
–
(6)
1
6
–
7
–
5
5
–
–
4
4
–
–
11
11
3
(3)
–
91
–
–
4
4
–
–
(3)
(3)
3
(5)
(2)
(2)
(2)
(4)
4
(2)
(40)
–
11
(29)
3
–
3
(7)
(2)
(4)
4
(2)
1
6
(3)
4
3
–
3
(2)
Balance at 31 December
(135)
(92)
105
90
(30)
The Attained Age method has been used for valuation of the liabilities. Under this method an individual’s attributed benefit for
valuation purposes related to a particular exit date (e.g. expected date of retirement, leaving service or death) is the benefit described
under the Scheme, determined using the projected compensation and service that would be used in the calculation of the benefit
on the expected exit date, multiplied by the ratio of credited service as of the measurement date to credited service as of the expected
exit date. The benefit obligation is the total present value (assessed using appropriate assumptions) of the individuals’ attributed
benefits for valuation purposes at the measurement date. The discount rate was derived using a yield curve approach and based
on Scheme specific cash flow data from the last formal actuarial valuation to arrive at an appropriate single-equivalent rate.
The fair value of the assets is based on the underlying ‘bid value’ statements issued by the various investment managers. The manager
statements reflect the relevant pricing basis of the units held in the underlying pooled funds.
An alternative method of valuation is the estimated cost of buying out benefits at 31 December 2016 with a suitable insurer.
This amount represents the amount that would be required to settle the Scheme liabilities at 31 December 2016 rather than the
Company continuing to fund the ongoing liabilities of the Scheme. The Company estimates the amount required to settle the Scheme’s
liabilities at 31 December 2016 is around £211 million which gives a Scheme shortfall on a buyout basis of approximately £106 million.
Cumulative actuarial gains and losses recognised in equity
At 1 January
Actuarial losses recognised in the year
At 31 December
The actual return on Scheme assets was a gain of £16 million (2015: £nil).
2016
£ million
2015
£ million
34
29
63
38
(4)
34
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A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Group accounts
For the year ended 31 December 2016
30.A5 Pensions continued
Risks to which the Pension Scheme exposes the Group
There is a risk of asset volatility leading to a deficit in the Scheme. Working with the Company, the Trustee has agreed investment
derisking triggers which, when certain criteria are met, will decrease corporate bond and fixed interest gilt holdings and increase the
holding of index linked bonds. Over time, this will result in an investment portfolio which better matches the liabilities of the Scheme
thereby reducing the risk of asset volatility. However, there remains a significant level of investment mismatch in the Scheme. This is
deliberate and is aimed at maximising the Scheme’s long-term investment return whilst retaining adequate control of the funding risks.
Through the Scheme, the Group is exposed to a number of other risks:
• Changes in bond yields – a decrease in corporate bond yields will increase Scheme liabilities.
• Inflation risk – pension obligations are linked to inflation and higher inflation will lead to higher liabilities.
• Life expectancy – an increase in life expectancy will result in an increase in the Scheme liabilities.
The measurement of the defined benefit obligation is particularly sensitive to changes in key assumptions as described below:
• The discount rate has been selected following actuarial advice and taking into account the duration of the liabilities. A decrease
in the discount rate of 0.5% per annum would result in a £21 million increase in the present value of the defined benefit obligation.
The weighted average duration of the defined benefit obligation liabilities is around 28 years.
• The inflation assumption adopted is consistent with the discount rate used. It is used to set the assumptions for pension increases,
salary increases and deferred revaluations. An increase in the inflation rate of 0.5% per annum would result in a £20 million increase
in the present value of the defined benefit obligation.
• The longevity assumptions adopted are based on those recommended by the Scheme Actuary advising the Trustee of the
Scheme and reflect the most recent mortality information available at the time of the Trustee actuarial valuation. The increase
in the present value of the defined benefit obligation due to members living one year longer would be £5 million.
There is a risk that changes in the above assumptions could increase the deficit in the Scheme. Other assumptions used to value
the defined benefit obligation are also uncertain, although their effect is less material.
Defined benefit obligation by participant status
Actives
Deferreds
Pensioners
The duration of the liabilities is approximately 29 years.
2016
£ million
2015
£ million
57
51
27
135
37
35
20
92
Expected cash flows in future years
Expected employer contributions for the year ended 31 December 2017 are £3 million. Expected total benefit payments:
approximately £4 million per year for the next 10 years.
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
169
Company balance sheet (Company number: SC177553)
As at 31 December 2016
Fixed assets
Property, plant and equipment
Investments
Current assets
Other receivables
Cash and cash equivalents
Deferred tax asset
Current tax asset
Creditors: amounts falling due within one year
Borrowings
Other payables
Derivative financial instruments
Provisions
Net current assets
Total assets less current liabilities
Creditors: amounts falling due after one year
Borrowings
Derivative financial instruments
Retirement benefit obligation
Net assets
Shareholders’ equity
Share capital
Share premium
Treasury shares
Capital redemption reserve
Hedging reserve
Retained earnings
Total Shareholders’ equity
Notes
2016
£ million
2015
£ million
35
36
37
41
38
39
40
38
30.A5
42
12
683
695
921
33
7
10
971
(10)
(501)
(1)
–
459
1,154
(633)
(5)
(30)
486
42
20
(14)
13
(3)
428
486
7
684
691
610
5
2
14
631
(3)
(351)
–
(1)
276
967
(506)
(6)
(2)
453
42
20
(9)
13
(4)
391
453
The financial statements on pages 169 to 175 were approved by the Board of Directors on 7 March 2017 and signed on its behalf by:
K Hanna
Chairman
C Cran
Chief Financial Officer
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170 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Company statement of comprehensive income
For the year ended 31 December 2016
Profit for the year
Other comprehensive (loss)/income
Items that will not be reclassified to profit or loss
– Remeasurement of retirement benefits
– Taxation on remeasurement of retirement benefits
Items that may be reclassified subsequently to profit or loss
– Cash flow hedges (net of tax)
– Taxation on cash flow hedges
Other comprehensive (loss)/income for the year (net of tax)
Total comprehensive income for the year
2016
£ million
2015
£ million
125
89
(29)
5
1
–
(23)
102
4
(1)
1
–
4
93
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
171
Company statement of changes in equity
For the year ended 31 December 2016
As at 31 December 2016
Balance at 1 January 2016
Profit for the year
Other comprehensive (loss)/income:
Fair value gains on interest rate swaps
Remeasurement of retirement benefits
(net of tax)
Total comprehensive income for the year
ended 31 December 2016
Transactions with owners:
Purchase of Treasury Shares
Employee share awards
Issue of Ordinary Shares to employees under
share option schemes
Dividends paid during 2016
Balance at 1 January 2015
Profit for the year
Other comprehensive (loss)/income:
Fair value gains on interest rate swaps
Remeasurement of retirement benefits
(net of tax)
Total comprehensive income for the year
ended 31 December 2015
Transactions with owners:
Employee share awards
Issue of Ordinary Shares to employees under
share option schemes
Return of capital to Shareholders
Dividends paid during 2015
Attributable to equity holders of the Company
Ordinary
Share
capital
£ million
Share
premium
account
£ million
Treasury
shares
£ million
42
20
(9)
Capital
redemption
reserve
£ million
13
Hedging
reserve
£ million
(4)
Retained
earnings
£ million
391
Total
equity
£ million
453
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
(8)
–
3
–
(5)
(14)
–
–
–
–
–
–
–
–
–
–
1
–
1
–
–
–
–
–
13
(3)
125
125
–
(24)
101
–
8
(3)
(69)
(64)
428
1
(24)
102
(8)
8
–
(69)
(69)
486
Attributable to equity holders of the Company
Ordinary
Share
capital
£ million
Share
premium
account
£ million
Treasury
shares
£ million
42
20
(14)
Capital
redemption
reserve
£ million
13
Hedging
reserve
£ million
(5)
Retained
earnings
£ million
364
Total
equity
£ million
420
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
–
5
–
–
5
–
–
–
–
–
–
–
–
–
–
1
–
1
–
–
–
–
–
89
89
–
3
92
8
(3)
(1)
(69)
(65)
391
1
3
93
8
2
(1)
(69)
(60)
453
Balance at 31 December 2016
42
20
As at 31 December 2015
Balance at 31 December 2015
42
20
(9)
13
(4)
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172 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Company accounts
For the year ended 31 December 2016
3 1 C O M P A N Y A C C O U N T I N G P O L I C I E S
• lAS 7, ‘Statement of cash flows’
31.1 Basis of preparation
These financial statements have been prepared in accordance
with Financial Reporting Standard 101, ‘Reduced Disclosure
Framework’ (FRS 101). The financial statements have been
prepared under the historical cost convention, as modified by
the revaluation of certain financial assets and liabilities (including
derivative instruments) at fair values in accordance with the
Companies Act 2006.
The preparation of financial statements in conformity with
FRS 101 requires the use of certain critical accounting estimates.
It also requires management to exercise its judgement in
the process of applying the Company’s accounting policies.
The following exemptions from the requirements of IFRS have
been applied in the preparation of these financial statements,
in accordance with FRS 101:
• Paragraphs 45(b) and 46 to 52 of IFRS 2, ‘Share-based payment’
(details of the number and weighted-average exercise prices
of share options, and how the fair value of goods or services
received was determined)
• IFRS 7, ‘Financial Instruments: Disclosures’
• Paragraphs 91 to 99 of IFRS 13, ‘Fair value measurement’
(disclosure of valuation techniques and inputs used for fair value
measurement of assets and liabilities)
• Paragraph 38 of lAS 1, ‘Presentation of financial statements’
comparative information requirements in respect of:
– Paragraph 79(a)(iv) of lAS 1;
– Paragraph 73(e) of lAS 16 ‘Property, plant and equipment’
– Paragraph 188(e) of lAS 38 ‘Intangible assets’ (reconciliations
between the carrying amount at the beginning and end of
the period)
• The following paragraphs of lAS 1, ‘Presentation of
financial statements’:
– 10(d) (statement of cash flows)
– 10(f)(a) (statement of financial position as at the beginning
of the preceding period)
– 16 (statement of compliance with all IFRS)
– 38A (requirement for minimum of two primary statements,
including cash flow statements)
– 38B-D (additional comparative information)
– 40A-D (requirements for a third statement
of financial position)
– 111 (cash flow statement information), and
– 134-136 (capital management disclosures)
• Paragraph 30 and 31 of lAS 8, ‘Accounting policies, changes
in accounting estimates and errors’ (requirements for the
disclosure of information when an entity has not applied
a new IFRS that has been issued but is not yet effective)
• Paragraph 17 of lAS 24, ‘Related party disclosures’
(key management compensation)
• The requirements in lAS 24, ‘Related party disclosures’
to disclose related party transactions entered into
between two or more members of a group.
31.1.1 Going concern
Given the going concern disclosures in the Group Accounts
on page 132, the Directors consider it appropriate to adopt
the going concern basis of accounting in preparing these
financial statements.
31.1.2 Changes in accounting policy and disclosures
New and amended standards adopted by the Company
There are no new standards that are effective for the first time
this year that have a material impact on the Company.
Property, plant and equipment
Property, plant and equipment is carried at cost less accumulated
depreciation and impairment losses. Cost includes purchase
price, and directly attributable costs of bringing the assets
into the location and condition where it is capable for use.
Borrowings costs are not capitalised.
Property, plant and equipment is depreciated on a straight-line
basis at annual rates estimated to write off the cost of each asset
over its useful life from the date it is available for use. The principal
period of depreciation used is as follows:
Vehicles, plant and equipment
4 to 8 years.
Impairment of property, plant and equipment
Property, plant and equipment is depreciated and reviewed
for impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which
the asset’s carrying amount exceeds its recoverable amount.
The recoverable amount is the higher of an asset’s fair value
less costs to sell and value in use. Value in use is calculated
using estimated cash flows. These are discounted using an
appropriate long-term pre-tax interest rate. For the purposes
of assessing impairment, assets are grouped at the lowest
levels for which there are separately identifiable cash flows
(income-generating units).
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
173
3 1 C O M P A N Y A C C O U N T I N G P O L I C I E S
CONTINUED
Foreign currencies
At individual Company level, transactions denominated in foreign
currencies are translated at the rate of exchange on the day the
transaction occurs. At the year end, monetary assets and liabilities
denominated in foreign currencies are translated at the rate
of exchange ruling at the balance sheet date. Non-monetary
assets are translated at the historical rate. In order to hedge its
exposure to certain foreign exchange risks, the Company enters
into forward foreign exchange contracts. The Company’s financial
statements are presented in Sterling, which is the Company’s
functional currency.
Derivative financial instruments
The accounting policy is identical to that applied by the
consolidated Group as set out on page 158.
Borrowings
Borrowings are recognised initially at fair value, net of transaction
costs incurred. Borrowings are subsequently stated at amortised
cost. Any difference between the proceeds, net of transaction
costs, and the redemption value is recognised in the income
statement over the period of the borrowings using the effective
interest rate.
Taxation
The tax expense for the period comprises current and
deferred tax. Tax is recognised in the income statement,
except to the extent that it relates to items recognised in other
comprehensive income or directly in Shareholders’ funds.
In this case, the tax is also recognised in other comprehensive
income or directly in Shareholders’ funds, respectively.
The current income tax charge is calculated on the basis of
the tax laws enacted or substantively enacted at the balance
sheet date in the countries where the Company operates and
generates taxable income. Management periodically evaluates
positions taken in tax returns with respect to situations in
which applicable tax regulation is subject to interpretation.
It establishes provisions where appropriate on the basis of
amounts expected to be paid to the tax authorities.
Deferred income tax is recognised on temporary differences
arising between the tax bases of assets and liabilities and
their carrying amounts in the financial statements. However,
deferred tax liabilities are not recognised if they arise from the
initial recognition of goodwill; or arise from initial recognition
of an asset or liability in a transaction other than a business
combination that at the time of the transaction affects neither
accounting nor taxable profit or loss. Deferred income tax is
determined using tax rates (and laws) that have been enacted
or substantively enacted by the balance sheet date and are
expected to apply when the related deferred income tax asset
is realised or the deferred income tax liability is settled.
Deferred income tax assets are recognised only to the extent
that it is probable that future taxable profit will be available
against which the temporary differences can be utilised.
Deferred income tax assets and liabilities are offset when
there is a legally enforceable right to offset current tax assets
against current tax liabilities and when the deferred income
tax assets and liabilities relate to income taxes levied by the
same taxation authority on either the same taxable entity or
different taxable entities where there is an intention to settle
the balances on a net basis.
Employee benefits
The Company operates both a defined benefit pension scheme
and a defined contribution pension scheme. The accounting
policy is identical to that applied by the consolidated Group
as set out on page 135.
Investments
Investments in subsidiary undertakings are stated in the balance
sheet of the Company at cost, or nominal value of the shares
issued as consideration where applicable, less provision for
any impairment in value. Share-based payments recharged
to subsidiary undertakings are treated as capital contributions
and are added to investments.
Leases
Leases where substantially all of the risks and rewards of
ownership are not transferred to the Company are classified
as operating leases. Rentals under operating leases are
charged against operating profit on a straight-line basis
over the term of the lease.
Share-based payments
The accounting policy is identical to that applied by the
consolidated Group as set out on page 158 with the exception
that shares issued by the Company to employees of its subsidiaries
for which no consideration is received are treated as an increase in
the Company’s investment in those subsidiaries.
Dividend distribution
Dividend distribution to the Company’s Shareholders is recognised
as a liability in the Company’s financial statements in the period in
which the dividends are approved by the Company’s Shareholders.
3 2 C R I T I C A L A C C O U N T I N G E S T I M A T E S
A N D A S S U M P T I O N S
Taxation
This is explained in Note 1 to the Group Accounts on page 136.
3 3 D I V I D E N D S
Refer to Note 11 of the Group Accounts.
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174 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes to the Company accounts
For the year ended 31 December 2016
3 4 A U D I T O R S ’ R E M U N E R A T I O N
3 8 B O R R O W I N G S
Fees payable to the Company’s
auditor for the audit of the Company’s
annual accounts
Fees payable to the Company’s auditor
and its associates for other services:
– Other assurance related services
– Other (Note (ii))
2016
£000
2015
£000
224
283
72
230
36
–
(i) In the year ended 31 December 2016, KPMG LLP replaced PricewaterhouseCoopers
as Company Auditors, therefore the 2016 fees above relate to KPMG LLP and the
2015 fees relate to PricewaterhouseCoopers.
(ii) Other relates to Investor Relation Services (this work has stopped from
1 January 2017).
Non-current
Bank borrowings
Private placement notes
Current
Bank overdrafts
Bank borrowings
Total borrowings
2016
£ million
2015
£ million
329
304
633
–
10
10
643
253
253
506
2
1
3
509
3 5 P R O P E R T Y , P L A N T A N D E Q U I P M E N T
The bank overdrafts and borrowings are all unsecured.
Total
£ million
(i) Maturity of financial liabilities
The maturity profile of the borrowings was as follows:
Cost
At 1 January 2016
Additions
At 31 December 2016
Accumulated depreciation
At 1 January 2016
Charge for the year
At 31 December 2016
Net book values:
At 31 December 2016
At 31 December 2015
12
7
19
5
2
7
12
7
Within 1 year, or on demand
Between 1 and 2 years
Between 2 and 3 years
Between 3 and 4 years
Between 4 and 5 years
Greater than 5 years
2016
£ million
2015
£ million
10
97
150
127
178
81
643
3
–
195
70
56
185
509
(ii) Borrowing facilities
The Company has the following undrawn committed floating rate
borrowing facilities available at 31 December 2016 in respect of
which all conditions precedent had been met at that date:
The property, plant and equipment of the Company comprise
vehicles, plant and equipment.
3 6 I N V E S T M E N T S
Cost of investments in subsidiary undertakings:
At 1 January 2016
Net impact of share-based payments
At 31 December 2016
Expiring within 1 year
Expiring between 1 and 2 years
£ million
Expiring between 2 and 3 years
Expiring between 3 and 4 years
Expiring between 4 and 5 years
Expiring after 5 years
684
(1)
683
Details of the Company’s subsidiary undertakings are set out in
Note 28 to the Group Accounts. The Directors believe that the
carrying value of the investments is supported by their underlying
net assets.
3 9 O T H E R P A Y A B L E S
3 7 O T H E R R E C E I V A B L E S
Amounts due from subsidiary
undertakings
Other receivables
2016
£ million
2015
£ million
917
4
921
608
2
610
Amounts owed to subsidiary
undertakings
Accruals and deferred income
2016
£ million
2015
£ million
–
178
1
189
34
–
402
30
–
117
78
160
–
385
2016
£ million
2015
£ million
491
10
501
343
8
351
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
175
4 0 P R O V I S I O N S
At 1 January 2016
Utilised
At 31 December 2016
4 1 D E F E R R E D T A X
At 1 January
Credit/(debit) to statement of comprehensive income
At 31 December
Deferred tax is provided in the accounts as follows:
Deferred tax assets
At 1 January 2015
Deferred tax debit in statement of comprehensive income
At 1 January 2016
Deferred tax credit in statement of comprehensive income
At 31 December 2016
Reorganisation
£ million
1
(1)
–
2016
£ million
2015
£ million
2
5
7
3
(1)
2
Other
timing
differences
£ million
Derivative
financial
liabilities
£ million
Relating to
retirement
benefit
obligation
£ million
Total
£ million
–
–
–
–
–
2
–
2
–
2
1
(1)
–
5
5
3
(1)
2
5
7
The net deferred tax asset due after more than one year is £7 million (2015: asset of £2 million).
Changes to the UK corporation tax rates were substantively enacted as part of the Finance Bill 2015 (on 26 October 2015) and
Finance Bill 2016 (on 7 September 2016). These include reductions to the main rate to reduce the rate to 19% from 1 April 2017 and
to 17% from 1 April 2020. Deferred taxes at the balance sheet date have been measured using these enacted tax rates and reflected
in these financial statements.
4 2 S H A R E C A P I T A L
Refer to Note 23 of the Group Accounts.
4 3 P R O F I T A N D L O S S A C C O U N T
As permitted by Section 408 of the Companies Act 2006, the Company has not presented its own income statement and related notes.
The profit for the financial year of the Company was £125 million (2015: £89 million).
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176 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Shareholder information
Financial calendar
20 April 2017
21 April 2017
27 April 2017
27 April 2017
24 May 2017
2 August 2017
early September 2017
early September 2017
Ex-dividend date – Final dividend
Record date to be eligible for the final dividend
Annual General Meeting
Q1 Trading Update for the year to 31 December 2017
Final dividend payment for the year to 31 December 2016
Half Year Results announcement for the year to 31 December 2017
Ex-dividend date – Interim dividend
Record date to be eligible for the interim dividend
late September/early October 2017
Interim dividend payment for the year to 31 December 2017
mid November 2017
Q3 Trading Update for the year to 31 December 2017
O U R W E B S I T E
Our corporate website provides access to share price and
dividend information as well as sections on managing your
shareholding online, corporate governance and other investor
relations information. To access the website, please visit
ir.aggreko.com/investors
M A N A G I N G Y O U R S H A R E S O N L I N E
Shareholders can manage their holding online by registering
to use our Shareholder portal at https://shares.aggreko.com.
This service is provided by our Registrar, Capita, giving quick and
easy access to your shareholding, allowing you to manage all
aspects of your shareholding online, with a useful FAQ section.
E L E C T R O N I C C O M M U N I C A T I O N S
We encourage Shareholders to consider receiving their
communications electronically. Choosing to receive your
communications electronically means you receive information
quickly and securely and allows us to communicate in a more
environmentally friendly and cost-effective way. You can
register for this service online using our share portal at
https://shares.aggreko.com.
P A Y M E N T O F D I V I D E N D S
Shareholders whose dividends are not currently paid directly into
their bank accounts may wish to consider setting this service up.
We encourage Shareholders to have dividends paid direct to their
bank accounts as this has a number of advantages, including
ensuring efficient payment to receive cleared funds on the
payment date.
If Shareholders would like to receive their dividends directly
to their bank account, they should call the Registrar, Capita,
using the details opposite.
UK Shareholders may also register using the share portal at
https://shares.aggreko.com.
Overseas Shareholders may also be able to have the
dividend converted to local currency before payment to
your bank account using the international payment service.
Please call the Registrar, Capita, using the details opposite,
or visit www.capitaregistrars.com/international.
D I V I D E N D R E I N V E S T M E N T P L A N
Our Dividend Reinvestment Plan (DRIP) is available for
eligible Shareholders. This allows Shareholders to purchase
additional shares in Aggreko with their dividend payment.
Further information and a mandate can be obtained from our
Registrars, Capita, using the contact details opposite, or by using
the share portal at https://shares.aggreko.com.
D U P L I C A T E D O C U M E N T S
Some Shareholders find that they receive duplicate
documentation and split dividend payments due to having more
than one account on the share register. If you think you fall into this
group and would like to combine your accounts, please contact
our Registrar, Capita.
C H A N G E S O F A D D R E S S
To avoid missing important correspondence relating to your
shareholding, it is important that you inform our Registrar,
Capita, of your new address as soon as possible.
S H A R E G I F T
If you have a very small shareholding that is uneconomical
to sell, you may want to consider donating it to Sharegift
(Registered Charity no.10526886), a charity that specialises in
the donation of small, unwanted shareholdings to good causes.
You can find out more by visiting www.sharegift.org or by calling
+44 (0) 207 930 3737.
S H A R E H O L D E R Q U E R I E S
Our share register is maintained by our Registrar, Capita.
Shareholders with queries relating to their shareholding should
contact Capita directly using one of the methods listed opposite.
For more general queries, Shareholders can look at our website at
ir.aggreko.com/investors
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
177
U S E F U L C O N T A C T S
Registrar
Capita Asset Services, Shareholder Solutions
The Registry, 34 Beckenham Road
Beckenham, Kent BR3 4TU
United Kingdom
Telephone 0371 664 0300
Calls are charged at the standard geographic rate and
will vary by provider. Calls outside the United Kingdom
are charged at the applicable international rate.
Lines are open between 9.00am – 5.30 pm, Monday to Friday
excluding public holidays in England and Wales.
Additional documents
The Annual Report is available for download in pdf format at
ir.aggreko.com/investors
Unsolicited mail and Shareholder fraud
Shareholders are advised to be wary of unsolicited mail or
telephone calls offering free advice, to buy shares at a discount or
offering free company reports. To find more detailed information
on how Shareholders can be protected from investment scams
visit www.fca.org.uk/consumers/scams/investment-scams/
share-fraud-and-boiler-room-scams.
Website www.capitaregistrars.com
Email ssd@capitaregistrars.com
Stockbrokers
Bank of America Merrill Lynch – London
Citigroup Global Markets – London
Auditors
KPMG – Glasgow
Chartered Accountants
Aggreko’s registered office
8th Floor, 120 Bothwell Street
Glasgow G2 7JS
Scotland, United Kingdom
Telephone +44 (0) 141 225 5900
Email investors@aggreko.com
Registered in Scotland No. SC177553
Group Legal Director & Company Secretary
Peter Kennerley
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178 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Definition and calculation of non GAAP measures
A D J U S T E D R E T U R N O N A V E R A G E C A P I T A L E M P L O Y E D ( R O C E )
Definition:
Calculated by dividing operating profit pre-exceptional items for a period by the average net operating assets at 1 January, 30 June
and 31 December.
Calculation:
Operating profit pre-exceptional items
Average net operating assets
1 January
30 June
31 December
Average (i.e. total of 1 Jan, 30 June and 31 Dec divided by 3)
ROCE (operating profit pre-exceptional items
divided by average operating assets)
Note (a):
Per June 2016 Interim Accounts
Note 5(e)
Assets
Liabilities
Net operating assets
Accounts reference
Income statement
Note 4(h) of 2016 & Note 4(g)
of 2015 Accounts
Refer to Note (a) below
Note 4(h) of 2016 & Note 4(g)
of 2015 Accounts
December
2016
£ million
December
2015
£ million
248
275
1,707
1,690
1,991
2,124
1,650
1,707
1,941
1,682
13%
16%
2,286
(295)
1,991
1,976
(326)
1,650
ADJUSTED E ARNINGS BEFORE INTEREST, TA XES, DEPRECIATION AND AMORTISATION (EBITDA)
Calculation:
Operating profit pre-exceptional items
(Earnings Before Interest and Taxation)
Depreciation
Amortisation
EBITDA
Accounts reference
Income statement
Note 5
Note 5
December
2016
£ million
December
2015
£ million
248
281
4
533
275
277
4
556
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
179
A D J U S T E D I N T E R E S T C O V E R : E B I T D A D I V I D E D B Y N E T F I N A N C E C O S T S
Calculation:
EBITDA (£ million)
Net finance cost (£ million)
Interest cover (times)
A D J U S T E D N E T D E B T T O E B I T D A
Calculation:
Net debt (£ million)
EBITDA (£ million)
Net debt/EBITDA (times)
Accounts reference
Per above
Income statement
Accounts reference
Cash flow statement
Per above
A D J U S T E D D I V I D E N D C O V E R
Definition:
Basic earnings per share (EPS) pre-exceptional items divided by full year declared dividend.
Calculation:
Basic EPS pre-exceptional items (pence)
Full year declared dividend
Interim dividend (pence)
Final dividend (pence)
Dividend cover (times)
Accounts reference
Income statement
Note 11
Note 11
December
2016
December
2015
533
27
20
556
23
24
December
2016
December
2015
649
533
1.2
489
556
0.9
December
2016
December
2015
61.98
71.73
9.38
17.74
27.12
9.38
17.74
27.12
2.3
2.6
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180 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Financial summary
Revenue £m
Adjusted Operating Profit2 £m
16
15
14
13
12
1,515
1,561
1,577
1,573
1,583
16
15
14
13
12
Adjusted Operating Profit Margin2 %
Dividend per Share1 Pence
16
15
14
13
12
16
18
20
23
24
16
15
14
13
12
Adjusted Profit Before Tax2 £m
Adjusted Diluted EPS2 Pence
16
15
14
13
12
221
252
289
333
360
16
15
14
13
12
Average Number of Employees
Net Operating Assets £m
16
15
14
13
12
6,090
6,433
6,112
5,749
5,316
16
15
14
13
12
Adjusted Return on
Average Capital Employed2 %
16
15
14
13
12
Capital Expenditure £m
16
15
14
13
12
13
16
19
21
24
Net Debt £m
Shareholders’ Funds £m
16
15
14
13
12
649
489
494
363
593
16
15
14
13
12
248
275
310
358
385
27.12
27.12
27.12
26.30
23.91
61.95
71.68
82.49
92.03
100.40
2,124
1,707
1,690
1,598
1,708
263
254
251
228
440
1,368
1,115
1,078
1,140
1,045
1 The Board is recommending a final dividend of 17.74 pence per Ordinary Share, which, when added to the interim dividend of 9.38 pence,
gives a total for the year of 27.12 pence per Ordinary Share.
2 Adjusted excludes exceptional items in 2016, 2015 and 2012.
Glossary
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
181
CEO
Chief Executive Officer.
CFO
Chief Financial Officer.
CFM
Cubic feet per minute. A unit of
volumetric capacity.
CO2
Carbon dioxide.
Diluted earnings per share
Profit after tax divided by the diluted
weighted average number of Ordinary
Shares ranking for dividend during the
relevant period, i.e. including the impact
of share options.
EPA
Environmental Protection Agency.
GHG
Greenhouse gas emissions.
g/kWh
Emissions in grams per kilowatt hour.
HFO
Heavy fuel oil.
kVA
A thousand volt amperes.
Load shedding
Load shedding is an intentional power
shutdown, where electricity is stopped
for a period of time over different parts
of the distribution region. They are
a last-resort measure to avoid a total
blackout of the power system and are
a demand response where the demand
for electricity exceeds the supply capability
of the network.
LWA
Sound power level at source.
Market potential
estimation calculation
1. In a market (say, oil-refining in the US)
in which we are well-established and
have high market share, calculate
our rental revenues (a known number)
in the sector as a proportion of the
total economic output of oil refineries
in the US (another known number).
This produces a very small number,
like 0.00001.
2. Make the assumption that if we can
achieve, say, 0.00001 of the economic
output of refineries in the US as revenues,
we should, in theory, be able to achieve
the same in oil refineries everywhere else.
Therefore if we take the total economic
output of oil refineries in, say China,
and then apply the same multiple to
that which we achieve in the US, that
tells us how big the potential market is.
3. Take this same technique, and
apply it to about 20 segments in
around 30 countries, and we have
an estimate for the market potential
and a number for our revenues in
the sector (an accurate number),
and therefore an estimate of
our share of ‘market potential’.
MW
Megawatt – a million watts of electricity.
NOx
Oxides of nitrogen.
On-hire & Off-hire
When a contract is put out on rent, the
equipment is referred to as on-hire. When
a contract comes off rent, the equipment
is referred to as off-hiring. The on and off-
hire rates are calculated as the number
of MW of equipment that either on or
off-hire in the period, divided by the MW
of equipment on-hire at the beginning
of that period.
Operating profit
(also known as EBIT)
Profit from operations after gain on sale
of property, plant and equipment but
before interest and tax.
Particulate
In general this term relates to visible smoke.
Power Solutions business
The part of our business which operates
in emerging markets. It has two divisions,
Utility which handles very large power
contracts, typically for utilities and Industrial
which offers solutions from our local service
centres to industrial customers.
pp
Percentage points.
Profit after tax
Profit attributable to equity Shareholders.
Rental Solutions business
The part of our business operating in
North America, Europe and Australasia,
looking after customers local to our
service centres.
tCO2e
Tonnes of carbon dioxide equivalent.
Temperature control
The temperature control fleet includes
chillers, air conditioners, cooling towers,
boilers, heat exchangers, heaters,
and the required ancillary products.
It provides HVAC and moisture control
equipment that helps customers
minimise losses, manage risks and capture
windows of economic opportunity.
Applications include seasonal limitations
or catastrophic failure of critical cooling
equipment, planned and unplanned
maintenance, process improvements,
and temporary structures.
Tier 1, Tier 2, Tier 3, Tier 4
US Federal Government target emission
reduction levels.
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182 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes
AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
183
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184 AGGREKO PLC ANNUAL REPORT AND ACCOUNTS 2016
A C C O U N T S & O T H E R I N F O R M A T I O N
Notes
Design and production Radley Yeldar | www.ry.com
Board photography George Brooks
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