Investors switched off on Aggreko PLC (LON:AGK) this morning, with its shares dropping over 12% after the firm reported a 24% slump in its 2016 profits, and said 2017 profits will be even lower.
In early morning trade, Aggreko shares topped the FTSE 250 fallers list, shedding 129p at 929p.
The temporary power provider saw its post-exceptional pretax profits fall to £172mln, down from £226mln a year earlier, which included an impairment charge of £30mln on the carrying value of small gas generators used in the oil and gas market.
A further £19mln of exceptional charges were also incurred in respect of a "business priorities implementation" effort, which included employment costs, professional fees and facility closure costs.
However, even excluding these exceptional costs, Aggreko’s pretax profit still fell by 12% to £221mln, down from £252mln in 2015, as revenues declined by 3% to £1.52bn despite benefiting from the strength of the dollar against sterling.
American issues …
Aggreko pointed to a continued decline in North America in the oil and gas business, as well as softness in the petrochemical and refining sector from the start of 2016.
The group said it expects to see growth across its businesses in 2017, augmented by incremental annualised costs savings of £25mln from the second half, although its Power Solutions Utility division will see a material impact from legacy pricing renegotiations in Argentina..
However, it pointed out that this will be "more than offset by the significant impact of Argentina and as a result we expect full-year pretax profit and pre-exceptional items to be lower than last year".
Mike van Dulken, head of research at Accendo Markets, pointed out: “While lower oil prices hurt it in 2016, especially North America, the challenging year was capped off with some nasty margin contraction.”
He added: “2016 results may well have been in-line with consensus, a weak GBP/strong USD offering some cushioning, but today’s real kick in the teeth is the unpalatable 2017 outlook.
“One which can only be described as a profits warning with management forecasting another drop in pre-tax profit despite top-line growth and continued cost savings.
“Legacy market Argentina continues to hinder with lower volumes and big discounts seen weighing heavily.”
Aggreko maintained its dividend for the year at 27.12p per share, citing its "confidence in the strength and prospects" of the group.
Chris Weston, the group’s chief executive officer, said: “Whilst the trading environment over the last twelve months has been challenging I am pleased with the progress that we are making across the Group implementing our transformation programme to return the business to growth.”
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