Aggreko posts 21% drop in first-half profit, warns of difficult year ahead

6th Aug 2015 08:21

(ShareCast News) - Temporary power supplier Aggreko posted a 21% drop in first-half profit as it warned that 2016 will be a difficult year, with margins and returns likely to be lower.For the six months ended 30 June, pre-tax profit came in at £102m from £130m, hit by a slowdown in the North American oil and gas sector, lower-than-expected pricing on the company's Bangladesh contract extension, and lower production levels in Yemen due to ongoing security challenges.Revenue rose 2% to £781m from £768m and the interim dividend was unchanged from last year at 9.38p per share.As a result of tough market conditions, the company is now aiming to achieve cost savings of £80m by 2017, which will be balanced between reinvestment for growth and support to margins and returns, with one-off costs of around £30m.As part of its reshaping, the business will be reorganised to focus on three areas: customer, technology and efficiency.Chief executive Chris Weston said: "The performance of the group in the first half was impacted by difficult trading conditions in a number of our markets, notably Bangladesh, and external factors, including the impact of a lower oil price and ongoing security concerns in Yemen."Whilst we initially expected our financial performance this year to be broadly in line with last year, these challenges mean that, as announced on 24 July, we now expect profit before tax to be between £250m and £270m for the full year." "Today's statement is less about the numbers and more about Chris Weston's plans for the medium term," said Investec analyst Andrew Gibb.He said it has become very clear over the past few years that Aggreko's end markets have changed."A focus on the customer, technology and efficiency is how the group intends to counter this change over the medium term. However, the benefits of this strategy will not be immediately felt and given the current trading headwinds, profit growth in FY16 is not a given and a further downward reset is likely," said Gibb, who rates the stock at 'sell'.At 10:16 shares were down 0.1% at 1,186p, paring heavier losses at the open.