aggreko plc strategic update/media/files/a/aggreko/...carsten reincke-collon director of future...

Aggreko PLC Strategic Update

Tuesday, 17th November 2020

Transcript produced by Global Lingo

London - 020 7870 7100

www.global-lingo.com

http://www.global-lingo.com/

Aggreko PLC Strategic Update Tuesday, 17th November 2020

www.global-lingo.com 2

Introduction

Chris Weston

CEO, Aggreko PLC

Growth through the energy transition

Good morning. Today we are going to talk to you about our growth, the opportunity provided

by the energy transition, the evolution of our fleet and the associated technology pathways.

We already have product and services in the market, deployed around the world. We have

built considerable expertise in energy transition services and technology over the last few

years. The picture here shows the 7.7MW solar farm at Granny Smith in Western Australia.

Agenda

In addition to hearing from me you will hear from Carsten who joined us through the Younicos

acquisition and heads up our Future Technologies Team. He will talk to you about technology

pathways for the transition and then you will hear from Heath who will talk about the financial

implications.

The opportunity for Aggreko in a changing world

Well positioned for profitable growth

We power progress. Whether it be a remote town in the Amazon jungle which relies entirely

on us for power, a mine site in Western Africa which may be grid connected but cannot rely

on that grid and so relies on us, or a data centre in Europe that needs to be commissioned

and made operational but cannot get a grid connection for a number of years and so turns to

us. We enable communities and business to thrive. We are the market leader and satisfy a

demand that is both enduring and growing. The energy transition is an opportunity. It adds

uncertainty for our customers in each of our key sectors. Our flexibility and capability can

help them manage that complexity and help them get to net-zero.

Balanced capital allocation

As we think about our use of capital our first priority is to invest into this growing market. To

transform our fleet and to continue to train and develop the capabilities of our people,

enabling us to meet the commitments I will lay out in a minute. Secondly we recognise the

importance of dividends to our shareholders and as our earnings grow we are committed to

deliver a progressive dividend. We will consider M&A, but for capability, strengthening or

accelerating our position in a sector or a particular technology that helps accelerate growth.

Lastly, if we find ourselves with sustainable levels of surplus capital we will return this to

shareholders in the most appropriate way.

Clear path to mid-teens ROCE

What does this combination of a growing market and our investment result in? We expect

revenue growth due to our sector focus and the energy transition to be between 5% and 10%

per annum. We expect our margins to increase, going beyond the 14.9% of 2019 to be in the

high teens in the mid-term. Our capital investment to be between £250 million and £350

million each year and with a continued focus on capital discipline, our working capital and

cashflow delivering returns in the mid-teens over the next few years.



Our energy transition commitments

Today we are also making four commitments. These commitments align us with the Paris

Agreement, the 1.5 degree global warming scenario, and they fall into two timeframes. By

2030 we will reduce the amount of diesel our customers use to generate energy in the

solutions we provide by 50%. We will reduce local air quality emissions, such as NOX and

particulate matter, by the same amount and achieve net-zero across our own business

operations. By 2050 or sooner Aggreko and the services we provide will be net-zero. We will

deliver this as our business grows and our returns strengthen.



Our Market Dynamics

Chris Weston

CEO, Aggreko PLC

Megatrends driving growth

The fundamentals underpinning the growth in our market are strong. The demand for

electricity is forecast to grow by 70% over the next three decades, growing at 2%-3% each

year, driven by population growth and increasing electrification. The supply mix will change,

switching from generation that is largely fossil-based to one where the majority is renewable.

In addition there is a need to expand and replace aging transmission and distribution

infrastructure. The mix changes and the demands on infrastructure are leading to greater

decentralisation, reduced reliability and increased volatility, and as a result, greater

uncertainty for customers. These are ideal conditions for Aggreko.

An enduring and growing market for specialty power

The underlying fundamental market for Aggreko, electricity, is growing. In turn driving higher

growth, in the specialty rental market. We estimate the CAGR to be about 5% over the next

decade. Growth will also be driven by the shift from ownership to rental and increasingly the

energy transition which I will return to later. We are the market leader. With advantages in

our focus and expertise in sectors, our technical capability and our global presence and scale

complimented by local knowledge. We understand sectors increasingly well and this expertise

is leading to higher growth. We serve our customers well in each sector, with high levels of

repeat business and high satisfaction scores, as we have replaced and improved our systems

and processes. As you can see, our Net Promoter Score has increased from 59 in 2018 to 72

now. Over the last three years we have invested in new technical capabilities, both in the

hybrid space and in data analytics, resulting in new revenue streams and in operational and

cost efficiencies. On that note, I will now hand over to Carsten who will take you through our

thoughts on technology.



Our Four Strategic Priorities – Technology Investment

Carsten Reincke-Collon

Director of Future Technologies, Aggreko PLC

Welcome everyone to our Technology Centre here in Berlin. Over the next ten minutes I will

share some key aspects of our updated Technology investment priority in view of the energy

transition.

We combine reliable technologies to handle complexity in any environment

I will start with a reminder of what makes our technology and fuel combinations successful in

the market. As you can see from the slide and the examples given there our solutions serve

a wide range of applications across different sectors. Each project is different but all

customers expect reliability of service however demanding the conditions might be. Our fleet

combines reliable, efficient, and cost effective technologies to serve our customers whether

constrained in space and time, working in dusty, hot or very cold environments, in urban or in

very remote locations in the world. All our services require energy even where there is no

existing permanent infrastructure in place or the existing infrastructure cannot accept any

additional loads. On-site power generation running on globally available commodity fuels

forms the backbone of our services. It allows us to provide uninterruptible, cost-effective

power to industries and communities.

Seeking economic, reliable and available alternatives to fossil diesel

Where we are today

Our decarbonisation challenge is to introduce viable, less carbon-intensive alternatives to

fossil diesel for our customers. These alternatives need to be economic, reliable and available

in the geographies and at the scale that our operations require. For modular mobile power

generation the internal combustion engine running on fossil diesel is today’s baseline. It

combines the strengths of a highly mobile and commodity liquid fuel with a very efficient,

flexible, reliable and cost-effective conversion technology. Its superior energy density per

weight and volume make diesel an effective and cheap way to store and move large amounts

of primary energy to its location of use. As a commodity fuel it is also globally available and

affordable for our customers. In the long-term diesel will be decarbonised. Today our

equipment could readily be operated on synthetic diesel made from green hydrogen, so-called

e-diesel, rendering the produced electricity net-zero. However the availability of e-diesel is

dependent on the unfolding of the hydrogen economy which will not have happened by 2030.

However it is a key long-term decarbonisation path for our services.

In the mid-term switching to alternative fuels with a smaller carbon footprint will be the first

step on our net-zero journey, even though compared to diesel all of these alternatives come

with some limitations. Gaseous fuels such as natural gas, for instance, are generally harder to

store and to transport but they are great options when they are locally available. Hydrogen

as a direct fuel is costly and has low energy density in storage. Batteries are unsuitable to

power industrial applications alone. Until e-diesel becomes viable there is no single fuel and

technology combination as widely applicable as the internal combustion engine and diesel as a

fuel. However Aggreko has already reduced its dependency on diesel over the last five years

from 45% of revenues to around 37% of the revenues in 2019. We are committed to offering



alternatives to fossil diesel but it will continue to play a significant role in the specialty rental

market. All our alternatives will have to compete with fossil diesel in the marketplace for

quite some time.

Already expanding our options to reduce diesel

Aggreko has continuously invested in lower emission technology options and these work very

well for a subset of customer applications. Let us take a closer look at some of the options

which we are already using and offering today, starting with improving diesel. We have

always sought to improve the efficiency and lower the local air quality emissions of our

gensets. We will continue to invest in Stage V and T4 final fleet to reduce our local emissions.

However emissionising gensets does not reduce the carbon footprint of the electricity because

this is tied to the fuel that you burn. To resolve this we have started to use liquid alternative

drop-in fuels in the past and we are actively seeking to promote the switch to these fuels such

as HVO. They offer up to 80% carbon improvement over fossil diesel. However they come

with a price premium and their availability is and will remain limited for years to come.

Natural gas offers an improvement on both carbon and local emissions. With a 20%-30%

improvement over fossil diesel and up to 80% lower air quality emissions, gas engines are a

great transitional technology. Aggreko introduced its first gas fleet more than ten years ago

and we have a rich experience and competitive portfolio of complex gas applications. Not

every application can be readily switched to gas but where it is possible we will pursue the

switch. Battery storage has a key role to play but it will not substitute fuels. Its strength is

in offering short-term flexibility which enables hybrid solutions but it is not for storing large

amounts of energy. The acquisition of Younicos in 2017 has accelerated Aggreko’s capability

in storage and has put us in a leading position.

Renewables need a lot of space and are more permanent than temporary in nature.

However, they have a natural place in our micro-grid offering and by standardising them we

have made it attractive for our customers to choose them. Finally, we are actively building

our capability in hydrogen and hydrogen carriers such as methanol or ammonia, as well as

the associated conversion technologies such as fuel cells or alternative combustion. While

these technologies are clearly not commercially viable today, by investing in small-scale pilots

we build our experience and ensure that we can evolve our fleet for the long-term

alternatives and be hydrogen-ready when the economy arrives.

We are evolving our solutions to support our customers

Over the next decade we will evolve our fleet, developing an industry-leading emissions

profile. We will work with our customers to switch applications from fossil diesel to gas where

gas is or can be made available and the application of course allows for it. This includes

opportunities to turn waste to energy using biogas, landfill or flare gas, for instance. As the

availability of alternative liquid drop-in fuels increases we will promote the switch from fossil

diesel fuel to these lower-carbon options like HVO. Our fleet of Stage V and Tier 4 final

gensets is growing and will continue to grow. By the end of 2021 we expect it to achieve over

200MW in size.

When combined with new battery storage products we will be able to downsize the engine

size to tailor a highly efficient hybrid solution to our customers’ loads. We will displace fossil

fuel with renewable energy, building on our rich experience in hybrid micro-grids. These



exploit our solar, battery, and thermal power products and offer our customers more

competitive electricity costs and lower emissions at the same time. Aggreko has always

worked hand in hand with existing grids but we will do more so in the future. Our capability

in step-down distribution is unparalleled om the industry and we will leverage it to use green

power. In addition, where local grids are constrained we will use our in-house storage

products to boost power and with gensets on site we can secure the backup if it is needed.

All these options are enabled by our in-depth application knowledge, our digitally integrated

assets and our advanced controls capability. We will continue to invest in these key enablers.

In parallel to our 2030 evolution, our long-term technology strategy is to systematically

assess transitional technology pathways and alternative fuel supply chains. We will invest in

our capability and build technology partnerships to be ready to adopt the most fitting

technologies at scale at the right time and pace for our industry.

Achieving our 2030 commitments

How will our 2030 commitments impact the composition of our fleet? First, we will accelerate

the transition from diesel, taking it down from around 75% of the fleet today to 30%-40% of

the fleet by 2030. We will phase out unregulated and less emissionised equipment while

investing in highly emissionised kit. The most recent generation of the kit, Tier 4 final and

Stage V compliant engines reduce local air quality emissions by up to 99% in comparison with

the unregulated kit that we will retire. Secondly we will increase our adoption of alternative

technology. Growing our fleet to 50% of the fleet in 2030 from the 20% where it sits today

will enable more customer applications to switch to gas. We will also grow our battery

storage fleet to about 1.5GW by 2030. Battery storage plays a key role in optimising

solutions and enabling renewable integration. With growth in micro-grids and storage we also

expect our solar asset base to grow. Thirdly we will take full advantage of drop-in fuel

alternatives. We will develop partnerships to develop virtual pipelines expanding the

availability of gas where it is not today and leverage our experience to run our kit on waste

and biogases to open up additional gas potential for our customers. Similarly, we will take an

active role to widen the access to liquid drop-in fuels like HVO and biodiesel which we can

readily use in most of our equipment today. By 2030 our fleet composition will have

diversified and our thermal power profile will have shifted from diesel to gas.

Reaching net-zero by 2050

Finally, let us look beyond 2030. Aggreko’s ambition is to offer net-zero solutions by 2050.

How do we get there? This is indeed a global challenge across all industries and geographies.

We will play a leading role in our industry and our markets. However, we cannot do it alone.

In our view three pieces of the puzzle need to come together. The first piece is our net-zero

fuels. They are the single biggest enabler and will remain a key ingredient for temporary

power. However, this will not happen unless the hydrogen economy has unfolded. Massive

external investments are needed to drive renewable costs down and scale up green hydrogen

production. This way synthetic net-zero fuels may be viable and renewable energy will

dominate the electricity grids, enabling green energy when we are using distribution for our

services.

The second piece is our long-term technology strategy. We will invest in highly efficient, low

carbon and emissionised technology to be ready when the hydrogen economy arrives.

Thirdly, there will have to be incentives for our customers to embrace our net-zero options.



Through our leadership of the energy transition in our industry we will keep our sights on

2050, adopting and scaling up clean technologies at the pace of the external drivers of the

energy transition.



Our Four Strategic Priorities – Customer Focus

Chris Weston

CEO, Aggreko PLC

In this section I am going to cover our track record in growth in our key sectors over the last

few years; why we will continue to grow; how the sectors we focus on are evolving due to the

energy transition; and some of what we are already doing as a result.

Our diversified customer base and sector specialism drives growth

Over the last few years we have deliberately focused on key sectors. Focusing our resources

on these sectors, our sales capability, our applications and our engineering capability where

appropriate. The photograph is an example of what we do. This is a 14MW gas plant in

Russia with selective catalytic reduction and heat recovery, under a ten-year contract. Low

emission and high efficiency allow us to offer better economics than the grid. This sector

focus has resulted in an average growth of 5% between 2016 and 2019, well ahead of global

GDP. Without the headwind of Power Solutions Utility we would have grown at 9%. The

chart shows our growth rates from 2016 to 2019 in each sector. For example, mining has

grown at 11%. The shaded bit on the rim indicates the proportion of Group revenue from

that sector in 2019.

Oil & Gas revenue has grown strongly to 2020 but the recent soft oil price has curtailed

activity and in the third quarter it was 14% of Group revenue. Going forward it will continue

to be an important sector for us but we are not expecting high levels of growth. Two sectors

are flat. Building Services & Construction has grown strongly in North America at about 15%,

in response to our focus on this sector but this has been off-set by the Middle East where

sanctions in Qatar have reduced revenue by 17%. Manufacturing was also flat, largely due to

Qatar in the Middle East and the steel industry in North America which was impacted by the

US/China trade war. We have since shifted focus on to other sectors within Manufacturing,

such as food and beverage and are beginning to see good growth again. All other sectors

provided good growth over the last few years of between 8% and 13%. As I will show in a

minute, we expect the revenue mix to shift over the next few years and our relative exposure

to any one sector to reduce.

Our capabilities across sectors, geographies & technology will drive growth

Sector focus is at the heart of our growth strategy and will drive growth in three principle

ways. By market penetration, through geographic expansion, and due to the energy

transition opportunities. Taking each briefly in turn, we believe our continued focus on

sectors, our understanding and experience of those sectors, the economics, the language, the

issues and the customers, will lead to greater market penetration either from market share

gains or from market creation. In North America, absent storms and Oil & Gas, as we have

deployed dedicated sector teams we have seen revenue grow in our key sectors by 12% over

the last few years.

Secondly, we have been taking our expertise from a geographic market where we are strong

to other markets where there are opportunities and we already have an operational presence.

For example, in mining we have taken our expertise and relationships from Australia and we

are prioritising development first in Africa and then in Latin America and North America. In



H1 this year Africa overtook Australia and became our largest region by revenue in the mining

sector. Similarly we have exported expertise in Pet Chem & Refining, or PCR, from North

America, our largest PCR market, to Continental Europe and have seen good growth at 17%

over the last few years.

Lastly, it is clear from talking to customers that many recognise the energy transition will

impact the provision of power, be it temporary or permanent and that there is a need to

change. This creates uncertainty and a reluctance to commit capital. Aggreko removes the

uncertainty and the need for investment. We bring capability and flexibility. As a result, we

see increased opportunity coming from the transition. These three factors, market

penetration, geographic expansion and the energy transition, will result in top line growth of

about 5%-10% per annum over the next few years. This growth will also result in a shift in

our sector mix as we expect recovery and growth in PCR and Events, lower growth in Oil &

Gas and higher growth in other sectors like mining, utilities beyond PSU, and data centres.

Demand for our capabilities increases as the transition accelerates

Looking at the impact of the energy transition in a little more detail. the chart shows that the

energy transition is already underway, is moving at different rates in each sector and that we

are already providing service using more efficient, environmentally-friendly technology. Every

sector presents an opportunity. Whether a new opportunity that plays to our capability in

providing distributed energy or whether our customers require the short term flexibility we

have always provide them. At the top-right you see Events, highly visible to the public who

attend them, highly conscious of their reputation and their environmental credentials, keen

for us to continue to support them with our full range of services in an increasingly

sustainable manner. The photograph is part of our deployment to the Formula E event in

Berlin, using Stage V emissionised technology, HVO fuel or renewable diesel, as it is

increasingly called, and solar, providing an almost carbon-free, emission-free service.

Datacentres owned by the likes of Google and AWS are growing rapidly all over the world and

are driven by a strong commitment to become carbon-negative. We provide bridging power

as they await grid connections which may take years, back-up power, UPS and sophisticated

testing capability. Mining is a sector that is increasingly conscious of its sustainability whilst

requiring reliable service, both power and TC, to a critical load. Hybrids are a growing

opportunity. We are establishing a track record from deployments like Bisha in Eritrea,

Granny Smith in Western Australia, with Syama to come in Mali, and have a significant

pipeline of opportunity. Manufacturing looks to process optimisation and efficiency, new

services that draw upon our technical capability. The Russian CHP I talked about earlier is an

example of this.

Bottom-left Oil & Gas customers are grappling with larger, more difficult issues and extensive

infrastructure but nevertheless through our service we can help them get to net-zero. In PCR

there will be a change in mix in fuels produced for the market, repurposing existing plant.

There will be processes that require optimisation and the management of aging infrastructure.

Many plants in the US are over 40 years old. We recently provided turnaround services to

one plant that used no generators but relied only on step down services from the grid and

distribution.



Our solutions for customers are evolving

I will not cover this slide but will leave it to you to read at your leisure. It provides a little

more detail of some of what we are doing by sector. Each sector provides opportunity that

plays to our capability and the flexibility we provide, whether for a four-week turnaround

opportunity or a 15-year hybrid contract. Before touching on our people priority, I will play a

short clip of our Granny Smith deployment. You will hear from our customer, Gold Fields, and

from George Whyte who is our MD in Australia and is also our global lead for the mining

sector. Granny Smith was recently formerly commissioned and consists of 27MW of gas,

7.7MW of solar PV and 2MW of storage.

Video: Granny Smith mining project

‘Gold Fields are an underground miner predominantly in Western Australia. When you get

deeper you need more power. It is as simple as that. Rather than run a power line for

hundreds of kilometres to neutralization[?] lines, you have got an energy solution with

renewables that you can build at the site in power generation at-site.’

‘Our relationship with Gold Fields goes back for over ten years. We started working on site

providing the latest and most efficient diesel technology available. Since then we then

secured a tender which went to the markets for gas as Granny Smith we are looking to

provide a cleaner energy.’

‘An opportunity came up when we were going to renew our long-term energy needs and we

partnered with Aggreko and since we took a long-term view we decided that solar was an

option to consider. We have ended up investing quite heavily in a long-term solar power

plant. We have solar cells and battery linking into the gas.’

‘On this particular job our team installed over 20,000 solar panels and together with Gold

Fields we have created one of the largest renewable micro-grid projects in the world on a

mine site.’

‘These solar panels will track the sun during the day and will then allow them to store some of

that energy into battery systems. What that means is less CO2 emissions and a more

sustainable solution for our energy consumption.’

‘We are committed as a company to renewable energy and being sustainable. De-carbonising

our business makes good sense and it makes cost sense for us as well.’

‘We did all this inhouse safely and on time. Again, it really set us apart from many of our

competitors having one contract. We look forward to continuing our partnership with Gold

Fields as we want to support them to deliver greener, low-cost and more efficient power

across all their mining operations in years to come.’



Our Four Strategic Priorities – Expert People

Chris Weston

CEO, Aggreko PLC

Our people are fantastic. They make the difference, they set us apart. Ramon Decastro has

been with us 17 years. In that time he has been through a lot. He was kidnapped in Yemen

and held ransom for three weeks. More recently he was stuck on site due to the virus and

travel restrictions. He was stuck on site for ten months in remote Sudan. He endured

manpower shortages due to those travel restrictions, virus on the mine site, 50 degree

temperatures, floods and medical emergencies. Through all these challenges he has provided

leadership to his team and continued an outstanding service to the customer. I spoke to him

the other day and he was so proud to be part of this company. We have many people like

Ramon, all over the world.

Our culture empowers innovation

Our leadership and our culture are an extremely important part of how we work. Our

engagement scores are strong and have been increasing. 88% of our people say they are

proud to work for Aggreko and I am one of them. Safety is key. It is not taken for granted.

Our safety record continues to improve. We have an industry-leading safety culture as

ratified by surveys carried out by the Health and Safety Executive. 92% of our employees

recognise that safety is a priority for everyone at Aggreko. 97% of our employees would use

their stop work authority if they saw an unsafe act or situation. This demonstrates the

professional approach we bring to all we do.

Our expert people set us apart as a trusted partner

We have 1,600 senior technicians and technical subject matter experts who are central to

delivering our customer proposition. We expect this number to grow through the energy

transition and be augmented by the new capabilities we are building around data science,

digital and emerging technology. Our people love solving the problems put to them by

customers. They love overcoming the challenges and meeting deadlines. They set us apart

from the competition and we will continue to develop them, to focus them on key sectors, to

build our expertise as we develop and deploy new technology.



Our Four Strategic Priorities – Capital Efficiency

Heath Drewett

CFO, Aggreko PLC

I would like to now spend some time on the fourth of our strategic priorities, capital

efficiency. As we move through this section of the presentation we will look at how our

expected revenue growth, margin expansion and capital efficiency initiatives will help deliver

our mid-teens ROCE target. I will then conclude with a few words on our capital allocation

priorities.

ROCE remains our key measure of performance

As you know, ROCE has been and remains a key measure of our capital efficiency as a

business. In very simple terms and indeed as I often describe it to our people internally,

improving ROCE requires either the delivery of additional profit or a reduction in the assets

employed to deliver that profit. In other words, delivery of profitable growth and a continued

and relentless focus on the assets we employ in the business. Over the next couple of slides I

will go into more detail on some of the levers that we have to drive that profitable growth and

identify the areas of the balance sheet where we see further opportunity to improve our

capital efficiency.

Delivering margin expansion

Chris has already spoken about our revenue growth expectations and the actions we are

taking in our strategy to deliver this, so I will not repeat that again here. However, I would

add that given the relatively fixed nature of the Group’s cost base and therefore its higher

operational leverage there are material benefits to the Group’s operating margin, and hence

ROCE, from growth in the top-line.

Before I touch on some of the specific ongoing initiatives we have in support of our margin

expansion expectations, I thought it worth reminding you in the chart on the left-hand side of

the slide of the margin trajectory and momentum that we had established pre-COVID, driven

by the initiatives we had already delivered in this timeframe as outlined in the shaded box.

This took us to a position which, as is well understood, was significantly impacted by external

events this year, resulting in our starting point today being short of the 14.9% delivered in

2019.

Now looking forward, one of the key and hopefully more immediate contributors to our

margin expansion journey will be the expected revenue pick-up from the post-COVID

recovery in the global economy more generally and specifically in some of our hardest hit

focus sectors, such as Events. Additionally, as the delayed projects in Power Solutions begin

to move into mobilisation, they too will start to deliver revenue for the Group.

Looking forward, as Chris has referenced, we believe that there are a number of pricing

opportunities from the directional shift in complexity and value-added nature of our services,

together with the opportunity to capture more of our traditional cost recoveries of freight, fuel

and re-hire as a result of the systematic recording of these costs within our new customer

journey systems.

In terms of improving our operational efficiency, we remain committed to driving unnecessary

cost out of the business. Specifically, while we are nearing the end of the cost-out



programme in Power Solutions, we recognise that there is always more to do. We will

continue to pursue ongoing efficiencies from our systems roll-out across Rental Solutions. We

are increasingly using data analytics to provide insight into various aspects of our cost base

and are realising the financial benefits of a more globally-managed fleet.

We have also launched this year a global depot review which has resulted in the closure of

our lowest performing depots and begun a comprehensive review of our finance and

procurement organisation under our Future of finance programme. All of these initiatives we

believe will contribute to our delivery of high teens margins.

Disciplined capital investment

Moving on from the Group’s expected profit performance I wanted to spend a few moments

looking at the capital investment needs of the business through the energy transition in light

of the future technology pathways that Carsten highlighted earlier. There are a couple of

points to note from the left-hand chart that, as you can see, shows a look back and look

forward at the Group’s fleet investment profile.

Firstly, we do expect an increase in the level of investment in the business as we grow

through the energy transition. The increase also reflects an expectation that we will achieve

our optimal utilisation targets in the mid-term. At which point the capex needs of the

business will align much more closely to the revenue and on-hire activity levels, as we will no

longer have surplus fleet to meet the demands of growth thereby avoiding the need to invest

in new equipment. The second point to note from this left-hand chart is the significant shift in

the mix of spend to a future profile where the majority of our fleet investment is in low

emission assets and renewable technology. A capital investment shift that clearly goes hand

in hand with our 2030 energy transition commitments.

One question we are often asked is whether we are concerned that the fleet technology shift

driven by the energy transition will result in stranded diesel fleet around the Group. A

question to which the answer is a simple no. As the chart on the right indicates, nearly 80%

of our diesel fleet assets are five years old or more and in net book value terms around 40%

of our current diesel fleet will be fully depreciated over the next three years, leaving us with

no material exposure to stranded diesel assets as we transition to newer, cleaner

technologies.

Commitment to mid-teens ROCE

If ROCE is a key financial measure of our performance, how does all of this roll up into our

ROCE expectations going forward? Let me first orientate you on this waterfall chart where on

the left-hand side we begin with our exit ROCE based on the 2019 closing balance sheet of

12%, which as we confirmed at the beginning of March put us very much on track to deliver

mid-teens this year. While we will obviously see a reduction in performance this year now as

a result of the impact of COVID-19 and the fall in the oil price, it is important to understand

that underlying this reduction are some structural improvements in our performance.

Specifically the margin improvement initiatives already spoken about that have continued to

deliver into 2020, together with further balance sheet efficiencies delivered this year. Moving

forward from here we have the benefits of the COVID impacts unwinding, as well the revenue

growth and margin expansion we have discussed, together with further working capital



efficiencies across both receivables and inventory as we continue to improve our internal

processes.

Finally our continued disciplined capital investment coupled with our ongoing fleet disposal

programme will help us meet our mid-teens target. It should be noted that while I do believe

we have further to go on the Group’s receivables position, the strong collections performance

in 2019 and 2020 from Power Solutions Utility coupled with the receivables impairment at the

half year mean that the future gains in this area will be more limited. Overall, we remain

convinced of our ability to deliver mid-teens ROCE as we were previously on track to achieve

this year and therefore we are maintaining our commitment to this target.

A strong and improving track record in cash generation

How does this improved capital efficiency translate into cash generation? As you know, the

Group has made significant progress in reducing its net debt since the peak in 2018 and we

saw our net debt to EBITDA fall below 1.0x at the half-year this year. Successful execution of

the strategy is expected to deliver further reductions in the Group’s gearing over the medium

term. In this context and while maintaining our through-the-cycle gearing target of 1.0x, we

have taken some time to consider our capital allocation priorities.

Balanced approach to capital allocation

We have set these out here, from left to right. Firstly, we will continue to invest in the growth

of our business. Whether in the form of skills and capability training for our people,

development of new applications and engineering solutions for our customers, or the

evolution of our fleet to support our commitments in the energy transition. Secondly, we are

very aware of the importance of dividends in delivering value to our shareholders and

following a number of years during which we have held the dividend flat we are committed to

deliver a progressive dividend as the business grows.

Thirdly, although our strategy is not by any means built on inorganic growth we will consider

capability-driven M&A where it offers us access to new skills that can help accelerate our

growth ambitions. While it is obviously somewhat difficult to predict the specific opportunities

that we may identify, I do not expect any potential acquisitions or partnerships to be

individually material in terms of the level of investment they require. In addition, although I

would hope it goes without saying any opportunity will also be required to meet our returns

criteria alongside its strategic fit to support our growth if we are to pursue it. Finally, to the

extent that we find ourselves with a sustainable level of surplus capital we will look to return

this to shareholders through either a share buyback or additional dividend payments and will

obviously refine our thinking as to which would be the most appropriate at the time.

Summary

Chris Weston

CEO, Aggreko PLC

Growth through the energy transition

We have a path to become a net-zero business by 2050 or sooner

In closing, we have done much work in understanding how our customers and our business

will evolve over the next three decades and we have a clear path to how we and our services



will become net-zero. We are focussed on profitable growth and expect our focus on sectors

which began three years ago and has already delivered good growth, will deliver growth of

between 5%-10% over the coming years. This will be a key driver of mid-term margin

expansion into the high teens. We have a good track record now of balance sheet

management, being disciplined about how we invest our capital and how we manage our

working capital. I have no doubt that this business is more than capable of delivering a

return in the mid-teens. We are excited about what is in front of us. It is not every day that

you get to transform a business and help your customers change the world. We are well on

the path and will continue to power progress for our customers wherever they are in the

world. Thank you for listening. Thank you for listening.

We are now going to the Q&A section, the sell-side have dial-in details & if you wish to ask a

question, please connect now.



Q&A

Robert Plant (Panmure Gordon): Morning, Chris, Heath and Carsten. Very interesting

big-picture points there. Two related questions: do you think your 2030 strategy is ambitious

enough, in that you are still going to have about 80% potentially of your supply coming from

carbon-related fuels by 2030? And then longer term, do you think that Aggreko is going to be

able to transition to renewables? I’m reminded of all the steam companies that never quite

made it to the electric age and I’m thinking with renewables, a lot of it hasn’t been invented

yet, renewables probably lead to more permanent than temporary power, they’re probably

more competitive, you get more new entrants. Big-picture do you think you will be able to

transition? Thank you.

Chris Weston: Morning Robert. Absolutely we will be able to transition, without a doubt.

So, firstly, I think our ambition for 2030 is appropriately stretching. We are in that time, as

Carsten laid out, seeing a big switch from diesel into gas. So gas becomes a larger proportion

of our fleet and although that reduces the carbon intensity of Aggreko, gas is obviously

carbon-based, a hydrocarbon fuel. That reduction is probably emphasised a bit more by

investment in battery and renewables and also step-down from grid, which will increasingly

become part of our portfolio. I’m very conscious then that we end up with a more significant

part of our fleet being in gas and the absolute key then for getting to 2050 net zero is what

you put into the engines that we have out there. And so we’re already starting to put

synthetic fuels or bio-diesel, renewable diesel as it’s increasingly called, through our gen sets,

and that’s increasing year on year and the supply of things like HVO, which has been a

constraint, is rapidly growing and forecast to nearly triple over the next five years. So you

will see that go through our diesel fleet and that is a pure drop-in. You can put it straight in,

it doesn’t matter if it mixes with diesel, and you’re reducing the impact and the emissions

from the fleet.

So then you’ve got gas, and in 2030, as I said, we’ll have a higher proportion of gas. But

increasingly you will see a hydrogen-based economy beginning to have more impact on fuels

that are put through combustion engines. It may not be pure hydrogen, it might require

some kind of hydrogen carrier like methanol or possibly ammonia, and as soon as you start

getting hydrogen, particularly green hydrogen, into the mix, you then get to net zero.

And as we do all of that, we will be keeping an eye on future technologies and seeing what is

being developed. We do that already and Carsten heads up the Future Technologies team for

us. So I am absolutely confident that there will still be the need, the demand, for the types of

services that we provide. We have tried to give some examples of that this morning. So I’m

convinced of that. And the technology will evolve in a way – and we’re already beginning to

deploy it – that will allow us to keep providing service to our customers even in the net-zero

situation.

Rory Mackenzie (UBS): Morning all, it’s Rory here. Thanks very much for the presentation

and taking my questions. Two please, on the transition plans. Firstly, the significant increase

in gas mix seems key to reach your 2030 target, but obviously gas has been a solution for

quite a long time now but has always been only about 20% of fleet recently. So can you

explain a bit more about how you plan to expand gas access or where you have visibility on

gas access improving so much from here?



And then secondly on pricing. I know you’ve said that the newest project so far has achieved

rental rates in line with your return targets, but I guess so far they’ve been mainly

early-adopter or more high-end customers. So have you considered or are you thinking

about significantly lowering pricing initially on these new technologies to try and drive much

more scale, adoption and leadership? And I guess that obviously comes as, as you said, all

solutions do still have to fight with fossil-diesel alternatives for now. So I’d be interested in

your thoughts on the pace of change versus pricing and that kind of dynamic.

Chris Weston: Thanks, Rory. So, firstly on gas mix. We have seen gas revenues growing

quite considerably over the last five years and when we look at the pipeline at the moment

there is considerable call for gas. So all the signs that we are seeing at the moment indicate

that there will be continued growth and that, I’m sure, is also partly driven by people

becoming much more environmentally conscious. I think also, Rory, there’s huge

commentary around gas being a bridging fuel.

One of the things that we are increasingly doing is putting in place gas virtual pipelines. So

these might be up to a thousand kilometres and it’s still economic for customers to move to

gas. It might be a different type of gas. We’re seeing more landfill gas, we’re seeing more

flare gas demand. So all of those types of things that we are seeing suggest to us that we

will continue to see gas growing over the next decade and becoming a more substantial part

of our mix, of our fleet. And all of those different types of gas – and that might sound pretty

straightforward, you can just put any gas into an engine – it’s not quite as straightforward as

that. You need the technical expertise, the technical capability to be able to tune those

engines – all the different gas engines, be it next-gen gas or QSK60s – to be able to handle

these more exotic types of gas, which will have a different methane number.

In terms of pricing, it’s a fair question. Our experience to date is very much that the pricing

that we are seeing in the market is acceptable. It’s good. It is at a premium to what we’re

seeing the less emissionised technology. And where we’ve had the opportunity to see that,

either with storage or with emissionised gen sets or with our oil-free air fleet, all the pricing

has been at a premium to the more traditional products and I am encouraged by what I’m

seeing. In hybrids, as well, where the customer enjoys the benefit of the fuel saving,

absolutely we’re seeing the types of returns that we would expect.

Now, how does that evolve into the future? As we have put our plans together, we have

assumed that we will have to offer some kind of discount over time to drive uptake, and

obviously that’s something that we will keep a very close eye on and I think with the new

systems and governance that we have around pricing we’re in a much better position now

than we were five years ago to be able to do that. So we have taken a discount into account

as we’ve put the numbers together, the projections together, for this presentation, and I’m

not going to go into the detail of what those discounts are. I hope that answers the question,

Rory.

Rory Mackenzie: Yes, that’s helpful, thank you.

Will Kirkness (Jefferies): Morning, thanks. A couple of questions please. Firstly, on the

fleet mix to 2030, I wondered if you could help a bit with the cost of growing the gas fleet by

about 30% and the cost of 1.5GW of solar by 2030, so we can just square it off with the

CAPEX guidance. I’m just wondering whether the implication is – I assume it is – that the



fleet does grow from where it sits today, which is about 9.5 or so, maybe a bit less after you

took out the diesels at the interim stage.

And then secondly, I guess it’s following on from Rory’s question around pricing and the

comment that customers need support. So just wondering how important subsidies are and

what you’ve factored into your thoughts there. Thanks very much.

Chris Weston: Maybe I’ll say an overall comment around fleet growth and subsidies, and you

might want to comment on some of the CAPEX. So, in terms of fleet growth, we do see the

fleet grow over times. When you take into account all the different technologies, it probably

goes up around 20% or 30% from where it is now. So that’s the overall shape of it. Within

that, batteries grow from where they are now, if I’m correct, to about 1GW and solar grows to

less than 1GW, about 0.7GW. That’s the type of growth we see between now and 2030.

Subsidies are difficult. We’re not relying on them, but having said that, when you look at

something like HVO, that absolutely costs more to produce than straight diesel does. But the

government does have support in place and governments all over the world have support in

place to encourage its uptake. So, in the UK, you see the discount between red diesel and

normal diesel, that discount is slowly being eroded – being removed from the market. And so

that means that the discount to HVO is slowly reducing and at the moment it’s about 15p per

litre and that will come down over time.

In other countries, like for instance Holland, there is no difference between the prices of HVO

versus diesel, and so we are offering to our customers now what we call HVO20, so you put

20% HVO into diesel, and that’s getting a lot of interest and a lot of uptake at the moment.

About 260,000 litres so far this year.

So, I don’t know, Will, if that answers your question, but that’s the way we see subsidies

affecting us at the moment, and it will all then depend, I suppose, on how carbon prices

evolve. In our financial projections, we have absolutely looked at carbon prices and assumed

certain levels in certain time frames, and most carbon prices are – at the moment, when you

look at where the carbon prices are, they’re a bit behind – according to the Word Bank they’re

a bit behind where they need to be for the Paris Agreement. And that is something that

probably will change more to uptake in technology rather than legislation around carbon

prices. So that’s a little bit around subsidies. I hope that’s helpful. Heath, I don’t know if

you want to say anything on the CAPEX?

Heath Drewett: Look, we’ve given ourselves a reasonably wide range over the next five

years of 250 to 350, Will, and that’s because the precise mix of how much solar comes in and

on the storage side, clearly there’s a degree of variability based on those pipeline

expectations. Clearly, emissionised sets are circa 20-25% premium to non-emissionised and

as we’ve talked about, we’re getting the pricing appropriately fixed on those. So they do

come at a higher price point and gas has been always a premium to a diesel set. So again

that’s part of the increase over next five years as that mix shift happens, you’ve got more

low-emission sets coming in at higher price and more gas sets coming in at a higher price to

the diesel that effectively we’re retiring.

So, hard to give a precise split across all the different elements: solar, batteries, gas, etc, and

the level of emissionised sets within the mix, but those are the drivers that are pushing it up

to that new range. And we’ll see I guess over the next year or so as to how quickly in the



near term that shift – a casual reminder, I guess, that it’s a 2030 target, so you’re not going

to see us shifting that fleet mix in the next 24 months but hopefully, directionally, you’ll see

us on that journey.

Will Kirkness: Okay, very clear, thanks.

Daniel Hobden (Credit Suisse): Thanks very much, guys. Just one left from actually, the

others have been asked. I was just asking around the competition that you see in the market

and how that impacts the pricing. I know you mentioned previously some of the pricing

dynamics. Just thinking about Eurasia and the more price-competitive nature of that

marketplace that you’ve seen and how you see competitors responding and have they moved

into some of these emission-friendly approaches? Or are you going to see maybe some tough

spots of competition geographically in the coming years?

Chris Weston: It’s a good question. It does vary very much by region around the world and

most competitors are beginning to talk a little bit about bringing into their fleet, bringing into

their products and services, either emissionised equipment or batteries or solar. Just a few

general comments. In many instances, competition tends to be a single-technology type of

competition. So, for instance, a renewables developer looking to bring thermal in to be able

to provide a hybrid. Or it might be a mine side competitor like EDL in Australia, who are

largely thermal by background but are bringing in a hybrid capability and an ability to

integrate.

Maybe other than CAT, we see them on a global basis and they’re obviously a traditional

competitor of ours around the world, who rely very much on their dealerships in the different

parts of the world, and they are beginning to look at without a doubt what they can do on the

hybrid side of things.

As I look at the competition, I feel that we are absolutely ahead of the competition and one of

the strengths that we have is much of the capability is all within our own remit. So we have

built that capability around renewables and integration, we have it all within the same group,

and I think that many, many customers who are looking at this new technology and they’re

thinking about how they apply this new technology to what are in effect critical loads, where

they cannot afford failure. Anything that makes them worry about that more will play against

a competitor. So if you can bring everything and demonstrate an expertise, as we

increasingly can through the likes of Granny Smith or Bisha or what we’re doing in Mali with

Syama, all of those things give you credibility and enhance your capability.

So there’s absolutely competition out there. We’re not seeing anything untoward in terms of

pricing around competitive behaviour. I think we are ahead of the competition and we have

the benefit of everything being within the same group. But most people are talking about it

and trying to build a skill in or capability in one bit or another. So hopefully that helps,

Daniel.

Daniel Hobden: Cheers, thanks very much.

Andrew Nussey (Peel Hunt): Good morning guys, just one left from me as well. Just in

terms of the mix shift away from diesel, can you give us any insight on that trajectory for

2030? I’m curious whether there might be policies put in place for early retirement of diesel,



scrapping, etc. And is there then a risk that you might not be able to bid or choose not to bid

for upcoming diesel-related projects?

Chris Weston: I don’t think, Andrew, I can give you a precise trajectory of what the switch

to gas is going to be like over the next decade. As the pipeline develops and as we

increasingly develop and develop our capability in the other technologies that are within the

flight and will grow within the fleet, you will probably see an acceleration. But we will always

be doing it with a mind to what the market is doing, what the pipeline is doing, our utilisation

and therefore our returns. But everything we’re seeing at the moment suggests that that

trajectory gets us to 2030 with about 30% to 40% of the fleet being diesel and a chunk of

that diesel being emissionised.

So I am not worried in that process of missing out on diesel opportunities. I think over the

last few years, we are much more disciplined about the opportunities that we go after, much

more conscious of balance sheet impact and we’re not going to go after diesel for the sake of

getting revenue on board. And I feel comfortable with what we have seen over the last year

and our ability to remover diesel fleet, scrap it or sell it, that we can do that successfully over

time without losing business that we would have otherwise gone after and without taking any

impairment or write-off from today going forward. We are comfortable with what we’re

seeing and our processes, the age profile of the fleet, that we can manage it out without

missing out on business.

Heath Drewett: The other point I’d make, Andrew, is that increasingly – and we’ve spoken

about it a few times – managing the fleet globally means that we don’t optimise in particular

region and find ourselves caught when potentially the market shifts faster or slower in a

particular region. So having a total global perspective, looking at our capital requirements on

a global basis, means that I think we’re well sited on both those risks on either side; either

ending up with fleet stranded because things have moved quicker than we thought or not

being able to fulfil the opportunities.

So, I think that’s a key part. If we had maintained a very decentralised, fragmented fleet

approach, I think you could have ended up in either of those camps in particular parts of the

world just because you haven’t got a broad enough footprint to work with. So that is a big

part of how we manage the efficiency and how we’ll manage this shift without getting caught

either side.

Andrew Nussey: Perfect. Makes sense. Thank you very much.

Mark Elliott (Investec): Thank you. Just a couple of quick questions. I’m curious about

with the gas fleet concerning your supply of natural gas, because gas is sort of 80 times more

potent as a greenhouse gas than CO2 and the EU is set to block it from being viewed as a

transition fuel from a stimulus perspective. So basically if you leak for instance natural gas,

you might as well burn coal. As part of your 2030 goals, will you be or are you surveying and

auditing supply lines and leakage of methane?

And also if you could just try to reconcile a little bit the growth in the datacentres when

Google has been committing to being fossil fuel-free by 2030 in any way, shape or form. So

how that growth could unfold, I’d be interested to know a little bit more about.



Chris Weston: We absolutely see gas as a bridging fuel and as we deploy it, we are very

conscious of the quality of the deployment and how we control things like leakage across the

infrastructure that is required. And it is a technology or a fuel that reduces the carbon

intensity of what we do and allows us to move away from diesel. I mean, it is nowhere near

coal, as you know. And it puts in place a technology that then has the flexibility to use an

alternative fuel as the alternative fuel is developed, and that alternative fuel is most likely to

be something like hydrogen. And there’s considerable investment going into hydrogen over

the next few decades from the EU as well as other national governments.

So, there are many hurdles to cross to cover off with the likes of hydrogen being developed

as a fuel, be it the cost of power, be it the storage of it, be it the transportation of it and the

technology to use it. All of it is immature at the moment. All of it is being developed and

focussed on and the kind of carbon prices you need to bring it down to the same level like

energy such as gas, are astronomical and it is going to take decades before that becomes

mainstream technology. Nevertheless, we are already experimenting with it, be it with a fuel

cell or be it with a gas engine that we are starting to adapt so it can take hydrogen.

So it absolutely is a bridging fuel, and we are doing it consciously and we are doing it because

it will give us the flexibility to use future fuels like hydrogen.

As to datacentres, I mean there is massive growth in the datacentre market and over the

next decade we see a lot of demand for the various services that we can provide into those

datacentres, be it bridging power, which we will be able to do using things like gas; be it

back-up power, be it UPS using batteries that you might charge from step-down capability

from a green grid, be it emissionised sets that put a synthetic fuel through it like HVO, which

as I think in my presentation I talked about an example of doing that at Formula E in Berlin

this year, where we had an emissionised Stage 5 set running on HVO, which is almost

emission free and carbon free.

And also the other bit in datacentres that is so important is testing. And that’s a capability

that we also bring to datacentres and we have, interestingly, a very long pipeline for testing

capability in datacentres using various types of load bank and being able to test it at various

stages from equipment leaving the factory where it’s made before it goes to the datacentre

right through to installation and testing individual bits of kit through to testing the whole to

see that it does what it’s meant to be doing through to maintenance and recovery after

maintenance for testing. So, a very sophisticated testing regime.

And all of those types of things, I mean I look at datacentres and I think it is an opportunity

over the next decade or so. Whatever happens beyond that is much harder to predict.

Rahul Chopra (HSBC): One quick question from me. In terms of duration, can you just give

a sense of the mix shift in the end-customer base? So how can you think in terms of duration

of contracts given this mix shift and is there anything in terms of pricing that would change

from the mix shift? Thank you so much.

Chris Weston: I’m afraid I really couldn’t hear the question clearly, I’m sorry. Either your

microphone might have been muffled or you might have been a distance from it, but I

couldn’t…



Heath Drewett: One of the questions I think was whether we see a duration of contract shift

in the transition?

Rahul Chopra: Yes, that’s the question.

Heath Drewett: So, I think across the raft of sectors that we serve, we’ve got, as you know,

anything from incredibly short emergency cover to 15-year plus contracts. I don’t think we

necessarily see a shift in longer term contracts or shorter-term contracts but in terms of the

energy transition, clearly some offer greater opportunity. As Carsten said, the introduction of

solar and you heard on the video with Granny Smith, the length of that mining project

enabled the customer to contemplate solar and make the investment on solar. So I think the

ability to deploy some of the renewables technology favours longer-term contracts, but I’m

not sure necessarily that you’ll see people driving to longer-term contracts or that we’re

seeing people driving to longer-term contracts to enable them to adopt that technology, if you

see what I mean.

So, I think the driver is more their application need and then our ability to meet that with the

longer-term contracts on renewables. And then I think across the transactional business in

rental solutions and power solutions industrial, we’re not seeing a marked shift in terms of the

duration of contracts through the transition.

Rahul Chopra: Thank you so much.

Heath Drewett: Thanks.

Chris Weston: Well, if there are no further questions, thank you all very much for listening

to the presentation and for your questions today. And look forward to catching up with all of

you soon. So, we’ll leave it there. Thank you very much.

Heath Drewett: Thanks very much.

[END OF TRANSCRIPT]

aggreko plc strategic update/media/files/a/aggreko/...carsten reincke-collon director of future...

Documents