Aggreko's (ARGKF) CEO Angus Cockburn on Q2 2014 Results - Earnings Call Transcript

Aug.10.14 | About: Aggreko PLC (ARGKF)

Aggreko Plc (OTCPK:ARGKF) Q2 2014 Earnings Conference Call August 5, 2014 4:00 AM ET

Executives

Ken Hanna – Chairman

Carole Cran – CFO

Angus Cockburn – Interim CEO

Analysts

Nicholas de la Grense – Bank of America Merrill Lynch

Rory McKenzie – UBS

David Phillips – Redburn

David Brockton – Liberum

Toby Reeks – Morgan Stanley

Andy Chu – Deutsche Bank

Karl Burns – Panmure Gordon

George Gregory – UBS

Paul Checketts – Barclays Capital

Alex Magni – HSBC

John Lawson – Investec

Ken Hanna

Good morning, and welcome to our Half Year Results for 2014. As I'm sure you’ve heard from this morning's press release, the Group has delivered a good set of results, particularly against the background of significant off-hires in Japan, and in military, which you're all aware of. And in common with most Plcs, we've also had to deal with a significant strengthening of sterling, which has had a translation impact on our results. And Carole and Angus will take you through the results in more detail.

Before I hand over to Carole, just let me say a few words about the transition from Rupert Soames, who left at the end of April.

In summary, the performance of the business has been a testament to the people, and the organization, and structure that Rupert put in place. It’s been a business as usual, and under Angus' leadership, the executive committee has continued to function extremely well.

Now as we get into results, what particularly stands out for me is two things, really; the strength of our local business, particularly in EMEA and the Americas, and an encouraging performance from our power project business.

I intend to come back and say a few more words ahead of the Q&A session, but now let me hand over to Carole to take you through the financials. Thank you.

Carole Cran

Good morning, everybody. I was going to say ladies and gentlemen, but I think there is lady and gentlemen. Anyway, good morning to you all. As Ken said, I’ll take you through our financial review for the first six months, and then pass over to Angus. He’ll cover the operating review and the outlook for the balance of the year and then we’ll be pleased to take your questions.

We’ve had an encouraging start to the year, delivering underlying revenue growth of 12% in the first half, underlying adjusts for currency translation and pass-through fuel. And I’ll explain the impact of both shortly.

On the same basis, trading margin was down slightly at 19%. In headline terms, our profit before tax was 9% lower than last year of £132 million, which was £14 million lower than last year, although this is net of £23 million of currency translation headwind. That put our earnings per share at 36.9 pence, 7% lower than we reported in the previous period.

The Board has decided to declare an interim dividend of 9.4 pence. This represents an increase of 3% over 2013, and is in line with our strategy of bringing the full-year dividend cover down from 3.5x to around 3x.

The bridge slide shows the underlying movement in revenue and trading profit after we adjust for the impact of currency translation and pass-through fuel from our contracts in Mozambique. As you can see, currency translation has had a significant impact in the first six months, reducing revenue by £80 million and trading profit by £23 million.

To help you better understand how this currency impact breaks down, I’ll explain what has happened with our major currencies over the period. Our single biggest currency exposure is to the U.S. dollar, which is a currency of much of our power projects business and our largest local business in North America, and accounts for around two-thirds of our Group revenues.

Beyond the U.S. dollar, our other major currencies are the euro, the Australian dollar, the Argentinean peso and the Brazilian real. Each of these currencies accounted for approximately 5% of first half Group revenues.

In the appendix at the end of the presentation, we’ve provided you with the impact of these movements on a full year basis applied to 2013 actuals.

In summary, if we use the end of July spot rates to translate 2013’s results, then revenue will be 10% or £153 million lower, while trading profit would be 13% or £47 million lower.

In terms of cash flow for the first six months, we saw net debt increase by £174 million after the £200 million return of value that we made to shareholders in June. Picking out the key movements, the first to know is the working capital outflow of £61 million.

This outflow was mainly driven by an increase in our debtors’ balance, partly due to higher levels of trading activity in both businesses, as well as a small increase in our power projects debtor days.

The power projects debtor days increased by five days, from 95 at the end of 2013 to 100 at the end of June, although this was 11 days better than last June.

As many of you know, the payment patterns of a number of our power projects contracts can be quite unpredictable, the current situation is that there are three customers that are taking longer than we would like to pay. All three balances have provisions held against them, and as you would expect, we continue to work with all three to improve the situation.

In overall terms, the debtor provision was $82 million at the end of June, compared to $80 million at the end of December ’13. Our working assumption continues to be that the provision will be around $80 million at the end of the year. The local business debtor days continue to be well controlled and improved by a day to 59 days.

CapEx for the first half of £121 million was at a similar level to the first six months of last year, and has largely funded three areas. The retrofit of around 160 diesel sets to our more efficient G3+ HFO engine, and in the local fleet further investment in our gas fueled product together with a normal level of replacement CapEx.

When it comes to our balance sheet, we take the view that we do business in some pretty challenging places and we also have high operational gearing, and as such, I think it’s right that we continue to take a conservative view on our financial leverage.

In the context of our financial leverage, we have two key financial covenants attached to our committed lending facilities. These are EBITDA-based interest cover to be no less than 4x, and net debt to be no more than 3x EBITDA.

At the half year, on a rolling 12-month basis, EBITDA interest covers stood at 28x and net debt was 0.9x EBITDA post the return of value. The tax rate used in the interim accounts is 26% as compared to 27% in the same period last year, with the drop in the U.K. statutory rate being part of this decrease.

The overall Group return on capital employed was a healthy 21% with a two percentage point reduction being a combination of local, and Australia in particular in terms of the decline in the mining sector, and power projects with the impact of off-hires in Japan and military.

As we said on many occasions, if we maintain good discipline around capital expenditure, then this is a business that is highly cash generative. To put some numbers around this, over the past few years, we’ve invested £1.2 billion in CapEx, which is meant that our fleet has grown over 40%. We’ve also returned approximately £600 million to shareholders by way of special and ordinary dividends.

This is all been done with net debt only increasing by £400 million, and with a net debt to EBITDA of 0.9x at June 30.

In terms of these strong cash flows, as we’ve said before, our priority is reinvestments in the business, either organically through new fleet investment or through bolt-on acquisitions. Beyond these investments, we will consider further returns of value to shareholders in the context of a net debt to EBITDA target of around 1x.

This is a rather busy but hopefully useful slide that we introduced back in March. It summarizes the size of our power fleet at the end of June ’14 -- June ’13 for both businesses as well as the equivalent information on the utilization and fleet spend.

The key message to take away from this slide is the utilization in both businesses. For power projects, the good news is that utilization in quarter two at 77% is now returning towards the 80% levels that we would ideally operate at. And in the local business, we’ve improved utilization to 60%, an increase of 2 percentage points.

Now that doesn’t sound like terribly much, but on a fleet of nearly 4,300 megawatts, it’s nearly 150 megawatts worth of CapEx that we’ve saved. This is all being achieved by careful management of our CapEx spend and by taking advantage of the synergy that we have between our power projects business and the local business, where we funded a further £20 million of local business CapEx from the power projects’ fleet.

Finally, our refurbishment program continues with a further 158 sets retrofitted to our new G3+ and HFO engines in the first half.

And I hand over to Angus, who will take you through the operating review and outlook for the balance of the year.

Angus Cockburn

Thank you very much, Carole, and good morning everybody. Thank you very much for not being on holiday and actually attending here in person is much appreciated.

So as we go through the operational review, I’m going to pick up a few of the key moving parts, give you bit of extra color in certain countries as we go through. So let's start with the usual look at the highlights and the lowlights.

In terms of highlights, the Americas and EMEA businesses continued their strong growth. Underlying revenue and trading profit up by 14% and 69% respectively in EMEA; and 25% and 26% in the Americas. We’ll go through this in a bit more detail later in the presentation.

Another highlight, and one that’s I think in many ways being understated feature of Aggreko over the past few years has been the growth of the local business, which during the first half continued this strong momentum. It’s the largest part of our business in revenue terms and is growing 10% in the first half, with stable margins.

Pleasingly, this growth is spread across both, developed and emerging markets, demonstrating the strategic rational and expanding the local business into faster growing economies, whilst at the same time focusing on sector development to grow market share in more developed geographies.

Whilst our strategy in the local business is to focus predominantly on developing the countries we’re already in, we’ve recently added a number of new countries such as Nigeria, Romania, South Korea. We’ve also just received our license to operate a temperature control business in Japan, which is very exciting, as it allows us to capitalize on the interest shown by customers in our business, post the tsunami emergency work and in temperature control rentals specifically.

As usual, Aggreko was as close as Scotland got to the World Cup finals. I am pleased to report that we had more of a German semi-final experience than a Brazilian one in terms of our execution of the contract to provide the power and temperature control for broadcasting in Brazil.

I’m actually very relieved that our Brazilian colleagues, who may have wished for a blackout for 10 minutes during the first half of the semi-final, resisted the temptation to switch off the broadcast power.

We’ve also successfully just finished the Commonwealth Games, which was a fantastic event for our home city of Glasgow, which briefly became the sporting capital of the world, and introduced a new sport involving the siting of as many Aggreko generators as possible in a one hour period.

The Brownlees are signed up and we hope that this may replace bowls in next games in Australia. Our focus is now turning to the Ryder Cup at Gleneagles where we’re providing all the broadcast and on course power.

So away from sport, the power projects business had an encouraging first half, but bear in mind, that despite these early signs of improvement, we’re not trumpeting that we’re calling the bottom or expecting that rapid growth will immediately resume. The order intake in the first half of 488 megawatts was ahead of the 397 megawatts secured in the same period last year, which gives encouragement.

However, as with last year, it does include as previously flagged, 170 megawatts of lower margin summer peak shaving work. We typically do some peak shaving work in summer around the Middle East, but we should always bear in mind that this work is low return, but it’s really helpful in terms of putting spare capacity to work. Since the end of June, we’ve won a further 50 megawatts providing power to Benin, which is facing a severe electricity shortage, as well as securing a healthy level of new work during the first half, we secured key contract extensions in Bangladesh and in Mozambique.

The order intake in the first half is the biggest half we’ve had since half-one 2014, which was our highest ever order intake. The first half saw an improving trend in terms of megawatts on-hire, through a combination of new work and a lower level of off-hires, leading to 11% more on-hire by the end of the half, compared to the start.

In pricing terms, we were up 4% overall, driven by mix, with diesel flat, and gas just slight up. However, we need to keep everything in perspective as customers are still on balance a little cautious and you just need to look at the currency and what’s happened there to understand that.

Carole has already discussed the £200 million return to shareholders in June. With post return net debt to EBITDA being less than 1x, our balance sheet is still strong giving us the opportunity to invest to grow the business through organic CapEx or bolt-on acquisitions as opportunities arise.

Onto the lowlights and the ongoing challenge in Asia Pacific, where trading conditions have remained difficult. This has been exacerbated in the projects business in the first half by the impact of the TEPCO contract in Japan, which ended on March 31 last year.

Trading-wise the projects business in Asia remains price competitive, particularly in Indonesia. As widely trailed, revenue and profits in our Australia Pacific local business was well behind last year, as the mining slowdown began to bite.

Finally, we continued to experience early stage challenges with our new HFO product. As with any product launch, it is never easy and one expects teething problems, as we experienced with our gas product, when we launched it a number of years ago.

The biggest challenge lies with HFO being a lower quality fueled and the consequent need to consistently source the appropriate grade for our engines. That said, the product is very attractive to customers who see significant potential fuel savings, and we are very enthusiastic about HFOs potential in the temporary market.

We’ll now take a look at the performance of each of the business models; first local, and then power projects. The local business lad a strong first half, with double-digit revenue growth of 10%. This growth was well spread across much of the business, and I’ll provide some color on this as we go through the regions.

Local business margins and returns, while still strong, were slightly lower than the prior year. This was partly due to the more challenging conditions we’re seeing in Australia, due to the downturn of the mining sector, and also the fact that the benefits of the London Olympics contract was still in the return on capital employed comparatives last year.

The power projects business also had a good first half, with revenue growing 14%. Within this first half growth, the second quarter was particularly strong, which was driven by our 18 megawatt contract that many of you saw in Panama, which came online in April. What we are doing in Panama is selling electricity wholesale to the spot market in response to hydro shortages in the country.

Margins and returns as we anticipated in power projects were slightly lower, as military and Japanese tsunami revenue declined during the first half.

Moving onto the regional reviews. Start with EMEA, which delivered another strong performance with underlying revenue up 14% and a 69% increase in underlying trading profit, which drove a 6 percentage point increase in trading margin.

Whilst the trading margin improvement is excellent, it has to be said that it is not quite as magnificent as it may first appear, as we had a higher level of mobilization costs in the prior period, notably, where substantial costs were incurred for the second phases of Mozambique and Ivory Coast. Both these gas contracts, which have higher mobilization costs due to the more complex infrastructure required, are absolutely key to our African business going forward and operating extremely well.

This accounted for part of the increase, but the rest of it was really around a better mix in terms of gas revenue, which tends to be higher margin, and some operational improvement. However nothing should be taken away from what was an outstanding performance by the EMEA business in the first half.

The local business in EMEA continues to grow, with the growth pleasingly spread across the region. And our established businesses in Europe, Norway are seeing renewed strength in oil and gas, whilst in the U.K. and Germany offshore wind farm commissioning continues to grow.

Interestingly, wind farm commissioning is an application we are exporting around the Aggreko world, and in the first half, we executed our first wind farm contract in South Africa. And I think interestingly base business in the U.K. and Germany, showing a robustness and a sustainability that we have not seen since ’08, 09, and good encouragement in terms that bodes well for Europe.

In our emerging market local businesses, we’re seeing strong growth in oil and gas, particularly in Russia, Romania and Iraq. Clearly the geopolitical and security situations in Iraq and Russia are something that we continue to monitor. In Iraq, we’re growing our oil and gas business in the Southern oilfields near Basra, and encouragingly have won our first contracts in Kurdistan, which we are servicing from a newly established book in Erbil.

In Russia, we grew our revenue by more than 60% in constant currency, as we capitalized on the opportunity offer to provide a high quality solution that not only provides much needed reliable power, but also enables the customer to eliminate the penalties associated with flaring gas.

In Romania, we’ve utilized the expertise for our own shore oil and gas experience in both the U.S. and Russia, particularly in shale, as we provide gas generation using associated fueled gas for the rapidly developing Romania onshore gas market. This application has enabled the customer to sell excess electricity back into the local grid, and to actually monetize the associated gas byproduct.

This is another example of a growing theme in Aggreko which is that we’re getting better at sharing applications across the world and being first to market across many geographies at one time, rather than just one single one. There is no competitor with the scale, the global footprint or the technical capability to match this in the local business anywhere in the world.

Power projects revenues was up 15%, reflecting the strong demand in Africa, and large part due to the on-hires in Mozambique and Ivory Coast in the second half of last year. However, order intake is also been strong and includes contracts in Libya, Senegal, Saudi Arabia and Oman, as well as most recently 50 megawatts in Benin.

As you’re aware, we’ve talked about increasing our sector focus, and this is working very well in Africa, where we’re seeing good momentum in winning new contracts in the mining sector, which has helped to offset the end of a couple of large mining projects in the Democratic Republic of Congo.

We continue to monitor the security situation in Libya very closely, with the safety of our people the key priority and we’re currently in the process of reviewing our operational profile in the country.

Pre-existing contracts in Yemen, Guinea and Tanzania also contributed to what was a strong first half for the power projects business in EMEA. All in all, an excellent performance from David Taylor-Smith and the EMEA team, across both, the local and the power projects businesses.

In Asia Pacific, as I mentioned earlier, trading conditions are challenging, with underlying revenue and trading profit declining by 16% and 53% respectively than the first half. Underlying revenue in the Asia Pacific local business was down 11%, driven primarily by a substantial decline in the Australia Pacific revenue, which represents around 75% of Asia Pacific’s local business.

This decline was driven by the slowdown in mining, which is a sector at its peak represented around 55% of Australia Pacific’s revenues and was down 20% in the first half. The business has done well at broadening its sector base, with particularly strong growth in contracting and in the food industry, but this is not been enough to counteract the fall in mining, as the business has shifted from the higher value mini-project power plants used in the commissioning phase of new mines to smaller shorter operations and maintenance contracts for existing mines.

The Australian resourcing sector has being through a boom since 2010, with record levels of investment, which has driven rapid growth in our business. The closure of nearly 20% of coal mines in our Northern Australian business, combined with iron ore prices that have been below $90, has reduced activity in this key sub-sector, and generally our customers are now focused on reducing costs.

As a result, we’re moving fleet elsewhere in the Group and refocusing our Australia Pacific business and other sector opportunities. This is a good demonstration of the flexibility of our business model, with all fleet fungible between applications, customers, sectors and geographies. However, I suspect we will continue to fuel the chill wind of the mining slowdown in Australia Pacific for at least the next six months.

In contrast, our Asian local businesses all grew in the first half, other than India, where we expect the business environment to improve post Modi winning the election. Revenue was slightly down in the same period in 2013, but encouragingly we made progress in growing our business in the North and West of India, which almost offset the decline in our traditional Southern India heartland. As ever, the key challenge in India remains not so much volume but rate, and our ability to persuade customers to pay a premium for quality service and reliable power.

The challenge in China is quite different and is focused around persuading customers of the benefits of rental with the rental market across all sectors is still very immature, which led us to reduce our cost base and close locations in Guangzhou and Dalian. The good news is that China was APAC’s standout performer in the first half, and we recorded strong growth post the recent restructuring, particularly in oil and gas from our location in Shanghai.

During the first half, we turned a significant loss into a respectable profit on revenue that was close to 3x higher than the previous period, albeit of a relatively small base.

We’re also very encouraged by our early progress in South Korea, where our newly established business is making good inroads into what is a huge ship building sector. We also won our first local business contracts in Japan, in events and petrochem, and are very encouraged by the level of inquiries and have just opened a sales office there with a view to opening a depot there next year.

Our biggest Asian local business is Southeast Asia, where revenues were slightly ahead of last year. This business based out of Singapore is predominantly oil and gas and shipping, and over the past few years has been a consistently strong performer. In order to capitalize on the opportunities in the region, we opened what I would term a cheap and cheerful location in Thailand during the first half, in order to help us develop, not just the oil and gas potential, but also to begin to capitalize on the industrial opportunity that exists there as well.

In power projects, as anticipated, revenue declined 20% driven by the gas off-hire in Japan in the first half last year and continuing pricing pressure in Indonesia. Presently, we have some 150 megawatts of diesel contracts in Japan with HEPCO, which run until the end of this year.

We currently have around 25% more megawatts on-hire in Indonesia, as compared to the end of December. Our new market leading G3+ highly fuel efficient generator has been key in securing this additional volume in Indonesia, as it allows us to offer a lower all-in price to the customer, and so doing, take a little pressure off our rental rates.

However the market as a whole remains highly price competitive and contracts on on-hire and off-hire regularly.

In Bangladesh, we continue to execute a number of large contracts in the phase of a significant shortage of permanent power. As a result, we extended a 55 megawatt diesel contract for five years, as well as 150 megawatts of gas for a year to spring ’15. We’ve also just won a new 30 megawatt gas contract in Bangladesh, which is being commissioned as we speak.

Also we’ve seen recent contract wins in the Philippines and Myanmar, which have extended the geographic footprint of our APAC projects business.

However in APAC overall, there is no doubt the margins and returns are being significantly impacted by the slowdown in both local and power projects, but Debajit Das and his team are working hard to build our pipeline, whilst managing costs very proactively.

The great thing about Aggreko is that it has both, the local business and the power projects business, as well as three regions, and I don’t think I ever remember a time over the last 14.5 years when all the pistons were firing at full speed at the same time. Just as our APAC businesses momentarily stuck in reverse, so are EMEA and Americas businesses are foot to the floor.

Just to illustrate this, the Americas delivered another strong performance, with revenue and trading profit up 25% and 26% respectively. Within this, power projects revenue in the Americas was the big driver with revenue up 51%, despite an £11 million headwind as the military contracts continue to decline.

For the year as a whole, we expect military revenue to be around half of 2013 at circa £20 million. Replacing this revenue is a challenge, but the Americas have done extremely well, with the substantial increase in revenue, coming mainly from selling power into the spot market in Panama in response to the hydro shortage.

This was augmented by some incremental revenue from our contracts in Argentina, where we have over 300 megawatts on-hire. Even though we continue to make some progress on the payment challenges of Argentina, we are cognizant of the risk of having too much exposure to any single debtor, and so we will only bid for new work on the basis of catching up on our existing overdues.

During the first half, we continued to develop our Brazilian projects business, and also made further inroads, as we saw in the video at the start in Peru. We are positive about the potential of this business, but we expect the second half growth rates will taper off as more military business comes off rent.

The Americas local business continues to outperform and grew underlying revenues by 14% than the first half. In North America, we saw growth across most of our sectors, but oil and gas and petrochem refining continue to grow at a faster rate. We continue to build out our shale business, and are now active in most of the basins.

Many of you almost saw our shale business in action in Oklahoma, but had to make do with a presentation delivered via mobile phone while sitting in a concrete floor with a host of cockroaches while in detention in Brownsville, all part of the Aggreko experience. Much of the growth however in shale has continued to be in gas, but even more exciting is the fact that we are now winning industrial and construction business for our gas sales.

We’ve grown our gas fleet in North America from 240 sets to 492 sets over the last 12 months, and continue to see much future potential. This translated into gas revenue growth of 80% in the North American local business in the first half, 80%.

We restructured our Latin American local businesses in the first half and created two business units. One of these is Brazil, which is managed separately by Pablo Varela, that many of you met, and given its scale and complexity post the Poit acquisition, while the second is managed by Andras, out of Santiago, and has been christened Spanish-speaking Americas and covers countries from Mexico and Panama in the North, through Colombia and Peru down to Chile and Argentina in the South.

Economic conditions in Brazil continue to be challenging, with the business flat year-over-year. Although we did see some growth from our recently launched temperature control products, we’re currently looking at ways to accelerate growth in Brazil whilst looking at the same time with a number of initiatives to make the recently merged business more efficient.

Our businesses in the Spanish-speaking Americas on the other hand, generated strong growth, with a standout performances being recorded by Argentina, Peru and Colombia. Argentina not only had an excellent World Cup, but our business also benefited from a lot of utilities work, following the power shortages in Buenos Aires at the start of this year.

Whilst a slowdown in the global mining sector is not yet fed through into South America, we are in watchful mode, particularly in Chile, where we’re seeing some early signs of slowing down the growth rate.

On this slide, you can see the reported margins and returns. The underlying margin figures were in line with the same period last year, while returns were slightly ahead. All in all, this was a very strong first half from Asterios Satrazemis and his Americas team, albeit that growth rates were likely slow in the second half, due to the more challenging comparatives.

So coming to the outlook for the rest of the year. We’ve had an encouraging first half with good growth in both, power projects and the local businesses. The local business continues to perform well, and whilst we expect it to continue to grow, the third quarter is really important, particularly for the businesses in North America and Continental Europe.

Second half comparators are more challenging, particularly for the shale business in North America and also in the Middle East, both of which delivered strong performances in the second half of last year.

In power projects, whilst we take some encouragement from the order intake in the first half and a healthy inquiry pipeline, customers generally remain cautious. We see an improving utilization in our one megawatt sales across both, power projects and the local businesses, as well as the continuing success with smaller gas sales in North America, where the oil and gas sector continues to grow, and we begin to make progress with gas in commercial markets.

To this end, we are investing in the 100 more one megawatt diesel sets and more small-end gas sets, which will raise our fleet CapEx expectation by £20 million to £235 million for this year. This is a relatively small increase and not a clarion call, and reflects our ability to quickly adjust CapEx spend to market conditions.

For the Group as a whole, we expect trading to – and we continue to expect underlying trading profit to be similar to 2013.

To put this in context, Japanese and military profits are off some £30 million this year. And so to be flat in underlying terms, represents strong growth across the rest of the business.

Thank you for listening, and we’re now happy to take your questions. Just quickly on a personal note, I would like to say huge personal thank you to all of you over the last many years for your support and for the very high quality of research that has been produced. It has been great fun.

Ken Hanna

I just want to say a few words before we go into Q&A as well. I’d like to recognize that after 14.5 years and approximately 30 times, this is Angus’ last set of results for Aggreko. And Angus, I’d like to pay tribute to your tremendous contribution to the company, the creation of what I believe to be a world class finance function, and more latterly your leadership during this interim period.

I know that a number of you who’ve worked with Angus for many years and he is always aspired to be open and transparent. And Angus has mentored Carole extremely well, and I am sure that Carole will continue with this approach. So on behalf of the Board and everyone at Aggreko, I’d like to convey our sincere thanks to Angus for your outstanding contribution. You and Rupert formed a great team, and you’ll always be friends of Aggreko and we wish you well.

So as you saw on this morning’s announcement, I expect there will be few months gap between Angus’ departure and the arrival of Chris Weston, our new Group CEO, who is currently fulfilling his commitments to Centrica, his existing employer.

Most of you will hopefully have seen the announcement from Centrica last week that they have appointed their new CEO, replacing Sam – Iain Conn, replacing Sam Laidlaw. So I’m hoping that this interval will be quite short, but until Centrica have resolved all of their internal moves and their timing, we cannot be exactly precise. I therefore agree with the Board that for this interim period, I’ll step up to be executive chairman in order to coordinate the executive committee and maintain the decision making process.

I’ve been on the board for nearly four years and I feel as I know the company pretty well, but I also know very well, Carole, and the three executive directors. They’re all very experienced and they have great teams below them. You don’t often see them, some of you know the people I am talking about, but I’m very confident that the Aggreko machine will continue to work effectively.

I look forward to introducing Chris Weston to you as soon as I can. And now let me hand over to Angus and Carole for the Q&A. Thank you.

Question-and-Answer Session

Angus Cockburn

Why don’t we start at the back moving forward.

Nicholas de la Grense – Bank of America Merrill Lynch

Nicholas Grense from Merrill Lynch. Couple from me. Could you quantify the size of Russia as part of your EMEA local business, and just maybe comment on the potential impacts of recent sanctions, and whether there has been any retaliation against British firms there? And also you mentioned that you were reviewing the operational profile in Libya. I wonder if you could just expand a little bit on that. And the last one, you mentioned good growth in China, but also that you’ve closed a few businesses. Has anything changed there dramatically such that it could become a more important market for you going forward? Thank you.

Angus Cockburn

Why don’t we – we’ll do the starting with Russia. Russia in the first half, we had revenues of £18 million. A lot of this is in Siberia in oil and gas mining. The business grew 60% in constant currency in the first half. So over recent years we’ve seen enormous growth in the Russian business, as we are providing a very high quality of service to these really remote mines and oilfields that you can only reach in the winter through the ice roads. They are incredibly remote, as Ken will testify to as he was out in Russia recently.

In terms of – we’re clearly monitoring what’s happening, and sanctions-wise we’re working our way through that, but our initial sense is that in terms of the banking sanction, we’re not issuing debt, we’re not involved in equity issuance and the banking system is still working, so we’re getting paid and we’re getting cash out of country. So that feels fine at the moment. We’re clearly not in the Ukraine, we’re not in Crimea. So we’re unaffected there.

And we’re not selling a lot of advanced technology into the deep sea Artic exploration and some of the areas around that. So subject to us finishing all the work that we need to do in Russia locally on that, our belief at this point, based on the facts that we so far got and we’re increasing – we’re getting close with everything as each day goes by, is it it’s business as usual in Russia, but something that we will monitor.

In terms of Libya, the security situation there is obviously very challenging. The safety of our people is the uppermost thing in our mind. We are several hundred kilometers away from Benghazi. We’re several hundred kilometers from Tripoli. Being in Tripoli I think is quite challenging right now, but we’re a long way away from that. And we’re reviewing our operational profile at the moment in Libya. And I really don’t want to say any more than that, if that’s all right at the moment.

In terms of China. China is a small business, but we’ve invested in China with huge enthusiasm, huge optimism, but the problem is that the rental market in China is still very undeveloped. And a great example of it was the Asian Games a couple of years ago, where until six weeks before the games, the Chinese were going to try and build everything for the games themselves, and that had dawned them, they couldn’t do it and we ended up doing a very major project in a very short timeframe.

So I think China is going to be a long-term battle for us that will have ups and downs on roof. We’ve refocused because China is – part of the challenge of China is the market is so big that actually everybody sets off to do little bits and pieces in lots of places. We’re far better focusing on Shanghai, getting after the oil and gas sector, getting after the shipping and ship building sector and trying to figure a way out or figure out a way into the industrial base in China.

So we’re not suddenly going to see China just do this, it’s going to take us years and we’ll have plenty of ups and downs en route as we will, but that has to be 20 years from now. That should be the new North America, if you like.

Angus Cockburn

Yes, Rory.

Rory McKenzie – UBS

Good morning, Rory from UBS. Firstly, looking at the utilization in Q2. 77% was quite good. Can you just fill out the bridge for the full year? I think the off-hire rate should be a bit higher in H2, and also you’ve increased your CapEx guidance, so some comments around that? Thank you.

Angus Cockburn

Let me do the CapEx guidance and Carole talk about the numbers.

Carole Cran

Yes, I know the utilization. Yes, I mean the projection so far, Q1 was 70%, Q2 as you say, 77%, so 74% for the first half. The facts – and I also come back to the fact that we are going to build about 100 diesel sets, which might go into power projects, might go into local sales, as we have said before, we won't start building again unless we can see a path back towards 80%, which is where we would optimally be at.

I think one thing to keep in mind in that context is we are moving fleet between local and power projects, as we’ve done in the last little while and again in the first half. And occasionally, there will be some sales within the power projects business that will be sold and so battered that we will retire them out. So in overall fleet size terms, how we expect to end the year will obviously be similar to where we’re sitting at the end of June, which is not so different where we came into the year.

So careful management of all the moving parts has meant that we can now see a path back towards the 80%, but in the context of what it would imply for guidance, it’s not having an impact because of what just described in size of the fleet.

Angus Cockburn

And I think one of the things where the small gas sets in the States is I think one of the most encouraging, one of the most interesting parts of first half is just being that small gas set and the big gas set growth in the U.S. 80% growth was significantly beyond where we anticipated. So we’re going to put some more fleet in there to capture the shale opportunity as it converts from diesel, but also the encouraging, but I think it’s a fact that we’re beginning to see an industrial construction business begin to build as well. And we’re seeing gas begin to penetrate into the industrial and commercial markets rather than just oil and gas.

Rory McKenzie – UBS

Thanks. And then just secondly on HFO. You referenced some issues there. Can you expand on the issues you are saying and whether that’s impacted your contracts in HFO?

Angus Cockburn

Well, the great thing about HFO is the G3+ is a dual fuel. So for example, in Curacao, which was our first big contract, we’ve not – the customer has not been able to source in-spec fuel from the Venezuelan refineries. So it wasn’t just our equipment that went. It was the Wärtsilä big, heavy ugly equipment that’s there and it’s quasi-permanent basis that also had stop working.

They have not been able to source the fuel quality they required. So they are delighted that we are able to switch from HFO, to switch from a button straight into diesel, and because we’ve got the G3+, we’ve got really strong fuel efficiency there. So the customer is just running a diesel and that’s fine as we look to see – with the customer trying to see if there is an alternative source for good quality HFO.

In terms of elsewhere, was HFO a challenge? Absolutely it is. I think on the positive side, I think the customer reaction is better than we thought it was going to be. There is a big potential market. On the other side, there is probably more of a technical and operational challenge that we first envisage. The challenge of getting the right spec of fuel consistently is what it’s about. So we’re working with, Ricardo, to do more work to broaden the range of fuel we can put in, but it’s like gas. The first three years of gas.

If I went out and mentioned gas to any of our sales guys, they would sort of duck quietly and say that they’ll be interested it in once its reliable. It’s the way with any new product. And this will take time. We’ll work our way through it, but we’ve found a market that is potentially very exciting.

Now, David you were next. And then, David and then Toby.

David Phillips – Redburn

Thanks. Just two please. The Americas had flat margin despite very good sales growth, and presumably most of that was military, so even in the normal operation level you would expect was countered by the military effect?

Angus Cockburn

Yes. And two real impacts. You’re absolutely right. Military being the higher margin of work coming off being offset, and the other part if Panama. Remember, there we’re selling to the wholesale market. So a chunk of that revenue increase is the cost of producing all the electricity including fuel. So it’s not pass-through fuel like other contracts, it’s actually part of our revenue and it’s not differentiated. So a chunk of the revenue growth is that piece of it, which obviously would flow through in quite the same way as the rental does.

David Phillips – Redburn

Just a follow-up to that, in particularly maybe North America and the shale side of things. Would you expect to see a pick-up in the operational leverage as your mobilization costs have been sunk, if you like, or are you where you expect to be right now?

Angus Cockburn

Well, it’s different because the shale is not like a long-term power project, because they are drilling. We follow the drillers. And so they are drilling somewhere and we’ll have quite a lot of power out for the drilling, and then it’s replaced by the mule pumping, and we’ll either have a micro grid or an individual generator. So it’s moving all the time. So the mobilization costs tend to be pretty small, and so it’s pretty constant. So you wouldn’t see a change in operational.

David Phillips – Redburn

And just a final quick one. How much more kit do you expect to move from IPP in the second half into projects, and presumably that will be Indonesia, Southeast Asia, biased?

Carole Cran

Yes, why don’t I give you the sizes at June and December, and that will give you note on that. So local business end of June, we had 4,653 in the fleet and are projected till the end of the year 4,850. Power projects, end of June 4,919 and projecting to 4,725. So at a Group level coming back to what I was saying to Rory. June total fleet 9,572 megawatts, December total fleet 9,580. So you can see a bit of more of a switch that’s going to go onto local and power projects.

Angus Cockburn

And we’re getting rid of some of our old non-standard stuff just to get over the fleet.

David Phillips – Redburn

Thank you.

Angus Cockburn

David and then Toby.

David Brockton – Liberum

David Brockton from Liberum. Two please. I don’t know if you gave it earlier, but could you give the off-hire through the first half? Is the first one. And then the second one was just with regards to the local business in EMEA. I just wondered if you can break out to what extent do you think recovery is playing a part as much as the new sector alignment that you have there in the regional expansion?

Carole Cran

Yes, I’ll take the first half, off-hires. So it’s been 10% across the first two quarters. So you’ll recall that it was very low for Q1. So, most of that 10% is in Q2. As far as what we think for the full year, as you know we never quite know, because it depends what extends on off-hires put we would anticipate that we’re probably talking across the full year towards 30%, so maybe high 20%, 30%.

Angus Cockburn

In terms of what’s recovery, I think a lot of the U.K. there is all – we’ve got some one-off wind farm projects and everything else, but when you strip that out, your underlying base business is actually moving. And I don’t think it’s just us. I think the competition is beginning to invest, and there is a sense that the U.K. is a better place to do business now than it was even 18 months ago.

And so far that recovery is sustaining in a way it’s a not sustained over the last six, seven years. I would put Germany in the same bracket. We’re seeing a higher level of industrial activity. The numbers – I would hesitate to even give you a number. You’ve got massive level of growth, but a chunk of that are these wind farms. And you know our business, you’ve got to be cautious about getting carried away with 59% growth, because a chunk of it will not be there next year, but when you split the noise out, you are seeing as in the U.K., a reasonably sustained recovery across a broad remit of sectors.

And again I think the most telling is investors and competitors in Germany are also reinvesting. Does that translate into all of Continental Europe? No, it doesn’t. France feels pretty soggy. I’m not convinced a huge amount of that is us. I’m sure we can do bit better, but I think fundamentally the challenge with the French economy is quite different now to that with Germany and possibly the U.K.

Spain, pretty strong and we’ve seen strength in Spain over a couple of years, but the Italian business for us struggling. We’re not winning the scale or projects that we maybe were previously.

In the Middle East as ever split, you get some geographies that are dire, you get other geographies that are fantastic. So Iraq, Qatar, Dubai and Saudi really, really strong. And Oman and Kuwait, Abu Dhabi, a little bit weaker, but the Middle East is like the pistons I was talking about, if ever every part of the Middle East fired, we’d be in real trouble in the next half. It’s amazing how they come up. And Qatar is a great example. Five years ago, it was the poster child, then it crashed, and then now it’s back and growing, sort of 60%, 70% but that is that infrastructure built ahead of the World Cup. We’ve got a very big metro contract there. So it’ll be very interesting to see how that develops over a period of time. Toby?

Toby Reeks – Morgan Stanley

Hi there. One on IPP, and then one for Ken actually. On IPP, could you give us indication if there are some major contract renewals coming up? And in that light, have you seen any more competition on gas or do you still think you’ve got an 85% market share and that’s quite safe?

Angus Cockburn

Why don’t you talk to the contract renewals and I’ll talk about the market share.

Carole Cran

Yes. As you know, there is always ones that are coming up, and the one that call when we first announced it is the first tranche of Ivory Coast. So the first of the 200 megawatts of gas that we’ve got on Ivory Coast. And then the rest, to be honest Toby, is the normal sort of weft and weave. You’ve seen the first phase of Mozambique, the 108 megawatts and that’s been extended for a year. Angus obviously spoke about Bangladesh and the diesel and part of the gas there. But otherwise it’s the usual ones that come up.

Toby Reeks – Morgan Stanley

Are those in demobilization costs are much higher in gas.

Carole Cran

They are.

Toby Reeks – Morgan Stanley

It’s hard for someone to displace you, but are you getting more people turning up, and what’s the pricing looking like in gas? Have you’ve seen any pricing pressure in gas or within diesel?

Angus Cockburn

On gas in the first half, price is up a couple of percent. So gas feels pretty robust. We’ve been in a very strong position down in the Mozambique, and that’s a very interesting opportunity, because at the moment we’re only servicing three of the countries down there in the Southern Africa. And that’s something that we’re working very hard on to see how we can develop.

Ivory Coast again, 200 megawatts of gas, another big part of the foundation of our African business. So we’re still seeing the same competitors, no real change in that. The challenge in that is all about securing fuel source. If you can get the gas as we’ve done in Mozambique, then you’re in a very strong position in terms of being able to monetize the gas on behalf of a country or a customer, and turning it into power.

Toby Reeks – Morgan Stanley

Okay. Obviously, Chris isn't going to be around for couple of months. What is it that you think he is going to change? What was the motive behind bringing Chris in?

Ken Hanna

It’s too early to say what he is going to change, but I’d say he has really done his homework on the Aggreko strategy and Aggreko business model. I cannot believe it’s going to be a dramatic change, but as with any new CEO, I think he is going to tweak a few things, inevitable, but he sees the logic and the strategy etcetera. But what I say in him, what the Board saw in him is an experienced leader, international experience, highly numerate, he is not an accountant but he is highly numerate, and a good leader and motivator of people. Referenced him extensively, very good strategic brain and he generates confidence in people and people will follow him.

So I think we’re very much looking forward to him joining. He’ll bring fresh perspectives to Aggreko.

Angus Cockburn

Andy, and then – we’re kind of in a circle, we’ll come back – loop back around the room.

Andy Chu – Deutsche Bank

Good morning. It’s Andy Chu from Deutsche Bank. Two questions please. So the first half results over the last couple of years, you’ve been quick to point out weakness in seasonality in Q3 and to point that out, and obviously that seems to be missing from today’s comments. So I wondered if you could just comment on that.

Angus Cockburn

I do think we talked about Q3 actually in terms of its importance, particularly in local in North America and Continental Europe, because we’ve got a big temperature control business that brings power out with it. So we’re generally nothing, if not consistent. So I did talk to that as I went through. And Q3 is – for the local business, is the biggest quarter.

Andy Chu – Deutsche Bank

Talking about the sort of the power projects business in terms of that pipeline conversion…

Angus Cockburn

Well, less seasonality in terms of power projects. Q3, it will be a little bit more in terms of we’ve got the peak shaving contracts out there. Pipeline-wise, the pipeline was healthy coming into the year. We’ve converted 500-odd megawatts of it and the pipeline has refilled, and is – we would see it about the same level as it was coming into the year. And as you say, hopefully as Q3 you’ve got the challenge of people being in a holiday, but hopefully as people come back from holiday and we go through the autumn, we’ll be able to convert more of that pipeline.

Andy Chu – Deutsche Bank

And just in terms of many projects, I think could you sort of give us the growth rate excluding the impact of some of the Australian contracts. I think you reporting 10% growth, but if you were to strip out the impact of Australia, what would you be doing underlying those?

Carole Cran

Yes, it’s probably – I don’t have the number offhand, but it’s 12% that it was up allowing for the fact there was some came off in Australia. There are obviously still some in Australia. So yes, I would say maybe it would be sort of 20%-ish, it would be my estimate.

Angus Cockburn

I think we were positively surprised by that, because I thought when we get the question if somebody was going to ask in many projects, it maybe that after years of it going out very quickly, we were going to have a hiccup because Australia come off, but it just shows how that business has spread out around the world, and just because what was our second biggest local business in the world had a tough first half, a lot of its bigger mining projects coming off. The fact that the many projects continue to grow, I thought was very encouraging and we’re bolstered [ph].

Carole Cran

Yes, pleasantly surprised.

Angus Cockburn

Pleasantly surprised.

Carole Cran

In Iraq – it’s probably filling in for Australia is Iraq, and bit more in Brazil and also a couple of Russian projects will be compensating for what’s coming off in Australia.

Angus Cockburn

Karl?

Karl Burns – Panmure Gordon

Yes, thanks very much. And again maybe I missed this one. The order intake in PP in the first half was 480 megawatts. Can you say what the year-to-date order intake has been?

Carole Cran

Yes, it is additional 50 megawatts in Benin that Angus spoke about. So we get 538 megawatts.

Karl Burns – Panmure Gordon

And then, just in terms of the inquiries in PP. Are you seeing much churn in the inquiries – in terms of some of the inquiries you’re having, many of those quite old in terms of that they’ve been there for maybe 12 plus months. Are you seeing people coming online saying what’s it going to cost, well, actually I don’t like the sound of that going away. Just in terms of – I’m trying to get to the point of affordability. Are any of the potential customers prepared to suck it up and say, right, this is the price, it hasn’t changed much over the last six to 12 months, I’m going to press the button?

Angus Cockburn

Well I think we’ve seen a bit of that in the first half, and I guess one of the reasons why the order intake was 100 megawatts more than last year. Are we seeing anything dramatic in that? No, we’re not. You could some inquiries that – Guinea for example had been there for years and we did a contract review and we said, listen, we’ve been going there twice a year religiously since about 2007 and we never – and we’ve given 50 quotations or something for different potential projects not going to happen, we’ll take it off. 48 hours later, we’d sign the contract.

So you just don’t quite know how that pipeline is going to behave and what happens in terms of rain and hydro or a failure of a big transformer or something. So I would say that’s not changed markedly. We’ve got new inquiries coming on. We’ve got some old pitches that have been there for a long time and may well be there for a long time to come, and hopefully one day it will, at the most unexpected time will turn into a job.

Karl Burns – Panmure Gordon

Okay. And I just have a very small follow-up, just in terms of the comments you made about Chilean mining. You said you’re seeing some early signs of, perhaps contract is just too stronger word, but just what sort of signs are you seeing in Chine specifically?

Angus Cockburn

Slowdown in investment. The Chilean business still registered mid-teens [ph], it was up 6% in the first half. It still had a good first half, but the growth rate has been very strong there over the past few years. So it’s something we’re monitoring. Their cost base is a little better than the Australian. So it’s Australian capacity that tends to be coming out first.

But a swallow doesn’t make a summer. It’s just something we’re cognizant off and keeping an eye on as we go into the second half.

Karl Burns – Panmure Gordon

Thanks.

Angus Cockburn

Okay. Quite a bit of time here and then we’ll go to Paul and Alex.

George Gregory – UBS

Two from me please. Firstly, just on the local business. There was a drop in the margin in the first half. Perhaps you could elaborate on that. What caused that? Second question, Carole, you mentioned that the full year anticipated off-hire rate would be towards 30% versus 10% in the first half, which applies towards 50% in the second half. Now obviously you’ve got the peak shaving, but it’s dropping off, you’ve got military, but in terms of megawatts off-hire, that sounds like a pretty big number. Is there anything else in there that is coming out that we should be aware off? And final question, there was some press around embedded power in Nigeria. Anything you could comment on that would be useful please?

Carole Cran

I’ll take the first two, George. Yes, in terms of half-one margins, it’s really Australia that’s having that impact on the local business, obviously what we’ve described in terms of mining. And although there is not huge differences in local business margins across the patch, Australia is towards the top end, and as you can imagine the many projects within that is the strongest piece, so Australia is really that’s having the impact.

And in terms of the off-hire, what we’ve seen – so to give you the specifics; Q1, it was 1% off-hire rate, Q2 was 9%. So what I’m suggesting is that more a normal pattern would then be say 8% or 9%, because of the off-hire – sorry, the peak shaving in Q3. And then say another 8%, 9% for Q4. So it’s still, all of it is just adding through the four quarters. So there is not an annualizing, it’s literally add up the four quarters and you get towards 30% is how we describe it. So it’s not – there is nothing unusual that we’re expecting in half-two.

Angus Cockburn

Nigeria. Nigeria is by far the biggest economy in Africa, 175 million people needs 40 gigawatts of power, but it’s only got 2.4 gigawatts. So an enormous opportunity in Nigeria, but there are all sorts of challenges in Nigeria. And we see it as a big enough potential base that we’re going to put some fleet into Nigeria. We’ve got a local business up and going in Nigeria, and we will also put in some big one megawatt sets to respond to opportunities.

I the first time I saw it, it was called DISCOs and I was thinking, good heavens, these clubs in Ibiza must be huge if they’re requiring a power project-sized fleet to power them, but that short for that, I guess they tend distribution – electricity distribution companies in Nigeria. So those are couple en routes we’re looking at.

I think somebody got a little bit overexcited out with Aggreko and put a lot of stuff into the press, which you all picked up at Bloomberg, but there is an opportunity there, we’re trying to understand it. Do we go with utility, do we go with the DISCOs, the distribution companies, or do we go to the end-customer, because a lot of the industrial end-customers desperately need power as well.

So Nigeria is tough to navigate around, and that’s something we’re just working through at the moment. Karl?

Karl Burns – Panmure Gordon

Just a question up on that. It’s an interesting one. Again I saw a statistic being just to see if you would recognize the statistic that in Nigeria, there is around 26 gigawatts of distributed generation. So again Nigerian industrial customer will have effectively its own genset on the site. Specifically in terms of the opportunity, who would you target on the I&C segment, if you did go after those kind of bigger more reputable clients?

Angus Cockburn

Yes, I think our ideal would be just from a credit risk and everything else perspective, it will be easier to do business direct with big multinational companies from overseas. There is no question. So we are working hard to understand that infrastructure. And as you see, given that shortfall between utility power and their requirement, every household almost has its own small generator. There is distributed power all over Nigeria. So the transmission problems, the distribution problems are enormous, and so we do see that as good opportunity for us, but not as of tomorrow maybe not.

George, did you ask earlier questions? Yes. Who did I promise next? Mr. Checketts.

Paul Checketts – Barclays Capital

Hi, it’s Paul Checketts at Barclays Capital. I think I’ve got three too. There is a couple on just some of the numbers that you’ve already run through. Could you give us the utilization by diesel and gas, and also the fleet intentions by diesel and gas please? And then secondly on the topic of gas. It’s interesting you’ve won this work in the U.S. with the industrial and construction space. Can you tell us a bit more about that, what these end-customers are doing and what their source of gas is? Do you have of a pipeline in place? And perhaps on that, are there other competitors able to bid for this work at the minute?

Angus Cockburn

Well why don’t I start with that and let you take the numbers on. In terms of gas in the U.S., it’s early stage on the construction and on the industrial applications. The U.S. is building out the gas network or the infrastructure. And so jobs that we have done, for example, around a construction site where you’ve got a whole series of generators supporting each activity, we are probably now able to do it through a small gas plant with cabling and distribution around the site. So from an environmental perspective, very appealing. From a cost perspective, also very appealing to customers.

And one of the great things with Aggreko is the fungibility of the fleet that you can take it from any application, any customer, any sector, anywhere in the world. Our worry in the small gas sets was it was really sector-specific in shale. I know that we’re beginning to see the industrial opportunity build up, that takes a little bit of the pressure off, should anything ever dramatic happen to the shale business. Carole?

Carole Cran

Yes, in terms of the utilization, Paul. So in the first half the 74% overall was made up of 75% diesel, 76% gas and 45% HFO. And then in terms of the composition of the power projects fleet, at the end of June 3,532 were diesel, 1,170 were gas and 217 were HFO.

Paul Checketts – Barclays Capital

And for your intention for gas?

Carole Cran

It will be similar in power projects and we will add – to Angus’ point, we’ll probably add 100-odd megawatts to the local business gas fleet.

Paul Checketts – Barclays Capital

Thanks. And last question on Panama. Could you expand that contract in terms of megawatts?

Angus Cockburn

Well, our first objective is to look at extending it. I get my report from Anna on the hydro levels. I had one last night. We’ve still got one dam that’s empty. There is a couple of dams at very low levels. It is the time when you would expect rain, so the dam levels are up slightly, but they’re still significantly lower than they should be at this point in the year. So the extension is the first thing, and there is talk of expansion in Panama, because it’s an economy that’s growing that is hydro-dependent and the hydro is just not happening for them at the moment.

Paul Checketts – Barclays Capital

Thank you.

Angus Cockburn

Can we go – I said Alex.

Carole Cran

And then John behind.

Angus Cockburn

And then John.

Alex Magni – HSBC

Thanks. Alex from HSBC. Just a few quick ones. On sort of the more difficult countries you’re exposed to, could you give us the megawatts you’ve got in Russia, Iraq and Libya please?

Angus Cockburn

Yes. We can do that. We’ve got about 310 megawatts in Argentina. We have got in Iraq, we have got…

Carole Cran

Yes, in Iraq, why I don’t I give – if you giving Russia and Iraq in revenue terms and then…

Angus Cockburn

Which will work percentage-wise to give an idea.

Carole Cran

To give you an idea. So as Angus said earlier, first half revenues for Russia were about £18 million, and you could roughly double out for the full year probably. And Iraq is about half of that size, revenue-wise. Libya, it’s 120 megawatts, that we’ve got there. And then the other country obviously in terms of the recent technical default that might be worthy of notice, Argentina where we’ve just got – just over 300 megawatts.

Alex Magni – HSBC

Okay. And Libya, that’s peak shaving so that should come off anyway?

Carole Cran

Sorry, Libya that’s one year contract.

Alex Magni – HSBC

Okay. And regarding the revenue booking on Panama, is it possible to quantify how much of that was effectively fueled that you build?

Carole Cran

Well not really obviously because of the way it works. So what we are doing – there is a capacity charge as we would normally have, which you typically on other contracts we make up 70%, 75% of the overall charge, but what we’re doing in Panama is literally on a daily basis, the spot rate will get struck, but it will get struck relative to what all in the market are offering. And then you just get as blended rate.

So it’s not a case of saying, okay, the fuel piece is X, because it’s up to us to source the fuel that we need to satisfy whatever that demand is at that rate. So with other contracts where we’ve had back-to-back fuel costs going straight through to the customer as fuel revenue, albeit, we’ve done the management of it, this is entirely different. It’s just a bundled price, where we knew from the fuel suppliers what they are going to charge us few days in advance, we then decide what we are going to price that onto the spot market and then we wait and see what volumes we get. So it is quite different, so therefore you can't actually separate out.

Alex Magni – HSBC

If you were to look at the P&L of that contract, presumably fuel would be a dominant cost, is that fair enough?

Carole Cran

Yes.

Alex Magni – HSBC

Okay.

Carole Cran

And as Angus said earlier, in the same way as in the local business where fuel revenue would come through a much lower margin than rental revenue, you can think of the same logic applying to this contract.

Alex Magni – HSBC

Okay. And then last one from me. Just in the comments you made on Africa, I suggested that there was some mining contracts in particular that you are pursuing. Just with the backdrop of the mining industry broadly being where it is, could you flush that out a little bit more? A bright spark in mining, but where?

Angus Cockburn

Yes, note that we’ve had two big contracts in DRC for many years, both came off-hire, and we see mining as a sector that would do very well in local, but we’ve not really done in the power projects business, i.e., in the countries where we don’t have a local presence. So we’ve put a couple of sales guys dedicated to looking at the Eritrea’s, the Ghana’s, the DRCs targeting new mines that have been build, and there are still mines that are being built and there is a number of mines also with power problems, particularly if you take Tanzania for example, some of the mines there that rely on the grid, when there is a hydro problem, then they lose power.

So there is all sorts of different opportunities for us in mining, and we are quite encouraged by the sector focus we have in mining, the sector focus in oil and gas that spills across the two businesses, just in terms of winning some incremental business that we really didn’t chase before.

Alex Magni – HSBC

Okay. And would these be junior miners or national miners?

Angus Cockburn

They tend to the junior miners. It’s quite interesting. We did a lot of analysis on the big guys and then the medium-sized and the junior. And the ones that are the most undercapitalized are the junior. We make huge sense to them, because why go and invest in a huge power plant when your mine is going to run like this over the 25 year period. We’re beginning to see them see the logic of taking us on and then dropping us off when power prices come down. We’ve seen that most actually in Chile, where we’ve done a lot of permanent mines, where we have got flexible power. They could come in and come out, and it works very well. It gives them a very flexible solution.

Alex Magni – HSBC

Okay. Thank you.

Angus Cockburn

And then Mr. John.

John Lawson – Investec

John Lawson, Investec. Just moving on to Argentina for a minute. You obviously flagged 310 megawatts, and as I understand it’s a several different bits of contracts. I wonder whether you could just sort of explain the structure of it a bit more detail, when these contracts are due to expire, and you obviously flagged earlier that you were only going to take new ones on if you get paid up to-date, and perhaps which brings me on the second element of the question is, is $80 million provision, which you’ve obviously sticking at, you find that adequate, and perhaps is it still sort of three major areas?

Carole Cran

Yes, if we work backwards, there is – across the whole power projects, there should be make assessment in terms of that provision level. As far as your question as to where that we think is adequate, then yes, we think that...

Angus Cockburn

[indiscernible] otherwise, we would have more.

John Lawson – Investec

Just challenging.

Carole Cran

At least I will say if it’s not adequate. No, we take a reasonably conservative approach we believe to the provision.

Yes, in terms of Argentina, 308 megawatts there today. The customer continues to pay regularly. There is a piece of overdue that we’re working through. To Angus’ point earlier, the Board looks closely at – there is a risk management every month and assesses how much we’ve got in any given country. And it wouldn’t make particular sense to us to go and put more megawatts into Argentina until we’ve got resolution on the debt.

That said, they are desperately short of power. Our local Argentinean business is running hard as well. We've obviously been asked what the implications of the technical default are. I guess, because if it’s so widely anticipated, it’s not had a particular reaction on the currencies yet.

In the period, we’ve continued to be paid. We’ve continued to be able to get smaller amounts of U.S. dollars on a daily basis. So it’s not great. Obviously, there has been a default, but our sense is because they are so short of power, and they are not going to be able to build permanent power because of their financial situations, so we continue to work the situation, but we’re hopeful that we’ll make progress.

Angus Cockburn

And there is contracts all over Argentina. I’ve been out and visited a number of them in the last two or three years. And they literally are extremely remote in the middle of nowhere. And you can only sort of fly to them to avoid four day car journey. And you’ll land in this field, you bump along and you stagger into this 30 megawatt Aggreko power plant, where if that wasn’t running, there would be no electricity for that surrounding area.

So we’ve got a whole series of eight to 10 contracts which come off, come on, or get renewed at different times across the piece. So there is never a month that goes by when we’re not renewing a contract in Argentina. So, at the moment it’s business as usual with what we’ve got on there.

John Lawson – Investec

But there is no particular bulge when a lot expire for instance?

Angus Cockburn

Yes, we’ve got a chunk in the second half of this year, but we’ll have more again in the first half of next year, and then second half again in the next year as well.

Karl, I thought you might have lost the will to live.

Karl Burns – Panmure Gordon

Thanks. It’s just a follow-up from Alex’s question. So you can't split out fuel from Panama, that’s fair enough and I’m sure you wouldn’t want to give us the contract margin, but can you say off the power projects growth in Americas, what proportion of that growth was represented by Panama. Just some sense to how big that’s got by revenues?

Carole Cran

Yes. In terms of the 14% in the first half, if you took Panama out completely, that would be about 8% or 9%.

Karl Burns – Panmure Gordon

Okay, thank you.

Angus Cockburn

Good. Well, thank you all very much indeed. And we’ll look forward to seeing you at an event that we’re going to organize in the next few weeks.

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