Annual Report and Notice of Annual General Meeting

Key Risk

Description

Impact

How we Manage it

Strategy

Failure to deliver the growth plan

The Group's strategy is primarily based on organic growth via the deployment of capital into new temporary power projects that are value accretive. This organic growth is dependent on the Group's ability to effectively secure new projects and to scale the infrastructure of the business to support execution.

The inability to deploy capital successfully into new projects, scale its infrastructure and maintain its growing fleet could have a material adverse effect on the financial results of the Group.

• A detailed annual operating plan has been established, approved by the Board, and performance is monitored

• The regional business development organisation is fully deployed and operational. The pace of capital expenditures is aligned with the commercial pipeline

Contracts are temporary in nature and may be nonstandard

The Group operates in an industry where the majority of contracts are short-term (typically 12-18 months) and may include nonstandard terms. There are no assurances that any particular customer will renew or extend a contract.

Assets may be idle for a period of time before they are redeployed in a revenue generating capacity or nonstandard contract terms may have been agreed without appropriate levels of approvals.

• The Group's commercial team takes a dual approach, which involves pursuing contract extensions with existing customers whilst also pre-marketing assets that may soon become available

• A commercial pipeline process tracks new contract opportunities from opportunity identification through to final contract signature

• Asset utilisation models are used to manage fleet assets

• Each proposed contract or extension is reviewed by appropriate levels of management, including any nonstandard terms prior to official signoff

Asset concentration

Given the scale of the Group's customer base, a high concentration of assets and/or the loss of any single major customer could have an adverse impact on the results of its operations.

Any such loss of a major customer contract could materially impact revenues and associated profitability.

• The Group is pursuing a strategy of geographic and market diversification, as demonstrated by its regionalisation strategy, and continues to focus on expansion of its customer base to lessen the impact of any single customer loss. Distribution of assets across multiple sites helps to mitigate the risk pertaining to an issue at any given location. Also, the Group pursues longer- term contracts as a way to reduce project roll-off risk, which is inherently higher with short-term contracts

• Commercial opportunities are balanced across regions, customer segments and technology to align with strategic growth objectives

• The Group maintains a regular dialogue with major customers at a senior level to help understand and anticipate their future plans

Key Risk

Description

Impact

How we Manage it

Market

Global political and economic conditions

The Group's strategy is primarily based on organic growth via the deployment of capital into new power projects that are value accretive. This organic growth is dependent on the Group's ability to effectively secure new projects and to scale the infrastructure of the business to support execution.

Declines in economic activity, slowing of growth rates and customer access to funding could impact the growth strategies of the business.

Additionally, changes in political regimes or political unrest pose potential risk to existing contracts and/or the timing of potential new contract opportunities.

• A detailed annual operating plan has been established, approved by the Board, and is monitored monthly

• The regional business development organisation is fully deployed and operational. The pace of capital expenditures is aligned with the commercial pipeline

• The Group is pursuing a strategy of geographic and market diversification with a focus on continuing to expand its customer base to lessen the impact of economic cycles and/or political changes

• A commercial pipeline process has been established to track new contract opportunities and includes risk management elements

• APR recognises that some of the countries in which it operates have experienced political, social, economic and security instability. The Group is proactive about mitigating all or a portion of its international currency and asset exposures through various risk mitigation tools. Those include the use or purchasing of insurance, bonds, guarantees and cash advances to protect its assets, both financial and operational, as well as the employment of extensive security operations and monitoring of political and security developments in certain high risk areas

Volatility in customer demand, including event driven demand

Customer demand inherently fluctuates and, in many cases, is driven by external events that are difficult to predict.

Fluctuating demand can create volatility in trading results. Higher margin event- driven (emergency) contracts may not be sustainable on a consistent basis.

• By developing a global expanded customer base, the impact of any single event can be mitigated

• A regional hub strategy has been implemented to help ensure that equipment is available nearby to customers and can be utilised in the event that an immediate market opportunity arises

Increase in competitive environment

While barriers to entry in our market space remain high, there is the potential for new or expanding entrants to compete with the Group.

New entrants may create pricing pressure in the market and lead to reduced margins.

• The Group's business development team regularly monitors competitive activity and publicly available pricing dynamics to understand changes in the market

• The Group focuses on maintaining a world-class competitive offering using best-in-class technology to provide responsive customer service and pricing that is aligned with our overall value proposition

Key Risk

Description

Impact

How we Manage it

Operations

Employee, contractor and asset security

The Group's operations are highly capital intensive and require a number of employees and contractors to run. In many cases, projects require the placement of high-value equipment, employees and contractors into volatile environments.

The potential exists for nationalisation, expropriation and/or theft of high-value assets.

• The Group maintains a comprehensive global property insurance programme

• In addition, there is a global political risk insurance programme that can be implemented on a country-by-country basis to protect against government actions relative to assets, such as expropriation or nationalization

• In many cases, standby letters of credit from customers are required for asset security

• The Group has an extensive security operation comprising trained and experienced employees and contractors to secure the Group's human capital and assets

Focus on developing markets, with operations in difficult regions of the world

The Group's operations are highly decentralised and, in many cases, the Group operates in regions of the world where corruption and bribery are commonplace.

This may expose the Group to unethical behaviour and potential legal/regulatory violations that could have a significant financial and reputational impact.

• The Group has instituted a comprehensive compliance programme that includes a broad anti-corruption policy, extensive training and monitoring on a regular basis, with all new employees required to undertake training upon joining and existing employees required to retrain on an annual basis

• Third-party agents/contractors are thoroughly vetted prior to any engagement and are required to provide compliance certifications

• Additionally, the Group has Compliance Hotline, on which employees can report anonymously any suspected violation. The Group has a 'no retaliation' policy for those that do report potential compliance violations. Moreover, the Company's Board has adopted a 'zero tolerance' policy on corruption - evidencing the Senior Management Team's strong regard for compliance

• All of these best practices are designed to deter corruption in the Group's global business

Recruitment and retention of key staff

The Group depends on the recruitment and retention of key senior management in order to effectively manage the business.

The loss of key senior individuals in the organisation or the inability to recruit sufficient talent could jeopardise APR Energy's ability to execute its growth plans.

• Competitive remuneration policies, including a performance share plan, have been put in place to attract and retain key personnel

• A talent review and development process is in place across the organisation with a focus on providing growth opportunities across the organisation

Environment, health and safety

The Group's operations involve the movement, installation and operation of large electrical equipment, which often operates at high voltage. In addition, the handling of fuel, oil and other hazardous materials is a common part of the day-to-day activity.

Plant personnel could be subject to safety hazards that lead to injury or loss of life. Operations could be subject to an accidental spill of fuel or other hazardous materials, which also could impact surrounding communities.

• The Group has implemented comprehensive health and safety policies and procedures at all sites. An extensive training programme has been rolled out to all personnel

• The Group has strengthened its security arrangements, including the introduction of a Group Security Director, country security managers in higher-risk countries and the introduction of a Group security standard setting out mandatory principles and procedures for all our locations

• The development of environment, health and safety performance indicators is ongoing and will be reviewed regularly with the Board

Key Risk

Description

Impact

How we Manage it

Financial

Movements in cost inputs

The business model is dependent on the procurement of capital equipment, services, labour and other cost inputs associated with timely installation and operation of turnkey power plants around the world.

Changes in the cost of key inputs could have a material adverse effect on the operating margins of the business.

• The Group has two key supplier framework agreements with GE and Caterpillar that have fixed pricing and are indexed to an annual inflation indicator thereafter

• Significant cost efficiency projects are underway

• Contract terms are in place and weekly monitoring protocols exist to avoid/reduce penalties

Payment default

The Group has a number of contracts with customers in developing countries where payment practices can be lengthy and unpredictable.

Delay in payments or default could adversely affect the financial performance of the business.

• Prior to contracting with a customer, a thorough risk assessment is completed including a credit risk review

• In many cases, the Group requires the customer to post standby letters of credit (LCs), and in some cases, documentary LCs as payment security, decreasing the impact of any individual contract default

• The Group's strategy is focused on increasing the scale and diversification of the business

Funding Risk

The business model is dependent on external funding for the procurement of capital equipment, services, labour and other costs to operate the business.

Adverse changes affecting access to funding or the higher costs associated with replacing maturing debt could have a material adverse effect on the business.

• The Group increased its credit facility to $770 million during 2014 with its group of lending banks. The credit facility includes provisions allowing for amendments to be requested, if necessary. See note 26 in the financial statements regarding the new amended facility

• The Group enjoys good ongoing relationships with its lenders

• Alternative financing opportunities are available to APR Energy and are continuously evaluated by the Group

$ million

2014

2013

Remuneration

5.0

7.0

Other long-term benefits

0.1

0.1

Termination benefits

0.4

-

Equity-settled share-based payment expense

3.1

2.8

8.6

9.9