IGAS Stress Simulation Model
Power Report
RapidKnowHow
Executive Summary
Industrial Gas 2026–2030 operates in a structurally elevated energy regime.
The decisive question for Boards is no longer:
“What is our reported ROCE?”
It is:
“What happens to our ROCE under stress?”
Energy shocks do not only reduce EBIT.
They:
- Expose weak pass-through discipline
- Amplify merchant volatility
- Inflate capital employed
- Compress valuation multiples
This report defines the IGAS ROCE Stress Simulation Model —
a governance tool for volatility-era capital discipline.
1️⃣ The ROCE Transmission Equation
ROCE = EBIT ÷ Capital Employed
Under energy shock, both variables move:
EBIT ↓ (if PTE < 1.0)
Capital Employed ↑ (inventory + receivables inflation)
This dual effect accelerates compression.
ROCE erosion under volatility is non-linear.
2️⃣ Energy Shock Stress Variables
The IGAS ROCE Stress Simulation incorporates:
1️⃣ Energy Cost Increase (%)
2️⃣ Portfolio-Weighted PTE
3️⃣ Merchant Share (%)
4️⃣ Utilization Change (%)
5️⃣ Working Capital Inflation (%)
6️⃣ Capex Sensitivity
These variables determine resilience corridor vs erosion trajectory.
3️⃣ Base Case vs Stress Case
Example: €4bn EU IGAS Operator
Base Case:
EBIT: €700m
Capital Employed: €3.8bn
ROCE: 18.4%
Stress Case Scenario
Energy +20%
PTE = 0.75
Merchant share = 30%
Utilization −5%
Working capital +5%
Estimated Impact:
EBIT reduction: €60–80m
Capital employed increase: €150–200m
New ROCE range: 14–16%
Compression: 2.5–4.5pp
This shift materially affects valuation and capital flexibility.
4️⃣ Structural Thresholds
Under elevated baseline volatility:
ROCE > 18% → Resilience Corridor
ROCE 16–18% → Monitoring Zone
ROCE 14–16% → Structural Risk
ROCE < 14% → Strategic Vulnerability
Below 16% under stress, consolidation pressure increases.
5️⃣ Compounding Effect (2026–2030)
A persistent 2–3pp ROCE gap sustained over 3–4 years leads to:
- Lower retained earnings
- Reduced acquisition capacity
- Multiple compression
- Strategic drift
Volatility does not destroy value instantly.
It compounds asymmetrically.
6️⃣ ROCE & Market Value Link
Market Value = Earnings × Multiple × Stability
Investors reward:
Predictable ROCE under stress.
Operators demonstrating:
- Transparent stress testing
- Stable transmission discipline
- Volatility-adjusted capex approval
retain valuation premium.
ROCE stability becomes a multiple premium driver.
7️⃣ Capital Allocation Under Stress
The simulation reveals a new governance principle:
Capex must pass stress ROCE > 18% under +20% energy scenario.
Projects justified under baseline assumptions
but failing stress test
erode long-term shareholder value.
Volatility-adjusted capital discipline becomes mandatory.
8️⃣ AI-Orchestrator Application
The IGAS AI-Orchestrator™ applies:
Signal:
Model energy shock sensitivity continuously.
Prioritize:
Flag projects and segments below resilience threshold.
Act:
Adjust pricing, renegotiate clauses, rebalance merchant exposure.
Capture:
Protect FCF and ROCE corridor.
Reinforce:
Shift portfolio toward stress-resilient segments.
ROCE becomes actively governed — not retrospectively measured.
9️⃣ Stress Simulation Governance Questions
Boards should regularly ask:
- What is our ROCE under +20% energy shock?
- What portion of compression is due to PTE leakage?
- How much capital employed inflation accompanies shock?
- Which segments fall below 16% under stress?
- Are we approving capex under baseline optimism?
If these answers are not visible within minutes, governance discipline is insufficient.
🔟 Strategic Conclusion
Industrial Gas 2026–2030 is a stress-tested regime.
The decisive variable is not revenue growth.
It is:
ROCE stability under volatility.
Operators that simulate stress proactively preserve strategic optionality.
Operators that do not discover erosion through performance drift.
Volatility separates disciplined capital stewards from optimistic growth seekers.
Final Reflection
Energy shock does not determine winners.
Stress-tested capital discipline does.
The IGAS ROCE Stress Simulation Model transforms volatility from surprise into governance advantage.
IGAS AI-Orchestrator™
by RapidKnowHow
Independent Board Intelligence for Industrial Gas Volatility & ROCE Governance
