17 Apr 2019 17:14
ContourGlobal plc ("ContourGlobal " or the "Company")
2018 Annual Report & Accounts
ContourGlobal has today published its annual report for the year ended 31 December 2018 (the "2018 Annual Report") and Notice of Annual General Meeting to be held at 9.30am (London time) on 21st May 2019 at 116 Pall Mall, London SW1Y 5ED. Both documents can be viewed at www.contourglobal.com/reports.
Copies of both documents, together with the form of proxy for the 2019 AGM, have been submitted to the National Storage Mechanism and will shortly be available for inspection at www.morningstar.co.uk/uk/NSM.
Printed copies of these documents have today been posted to shareholders.
In compliance with DTR 6.3.5, a description of the Company's principal risks and uncertainties, details of related party transactions and a responsibility statement prepared for and contained within ContourGlobal's 2018 Annual Report are set out below. A condensed set of financial statements were appended to ContourGlobal's 2018 full year results announcement issued on 5th April 2019, which included an indication of important events that occurred during the year. This announcement is not a substitute for reading the full 2018 Annual Report.
Page references and note references below refer to page numbers and numbers of notes to the accounts in ContourGlobal's 2018 Annual Report.
Legal Entity Identifier: 5493002I3A4J5TFOR115
Enquiries
Media - Brunswick Charlie Pretzlik/Simon Maine +44 (0) 207 404 5959 Contourglobal@brunswickgroup.com |
Principal Risks and Uncertainties
The principal risks and uncertainties can be found on pages 63 to 67 of ContourGlobal's 2018 Annual Report and are set out below in full and unedited text.
Risk Factor | Main impact | Risk Response (management and mitigation)
|
R01 - Strategy - Impact of governmental actions and regulations | ||
The risk that governmental actions or changes in (1) taxes or (2) regulations of our non-PPA long-term fixed rate arrangements (i.e. feed-in-tariffs) and Power Purchase Agreements (PPAs) including investigations by regulatory or competition law authorities, without regulatory risk pass-through mechanisms will have a negative impact on our results of operation.
Risk unchanged
Included in the sensitivity analysis on principal risks for viability and going concern assessment. | Deterioration of financial performance including loss of revenue and an increase in expenses.
Loss of business/growth opportunities: - Termination of agreements - Inability to obtain, maintain or renew required governmental permits/ licenses
Inability to receive permits for extension of existing capacities. | PPAs are held with state-owned, regulated or other off-takers, the majority of which are rated by Standard & Poor's, with a weighted average credit rating of BBB- (weighted by EBITDA).
PRI policies (from commercial insurers) are in place for several projects in case of events that can affect our assets, in particular the loss of invested capital. In some cases, these cover a return on our capital. These include:
Maritsa, Vorotan, KivuWatt, Togo, Nigeria, Cap des Biches, TermoemCali, Sochagota, Slovakia and Kosovo.
Close relationships are maintained with energy lawyers and associations to anticipate any potential changes in regulation and express our interests.
Partnerships are fostered with multilateral development banks for both equity and debt which makes governments reticent to renegotiate.
Investment is placed in local communities and hiring locally.
The business has a sovereign credit rating of A post PRI impact (based on the individual sovereign ratings determined by Standard & Poor's).
|
Maritsa anticipates that in the near term it will engage in discussions with the government of Bulgaria related to the Bulgarian energy regulator's complaint to the EU Commission that the Maritsa PPA contains elements of state aid. While we cannot predict the outcome of such negotiations, any resolution could nonetheless contain terms that adversely affect the Maritsa PPA and have a material adverse impact on Maritsa's and ContourGlobal's business.
Risk Factor | Main impact | Risk Response (management and mitigation)
|
R02 - Macroeconomic and political conditions | ||
The risk that macroeconomic and political conditions such as geopolitical uncertainty, social instability, sanctions and trade war will create additional uncertainty for our international operations and have a negative impact on the business model and supply chain limiting our flexibility in cross-border investments.
For example, the continuing uncertainty around Brexit and the future trading and transition relationship between the UK and the EU creates an uncertain operating environment.
Included in sensitivity analysis on principal risks for viability and going concern assessment.
New Risk added in 2018. | Deterioration of financial performance: - Increase in operational costs - Higher financing transaction costs - Disruption of operation of one or more of our assets - Increase in Opex and Capex - Loss of invested capital - Adverse effect on results of operation - Unforeseen additional recurring costs vs. financial model projections (project IRR and cash flow) - Charges and penalties due to non- compliance with external requirements
Loss of business / growth opportunities: - Inability to operate effectively - Termination of agreements - Fewer opportunities for growth
Business disruption: - Inability to procure required equipment - Impact on EAF and EFOR
Brexit: - Deterioration of capital offers due to uncertain financial implications, increased cost and possible disruption to the supply of goods and services, possible increase of regulatory risk. However, currently we do not anticipate that Brexit will have a material impact on our operations or our financial results.
| PRI policies (from commercial insurers) are in place for several projects in case of events that can affect our assets in particular in Africa and Eastern Europe.
In some cases we can recover a return on our capital: Maritsa, Vorotan, KivuWatt, Togo, Nigeria, Cap des Biches, TermoemCali, Sochagota, Slovakia and Kosovo.
Our diversified operations limit the downside as the impact of a localized geopolitical effect is unlikely to have a significant effect on the full portfolio.
Diversification of jurisdictions and technologies minimizes the risk.
Access to several financial markets allow the business to choose the most opportune sources of transactional financing.
Investment in local communities and hiring locally creates goodwill with local governments and populations.
Minimal existing risk mitigation in place though diversified business help mitigate potential impact.
Analysis of suppliers and supply chain. |
R03 - Operation and execution - Project execution (CAPEX) | ||
The risk that inefficient project management and execution of greenfield construction or refurbishment investment projects will result in delays or unanticipated cost overruns.
Risk decreased due to decrease of the likelihood of the events related to realization of this risk over 3-year horizon.
Included in the sensitivity analysis on principal risks for viability and going concern assessment. | Financial impact e.g.: - Overrun of project costs (including financing fees) vs. investment case impacting projected cash flows and IRR - Liquidated damages/ penalties/litigation - Reduced revenue due to construction delays - Potential defaults on financing and debt repayment before COD
Image and reputation impact resulting from a loss of credibility with counterparties, lenders and other stakeholders. | Controlling methodology: specific internal resource is dedicated to provide guidance and best practice to ensure strict and real time project cost control, enabling cost overruns to be identified early and mitigation actions put in place.
Minimizing the risk of exceeding construction budgets by entering into fixed price contracts with engineering, procurement and construction (EPC) contractors with proven track records.
EPC contracts contain back-to-back liquidated damages provisions which protect ContourGlobal against construction delays and other breaches by EPC contractors.
Contract monitoring and management with legal support.
External support to obtain permits.
Project Review Procedure: monthly review of the projects organized by the Project Management Team (including the Group COO) and presented to the Project Steering Committee. |
R04 - Operation and execution - Asset integrity (OPEX) | ||
The risk that asset maintenance processes are not managed in line with the O&M plan and quality standards will prevent the power plants from delivering electricity and ensuring availability at the levels defined in the long-term PPAs.
Risk unchanged | Deterioration of operational performance: - Business interruption and power outages - Performance below expected efficiency and output levels - Inability to deliver electricity or ensure availability defined in long-term PPAs
Reduced profitability and cash flows: - Increase of expenses (OPEX & CAPEX): - Unplanned O&M and capital expenditures - Loss of revenue and PPA penalties - Liquidated damages - Reduction in distribution and inability to service debt
Reputational impact.
| Business interruption insurance.
O&M strategy focusing on HSE, O&M Organization, O&M performance management, benchmark and KPIs.
Maintenance strategy including hydro and civil structures.
O&M IT systems (including remote monitoring control room).
Maintenance activities with regular KPIs for control, and timely corrective actions.
Daily KPIs and improvement meetings between local plant managers and operators. |
R05 - Operation and execution - Resources/Climate change | ||
The risk that climate change (e.g. changes in temperature, wind patterns and hydrological conditions) will affect the certainty of our forecasts, will impact our operations and adversely affect our financial performance.
Risk unchanged
Included in the sensitivity analysis on principal risks for viability and going concern assessment.
| Deterioration of financial performance including a loss of revenue and/or an increase in expenses (O&M costs).
Impact on the operational performance with a strong deviation of actual renewable generation vs. projections in the investment case specifically for wind and hydro.
Loss of assets.
| Diversified geographical and technological portfolio of assets.
Extensive weather phenomena studies and due diligence before acquisitions.
Sign-off on all investment case assumptions by a reputable advisory firm.
Scenario analysis carried out across the portfolio. |
R06 - Health, safety and environment (HSE) and food - prevention and regulation | ||
The risk that failure to prevent major health, safety, environmental and food (CO2 production) incidents and/or comply with relevant regulations due to inherent risks related to our activities (fuel types, technology, equipment in more than 20 countries) will have a material adverse impact in our operations, financing conditions and reputation.
Risk unchanged | Human and environmental impact: - LTIs (Lost Time Incidents) and fatalities of ContourGlobal employees, contractors or people in local communities around the facilities due to incidents at the power plants - Environmental accidents on site and in local communities
Reputational impact.
Financial and operational impact: - Increase in liabilities and compliance costs - Business interruption - Loss of efficiency/productivity - Breach of loan covenants - Non-compliance with applicable HSE legal requirements and potential sanctions | Health and Safety Policy reviewed annually and communicated Company- wide.
Health and Safety and Environmental management system is aligned with H&S 18001, ISO 14001 standards, and also with World Bank guidelines, namely the IFC Performance Standards.
Monitoring of reactive indicators (such as responses to accidents) and proactive indicators (including known hazards, inspection quality and number of training hours).
Intense regular training.
Strong environmental policies and procedures: - each business's compliance with applicable policies, local laws and permit requirements is managed directly by the business - oversight and audit through operations, environmental, health and safety departments
Third-party contractors' environmental audits.
Arrubal, Togo and Knockmore Hill have achieved ISO 14001 certification.
Adherence to a Company-wide environmental policy, reflecting the business commitment to the United Nations Global Compact. |
R07 - Regulation and compliance - Fraud, bribery and corruption | ||
The risk that lack of transparency, threat of fraud, public sector corruption, money laundering and other forms of criminal activity involving government officials or suppliers will result in a failure to comply with anti-corruption legislation, including the UK Bribery Act 2010 and other international anti-bribery laws.
Risk unchanged
Included in the sensitivity analysis on principal risks for viability and going concern assessment. | Financial impact: - Financial losses as a result of fraudulent activities - Violations of anti-corruption or other laws - Criminal and/or civil sanctions against individuals and/or the Company - Loss of trust by key stakeholders - Debarment by multilateral development banks and international financial institutions
Reputation impact and loss of trust.
Exclusion from government funding programs. | A strong anti-bribery compliance program that reflects the components of an 'effective ethics and compliance program' as set forth by various international conventions and enforcement authorities, which is reviewed at least quarterly.
Policies and procedures include: - Code of Conduct and Business Ethics - Anti-Corruption Policy - Anti-Corruption Compliance Guide - Policy for Engaging Supplier and Third-Party Service Providers - Gifts & Hospitality Policy - Compliance Transactional Due Diligence Protocol - Business Development Consultant Compliance Protocol
Annual certification by employees.
Risk-based due diligence, including for third parties and transactions.
Online portals: - Third-Party Service Provider and Supplier Portal - Gifts & Hospitality Portal - Document Review and Signature Approval Procedure (cross-functional) - Ethics Line
Regular checks and audits: - Bi-annual combined Compliance and Finance Audits - Internal spot checks
Tailored, risk-based training according to a yearly training plan.
|
R08 - Information technology - Cyber security and system integrity | ||
The risk that insufficient IT security or maintenance of systems will expose the Company, to data corruption e.g. a GDPR breach or cyber intrusions. This could have a negative impact on information systems as well as electronic control systems used at the generating plants, and could disrupt business operations, resulting in loss of service to customers, expense to repair security breaches and/or system damage.
Risk decreased due to an increase in the level of controls which were strengthened over the year at corporate and plant level.
Included in the sensitivity analysis on principal risks for viability and going concern assessment.
The risk combines two information technology risks from last year's report: cyber security and integrity & reliability of corporate IT systems.
| Organizational and operational impact: - Disruptions to business operations - Compromise of data integrity in core systems
Financial impact: - Potential for fraudulent activity due to segregation of duties conflicts - Penalties related to non-compliance with data-related laws and regulations - Loss of revenue due to disruptions to operations
Impact on reputation due to breach of confidentiality. | Dedicated security function established for corporate and plant IT.
Plants - Physical access controls - Dedicated plant IT functions established to consolidate IT management approach in the plants under a global framework of IT/OT security policies and procedures. This local segregated approach to the management of plants minimizes risk.
Corporate - Security governance controls in place (including security policies, security training, security reviews) - Security systems implemented (e.g. anti-virus, web filtering, firewalls, multifactor authentication, encryption) Security information and event management system (SIEM) implemented in 2018. - Infrastructure hosting security in place (ISO-27001 compliant data centers) - User provisioning process for key financial accounting and reporting systems, and segregation of duties where applicable - Governance processes in place (e.g. change management, incident management) - Annual external audits of financial systems and IT security
|
R09 - People and organization - Key people (senior executive management) succession planning | ||
The risk that a combination of key people's (senior executive management) departure at short notice may affect the Company's ability to deliver its strategic objectives and the overall Company performance.
Risk unchanged | Removal or departure of key individuals could result in operational disruption, while competition for employees could lead to higher than expected increases in the cost of recruitment, training and employee costs.
Loss of key management members could have a reputational impact. | Focused action to attract, retain and develop high caliber employees.
Initiatives which reinforce behaviors to generate the best outcomes for customers, partners and employees.
Managing organizational capability and capacity to meet our customers' needs. Effective remuneration arrangements to promote effective employee behaviors.
Clear succession plans to ensure trust levels remain. |
Related party disclosure
ContourGlobal L.P. and Reservoir Capital Group
As of 31st December 2018 ContourGlobal plc and its subsidiaries have no significant trading relationship with the Group's main shareholder, ContourGlobal L.P., and Reservoir Capital Group which ultimately controls ContourGlobal L.P.
Key management personnel
Compensation paid to key management (executive committee members) amounted to $11.8 million in 31st December 2018 (31st December 2017: $8.7 million).
| Years ended 31st December | ||
In $ millions | 2018 | 2017 |
|
Salaries and short-term employee benefits | 5.9 | 4.8 |
|
Termination benefits | 2.8 | 0.8 |
|
Post employment benefits | 0.1 | 0.2 |
|
Profit-sharing and bonus schemes | 2.8 | 2.9 |
|
Private incentive plan1 | 4.1 | - |
|
Other share-based payments | 0.2 | - |
|
Total | 15.9 | 8.7 |
|
1 Refer to note 4.26.
Directors' emoluments are disclosed within the Directors' Remuneration Report for the year ended 31st December 2018, and in relation to the period post incorporation of the Company for the year ended 31st December 2017.
Certain members of management are party to an agreement with a company that co-owns (but has a minority share) with ContourGlobal certain assets in Brazil. Under this arrangement, such members of management may receive distributions if the minority co-owner company achieves a certain level of return on its investment in those Brazilian assets. This minority co-owner company is a related party to ContourGlobal as it is owned and controlled by one of the ContourGlobal Directors. ContourGlobal is not party to the arrangement and has no financial obligation related to it.
Statement of Directors' responsibilities in respect of the financial statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation.
Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union and parent company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', and applicable law). Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and parent company and of the profit or loss of the Group and parent company for that period. In preparing the financial statements, the Directors are required to:
• select suitable accounting policies and then apply them consistently;
• state whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 102, have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements;
• make judgments and accounting estimates that are reasonable and prudent; and
• prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and parent company will continue in business.
The Directors are also responsible for safeguarding the assets of the Group and parent company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and parent company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and parent company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
The Directors are responsible for the maintenance and integrity of the parent company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the group and parent company's performance, business model and strategy.
Each of the Directors, whose names and functions are listed in the Directors' Report confirm that, to the best of their knowledge:
• the parent company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 'The Financial Reporting Standard applicable in the UK and Republic of Ireland', and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company;
• the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and
• the strategic report includes a fair review of the development and performance of the business and the position of the Group and parent company, together with a description of the principal risks and uncertainties that it faces.
Joseph C. Brandt
President, Chief Executive Officer and Executive Director ContourGlobal plc
4th April 2019