GLO.L Regulatory News (GLO)

ContourGlobal plc

Preliminary Results Announcement

Record adjusted EBITDA, up 17% to $842 million and 10% annual dividend increase with quarterly dividend of USD 4.465 cents / 3.3923 pence per share

● Record financial performance with revenue up 53% to $2,152 million

● Adjusted EBITDA[1] up 17%, 15% on constant currency basis to $842 million

● Funds from Operations[2] up 16% to $440 million

● Record CFADS[3] of $367m up 34% year-on-year

● Income from Operations up 20% to $370 million

● Dividend up 10%, in line with our progressive dividend growth policy and representing a dividend coverage[4] of 2.8x 

ContourGlobal plc ("ContourGlobal" or the "Company"), an international owner and operator of contracted power generation plants, today announces its full year results for the twelve months ended 31 December 2021.

Joseph C. Brandt, President and Chief Executive Officer of ContourGlobal, said:

"Throughout 2021, and with one important exception, our performance across the business was strong. I am particularly pleased with our robust financial performance in the second half of the year. In FY 2021, we achieved a record adjusted EBITDA of $842 million while maintaining our 10% year-on-year dividend growth policy and a solid cash conversion ratio[5] of 52%. We also delivered record CFADS of $367 million, up 34% over the previous year.

Our primary operational focus remains, as always, on the safety and well being of our people. We have had two unacceptable safety failures in Q3 2021, one fatality at our wind farm in Brazil and another Lost Time Incident at our CSP plant in Majadas, Spain. We remain committed to our Target Zero policy and will do better in 2022.

We closed the acquisition of Western Energy Group in the first quarter of 2021 and the financial results of these plants in the United States and Trinidad have been better than planned. We also made excellent progress on the repowering of our portfolio of wind farms in Austria and executed a further bolt on solar acquisition in Italy. In early January 2022, we signed the sale of our Brazil hydro business at an attractive valuation, the first step in the divestiture of our Brazil renewables portfolio.

We are confident about our growth prospects and ability to create value through a combination of operationally led value accretive M&A and greenfield development in both the thermal and renewable space. As with the sale of our Brazilian renewables business, we will continue to take major steps to unlock and return value for shareholders as evidenced by the more than 50 pence per share returned to shareholders in the past four years.

The European power markets are experiencing unprecedented stress owing to Russia's invasion of Ukraine. Our European portfolio is highly diversified and this diversification is a source of robust resilience. We see significant opportunity in this market and believe the diversity of our global business is a source of risk mitigation underpinning our financial commitments including our dividend increases. Looking forward to 2022 and beyond, we remain confident and committed to creating value and delivering attractive risk adjusted returns for our shareholders." 

 KEY HIGHLIGHTS

Dividend

● Fourth quarter dividend of 4.465 cents per share, equivalent to 3.3923 pence per share[6], to be paid on 14 April 2022, reflecting a 10% year-on-year growing dividend supported by our strong and visible cash flows.

● $470 million[7] returned to shareholders since the IPO

● Cash dividend cover remains strong at 2.8x

Robust financial performance

● Revenue up 53% to $2,152m ($1,411m in FY 2020) mainly driven by the Western Generation acquisition (+$207m), as well as higher CO2 pass through revenue from Maritsa (+$276m), higher pricing and dispatch in Arrubal (+$129m) and positive foreign exchange movement (+$39m)

● Record adjusted EBITDA of $842m up 17% ($722m in FY 2020), mainly driven by the Western Generation acquisition (+$85m) and strong performance in Arrubal (+$20m)

● Income from Operations up 20% to $370m ($308m in FY 2020)

● Funds from Operations ("FFO") of $440m, a 16% increase from $380m in FY 2020, and a broadly stable cash conversion of 52.3% (52.6% in FY 2020)

● Cash flow from operations of $826m, a 15% increase from $720m in the FY 2020

● Record CFADS of $367m up 34% year-on-year

Net debt

● $3.8 billion net debt[8] as at 31 December 2021 ($3.5 billion as at 31 December 2020)

● Net consolidated leverage ratio of 4.6x[9] at 31 December 2021 versus 4.8x reported at 31 December 2020 (5.2x[10]Proforma for the Western Generation acquisition at 31 December 2020)

● Net parent company leverage[11] of 3.4x in 2021 (3.0x in 2020)

*Non-IFRS metrics

Operational performance

● Solid operational performance across the fleet of 138 power plants

● Poor Health and Safety performance due to a fatality in Brazil, our second fatality in 15 years, and an additional LTI in Spain. The LTI rate in 2021 was 0.073.

● An in-depth investigation was carried out on the fatality incident to ensure all root causes are identified and addressed. We have recommitted to our "Target Zero" program, the Company wide expectation that we will incur zero incidents in all businesses.

● Key operational achievements in a challenging environment were the completion of the electro-mechanical refurbishment project of the hydro cascade in Armenia as well as the successful integration of the Western Generation Acquisition including zero forced outages in 2021 at Borger and a record EAF at our Hobbs power plant.

● 94.4% combined Equivalent Availability Factor ("EAF") across the fleet in 2021 (2020: 95.0%).

● Performance across the Thermal fleet consistently meaningfully above the weighted average PPA minimum availability requirement which determines contracted capacity payments.

● Hydro performance improved over 2020 following the finalization of the planned refurbishment in Armenia. Stable performance of Solar fleets. Wind slightly weaker performance mostly driven by Brazil.

● Total fleet Availability Factor remained strong with individual segments shown below.

Russian invasion of Ukraine and European power market implications

ContourGlobal does not own or operate any power plants in Russia, Belarus or Ukraine. Supply chain exposures related to associated sanctions and trade disruption are primarily centered on Maritsa. Unprecedented volatility in the commodities markets, particularly for nickel, copper, lithium and natural gas, will have cost impacts throughout our supply chain and will increase the cost of new projects. Numerous policy proposals have been floated in recent weeks by European Governments and the European Commission to mitigate the impact of unprecedented natural gas and electricity prices on consumers and businesses. Such polices may alter the markets into which electricity from our plants is sold impacting the profitability of uncontracted power plant such as Arrubal. At the same time, the introduction of regulated pricing contained in recent proposals would positively impact our European thermal fleet. 

Current trading and outlook

· Positive outlook for future growth, value realization and return of capital to shareholders

· The current financial year has started positively and overall trading across the Group is ahead of the Board's expectations.

· The Company's trading continues to underpin the Board's confidence in the continued growth in dividends to shareholders. 

Additional Information

*Non-IFRS metrics

*Non-IFRS metrics

Presentation and conference call

The Company will host a conference call for analysts and investors at 08.00 GMT, 18 March 2022

The meeting can be accessed via a live webcast and dial-in. Details provided below. A copy of the presentation will also be made available online ahead of the meeting on our website at https://www.contourglobal.com/reports 

Webcast link

 https://broadcaster-audience.mediaplatform.com/#/event/622f21b3c7edd303049b32cc

Conference details

Standard International Access

+44 (0) 33 0551 0200

US +1 212 999 6659

Switzerland

+41 (0) 43 456 9986

Singapore Local

+65 6494 8889

Password: ContourGlobal

Enquiries

Jose Cano

SVP Investor Relations

Email:

Jose.Cano@contourglobal.com

Phone:

+44 (0) 203 626 9062

Media - Brunswick

Charles Pretzlik / Will Medvei

Tel: +44 (0) 207 404 5959

Contourglobal@brunswickgroup.com

Cautionary note regarding forward-looking statements

These results include statements that are, or may be deemed to be, "forward-looking statements". These forward-looking statements can be identified by the use of forward-looking terminology, including (but not limited to) the terms "believes", "estimates", "anticipates", "expects", "intends", "plans", "goal", "target", "aim", "may", "will", "would", "could" or "should" or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include all matters that are not historical facts. They appear in a number of places throughout these results and the information incorporated by reference into these results and include statements regarding the intentions, beliefs or current expectations of the directors or the Company concerning, amongst other things, the results of operations, financial condition, liquidity, prospects, growth, strategies and dividend policy of the Company and the industry in which it operates.

By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future and may be beyond the Company's ability to control or predict. Forward-looking statements are not guarantees of future performance. The Company's actual results of operations, financial condition, liquidity, prospects, growth, strategies and dividend policy and the development of the industry in which it operates may differ materially from the impression created by the forward-looking statements contained in these results and/or the information incorporated by reference into these results. In addition, even if the results of operations, financial condition, liquidity, prospects, growth, strategies and dividend policy of the Company and the development of the industry in which it operates are consistent with the forward-looking statements contained in these results and/or the information incorporated by reference into these results

Chairman's statement

Finding new opportunities

"We HAVE EXTENSIVE EXPERIENCE in carbon capture, which we began using in 2010, and are investing increasingly in this technology around the world."

Craig A. Huff,

Chairman

The energy transition is upon us. The world faces the dilemma of how to reduce carbon emissions while providing sufficient energy to keep everyone's lights on at an affordable price.

Although Contour's financial performance in 2021 was very strong, overall it was a disappointing year given the fatality of a sub-contractor on our premises in Brazil. Our Health & Safety record is in the top decile of our peer group, but this is an unacceptable event.

Our cash flow generation was particularly strong in 2021 as management did a superb job of managing the business through Covid-19 and optimizing our assets in a very volatile power market. Management is very focused on risk mitigation with respect to our current portfolio and has successfully integrated our most recent acquisitions. In addition, the continued uncertainty in Europe given the Russian invasion of Ukraine and the overall strain on the power markets should provide Contour with some interesting opportunities over the next several quarters. For example, as countries in Europe rethink the phasing out of thermal power plants, the opportunity for economic carbon capture projects becomes much more likely.

We remain frustrated with our share price and are actively trying to close the gap between our share price and the intrinsic value of ContourGlobal. The previously announced Brazil asset sales are a good first step.

Cutting carbon emissions

We have been cutting our carbon intensity for several years and are committed to further reducing it by 40% by 2030 against a 2019 base. We have committed not to develop or acquire coal power plants in the future.

We have extensive experience in carbon capture, which we began using in 2010, and are investing increasingly in this technology around the world. Our thermal businesses are largely based on natural gas, and 43% of our net generation capacity comes from renewables or high efficiency co-generation. We use batteries, as well as gas, to help balance the intermittency of solar and wind generation and continue to invest in storage technologies.

We welcome the reporting framework established by the Task Force on Climate-related Financial Disclosures (TCFD). It continues to enhance our reporting as we make further progress evaluating and managing climate-related risks and opportunities.

Financial success

2021 was a very strong financial year for ContourGlobal with record cash flow generation. In addition to our strong contracted cash flows across our portfolio, we benefited from high power prices in Europe through the small piece of our portfolio with merchant exposure, primarily from our natural gas-fired power plant in Arrubal, Spain.

Operations

We suffered several major outages in 2021, but our systems proved effective to remedy them, and I thank the management for their hard work minimizing business interruption. Similarly, efficient handling of the implications of the Covid-19 pandemic in 2021 kept the business running smoothly while ensuring the welfare of our people. Management also effectively executed several major construction projects, notably in Mexico, Austria and Armenia.

Health & Safety

In Health & Safety, however, 2021 was a poor year. We bitterly regret experiencing one fatality and one Lost Time Injury, resulting in two Lost Time Incidents (LTI), failing to meet our Target Zero objectives. These events weigh heavily on us, and we have learned important lessons for the future about how to mitigate such risks inherent to our activities.

Social investment

We continue to execute on our responsibilities to behave as good corporate citizens wherever we do business, helping to strengthen civil society. After having channeled our social investment into healthcare following the pandemic outbreak in 2020, we reverted to investing in a broader mix of health, education and other social projects in 2021 for the benefit of the communities in which we operate. We have switched from one-year to three-year projects to ensure a more impactful and sustainable outcome for communities.

UNLOCKING VALUE ON BRAZIL ASSETS

In 2021, the Company announced that it had started the process of monetizing its renewables business in Brazil in order to unlock value for shareholders and close the gap between its share price and the intrinsic value of the Company's assets as valued by the private market.

On 19th January 2022 we agreed the sale of our hydro assets in Brazil to Pátria Investments at a valuation of 1.73bn BRL ($313m1). This sale is consistent with our drive to realize value from undervalued assets in our portfolio and deliver further attractive risk adjusted returns for our shareholders. This demonstrates the value differential between the public and private markets for our assets.

1Exchange rate 1 BRL = $0.181159; valuation including the assumption of net debt and other customary adjustments.

Dividends

We have continued to grow ordinary dividends per share at 10% annually thanks to the strength of our earnings and predictable cash flows. Dividend cover is strong and stable. The total dividend payable for the full year of 2021 is $117 million. The fourth quarter dividend of 4.465 cents per share, equivalent to $29.3 million, will be paid on 14th April 2022. The dividend receivable in pounds sterling will be based on the exchange rate on the applicable announcement date.

These past two years have been challenging for our world and for ContourGlobal. I am very proud of and grateful to the Contour team for the way they have conducted themselves throughout the challenges of Covid-19 and the more recent volatility in Europe. Their dedication and professionalism have been exemplary.

Craig A. Huff,

Chairman

CEO Review

"THE COMPANY NAVIGATED WELL THROUGH YEAR TWO OF THE PANDEMIC. "

Joseph C. Brandt,

CEO

2021 was not a particularly good year for ContourGlobal.

We failed to honor our commitment, to keep our people, contractors and visitors safe while on our sites. In August a contractor at one of our wind farms in Piaui Brazil died when he was electrocuted at our substation.

This was our second fatality in 15 years and our first in Brazil. It profoundly shook the company and casts a pall over all of the year's accomplishments. A detailed investigation revealed poor work practices by a long-standing maintenance provider and poor management by us of them. Learnings from this have been shared throughout the company but will not bring back this life. Elsewhere we experienced a Lost Time Incident in Spain, our third there in four years. We will improve in 2022.

The Company navigated well through year two of the pandemic despite facing challenges travelling to sites and reliably receiving equipment and other supply for maintenance works. We largely kept our sites COVID free and expanded testing globally, encouraging our work force to get vaccinated and boosted. Mandates in many of the countries where we operate created tension in the organization as many employees chose not to vaccinate, a situation that prompted us to debate whether to impose our own mandates. We chose not to do so, and instead decided to encourage vaccination, to offer free testing for employees and their families, all the while speaking regularly about the benefits of vaccination. By year-end, 71% of our workforce was fully vaccinated but with meaningful differences in uptake particularly in nearly all of the countries in Eastern Europe and several states in the US. Unfortunately, we continue to experience the impact of the disease primarily in those businesses where vaccine uptake has been low.

Our offices were mostly open throughout 2021 and although we created a hybrid-working option enabling office based employees to work up to two days per week from home, we continue to emphasize the benefits of in office work for achieving business objectives and developing people.

We performed well financially in 2021 and this in turn was a result of good power plant operations. Equivalent Availability Factors ("EAF") were generally on target across the entire thermal fleet and, among the large assets, particularly strong at Arrubal (Spain), Hobbs (New Mexico), the California peaking plants, Borger (Texas) and Maritsa (Bulgaria). As the above list indicates, performance of the newly acquired businesses in the United States and the Caribbean was good with only our Trinidadian business performing materially below plan as the result of an extended forced outage, albeit one which had a minor financial impact.

Total thermal division EAF was 93.9% and better than plan overall but the details show below plan performance for several key assets. EAF for our CCGT and coal plant clusters was better than last year. Our performance in the Engines and Solutions cluster was mixed with EAF in Brazil and Mexico Solutions lower than plan, reflecting equipment failures in Brazil and a longer outage than planned at CGA. We also experienced a major unplanned outage in Togo related to an engine failure, despite which the plant still was able to achieve its guaranteed availability for the year thereby minimizing financial impact.

Cost control was again excellent in 2021 and as planned which is a significant tribute to our operating organization given the supply chain cost pressures we experienced starting in Q1. Fleet wide capex was worse than plan by approximately 10% largely reflecting cost pressures related to unplanned outages in Mexico. Our 2022 budgeting and planning cycle has been focused on identifying the pinch points in our supply chains as well as sourcing new suppliers to replace ones vulnerable to economic sanctions and other trade restrictions (Maritsa), ESG concerns (solar panel replacement in Italy and Slovakia and new solar development in Bonaire) or significant shipping costs.

Operating performance in the renewable fleet was mixed-- excellent hydroelectric and solar (ex- CSP) EAF was offset by suboptimal performance in the wind fleets. The Equivalent Forced Outage Rate ("EFOR") was worse than planned reflecting an extended unplanned outage in Majadas and Palma II while within the wind fleet strong EAF at Peru & Austria was offset by continued weak performance in Brazil, mostly in our Chapada wind farms where a recovery plan was implemented and the assets have achieved budgeted levels in 1Q2022.

Renewable resource performance in 2021 was generally in line, with a 4% negative variance to plan consisting of slight negative performance in all clusters with the exception of Brazil which was 2% better than plan due to superb wind resources during the year. Underscoring the balance and risk mitigation inherent in the portfolio, this 4% variance in renewable output had less than a one percent impact on our consolidated EBITDA performance.

One outstanding accomplishment achieved in 2021 was our record performance distributing cash to the parent company - the entity that pays dividends, interest and provides capital for new investment - known in the covenants of our bonds as Cash Flow Available for Debt Service1 (CFADS). CFADS in 2021 was $367 million, approximately 34% higher than in 2020, reflecting not only strong operational performance but also our agile commercial and financial teams. In 2021 we took advantage of market opportunities to sell power and ancillary services from businesses like Arrubal and the Italian solar portfolio, and aggressively tapped the project finance market for financing and refinancing several of our existing businesses. These financings not only locked in attractively low long-term interest rates but enabled us to bring forward future dividends. The interest rates and terms of these refinancings were the best in our history but then window closed quickly and by year end rates had moved meaningfully higher.

Growth, Capital and Market Outlook

With the exception of the repowering of our Austrian windfarms, the acquisition of Western Generation and a bolt on solar acquisition in Italy, we did not expand the portfolio with new acquisitions in 2021 - unusual for us but reflecting our decision in the second half of the year to take a very cautious approach to our markets.

CREATING VALUE BY IMPROVING THE PERFORMANCE OF OUR WIND ASSETS IN AUSTRIA

The approach we took to growth in the Austrian renewables sector is a good example of how we create value through expanding and improving platforms in those markets where we have a long-standing presence. We chose to invest in upgrading the wind turbines at our existing plants. This type of project enabled us to grow while taking advantage of synergies and operational expertise, yet minimizing development risk and uncertainties on local resource (wind).

By leveraging relationships with existing off-takers, lenders, and contractors and utilizing our expertise at project level, we have been able to improve the efficiency and power generation of our wind turbines. We were able not only to limit construction risk but also to obtain favorable financing terms.

"Scharndorf 4+5" assets became fully operational during 2021 and sold electricity produced under the Feed-in Tariff in place. Berg and Trautmannsdorf are progressing well and are expected to become operational over the next twelve months.

This organic growth initiative is likely to result in significant value creation, as similar assets in Europe trade at 13-15x EV/EBITDA.

"we are in the midst of a lengthier transition which will see a larger than previously expected role for power generation based on lignite coal, nuclear and Liquified Natural Gas."

We were concerned about a rapidly shifting financing and supply chain not yet reflected in sellers' price expectations. For example, we spent the better part of eight months preparing a large acquisition of thermal and renewable assets in the Americas only to walk away in the third quarter when seller would not change its terms. To provide an example of how dynamic and downside oriented the market became, our underwriting rebaselined our financing assumptions three times in four months (and never for the better), while assumptions related to sellers' solar and wind development assets proved nearly impossible to risk adjust and price, reflecting growing price, availability, and transport challenges within the renewable related supply chains. All of the proceeding factors served to eliminate any margin of safety and turned the investment decision into a bet that things would quickly recover. With the benefit of hindsight provided by the surreal events of early 2022, our caution provided the best investment returns of the year.

We continue to see excellent opportunity to grow our wind business in Austria through greenfield development and the repowering of our existing wind assets, an activity which we have been pursuing for over five years. A very strong development and operations team in Vienna have shown the ability to execute our wind repowering strategy despite unexpected challenges ranging from low water levels on the Danube, to financial distress in the wind turbine industry to a global pandemic.

We made excellent progress repowering our Trautmannsdorf and Berg wind farms in lower Austria executing well our long-standing repowering plan and achieving some unexpected upside along the way. The Berg project is a ~20 MW repowering with an expected entry into commercial operations in September of 2022. We are on plan and below budget and made very good progress constructing the on-site infrastructure. The project known as Trautmannsdorf is a 21 MW repowering, also located in lower Austria, and is expected to enter into commercial operations less than one year from now in January 2023. Trautmannsdorf is similarly on plan for both budget and schedule.

Like our other Austrian repowering projects, the wind generated output receives a 13 year feed-in-tariff leaving us with no price risk until late in the next decade. Unlike earlier projects, both Berg and Trautmannsdorf also benefitted from a COVID-19 investment bonus designed by the Austrian government to encourage further investment during the height of the pandemic and further enhancing the projects' returns. These are exceptional projects and we expect continuous growth in Austria.

Finally, in the last months of 2021 we were able to successfully negotiate the sale of our hydro portfolio in Brazil which culminated in the signing of the transaction with Patria Investments in January of this year. This transactions unlocks significant value to our shareholders with the hydro portfolio being valued at 9.7 x LTM EBITDA and net proceeds to ContourGlobal of approximately $110m, that adds to an earlier distribution of approximately $26m coming from the refinancing of this portfolio in the Brazilian capital markets.

Going into 2022 and with Mergers & Acquisitions still an important part of our growth strategy we remain cautious despite seeing more realistic expectations from sellers about the pricing of risk/reward amidst much uncertainty. Supply chain and financing pressures are being acutely felt in the greenfield renewable segment which is starting, for the first time in seven years, to create opportunities for us as renewable developers with sizable pipelines become more selective about which projects they will move forward. Gone are the days when renewable developers boasted of enormous pipelines all of which were expected to be built. However, as I write this letter in March 2022 these bottom-up fundamentals are overshadowed by the impacts on the European power markets caused by Russia's invasion of Ukraine. The dramatic increase in natural gas and electricity prices is leading to a fundamental rethinking of the very cornerstones of these power markets beginning with the principle of marginal cost pricing. We have been saying for four years that the future of the European power generation market looked to be increasingly a regulated one with the abandonment of marginal cost pricing and its replacement with some form of a guaranteed regulated rate of return applied to the entire generation sector. Such a prospect became visible several years ago with the progressive elimination of coal and nuclear in Europe's base load production thereby increasing the reliance upon natural gas fired generation which, in the marginal price setting framework defining competitive power markets, meant that the entire uncontracted generation stack would earn revenues set by a gas fired power plant.

Even prior to unprecedented volatility and price increases in natural gas that accompanied building tensions and then Russia's invasion of Ukraine, Europe's power markets were engaging in self-help to diversify away from natural gas whenever possible, as evidenced by the significant amount of "gas to coal" switching which characterized the central European power markets by mid 2021 with German lignite leading the way and this despite a policy framework designed to engineer the opposite (coal to gas switching).

Now in March 2022, policy innovation abounds in Europe as a new set of market rules are floated including:

elimination of the marginal cost price setting system,

price caps on natural gas and electricity,

special taxes on certain generation profits,

 reintroduction of coal plants, and

possible extension of nuclear plants, and other measures meant to eliminate volatility in the price for power and, potentially limit the financial impact on business and residential consumers by adopting price caps and direct subsidy schemes

These measures create risk but also opportunity for our European operations and growth prospects. Dismantling the price setting mechanism which has characterized competitive power markets for nearly three decades will have multiple unintended and unpredictable consequences. At the same time, in the absence of a price signal, there will need to be incentive frameworks to enable base-load powerplants to provide energy and ancillary services and this will require a remuneration regime that will likely look like some combination of:

 i. more predictable and longer capacity payments

 ii. a regulated rate of return which treats power generation like regulated distribution, wires and pipes (one model would be the regulatory framework adopted by Spain applicable to renewable energy technologies)

iii. or a direct subsidy to generators to protect end use customers

This wave of policy intervention may be a Russia-Ukraine related set of measures that only temporarily transform the way electricity is bought and sold or a further step towards creating a regulated and policy directed environment which administratively prices electricity energy and capacity and admits to the reality, as noted in this letter last year, that "absent a technological breakthrough in the energy storage space, the energy transition will be a long one, and under-investment in reliable base load and mid-merit generation is a significant challenge for grid stability and the ability of power systems to incorporate increasing amounts of renewable generation" albeit. A new realism about the geo-politics of electricity supply emphasizing the need for diverse sources of base load generation and decreased reliance on Russian gas supports our view that we are in the midst of a lengthier transition which will see a larger than previously expected role for power generation based on lignite coal, nuclear and Liquified Natural Gas.

As we did last year, we continue to view such an environment as mostly one of opportunity which will reward business models embracing diverse sources of power generations and market exposure.

Joseph C. Brandt

Chief Executive Officer

Financial Review

A STRONG FINANCIAL performance

Stefan Schellinger

Global Chief Financial Officer

ContourGlobal continued to deliver very strong financial results in 2021 and we met all of our financial commitments. In particular, we increased our full year adjusted EBITDA guidance in December from $780 - $810 million to $810 - 840 million reflecting our strong financial performance. This is a testament of ContourGlobal's robust and resilient business model generating stable and predictable cash flows from operations.

We continued to meet the financial commitments made to shareholders by delivering our progressive dividend policy of 10% growth per annum. In addition, during H1 2021 ContourGlobal continued its share buyback program which started in early 2020 to support long-term shareholder value and was successfully executed with 2,624,774 million shares bought back in 2021 in addition to the 12,374,731 million shares bought back in 2020.

Revenue

Revenue continued to grow in 2021 to reach $2,151.9 million (+$741.2 million or +52.5%) resulting from the impact of the acquisition of the Western Generation assets in the United States and Trinidad and Tobago ("Western Generation") completed in February 2021 (+$206.9 million), as well as increased revenue from our Maritsa plant (+$275.6 million) driven by higher generation and higher CO2 emission cost recharges (+$252.9 million), from our natural gas-fired power plant in Arrubal (+$129.2 million) benefiting from high dispatch, higher power prices and an optimized commercial strategy in the post PPA period from August to December, new interconnected load points and higher gas pass through for Mexico CHP (+$84.6 million) and higher generation and pass-through revenue at Cap de Biches (+$22.3 million). These increases were partially offset by lower revenue in the French Caribbean (-$16.7 million) following the expiry of the Energy Antilles PPA in mid-2020 and at Spain CSP assets (-$13.9 million) due to movements in power price. In addition, Group revenue was positively impacted by year over year foreign exchange movements by $39.3 million primarily driven by a higher average level of Euros / USD.

Adjusted Revenue

Adjusted Revenue excludes CO2 emission cost recharges from IFRS revenue and is a key metric as it provides a more comparable basis for assessing revenue generating capabilities across the portfolio. The metric has been added due to the significant increase in carbon pricing which has resulted in CO2 pass throughs distorting IFRS Revenue. During 2021 adjusted revenue was $1,724.8 million (+$1,252.6 million in 2020 or an increase of +38%) primarily driven by the Western Generation acquisition, high dispatch and power prices at Arrubal and new load points and higher pass throughs in Mexico, as noted above. The three most significant contributors to Adjusted Revenue are Mexico CHP, Maritsa and Arrubal contributing 17.1%, 16.7% and 15.4% respectively in 2021 (16.9%, 20.4% and 10.3% respectively in 2020). The reconciliation of Adjusted Revenue to statutory Revenue is as follows:

Including the net indebtedness in Brazil Hydro, which is classified in the balance sheet as held for sale at year end and pro forma adjustment to include a full year of Adjusted EBITDA for the Western Generation and Green Hunter acquisitions.

Adjusted Revenue

Income from Operations (IFO)

IFO is a measure taken from the IFRS audited consolidated statement of income. IFO increased in 2021 by $62.2 million or +20.2% to reach $370.1 million as compared to $307.9 million in 2020, mainly as a result of the following effects:

Increase in gross margin in 2021 by $44.2 million to reach $421.4 million as compared to $377.2 million in 2020, driven by the increase in Revenue of $741.2 million partially offset by the increase in Cost of sales of $697.0 million. The gross margin decrease from 27% in 2020 to 20% in 2021 following the acquisition of Western Generation reflect the proportionately higher costs of sales as a percentage of revenue compared to the average of the Group.

Other operating expenses, Selling, general and administration and acquisition related items decreased from $69.3 million in 2020 to $51.3 million. The decrease was primarily due to exceptional restructuring costs incurred in 2020 of $5.2m (nil in 2021) and $6.6 million of cost incurred in relation to the Private Incentive Plan that ended in 2020. In addition, acquisition related items decreased by $6m, offset by Selling, general and administrative expenses increase of $3.7m as compared to 2020 driven mainly by higher professional fees (+$2.0 million) and employee costs (+$1.7 million).

The IFO has been driven by the same key contributors as the Adjusted EBITDA detailed thereafter, positively impacted by the acquisition of Western Generation (+$84.6 million), an optimized commercial strategy in the post PPA period at Arrubal (+$20.4 million), and improved resource and commissioning of the refurbishment project improving availability at Vorotan (+$13.7 million), offset by movements in power price at Spain CSP (-$8.7 million). This is offset by the increase in depreciation during the year of $87.6 million, primarily due to the acquisition of Western Generation.

Adjusted EBITDA

In 2021, we saw another year of strong Adjusted EBITDA performance with an increase of 17% to $841.5 million.

Adjusted EBITDA benefited from the Western Generation acquisition which contributed $84.6 million of Adjusted EBITDA in addition to a strong performance of our existing power generation assets of $756.9 million (net of corporate and other costs) compared to $722.0 million in 2020, including a positive foreign exchange variance of $8.8 million primarily due to the Euro appreciation versus the US dollar. The Green Hunter acquisition of Solar assets in Italy was also completed in November 2021 and adds to the existing Renewable portfolio, contributing $0.4m to Adjusted EBITDA since acquisition.

Thermal Adjusted EBITDA increased by $120.4 million, or 29%, to $541.3 million for the year ended 31st December 2021 from $420.9 million for the previous year. The growth in Adjusted EBITDA is mainly driven by the Western Generation acquisition which contributed +$84.6 million, a strong performance in the post PPA period at Arrubal driving year over year Adjusted EBITDA growth of +$20.4 million and a change in commercial strategy at Sochagota of +$13.3 million. This demonstrates not only the stability of the underlying earnings and cash flows of the portfolio, based on its contracted business model protecting the segment from fluctuations in demand, fuel prices, electricity prices and CO₂ prices but also demonstrates the Company can benefit from a strong market environment in certain countries including Spain. The Thermal fleet is also highly diversified in terms of geography and technology, which significantly limits its overall market exposure. The Thermal fleet reached an Equivalent Availability Factor of 94% in 2021 (94% in 2020) demonstrating a consistently strong operational performance during the year.

Renewable Adjusted EBITDA amounted to $334.7 million for the year ended 31st December 2021, as compared to $332.0 million for the year ended 31st December 2020. The most significant impacts in Adjusted EBITDA for the year are improved resource and commissioning of the refurbishment project improving availability at Vorotan (+$13.7 million), the impact of the concession extension and commercial strategy optimisation at our Brazil Hydro assets (+$9.4 million), offset by the movements in power price at Spain CSP (-$8.7 million), lower resource and lower realized power prices at Peru Wind (-$6.3 million), and one-off events impacting the availability of some of our plants as well as negative FX impact in Brazil Wind and Hydros (-$4.6 million).

ContourGlobal's business model generates stable and predictable earnings and cash flows, and benefits from the following factors that mitigate the risk of fluctuations in the results:

Long-term contracts with strong and creditworthy counterparties: Approximately 89% of 2021 Adjusted EBITDA is generated under PPAs concluded with investment-grade offtakers or non-investment-grade offtakers under political risk insurance. During 2021 our cash collections from our offtakers continued to be unaffected by the COVID-19 pandemic and remained stable and in line with agreed payment terms.

Limited currency exposure: 86% of 2021 Adjusted EBITDA is denominated in either Euros or US dollars. In addition, a portion of the small Brazilian reals exposure in regards to distributions is hedged. This exposure will be further reduced going forward with the completion of the sale of our Brazil Hydro assets expected to be completed in Q2 2022.

Geographical and technology diversification: No technology cluster represents more than 21% of 2021 Adjusted EBITDA; in addition ContourGlobal is present on four continents.

Ability within long-term contracts to pass through fuel and CO2 quotas: during the year there have been significant increases in the cost of CO2 quotas and certain assets have also experienced an increase in the cost of fuel. The ability to pass these costs through ensures that margins are not eroded and provides stability in earnings.

In terms of financial metrics, we believe that the presentation of Adjusted EBITDA enhances the understanding of ContourGlobal's financial performance, in regards to understanding our ability to generate stable and predictable cash flows from operations. 'Adjusted EBITDA' is defined as profit for the year from continuing operations before income taxes, net finance costs, depreciation and amortization, acquisition related expenses, plus, if applicable, net cash gain or loss on sell down transactions (in addition to the entire full period profit from continuing operations for the business the sell down transaction relates to) and specific items which have been identified and material items where the accounting diverges from the cash flow and therefore does not reflect the ability of the assets to generate stable and predictable cash flows in a given period, less the Group's share of profit from non consolidated entities accounted for on the equity method, plus the Group's prorata portion of Adjusted EBITDA for such entities.

In determining whether an event or transaction is adjusted, ContourGlobal's management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence. Adjusted EBITDA is not a measurement of financial performance under IFRS.

Proportionate Adjusted EBITDA

Considering the decision to strategically sell down minority stakes of certain of our assets at a significant premium, we have included Proportionate Adjusted EBITDA as part of our core financial metrics since 2018. Proportionate Adjusted EBITDA is calculated using Adjusted EBITDA calculated on a proportionally consolidated basis based on applicable ownership percentage.

The Proportionate Adjusted EBITDA as well includes the net cash gain or loss on sell down transactions (of which there has been none during 2021 and 2020) as well as the underlying profit from continuing operations for the business in which the minority interest sale relates to reflecting applicable ownership percentage going forward from the date of completion of the sale of a minority interest.

Proportionate Adjusted EBITDA increased from $568.7 million in 2020 to $692.3 million in 2021 (+22%), broadly in line with the increase than Adjusted EBITDA, primarily driven by the acquisition of Western Generation during 2021 and for which there is no minority interest.

The following table reconciles Proportionate Adjusted EBITDA and Adjusted EBITDA to net profit before tax for each year presented:

Reflects an adjustment to align the recognized earnings with the cash flows generated during the year under the CHP Mexico fixed margin swap (derivative that locks in a fixed margin for certain contracts)

Adjustment of the revenue and expenses recognised under Service Concession Arrangement accounting in Togo, Senegal and Rwanda with the cashflows generated during the year.

Reflects the non-cash gain recognized due to Generating Scaling Factor ("GSF") settlement in Brazil Hydro whereby a concession extension has been granted to compensate for historical GSF liability payments made prior to acquisition of the assets by ContourGlobal.

In relation to the 2021 and 2020 financial years, these adjustments mainly include non-recurring and non cash items.

Cash flow from operations and Funds From Operations

Cash flow from operations is presented in the Consolidated statement of cashflows of the financial statements and increased from $719.6 million to $810.3 million, mainly driven by the increase in Adjusted EBITDA ($119.5 million).

Funds from Operations is a non-IFRS measure that is calculated as follows:

Maintenance capital expenditure is defined as funds employed by the business to maintain the operating capacity, asset base and/or operating income of the existing power plants (including construction capital expenditure). It excludes growth and development capital expenditure, which are discretionary investments incurred to sustain our revenue growth.

Cash distributions to minorities as per consolidated cash flow statement (excluding $11m distribution to Energy Infrastructure Partners related to the refinancing proceeds of the Green Hunter portfolio acquired in November 2021).

Funds from operations significantly improved in 2021 to $439.8 million, a 16% growth rate compared to 2020. This performance is the consequence of the continuous growth of Adjusted EBITDA explained above partially offset by higher interest paid primarily due to interest on debt acquired in Western Generation (reflecting a higher coupon rate on this debt compared to the average rate across the rest of the group), increased maintenance capex costs due to the Western Generation acquisition and cash distributions to minorities due to increased distributions during the year.

Funds from operations is a key measure and gives an indication of the strength and predictability of our cash generation and how much of our Adjusted EBITDA is converted into cash flow.

As a result the cash conversion rate, which compares FFO to Adjusted EBITDA, remained strong in 2021 at 52% (2020: 53%).

Adjusted EBITDA

Leverage ratio

The Group leverage ratio is measured as total net indebtedness (reported as the difference between 'Borrowings' and 'Cash and Cash Equivalents' in accordance with IFRS statement of financial position) to Adjusted EBITDA. The leverage ratio does not include the IFRS 16 liabilities ($30 million as Dec. 31, 2021 and $33 million as Dec. 31, 2020). Whenever the impact would be significant, such a ratio is adjusted to reflect the full year impact of acquisitions or for financial debt of projects under construction which do not generate Adjusted EBITDA.

 The leverage ratio as of 31st December 2020 was 4.8x, and is 4.6x as of 31st December 2021 (including the net indebtedness in Brazil Hydro, which is classified in the balance sheet as held for sale and a pro forma adjustment for a full year of Adjusted EBITDA of Western Generation and Green Hunter acquisitions).

The Net parent company leverage is 3.4x as of 31 December 2021 as compared to 3.0x as 31 December 2020, reflecting the refinancing of the corporate bond in December 2020 and the impact of the Western generation acquisition in 2021. The Net parent company leverage is defined as:

 net debt at corporate level was $1,301 million as of 31 December 2021, compared to $830 million as of 31 December 2020. This comprises the net debt of the group corporate holding entities (excluding non-recourse financing), which includes Corporate Bonds, drawn bridge loans, less cash and cash equivalent in corporate holding entities;

divided by CFADS (cashflows available for debt service) as defined in the Corporate Bond Indenture ($367 million for 2021, $274 million for 2020).

CFADS as defined in the Bond indenture is the net Cash distributions from Group subsidiaries (notably including dividends, equity distributions, or intercompany loans) to the parent company (the entity that pays dividends, interest and provides capital for new investment), less corporate costs. CFADS is a key financial measure for the company as it reflects all of the cash received by the parent company which is then allocated according to our strategy (notably for M&A, construction and other development costs or return of capital to shareholders). CFADS is also used to calculate the Debt service coverage ratio which is the main covenant of the Group's corporate bonds (CFADS over the Debt service of the corporate debts).

There is no reconciliation of the Net parent company leverage or CFADS to statutory measures because they do not derive from the statutory measures.

Finance costs - net

Finance costs - net increased from $247.8 million in 2020 to $249.2 million in 2021 (1%).

Interest expense increased in 2021 from $195.0 million in 2020 to $205.5 million, largely due to the impact of the Western Generation acquisition ($15.5m) and the corporate bonds ($7.9m) partially offset by the natural deleveraging of the project financing.

The Realized and unrealized foreign exchange gains and (losses) and change in fair value of derivatives increased by $31.8 million to a net gain of $42.5 million primarily attributable to:

a positive impact in the fair value of derivatives of $25.3 million in 2021, as compared to $70.5 million in 2020. The decrease is mainly due to the $13.6 million non-cash net change in the fair value of the Mexican CHP fixed margin swap compared to $56.1 million in 2020 and

A $18.4 million net realized and unrealized foreign exchange gain in 2021 compared to a $59.8 million foreign exchange loss in 2020 driven by favourable exchange rate movements of the US dollar against the Euro and the Armenian dram.

Profit before tax

Profit before tax increased by $70.6 million to $142.9 million in 2021 as a result of the factors previously explained.

Taxation

The Group recognized a tax charge of $63.2 million in 2021 as compared to $43.7 million in 2020 which represents a movement in effective tax rate from 60% in 2020 to 44% in 2021. The decrease in effective tax rate is due to the increase in profit before tax primarily attributable to Spain, Armenia and a reduction in pre-tax loss in Luxembourg. The effective tax rate was also impacted by unrecognised tax losses in Luxembourg and Brazil. The main jurisdictions contributing to the income tax expense in 2020 are Mexico, Bulgaria, Spain and Brazil.

Net income, EPS and Adjusted Net Income

Net income increased from $28.6 million in 2020 to $79.7 million in 2021. Considering the average number of shares outstanding in 2021 of 656.3 million (666.6 million in 2020), and a profit attributable to shareholders of $73.8 million in 2021 ($16 million in 2020) the Earnings per share (basic) increased from $0.02 to $0.12.

Adjusted net income is defined as net income excluding specific items which in 2021 included such items as unrealised FX, acquisition related expenses, the fair value impact of the Mexico fixed margin swap, Brazil Hydro concession extension and refinancing costs which are non recurring in nature and are not reflective of the ability to generate profits by the Group. A reconciliation of Net income to Adjusted Net Income is as follows:

Change in fair value of the Mexican CHP fixed margin swap of -$13.6m net of $5.5m impact in Adj. EBITDA and net of 30% income tax impact -$5.7m.

Includes pre-acquisition costs and other incremental costs incurred as part of completed or contemplated acquisitions. ContourGlobal incurred exceptional amounts of such costs in 2021 and 2020 while signing and/or closing acquisitions in the US and Italy in particular.

Includes FX unrealized losses as reported in the consolidated financial statements, and represent non-cash unrealized losses recognized during the year. 2021 was notably impacted by the strengthening of the local currency in Armenia (AMD), generating unrealized FX gains for the USD denominated project financing debt totalling $21.7m.

Costs incurred as part of the reorganization of our corporate offices in 2020.

Non-cash impact of the Private Incentive Plan in 2020.

Relates to costs incurred in refinancing debt throughout the business.

Non-current assets

Non-current assets mainly comprise property, plant and equipment ("PP&E"), financial and contract assets, and intangible assets and goodwill. The increase in non-current assets by $373.8 million to $4,749.5 million as of 31 December 2021 was mainly due to the increase of PPE by $408.3 million relating to Western Generation acquisition (+$900.1 million including purchase price allocation) and the Green Hunter acquisition (+$56.5m including preliminary purchase price allocation), capex additions (+$95.6m) during the period mainly in Austria Wind (+$25.3 million), Vorotan ($13.5 million), Maritsa ($9.4 million) and Mexico CHP ($17.6 million), partially offset by depreciation (-$360.1 million), Brazil Hydro assets reclassified in asset held for sale (-$124.0 million) and CTA FX impact (-$149.9m).

Working capital

Inventory increased by $238.3 million during 2021, primarily due to the increase in value of emission allowances held in inventory at Maritsa (+$235.6 million) and Arrubal (+$23.9 million), partially offset by the impact of foreign exchange (-$25.2 million). Trade and other payables increased by $263.3 million to $597.0 million, also primarily due to the increase the increase in emission allowance payables in Maritsa by $240.9 million.

The increase in Trade and other receivables of $35.1 million to $299.1 million is primarily attributed to the acquisitions of Western Generation (+$24.5 million) and Green Hunter (+$5.0 million).

Borrowings

Current and non-current borrowings decreased by $654.2 million to $4,176.1 million as of 31 December 2021, mainly as a result of scheduled repayments (-$287.1 million), repayment of the 2023 bond in January 2021 (-$532.5 million), Arrubal debt repayments (-$73.7m) and the CTA FX impact due to increase of the Euro against the USD for our Euro denominated debt (-$234.1m). This was partially offset by the debt acquired in Western Generation (+$263.3m), new borrowings represented primarily by Alvarado net refinancing (+$25.5m), Western Generation bridge loan net of repayments (+$40.0m), Green Hunter debt acquired and subsequently refinanced (+$36.0m), Asa Branca net refinancing (+$3.8m), Caribbean refinancing (+$120.0m) and RCF drawdown (+$47.3m). The Brazil Hydro debt was also refinanced (+$51.9m) and subsequent was reclassified to held for sale at year end (-$136.5m).

Equity and non-controlling interests

Equity and non-controlling interests increased by $32.8 million to $370.5 million as of 31st December 2021 mainly due to the following factors: net income of the year (+$79.7 million), change in hedging reserves (+$41.0 million) and currency translation adjustment (+$33.2 million), partially offset by dividends paid to shareholders (-$114.5 million) and dividends paid to non-controlling interests (-$3.6 million).

Dividend

The Board recognizes the importance of paying a regular dividend to shareholders. The underlying business generates secure, highly stable, long-term cash flows, and it is the Board's intention that dividends will be paid on a quarterly basis. Reflecting the growth potential of the business, since listing in 2017 the Board has targeted a high single-digit annual dividend increase, which was raised to a 10% annual target in 2019. At times the Board may approve additional returns of capital, arising from surplus generation of cash or corporate transactions.

The Board periodically reviews the dividend policy, considering overall prospects, conditions and capital requirements of the Group. The Company paid a dividend of $26.6 million in April 2021 corresponding to the final dividend for the year ended 31st December 2020 and three interim dividends for the year ended 31 December 2021 in total of $87.9 million in June, September and November 2021.

The Directors expect to pay a total dividend of approximately $117.2 million for the year ended 31 December 2021, including a quarterly dividend of 4.465 USD cents per share (around $29.3 million) to be paid in April 2022.

Our dividend cover remains strong at 2.8x (2020: 2.2x). Dividend cover is measured as "Parent Company free cash flow" of $318 million in total ($367 million CFADS as defined in the Corporate Bond indenture, less $49 million Corporate Bond interest costs), relative to the total dividends paid for the year ended 31 December 2021. In 2020 the Parent Company free cashflow was $234 million ($274 million CFADS less $40 million Corporate Bond interest).There is no reconciliation of the Dividend cover to statutory measures because it does not derive from statutory measures.

Outlook

We remain focused on generating strong and predictable cash flows as a result of our business model of development and operationally led acquisitions of power generation assets under long-term contracts providing significant protection from the risks associated with volumes, commodity prices or merchant energy prices. Our ability to successfully execute and integrate such acquisitions was demonstrated during the year with our Western Generation acquisition and we will look to the same for Green Hunter acquisition during 2022. Where it is financially attractive to do so we will also seek to monetize assets, such as the sale of our Brazil Hydro business, which we expect to complete in 2022 in order to create shareholder value and returns.

Stefan Schellinger

Global Chief Financial Officer

Annual General Meeting (AGM)

The 2022 AGM will be held on 13th May 2022. At the AGM, shareholders will have the opportunity to ask questions to the Board, including the Chairmen of the Board Committees.

Full details of the AGM, including explanatory notes, are contained in the Notice of the AGM. The Notice sets out the resolutions to be proposed at the AGM and an explanation of each resolution.

All documents relating to the AGM will be available on the Company's website at www.contourglobal.com.

Year ended December 31, 2021

The financial information set out in this Preliminary Results Announcement does not constitute the Group's statutory accounts for the years ended 31 December 2021 or 2020, but is derived from those accounts. The statutory accounts for the year ended 31 December 2020 have been delivered to Companies House and those for 2021 will be delivered in due course. The Auditor has reported on those accounts: its Reports were unqualified, did not draw attention to any matters by way of emphasis without qualifying its Report and did not contain a statement under s498(2) or (3) of the Companies Act 2006. The financial information included in this preliminary announcement has been prepared on the same basis as set out in the Annual Report 2021.

CONTOURGLOBAL PLC AND SUBSIDIARIES

Consolidated statement of incomeand other comprehensive income

Year ended December 31, 2021

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated statementof financial position

Year ended December 31, 2021

The financial statements on pages X to Y were approved by the Board of Directors and authorized for issue on 17 March 2022 and signed on its behalf by Joseph C. Brandt, President & CEO

The accompanying notes are an integral part of these consolidated financial statements.

CONTOURGLOBAL PLC AND SUBSIDIARIES

Consolidated statementof changes in equity

Year ended December 31, 2021

The accompanying notes are an integral part of these consolidated financial statements.

Consolidated statementof cash flows

Year ended December 31, 2021

The accompanying notes are an integral part of these consolidated financial statements.

CONTOURGLOBAL PLC AND SUBSIDIARIES

General information

Year ended December 31, 2021

1. General information

ContourGlobal plc (the "Company") is a public listed company, limited by shares, domiciled in the United Kingdom and incorporated in England and Wales. It is the holding company for the Group whose principal activities during the period were the operation of wholesale power generation businesses with thermal and renewables assets in Europe, Latin America, United States of America and Africa, and its registered office is:

55 Baker StreetLondonW1U 8EWUnited Kingdom

Registered number: 10982736

ContourGlobal plc is listed on the London Stock Exchange.

Basis of preparation

On 31 December 2020, IFRS as adopted by the European Union at that date was brought into UK law and became UK-adopted International Accounting Standards, with future changes being subject to endorsement by the UK Endorsement Board. ContourGlobal plc transitioned to UK-adopted International Accounting Standards in its consolidated financial statements on 1 January 2021. This change constitutes a change in accounting framework. However, there is no impact on recognition, measurement or disclosure in the period reported as a result of the change in framework.

The consolidated financial statements have been prepared in accordance with international accounting standards in conformity with the requirements of the Companies Act 2006 and UK-adopted International Accounting Standards. The consolidated financial statements have been prepared on the going concern basis under the historical cost convention, as modified by the revaluation of financial assets and financial liabilities (including derivative instruments) at fair value through profit or loss.

The financial information is presented in millions of US dollars, with one decimal. Thus numbers may not sum precisely due to rounding.

The principal accounting policies applied in the preparation of the consolidated financial statements are set out in note 2.3. These policies have been consistently applied to the periods presented, unless otherwise stated.

The financial information presented is at and for the financial years ended 31 December 2021 and 31 December 2020. Financial year ends have been referred to as 31 December throughout the consolidated financial statements as this is the accounting reference date of ContourGlobal plc. Financial years are referred to as 2021 and 2020 in these consolidated financial statements.

The preparation of the IFRS financial statements requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the year. Although these estimates are based on management's best knowledge of the amount, event or actions, actual results may differ from those estimates, as noted in the critical accounting estimates and judgements in note 2.4.

2. Summary of significant accounting policies

2.1. Application of new and revised International Financial Reporting Standards (IFRS)

The Group has applied the following amendments for the first time for their annual reporting period commencing 1 January 2021. There was no material impact from the application of these amendments.

COVID-19-Related Rent Concessions - amendments to IFRS 16; and

Interest Rate Benchmark Reform - Phase 2 - amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16.

2.2. New standards and interpretations not yet mandatorily applicable

A number of additional new standards and amendments and revisions to existing standards have been published which will apply to the Group's future accounting periods. None of these are expected to have a significant impact on the consolidated results, financial position or cash flows of the Group when they are adopted.

2.3. Summary of significant accounting policies

Principles of consolidation

The consolidated financial statements include both the assets and liabilities, and the results and cash flows, of the Group and its subsidiaries and the Group's share of the results and the Group's investments in associates.

Inter-company transactions and balances between Group companies are eliminated.

(a) Subsidiaries

Entities over which the Group has the power to direct the relevant activities so as to affect the returns to the Group, generally through control over the financial and operating policies, are accounted for as subsidiaries. Interests acquired in subsidiaries are consolidated from the date the Group acquires control.

(b) Associates

Where the Group has the ability to exercise significant influence over entities, generally from a shareholding of between 20% and 50% of the voting rights, they are accounted for as associates. The results and assets and liabilities of associates are incorporated into the consolidated financial statements using the equity method of accounting. The Group's investment in associates includes goodwill identified on acquisition.

The Group determines at each reporting date whether there is objective evidence that the investment in the associate is impaired. If there is evidence, the Group calculates the amount of impairment as the difference between the recoverable amount of the investment in the associate and its carrying value and recognizes this amount in the consolidated statement of income.

Business combinations

The acquisition consideration is measured at fair value which is the aggregate of the fair values of the assets transferred, the liabilities incurred or assumed and the equity interests issued in exchange for control. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Any contingent consideration to be transferred by the Group is recognized at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration are recognized in the consolidated statement of income. Where the consideration transferred, together with the non-controlling interest, exceeds the fair value of the net assets, liabilities and contingent liabilities acquired, the excess is recorded as goodwill. Acquisition related costs are expensed as incurred and classified as "Acquisition related items" in the consolidated statement of income.

Goodwill is capitalized as a separate item in the case of subsidiaries and as part of the cost of investment in the case of associates. Goodwill is denominated in the functional currency of the operation acquired.

Changes in ownership interests in subsidiaries without change of control

In line with IFRS 10 'Consolidated financial statements', transactions with non-controlling interests that do not result in a gain or loss of control are accounted for as equity transactions - that is, as transactions with the owners in their capacity as owners.

In the case of an acquisition of non-controlling interest that does not result in a gain of control, the difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity.

In the case of a sale of non-controlling interests that do not result in a loss of control ("sell-down"), the net cash gain on sale of these assets are recorded as an increase in the equity attributable to owners of the parent and corresponds to the difference between the consideration received for the sale of shares and of the carrying amount of non-controlling interest sold. Consistent with this approach, subsequent true-ups to earn-outs in the context of sell-down transactions are also recorded in equity. The net cash gain or loss on sell-down is presented in Adjusted EBITDA, as disclosed in note 4.1.

Non-current assets and disposal groups held for sale and discontinued operations

Non-current assets (or disposal groups) are classified as held for sale if their carrying amount will be recovered principally through a sale transaction rather than through continuing use and a sale is considered highly probable. An impairment loss is recognized for any initial or subsequent write-down of the asset (or disposal group) to fair value less costs to sell. Assets and liabilities of a disposal group classified as held for sale are presented separately on the balance sheet.

A discontinued operation is a component of the entity that has been disposed of or is classified as held for sale and that represents a separate major line of business or geographical area of operations, is part of a single co-ordinated plan to dispose of such a line of business or area of operations, or is a subsidiary acquired exclusively with a view to resale. The results of discontinued operations are presented separately in the statement of profit or loss.

Functional and presentation currency and currency translation

The assets and liabilities of foreign undertakings are translated into US dollars, the Group's presentation currency, at the year-end exchange rates. The results of foreign undertakings are translated into US dollars at the relevant average rates of exchange for the year. Foreign exchange differences arising on retranslation of opening net assets, and the difference between average exchange rates and year end exchange rates on the result for the year are recognized directly in the currency translation reserve.

Foreign currency transactions are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized at year end exchange rates in the consolidated statement of income line which most appropriately reflects the nature of the item or transaction.

The following table summarizes the main exchange rates used for the preparation of the consolidated financial statements of ContourGlobal:

When a foreign undertaking is sold, the associated exchange differences are reclassified to profit or loss, as part of the gain or loss on sale.

Operating and reportable segments

The Group's reporting segments reflect the operating segments which are based on the organizational structure and financial information provided to the Chief Executive Officer, who represents the chief operating decision-maker ("CODM"). The Group's organizational structure reflects the different electricity generation methods, being Thermal and Renewables. A third category, Corporate & Other, primarily reflects costs for certain centralized functions including executive oversight, corporate treasury and accounting, legal, compliance, human resources, IT and facilities management and certain technical support costs that are not allocated to the segments for internal management reporting purposes.

The principal profit measure used by the CODM is "Adjusted EBITDA" as defined in note 4.1. A segmented analysis of "Adjusted EBITDA" is provided in note 4.1 to the consolidated financial statements.

Revenue recognition

The Group revenue is mainly generated from the following:

(i) revenue from power sales;(ii) revenue from operating leases;(iii) revenue from financial assets (concession and finance lease assets); and(iv) other revenue such as environmental, operational and maintenance services rendered to offtakers.

Revenue from operating leases is recognized under IFRS 16, revenue from financial assets is recognized under IFRS 16 and IFRIC 12, and Revenue from power sales and other revenue are recognized under IFRS 15.

Revenue recognition in accordance with IFRS 15, 'Revenues from contracts with customers', is based on the transfer of control, i.e. the notion of control is used to determine when a good or service is transferred to the customer. In accordance with this, the Group has adopted a single comprehensive model for the accounting for revenues from contracts with customers, using a five-step approach for revenue recognition: (1) identifying the contract; (2) identifying the performance obligations in the contract; (3) determining the transaction price; (4) allocating the transaction price to the performance obligations in the contract; and (5) recognizing revenue when the Group satisfies a performance obligation.

Based on this recognition model, sales are recognized when goods are delivered to the customer and have been accepted by the customer, even if they have not been invoiced, or when services are rendered, and it is probable that the economic benefits associated with the transaction will flow to the entity. Revenue for the year includes the estimate of the energy supplied that has not yet been invoiced.

When determining the transaction price, the Group considers the effects of the variable consideration, the constraining estimates of variable consideration, the existence of a significant financing component in the contract, the non-cash consideration and the consideration payable to a customer.

If the consideration promised in a contract includes a variable amount, the Group estimates the amount of consideration to which it will be entitled in exchange for transferring the promised goods or services to a customer. An amount of consideration can vary because of discounts, rebates, refunds, credits, price concessions, incentives, performance bonuses, penalties or other similar items.

Certain of the Group's power plants sell their output under Power Purchase Agreements ("PPAs") and other long-term arrangements. Under such arrangements it is usual for the Group to receive payment for the provision of electrical capacity or availability whether or not the offtaker requests the electrical output (capacity payments) and for the variable costs of production (energy payments). In such situations, revenue is recognized in respect of capacity payments as:

Service income in accordance with the contractual terms, to the extent that the capacity has been made available to the contracted offtaker during the period and / or energy produced and delivered in the period. This income is recognized as part of revenue from power sales;

Financial return on the operating financial asset where the PPA is considered to be or to contain a finance lease or where the contract is considered to be a financial asset under interpretation IFRIC 12: "Service concession arrangements".

Service income related to environmental, operational and maintenance services rendered to offtakers are presented as part of Other revenue.

Summary of significant accounting policies

Year ended December 31, 2021

CONTOURGLOBAL PLC AND SUBSIDIARIES

Summary of significant accounting policies continued

CONTOURGLOBAL PLC AND SUBSIDIARIES

Summary of significant accounting policies continued

Under finance lease arrangements, those payments which are not included within minimum lease payments are accounted for as service income (outlined in (a) above).

Energy payments under PPAs are recognized in revenue in all cases as the contracted output is delivered.

Interest income is accrued on a time basis, by reference to the principal outstanding and at the effective interest rate applicable, which is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset to that asset's net carrying amount on initial recognition.

Concession arrangements

The interpretation IFRIC 12 governs accounting for concession arrangements. An arrangement within the scope of IFRIC 12 is one which involves a private sector entity (known as "an operator") constructing infrastructure used to provide a public service, or upgrading it (for example, by increasing its capacity) and operating and maintaining that infrastructure for a specified period of time.

IFRIC 12 applies to public-to-private service concession arrangements if:

The "grantor" (i.e. the public sector entity - the offtaker) controls or regulates what services the operator must provide with the infrastructure, to whom it must provide them, and at what price; and

The grantor controls through ownership, beneficial entitlement or otherwise any significant residual interest in the infrastructure at the end of the term of the arrangement. Infrastructure used in a public-to-private service concession arrangement for its entire useful life (a whole of life asset) is within the scope of IFRIC 12 if the conditions in a) are met.

Under concession arrangements within the scope of IFRIC 12, which comply with the "financial asset" model requirements, the operator recognizes a contract asset, attracting revenue in consideration for the services it provides (design, construction, etc.), to the extent that it has an unconditional contractual right to receive cash or another financial asset from or at the direction of the grantor for the construction services; the grantor has little, if any, discretion to avoid payment, usually because the agreement is enforceable by law. The Group has an unconditional right to receive cash if the grantor contractually guarantees to pay the Group (a) specified or determinable amounts or (b) the shortfall, if any, between amounts received from users of the public service and specified or determinable amounts, even if payment is contingent on the Group ensuring that the infrastructure meets specified quality or efficiency requirements. This model is based on input assumptions such as budgets and cash flow forecasts. Any change in these assumptions may have a material impact on the measurement of the recoverable amount and could result in reducing the value of the asset. Such contract assets are recognized in the consolidated statement of financial position in an amount corresponding to the fair value of the infrastructure on first recognition and subsequently at amortized cost less impairment losses. The receivable is settled by means of the grantor's payments being received. The financial income calculated on the basis of the effective interest rate, equivalent to the project's internal rate of return, is reflected within the "Revenue from concession and finance lease assets" line in note 4.2. Cash outflows relating to the acquisition of contract assets under concession agreements are presented as part of cash flow from investing activities. Net cash inflows generated by the contract assets' operations are presented as part of cash flow from operating activities.

For purchase power arrangements, revenue for service income is generally recognized as billed after excluding the portion of the payment that is allocated to cover the return on financial assets arising from service concession arrangements as described above. We have therefore not disclosed the transaction price allocated to unsatisfied contracts based as permitted by paragraph 121 of IFRS 15.

Share-based compensation plans

The share-based payment charge arises from the Long Term Incentive Plan (LTIP) and the Private Incentive Plan (PIP). The PIP scheme is applicable to senior executives whilst the LTIP scheme is applicable to senior executives and senior and middle management. Shares issued under the schemes vest subject to continued employment within the Group and satisfaction of the non-market performance conditions. Employees leaving prior to the vesting date will normally forfeit their rights to unvested share awards. The fair value of the awards is measured using the market value at the date of grant. The fair value determined at the grant date is expensed on a straight-line basis together with a corresponding increase in equity over the vesting period, based on the Group's estimate of the number of awards that will vest, and adjusted for the effect of non-market-based vesting conditions.

Acquisition related items

Acquisition related items include pre-acquisition costs such as various professional fees and due diligence costs, earn-outs and other related incremental costs incurred as part of completed or contemplated acquisitions.

Finance income and finance costs

Finance income primarily consists of interest income on funds invested. Finance costs primarily comprise interest expense on borrowings, unwinding of the discount/step up on financial and contract assets and provisions, interests and penalties that arise from late payments of suppliers or taxes, bank charges, differences between the historically estimated and actual dividends of the debt payable to non-controlling interests in our Bulgarian power plant, changes in the fair value of derivatives not qualifying for hedge accounting and net foreign exchange gains and losses.

Intangible assets and goodwill

Goodwill

For the purpose of impairment testing, goodwill acquired in a business combination is allocated to each of the cash generating units ("CGUs"), or groups of CGUs that is expected to benefit from the synergies of the combination. Each unit or group of units represents the lowest level within the entity at which the goodwill is monitored for internal management purposes. A CGU is determined as a group of assets at a country level using shared technology which is typically the case for solar and wind assets.

The reporting units (which generally correspond to power plants) or group of reporting units have been identified as its cash-generating units.

Goodwill impairment reviews are undertaken at least annually.

Intangible assets

Intangible assets include licenses, permits, contracts, project development rights when specific rights are acquired and software. Intangible assets separately acquired in the normal course of business are recorded at historical cost, and intangible assets acquired in a business combination are recognized at fair value at the acquisition date. When the power plant achieves its commercial operations date, the related intangible assets are amortized using the straight-line method generally over the life of the PPA or over the duration of the permits, licenses and contracts granted, generally over 15 to 20 years (excluding software). Software is amortized over 1 to 3 years.

Property, plant and equipment

Initial recognition and subsequent measurement

Property, plant and equipment are stated at historical cost, less depreciation and impairment, or at fair value at the acquisition date if acquired in the context of a business combination. Historical cost includes an initial estimate of the costs of dismantling and removing the item and restoring the site on which it is located, when the entity has a present legal or constructive obligation to do so. In the context of a business combination the fair value valuation is usually based on an income-approach based method.

Property, plant and equipment recognized as right-of-use assets under IFRS 16 are measured at cost less depreciation, impairment and adjustments to certain remeasurements of the lease liability.

Costs relating to major inspections and overhauls are capitalized and any remaining carrying amount of the cost of the previous overhaul is derecognized when new expenditure is capitalized. Minor replacements, repairs and maintenance, including planned outages to our power plants that do not improve the efficiency or extend the life of the respective asset, are expensed as incurred.

The Group capitalizes certain direct pre-construction costs associated with its power plant project development activities when it has been determined that it is more likely than not that the opportunity will result in an operating asset. Factors considered in this determination include (i) the availability of adequate funding, (ii) the likelihood that the Group will be awarded the project or the barriers are not likely to prohibit closing the project, and (iii) there is an available market and the regulatory, environmental and infrastructure requirements are likely to be met. Capitalized pre-construction costs include initial engineering, environmental and technical feasibility studies, legal costs, permitting and licensing and direct internal staff salary and travel costs, among others. Pre-construction costs are expensed if a project is abandoned or if the conditions stated above are not met.

Construction work in progress ("CWIP") assets are transferred out of CWIP when construction is substantially completed and the power plant achieves its commercial operations date ("COD"), at which point depreciation commences.

Borrowing costs directly attributable to construction of a qualifying assets are capitalized during the period of time that is required to complete and prepare the asset for its intended use.

Depreciation

Property, plant and equipment are depreciated to their estimated residual value using the straight-line method over the following estimated useful lives:

Useful economic lives have been updated to reflect the lives of plants from the date of acquisition by the Group.

"Generation plants and equipment" and "Other property, plant and equipment" categories are presented respectively under "Power plant assets" and "Other" in note 4.10.

See below for the Group's depreciation policy on right-of-use assets.

The range of useful lives is due to the diversity of the assets in each category, which is partly due to acquired assets and from assets groupings.

The residual values and useful lives are reviewed at least annually taking into account a number of factors such as operational and technical risks, and risks linked to climate change (for example from emerging government policies) and if expectations differ from previous estimates, the remaining useful lives are reassessed and adjustments are made. In the case of assets acquired as part of a business combination, the remaining useful lives are assessed at the acquisition dates by performing technical due diligence procedures.

Where a power purchase agreement ("PPA") acquired as part of business combination is deemed to contain an operating lease, the company depreciates separately the amounts reflected in the acquired fair value of that Property Plant & Equipment that are attributable to favorable or unfavorable lease terms relative to market terms. Such amounts are depreciated over the term of the related PPA (2 to 12 years).

Leases

The Group applies IFRS 16 'Leases' and leases are recognized as a right-of-use asset and a corresponding liability at the date at which the leased asset is available for use by the Group.

Accounting for a lease as a lessee - Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value of the following lease payments:

fixed payments (including in-substance fixed payments), less any lease incentives receivable;

variable lease payments that are based on an index or a rate, initially measured using the index or rate as at the commencement date;

amounts expected to be payable by the Group under residual value guarantees;

the exercise price of a purchase option if the Group is reasonably certain to exercise that option; and

payments of penalties for terminating the lease, if the lease term reflects the Group exercising that option.

Lease payments to be made under reasonably certain extension options are also included in the measurement of the liability. The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the case for leases in the Group, the lessee's incremental borrowing rate is used, being the rate that the individual lessee would have to pay to borrow the funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, security and conditions.

To determine the incremental borrowing rate, the Group applied a single discount rate to a portfolio of leases with reasonably similar characteristics.

The Group is exposed to potential future increases in variable lease payments which are linked to gross revenues or based on an index or rate. No right of use assets or corresponding lease liability is recognized in respect of variable consideration leases which are linked to gross revenues. Variable lease payments that depend on gross revenues are recognized in the statement of income in the period in which the related revenue is generated.

Lease payments are allocated between principal and finance cost. The finance cost is charged to profit or loss over the lease period so as to produce a constant periodic rate of interest on the remaining balance of the liability for each period.

Right-of-use assets are measured at cost comprising the following:

the amount of the initial measurement of lease liability;

any lease payments made at or before the commencement date less any lease incentives received;

any initial direct costs; and

restoration costs.

Right-of-use assets are generally depreciated over the shorter of the asset's useful life and the lease term on a straight-line basis. If the group is reasonably certain to exercise a purchase option, the right-of-use asset is depreciated over the underlying asset's useful life.

Payments associated with short-term leases (less than 12 months) of equipment and vehicles and all leases of low-value assets are recognized on a straight-line basis as an expense in the statement of income.

Accounting for arrangements that contain a lease as lessor - PPA's and other long-term contracts may contain, or may be considered to contain, leases where the fulfilment of the arrangement is dependent on the use of a specific asset such as a power plant and the arrangement conveys to the customer the right to use that asset. Such contracts may be identified as either operating leases or finance leases.

(i) Accounting for finance leases as lessor

Where the Group determines that the contractual provisions of a long-term PPA contain, or are, a lease and result in the offtaker assuming the principal risks and rewards of ownership of the power plant, the arrangement is a finance lease. Accordingly the assets are not reflected as property, plant and equipment and the net investment in the lease, represented by the present value of the amounts due from the lessee is recorded within financial assets as a finance lease receivable.

The capacity payments as part of the leasing arrangement are apportioned between minimum lease payments (comprising capital repayments relating to the plant and finance income) and service income. The finance income element is recognized as revenue, using a rate of return specific to the plant to give a constant rate of return on the net investment in each period. Finance income and service income are recognized in each accounting period at the fair value of the Group's performance under the contract.

(ii) Accounting for operating leases as lessor

Where the Group determines that the contractual provisions of the long-term PPA contain, or are, a lease, and result in the Group retaining the principal risks and rewards of ownership of the power plant, the arrangement is an operating lease. For operating leases, the power plant is, or continues to be, capitalized as property, plant and equipment and depreciated over its useful economic life. Rental income from operating leases is recognized on an output basis over the term of the arrangement.

Impairment of non-financial assets

Assets that are subject to depreciation or amortization are reviewed annually for indicators of impairment where events or changes in circumstances indicate that carrying values may not be recoverable. An impairment loss is recognized for the amount by which the asset's carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs of disposal (market value) and value in use determined using estimates of discounted future net cash flows of the asset or group of assets to which it belongs. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are largely independent cash inflows (cash-generating units).

Financial assets

Classification of financial assets

The Group classifies its financial assets in the following categories: at fair value through statement of income and at amortized cost.

a) Financial assets at fair value through statement of income

Financial assets have been acquired principally for the purpose of selling, or being settled, in the short term. Financial assets at fair value through statement of income are "Cash and cash equivalents" when held in money market funds and derivatives held for trading unless they are designated as hedges.

b) Financial assets held at amortized cost

These financial assets are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, and are measured at amortized cost. They are included in current assets, except those that mature greater than 12 months after the end of the reporting period, which are classified in non-current assets. The Group's financial assets and amortized costs comprise "Trade and other receivables", "Financial and contract assets" and "Cash and cash equivalents" that are not required to be carried at fair value through statement of income in the consolidated statement of financial position.

The classification depends on the entity's business model for managing the financial assets and the contractual terms of the cash flows.

Recognition and measurement

Purchases and sales of financial assets are recognized on trade date (that is, the date on which the Group commits to purchase or sell the asset).

At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through statement of income, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value through the statement of income are expensed in the consolidated statement of income and other comprehensive income. Financial assets are derecognized when the rights to receive cash flows from the financial assets have expired or have been transferred and the Group has transferred substantially all the risks and rewards of ownership.

a) Financial assets at fair value through statement of income

Gains or losses on financial assets at fair value through statement of income are recognised in the consolidated statement income and other comprehensive income. These are presented within finance income and finance costs respectively.

b) Financial assets held at amortized cost

These financial assets are held for collection of contractual cash flows, where those cash flows represent solely payments of principal and interest, and are measured at amortized cost. Interest income from these financial assets is included in finance income using the effective interest rate method. Any gain or loss arising on derecognition is recognized directly in profit or loss and presented in finance income or finance costs.

Impairment

The Group assesses, on a forward-looking basis, the expected credit losses associated with its financial assets carried at amortized cost. The impairment methodology applied depends on whether there has been a significant increase in credit risk.

Allowances for expected credit losses are made based on the risk of non-payment taking into account ageing, previous experience, economic conditions, existing insurance policies and forward looking data. Political risk insurance (PRI) policies are factored into this assessment due to being closely related insurance policies for which cash flows have been factored into the expected credit loss calculations (including risk of default on insurance provider) and presented on a net basis. Such allowances are measured as either 12-months expected credit losses or lifetime expected credit losses depending on changes in the credit quality of‑the counterparty.

While the financial assets of the Group are subject to the impairment requirements of IFRS 9, the identified impairment loss was immaterial.

The Group has three types of financial assets that are subject to the expected credit loss model:

(1) Trade and other receivables

(2) Financial and contract assets

(3) Other financial assets

While cash and cash equivalents are also subject to the impairment requirements of IFRS 9, no impairment loss has been identified.

Derivative financial instruments and hedging activities

Derivative instruments are measured at fair value upon initial recognition in the consolidated statement of financial position and subsequently are re-measured to their fair value at the end of each reporting period. The accounting for subsequent changes in fair value depends on whether the derivative is designated as a hedging instrument and, if so, the nature of the item being hedged.

Derivative instruments are presented according to their maturity date, regardless of whether they qualify for hedge accounting under IFRS 9 (hedging instruments versus trading instruments). Derivatives are classified as a separate line item in the consolidated statement of financial position.

As part of its overall foreign exchange and interest rate risk management policy, the Group enters into various hedging transactions involving derivative instruments.

The full fair value of a hedging derivative is classified as a non-current asset or liability when the remaining maturity of the hedged item is more than 12 months; it is classified as a current asset or liability when the remaining maturity of the hedged item is less than 12 months.

In connection with the Group's hedging policy, the Group uses forward exchange contracts for currency risk management as well as foreign exchange options.

The Group also hedges particular risks associated with the cash flows of recognized assets and liabilities and highly probable forecast transactions (cash flow hedges). Notably, the Group uses interest rate swap contracts for interest rate risk management in order to hedge certain forecasted transactions and to manage its anticipated cash payments under its variable rate financing by converting a portion of its variable rate financing to a fixed rate basis through the use of interest rate swap agreements, and a cross currency swap contract for both currency and interest rate risk management.

The Group can also hedge specific risks identified such as exposure to energy spot price for example, in the case of the CHP Mexico fixed margin swap which protects certain power purchase agreements against variations in the CFE tariffs.

Items qualifying as hedges

The Group formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategies for undertaking hedge transactions and the method used to assess hedge effectiveness. Hedging transactions are expected to be highly effective in achieving offsetting changes in cash flows and are regularly assessed to determine that they actually have been highly effective throughout the financial reporting periods for which they are implemented.

When derivative instruments qualify as hedges for accounting purposes, as defined in IFRS 9 'Financial instruments', they are accounted for as follows:

a) Cash flow hedges that qualify for hedge accounting

The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognized in the cash flow hedge reserve within equity and through the consolidated statement of other comprehensive income ("OCI"). The gain or loss relating to the ineffective portion is recognized immediately within the consolidated statement of income. Amounts recognized directly in OCI are reclassified to the consolidated statement of income when the hedged transaction affects the consolidated statement of income.

If a forecast transaction or firm commitment is no longer expected to occur, amounts previously recognized in OCI are reclassified to the consolidated statement of income as finance income or finance costs.

If a hedging instrument expires or is sold, terminated or exercised without replacement or rollover, or if its designation as a hedge is revoked, amounts previously recognized in OCI remain in accumulated OCI until the forecast transaction or firm commitment occurs, at which point they are reclassified to the consolidated statement of income.

b) Derivatives that do not qualify for hedge accounting

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instrument that does not qualify for hedge accounting are recognized immediately in profit or loss and are included in net foreign exchange (losses) and gains and change in fair value of derivatives.

In connection with the Group's hedging policy, the Group uses forward exchange contracts for currency risk management as well as foreign exchange options, interest rate swap contracts for interest rate risk management in order to hedge certain forecasted transactions and to manage its anticipated cash payments under its variable rate financing by converting a portion of its variable rate financing to a fixed rate basis through the use of interest rate swap agreements, and a cross currency swap contract for both currency and interest rate risk management.

Inventories

Inventories consist primarily of power generating plant fuel, non-critical spare parts that are held by the Group for its own use and emission quotas (see below). Inventories are stated at the lower of cost, using a first-in, first-out method, and net realizable value, which is the estimated selling price in the ordinary course of business, less applicable selling expenses.

 Emission quotas

Some companies of the Group emit CO2 and have as a result obligations to buy emission quotas on the basis of local legislation. The emissions made by the companies emitting CO2 which are in excess of any allocated quotas are purchased at free market price and shown as inventory before their effective use. If emissions are higher than allocated quotas, the companies recognizes an expense and respective liability for those emissions at prevailing market value. At the end of each reporting period, CO2 quotas that remain available to the companies are revalued at the lower of costs or prevailing market value.

The Group presents the quotas in Inventory which reflects the fact that the cost to purchase the quotas is part of the production cost and linked to the production output rather than the plant itself. The quotas directly contribute to revenue as the cost of quotas is billed on to the customer as a pass-through cost. The Group expects to realize the asset within 12 months after the year end.

Trade receivables

Trade receivables are recognized initially at transaction cost, which is usually the invoiced amount, and subsequently carried at amortized cost using the effective interest method, less provision for impairment. Details about the Group's impairment policies for financial assets and the calculation of the provision for impairment are provided in note 4.13.

Cash and cash equivalents

Cash and cash equivalents comprise cash in hand and current balances with banks and similar institutions and short-term investments, all of which are readily convertible to cash and are subject to insignificant risk of changes in value and have an original maturity of three months or less. Bank overdrafts are included within current borrowings. Cash and cash equivalents also includes cash deposited on accounts to cover for short-term debt service of certain project financings and which can be drawn for short term related needs. Money market funds comprise investments in funds that are subject to an insignificant risk of changes in fair value.

Maintenance reserves held for the purpose of covering long-term major maintenance and long-term deposits kept as collateral to cover decommissioning obligations are excluded from cash and cash equivalents and included in non-current assets.

Share capital and share premium

Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds.

The premium received on the issue of shares in excess of the nominal value of shares is credited to the share premium account and included within shareholders' equity.

Treasury shares

At year end, the Group's treasury shares are included under "Treasury shares" in the consolidated statement of financial position and are measured at acquisition cost.

The gains and losses obtained on disposal of treasury shares are recognized in "Other reserves" in the consolidated statement of financial position.

The Group buys and sells treasury shares in accordance with the prevailing law and the resolutions of the General Shareholders' Meeting. Such transactions include sale and purchase of company shares.

Financial liabilities

a) Borrowings

Borrowings are recognized initially at fair value of amounts received, net of transaction costs. Borrowings are subsequently measured at amortized cost using the effective interest method; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the consolidated statement of income over the period of the borrowings using the effective interest method.

Borrowings are removed from the balance sheet when the obligation specified in the contract is discharged, canceled or expires.

Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the reporting period.

b) Trade and other payables

Financial liabilities within trade and other payables are initially recognized at fair value, which is usually the invoiced amount, and subsequently carried at amortized cost using the effective interest method.

Trade and other payables are presented as current liabilities unless payment is not due within 12 months after the reporting period.

Unless otherwise stated, carrying value approximates to fair value for all financial liabilities.

Provisions

Provisions principally relate to decommissioning, maintenance, environmental, tax and legal obligations and which are recognized when there is a present obligation as a result of past events; it is probable that an outflow of resources will be required to settle the obligation; and the amount can be reliably estimated.

Provisions are re-measured at each statement of financial position date and adjusted to reflect the current best estimate. Any change in present value of the estimated expenditure attributable to changes in the estimates of the cash flow or the current estimate of the discount rate used are reflected as an adjustment to the provision. Any increase in the provisions due to passage of time are recognized as finance costs in the consolidated statement of income.

Current and deferred income tax

The tax expense for the period comprises current and deferred tax. Tax is recognized in the consolidated statement of income, except to the extent that it relates to items recognized in other comprehensive income. In this case, the tax is also recognized in other comprehensive income.

The current income tax charge is calculated on the basis of the tax laws enacted or substantively enacted at the statement of financial position date in the countries where the Group and its subsidiaries operate and generate taxable income. Management periodically evaluates positions taken in tax returns with respect to situations in which applicable tax regulation is subject to interpretation and considers whether it is probable that a taxation authority will accept an uncertain tax treatment. The Group measures its tax balances either based on the most likely amount or the expected value, depending on which method provides a better prediction of the resolution of the uncertainty.

Deferred income tax is recognized on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. However, deferred tax liabilities are not recognized if they arise from the initial recognition of goodwill; deferred income tax is not recognized if it arises from initial recognition of an asset or liability in a transaction other than a business combination that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates (and laws) that have been enacted or substantively enacted by the statement of financial position date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxable profits will be available against which the temporary differences can be utilized.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offset current tax assets against current tax liabilities and when the deferred income taxes assets and liabilities relate to income taxes levied by the same taxation authority on either the same taxable entity or different taxable entities where there is an intention to settle the balances on a net basis.

2.4. Critical accounting estimates and judgments

The preparation of the consolidated financial statements in line with the Group's accounting policies set out in note 2.3 involves the use of judgment and/or estimation. These judgments and estimates are based on management's best knowledge of the relevant facts and circumstances, giving consideration to previous experience, and are regularly reviewed and revised as necessary. Actual results may differ from the amounts included in the consolidated financial statements. The estimates and judgments that have the most significant effect on the carrying amounts of assets and liabilities are presented below.

Critical accounting judgments

Accounting for long-term power purchase agreements and related revenue recognition

When power plants sell their output under long-term power purchase agreements ("PPA"), it is usual for the operator of the power plant to receive payment (known as a capacity payment) for the provision of electrical capacity whether or not the offtaker requests electrical output. In assessing the accounting for the PPA, there may be a degree of judgement as to whether a long-term contract to sell electrical capacity constitutes a service concession arrangement, a form of lease, or a service contract. This determination is made at the inception of the PPA, and is not required to be revisited in subsequent periods under IFRS, unless the agreement is renegotiated.

Given that the fulfilment of the PPAs is dependent on the use of a specified asset, the key judgement in determining if the PPA contains a lease is the assessment of whether the PPA conveys a right for the offtaker to obtain substantially all the economic benefit from the asset and whether the offtaker has the right to direct the use of the asset throughout the period of use.

In assessing whether the PPA contains a service concession, the Group considers whether the arrangement (i) bears a public service obligation; (ii) has prices that are regulated by the offtaker; and (iii) the residual interest is transferred to the offtaker at an agreed value.

All other PPAs are determined to be service contracts.

Concession arrangements - For those agreements which are determined to be a concession arrangement, there are judgements as to whether the infrastructure should be accounted for as an intangible asset or a financial asset depending on the nature of the payment entitlements established in the agreement.

Concession arrangements determined to be a financial asset - The Group recognizes a financial asset when demand risk is assumed by the grantor, to the extent that the contracted concession holder has an unconditional right to receive payments for the asset. The asset is recognized at the fair value of the construction services provided. The fair value is based on input assumptions such as budgets and cash flow forecasts, future costs include maintenance costs which impact the overall calculation of the estimated margin of the project. The inputs include in particular the budget for fixed and variable costs. Any change in these assumptions may have a material impact on the measurement of the recoverable amount and could result in reducing the value of the asset. The financial asset is subsequently recorded at amortized cost calculated according to the effective interest rate method. Revenue for operating and managing the asset is recorded as revenue in each period.

Leases - For those arrangements determined to be or to contain leases, further judgement is required to determine whether the arrangement is finance or operating lease. This assessment requires an evaluation of where the substantial risks and rewards of ownership reside, for example due to the existence of a bargain purchase option that would allow the offtaker to buy the asset at the end of the arrangement for a minimal price. Judgement has been applied based on the significance of the life of the asset remaining and the remaining net book value of the asset at the end of the lease term.

The accounting for long-term power purchase agreements was considered during the year for the acquisition of the Western Generation portfolio. Three assets PPA's were identified as containing operating leases and have been accounted for accordingly.

Assessing property, plant and equipment and intangible assets for impairment triggers

The Group's property, plant and equipment and intangible assets are reviewed for indications of impairment (an impairment "trigger"). Judgement is applied in determining whether an impairment trigger has occurred, based on both internal and external sources. External sources may include: market value declines, negative changes in technology, markets, economy, impact of climate changes or laws. Internal sources may include: obsolescence or physical damage, or worse economic performance than expected, including from adverse weather conditions for renewable plants.

The Group also considers the end date of the PPAs as part of the impairment indicator analysis and assesses if the market conditions are significantly adverse such that the expiry of the PPA indicates an impairment trigger. The Group has notably considered the ending date of the PPAs in Arrubal and Maritsa ending in July 2021 and February 2024 respectively and concluded that these do not constitute an impairment indicator considering the current economic conditions in their respective market. This conclusion was reached on Maritsa taking into consideration the forecast cash flow during the remaining PPA period to February 2024 which covers the significant majority of the year end balance sheet value. As such only an immaterial amount of net cash inflows are needed in the post PPA period for the carrying value of PP&E to be supported, resulting in no impairment indicators identified. For Arrubal, the performance of the business in the post PPA period has been such that no impairment indicators are noted.

In the current year the Group performed climate change scenario analysis as part of the TCFD disclosures on a selection of assets across the portfolio, covering 55% and 60% of the Group's Adjusted EBITDA and Revenue respectively. A detailed risk assessment was performed, after which scenarios were modelled to consider the potential impact of climate related risks over the life of the assets. We considered whether any of the results of the TCFD scenario analysis could result in an indicator of impairment, including whether factors driven by climate change could result in a change in the useful life. Whilst there are a number of assumptions inherent in long term economic forecasting that underpins the scenario analysis, the Group's PPA arrangements typically provide mechanisms to protect against movements in market prices for energy and carbon over the duration of the PPA. Beyond the PPA period, the scenario analysis indicated that there was also not a material impact to any of the assets modelled. As such, no indicators of impairment were identified.

Provisions for claims

The Group receives legal or contractual claims against it from time to time, in the normal course of business. The Group considers external and internal legal counsel opinions in order to assess the likelihood of loss and to define the defense strategy. Judgments are made as to the potential likelihood of any claim succeeding when making a provision or disclosing a contingent liability. The timeframe for resolving legal or contractual claims may be judgmental, as is the amount of possible outflow of economic benefits.

The main judgments are related to the litigations disclosed in the note 4.32, such as the Kivuwatt arbitration, and the Togo claim, and as disclosed below related to Mexico.

Functional currency of the assets

The Group operates in various countries and performs an analysis of the functional currency of each operating asset considering the IAS 21 standard requirements. In some countries, the functional currency of the operating asset may differ from the local currency when the primary indicators (such as sales and cash inflows and expenses and cash outflows) are influenced by a currency which is not the local currency.

Cash generating units ("CGUs")

A CGU is defined as the asset or smallest identifiable group of assets that generates cash inflows that are largely independent of the cash inflows from other assets or groups of assets. In the case of Solar and Wind assets, typically a group of assets at a country level using shared technology is identified as a CGU.

Judgments are made in allocating each reporting unit (which generally correspond to power plants) or group of reporting units to CGUs. The Group notably considers that the assessment of the independence of cash flows involves consideration of the business transactions or financing relationship between the reporting units and how management makes decisions about continuing or disposing of the entity's assets and operations.

The definition of the CGU is critical for the purpose of assessing impairment indicators and performing impairment testing.

Regulatory changes in Mexico

Change in wheeling charges

During June 2020 the Mexican government announced certain changes to the Legado regime which would result in significant increases to wheeling fees. The Company filed an Amparo lawsuit against these changes, claiming the increases to be unconstitutional, which was upheld in May 2021. An appeal has been filed which is subject to review of the higher court. If the final judgement approves these changes to Legado rights, then under the majority of the current PPAs in place, these increased charges would be passed through to offtakers, resulting in limited impact to the cashflows of the Company during the PPA period. However, such increases in charges would impact the cash flows generated in Mexico during the post PPA period or from renewal of PPAs. The Company has analyzed these potential changes to the Legado rights, and, based on the successful granting of Amparo in May 2021 and on an external legal opinion that confirmed the changes as unconstitutional and therefore unlikely to be sustained, concluded that those changes do not constitute an indication of impairment (impairment "trigger") as per IAS 36 as of December 31, 2021. The Group will continue to monitor future changes in regulation in Mexico and the potential impact on its operations.

Amendment to permit modification

In October 2020, CRE (Energy Regulatory Commission) issued a new resolution amending the general administrative rules to modify and transfer the "Legado" permits. This amendment included additional restrictions on including new offtakers in the "Legado" permits. The Resolution 1094 is expected to be used by CRE to reject the permit modifications required for expanding the offtakers and the load points in the "Legado" permits. The Company filed an Amparo against these changes, claiming them to be unconstitutional which was successfully granted in June 2021. Given the Amparo remains in place and having taken legal advice the Company has concluded that those changes do not constitute an indication of impairment as at December 31, 2021.

Power industry law (Ley de la Industria Eléctrica - LIE)

On 10 March 2021, the Mexican Government enacted reform of the Electricity Sector Act (Ley de la Industria Eléctrica the "LIE reform"). One of the proposed changes under the LIE reform is to modify the order in which electricity produced by power plants such as our assets in Mexico ("CGA" and "CELCSA") is dispatched to the National Electricity System ("Dispatch Order"), which would favor the state-owned or operated power plants and may have an adverse impact on future revenues and profits of ContourGlobal's Mexican assets. CGA and CELCSA both filed an Amparo lawsuit against this LIE reform. The Mexican First District Court has granted CGA and CELCSA an injunction against the LIE. This injunction prevents the application and implementation of the challenged provisions by the relevant authorities. As of the Latest Practicable Date, the appeals file by the Mexican authorities against the admission of the Amparo claim and injunction of CGA are pending decision of the court. For CELCSA the appeal against admission of the Amparo claim is pending, but the Mexican Second Specialized Circuit Court revoked the definitive injunction on 15 July 2021 on the grounds that there was no immediate harm to it as a result of the LIE reform; any harm would be by subsequent acts of CRE to try to revoke the cogeneration self-supply permit, and/or by the relevant authorities to change the dispatch order; both of which are uncertain and have not occurred yet.

Given there has been no direct impact of the LIE reform to date and that there are a number of legal matters that are still to be resolved, management has concluded that these potential changes do not constitute an indication of impairment (impairment "trigger") as per IAS 36 as of December 31, 2021.

Kosovo e Re project arbitration

On 24 May 2020, ContourGlobal Kosovo LLC ("CG Kosovo"), a wholly-owned subsidiary within the ContourGlobal Group, sent a notice of termination to the Government of Kosovo (represented by the Ministry of Economy and Environment of the Government of Kosovo) (the "GoK") and other publicly owned entities, namely Kosovo Energy Corporation, J.S.C., New Kosovo Electric Company J.S.C., HPE Ibër-Lepenc, J.S.C.and Operator Sistemi, Transmission Dhe Tregu -KOSTT, SH.A., under various project documents entered into with each of those entities in respect of a project whereby CG was to build a coal-fired power plant in Kosovo. The notice of termination was sent as a result of the failure of the above-mentioned entities to meet certain obligations and conditions precedent under such project documents, which prevented the project from meeting certain required milestones by its scheduled closing date and therefore meant the project could not go forward.

On 25 September 2020, CG Kosovo sent a formal written notice of dispute under the project documents seeking recovery of costs incurred to date, as anticipated and set out in the project contract document and capped at €19.7 million ($22.1 million) plus interest for late payment, to which CG Kosovo is entitled where the termination of the project is attributable to failures by GoK and/or the relevant publicly owned entities. On 19 November 2020, CG Kosovo filed a request for arbitration with ICSID. The arbitration proceedings are ongoing.

As of 31 December 2021, €19.7 million ($22.4 million) of recoverable development costs are presented in Other non-current assets. The recovery of this asset is likely to depend on the outcome of the arbitration proceedings and so is subject to some degree of judgement. The Group believes it will be able to demonstrate that the project failed to close for reasons attributable to the GoK and/or the relevant publicly owned companies, which is the key judgement that supports the recognition of the asset.

Assets held for sale and discontinued operations

Where a disposal group is undergoing a sale process, we consider whether or not the disposal group meets the definition of assets held for sale and discontinued operations. During the second half of 2021 a sale process was initiated for the Brazil Hydro and Brazil Wind asset portfolios. At year end we assessed whether these asset portfolios should be classified as held for sale.

At year end the Brazil Hydro portfolio sale had progressed to a stage where it was considered to be available for sale in its present condition and the sale is highly probable and as such was classified as held for sale. The Brazil Hydro portfolio however does not represent a major line of business or geographical area of operations and as such is not a discontinued operation. Refer to note 4.35 for further developments subsequent to year end.

The Brazil Wind portfolio was not classified as held for sale at year end. This was due to the uncertainties associated with the structure of the transaction resulting in the highly probable criteria not being met.

Critical accounting estimates

Estimation of useful lives of property, plant and equipment

Property, plant and equipment represents a significant proportion of the asset base of the Group, primarily due to power plants owned, being 63.2% (2020: 55.3%) of the Group's total assets. Estimates and assumptions made to determine their carrying value and related depreciation are significant to the Group's financial position and performance. The annual depreciation charge is determined after estimating an asset's expected useful life and its residual value at the end of its life. The useful lives and residual values of the Group's assets are determined by management at the time the asset is acquired and reviewed annually for appropriateness. The Group derives useful economic lives based on experience of similar assets, including use of third party experts at the time of acquisition of assets, and these lives may exceed the period covered by contracted power purchase agreements.

Emerging governmental policies are also considered when reviewing the appropriateness of useful economic lives, including whether asset life assessments could be impacted by factors arising from climate transition or other regulatory and market factors. This includes consideration of government energy transition policies, and how our thermal assets are expected to be used, in particular to provide a secure supply during a medium to long-term transition to renewables. During the year, the useful life of two assets was revised, one increased and one decreased as a result of consideration of the expected economic life.

A decrease in the average useful life by one year in power plant assets would result in a decrease in the net book value of $21.1 million (2020: $13.8 million).

Recoverable amount of property, plant and equipment and intangible assets

Where an impairment trigger has been identified (see critical accounting judgements section), the Group makes significant estimates in its impairment evaluations of property, plant and equipment and intangible assets. The determination of the recoverable amount is typically the most judgmental part of an impairment evaluation. The recoverable amount is the higher of (i) an asset's fair value less costs of disposal (market value), and (ii) value in use determined using estimates of discounted future net cash flows ("DCF") of the asset or group of assets to which it belongs.

Management applies considerable judgment in selecting several input assumptions in its DCF models, including discount rates and capacity / availability factors. These assumptions are consistent with the Group's internal budgets and forecasts for such valuations. Examples of the input assumptions that budgets and cash-flow forecasts are sensitive to include macroeconomic factors such as growth rates, inflation, exchange rates, and, in the case of renewables plants, environmental factors such as wind, solar and water resource forecast. Any changes in these assumptions may have a material impact on the measurement of the recoverable amount and could result in impairing the tested assets.

 Emerging governmental policies are also considered when determining the recoverable amount of property, plant and equipment and intangible assets including the impact on DCF models arising from climate transition or other regulatory and market factors. We consider future forecasts of the key inputs to the cashflow models, such as energy, fuel and carbon pricing and whether these result in a change in useful life. Typically, during the PPA period our assets are insulated from these market risks through fixed energy pricing and the ability to pass through variations in fuel and carbon costs, hence where relevant we consider the impact on cash flows in the post PPA period

In 2021 no indicators of impairment have been identified and as such no impairment evaluation has been performed.

Fair value of assets acquired and liabilities assumed in a business combination

Business combinations are recorded in accordance with IFRS 3 using the acquisition method. The Group estimates the excess purchase price in accordance with IFRS3 as the difference of the consideration paid for the acquisition (including potential contingent consideration) and the net asset of the target company at the acquisition date.

Under this method, the identifiable assets acquired and the liabilities assumed are recognized at their fair value at the acquisition date. In the current year fair valuation assessments for business combination purposes have been performed in relation to the Western Generation and Green Hunter acquisitions in Note 3.1.

Therefore, through a number of different approaches and with the assistance of independent external valuation experts for acquisitions as considered appropriate by management, the Group identifies what it believes is the fair value of the assets acquired and liabilities assumed at the acquisition date. These valuations involve the use of judgement and include a number of estimates. Judgement is exercised in identifying the most appropriate valuation approach which is then used to determine the allocation of fair value. Depending on which is most appropriate for the transaction, the Group typically uses one of the cost approach, the income approach and the market approach.

Judgement is exercised in identifying intangible assets, separately from property plant and equipment taking into consideration the intangible asset recognition criteria within IAS 38. Such an intangible was identified in the Western Generation acquisition, related to a purchase price agreement in place which met the definition of an intangible asset. Refer to note 3.1 for further details.

Each of these valuation approaches involve the use of estimates in a number of areas, including the determination of cash flow projections and related discount rates, industry indices, market prices regarding replacement cost and comparable market transactions. While the Group believes that the estimates and assumptions underlying the valuation methodologies are reasonable, different assumptions could result in different fair values. For the Western Generation acquisition, such estimates were made for each of the assets acquired which also impacted on how much of the acquisition value was allocated to each asset.

Fixed margin swap

Certain estimates are made in relation to the valuation of the fixed margin swap agreements held by CHP Mexico which protect certain power purchase agreements against variations in the CFE tariffs. The valuation of this derivative is based on a number of data points, which includes both factual inputs and estimates. Refer to note 4.15 for sensitivity analysis of this instrument.

3. Significant changes in the reporting period

3.1. 2021 transactions

Acquisition of a portfolio located in the United States and Trinidad and Tobago

On December 7th, 2020, the Group entered into an agreement to acquire a 1,502 MW portfolio of six contracted operating power plants located in the United States and Trinidad and Tobago from Western Generation Partners, LLC. The transaction closed on 18 February 2021.

The total consideration paid amounted to $646.1 million.

On a consolidated basis, had this acquisition taken place as of 1 January 2021, the Group would have recognized consolidated revenue of $2,181.5 million, Adjusted EBITDA of $849 million and consolidated net profit of $81.2 million for the year ended 31 December 2021. From the acquisition date on 18 February 2021 to December 31, 2021, this acquisition contributed to consolidated revenue, Adjusted EBITDA and net profit of $206.9 million, $84.5 million and $10.3 million respectively.

The determination of fair value of assets acquired and liabilities assumed at acquisition date are:

The Group has determined the fair value of assets acquired and liabilities assumed at acquisition date with the support of an external independent valuation expert leading to the following recognition:

A decrease in the book value of intangible assets of $182.6 million due to the fair value of the power purchase agreements and tolling agreements under operating leases being classified as property, plant and equipment. The valuation of the power purchase agreements and tolling agreements recognized as intangible assets of $31.4 million at one US asset is based on a with or without method which reflects the benefit of having the agreements in place. For the asset in Trinidad and Tobago, the power purchase agreement is not separately identifiable from the tangible asset and therefore does not qualify as a separate identifiable intangible asset.

An increase in the book value of PP&E of $615.7 million to reflect the fair value of these assets at acquisition based on an income approach method. This includes $235.8 million relating to the incremental fair value of power purchase agreements classified as operating leases.

An increase in the book value of the Senior Secured Notes in Lea Power of $40.8 million to reflect the fair value of this liability at acquisition based on an income approach method.

An increase in the asset retirement obligation of $22.0 million and a net increase in deferred tax liability of $9.2 million.

Acquisition of a Solar portfolio in Italy

On June 4, 2021 the Group entered into an agreement with a group of private shareholders to acquire a 100% of shares of Green Hunter Group Sarl, the parent entity of a portfolio of solar photovoltaic assets totaling 18 MW located in Italy. The transaction completed on November 23 2021. The Group's effective shareholding of the Green Hunter Group is 51%.

The total consideration paid amounted to €30.1 million ($33.9 million).

On a consolidated basis, had this acquisition taken place as of 1 January 2021, the Group would have recognized consolidated revenue of $2,161.6 million, Adjusted EBITDA of $850.7 million and consolidated net profit of $81.6 million for the year ended 31 December 2021. From the acquisition date on 23 November 2021 to 31 December 2021, this acquisition contributed to consolidated revenue, Adjusted EBITDA and net profit of $0.7 million, $0.3 million and $nil million respectively.

The preliminary determination of the fair value of assets acquired and liabilities assumed at acquisition date are:

The Group has performed a preliminary determination of fair value of assets acquired and liabilities assumed at acquisition date leading to the following recognition:

An increase in the book value of PP&E of €19.0 million ($21.4 million) to reflect the fair value of these assets at acquisition based on an income approach method.

A net increase in deferred tax liability of €4.6 million ($5.2 million).

Brazil Hydro portfolio held for sale

As at 31 December 2021, given the advanced state of the sale negotiations the Brazil Hydro business, which is part of our Renewables segment, was classified as held for sale. The major classes of assets and liabilities within the disposal group are:

On 20 January 2022 a definitive agreement was signed with Infraestutura Brasil Holding XVII S.A for the sale of the Group's Brazilian Hydro power plants for a total enterprise value of BRL 1.73 billion ($313 million). The Group expects to generate a gain from the disposal of these assets. The transaction is expected to complete during the second quarter of 2022, subject to completion of certain conditions under the sale agreement.

The entities relating to the Group's Brazilian Hydro disposal group are:

4. Notes to the consolidated financial statements

4.1. Segment reporting

The Group's reporting segments reflect the operating segments which are based on the organizational structure and financial information provided to the Chief Executive Officer, who represents the chief operating decision-maker ("CODM").

Thermal Energy for power generating plants operating from coal, lignite, natural gas, fuel oil and diesel. Thermal plants include Maritsa, Arrubal, Togo, Cap des Biches, KivuWatt, Energies Antilles, Energies Saint-Martin, Bonaire, Mexican CHP, US and Trinidad & Tobago assets and our equity investees (primarily Termoemcali and Sochagota). Our thermal segment also includes plants which provide electricity and certain other services to beverage bottling companies and other industries.

 Renewable Energy for power generating plants operating from renewable resources such as wind, solar and hydro in Europe and Latin America. Renewables plants include Asa Branca, Chapada I, II, III, Inka, Vorotan, Austria Portfolio 1 & 2, Spanish Concentrated Solar Power and our other European and Brazilian plants.

 The Corporate & Other category primarily reflects costs for certain centralized functions including executive oversight, corporate treasury and accounting, legal, compliance, human resources, IT and facilities management and certain technical support costs that are not allocated to the segments for internal management reporting purposes.

The CODM assesses the performance of the operating segments based on Adjusted EBITDA which is defined as profit for the period from continuing operations before income taxes, net finance costs, depreciation and amortization, acquisition related expenses, plus, if applicable, net cash gain or loss on sell down transactions (in addition to the entire full period profit from continuing operations for the business the sell down transaction relates to) and specific items which have been identified and material items where the accounting diverges from the cash flow and therefore does not reflect the ability of the assets to generate stable and predictable cash flows in a given period, less the Group's share of profit from non consolidated entities accounted under the equity method, plus the Group's pro rata portion of Adjusted EBITDA for such entities. In determining whether an event or transaction is adjusted, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence.

The Group also presents the Proportionate Adjusted EBITDA which is the Adjusted EBITDA calculated on a proportionally consolidated basis based on applicable ownership percentage. The Proportionate Adjusted EBITDA includes the net cash gain or loss on sell down transactions as well as the underlying profit from continuing operations for the business in which the minority interest sale relates to reflecting applicable ownership percentage going forward from the date of completion of the sale of a minority interest.

The Group considers that the presentation of Adjusted EBITDA and Proportionate Adjusted EBITDA enhances the understanding of ContourGlobal's financial performance, in regards to understanding its ability to generate stable and predictable cash flows from operations. Where applicable, the cash gain on sell down is also included to demonstrate the ability of the Group to sell down assets at a significant premium, which is a distinct activity from operational performance of the power plants. The Group also believes Adjusted EBITDA is useful to investors because it is frequently used by security analysts, investors, ratings agencies and other interested parties to evaluate other companies in our industry and to measure the ability of companies to service their debt.

The CODM does not review nor is presented a segment measure of total assets and total liabilities.

All revenue is derived from external customers.

Geographical information

The Group also presents revenue in each of the geographical areas in which it operates as follows:

Europe (including our operations in Austria, Armenia, Northern Ireland, Italy, Romania, Poland, Bulgaria, Slovakia and Spain)

Latin America which includes South America (including Brazil, Peru, Colombia), Mexico and Caribbean Islands (including Dutch Antilles, French Territory and Trinidad and Tobago)

United States of America

Africa (including Nigeria, Togo, Senegal and Rwanda)

1. Corporate costs correspond to selling, general and administrative expenses before depreciation and amortization of $6.1 million (December 31, 2020: $5.3 million).

2. Corresponds to our share of Adjusted EBITDA of plants accounted for under the equity method (Sochagota and Termoemcali) which are reviewed by our CODM as part of our Thermal Energy segment.

3. Represents redundancy and staff-related restructuring costs.

4. Represents the private incentive plan as described in note 4.27. The private incentive plan ended 31 December 2020.

5. Reflects an adjustment to align the recognized earnings with the cash flows generated under the CHP Mexico fixed margin swap during the period as presented in the consolidated statement of cash flow as "Mexico CHP fixed margin swap".

6. Reflects an adjustment to align the recognized earnings with the cash flows generated under finance lease and financial concession arrangements which is presented in the consolidated statement of cash flow as "Change in finance lease and financial concession assets".

7. Reflects the non-cash gain recognized due to Generating Scaling Factor ("GSF") settlement in Brazil Hydro whereby a concession extension has been granted to compensate for historical GSF liability payments made prior to acquisition of the assets by ContourGlobal.

Cash outflows on capital expenditure

Geographical information

The geographical analysis of revenue, based on the country of origin in which the Group's operations are located, and Adjusted EBITDA is as follows:

1. Revenue generated in 2021 in Bulgaria and Spain amounted to $706.9 million and $426.9 million respectively (December 31, 2020: $406.3 million and $296.9 million respectively).

2. Revenue generated in 2021 in Brazil and Mexico amounted to $140.2 million and $296.1 million respectively (December 31, 2020: $142.0 million and $211.5 million respectively).

1. Adjusted EBITDA generated in 2021 in Bulgaria and Spain amounted to $127.8 million and $200.5 million respectively (December 31, 2020: $121.6 million and $189.0 million respectively).

2. Adjusted EBITDA generated in 2021 in Brazil and Mexico amounted to $93.8 million and $110.5 million respectively (December 31, 2020: $94.7 million and $104.9 million respectively).

The geographic analysis of non-current assets, excluding derivative financial instruments and deferred tax assets, based on the location of the assets, which are not presented to the CODM, is as follows:

4.2. Revenue

Revenue from power sales and Other revenue are recognized under IFRS 15 and total $1,933.1 million in the year to December 31, 2021 (December 31, 2020: $1,290.5 million). Revenue from operating leases and revenue from concession and finance lease assets are recognized under IFRS 16 and IFRIC 12 respectively.

1. The increase in Revenue from power sales from $1,191.4 million to $1,801.3 million is mainly due to the February 2021 acquisition of the US and Trinidad and Tobago assets contributing $101.8 million, higher CO2 emissions revenue in in our Maritsa plant for $300.6 million, revenue increase in Arrubal for $138.9 million mainly due to trading optimization and positive spreads for burning additional gas and higher production and higher gas pass throughs at Mexico CHP contributing $84.6 million.

2. Revenue from operating leases mainly includes $55.1 million relating to our Solutions plants, $31.7 million relating to our Bonaire plant, $98.1 million relating to the acquisition of the US and Trinidad and Tobago assets and $nil million relating to our Energie Antilles plant in the year to December 31, 2021 (December 31, 2020: $43.2 million, $25.9 million, $nil and $16.6 million respectively).

3. Some of our main plants are operating under specific arrangements for which certain other accounting principles are applied as follows:

· Our Togo, Rwanda (Kivuwatt) and Senegal (Cap des Biches) plants are operating pursuant to concession agreements that are under the scope of IFRIC 12.

· Our Energies Saint Martin plant is operating pursuant to power purchase agreements that are considered to contain a finance lease.

4. Other revenue primarily relates to environmental, operational and maintenance services rendered to offtakers in our power plants in Bulgaria, Togo, Rwanda and Senegal.

The Group has one customer contributing more than 10% of Group's revenue (2020: one customer).

4.3. Expenses by nature

1. Emission allowances utilized corresponds mainly to the costs of CO2 quotas in Maritsa which are passed through to its offtaker and purchases of CO2 allowances in Arrubal, and includes the write-down of CO2 quotas held in inventory at year end to their net realizable value.

2. Other expenses include facility costs of $15.2 million at December 31, 2021 (December 31, 2020: $12.7 million).

1. Represents the private incentive plan as described in note 4.27 share-based compensation plan of the annual accounts. The private incentive plan ended at the end of December 2020.

2. Represents redundancy and staff-related restructuring costs.

4.4. Employee costs and numbers

1. See note 4.27 for a description of the private incentive plan and long term incentive plan.

4.5. Acquisition related items

1. Acquisition costs include notably pre-acquisition costs such as due diligence costs and professional fees and other related incremental costs incurred as part of completed acquisitions or contemplated acquisitions. In 2021, costs incurred primarily related to completed acquisitions in the United States and Italy. In 2020 costs incurred primarily related to a contemplated acquisition in the United States (subsequently completed on February 18, 2021).

4.6. Net finance costs, foreign exchange gains and losses, and changes in fair value of derivatives

1. Net change in fair value of derivative related to the CHP Mexico fixed margin liability.

2. The Group recognized a profit of $8.1 million in the 12 months ended 31 December 2021 in relation to its interest rate, cross currency, financial swaps, options, foreign exchange options and forward contracts (December 31, 2020: profit of $5.6 million) which relates to fair value changes on derivatives not hedge accounted and amounts reclassified from the cash flow hedge reserve.

3. Net foreign exchange differences include foreign exchange gains and losses related to conversion of foreign currency denominated cash balances and foreign exchange differences primarily relate to subsidiaries and loans in subsidiaries that have a functional currency different to the currency in which the loans are denominated.

4. Unwinding of discounting mainly relates to Maritsa debt to non-controlling interests and other long-term liabilities in the 12 months ended 31 December 2021 and 2020.

5. Other mainly includes costs associated with other financing, finance costs of leases, income and expenses related to interest and penalties for late payments.

CONTOURGLOBAL PLC AND SUBSIDIARIES

Notes to the consolidated financial statements continued

4.7. Income tax expense and deferred income tax

Income tax expense

The main jurisdictions contributing to the income tax expense for the year ending December 31, 2021 are i) Mexico, ii) Spain and iii) Bulgaria.

The tax on the Group's profit before income tax differs from the theoretical amount that would arise from applying the statutory tax rate of the parent company (2021: 19%, 2020: 19%) to the results of the consolidated entities as follows:

Effective tax rate reconciliation

1. Includes the effect of recognizing net income of investments in associates in the profit before income tax.

2. Mainly relates to tax losses in Luxembourg and Brazil where deferred tax assets are not recognized.

3. Relates to specific tax regimes and some of the Brazilian entities being taxed by reference to revenue rather than accounting profits.

4. Mainly driven by difference between functional currency of statutory entities and currency used for local tax reporting and non-deductibility of foreign exchange movements in certain jurisdictions.

5. This category is composed of tax impacts of inflationary adjustments (2021: $13.0 million, 2020: $6.4 million) and a number of individually immaterial items such as non-deductible Group costs or withholding taxes.

Net deferred tax movement

The gross movements of net deferred income tax assets (liabilities) were as follows:

Analysis of the net deferred tax position recognized in the consolidated statement of financial position

The net deferred tax positions and their movement can be broken down as follows:

1. Mainly relates to assets acquired through business combinations.

2. $(9.9) million of the current year movement through other comprehensive income represents the movement in the year of hedging expenses in Mexico. $25.8 million of the movement in the prior year related to the recognition of deferred tax assets on these hedging expenses incurred in both 2019 and 2020 following conclusion that such derivative costs should be deductible under Mexican tax rules.

3. This category is made up of various items, the largest being deferred financing costs of $26.8 million (2020: $20.0 million), with $8.6 million being acquired in the period and currency translations of $1.8 million. Other significant items include finance lease capitalization of $(13.7) million (2020: $(16.0) million) and Mexico fixed margin swap provision of $7.3 million (2020: $13.0 million).

4. Mainly includes opening balance sheet deferred tax assets and liabilities relating to the US and Trinidad assets acquired in February 2021.

5. The Other movement relates to a reclassification of a deferred tax liability in Rwanda of $5.4 million which was previously netted against other receivables. An equal and opposite asset is contained in other receivables as the tax liability in Rwanda is passed through to the local offtaker.

Deferred tax assets recognized in the consolidated statement of financial position

The Group recognizes deferred tax assets to the extent that it is probable that sufficient future taxable profits will arise against which these deductible temporary differences can be utilized. The Group has performed an assessment of the recovery of deferred tax assets which has involved the use of budgets and forecasts.

There is a deferred tax asset in Spain of $20.9 million (2020: $24.6 million) which relates predominately to intangible assets. The relevant tax group is profitable, and the reversal of the deferred tax asset is scheduled to be within four years. In the US, there was an operating loss in the current year due to acquisition costs and the amortization of intangible assets. There is an amount of deferred tax assets on tax losses that are dependent on future taxable profits not arising from the reversal of existing deferred tax liabilities of $16.2 million ($3.5 million in 2020), which is scheduled to be reversed within 13 to 15 years. This utilization horizon takes into account management's best estimate of risks to which the operations may be exposed and is considered appropriate given the long term nature of the acquired assets.