9 April 2018
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ContourGlobal plc ( "ContourGlobal " or the "Company")�
2017 Annual Report & Accounts
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ContourGlobal has today published on the Company's website its Annual Report & Accounts for the year ended 31 December 2017 (the "Annual Report"). The Annual Report is available at : http://www.contourglobal.com/reports .
In compliance with Listing Rule 9.6.1, a copy of the Annual Report will also shortly be submitted to the National Storage Mechanism and will be available for inspection at www.morningstar.co.uk/uk/NSM .
The Annual Report, together with notice of the Group's Annual General Meeting to be held on 25 May 2018, will be sent to shareholders later this month, at which point a further announcement will be made.
A condensed set of the Company's financial statements and information on important events that have occurred during the financial year and their impact on the financial statements were included in ContourGlobal's Preliminary Results Announcement on 5 April 2018. That information together with the information set out below which is extracted from the Annual Report and Financial Statements 2017 (the "Annual Report 2017") constitute the material required by Disclosure Guidance and Transparency Rule 6.3.5 which is required to be communicated to the media in full unedited text through a Regulatory Information Service. This announcement is not a substitute for reading the full Annual Report 2017. Page and note references in the text below refer to page numbers in the Annual Report 2017. To view the preliminary announcement, slides of the results presentation, the transcript of the presentation and the call recording, please visit http://www.contourglobal.com/reports .
Investor Presentation for Investor Non-Deal Roadshow
ContourGlobal has today published on the Company's website a presentation in the context of an investor non-deal roadshow starting today Monday 9 April 2018.
The presentation can be downloaded at: http://www.contourglobal.com/reports.
Enquiries
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Investor Relations - ContourGlobal Alice Heathcote +1 646 386 9901 |
Media - Brunswick Charlie Pretzlik/Simon Maine +44 (0) 207 404 5959
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RISKS
From the tone set at the top through to the day-to-day actions across all businesses and corporate functions, we have a strong risk management culture at ContourGlobal.
The Board of Directors has overall responsibility for risk management - setting the Company's risk appetite and ensuring there is an effective risk management strategy and framework. The Audit and Risk Committee assists the Board in overseeing the effectiveness of risk governance, risk management strategy, internal control and relevant systems. This includes reviewing the risk management methodology and effectiveness of internal controls, providing expert advice and oversight. Details of the Audit and Risk Committee's composition, responsibilities and process are in the Governance Report on pages 61 to 64.
The Company's risk management framework consists of a risk register of all key risks, a risk map and risk ID cards detailing all key elements such as qualitative analysis of the main causes and impacts. The register also summarizes the risk management in place, including its strength. The risk register and ID cards are prepared based on direct input from the Group's key senior business leaders. They are approved by the senior management team and presented to the Audit and Risk Committee and the Board.
Focusing on the major risks
Below provides a risk overview focusing on the major risk factors related to implementing the Company's strategy and business model. It is not an exhaustive list of all possible risks. Additional uncertainties exist, some of which may not be known to the Company and may have a negative effect on the Company's financial position and performance.
Reducing uncertainties
The Company's focus on contracted power generation across different technologies reduces uncertainties relating to medium-term operational results. We closely monitor residual risks related to governmental regulations and changes in market conditions through the risk management framework.
Controlling risks
The Company faces a broad range of risks based on operating, maintaining and refurbishing power generation facilities. These include operational, health and safety and environmental risks. In line with our culture of operational excellence and safety, we make sure all the resources are available to control these risks at the right level.
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Risk Factor |
Main impact |
Risk Response |
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R01 - Strategy - Governmental Regulations |
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The risk that governmental actions or changes in regulations will have negative impacts due to our contracted assets' significant dependence on regulated tariffs (primarily feed-in-tariffs) or other long-term fixed rate arrangements (primarily PPAs) in partnership with governments, utilities and corporations.
This includes political instability in non-OECD countries in Eastern Europe, Latin America and Sub-Saharan Africa (72% of ContourGlobal's capacity) together with changes in laws and regulations in OECD countries e.g. Italy and Slovakia.
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Deterioration of financial performance including loss of revenue and an increase in expenses.
Loss of business/growth opportunities - Termination of agreements - Inability to obtain, maintain or renew required governmental permits/ licences - Inability to receive permit for extension of existing capacities |
PPAs are with state-owned, regulated or other off-takers, the majority of which are rated by Standard & Poor's, with a weighted average credit rating of BBB- (weighted by capacity). PRI policies (from OPIC and commercial insurers) in place for several projects in case of events that can affect our assets in particular the loss of invested capital. In some cases, these cover a return on our capital. These include: Maritsa (private market), Vorotan (private market), KivuWatt (private market), Togo (OPIC), Nigeria (OPIC), Cap des Biches (OPIC), TermoemCali (private market), Sochagota (private market), Inka (private market), Slovakia (private market), Brazilian businesses (private market). Close relationships with energy lawyers and associations to anticipate any potential changes in regulation and lobby our interests. Partnerships with multilateral development banks for both equity and debt which makes governments reticent to renegotiate. Investment in local communities and hiring locally. Sovereign credit rating is A+ post PRI impact (based on the individual sovereign ratings determined by Standard & Poor). |
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R02 - Operation and execution - Project execution (CAPEX) |
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The risk that inefficient project management and execution of greenfield construction or refurbishment investment projects will result in delays or unanticipated cost overruns. |
Financial impact e.g. - Overrun of project costs (including financing fees) vs. investment case impacting projected cash flows and IRR - Liquidated damages/penalties/ litigations - Reduced revenue due to construction delays - Potential defaults on financing and debt repayment before COD Image and reputation impact resulting from a loss of credibility with counterparties, lenders and other stakeholders. |
Minimizing the risk of exceeding construction budgets by entering into fixed price contracts with engineering, procurement and construction (EPC) contractors with proven track records. EPC contracts also contain back-to-back liquidated damages provisions which protect ContourGlobal against construction delays and other breaches by EPC contractors. Contract monitoring and management with legal support. External support for permitting process. Project Review Procedure: monthly review of the project organized by the Project Management Team (including the Group COO) and presented to Project's Steering Committee. Controlling methodology: provides guidance and best practices to ensure strict and real-time project cost control, enabling cost overruns to be identified early and mitigation actions put in place. |
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R03 - Operation and execution - Asset integrity and OPEX |
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The risk that lack of appropriate assets maintenance in line with O&M plan will prevent the power plants from delivering electricity and ensuring availability at the levels defined in the long-term PPAs. This could be inadequate maintenance of power plants or business disruption as a result of damage caused to the infrastructure (transmission line and substation). |
Deterioration of operational performance: - Business interruption and power outages - Performance below expected efficiency and output levels - Inability to deliver electricity or ensure availability defined in long-term PPAs
Reduced profitability and cash flows: Increase of expenses (OPEX & CAPEX) - Unplanned O&M and capital expenditures - Loss of revenue and PPA penalties - Liquidated damages - Reduction in distribution and inability to service debt
Reputational impact. |
Business interruption insurance. O&M strategy focusing on HSE, O&M Organization, O&M performance management, benchmark and KPIs. Maintenance strategy (maintenance plan for mooring system) including on hydro and civil structures. O&M IT systems (including remote monitoring control room). Maintenance activities with regular KPIs for control, and timely corrective actions. Daily KPIs and improvement meeting between local plant managers and operators. |
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R04 - Operation and execution - Resources climate change |
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The risk that climate change (changes in temperature, wind patterns and hydrological conditions etc.) will have an adverse effect on financial and operating performance. |
Deterioration of financial performance including a loss of revenue and/or an increase in expenses (O&M costs).
Impact on the operational performance with a strong deviation of actual renewable generation vs. projections in the investment case specifically for wind and hydro. |
Diversified portfolio of assets: Thermal and Renewable. Extensive weather phenomena study and due diligence before the acquisition. Sign off of investment case assumptions by a reputable advisory firm. |
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R05 - Health and Safety (H&S) and environment: prevention and regulations |
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The risk of failure to prevent H&S and environment incidents and/or to comply with relevant regulations due to inherent risks related to ContourGlobal activities (fuel types, technology and equipment in more than 20 different countries), which will have a material adverse impact on our operations, financing conditions and reputation.
These could include accidents during transportation and handling of electricity, natural gas/biogas, liquid fuels and hazardous materials arising from a lack of expertize/training and/or involvement, inadequate assessment, poor equipment, insufficient supervision of H&S aspects, for example.
These could result from poor monitoring of compliance to local H&S and environment laws and regulations as well as their changes. |
Human and environmental impact:
- LTIs (Lost Time Incidents) and fatalities of ContourGlobal employees and contractors or local communities around the facilities due to incidents at the power plants - Environmental accidents on site and in local communities
Reputational impact due to poor H&S management.
Financial and operational impact:
- increase in liabilities and compliance costs - business interruption - loss of efficiency/productivity - breach of loan covenants - Non-compliance with applicable H&S legal requirements and potential sanctions |
Health and Safety Policy reviewed annually and communicated Company-wide. Health and safety and Environmental management system is aligned with H&S 18001 and ISO 14001 standards, and also with World Bank guidelines, namely IFC Performance Standards. Monitoring of reactive indicators (such as responses to accidents) and proactive indicators (including known hazards, inspection quality and number of training hours). Intense regular trainings. Strong environmental policies and procedures: - each business's compliance with applicable policies, local laws and permit requirements is managed directly by each business - oversight and audit through operations, environmental, health and safety departments
Third-party contractors' environmental audits. Arrubal, Togo and Knockmore Hill have achieved ISO 14001 certification. Adherence to global environmental policy, reflecting commitment to the United Nations Global Compact. |
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R06 - Regulation and compliance - fraud, bribery and corruption |
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The risk that lack of transparency, threat of fraud, public sector corruption and other forms of criminal activity involving government officials will result in a failure to comply with anti-corruption legislation, including the UK Bribery Act 2010 and other international anti-bribery laws. |
Financial impact: - Financial losses as a result of fraudulent activities - Violations of anti-corruption or other laws - Criminal and/or civil sanctions against individuals and/or the company - Loss of trust by key stakeholders - Debarment by multilateral development banks and international financial institutions
Image and reputation impact: - Reputational harm - Exclusion from government funding programs |
Strong anti-bribery compliance program that reflects the components of an "effective ethics and compliance program" as set forth by various international conventions and enforcement authorities, which is reviewed periodically. Policies and procedures include: - Code of Conduct and Business Ethics - Anti-Corruption Policy - Anti-Corruption Compliance Guide - Policy for Engaging Supplier and Third-Party Service Providers - Gifts & Hospitality Policy - Compliance Transactional Due Diligence Protocol - Business Development Consultant Compliance Protocol
Periodic certification by employees. Risk-based due diligence, including for third parties and transactions. Online portals - Third Party Service Provider and Supplier Portal - Gifts & Hospitality Portal - Document Review and Signature Approval Procedure (cross-functional) - Ethics Line
Regular checks and audits - Bi-annual combined Compliance and Finance Audits - Internal spot checks
Periodic, tailored, risk based training according to a yearly training plan. |
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R07 - Information Technology - Integrity and reliability of corporate IT systems |
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Many of the Company's activities are highly sensitive to IT systems in their day-to-day operations (including cloud-based SharePoint applications, accounting and reporting systems). The risk is that an insufficiently robust and stable IT operating environment (including physical security, logical access management, incident management, system development and change control and monitoring of system performance) will result in business disruption and loss of data reliability. |
Organizational and operational impact: - Disruptions to business operations - Compromise of data integrity in core systems
Financial impact: - Potential for fraudulent activity due to segregation of duties conflicts - Penalties related to non-compliance with data-related laws and regulations - Loss of revenue due to disruptions to operations
Impact on reputation due to breach of confidentiality. |
Employees On-boarding/Off-boarding portal - to manage appropriate employee accesses. SAP Governance Risk and Compliance (GRC) module is in place to control any risks related to segregation of duties. User provisioning process for key financial accounting and reporting systems. Dual data centers and redundancy (implemented or contracted) on critical systems (SAP, BPC, Email, Sharepoint). Environment control processes, such as change management, ongoing monitoring, incident management. A host of security systems and capabilities in the corporate environment, including malware and virus protection, web access filtering, firewalled network perimeter, updated and patched Operating Systems, and others. Annual audits of financial systems and IT security. |
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R08 - Information technology - cyber security |
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The risk is that insufficient IT security measures will expose the company, which relies on IT systems in its day-to-day operations, to cyber intrusions. This can have a negative impact on information systems as well as electronic control systems used at the generating plants, and can disrupt business operations, result in loss of service to customers, and expense to repair security breaches or system damage. |
Organizational and operational impact: - Impact on corporate or operational systems - Loss of confidence in system integrity - Ongoing threat to process integrity
Deterioration of financial performance: - Loss of revenue due to disruption of operations or compromised business process - Unpredicted expenses to repair security breaches - Financial losses due to external fraudulent activities
Deterioration of competitive advantage through loss of sensitive business data. |
Dedicated security function established for corporate and plant IT, including third party support, cyber security policies and trainings. In the corporate environment: - Anti-malware and anti-virus software deployed on local computers and monitored centrally - Website filtering system which restricts access to websites with inappropriate and potentially malicious content - Firewall controlled access into the corporate network and regular vulnerability scans of the network components - Email filtering system which reduces the likelihood of delivery of malicious email - Up-to-date Operating System installed on all corporate computers with active support - Multiple layers of access control for corporate environment and systems with sensitive data - Server infrastructure hosted in the ISO-27001 compliant data-center environments
A dedicated IT plant function lead has been assigned to consolidate IT management approach in the plants under a global framework of IT security policies and procedures. |
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R09 - People and Organization - constrained staffing model and succession planning |
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The risk that given constrained staffing model with high dependency on productivity and expertise of key individuals, the departure or removal of key staff and failure to appoint adequate successors will have an adverse effect on company's ability to deliver on its strategic objectives. This could have a negative impact on all the company's performance indicators. |
Removal or departure of key individuals could result in operational disruption, while competition for employees could lead to higher than expected increases in the cost of recruitment, training and employee costs. |
Focused action to attract, retain and develop high caliber employees. Delivering initiatives which reinforce behaviors to generate the best outcomes for customers, partners and employees. Managing organizational capability and capacity to meet our customers' needs. Effective remuneration arrangements to promote effective employee behaviors. Read more in the Nomination Committee's Report on page 60. |
RELATED PARTY DISCLOSURE
ContourGLobal L.P. and Reservoir Capital Group
As of December 31, 2017 we have no significant financial relationship with the Group's main shareholder, ContourGlobal L.P., and Reservoir Capital Group which ultimately controls ContourGlobal L.P.
ContourGlobal L.P.
ContourGlobal L.P. had intercompany relations with the Group which are reflected in the consolidated statement of financial position as related parties within "Other current assets". The net position was an asset receivable by the Group which amounted to $19.2 million as of December 31, 2016 and to $21.3 million as of November 8, 2017. At this date, prior to the listing, ContourGlobal Plc distributed a dividend in cash of $21.3 million to ContourGlobal L.P. which was used to repay in full the assets receivable to ContourGlobal L.P. As a result, there are no related party positions remaining as of December 31, 2017 with ContourGlobal L.P.
Key management personnel
Compensation paid to key management (executive committee members) amounted to $8.7 million in December 31, 2017 (December 31, 2016: $9.7 million).
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In $ millions |
Years ended December 31, |
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2016 |
2017 |
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Salaries and short-term employee benefits |
5.9 |
4.8 |
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Termination benefits |
- |
0.8 |
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Post-employment benefits |
0.2 |
0.2 |
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Profit-sharing and Bonus schemes |
3.6 |
2.9 |
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Total |
9.7 |
8.7 |
STATEMENTS OF DIRECTORS' RESPONSIBILITIES
Responsibility Statement under the Disclosure Guidance and Transparency Rules
Each of the Directors, whose names and functions are listed in the Directors' Report confirm that, to the best of their knowledge:
?The Parent Company financial statements, which have been prepared in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law), give a true and fair view of the assets, liabilities, financial position and profit of the Company
?The consolidated Group financial statements, which have been prepared in accordance with International Financial Reporting Standards (IFRSs) as adopted by the European Union, give a true and fair view of the assets, liabilities, financial position and profit of the Group
?The Strategic Report includes a fair review of the development and performance of the business and the position of the Group and Parent Company, together with a description of the principal risks and uncertainties that it faces.
Statement under the UK Corporate Governance Code
The Directors consider that the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary for shareholders to assess the Group and Parent Company's performance, business model and strategy.
Statement of Directors' Responsibilities in relation to the Annual Report and financial statements
The Directors are responsible for preparing the Annual Report and the financial statements in accordance with applicable law and regulation. Company law requires the Directors to prepare financial statements for each financial year. Under that law the Directors have prepared the Group financial statements in accordance with IFRSs as adopted by the European Union and Parent Company financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards, comprising FRS 102 "The Financial Reporting Standard applicable in the UK and Republic of Ireland", and applicable law). Under Company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the Group and Parent Company and of the profit or loss of the Group and Parent Company for that period. In preparing the financial statements, the Directors are required to:
?Select suitable accounting policies and then apply them consistently
?State whether applicable IFRSs as adopted by the European Union have been followed for the Group financial statements and United Kingdom Accounting Standards, comprising FRS 102, have been followed for the Company financial statements, subject to any material departures disclosed and explained in the financial statements
?Make judgments and accounting estimates that are reasonable and prudent
?Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Parent Company will continue in business
The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Group and Parent Company's transactions and disclose with reasonable accuracy at any time the financial position of the Group and Parent Company and enable them to ensure that the financial statements and the Directors' Remuneration Report comply with the Companies Act 2006 and, as regards the Group financial statements, Article 4 of the IAS Regulation.
The Directors are also responsible for safeguarding the assets of the Group and Parent Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.
The Directors are responsible for the maintenance and integrity of the Parent Company's website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.
Joseph C. Brandt
President, Chief Executive Officer
and Executive Director
ContourGlobal plc
4th April 2018