Interim Results Announcement

ContourGlobal plc

Interim Results Announcement

Delivering on strategy, strong operational and financial performance

ContourGlobal plc ("ContourGlobal" or the "Company"), an international owner and operator of contracted electricity generating plants, today announces its half year results for the six months ended 30 June 2019.

KEY HIGHLIGHTS

·; Consolidated revenue growth of 15% to $617.4 million.

·; Income from operations up 27% to $142.6 million.

·; Adjusted EBITDA up 36% to $357.2 million.

·; Proposed quarterly dividend of USD 3.6901 cents per share, equivalent to $24.75 million, reflecting our commitment to 10% year on year dividend growth supported by ContourGlobal's strong and predictable cash flow generation. 

·; Good progress in regards to achieving our target of doubling Adjusted EBITDA by 2022.

·; Sale of 49% of our 250 MW Concentrated Solar Power portfolio in Spain ("CSP") for a final consideration of €134 million completed in May 2019, which contributed $52 million to H1 2019 Adj. EBITDA.

·; Subsequent to the end of the half year, €100 million of aggregate principal amount of our 4.125% senior secured notes due 2025 were issued at 106.0 % of par, corresponding to a yield to maturity of 3.024%.

·; Acquisition of two natural gas-fired combined heat and power plants ("CHP") in Mexico expected to close in the third quarter of 2019 and to generate $110 million of Adjusted EBITDA on a full year basis.

·; Reflecting the timing of the closing of the CHP acquisition, we expect 2019 Adjusted EBITDA to be in the lower half of our previously communicated guidance of $720-770 million for the full year at constant foreign exchange rate[1].

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

 "We are pleased to announce strong first-half results, delivering on financial, operational and growth commitments. We successfully integrated the 250MW CSP facilities in the southwest of Spain which contributed to our growth. In May we completed the sale of 49% of the CSP assets to our strategic partner Credit Suisse Energy Infrastructure Partners AG for €134 million in cash consideration. The CHP acquisition in Mexico, signed in January 2019, received shareholder approval and is expected to close in the third quarter of 2019. It will bring high quality contracted cash flows and an expected annual Adjusted EBITDA contribution of $110 million. We continue to see attractive growth opportunities in our core markets in both the acquisition and greenfield segment. We are pleased with our pipeline and our accelerated progress towards achieving our IPO objective of doubling Adjusted EBITDA by 2022 without the need to issue shares or exceed target net leverage.

We are pleased to announce a quarterly dividend of USD 3.6901 cents per share reflecting our commitment to grow our dividend by 10% on an annual basis - this commitment is supported by the Company's substantial and predictable cash generation."

Robust financial performance

·; Consolidated revenue up 15% to $617.4 million supported mainly by the full year of ownership impact of the CSP assets and the higher dispatch in the Thermal portfolio.

·; Income from operations is up 27% as a result of the growth of the Renewable portfolio in 2019 and significant acquisition one-off items in 2018 in relation to the acquisition of the CSP assets.

·; Adjusted EBITDA up 36% from $261.8 million to $357.2 million driven by the Renewable portfolio and reflecting the impact of the CSP assets acquisition ($50 million), the cash gain realized on the sell down of minority stakes in the CSP assets ($52 million) and improved resource ($10 million) particularly in wind, partially offset by negative foreign exchange ($24 million).

·; Profit attributable to ContourGlobal plc shareholders was $6.0 million, resulting in basic EPS of 2 cent (USD) per share. The net profit was impacted by one-off breakage fees and write-off of deferred issuance fees of $15 million due to the refinancing at attractive rates of the Slovakian and Italian Solar portfolio in H1 2019 (see below).

·; Strong cashflow generation; funds from operations reached $169.8 million in H1 2019, a 53% increase from H1 2018, mainly explained by the cash generated from the acquired CSP assets and the successful refinancing of the corporate bond in July 2018 leading to lower interest expense; Cash conversion rate defined as FFO / Adjusted EBITDA reached 48% in H1.

·; $445 million of liquidity at the parent level as of 30 June 2019.

·; Net consolidated leverage ratio of 4.0x at 30 June 2019 at the bottom end of our target range.

Successful operational performance and growth of the portfolio

·; Continued industry leader in Health and Safety with no LTI in the first half of 2019

·; Availability Factors remained strong at 94.6% for the Group in H1 2019 (H1 2018: 94.9%), with individual segments shown below

·; Capacity factors of the Renewable portfolio in H1 2019 were broadly in line with the Group's expectations for the period with very high level of production at our CSP assets and slightly lower production at our Brazil wind assets, resulting in no significant resource impact compared to company's expectations during the first half.

Delivering growth and providing value creation to our shareholders

·; The closing of the CHP acquisition is expected to occur in the third quarter of 2019. The commissioning of the largest plant is in its final stage.

·; We acquired an additional 12.4 MW acquisition of PV assets in June 2019.

·; Austria Wind Repowering - Phase 1 (30 MW): Repowering of one of the wind farms (13 MW) reached commercial operations in January 2019; the second repowering (17 MW) is ongoing.

·; Completion of the CSP sell down to Credit Suisse Energy Infrastructure Partners as planned at a 2x equity multiple one year after the acquisition, representing consideration of €134 million.

·; Successful refinancing of our Solar portfolios in Italy and Slovakia in H1 2019, reducing all-in costs by €4 million per annum.

·; In regards to the ContourGlobal's Kosova e Re Power Plant Project, while the finalization of the EPC contract is progressing according to plan, the timing of the financial close previously anticipated to occur during H2 2019 is likely to be impacted by the uncertainty created by the resignation of the country's prime minister.

EPS

·; Profit attributable to ContourGlobal was $14.1 million in the first half of 2019 corresponding to EPS of $0.02. Adjusted net income attributable to ContourGlobal plc shareholders was $31.5 million in the first half of 2019 corresponding to an Adjusted EPS of $0.05.

Dividend

·; The Company made the final dividend payment for the year ending December 31, 2018 of $63.3 million (9.4 USD cents per share) on 30 May 2019.

·; The Company started paying quarterly dividends in 2019. The Company paid a first quarterly dividend of $24.75 million (3.6901 USD cents per share) in June 2019 corresponding to one-fourth of an expected yearly dividend of $99 million (14.7604 USD cents per share), representing 10% dividend growth against last year.

·; Today the Company declares a second quarterly dividend for 2019 of $24.75 million corresponding to 3.6901 USD cents per share which is expected to be paid on 6 September 2019 to shareholders on the register at 16 August 2019.

·; The Directors continue to expect to increase the dividend annually by 10%. 

Outlook

We expect 2019 Adjusted EBITDA to be in the lower half of our previously communicated guidance of $720-770 million for the full year at constant foreign exchange rate [2] .

Conference call

The Company will host a conference call for analysts and investors at 9:30 GMT, August 8th, 2019

A copy of the presentation will be made available online ahead of the meeting on our website at http://www.contourglobal.com/reports. 

ENQUIRIES

Alice Heathcote

Tel: +44 (0) 20 37869307

Tel: +1 617 690 9633

[email protected]

Media - Brunswick

Charles Pretzlik

Tel: +44 (0) 207 404 5959

[email protected]

Reconciliation of KPIs

Our financial key performance indicators (KPIs) are defined on page 34 of our 2018 Annual report. The reconciliations are as follows.

ADDITIONAL INFORMATION

Reconciliation of Adjusted EBITDA to Profit before tax

Reconciliation of FFO to Cash flow from operating activities

Reconciliation of Adjusted Net Income from Net Income

Corporate Governance

Since 30 June 2019, Mariana Gheorghe has served as independent Non-Executive Director on ContourGlobal plc's Board of Directors. From 2006 to 2018, Ms. Gheorghe was Chief Executive Officer and President of the Romanian oil and gas company OMV Petrom which is part of the Austrian-listed OMV Group. Ms. Gheorghe led OMV Petrom's transformation following privatization and oversaw its entry into electricity generation. She is currently a member of the Supervisory Board of ING Group and ING Bank, based in the Netherlands, a position she has held since 2015.

Principal risks and uncertainties

The principal risks and uncertainties set out at the time of the Annual Report and Accounts 2018 (issued in April 2019) remain valid at the date of this report. The risk register will be subsequently updated for the year end. In summary, the principal risks include the impact of governmental actions and regulations; Macroeconomic and political conditions; Operation and execution - project execution (CAPEX); Operation and execution - asset integrity (OPEX); Operation and execution - resources/climate change; Health, safety and environment (HSE) and food - prevention and regulation; Regulation and compliance - fraud, bribery and corruption; Information technology - cyber security and system integrity; and people and Organization - key people (senior executive management) succession planning.

RESPONSIBILITY STATEMENT

We confirm that to the best of our knowledge:

(a) the condensed set of financial statements has been prepared in accordance with IAS 34 'Interim Financial Reporting';

(b) the interim management report includes a fair review of the information required by DTR 4.2.7R (indication of important events and their impact during the first six months and description of principal risks and uncertainties for the remaining six months of the year); and

(c) the interim management report includes a fair review of the information required by DTR 4.2.8R (disclosure of related parties' transactions and changes therein).

By order of the Board,

Chief Executive Officer

Joseph C. Brandt

8 August 2019

CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

CONTOURGLOBAL PLC and subsidiaries

Unaudited interim consolidated statement of income and other comprehensive income

As of June 30, 2019

audited intim consolidated statement of

CONTOURGLOBAL PLC and subsidiaries

Unaudited interim consolidated statement of financial position

As of June 30, 2019

ancial position

 CONTOURGLOBAL PLC and subsidiaries

Unaudited interim consolidated statement of changes in equity

As of June 30, 2019

CONTOURGLOBAL PLC and subsidiaries

Unaudited interim consolidated statement of cash flows

CONTOURGLOBAL PLC and subsidiaries

General information

As of June 30, 2019

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 and Africa, and its registered office is:

7th Floor116 Park Street, Park HouseLondonW1K 6SSUnited Kingdom

Registered number: 10982736

ContourGlobal plc is listed on the London Stock Exchange.

The Group develops, acquires, operates and manages wholesale electric power generation businesses on three continents. It focuses on both underserved or niche markets and developed markets but it evaluates projects based on individual merit and pursues greenfield, brownfield as well as acquisition opportunities as they arise. The Group actively collaborates with governments, multilateral financial institutions, manufacturers, contractors and other power and non-power industry participants to provide innovative solutions to the challenge of providing clean, reliable electricity.

The Group consists of a diversified portfolio of operating power plants, power plants under construction, as well as projects in pre-construction phase located in four broad geographic areas: South America, Europe, Caribbean and Africa. It is comprised of 100% owned and/or majority controlled subsidiaries as well as investments in which the Company holds a non-controlling interest.

The Group's main corporate offices are in New York (United States), London (United Kingdom), Paris (France), Luxembourg (Luxembourg), Sao Paulo (Brazil) and Vienna (Austria) and these offices provide administrative and technical support to operations and development activities.

These condensed interim consolidated financial statements have been prepared under ContourGlobal plc management's responsibility and authorized for issue by the Board of Directors on August 7, 2019.

CONTOURGLOBAL PLC and subsidiaries

Basis of preparation

As of June 30, 2019

2. Basis of preparation

The condensed interim consolidated financial statements have been prepared in accordance with IAS 34, "Interim Financial Reporting". In accordance with IAS 34, interim financial information is prepared solely in order to update the most recent annual consolidated financial statements prepared by ContourGlobal plc, placing emphasis on new activities, occurrences and circumstances that have taken place during the six months ended June 30, 2019 and not duplicating the information previously published in the annual consolidated financial statements for the year ended December 31, 2018. Therefore, the condensed interim consolidated financial statements do not include all the information that would be required in complete consolidated financial statements prepared in accordance with the International Financial Reporting Standards ("IFRS") as endorsed by and adopted for use by the European Union (EU), IFRS Interpretation Committee (IFRS IC) interpretations and with those parts of the Companies Act 2006 applicable to companies reporting under IFRS. In view of the above, for an adequate understanding of the information, these condensed interim consolidated financial statements must be read together with ContourGlobal plc consolidated financial statements for the year ended December 31, 2018.

In preparing these condensed interim consolidated financial statements, the accounting policies, the significant judgments made by management in applying ContourGlobal plc accounting policies and the key sources of estimation uncertainty were the same as those that applied to ContourGlobal plc consolidated financial statements for the year ended December 31, 2018, with the exception of changes in estimates that are required in determining the provision for income taxes and the first application of IFRS 16 which entered in full force as of January 1, 2019 (see below). Taxes on income in the interim periods are accrued using the tax rate that would be applicable to the expected total annual taxable profit or loss.

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.

The financial information is prepared in accordance with IFRS under the historical cost convention, as modified for the revaluation of certain financial instruments. The financial information is presented in millions of U.S. Dollars, with one decimal. Thus numbers may not sum precisely due to rounding.

The Directors have formed a judgement, at the time of approving the condensed interim consolidated financial statements, that there is a reasonable expectation that the Group have adequate resources to continue in operational existence for a period of at least 12 months from the date of this report. For this reason and having reassessed the principal risks, the Directors continue to adopt the going concern basis in preparing the condensed interim consolidated financial statements.

These condensed interim consolidated financial statements should be read in conjunction with the annual report for the year ended December 31, 2018.

The following change to the June 30, 2018 statement of changes in equity was made: IFRS 15 equity impact as of January 1, 2018 was restated to reflect management's final calculation of the impact of adopting IFRS 15 in the year ended 31 December 2018. The impact of this restatement, due to a misallocation between construction, operating and maintenance performance obligations, was to increase Retained Earnings and Equity by $20.9 million from the previously reported balance of $383.8 million. There was no impact of this restatement on the income statement for the six months period ended June 30, 2018.

IFRS 16 Leases

The Group adopted IFRS 16 "Leases" retrospectively with the cumulative effect of initially applying the Standard recognized at the date of initial application of January 1, 2019.

IFRS 16 primarily changes lease accounting for lessees; lease agreements give rise to the recognition of an asset representing the right to use the leased item and a loan obligation for future lease payables. Lease costs are recognized in the form of depreciation of the right to use asset and interest on the lease liability. Lessee accounting under IFRS 16 is similar in many respects to existing IAS 17 accounting for finance leases, but is substantively different to existing accounting for operating leases where rental charges are currently recognized on a straight-line basis and no lease asset or related lease creditor is recognized.

For leases previously classified as finance leases the entity recognised the carrying amount of the lease asset and lease liability immediately before transition as the carrying amount of the right of use asset and the lease liability at the date of initial application.

The associated right-of-use assets for property leases were measured at the amount equal to the lease liability, adjusted by the amount of any prepaid or accrued lease payments relating to that lease recognised in the balance sheet as at 31 December 2018. There were no onerous lease contracts that would have required an adjustment to the right-of-use assets at the date of initial application.

The Group also reviewed its power purchase agreements and whether such arrangements contain a lease (with the Group acting as a lessor), considering IFRS 16 introduced new criteria. Under such analysis, the Vorotan (Armenia) contract is deemed to no longer contain a lease (previously it contained an operating lease). This has not resulted in a change in the asset value and revenue recognition methodology has been revised to present the income through the Revenue from power sales line rather than other operating income.

The impacts of IFRS 16 implementation are described below.

(1) As a result of the adoption of IFRS 16, $33.3 million of right-of-use assets and $29.7 million of lease liabilities have been included in the Group statement of financial position as of January 1, 2019. $40.1 million of right-of-use assets and $36.9 million of lease liabilities have been included in the Group statement of financial position as of June 30, 2019.

(2) An increase in depreciation from recognizing right-of-use assets and interest on the lease liabilities $3.8 million.

(3) In prior years, operating lease payments were presented as operating cash flows in the consolidated statement of cash flows. Lease payments are now recorded as cash flows from financing activities reflecting the repayment of lease liabilities (borrowings) and related interest. The impact amounts to $3.6 million.

Change in the classification of the Bonaire power purchase agreement

The Bonaire power purchase agreement is considered to be an arrangement containing a lease (with the group acting as lessor). Historically, this lease has been classified as a finance lease. During the first quarter of 2019, modifications were agreed to the power purchase price agreement which included the Group investing to enhance the asset. Under IFRS 16, the terms of this modification are not considered to be a separate lease and so the entire agreement has been treated as a new lease from the date of modification. This new lease is classified as an operating lease due to the significant remaining life of the asset and significant remaining net book value at the end of the agreement. As a result, during the first half, the group has recognised property, plant and equipment with a value of $42.0 million and derecognised a finance lease asset of the same amount. There was no impact on profit for the period.

Foreign currency translation

The assets and liabilities of foreign undertakings are translated into US dollars, the Group's presentation currency, at the period-end exchange rates. The results of foreign undertakings are translated into US dollars at the relevant average rates of exchange for the period. Foreign exchange differences arising on retranslation 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 period end exchange rates in the 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:

Seasonality of operations

The impact of seasonality on our Thermal operations is minimal as our Thermal assets are generally operated under Power Purchase Agreements ("PPAs") where we are compensated on the basis of electrical capacity or availability whether or not the off-taker requests the electrical output (capacity payments). The amount of electricity our renewable assets produce is dependent in part on the amount of sunlight, or irradiation, wind and hydrology where the assets are located. Because shorter daylight hours in winter months results in less irradiation, the generation of particular assets will vary depending on the season. Additionally, to the extent more of our renewable assets are located in the northern or southern hemisphere, overall generation of our entire asset portfolio could be impacted by seasonality. In particular, Adjusted EBITDA for the two first quarters of the year is typically lower than for the two last quarters for wind assets in South America (high season in the second part of the year) and for solar assets in Europe (higher irradiation in the second part of the year).

3. Major events and changes in the scope of consolidation

3.1. 2019 transactions

Sale of non-controlling interest which did not result in a change of control

Spanish CSP portfolio

In December 2018, the Group signed an agreement to sell 49% minority interest of the Spanish CSP portfolio with Credit Suisse Energy Infrastructure Partners for an amount of €134.2 million ($150.5 million). The sale closed on 20 May 2019 and the cash received amounted to €128.4 million or $144.0 million (net of €5.8 million or $6.5 million pre-closing distribution), €51.0 million ($57.1 million) was for the sale of shares and €77.4 million ($86.9 million) was for the sale of existing shareholder loans.

In line with IFRS 10 "Consolidated financial statements", this transaction is considered as an equity transaction as it does not result in a loss of control. Therefore, the net cash gain on sale of these assets, which represented an amount of €46.3 million or $51.9 million, was recorded as an increase in the equity attributable to owners of the parent. It corresponds to the difference between the consideration received for the sale of shares (€51.0 million or $57.1 million) and of the carrying amount of non-controlling interest sold (€4.7 million or $5.2 million).

Solar portfolio acquisition

In February 2019, the Group entered into an agreement for the acquisition of Interporto, a 12.4 MW Solar Photovoltaic portfolio in northern Italy.

This transaction closed on June 11, 2019. The total consideration amounted to €28.3 million ($32.0 million) including €21.1 million ($23.9 million) for the acquisition of 100% of the shares and €7.2 million (or $8.1 million) for the repayment of shareholders loans. The Group indirectly holds 51% of the shares and the consideration paid by the Group amounted to €14.8 million ($16.8 million).

On a consolidated basis, had these acquisitions taken place as of January 1, 2019, the Group would have recognized 2019 six-month consolidated revenue of $620.0 million and six-month consolidated net profit of $7.0 million.

Given the proximity of the acquisition to the balance sheet date, a detailed purchase price allocation exercise has not yet been performed. Preliminary determination of fair value of assets acquired and liabilities assumed at acquisition date are:

This acquisition contributed to consolidated revenue and net result for respectively $0.6 million and $0.3 million.

Acquisition of two CHP plants in Mexico

On 7th January 2019, the Group signed the acquisition of two natural gas-fired combined heat and power ('CHP') plants, together with development rights and permits for a third plant, in Mexico from Alpek. The expected consideration will be $724 million in cash at closing. An additional payment at closing estimated at $77 million represents the value added tax assessed for the transaction and is expected to be refunded in full within 12 months of closing. The CHP plants have a gross installed capacity of 518 MW.

The transaction is expected to close in the third quarter of 2019.

3.2. 2018 transactions

Sale of Ukrainian assets

On 26th February 2018, the Group sold 100% of its stake in Ukrainian power plant Kramatorsk representing a total of 120 MW for a cash amount of $3.0 million. This asset was presented as an asset held for sale as of 31 December 2017. The sale has no material impact on the H1 2018 financial statements.

Additional solar portfolio acquisition

On 23rd December 2017, the Group signed the acquisition of a 23 MW renewable portfolio consisting of 10 photovoltaic plants in Italy (15 MW), one photovoltaic plant in Romania (7 MW) and 2 biogas plants in Italy (2 MW).

The transaction closed on March 22, 2018 for the Italian plants. The total consideration amounts to €22.6 million (or $27.7 million) including €17.0 million ($20.8 million) for the acquisition of 100% of the shares and €5.6 million ($6.9 million) for the repayment of shareholders loans.

The transaction closed on June 26, 2018 for the Romania plant. The total consideration amounts to €7.7 million (or $9.0 million) including €0.3 million ($0.4 million) for the acquisition of 100% of the shares and €7.4 million (or $8.6 million) for the repayment of shareholders loans.

On a consolidated basis, had these acquisitions taken place as of January 1, 2018, the Group would have recognized 2018 six-month consolidated revenue of $538.7 million and six-month consolidated net profit of $3.3 million.

Determination of fair value of assets acquired and liabilities assumed at acquisition date:

These acquisitions contributed to consolidated revenue and net result for the year ended December 31, 2018 respectively of $8.4 million and $0.3 million.

Acquisition of Spanish CSP portfolio

On February 27, 2018, the Group signed the acquisition of Acciona Energia's 250 MW portfolio of five 50 MW Concentrating Solar Power plants ("CSP") in South-West Spain. The total enterprise value amounts to €962.8 million, including an amount payable to Acciona Energía of approximately €806.8 million ($956.6 million) and existing net debt (including adjustment for working capital) of €156.0 million ($184.4 million). The acquisition agreement also includes earn-out payments to Acciona Energía of up to €27 million ($32 million). As of December 31, 2018 a €9.4 million ($10.8 million) earn-out liability was recognized.

The acquisition combines the Group's solar and Spanish thermal operating expertise into a sizable portfolio of assets enabling synergies with existing European operations.

The acquisition closed on May 10, 2018.

On a consolidated basis, had this acquisition taken place as of January 1, 2018, the Group would have recognized 2018 six-month consolidated revenue of $596.9 million and six-month consolidated net profit of $17.1 million.

Determination of fair value of assets acquired and liabilities assumed at acquisition date of:

The acquisition contributed to consolidated revenue and net loss for the year ended December 31, 2018 respectively of $112.8 million and $6.6 million.

Sale of non-controlling interests which did not result in a change of control

Solar Italy and Slovakia portfolio

In October 2018, the Group completed in October 2018 the sale of 49% minority interest of the Italian and Slovakian portfolio with Credit Suisse Energy Infrastructure Partners for an amount of €63.4 million ($73.1 million), of which €3.3 million ($3.8 million) consists of working capital adjustments. Cash amount received at closing amounted to €60.1 million ($69.3 million), of which €42.4 million ($48.9 million) was for the sale of shares and €17.7 million ($20.4 million) was for the sale of existing shareholder loans. The acquisition agreement also included earn-out payments paid in advance by Credit Suisse and recognized as of December 31, 2018.

In line with IFRS 10 "Consolidated financial statements", this transaction is considered as an equity transaction as it does not result in a loss of control. Therefore, the net cash gain on sale of these assets, which represented an amount of €18.2 million or $20.9 million, was recorded as an increase in the equity attributable to owners of the parent. It corresponds to the difference between the consideration received for the sale of shares (€42.4 million or $48.9 million) and of the carrying amount of non-controlling interest sold (€24.2 million or $28.0 million). During the period ended June 30, 2019, the earn-out calculation has been updated down by $5.8 million, recorded as a decrease in the equity attributable to owners of the parent.

CONTOURGLOBAL PLC and subsidiaries

Notes to the unaudited condensed interim consolidated financial statements

As of June 30, 2019

4. Notes to the unaudited condensed interim consolidated financial statements

4.1. Segment reporting

The Group's reportable segments are the operating segments overseen by distinct segment managers responsible for their performance with no aggregation of operating segments.

Thermal Energy for power generating plants operating from coal, lignite, natural gas, fuel oil and diesel. Thermal plants include Maritsa, Arrubal, Togo, Kramatorsk (sold in February 2018), Cap des Biches, KivuWatt, Energies Antilles, Energies Saint-Martin, Bonaire 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.

Renewable Energy for power generating plants operating from renewable resources such as wind, solar and hydro in Europe and South 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 and specific items which have been identified and adjusted by virtue of their size, nature or incidence. In determining whether an event or transaction is specific, management considers quantitative as well as qualitative factors such as the frequency or predictability of occurrence.

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, Czech Republic, Spain and Ukraine)

- South America (including Brazil, Peru and Colombia) and Caribbean Islands (including Dutch Antilles and French Territory)

- Africa (including Nigeria, Togo, Senegal and Rwanda)

(1) Includes corporate costs of $17.2 million (June 30, 2018: $20.9 million) and other costs for $0.3 million (June 30, 2018: costs of $0.1 million). Corporate costs correspond to selling, general and administrative expenses before depreciation and amortization (June 30, 2019: $2.4 million, June 30, 2018: $0.7 million).

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

(3) The Group successfully completed the Initial Public Offering in the United Kingdom of ContourGlobal Plc. Costs associated with this project were separately analyzed by our CODM.

(4) Represents the cash gain on the divestment of 49% stake of our CSP Portfolio in Spain and the adjustment to the earn-out calculation on the divestment of 49% stake of our Italian and Slovakian solar portfolio.

(5) Represents redundancy and staff related restructuring costs.

(6) Represents the private incentive plan as described in note 4.26 share-based compensation plan of the annual accounts.

(7) Mainly reflects the non-cash impact of finance lease and financial concession payments.

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 2019 in Bulgaria and Spain amounted to $186.4 million and $169.8 million respectively (June 30, 2018: $149.2 million and $123.7 million respectively).

(2) Revenue generated in 2019 in Brazil amounted to $71.7 million (June 30, 2018: $77.1 million).

CONTOURGLOBAL PLC and subsidiaries

Notes to the unaudited condensed interim consolidated financial statements

4.2. Revenue

(1) Included within Revenue from power sales is $15.2 million relating to Vorotan for the six month period ended 30 June 2019, for which $14.3 million was recognised within Revenue from operating leases in the six months period ended 30 June 2018. See Note 2 Basis of preparation for further details.

Included within Revenue from operating leases is $12.4 million relating to Bonaire for the six months period 30 June 2019, for which $9.5 million was recognised within Revenue from concession and finance lease assets in the six months period ended 30 June 2018. See Note 2 Basis of preparation for further details.

All revenue is recognised under IFRS 15, with the exception of revenue from operating leases and revenue from finance lease assets which are recognised under IFRS 16 and totals $542.6 million (2018: $450.3 million).

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

Some of our main plants are operating under specific accounting principles:

- 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

The Group has one customer contributing more than 10% of Group's revenue.

CONTOURGLOBAL PLC and subsidiaries

Notes to the unaudited condensed interim consolidated financial statements

As of June 30, 2019

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, as well as changes in fair value of CO2 quotas in the period.

(2) Other expenses include operating consumables and supply costs of $7.7 million in June 30, 2019 (June 30, 2018: $6.5 million) and facility costs of $6.5 million in June 30, 2019 (June 30, 2018: $8.3 million). Facility costs include operating leases expenses of $0.1 million in June 30, 2019 (June 30, 2018: $2.1 million).

Other operating expenses - net in June 30, 2019 includes other operating expenses of $6.0 million and other operating income of $2.6 million.

4.4. Finance costs - net

(1) Change in fair value of derivatives relates primarily to interest rate swaps and interest rate options.

(2) Unrealized foreign exchange differences primarily relate to loans in subsidiaries that have a functional currency different to the currency in which the loans are denominated.

(3) Other mainly includes costs associated with other financing, fair valuation of debt to non-controlling interests, finance costs of leases, the unwinding effect of certain liabilities as well as income and expenses related to interests and penalties for late payments. The movement during the period is mainly due to an increased amortization of deferred financing costs and break fees as a result of the refinancing of our Italian portfolio.

4.5. Income tax expense and deferred income tax

In the six months ended June 30, 2019, the tax charge amounted to $17.2 million compared to $4.2 million in the six months ended June 30, 2018. The increase in the tax charge between periods was mainly driven by the increase in profit before tax in certain countries and discrete events that occurred in 2018, but did not repeat in 2019. In both periods, the tax charge was increased by the impact of territories with accounting losses but no recognition of deferred tax assets and by Brazilian entities being taxed by reference to revenue rather than accounting profits.

4.6. Property, plant and equipment

Assets acquired through business combinations are explained in Note 3 Major events and changes in the scope of consolidation.

The power plant assets predominantly relate to wind farms, natural gas plants, fuel oil or diesel plants, coal plants, hydro plants, solar plants and other buildings.

Other assets mainly include IT equipment, furniture and fixtures, facility equipment, asset retirement obligations and vehicles, and project development costs.

(1) With the implementation of IFRS 16 at 1 January 2019, lease assets amounting to $33.3 million were recognized. The affected class of property, plant and equipment is Power plant assets.

(2) Assets acquired through business combination relate to an additional solar portfolio acquisition and is detailed in note 3.1.

(3) The effect of change in classification of contract corresponds to the change in the Bonaire purchase price agreement (see note 2 Basis of preparation).

Construction work in progress as of June 30, 2019 predominantly related to our Austria Wind project repowering, our Vorotan refurbishment project and our Bonaire and Maritsa plants, and project development costs related to our Kosovo project.

Depreciation included in 'cost of sales' in the consolidated statement of income amounted to $124.2 million in the period ended June 30, 2019 (June 30, 2018: $101.3 million) whereas depreciation included in 'selling, general and administrative expenses' amount to $2.5 million in the period ended June 30, 2019 (June 30, 2018: $0.2 million).

In period ended June 30, 2019, the Group did not capitalise any significant borrowing costs in relation to project financing.

(1) Assets acquired through business combination mainly relate to the acquisition of a Spanish CSP portfolio and are detailed in note 3.1.

Construction work in progress in 2018 predominantly related to our Austria Wind project repowering, our Vorotan refurbishment project and our Bonaire and Maritsa plants, and project development costs related to our Kosovo project.

Depreciation included in 'cost of sales' in the consolidated statement of income amounted to $229.4 million in the period ended December 31, 2018 whereas depreciation included in 'selling, general and administrative expenses' amount to $0.2 million in the year ended December 31, 2018.

In 2018, the Group did not capitalise any significant borrowing costs in relation to project financing.

4.7. Management of financial risk

The condensed interim consolidated financial statements do not include all financial risk management information and disclosures required in the annual financial statements; they should be read in conjunction with the ContourGlobal plc consolidated financial statements for the year ended December 31, 2018. There has been no material change in financial risk factors since the year end and there have been no changes in the risk management department or in any risk management policies since December 31, 2018.

4.8. Derivative financial instruments

The Group uses interest rate swaps to manage its exposure to interest rate movements on our borrowings, a foreign exchange forward contract to mitigate its currency risk and cross currency swap contracts in Cap des Biches project in Senegal to manage both currency and interest rate risks. The fair value of derivative financial instruments are as follows:

(1) The Group has executed a series of offsets to protect the value, in USD terms, of the BRL-denominated expected distributions from the Brazilian portfolio. The first two years of BRL-denominated distributions have been hedged using a series of forward exchange contracts and the distributions expected in years three to five have been protected against material depreciation of the BRL using option contracts. Hedge accounting is not applied to BRL/USD foreign exchange forward and options contracts, change in fair value is therefore recognized in the consolidated statement of income.

The notional principal amount of:

- the outstanding interest rate swap contracts and cross currency swap qualified as cash-flow hedge amounted to $1,328.5 million as of June 30, 2019 (December 31, 2018: $645.2 million). It includes an interest swap issued in 2019 of a notional amount of $590 million in relation with the Mexican CHP acquisition to fix interest rates of the expected financing between signing and closing.

- the outstanding foreign exchange forward and option contracts amount to $72.6 million as of June 30, 2019 (December 31, 2018: $71.8 million).

In 2015, the Group entered into cross currency swaps in our Cap des Biches project in Senegal. The fair value of the instruments as of June 30, 2019 amounts to $18.6 million (December 31, 2018: $12.8 million).

The Group recognized a loss of $6.5 million in the period ended June 30, 2019 in relation to its interest rate and cross currency swaps within Finance costs net (June 30, 2018: profit of $4.3 million).

4.9. Fair value measurements

The Group's finance department performs valuation of financial assets and liabilities required for financial reporting purposes as categorized at level 2. The Group's only derivatives are interest rate swaps, foreign exchange forward contracts, foreign exchange option contracts and cross currency swap contracts in our Cap des Biches project in Senegal.

When measuring our interest rate, cross currency swaps and foreign exchange forward and option contracts at fair value on a recurring basis at both June 30, 2019 and December 31, 2018, we have measured these at level 2 in the fair value hierarchy with the exception of the debt to non-controlling interests which is level 3. The fair value of those financial instruments is determined by using valuation techniques. These valuations techniques maximise the use of observable data where it is available and rely as little as possible on entity specific estimates.

The Group uses a market approach as part of their available valuation techniques to determine the fair value of derivatives. The market approach uses prices and other relevant information generated from market transactions.

There were no transfers between fair value measurement levels between December 31, 2018 and June 30, 2019.

4.10. Financial instruments by category

(1) These balances exclude receivables and payables balances in relation to taxes

4.11. Borrowings

Certain power plants have financed their electric power generating projects by entering into external financing arrangements which require the pledging of collateral and may include financial covenants as described below. The financing arrangements are generally non-recourse (subject to certain guarantees) and the legal obligation for repayment is limited to the borrowing entity.

The Group's principal borrowings with a nominal outstanding amount of $3,644.8 million in total as of June 30, 2019 (December 31, 2018: $3,616.3 million) primarily relate to the following:

(1) On December 6, 2018, an agreement to sell a 49% minority interest of the Spanish CSP portfolio to Credit Suisse Energy Infrastructure Partners ("CSEIP") was signed (see note 3.1 2019 transactions). Following the sell-down, 49% of the debt held in the project financing was transferred to a subsidiary of the acquiring entity ("CSEIP").

(2) Debt to affiliate Credit Suisse Energy Infrastructure Partners ("CSEIP") as a result of the agreement to sell 49% minority interest (see note 3.1 2019 transactions). The facility bears a fix rate of 5.8% and 6.7% maturing in 2026 and 2038.

(3) On June 20, 2019, ContourGlobal Mediterraneo S.r.l. entered into a €196.0 million facilities agreement with Banco BPM S.p.A., Bayerische Landesbank Anstalt des öffentlichen Rechts, BNP Paribas, Italian Branch, Crédit Agr cole Corporate and Investment Bank, Société Générale, Milan Branch and UBI Banca S.p.A. (the "Mediterraneo Facility"), refinancing all the existing Italian Solar Plants facilities. The Facility bears interest at EURIBOR 6-month plus 1, 70% per year and is maturing on December 31, 2030.

(4) Taxa de Juros de Longo Prazo ("TJLP") represents the Brazil Long Term Interest Rate, which was approximately 6.26% at June 30, 2019 (December 31, 2018: 6.98%).

(5) On January 26, 2019, the group signed a loan agreement to refinance our Solar Slovak portfolio. The new loan agreement was issued for €51.1 million bearing a mix of fix rate of 0.161% + 1.4% with a variable part bearing a rate of EURIBOR 6M +1.4% maturing in 2025.

With the exception of our corporate bond and revolving credit facility, all external borrowings relate to project financing. Such project financing are generally non-recourse (subject to certain guarantees).

4.12. Share-based compensation plans

On 17 June 2019, the following awards over a total of 864,445 ordinary shares of 1 pence in ContourGlobal plc were granted under the ContourGlobal plc Long Term Incentive Plan to members of the senior management team. Included in this total are the following awards made to persons discharging managerial responsibilities:

The awards will ordinarily vest on the third anniversary of grant subject to the grantee's continued service and to the extent to which the performance conditions (as detailed below) set for the award are satisfied.

Each award is subject to four distinct performance conditions measuring: (i) as to 50% of each award, compounded annual growth in the Company's adjusted EBITDA; (ii) as to a further 12.5% of each award, the Company's internal rate of return on qualifying Company projects; (iii) as to a further 12.5% of each award, the number of corporate milestones completed in respect of qualifying Company projects; and (iv) as to the final 25% of each award, the Company's health and safety performance (measured by the Company's Lost Time Incident Rate). The performance conditions shall each be measured over a three-year period ending on 31 December 2021.

4.13. Financial commitments and contingent liabilities

ContourGlobal plc has no new contingent liabilities in respect of legal claims arising in the ordinary course of business as compared to those disclosed in the consolidated financial statements for the year ended December 31, 2018. Since December 31, 2018, the status of our contingent liabilities has not changed.

4.14. Guarantees and letters of credit

As of June 30, 2019, there have been no significant additional guarantees and letter of credits as compared to those disclosed in the consolidated financial statements for the year ended December 31, 2018.

4.15. Subsequent events

Bond tap

On August 2, 2019, the Group closed an additional €100 million aggregate principal amount of its 4.125% senior secured notes due 2025 (the "Notes") in a private offering to eligible purchasers as an add-on to the existing €300 million aggregate principal amount of such notes issued in July 2018 (the "Existing Notes"). The Notes have identical terms as the Existing Notes and were priced at 106.000% of par, plus accrued interest from August 1, 2019. Together with the senior secured notes due 2023, the nominal value of the senior secured notes reached €850 million.