Principal Risks and Uncertainties


Under Section 13 of the Companies (Amendment) Act 1986 as amended by Statutory Instrument 116 of 2005 – European Communities (International Financial Reporting Standards and Miscellaneous Amendments) Regulations 2005, the Directors are required to provide a description of the principal risks and uncertainties facing the Company and the Group. The key risks and uncertainties are as follows:


Funding Risks
The further development of the Group’s strategic businesses and NTR plc will be dependent on the continued ability to secure adequate and appropriate sources of funding, at an appropriate cost, to finance that development.


The Group is following a strategic financing plan which involves the disposal of some businesses and the realisation of value from certain other businesses, as well as actively pursuing appropriate fundraising activities at subsidiary level.


Funding Execution Risks
As the Group is involved in a number of funding activities, it is exposed to certain of these activities not concluding.


The Group has a strong corporate finance team in place with significant finance and transactional experience to proactively manage the various funding activities.


Poor Global Economic Activity
Low levels of global economic activities impact the businesses through challenging funding markets and reduced demand growth for recycled materials and potentially reduced demand growth for energy from renewable sources.


The Group is focused on diversified sources of development funding, focused on achieving operational efficiencies in its businesses and working to grow its pipeline of renewable energy projects.


Market Price Risks
The Group is exposed to interest rate risks, currency price risks and commodity price risks in many of its businesses.


The Group manages its market price risks in each of its businesses separately. The exposure to market price risk is actively managed and there are appropriate policies and procedures as well as reporting requirements in place in these businesses to control these exposures as best possible.


Credit Risk
The Group has exposure to trading partners in its operational businesses and exposure to investment partners in its development businesses.


There are credit limits imposed and there is pro-active management of exposures in the operating businesses through credit risk management policies. Corporate level exposures are managed during the investment approval process.


Contractual Risk
The Group has entered into key contracts which are crucial to its ongoing success. These contracts may be with a key supplier, investor, customer or partner. Each contract has its own unique risk profile. The Group has exposure to the failure of contract performance by its contractual counterparties.


The Group manages this risk through the careful drafting of contracts in conjunction with legal experts. The Group ensures that it has a clear understanding of the risks, relative to the success of the commercial relationship which it is entering, and that the Terms and Conditions of each contract reflect the risk profile of the relationship.


Regulatory / Legislative Risks
The Group and its businesses operate in a diversified set of markets. The businesses are all subject to Governmental support and/or market regulation. As a result, the economic performance of these businesses is dependent on Governmental support and favourable regulation.


The Group manages these risks through active public affairs engagement in the various jurisdictions in which it does business.


Technology Risk
The performance of some of the businesses is impacted by the choice, deployment and subsequent development of key operating technologies. The Solar business will be impacted by the success of the development of its unique SunCatcher product.


The operating businesses have to choose and then deploy new and upgraded technologies as they further develop their businesses. A rigorous technology selection and investment process helps to mitigate this risk. The Solar business is developing and validating the performance of its unique SunCatcher product utilising an active validation program that involves a 1.5MW operating power plant at Maricopa in Peoria, Arizona, USA and facilities at Sandia, together with accelerated testing programmes.


Health & Safety, Environmental Risks
The Group is subject to stringent environmental, health and safety laws and regulations. These laws and regulations, coupled with the safety of all employees and stakeholders, are of paramount importance to the Group.


There is comprehensive training for all employees, continuous testing and compliance reporting though appropriate channels to ensure that the Group meets and exceeds its obligations and targets in these matters.


Human Resource Risks
The continued growth of the Group businesses is dependent on retaining and developing key members of staff as well as planning the future HR needs of the businesses.


There is a Group Strategic HR Director in place and plans to manage this risk.


Financial Risk Management
The principal objective of the Group’s financial risk management policy is one of profit protection and growth, together with net asset protection, through the use of products designed to mitigate risk at a reasonable cost. Key financial risks are reviewed on an on-going basis by the Board and management, at Group and business levels, in accordance with the Group’s risk management policies and guidelines. The Group does not trade in financial instruments nor does it enter into any leveraged derivative transactions. The three key financial risks managed by the Group on an ongoing basis are interest rate, credit and currency risks.


Interest Rate
The objective of the Group’s interest rate management policy is to protect the Group’s debt from adverse changes in interest rates which, if they occurred, would have a material impact on cash flow and reported annual profits. Interest rate swaps have been entered into in order to achieve an appropriate mix of fixed and floating debt.


The Group enters into transactions with a variety of financial institutions for the purposes of placing deposits and entering into hedging and other financing arrangements. From a credit risk management perspective, it is the Group’s policy to spread such transactions across a number of high credit quality financial institutions.


The Group’s reporting currency is the euro. Exposures to other currencies that arise in the course of ordinary trading, principally sterling and the US dollar, are monitored on an on-going basis and typically managed using appropriate hedging strategies, including entering into foreign exchange forward contracts.


Performance Monitoring
In addition to reviewing individual Group business performance against annual budgets and periodic reforecasts and monitoring cashflow management, the Board pays particular attention to identifying and monitoring Key Performance Indicators (“KPIs”). The principal KPIs monitored by the Board include:


Monthly accident and days lost statistics in relation to Health & Safety at all Group locations.
Solar energy: construction project progress reports, solar pilot plant performance.
Wind energy: construction project progress reports, wind farm productivity.
Waste management: waste intake tonnage, recovery and recycling rates, processing costs per tonne and landfill gate prices.
Roads: traffic volumes, traffic mix, average pricing and costs.


The Board, with advice from the Audit Committee, has completed its annual review of the system of internal control in accordance with the Turnbull Guidance (Revised guidance published in October 2005) and is satisfied that it is in compliance with that guidance. The assessment included consideration of the effectiveness of the Board’s ongoing process for identifying, evaluating and managing the risks of the business and a review of the work of the Audit Committee in examining annual reports of internal control and business risks completed by the principal subsidiaries. The Directors consider that there have been no weaknesses in internal control which have resulted in any material losses, contingencies or uncertainties requiring disclosure to shareholders.