Atlantica Sustainable Infrastructure
Annual Report 2016

Plain-text annual report

Consolidated Annual Report and Financial Statements FOR THE YEAR ENDED DECEMBER 31, 2016 Company Registration No. 08818211 Consolidated Annual Report and Financial Statements For the year ended 31 December 2016 Atlantica Yield plc Atlantica Yield plc Consolidated Annual Report and Financial Statements Strategic Report Directors’ Report Director’s Remuneration Report Directors’ Responsibilities Statement Independent Auditor’s Report to the Members of Atlantica Yield plc Consolidated Income Statement Consolidated Statement of Other Comprehensive Income Consolidated Balance Sheet Consolidated Statement of Changes in Equity Consolidated Cash Flow Statement Notes to the Consolidated Financial Statements General information 1. Adoption of new and revised standards 2. Significant accounting judgements 3. Financial information by segment 4. Changes in the scope of the consolidated financial statements 5. Profit/(Loss) for the year 6. Auditor’s remuneration 7. Staff Costs 8. Other operating income 9. Finance income and expenses 10. 11. Tax 12. Dividends 13. Contracted concessional assets 14. 15. 16. Cash and cash equivalents 17. Corporate debt 18. 19. Grants and other long term payables 20. 21. 22. Notes to the cash flow statement 23. Financial instruments by category 24. Derivative financial instruments Financial risk management 25. Events after the balance sheet date 26. 27. Related party transactions 28. Contingent liabilities 29. Guarantees and commitments 30. 31. Investments carried under the equity method Trade and other receivables Earnings per share Service concessional arrangements Trade and other payables Equity Project debt Company Balance Sheet Company Statement of Change in Equity Notes to the Company Financial Statements 35 50 52 54 55 58 3 29 56 59 60 129 131 132 2 Strategic Report This Strategic Report has been prepared to provide additional information to shareholders to assess the Group’s strategies and the potential for the strategies to succeed. The Strategic Report contains certain forward-looking statements. These statements are made by the directors in good faith based on the information available to them up to the time of their approval of this report and such statements should be treated with caution due to the inherent uncertainties, including both economic and business risk factors, underlying any such forward-looking information. The directors, in preparing this Strategic Report, have complied with Section 414C of the Companies Act 2006. The Strategic Report discusses the following areas: (cid:2) Nature of the business. (cid:2) Business model, strategy and objectives. (cid:2) Fair review of the business. (cid:2) Key performance indicators. (cid:2) Principal risks and uncertainties. (cid:2) Corporate social responsibility. (cid:2) Future developments. (cid:2) Going concern basis. Nature of the business Atlantica Yield plc (hereinafter “we”, “our”, the “Company” or “Atlantica Yield”) was registered in England and Wales, incorporated in Great Britain, as a private limited company on December 17, 2013 under the name “Abengoa Yield Limited.” On March 19, 2014, we were re-registered as a public limited company, under the name “Abengoa Yield plc.” On January 7, 2016, we changed our corporate brand to Atlantica Yield. At our annual shareholders meeting held in May 2016, we changed our legal name to Atlantica Yield plc. Our shares are listed on the NASDAQ Global Select Market under the symbol “ABY”. We are a total return company that owns, manages, and acquires renewable energy, conventional power, electric transmission lines and water assets, focused on North America (the United States and Mexico), South America (Peru, Chile, Brazil and Uruguay) and EMEA (Spain, Algeria and South Africa). We intend to expand, maintaining North America, South America and Europe as our core geographies. As of December 31, 2016, we own or have interests in 21 assets, comprising 1,442 MW of renewable energy generation, 300 MW of conventional power generation, 10.5 M ft3 per day of water desalination and 1,099 miles of electric transmission lines, as well as an exchangeable preferred equity investment in Abengoa Concessoes Brasil Holding S.A. (“ACBH”). ACBH is a subsidiary holding company of Abengoa engaged in the development, construction, investment and management of contracted concessions in Brazil, comprised mainly of transmission lines. See Section “Events during the period” for an update on ACBH investment. All of our assets have contracted revenues (regulated revenues in the case of our Spanish assets) with low-risk off-takers and collectively have a weighted average remaining contract life of approximately 21 years as of December 31, 2016. Most of the assets we own have a project-finance agreement in place. We are focused on high-quality, newly-constructed and long-life facilities with creditworthy counterparties that we expect will produce stable, long-term cash flows. We will seek to grow our cash available for distribution and our dividend to shareholders through organic growth and by acquiring new contracted assets from Abengoa S.A. (“Abengoa”), from third parties and from potential new future sponsors. We have in place an exclusive agreement with Abengoa, which we refer to as the ROFO Agreement, which provides us with a right of first offer on any proposed sale, transfer or other disposition of any of 3 Abengoa’s contracted renewable energy, conventional power, electric transmission or water assets in operation and located in the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia and the European Union, as well as four assets in selected countries in Africa, the Middle East and Asia. Additionally, we plan to sign similar agreements or enter into partnerships with other developers or asset owners to acquire assets in operation. We may also invest directly or through investment vehicles with partners in assets under development or construction, ensuring that such investments are always a small part of our total investments. Finally, we also expect to acquire assets from third parties leveraging the local presence and network we have in the geographies and sectors in which we operate. With this business model, our objective is to pay a consistent and growing cash dividend to shareholders that is sustainable on a long-term basis. We expect to distribute a significant percentage of our cash available for distribution as cash dividends and we will seek to increase such cash dividends over time through organic growth and as we acquire assets with characteristics similar to those in our current portfolio. The Company creates value for its shareholders by seeking to (i) achieve recurrent and growing dividends to investors valuing long-term contracted assets and (ii) to grow our cash available for distribution (“CAFD”) and its cash dividends paid to shareholders by acquiring new contracted assets from Abengoa, from third parties and from potential new future sponsors. The address of our registered office is Great West House, GW1, 17th floor, Great West Road, Brentford, United Kingdom TW8 9DF. Events during the period On November 27, 2015, Abengoa, our largest shareholder, filed a communication pursuant to article 5 bis of the Spanish Insolvency Law 22/2003 with the Mercantile Court of Seville nº 2 which granted Abengoa a deadline of March 28, 2016 to reach an agreement with its main financial creditors. On March 28, 2016, Abengoa filed an application for judicial approval of a standstill agreement which had the support of 75.04% of the financial creditors and on April 6, 2016, the judge issued judicial approval and extended the effects of the stay of the obligations referred to in the standstill agreement until October 28, 2016, to all creditors. On September 24, 2016, Abengoa announced that it had signed a restructuring agreement with a group of investors and creditors and opened an accession period for the rest of its creditors. On October 28, 2016, Abengoa filed an application for judicial approval of the restructuring agreement which, according to the announcement, had received support of 86% of its financial creditors, above the 75% legally required limit. On November 8, 2016, the judge declared the judicial approval extending the agreement terms to the rest of the creditors. On November 22, 2016, Abengoa obtained the approval of its shareholders for the restructuring agreement and measures required to implement its restructuring. On December 16, 2016, Abengoa obtained the approval of the Chapter 11 plan for its U.S. subsidiaries and on December 20, 2016, Abengoa announced the insolvency proceeding of Abengoa Mexico. On February 3, 2017, Abengoa announced they have obtained approval from 94% of its financial creditors after opening an extraordinary accession period. On February 14, 2017, Abengoa announced that it launched a waiver request in order to approve certain amendments to the restructuring agreement and opened a voting period ending on February 28, 2017. The implementation of Abengoa’s restructuring is subject to a series of conditions precedent which have not been fully completed as of the date of this report. The financing arrangements of some of our project subsidiaries contain cross-default provisions related to Abengoa, such that debt defaults by Abengoa, subject to certain threshold amounts and/or a restructuring process, could trigger defaults under such project financing arrangements. These cross-default provisions expire progressively over time, remaining in place until the termination of the obligations of Abengoa under such project financing arrangements. During the year 2016, we have secured waivers or forbearances for most of the projects which contained these clauses. We still have cross-default provisions in Kaxu and we are currently in discussions with its project finance lenders to secure a waiver or forbearance. In addition, the financing agreements of some of the projects contain change of ownership provisions, such that they require that Abengoa maintains a minimum ownership on Atlantica Yield. During the year 2016, we have also obtained waivers and forbearances for most of the projects and we are currently in discussions with the lenders of ACT and Kaxu. In the case of Solana and Mojave, the forbearance we 4 obtained from the U.S. Department of Energy, or the DOE, with respect to these assets covers reductions of Abengoa’s ownership resulting from (i) a court-ordered or lender-initiated foreclosure pursuant to the existing pledge over Abengoa’s shares of the Company that occurs prior to March 31, 2017, (ii) a sale or other disposition at any time pursuant to a bankruptcy proceeding by Abengoa, (iii) changes in the existing Abengoa pledge structure in connection with Abengoa’s restructuring process, aimed at pledging the shares under a new holding company structure, and (iv) capital increases by us. In the event of other reductions of Abengoa’s ownership below the minimum ownership threshold resulting from sales of shares by Abengoa, DOE remedies will not include debt acceleration, but DOE remedies available would include limitations on distributions to us from our subsidiaries. In addition, the minimum ownership threshold for Abengoa in us has been reduced from 35% to 30%. We continue to work on obtaining waivers or forbearances for Kaxu and ACT. In addition, on January 29, 2016, Abengoa informed us that several indirect subsidiaries of Abengoa in Brazil, including ACBH, have initiated an insolvency procedure under Brazilian law (“reorganizaçao judiciaria”) as a “Pedido de processamento conjunto”, which means the substantial consolidation of the three main subsidiaries of Abengoa in Brazil, including ACBH. In April 2016, Abengoa presented a consolidated restructuring plan in the Brazilian Court, including ACBH and two other subsidiaries. In 2016, we did not receive the expected dividend payments from ACBH and, as included in the agreements related to the preferred equity investment in ACBH, management has executed our rights in retaining the dividends payable to Abengoa. In the third quarter of 2016, we signed an agreement with Abengoa on ACBH preferred equity investment, among other things, with the following main consequences: (cid:2) Abengoa acknowledged it failed to fulfil its obligations under the agreements related to the preferred equity investment in ACBH and, as a result, we are the legal owner of the dividends we withheld from Abengoa, amounting to $28.0 million; (cid:2) (cid:2) (cid:2) Abengoa recognized a non-contingent credit for €300 million (approximately $316 million), corresponding to the guarantee provided by Abengoa, S.A. regarding the preferred equity investment in ACBH, subject to restructuring and subject to adjustments for dividends retained after the agreement. On October 25, 2016, we signed Abengoa’s restructuring agreement and accepted, subject to implementation of the restructuring, to receive 30% of the amount (approximately $95 million nominal value) of this credit in the form of tradable notes to be issued by Abengoa. Upon completion of the restructuring, this debt, or Restructured Debt, would have a junior status within Abengoa’s debt structure post-restructuring. The remaining 70% (approximately $221 million nominal value) would be received in the form of equity in Abengoa. As of the date of this report, there is a high degree of uncertainty on the value of this debt and equity; In order to convert this junior debt into senior debt, Atlantica Yield has agreed, subject to implementation of the restructuring, to participate in Abengoa’s issuance of asset-backed notes, or the New Money 1 Tradable Notes, with up to €48 million (approximately $51 million), subject to scale-back following the allocation process contemplated in Abengoa’s restructuring. In the fourth quarter of 2016, we have reached an agreement with an investment fund to sell them approximately 50% of the New Money Notes we are assigned, as a result we expect the final investment to be less than €24 million (approximately $25 million). The New Money 1 Tradable Notes are backed by a ring-fenced structure including Atlantica Yield’s shares and A3T, a cogeneration plant in Mexico. The New Money 1 Tradable Notes offer the highest level of seniority in Abengoa’s debt structure post-restructuring. Upon our purchase of the New Money 1 Tradable Notes, the Restructured Debt would be converted into senior debt; Upon receipt of the Restructured Debt and Abengoa equity, we would waive our rights under the ACBH agreements, including our right to retain the dividends payable to Abengoa. Asset portfolio We own a diversified portfolio of contracted assets across the renewable energy, conventional power, electric transmission line and water sectors in North America (the United States and Mexico), South 5 America (Peru, Chile, Uruguay and Brazil) and EMEA (Spain, Algeria and South Africa). We intend to expand, maintaining North America, South America and Europe as our core geographies. Our portfolio consists of 13 renewable energy assets, a natural gas-fired cogeneration facility, several electric transmission lines and minority stakes in two water desalination plants, all of which are fully operational. All of our assets have contracted revenues (regulated revenues in the case of our Spanish assets) with low- risk off-takers and collectively have a weighted average remaining contract life of approximately 21 years as of December 31, 2016. 6 27 23 19 18 17 18 16 24 27 16 18 18 21 21 17 The following table provides an overview of our current assets as of December 31, 2016: Ownership Location Arizona (USA) 100% Class B(3) Currency(1) U.S. dollar Capacity (Gross) Off-taker Counterparty Credit Rating (2) COD Contract Years Left 280 MW APS A-/A3/BBB+ 4Q 2013 100% California (USA) U.S. dollar 280 MW PG&E BBB/Baa1/ A- 4Q 2014 Solaben 1/6(12) .......... Renewable (Solar) 100%(19) Spain Euro 2x50 MW 70%(5) Spain Euro 2x50 MW 74%(7) Spain Euro 2x50 MW 100% Spain Euro 31 MW 100% Spain Euro 2x50 MW 100% Spain Euro 2x50 MW 100% Spain Euro 3x50 MW 80%(20) Spain 51%(13) South Africa Euro Rand 1 MW 100 MW Eskom 100% Uruguay U.S. dollar 50 MW Uruguay 100% Uruguay U.S. dollar 50 MW Uruguay 100% Mexico U.S. dollar 300 MW Pemex 100% 100% 100% Peru Peru Peru U.S. dollar 362 Miles U.S. dollar 569 Miles Peru Peru Wholesale market/ Spanish Electric System Wholesale market/ Spanish Electric System Wholesale market/ Spanish Electric System Wholesale market/ Spanish Electric System Wholesale market/ Spanish Electric System Wholesale market/ Spanish Electric System Wholesale market/ Spanish Electric System Wholesale market/ Spanish Electric System BBB/Baa2/ BBB+ 2Q 2012 & 4Q 2012 21 / 20 BBB+/Baa2/ BBB+ 2Q 2012 & 4Q 2012 20 / 20 BBB+/Baa2/ BBB+ 1Q 2007 & 2Q 2009 15 / 17 BBB+/Baa2/ BBB+ 3Q 2011 & 4Q 2011 20 / 20 BBB+/Baa2/ BBB+ 2Q 2012 & 3Q2012 21 / 21 BBB+/Baa2/ BBB+ 2Q 2010 & 2Q 2010 & 3Q 2010 18 / 18 / 19 3Q 2013 22 / 22 BBB+/Baa2/ BBB+ BBB+/Baa2/ BBB+ BBB- /Baa2/BBB(14) BBB-/Baa2/ BBB-(15) BBB-/Baa2/ BBB-(15) BBB+/Baa1/ BBB+ BBB+/A3/ BBB+ BBB+/A3/ BBB+ 3Q 2006 1Q 2015 2Q 2014 4Q 2014 2Q 2013 1Q 2011 1Q 2014 Assets Solana ............ Mojave ........... Solaben 2/3(4) . Solacor 1/2(6) .. PS10/20(8) ....... Type Renewable (Solar) Renewable (Solar) Renewable (Solar) Renewable (Solar) Renewable (Solar) Helioenergy 1/2(9) ........... Renewable (Solar) Helios 1/2(10) .. Renewable (Solar) Solnova 1/3/4(11) ....... Renewable (Solar) Seville PV Kaxu .............. Palmatir .......... Cadonal .......... ACT ............... ATN ............... ATS ............... ATN2 ............. Quadra 1 ........ Quadra 2 ........ Palmucho ....... Renewable (Solar) Renewable (Solar) Renewable (Wind) Renewable (Wind) Conventional Power Transmission Line Transmission Line Transmission Line Transmission Line Transmission Line Transmission Line U.S. dollar 81 miles Las Bambas Not rated 2Q 2015 100% Chile U.S. dollar 43 Miles Sierra Gorda Not rated 2Q 2014 100% Chile U.S. dollar 38 Miles Sierra Gorda Not rated 1Q 2014 100% Chile Honaine .......... Water 25.5%(17) Algeria Skikda ............ Water 34.2%(18) Algeria U.S. dollar U.S. dollar U.S. dollar 6 Miles Endesa Chile(16) BBB+/Baa2/ BBB+ 4Q 2007 7 M ft3/day Sonatrach Not rated 3Q 2012 3.5 M ft3/day Sonatrach Not rated 1Q 2009 __________________ Notes: (1) Certain contracts denominated in U.S. dollars are payable in local currency. (2) Reflects the counterparty’s issuer credit ratings issued by Standard & Poor’s Ratings Services, or S&P, Moody’s Investors Service Inc., or Moody’s, and Fitch Ratings Ltd, or Fitch. (3) On September 30, 2013, Liberty Interactive Corporation invested $300 million in Class A membership interests in exchange for the right to receive 61.20% of taxable losses and distributions until such time as Liberty reaches a certain rate of return, or the “Flip Date”, and 22.60% of taxable losses and distributions thereafter. Itochu Corporation, a Japanese trading company, holds 30% of the shares in each of Solaben 2 and Solaben 3. (4) Solaben 2 and Solaben 3 are separate special purpose vehicles with separate agreements, but they are treated as a single platform. (5) (6) Solacor 1 and Solacor 2 are separate special purpose vehicles with separate agreements but they are treated as a single platform. (7) JGC Corporation, a Japanese engineering company, holds 13% of the shares in each of Solacor 1 and Solacor 2. (8) PS10 and PS20 are separate special purpose vehicles with separate agreements but they are treated as a single platform. (9) Helioenergy 1 and Helioenergy 2 are separate special purpose vehicles with separate agreements but they are treated as a single platform. (10) Helios 1 and Helios 2 are separate special purpose vehicles with separate agreements but they are treated as a single platform. (11) Solnova 1, Solnova 3 and Solnova 4 are separate special purpose vehicles with separate agreements but they are treated as a single platform. 7 (12) Solaben 1 and Solaben 6 are separate special purpose vehicles with separate agreements, but they are treated as a single platform. (13) Industrial Development Corporation of South Africa owns 29% and Kaxu Community Trust owns 20% of Kaxu. (14) Refers to the credit rating of the Republic of South Africa. (15) Refers to the credit rating of Uruguay, as UTE is unrated. (16) Refers to Empresa Nacional de Electricidad, S.A., or Endesa Chile, which is owned by the Enel Group. (17) Algerian Energy Company, SPA owns 49% of Honaine and Sadyt owns the remaining 25.5%. (18) Algerian Energy Company, SPA owns 49% of Skikda and Sadyt owns the remaining 16.8%. (19) Instituto para la Diversificacion y Ahorro de la Energia, or Idea, a Spanish state-owned company holds 20% of the shares in Seville PV. Business model, strategy and objectives Atlantica Yield is a total return company that owns, manages, and acquires renewable energy, conventional power, electric transmission lines and water assets, focused on North America (the United States and Mexico), South America (Peru, Chile, Brazil and Uruguay) and EMEA (Spain, Algeria and South Africa). We intend to expand, maintaining North America, South America and Europe as our core geographies. We intend to grow our business mainly through acquisitions of contracted assets in operation, in the segments where we are already present, maintaining renewable energy as our main segment and with a focus in North and South America. In this sense, we intend to take advantage of favourable trends in the power generation and electric transmission sectors globally, including energy scarcity and a focus on the reduction of carbon emissions. To that end, we believe that our cash flow profile, coupled with our scale, diversity and low-cost business model, offers us a lower cost of capital than that of a traditional engineering and construction company or independent power producer and provides us with a significant competitive advantage with which to execute our growth strategy. We signed an exclusive agreement with Abengoa, which we refer to as the ROFO Agreement, which provides us with a right of first offer on any proposed sale, transfer or other disposition of any of Abengoa’s contracted renewable energy, conventional power, electric transmission or water assets in operation and located in the United States, Canada, Mexico, Chile, Peru, Uruguay, Brazil, Colombia and the European Union, as well as four assets in selected countries in Africa, the Middle East and Asia. Additionally, we plan to sign similar agreements or enter into partnerships with other developers or asset owners to acquire assets in operation. We may also invest directly or through investment vehicles with partners in assets under development or construction, ensuring that such investments are always a small part of our total investments. Finally, we also expect to acquire assets from third parties leveraging the local presence and network we have in the geographies and sectors in which we operate. With this business model, our objective is to pay a consistent and growing cash dividend to shareholders, which is sustainable on a long-term basis. We expect to distribute a significant percentage of our cash available for distribution as cash dividends and we will seek to increase such cash dividends over time through organic growth and as we acquire assets with characteristics similar to those in our current portfolio. Based on the acquisition opportunities available to us, we believe that we will have the opportunity to grow our cash available for distribution in a manner that would allow us to increase our cash dividends per share over time. In general, we intend to use the following investment guidelines in evaluating prospective acquisitions in order to successfully execute our accretive growth strategy: (cid:2) High quality off-takers, with long-term contracted revenue, ideally longer than 20 years. (cid:2) Project financing for each individual project. (cid:2) Operations and maintenance contract in place at each project. (cid:2) Management and operational systems and processes at our level. 8 (cid:2) Focus on regions and countries that provide an optimal balance between growth opportunities and security and risk considerations, including the United States, Canada, Mexico, Chile, Peru, Uruguay, Colombia and the European Union, as well as selected countries in Africa. (cid:2) Preference for U.S. dollar-denominated revenues, in the absence of which, we will implement a cost- effective, ad-hoc hedging policy that will support stability of cash flows. Our plan for executing this strategy includes the following key components: (cid:2) Focus on stable, long-term contracted assets in renewable energy, conventional power generation and electric transmission lines. We intend to focus on owning and operating these types of assets, for which we possess deep know-how, extensive experience and proven systems and management processes, as well as the critical mass to benefit from operating efficiencies and scale. We expect that this will allow us to maximize value and cash flow generation going forward. We intend to maintain a diversified portfolio in the future, as we believe these technologies will undergo significant growth in our targeted geographies. (cid:2) Maintain geographic diversification across three principal geographic areas. Our focus on three main markets, North America, South America and Europe, helps to ensure exposure to markets in which we believe the renewable energy, conventional power and electric transmission sectors will continue growing significantly. (cid:2) (cid:2) Increase cash available for distribution by optimizing our existing assets. Some of our assets are newly operational and we believe that we can increase the cash flow generation of these assets through further management and optimization initiatives and in some cases through repowering. Increase cash available for distribution through the acquisition of new assets in renewable energy, conventional power and electric transmission. We will seek to grow our cash available for distribution and our dividend to shareholders by acquiring new contracted assets from Abengoa, from third parties and from potential new future sponsors. We plan to sign agreements or enter into partnerships with other developers or asset owners to acquire assets in operation. We may also invest directly or through investment vehicles with partners a very limited portion of our cash in assets under development. We also expect to acquire assets from third parties leveraging the local presence and network we have in the geographies and sectors in which we operate. (cid:2) Foster a low-risk approach. We intend to maintain, over time, a portfolio of contracted assets with a low-risk profile due to creditworthy off-take counterparties, long-term contracted revenues, 90% of cash available for distribution in, indexed or hedged to the U.S. dollar and proven technologies in which we have deep expertise and significant experience, located in countries where we believe conditions to be stable and safe. Additionally, our policies and management systems include thorough risk analysis and risk management processes that we apply whenever we acquire an asset, and which we review monthly throughout the life of the asset. Our policy is to insure all of our assets whenever economically feasible. (cid:2) Maintain financial strength and flexibility. We intend to maintain a solid financial position through a combination of cash on hand and credit facilities. Lastly, we believe that we are well positioned to execute our business strategies because of the following competitive strengths: (cid:2) Stable and predictable long-term U.S. and international cash flows with attractive tax profiles (cid:2) Highly diversified portfolio by geography and technology (cid:2) Strong corporate governance with a majority independent board and an experienced and incentivised management team 9 A fair review of the business The Company is focused on high-quality, newly-constructed and long-life facilities with creditworthy counterparties that we expect will produce stable, long-term cash flows. During our three first years of operation, we have focused on three priorities: 1. Creating in the case of new assets and reinforcing the processes and systems required to manage and control our contracted assets internationally. 2. Maximizing performance of our asset portfolio. This is an area where in 2017 we still need to continue improving the performance of some assets, including Solana and Kaxu. 3. Acquiring and integrating new contracted assets. During 2016, we have also focused our efforts in eliminating risks associated to our sponsor’s insolvency process and in becoming an independent company. In this sense, during 2016 we have built our own back-office independent from Abengoa and we have separated our IT systems. In addition, we have obtained waivers and forbearances for most of our projects. Some of our projects contained cross-default provisions and change of ownership provisions with Abengoa, such that debt defaults by Abengoa, subject to certain threshold amounts and/or a restructuring process, could trigger defaults under such project financing arrangements. Some of our projects also included change of ownership that would be triggered if Abengoa ceases to own at least 35% of Atlantica Yield’s shares. During the year 2016, after obtaining waivers and forbearances for most of our projects, we are still working in securing waivers or forbearances for Kaxu for cross-default and change of ownership and ACT for change of ownership. In 2016, the Company and its subsidiaries reported revenues of $971.8 million (2015: $790.9 million) and a loss for the year attributable to the parent company of $4.9 million (2015: loss of $209.0 million). $ in millions Revenue Operating Profit Profit / (Loss) for the Year Loss for the Year Attributable to the Parent Company 2016 971.8 402.4 1.6 (4.9) 2015 790.9 344.5 (198.2) (209.0) As of 31 December 2016, our cash and cash equivalents at the project company level were 472.6 million as compared with $469.2 million as of 31 December 2015. In addition, our cash and cash equivalents at the Atlantica Yield level were $122.2 million as of 31 December 2016 compared with $45.5 million as of 31 December 2015. We expect our on-going sources of liquidity to include cash on hand, cash generated from our operations, project debt arrangements, corporate debt and the issuance of additional equity securities, as appropriate, subject to market conditions. Our financing agreements consist mainly of the project-level financings for our various assets, the 2019 Notes and the Credit Facility. In addition, on 10 February 2017, we signed a Note Issuance Facility that we intend to use to repay and cancel Tranche B of our Revolving Credit Facility. Based on our current level of operations, we believe our cash flow from operations, available cash and available borrowings under our financing agreements will be adequate to meet our future liquidity needs for at least the next twelve months. In 2016, we paid total dividends of $0.453 per share to our shareholders and from that amount we retained $19.0 million of the dividend attributable to Abengoa in accordance with the provisions of the agreements reached with Abengoa in relation to our preferred equity investment in ACBH. In 2015, we paid $1.4292 per share and from that amount we retained $9.0 million of the dividend attributable to Abengoa in 10 accordance with the provisions of the agreements reached with Abengoa in relation to our preferred equity investment in ACBH. As previously stated within this Consolidated Annual Report, all of our assets have contracted revenues with low-risk off-takers and collectively have a weighted-average remaining contract life of approximately 21 years as of December 31, 2016. To gain an overall fair review of the business we enclose below a detailed breakdown of our results of operations for the years ended as of December 31, 2016 and 2015: 11 $ in millions Revenue Other operating income Raw materials and consumables used Employee benefit expenses Depreciation, amortization and impairment charges Other operating expenses Operating profit Financial income Financial expense Net exchange differences Other financial income/(expense), net Financial expense, net Share of profit/(loss) of associates carried under the equity method Profit/(Loss) before income tax Income tax Profit/(Loss) for the year Profit/(loss) attributable to non-controlling interests Loss for the year attributable to the parent company 2016 2015 $ $ $ $ $ $ 971.8 $ 65.5 (26.9) (14.7) (332.9) (260.3) 402.4 $ 3.3 (408.0) (9.6) 8.5 ( 405.8) $ 6.7 3.3 $ (1.7) 1.6 $ (6.5) (4.9) $ 790.9 68.8 (23.2) (5.8) (261.3) (224.9) 344.5 3.5 (333.9) 3.9 (200.2) (526.7) 7.8 (174.4) (23.8) (198.2) (10.8) (209.0) Revenues Revenues increased by 22.9% to $971.8 million in the year ended 31 December 2016, compared with $790.9 million for the year ended 31 December 2015. The increase is largely attributable to the acquisitions of Helioenergy 1/2, Helios 1/2, Solnova 1/3/4, ATN2 in the second quarter of 2015 as well as Kaxu and Solaben 1/6 in the third quarter of 2015. Additionally, production at Mojave increased as the project entered into its second year of operations. These resulted in a net electricity production of 5,503 GWh in operation for the year ended December 31, 2016, compared with 5,001 GWh produced during the year ended December 31, 2015. Other operating income The following table sets forth our other operating income for the years ended December 31, 2016 and 2015: Other operating income Grants Income from various services Total Year ended December 31, 2016 2015 $ in millions 59.1 6.4 65.5 67.8 1.0 68.8 Other operating income decreased by 4.8% to $65.5 million for the year ended December 31, 2016, compared with $68.8 million for the year ended December 31, 2015. The decrease was mainly due to the decrease in Grants to $59.1 million for the year ended December 31, 2016 from $67.8 million in the same period of 2015. Income classified as grant represents the financial support provided by the U.S. Administration to Solana and Mojave and consists of ITC Cash Grants and an implicit grant related to the below market interest rates of the project loans with the Federal Financing Bank. The decrease relates to the implicit grant of Mojave and is driven by the October 2015 repayment of the short-term tranche of its loans. Income from various services for the year ended December 31, 2016 increased compared to the year ended December 31, 2015 due to the $5.1 million insurance income recorded at Solana. 12 Raw materials and consumables used Raw materials and consumables used increased by $3.7 million to $26.9 million for the year ended December 31, 2016, compared with $23.2 million for the year ended December 31, 2015, primarily due to the higher volume of spare parts and consumables at Solana and raw materials used at the projects acquired during 2015. Employee benefits expenses Employee benefit expenses increased by $9.0 million to $14.8 million for the year ended December 31, 2016, compared with $5.8 million for the year ended December 31, 2015. The increase is mainly due to the transfer of employees previously employed by subsidiaries of Abengoa who were providing services to Atlantica Yield under the Support Services Agreement to subsidiaries of Atlantica Yield. The transfer occurred over the first six months of 2016 and the Support Service Agreement was terminated in the second quarter of 2016. Additionally, during 2015, Management employees of Atlantica Yield were transferred to companies within the perimeter of Atlantica Yield and the Executive Services Agreement was terminated, which has also caused an increase in employee benefits expenses. Depreciation, amortization and impairment charges Depreciation, amortization and impairment charges increased by 27.4% to $332.9 million for the year ended December 31, 2016, compared with $261.3 million for the year ended December 31, 2015. The increase was largely attributable to the depreciation and amortization expenses of Helios 1/2, Solnova 1/3/4 and Helioenergy 1/2 acquired in the second quarter of 2015 as well as Kaxu and Solaben 1/6 acquired in the third quarter of 2015. Additionally, in the fourth quarter of 2016, we recognized $20.3 million of impairment in our wind assets mainly due to lower than expected wind resource in the previous two years (see Note 13 to our Consolidated Financial Statements). Other operating expenses The following table sets forth our other operating expenses for the years ended December 31, 2016 and 2015: 13 Other operating expenses Leases and fees Operation and maintenance Independent professional services Supplies Insurance Levies and duties Other expenses Total Year ended December 31, 2016 2015 $ in millions 5.3 133.3 30.5 17.2 23.4 44.5 6.2 260.3 % of $ in revenue 0.5% 13.7% 3.2% 1.8% 2.4% 4.6% 0.6% 26.8% millions 3.9 116.5 19.0 18.0 20.2 32.4 14.9 224.9 % of revenue 0.5% 14.7% 2.4% 2.3% 2.6% 4.1% 1.9% 28.4% Other operating expenses increased by 15.8% to $260.3 million for the year ended December 31, 2016, compared with $224.9 million for the year ended December 31, 2015. This was primarily due to the other operating expenses of the companies acquired in the second and third quarter of 2015. Levies and duties correspond largely to the electricity tax of our Spanish solar assets and the increase is mainly attributable to the acquisition of Helios 1/2, Solnova 1/3/4, Helioenergy 1/2 and Solaben 1/6. We have changed our presentation of “Other operating expenses” to better reflect the nature of our business and costs. Prior period amounts have been reclassified to conform to the new classification presented in the table above. Operating profit/(loss) As a result of the above factors, operating profit increased by 16.8% to $402.4 million for the year ended December 31, 2016, compared with $344.5 million for the year ended December 31, 2015. Financial income and financial expense Financial income and financial expense Financial income Financial expense Net exchange differences Other financial income/(expense), net Financial expense, net Year ended December 31, 2016 2015 $ in millions 3.3 (408.0) (9.6) 8.5 (405.8) 3.5 (333.9) 3.9 (200.2) (526.7) Net financial expense decreased to $405.8 million for the year ended December 31, 2016, compared with $526.7 million for the year ended December 31, 2015, mainly due to the impairment of the preferred equity investment in ACBH recognized in 2015 partially offset by the increase in the financing expense in 2016. Both effects are analysed below. Financial expense The following table sets forth our financial expense for the years ended December 31, 2016 and 2015: Financial expense Expenses due to interest: Loans with credit entities Other debts Interest rates losses derivatives: cash flow hedges Year ended December 31, 2016 2015 $ in millions (242.9) (91.0) (74.1) (197.9) (81.9) (54.1) 14 Total (408.0) (333.9) Financial expense increased by 22.2% to $408.0 million for the year ended December 31, 2016, compared with $333.9 million for the year ended December 31, 2015. This increase was largely attributable to interest expenses from loans and credits of the assets acquired in the second (Helios 1/2, Solnova 1/3/4, Helioenergy 1/2 and ATN2) and third quarter (Kaxu and Solaben 1/2) of 2015. Interest expense also increased due to the interest corresponding to the Tranche B of the Credit Facility closed on June 26, 2015 and fully drawn in September 2015. Interest on other debt is primarily interest on the notes issued by ATS, Solaben 1/6 and ATN, and the 2019 Notes, as well as interest related to the investment from Liberty in Solana. The increase is mainly due to the acquisition of Solaben 1/6 in the third quarter of 2015. Losses from interest rate derivatives designated as cash flow hedges correspond mainly to transfers from equity to financial expense when the hedged item is impacting the Consolidated Financial Statements. The increase is principally due to the acquisition of solar assets in Spain that usually hedge interest rate risk with swaps. Other financial income/(expense), net Other financial income/(expenses) Dividend ACBH (Brazil) Other financial income Impairment preferred equity investment in ACBH Other financial losses Total Year ended December 31, 2016 2015 $ in millions 28.0 13.0 (22.1) (10.4) 8.5 18.4 1.5 (210.4) (9.7) (200.2) Other financial income, net increased to $8.5 million income for the year ended December 31, 2016, compared with a $200.2 million financial expense, net for the year ended December 31, 2015. On January 29, 2016, Abengoa informed us that several indirect subsidiaries of Abengoa in Brazil, including ACBH, initiated an insolvency procedure under Brazilian law (“reorganizaçao judiciaria”), including ACBH. According to the agreement reached with Abengoa in the third quarter of 2016, they have acknowledged that Atlantica Yield is the legal owner of the dividends retained from Abengoa amounting to $28.0 million. As a result, we have recorded $28.0 million in our Consolidated Financial Statements, in accordance with the accounting treatment given previously to the ACBH dividend. Additionally, taking into account the agreement signed with Abengoa regarding the ACBH preferred equity investment, we have performed a valuation of the instrument as of 31 December 2016 using a probability weighted average method. This valuation method considers the probability of the restructuring agreement being made effective and has resulted in an impairment of $22.1 million (see Note 23 to the Annual Consolidated Financial Statements). This impairment is a non-cash item. The increase in other financial income corresponds principally to $7.7 million of subordinated debt with the EPC contractor of one of our assets which has been cancelled in the third quarter of 2016 and financial income from the early payment of payables with Abengoa. Other financial losses mainly include guarantees and letters of credit, wire transfers and other bank fees and other minor financial expenses. Share of profit/(loss) of associates carried under the equity method Share of profit of associates carried under the equity method decreased to $6.7 million for the year ended December 31, 2016, compared with a $7.8 million for the year ended December 31, 2015. The decrease is 15 mainly due to the results of Helioenergy 1/2 which were recorded under the equity method from the acquisition of the initial 29.6% stake in February 2015 until May 2015 when we gained control of the asset and started consolidating it. Profit/(loss) before income tax As a result of the above factors, we reported a profit amounting to $3.3 million for the year ended December 31, 2016, compared with a loss before income taxes of $174.4 million for the year ended December 31, 2015. Income tax Income tax expense amounted to $1.7 million for the year ended December 31, 2016, compared with an income tax expense of $23.8 million for the year ended December 31, 2015. In 2016, our effective tax rate differs from the average nominal tax rate mainly due to a net of different effects. Permanent differences in some jurisdictions, particularly in Mexico had a positive impact in our income tax expense. This effect was offset by tax losses for which we did not record a tax credit in some jurisdictions, in accordance with IFRS. Income tax expense amounted to $23.8 million for the year ended December 31, 2015. Our effective tax rate differed from the average nominal tax rate mainly due to permanent differences resulting primarily from inflationary effects in Mexico and incentives related mainly to the tax exemption of ACBH dividends. Loss/(profit)) attributable to non-controlling interest Profit attributable to non-controlling interest decreased by 39.7% to $6.5 million in the year ended December 31, 2016, compared with $10.8 million in the year ended December 31, 2015 mainly due to lower results in most of the projects in which we have partners. Profit/(loss) attributable to the parent company As a result of the above factors, loss attributable to the parent company decreased to $4.9 million for the year ended December 31, 2016, compared with a loss attributable to the parent company of $209.0 million for the year ended December 31, 2015. The factors affecting our results of operations are: (cid:2) Regulation (cid:2) Power purchase agreements and other contracted revenue agreements (cid:2) Tax incentives in the United States for renewable energy assets (cid:2) Tax accelerated depreciation for Spanish new assets (cid:2) Specific corporate income tax rules in Mexico (cid:2) Capital expenditures (cid:2) Interest rates (cid:2) Exchange rates In addition, the comparability of our results of operations is affected by the acquisitions we closed during the year 2015. With the fleet of assets that we own, we believe that we have a balanced portfolio in terms of geographies and technologies that provides the Company the critical mass required to continue capturing opportunities to (i) continue improving the performance and cash generation of our assets and (ii) continue growing through acquisitions from Abengoa, third parties or new potential future sponsors. 16 Key performance indicators In addition to the factors described above, we closely monitor the following key drivers of our business sectors’ performance to plan for our needs, and to adjust our expectations, financial budgets and forecasts appropriately. 17 Renewable Energy MW in operation1 GWh produced Conventional Power MW in operation1 GWh produced2 Availability (%)3 Electric Transmission Miles in operation Availability (%)3 Water Mft3 in operation Availability (%)3 As of December, 31 2015 2016 1,442 3,087 300 2,416 99.1% 1,099 100.0% 10.5 101.8% 1,441 2,536 300 2,465 101.7% 1,099 99.9% 10.5 101.5% ____________________________ 1 Represents total installed capacity in assets owned at the end of the period, regardless of our percentage of ownership in each of the assets. 2 Conventional production and availability were impacted by a periodic scheduled major maintenance in February 2016. 3 Availability refers to actual availability divided by contracted availability. Principal risks and uncertainties The Company and its underlying assets are subject to a number of risks ranging from operating, regulatory, financial and connection to Abengoa. The processes and systems implemented have been designed to mitigate those risks to the extent possible. We include the following table as a summary of some of those risks and action plans carried out to mitigate them: Risk Impact Poor performance of assets. Loss of revenues and cash flows at the project company level, which has subsequent impact on cash returns to the Company. In addition, we rely on third parties for the supply of services and including technologically complex equipment. equipment, Assessment of change in risk year- on-year Operational risks are higher in younger assets than in more mature ones and likely to remain similar in the next few years. (cid:2) Access to future acquisitions. (cid:2) Impede our ability to execute our growth strategy. (cid:2) In order to grow, we depend on the availability of low risk contracted assets with stable cash flows. Given that we distribute as dividends a significant portion of the case we also depend on generate, we financing availability finance to growth, including access to capital markets. During the first half of 2016, access to financing has been curtailed by market conditions and other factors. Mitigation of risk (cid:2) Dedicated supervisory and management teams. (cid:2) Reporting and monitoring systems in place. (cid:2) Proven technology through years of experience. (cid:2) Operation and maintenance contracted with specialists. (cid:2) Tracked down alternative O&M opportunities in the market. (cid:2) Maintain ROFO agreement with current sponsor. (cid:2) Seek to sign similar agreements or enter into partnerships with other developers or asset owners to acquire assets. (cid:2) Pursue parties. (cid:2) Dedicated acquisitions from third supervisory to teams and locate management opportunities within the market. (cid:2) Regulation - legal, environmental and general compliance - of each asset. (cid:2) Uncertainty or changes to any such regulation could adversely affect the profitability of our current plants and Although there have been no material changes for the underlying assets in 2016, there may be risks in the future due to events during the period, in (cid:2) Investment grade ratings in most of our assets. (cid:2) Strong power purchase agreement or 18 Risk Impact Assessment of change in risk year- on-year our ability to refinance projects. particular: (cid:2) In the US, current the administration’s proposed environmental and tax policies may create regulatory uncertainty in the clean energy sector and may lead to a reduction or removal of various clean initiatives energy programs and designed to curtail climate change. In addition, US administration has made public statements regarding reducing the corporate limiting interest expense deductibility. rate and current the tax Mitigation of risk concession contracts in most assets. (cid:2) Management and compliance teams tracking down any potential change. specialized continuously (cid:2) Reporting and monitoring system. (cid:2) Financing contract. agreements in each (cid:2) Restrictions to distribute cash out of (cid:2) Additional risks derived from the (cid:2) Reporting and monitoring of project companies. Company’s acquisitions. covenants in each contract. (cid:2) In addition, we may be exposed to political, social and macroeconomic risks the United to Kingdom’s potential exit from the European Union. relating (cid:2) Declare project finance debt to be due and payable immediately. (cid:2) Cross-default provisions and change of ownership provisions related to Abengoa (see below). (cid:2) Connection to Abengoa. (cid:2) Our reputation is still closely related to Abengoa’s reputation. (cid:2) Existing operation and maintenance agreements, outstanding debt, cross- minimum default provisions, ownership existing provisions, guarantees and other risks. (cid:2) Liquidity risk. (cid:2) Not being able to meet our financial obligations as they fall due. (cid:2) Interest rate and foreign currency exchange rate. (cid:2) Increases in rates would raise our project expenses finance companies or corporate level. at (cid:2) Cross-default provisions related to Abengoa could trigger defaults under project arrangements (Kaxu). financing in (cid:2) Change of ownership provisions related to Abengoa could trigger financing defaults under project case Abengoa arrangements ownership of Atlantica Yield decreased below the minimum levels defined in the financing agreements (ACT, Kaxu and under non-forborne limited circumstances Solana and Mojave). (cid:2) Reputational relation to Abengoa is lower but it still exists in some areas. (cid:2) We have set up our own independent back office and our own IT systems separate from Abengoa. three facility has We have signed a note issuance facility for €275 million (approximately $294 million) the proceeds of which, we intend to use towards repayment and cancellation of the Tranche B of the Credit Facility which matures in December 2017. The new note series issuance maturing in 2022 (€92 million), in 2023 (€91.5 million) and 2024 (€91.5 million) (cid:2) In addition to the existing Currency entered with Swap Agreement from Abengoa two Spanish assets, we leading currency options with a financial to guarantee minimum Euro-U.S. dollar exchange rates for distributions institution signed (cid:2) No material the underlying assets related to interest rates. changes for (cid:2) Management compliance continuously change. and specialized and teams legal tracking down any (cid:2) Contingency plan in each key area. (cid:2) Corporate governance. (cid:2) New corporate brand and new legal name. (cid:2) Cross-default provisions expire progressively over time. (cid:2) Current discussions with our project finance lenders. (cid:2) Processes and systems in place. (cid:2) Cash in hand. (cid:2) At least 10% of cash flows generated by our project companies and distributed to the holding company retained. (cid:2) Possibility to change dividend policy. (cid:2) Refinancing bullet-maturity of corporate debt (cid:2) Policy to hedge in order to have a 90% at least of cash flows generated by our project companies in USD or hedged to USD. (cid:2) 91% of our interest total risk exposure is fixed or hedged. 19 Risk Impact (cid:2) Credit risk (cid:2) Not being able to collect our revenues Assessment of change in risk year- on-year (cid:2) We consider the credit risk with clients limited as our revenues and other revenue contracted agreements are with electric utilities and states- owned entities Mitigation of risk (cid:2) 95% of our clients are investment grade offtakers (based on Moody’s rating). As of 31 December 2016 and 2015, we did not have trade receivables outstanding for more than three months. The directors have considered the Group’s relationship with its shareholder, Abengoa S.A, and the events that have taken place in the year as discussed in Note 1 to the Consolidated Financial Statements. Corporate and social responsibility Sustainability and health and safety in our business model and activities as key values of Atlantica Yield Atlantica Yield creates value for its investors by owning, managing and acquiring a diversified portfolio of contracted assets in operation in the energy and the environment sectors. Since its foundation the Company manages a portfolio of renewable, clean conventional (cogeneration technology) and water assets and transmissions lines. In 2016 we incorporated to our portfolio of renewable assets a photovoltaic asset, consolidating Atlantica Yield efforts to continue promoting a low- carbon energy industry and a business model based on a sustainable development. Atlantica Yield intends to take advantage of favourable trends in the power generation, electric transmission, and water sectors globally, related to the energy scarcity and a focus on the reduction of carbon emissions. We own a geographically diverse portfolio of assets, with a primary focus on North and South America. Atlantica Yield is committed to create a positive impact in the diverse local communities where the Company develops its activities. The Company also focuses its efforts in guaranteeing the integrity and safety of the employees that work and operate in our facilities. The main milestones and figures for 2016 are: Management System We have established a management system that guarantees that the Company complies with regulations in force and with our policies in each of the markets we operate. In this sense, we measure the environmental impact of our activities, monitoring, identifying and implementing action plans to reduce that impact at each of our assets. Every year we set improvement targets in order to achieve higher quality, environmental standards. Throughout the year 2016 we have been able to renovate the certifications obtained in 2015 by the Company regarding the following recognized standards: (cid:2) ISO 9001: Certification for Quality Management System. (cid:2) ISO 14001: Certification for Environmental Management System. (cid:2) OHSAS 18001: Certification for Occupational Health and Safety. Greenhouse gas emissions As a Company based in the United Kingdom, Atlantica Yield complies with the requirements from the Climate Change Act 2008. Companies in compliance with the greenhouse gas reporting regulation, a requirement contained in this framework law, must report their greenhouse gas emissions. Additionally, our greenhouse gas emissions management fulfill with the requirements of the Commission Regulation (EU) No 601/2012. Our focus in renewables and sustainable technologies allows Atlantica Yield to have greenhouse gas emissions rates significantly lower than fossil fuels power generators. 20 Emission Regardin classified ns figures on ng this intern d our emissio n this report a ational stand ons into 2 gro are quantifie dard, which w oups: ed and report was compile ted according d according g to the guid to the Green delines of the n House Gas 4. e ISO 14064 e Protocol, we ns of greenh house gas fro om sources th hat are owne ed or control lled by the C d Company and t emissions of greenhou use gas from m consumpti ion of purch hased electri icity, heat o r (cid:2) Scope e 1: Emission roup. the Gr (cid:2) Scope e 2: Indirect m. steam Scope 3 e to be repo total of o emissions, w orted accord ur emissions which are the ding to the Un s, therefore w e emissions a nited Kingdo we do not inc associated to om regulatio clude them in the supply c on. Besides, t n this report. chain or to tr they suppose ransport, are e a negligible e not required d e e share of the The total reached taking int l emissions o 1,724 thousa to account th of carbon di ands of tons he maturity o oxide equiva , a 0.3% low of the assets i alent generat wer than 201 in our portfo ted by the C 15 values. W olio. Company and We consider d the Group it as a notab during 2016 6 n ble reduction Graph 1 s the previo shows the to ously describ ons of carbon bed scopes. n dioxide equ uivalent gene erated in 201 5 and 2016, correspondi ng to each o f Graph h 1: Greenhous se Gas emissio ns breakdown n by Scope* * E Emissions are considered sin nce acquisitio on date of each h asset and for r assets that ar re consolidate ed. As shown equivalen explained n on the fol nt tons of Ca d by the high lowing grap arbon Dioxid her generatio ph, the rate o de (“CO2”) p n from renew of emissions per megawa wables assets per energy att hour in 20 s in 2016. generation h 015 to 0.30 i has decrease in 2016. Thi ed, from 0.34 4 is decrease i s 2 1 Gr aph 2: Tons of f CO2 emission ns per MWh b y Scope 90% of the Around 9 Graph 3. emissions ge enerated in 2016 come from our co onventional p power plant as shown in n Graph 3: G Greenhouse Ga s emissions bre eakdown by po ower technolog gy As previ emission of CO2 e ously stated rate than pu equivalent sav d, generating ure fossil fue ved to the at g electricity els generators tmosphere co from renewa s as shown o ompared with able resourc on Graph 4. T h a 100% fos ces allows u This fact imp ssil fuels bas s to have a plies a total o sed generatio much lowe of 3,036 ton on. r s 2 22 001 h W M 2 O C / f o s n o t 1 01 1 01 0 00 0 00 000 Scope 1 emissions o Yield of Atlantica issions of a f Scope 1 em generator* g fossil fuel * Source: Avera Information A age value of car Administration rbon dioxide pr roduced per kil owatt-hour for different sourc ces. Data from t y the U.S. Energy Graph 4: At tlantica Yield v versus Fossil f fuel generation n GHG emissio ons Human r rights We are c employee rights, as Declarati professio Universa the UN a United N committed t es and the re s set out in t ion on Fund onal activitie al Declaration and the Inter Nations Globa o conducting est of the peo the Internati damental Prin es of its emp n of Human R rnational Lab al Pact. g our busine ople related t ional Bill of nciples and ployees, dir Rights and it bour Organiz ess in a ma to our activit f Human Rig Rights at W rectors and e ts protocols, zation (ILO) anner that re ties. We resp ghts and the Work. Labour executives a as well as by ) on social ri espects the r pect internati Internationa r practice at are governed y Internation ights, as wel rights and di onally recog al Labour O Atlantica Y d by the Un nal Agreemen ll as the prin ur ignity of ou n gnized human rganization´ s Yield and the e nited Nation s y nts signed by e nciples of the We are fu committe policy by where we directors fully aware o ed to respect y implement e are presen to report any of the diversi t and create ting it into t nt. Our code y illegal beha ity of the loc value in th the processe of conduct aviour or vio cal communi ese local co es that gover references t olations of la ities where w ommunities. rn our busin the policy, re aws, rules, re we operate. I We are deli ness activitie equiring the gulations. n this sense, ivering our h es in all the employees, , we are fully y human right s geographie s d officers and Occupat tional Healt th and Safet ty Atlantica as a tool business encourag in our ass for Occup a Yield and it to protect th activity. We ges a prevent sets as reflec pational Hea ts manageme he integrity a e promote d ive culture in cted in our co alth and Safe ent are comm and health o deep capabil n the operati orporate heal ty (OHSAS mitted to prio f our employ ity and a sa ion and main lth and safety 18001) obtai oritize and a yees, subcon afe operating ntenance (“O y policy. The ined in 2015 actively prom ntractors and g culture acr &M”) activi ese efforts re and success mote the heal d partners inv ross Atlantic ities of the su esulted in the sfully renova lth and safety y ur volved in ou d ca Yield and ubcontractor s n e certification ated in 2016. We activ days with encourag vely monitor hout acciden ge employees a broad ran nts, number o s in our asset nge of occup of near miss ts to continuo ational healt ses and drills ously improv th and safety s, not only to ve on this ma y key perform o closely tra atter. mance indica ack down thi s ators such a o is area but to 3 23 Business ethics Atlantica Yield is building a sustainable and successful business for our customers, colleagues, partners and investors. We are committed to promote ethical business practice and comply with all relevant laws and regulations. Atlantica Yield subscribes and assumes the document issued by the United Nations (UN) Convention against Corruption, which was approved by the General Assembly of the UN on October 31, 2003. We have a responsibility to our shareholders and the countries and communities in which we do business to be ethical and lawful in all our businesses. We have specific quality norms, which are the result of carrying out activities with knowledge, common sense, rigor, order and responsibility. Our code of conduct requires the highest standards for honest and ethical conduct and explicitly states that we do not tolerate bribery and corruption in any of its forms. We also promote and strengthen the measures to prevent and combat corruption more effectively and efficiently. Our anti-bribery and corruption policy applies to all Atlantica Yield business. In accordance with our policies, Atlantica Yield provides to its employees, shareholders and the rest of our stakeholders a specific channel of communication with management and the governing bodies, that serves as an instrument to report any suspected or actual irregularities, instances of non-compliance with the code of conduct, as well as unethical or unlawful behaviour that is against the rules and regulations which govern our Company. Our whistleblower disclosure channel meets the requirements of the Sarbanes Oxley Act. In addition to the provisions of our code of conduct, the business activities of Atlantica Yield are governed by laws that prohibit bribery in order to support global efforts to fight corruption. Specifically, the U.S. Foreign Corrupt Practices Act (“FCPA”) and the UK Bribery Act 2010 (“UKBA”) make it a criminal offense for companies as well as their officers, directors, employees, and agents, to pay, promise, offer or authorize the payment of anything of value to a foreign official, foreign political party, officials of foreign political parties, candidates for foreign political office or officials of public international organizations for the purpose of obtaining or retaining business. Similar laws have been, or are being, adopted by other countries. Payments of this nature are strictly against Atlantica Yield’s policy even if the refusal to make them may cause Atlantica Yield to lose business. Furthermore, Atlantica Yield is committed to supporting fair and open securities markets. On this purpose, Directors, Officers or employees are not permitted to deal on the basis of inside information or engage in any form of market abuse. Employees Our values and code of conduct set out the expected qualities and actions of all our people. The honesty, integrity and sound judgment of our employees, officers and directors is essential to Atlantica Yield's reputation and success. We seek employees who have the right skills and who understand and embody the values and expected behaviours that guide our business activity. As of December 31, 2016, we had 166 employees compared to 88 employees as of December 31, 2015. During 2016, we finished the process of transferring and employing directly our back office personnel to achieve full autonomy from Abengoa. The number of employees is now aligned with the right-size of our organization and our business activities. We do not expect significant changes throughout 2017. The following table shows the number of employees as of December 31, 2016 and 2015 on a consolidated basis: Geography Year ended December 31, 2016 2015 24 EMEA North America South America Corporate Total 47 26 6 87 166 34 7 6 41 88 Per gender, 1 of our 8-member board of directors, or 13%, 1 of our 8-member senior management team, or 13%, and 66 of 166 employees, or 40% as of 31 December 2016 are women. As of 31 December 2015, there was 1 woman in our 8-member board, representing 13%, 1 woman in our 7-member senior management team, representing 14%, and 33 women among our 88 employees, representing 38% of the Group personnel. Below is the table of our senior management team: Name Position Year of birth Santiago Seage Chief Executive Officer Francisco Martinez-Davis Chief Financial Officer Manuel Silvan Emiliano Garcia Antonio Merino David Esteban Vice President Taxes, Risk Management and Compliance Vice President North America Vice President South America Vice President EMEA Irene M. Hernandez General Counsel Stevens C. Moore Vice President Corporate Strategy and Development 1969 1963 1973 1968 1967 1979 1980 1973 Our people We aim to develop the talents of our workforce. The executive team members hold regular meetings with employees around the countries in which we operate. Team and one-to one meetings are carried out recurrently and are complemented by formal processes to evaluate the performance of each employee. Atlantica Yield code of conduct Our Board of Directors has adopted a code of conduct for our employees, officers and directors to govern their relations with current and potential customers, fellow employees, competitors, government and self- regulatory agencies, the media, and anyone else with whom the Company has contact. The Code of Conduct encompasses the high standards of integrity we are committed to upholding. It is designed to assist everyone in Atlantica Yield in aligning our actions and decisions with our core values. Atlantica Yield´s Board of Directors monitors the code of conduct and any inquiries about our code of conduct is addressed to Atlantica Yield’s VP Risks & Compliance department. Our code of conduct is publicly available on our website at www.atlanticayield.com. Occupational Health and Safety Atlantica Yield and its management are committed to prioritize and actively promote the health and safety as a tool to protect the integrity and health of our employees, subcontractors and partners involved in our business activity. We promote deep capability and a safe operating culture across the Company and the Group and encourage a preventive culture in the operation and maintenance (“O&M”) activities of the subcontractors in our assets as reflected in our corporate health and safety policy. These efforts resulted in 25 the certification for Occupational Health and Safety (O0048SAS 18001) obtained in 2015 and successfully renewed in 2016. We actively monitor a broad range of occupational health and safety key performance indicators such as days without accidents, number of near-misses and drills, not only to closely track down this area but to encourage employees at our assets to continuously improve on this matter. Future Developments As previous described in this Consolidated Annual Report, we intend to grow our business primarily through the improvement of existing assets and the acquisition of contracted power generation assets, electric transmission lines and other infrastructure assets, which, we believe, along with the acquisitions carried out in the past will facilitate the growth of our cash available for distribution and enable us to increase our dividend per share over time. Research and Development The Group did not engage in any research and development activities during the reported period. Going Concern Basis The directors have, at the time of approving the Consolidated Financial Statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the Consolidated Financial Statements. The Group has a formalised process of budgeting, reporting and review, which provides information to the directors which is used to ensure the adequacy of resources available for the Group to meet its business objectives. As disclosed in Note 17 in our Consolidated Financial Statements, Tranche B of the Credit Facility is classified as current for $288.3 million as of 31 December 2016 as it matures in December 2017. As a result, current liabilities in the consolidated statement of financial position are higher than current assets. Subsequent to year-end, on 10 February 2017, the Company signed a Note Issuance Facility, a senior secured note facility with a group of funds managed by Westbourne Capital as purchasers of the notes issued thereunder for a total amount of €275 million (approximately $294 million), with three series of notes. Series 1 notes for €92 million mature in 2022, series 2 notes for €91.5 million mature in 2023, and series 3 notes for €91.5 million mature in 2024. Interest on all three series accrues at a rate per annum equal to the sum of EURIBOR plus 4.90%. The proceeds of the Note Issuance Facility will be used for the repayment of Tranche B under our Credit Facility, which will be terminated, as well as for general corporate expenses incurred as part of this transaction. As a result, maturities of the corporate debt have been extended beyond 2017. In addition, as of 31 December 2016, the project debt agreements for the projects Kaxu and Cadonal did not have what International Accounting Standards define as an unconditional right to defer the settlement of the debt for at least twelve months after that date, as the cross-default provisions make that right not totally unconditional, and therefore the debt has been presented as current in financial statements. Maturities according to the terms of the contracts are longer than twelve months and we do not expect the acceleration of debt to be declared by the credit entities. The Company’s business activities, together with the factors likely to affect its future development, performance and position are set out within this report. During the period, the Group generated $334.4 million from operating activities, invested $26.4 million and used $226.1 million in financing activities. All of these resulted in a $82.0 million increase on our cash position by the year end, with a closing cash position of $594.8 million. The directors believe that this is above the level of cash needed to operate the business for the foreseeable future and meet the Group’s liabilities as they fall due, as well as being used as a significant part of the cash required to make future acquisitions. 26 Approval This Strategic Report was approved by the board and signed on its behalf by Santiago Seage, Chief Executive Officer on 24th February, 2017. _________________________ Chief Executive Officer Santiago Seage 24th February, 2017 27 Directors’ Report The directors present their Consolidated Annual Report on the affairs of the Company and its subsidiaries, together with the Consolidated Financial Statements and Auditor’s Report, for the year ended 31 December 2016. Details of significant events since the balance sheet date are contained in note 26 to the Consolidated Financial Statements. An indication of likely future developments in the business of the Company is included in the Strategic Report. Information about the use of financial instruments by the Company is given in note 23 to the Consolidated Financial Statements. Dividends We expect to distribute a quarterly dividend to shareholders. Our board of directors may, by resolution, amend the cash dividend policy at any time. The determination of the amount of the cash dividends to be paid to holders of our shares will be made by our board of directors and will depend upon our financial condition, results of operations, cash flow, long-term prospects and any other matters that our board of directors deem relevant. On 8 May 2015, our board of directors approved a quarterly dividend corresponding to the first quarter of 2015 amounting to $0.34 per share, which was paid on 15 June 2015. On 29 July 2015, our board of directors approved a quarterly dividend corresponding to the second quarter of 2015 amounting to $0.40 per share, which was paid 15 September 2015. On 5 November 2015, our board of directors approved a quarterly dividend corresponding to the third quarter of 2015 amounting to $0.43 per share. The dividend was paid on 16 December 2015, and from that amount we retained $9 million from the dividend payable to Abengoa in accordance with the provisions of the parent support agreement. In February 2016, taking into consideration the uncertainties resulting from the situation of our sponsor, the board of directors decided to postpone the decision whether to declare a dividend in respect of the fourth quarter of 2015 until the second quarter of 2016. In May 2016, considering the uncertainties that remained in our sponsor's situation, our board of directors decided not to declare a dividend in respect of the fourth quarter of 2015 and to postpone the decision on whether to declare a dividend in respect of the first quarter 2016 until we had obtained greater clarity on cross default and change of ownership issues. In August 2016, based on the secured waivers and forbearances, our board of directors decided to declare a dividend of $0.145 per share for the first quarter of 2016 and a dividend of $0.145 per share for the second quarter of 2016, which were paid on 15 September 2016. From that amount, we retained $12.2 million of the dividend attributable to Abengoa. On 11 November 2016, our board of directors, based on waivers or forbearances obtained to that date, decided to declare a dividend of $0.163 per share, which was paid on 15 December 2016. From that amount, we retained $6.7 million of the dividend attributable to Abengoa. On 24th February, 2017, our board of directors approved a dividend of $0.25 per share which is expected to be paid on or about March 15th March, 2017 to shareholders of record on February 28th, 2017. We intend to distribute a significant portion of our cash available for distribution, less all cash expenses including corporate debt service and corporate general and administrative expenses and less reserves for the prudent conduct of our business (including for, among other things, dividend shortfalls as a result of fluctuations in our cash flows). Our cash available for distribution is likely to fluctuate from quarter to quarter, in some cases significantly, as a result of the seasonality of our assets, the terms of our financing arrangements and maintenance among other factors. Accordingly, during quarters in which our projects generate cash available for distribution in excess of the amount necessary for us to pay our stated quarterly dividend, we may reserve a portion of the excess to fund cash distributions in future quarters. In quarters in which we do not generate sufficient cash available for distribution to fund our stated quarterly cash dividend, if our board of directors so determines, we may use retained cash flow from other quarters, as well as other sources of cash to pay dividend to our shareholders. 28 Capital Structure Details of the authorised and issued share capital, together with details of the movements in the Company's issued share capital during the year are shown in note 21 to the Consolidated Financial Statements. The Company has one class of ordinary shares which carry no right to fixed income. Each share carries the right to one vote at general meetings of the Company. On 22 January 2015, Abengoa closed an underwritten public offering and sale in the United States of 10,580,000 of ordinary shares of the Company for total proceeds of $327,980,000 (or $31 per share). As a result of such offering, Abengoa reduced its stake in the Company from 64.3% to 51.1% of its shares. On 14 May 2015, Atlantica Yield issued 20,217,260 new shares at $33.14 per share, which was based on a 3% discount compared to prices on 7 May 2015. Abengoa subscribed for 51% of the newly-issued shares and maintained its previous stake in Atlantica Yield. On 14 July 2015, Abengoa sold 2,000,000 shares of Atlantica Yield under Rule 144, reducing its stake to 49.1%. On 5 March 2015, Abengoa sold an aggregate of $279 million of principal amount of exchangeable notes due 2017, or the Exchangeable Notes. The Exchangeable Notes are exchangeable, at the option of their holders, for ordinary shares of Atlantica Yield. As of 23 September 2016, the date of the most recent public information, according to publicly available information, Abengoa had delivered an aggregate of 7,595,639 shares of the Company to holders that exercised their option to exchange Exchangeable Notes. As a result, Abengoa holds 41.47% of our ordinary shares as of that date. In addition, as of 23 September 2016, there were 16,475.61 shares of the Company subject to delivery to holders of the Exchangeable Notes upon exchange of the outstanding Exchangeable Notes. There are no specific restrictions on the size of a holding nor on the transfer of shares, which are both governed by the general provisions of the Articles of Association and prevailing legislation. The directors are not aware of any agreements between holders of the Company's shares that may result in restrictions on the transfer of securities or on voting rights. The Company participates in no employee share schemes. No person has any special rights of control over the Company's share capital and all issued shares are fully paid. With regard to the appointment and replacement of directors, the Company is governed by its Articles of Association, the SEC listing rules, the UK Companies Act 2006 and related legislation. The Articles of Association themselves may be amended by special resolution of the shareholders. The powers of directors are described in the Main Board Terms of Reference, copies of which are available on request. Directors The directors, who served throughout the year since the date indicated, and to the date of this report, were as follows: (cid:2) Daniel Villalba Director and Chairman of the Board, independent Chairman of the Board: appointed 27 November 2015 Director, independent: appointed 13 June 2014 (cid:2) Santiago Seage Chief Executive Officer (cid:2) William B. Richardson (cid:2) Joaquin Fernandez de Pierola Director Director Appointed 27 November 2015 as Managing Director 1 Appointed 17 December 2013 Appointed 13 June 2014, resigned 11 November 2016 Appointed 11 November 2016 1 Santiago Seage was named Chief Executive Officer by the Shareholders’ Annual Meeting held on 11 May 2016. Prior to that, he served as the Managing Director. 29 (cid:2) María J. Esteruelas Director Appointed 13 June 2014 (cid:2) Eduardo Kausel (cid:2) Jack Robinson (cid:2) Enrique Alarcon (cid:2) Juan del Hoyo Director, independent Appointed 13 June 2014 Director, independent Appointed 13 June 2014 Director, independent Appointed 13 June 2014 Director, independent Appointed 13 June 2014 Our board of directors is responsible for, among other things, overseeing the conduct of our business; reviewing and, where appropriate, approving, our long-term strategic, financial and organizational goals and plans; and reviewing the performance of our Chief Executive Officer and other members of senior management. Under English law, the board of directors of an English corporation is responsible for the management, administration and representation of all matters concerning the relevant business, subject to the provisions of the relevant constitution, statutes and resolutions adopted at general shareholder’s meetings by a majority vote of the shareholders. Under English law, the board of directors may delegate its powers to an executive committee or other delegated committee or to one or more persons, unless the shareholders, through a meeting, have specifically delegated certain powers to the board of directors and have not approved the board of director’s delegation to others. Currently the board has three standing committees which are the Audit Committee, the Nominating and Corporate Governance Committee and Compensation Committee. The latter two committees replaced the previous Appointments and Remuneration Committee in February 2016. Each committee operates under a written charter that sets forth the purposes, goals and responsibilities of the committee as well as qualifications for committee membership. Committees report regularly to the full Board with respect to their activities. Directors’ indemnities The company has made qualifying third party indemnity provisions for the benefit of its directors which were made during the year and are in force at the date of this report. Political contributions No political donations were made during 2016 nor 2015. Substantial shareholdings Name Ordinary Shares Beneficially Owned Percentage 5% Beneficial Owners Abengoa Concessions Investments Limited(1) ................................................... Jennison Associates LLC(2) ............................................................................... Prudential Financial, Inc.(3)…………………………………………………………… ................... 41,557,663 7,597,607 41.47 % 7.58% 7,734,537 7.72% Appaloosa L.P.(4) ……………………………………………………………………………… ….. 5,820,326 5.81% __________________ Notes:— (1) This information is based solely on the Schedule 13D filed with the U.S. Securities and Exchange Commission on September 26, 2016 with by Abengoa, S.A., a corporation incorporated under the laws of Spain. The direct beneficial 30 owner of the shares is Abengoa Concessions Investments Limited. The registered address of Abengoa, S.A. is Campus Palmas Altas, C/ Energia Solar, 41014, Seville, Spain. (2) This information is based solely on the Schedule 13G filed with the U.S. Securities and Exchange Commission on February 2, 2017 by Jennison Associates LLC, or Jennison, a Delaware limited liability company. Prudential Financial, Inc. indirectly owns 100% of equity interests of Jennison. As a result, Prudential Financial, Inc. may be deemed to have the power to exercise or to direct the exercise of such voting and/or dispositive power that Jennison may have with respect to the ordinary shares held in portfolios for which it furnishes investment advice. Jennison does not file jointly with Prudential, as such, ordinary shares reported on Jennison’s Schedule 13G may be included in the shares reported on the Schedule 13G filed by Prudential Financial, Inc. The address of Jennison is 466 Lexington Avenue, New York, New York 10017. (3) This information is based solely on the Schedule 13G filed with the U.S. Securities and Exchange Commission on January 30, 2017 by Prudential Financial, Inc., or Prudential, a New Jersey corporation. The shares beneficially owned by Prudential represent (i) 7,597,607 shares beneficially owned by Jennison Associates LLC and (ii) 136,930 shares beneficially owned by Quantitative Management Associates LLC. Prudential is a parent holding company and the indirect parent of Jennison Associates LLC and Quantitative Management Associates LLC. The address of Prudential is 751 Broad Street, Newark, New Jersey 07102-3777. (4) This information is based solely on the Schedule 13G filed on February 14, 2017 by Appaloosa L.P., or ALP, a Delaware limited partnership, Appaloosa Investment Limited Partnership I, or AILP, a Delaware limited partnership, Palomino Master Ltd., a British Virgin Islands company, or Palomino Master, Appaloosa Management L.P., or AMLP, a Delaware limited partnership, Appaloosa Partners Inc., a Delaware corporation, or API, and David A. Tepper, or Mr. Tepper. ALP serves as investment adviser to AILP and Palomino Master and may be deemed to beneficially own 5,820,326 ordinary shares. AILP may be deemed to beneficially own 2,513,197 shares (inclusive of the shares beneficially owned by ALP). Palomino Master may be deemed to beneficially own 3,307,129 shares (inclusive of the shares beneficially owned by ALP). AMLP is the general partner of AILP and may be deemed to beneficially own 2,513,197 shares. API is the general partner of, and Mr. Tepper owns a majority of the limited partnership interest in, AMLP. API may be deemed to beneficially own 2,513,197 shares. Mr. Tepper is the sole stockholder and president of API and the controlling stockholder and president of Appaloosa Capital, Inc., or ACI, and may be deemed to beneficially own 5,820,326 shares. ACI is the general partner of, and Mr. Tepper owns a majority of the limited partnership interests in, ALP. The business address of ALP is 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078. The business address of each of AILP and Palomino Master is c/o Appaloosa LP, 51 John F. Kennedy Parkway, Short Hills, New Jersey 07078. The business address of AMLP is Appaloosa Management L.P., 404 Washington Avenue, Suite 810, Miami, Florida 33139. The business address of each of API and Mr. Tepper is c/o Appaloosa Management L.P., 404 Washington Avenue, Suite 810, Miami, Florida 33139. Auditors Each person who is a director at the date of approval of this Consolidated Annual Report confirms that: (cid:2) so far as the director is aware, there is no relevant audit information of which the company's auditors are unaware; and (cid:2) the director has taken all the steps that he/she ought to have taken as a director in order to make himself/herself aware of any relevant audit information and to establish that the company's auditors are aware of that information. This confirmation is given and should be interpreted in accordance with the provisions of Section 418 of the Companies Act 2006. Deloitte S.L. and Deloitte LLP have been our principal accountants providing the audit services to the Company during 2016. The Audit Committee preselected the Big 4 companies to participate in the audit tender of Atlantica Yield and its consolidated group for 2017, 2018 and 2019. The preselected audit firm will be proposed in the forthcoming Annual General Meeting. Events after the balance sheet date In February 2017, we signed a letter of intent for the acquisition of a 12.5% interest in a 114-mile transmission line in the U.S, from Abengoa. The asset will receive a FERC regulated rate of return, and is currently under development, with COD expected in 2020. We expect our total investment to be up to $10 million in the coming three years including an initial amount invested at cost. We would also gain certain rights to acquire an additional 12.5% interest in the same project. 31 Additionally, on February 10, 2017, we signed a Note Issuance Facility, a senior secured note facility with U.S. Bank as agent and a group of funds managed by Westbourne Capital as purchasers of the notes issued thereunder for a total amount of €275 million (approximately $294 million), with three series of notes. Series 1 notes for €92 million mature in 2022; series 2 notes for €91.5 million mature in 2023; and series 3 notes for €91.5 million mature in 2024. Interest on all three series accrues at a rate per annum equal to the sum of EURIBOR plus 4.90%. The proceeds of the Note Issuance Facility will be used for the repayment and subsequent termination of Tranche B under our Credit Facility. We intend to fully hedge the Note Issuance Facility with a swap to fix the interest rate as soon as possible after funding of the notes. On 24th February, 2017, our board of directors approved a dividend of $0.25 per share which is expected to be paid on or about 15th March, 2017 to shareholders of record on 28th February, 2017. 32 This report was approved by the board of directors on 24th February, 2017 and signed on its behalf by Santiago Seage, Chief Executive Officer. _________________________ Chief Executive Officer Santiago Seage 24th February, 2017 33 Director’s Remuneration Report Introduction This report is on the remuneration of the directors of Atlantica Yield for the period to 31 December 2016. It sets out the remuneration policy and remuneration details for the executive and non-executive directors of the company. It has been prepared in accordance with Schedule 8 of The Large and Medium-sized Companies and Groups (Accounts and Reports) Regulations 2008 as amended in August 2013. The report is split into three main areas: (cid:2) (cid:2) (cid:2) the statement by the chair of the remuneration committee; the annual report on remuneration; and the policy report. The Companies Act 2006 requires the auditors to report to the shareholders on certain parts of the Directors’ Remuneration Report and to state whether, in their opinion, those parts of the report have been properly prepared in accordance with the Regulations. The parts of the Annual Report on remuneration that are subject to audit are indicated in that report. The statement by the chair of the remuneration committee and the policy report are not subject to audit. At the commencement of 2016, Atlantica Yield had an Appointments and Remunerations Committee. Then in February 2016, the board approved the creation of two separate committees instead. One of them, named the Nominating and Corporate Governance Committee, focuses on nominations and appointments and the other, named the Compensation Committee, focuses on remunerations. Statement by the Chair of the Compensation Committee I am pleased to present the remuneration report for 2016. The constant and transparent dialogue with shareholders and investors is a vital element in our way of operating and, through this remuneration report, we aim to increase the awareness of our shareholders of the principles of our remuneration policy, The Company´s remuneration policy is set in accordance with the applicable law and in accordance with the Corporate Governance Code, with the aim of attracting and retaining highly skilled professional and managerial resources and aligning the interests of management with the priority objective of value creation for the Company and the members of the Company as whole in the medium to long term. During 2016, the Committee supported the Board of Directors in achieving a far-reaching review of the Company’s remuneration policy, with particular reference to management´s remuneration. This activity was guided by the priority objective of reinforcing further the link between remuneration and performance which would be sustainable over time, consistent with the strategic plan approved by the Board of Directors in 2016. During 2016, the Compensation Committee convened three times and among the activities conducted by the Compensation Committee, it addressed three key objectives: (cid:3) Periodically reviewing the fixed and variable remuneration for the Chief Executive Officer; (cid:3) Periodically reviewing the remuneration policy and overall levels of remuneration for the management team, including the Chief Executive Officer, in accordance with the following criteria: o (cid:2)seeking and alignment between incentives, business performance and creation of value for shareholders; o consistency with the principles of the Corporate Governance Code; and o retention in the medium to long term of high quality resources for the achievement of ambitious targets and to face the challenges that the Company will have to face in the current and future market context. 34 (cid:3) Periodically reviewing the remuneration levels of independent non-executive directors; (cid:3) Amendment of the Committee’s terms of reference following the implementation of the changes to the structure of the committees approved by the Board of Directors on February 2016. During the year 2016, the objectives defined for the Chief Executive Officer's variable bonus were met and the Compensation Committee decided to approve a bonus corresponding to 100% of the potential variable compensation, which will be payable in 2017. 2015 was the first year when our Chief Executive Officer was employed by the Company. He did not receive any bonus payments for 2015. It is proposed to make a change to the remuneration policy as explained below. Consequently, the new policy will be submitted to shareholders for approval at the 2017 annual general meeting. The change to the policy relates to certain termination payments to key executives, including the Chief Executive Officer. In order to protect the Company's know-how and to ensure continuity in terms of attainment of business objectives, under the new policy, the Company may agree with certain executives with strategic and key responsibilities in the Company (“Key Managers”), including the Chief Executive Officer, to make payments for loss of office or employment in addition to the severance payment under the prevailing labour and legal conditions in their contracts or countries where they are employed if they should leave (by loss of office or employment) the Company within 2 years of a change in control. The payment will represent six months of remuneration and will be adjusted to ensure that total payment including severance payment required under prevailing laws represent at least 12 months of remuneration (including salary, benefits, long term incentive plans and variable pay), but never more than 24 months of remuneration, unless required by local law. A change of control means that a third party or coordinated parties (i) acquire directly or indirectly by any means a number of shares in the Company which (together with the shares that such party may already hold in the Company) amount to more than 50% of the share capital of the Company; or (ii) appoint or have the right to appoint at least half of the members of the Board of Directors of the Company. No payments will be made to Key Managers for dismissal for breach of contract, breach of fiduciary duties or gross misconduct, determined (in the event of a dispute) by a court of competent jurisdiction to reach a final determination. No other changes are to be made to the remuneration policy. Annual Report on Remuneration Single total figure of remuneration for each director The information provided in this part of the report is subject to audit. Atlantica Yield paid remuneration only to independent non-executive directors and executive directors. Each independent non-executive director received a total annual compensation of $100 thousand (approximately €90.4 thousand). As the chairman of the board of directors, Mr. Villalba received $135 thousand (approximately €122.0 thousand) per year. Appointees of Abengoa did not receive any compensation from us. The total compensation received by our independent non-executive directors and the Chief Executive Officer/Managing Director from us during 2016 and 2015 is set forth in the table below. 35 Name Santiago Seage Daniel Villalba Jackson Robinson Enrique Alarcon Eduardo Kausel Juan del Hoyo Total Name Santiago Seage Javier Garoz * Daniel Villalba Jackson Robinson Enrique Alarcon Eduardo Kausel Juan del Hoyo Total Director’s remuneration as a single figure (2016) Salary and fees €´000 All taxable benefits €´000 Annual bonuses €´000 LTIP €´000 505.0 122.0 90.4 90.4 90.4 90.4 988.6 0.1 - - - - - 0.1 850.0 - - - - - 850.0 Director’s remuneration as a single figure (2015) Salary and fees €´000 All taxable benefits €´000 Annual bonuses €´000 LTIP €´000 151.3 1,289.6 121.8 90.2 90.2 90.2 90.2 1,923.5 0.1 0.1 - - - - - 0.2 - - - - - - - - Pension €´000 Total for 2016 €´000 Pension €´000 - - - - - - - - - - - - - - - 1,355.1 122.0 90.4 90.4 90.4 90.4 1,838.7 Total for 2015 €´000 151.4 1,289.7 121.8 90.2 90.2 90.2 90.2 1,923.6 - - - - - - - - - - - - - - - * Includes a €1,189.5 thousand termination payment received after leaving the Company on 25 November 2015 as per his employment contract. Each member of our board of directors will be indemnified for his actions associated with being a director to the extent permitted by law. During the year 2016, the objectives defined for the Chief Executive Officer's variable bonus were met and the Compensation Committee decided to approve a bonus corresponding to 100% of the potential variable compensation, which will be payable in 2017. 2015 was the first year when our Chief Executive Officer was employed by the Company. He did not receive any bonus payments for 2015. Remuneration of the Chief Executive Officer The information provided in this part of the report is not subject to audit. The table enclosed within the “Single total figure of remuneration for each director” sets out the details for Mr. Seage who serves in the role of the Chief Executive Officer. Mr. Garoz held the position of the Chief Executive Officer between May and November 2015, when he left the Company. Mr. Seage served as a director since our formation in 2014 and was the Chairman from June until November 2015. Mr. Seage also served as our Chief Executive Officer from our formation until he was appointed the Chief Executive Officer of Abengoa in May 2015, a capacity, in which he served until 27 November 2015, when he was appointed as our Managing Director. In May 2016, he was appointed as the Chief Executive Officer again after the approval by the shareholders at the Annual General Meeting. 2015 was the first year when Mr. Seage was employed by the Company. He did not receive or accrue any bonus payments for 2015. In 2016, he accrued €850 thousand as a bonus payment in accordance with his services agreement, payable in 2017. 36 Total Shareholder Return and Chief Executive Officer Pay The chart below shows the Company’s total shareholder return since June 2014, the date of our Initial Public Offering (“IPO”), until the end of 2016 compared with the total shareholder return of the companies in the Russell 2000 Index. The chart represents the progression of the return, including investment, starting from the time of the IPO at a 100%-point. In addition, dividends are not assumed to have been re-invested. We believe the Russell 2000 Index is an adequate benchmark as it represents a broad range of companies of similar size. 37 TSR is calculated in US dollars. 100% 104.7% 100.2% 95.1% 116.8% Russell 2000 ABY 72.3% 74.1% 2014* 2015* 2016* (cid:2) Period since the IPO (June 2014) until 31 December 2014, 2015 and 2016 The table below shows the 2016 and 2015 total remuneration of the Chief Executive Officer and his bonuses and LTIP grants expressed as a percentage of the maximum he is likely to be awarded. Year Total Pay (€ 000) 2016 2015 1,355.1 1,440.9* Bonus LTIP awards Percentage of maximum 100% - Amount of bonus 850 - Percentage of maximum - - Value - - * Includes a €1,189.5 thousand termination payment received by Mr. Garoz after leaving the Company on 25 November 2015. As previously stated, Mr. Seage occupied the office between January and May 2015, and again since late November 2015. Meanwhile, Mr. Garoz held that position from May to November 2015, when he left the Company. The Chief Executive Officer did not receive any variable remuneration for services provided to the Company for the year ended 31 December 2015. In 2016, the Company accrued €850 thousand of the bonus payable to the Chief Executive Officer in 2017, in accordance with his services agreement. During the year 2016, the objectives defined for the Chief Executive Officer's variable bonus were met and the Compensation Committee decided to approve a bonus corresponding to 100% of the potential variable compensation, which will be payable in 2017, since all objectives have been met: (cid:2) CAFD (cash available for distribution) (cid:2) Ebitda (cid:2) Implementing a risk management plan (cid:2) Obtaining waiver/forbearance for Solana and Mojave (cid:2) Implement new processes and systems on time 1. Chief Executive Officer Pay vs. Employee Pay Percentage weight (50%) (10%) (10%) (10%) (20%) The table below sets out the percentage change between the year 2015 and 2016 in salary, benefits and bonus (determined on the same basis as for the Single Total Figure table) for the Chief Executive Officer/Managing Director and the average per capita change for employees of the Group as a whole. 38 As of 31 December 2015, we had 88 employees. During the year 2016, in addition to new hires, we completed the transfer of the staff previously employed by Abengoa’s subsidiaries to our payroll as part of our separation efforts from Abengoa. As of December 2016, we had 166 employees. Element of remuneration Salary Benefits Bonus Percentage change for Chief Executive Officer (64.9%)* 0% n/a Percentage change for employees 37.1%** n/a n/a * The salary in 2015 includes the termination payment received by Mr. Garoz after leaving the Company on 25 November 2015. ** The average number of employees was 76 in 2015 and 140 in 2016. 2. Relative Importance of Spend on Pay The following table sets out the change in overall employee costs, directors’ compensation and dividends. € in million Spend on pay for all employees of the group Total remuneration of directors Dividends paid (*) (*) Dividend paid does not include amounts retained to Abengoa. Amount in 2016 13.3 1.9 24.04* Amount in 2015 5.2 1.9 116.1* Difference 8.0 - (89.5) The Group’s personnel headcount increased from 88 employees as of 31 December 2015 to 166 employees as of 31 December 2016. Directors’ shareholdings The following table includes information with respect to beneficial ownership of our ordinary shares as of the date of this Consolidated Annual Report by each of our directors and executive officers as well as their connected persons. Those not included in the table do not hold shares. Santiago Seage Daniel Villalba Jackson Robinson Shares 31st December 2016 Shares 31st December 2015 20,000 60,000 5,412 20,000 60,000 5,281 There have been no changes in the holdings of the directors between the year end and the date of issuance of this report. Directors do not hold share options or awards and there are no share ownership requirements applicable to directors. 3. Termination Payments Mr. Garoz was paid, in accordance with his employment contract, a cash termination payment of €1,189,500, when he left the Company on 25 November 2015. It is proposed to make a change to the remuneration policy regarding certain termination payments to key executives, including the Chief Executive Officer. Consequently, the new policy will be submitted to shareholders for approval at the 2017 annual general meeting. 39 In order to protect the Company's know-how and to ensure continuity in terms of attainment of business objectives, under the new policy, the Company may agree with certain executives with strategic and key responsibilities in the Company (“Key Managers”), including the Chief Executive Officer, to make payments for loss of office or employment in addition to the severance payment under the prevailing labour and legal conditions in their contracts or countries where they are employed if they should leave (by loss of office or employment) the Company within 2 years of a change in control. The payment will represent six months of remuneration and will be adjusted to ensure that total payment including severance payment required under prevailing laws represent at least 12 months of remuneration (including salary, benefits, long term incentive plans and variable pay), but never more than 24 months of remuneration, unless required by local law. A change of control means that a third party or coordinated parties (i) acquire directly or indirectly by any means a number of shares in the Company which (together with the shares that such party may already hold in the Company) amount to more than 50% of the share capital of the Company; or (ii) appoint or have the right to appoint at least half of the members of the Board of Directors of the Company. No payments will be made to Key Managers for dismissal for breach of contract, breach of fiduciary duties or gross misconduct, determined (in the event of a dispute) by a court of competent jurisdiction to reach a final determination. 4. Statement of Implementation of Policy in 2016 This section of the Remuneration Report provides a description of the remuneration policies implemented in 2015, The targets for bonuses and LTIPs are detailed under the section “The 2016 Remuneration Policy” of this report. We expect to obtain approval for this remuneration policy at 2017 Annual Shareholders Meeting. 5. Compensation Committee The Compensation Committee, which until February 2016 was named the “Appointment and Remuneration Committee’, was established for the first time by the Board of Directors in 2014. Committee membership and appointments, its tasks and its operating procedures are regulated by a specific term of references, which was approved by the Board of Directors and published on the Company website. Since February 2016, the Compensation Committee is composed of independent and non-executive directors: Jackson Robinson, Daniel Villalba, Eduardo Kausel and Juan del Hoyo. The Committee meets as often as necessary to perform its duties. In 2016, the Committee convened on a total of three (3) times with a member attendance of 100%. The Committee focused its activities on the following key remuneration topics: (i) periodically reviewing the remuneration policy implemented in 2016, (ii) reviewing the Company’s 2015 results, defining 2016 performance targets in connection with the variable remuneration; (iii) amendment of the Committee’s terms of reference following the implementation of the changes to the structure of the committees of the board of directors; and (iii) assessing proposals for initiatives to retain managerial figures. The Company has used the services of external advisors to determine appropriate compensation levels according to market practices and data, however the committee did not use the services of any advisors. 40 6. Voting at the 2016 Annual General Meeting The Company takes an active interest in voting outcomes. In the event of a substantial vote against a resolution in relation to director´s remuneration, the Company would seek to understand the reasons for any such vote and would set out in the following Annual Report any actions in response to it. At the 2016 Annual General Meeting, votes in relation to the directors’ remuneration policy and the remuneration report were as follows: Remuneration Policy Remuneration Report (cid:2) Votes for (cid:2) Votes against (cid:2) Votes withheld 76,317,399 (97.3%) 149,090 (0.2%) 1,956,413(2.5%) 76,305,144 (97.3%) 2,110,545 (2.7%) 7,213 (0.0%) The 2017 Remuneration Policy The current policy was approved at our 2016 Annual General Meeting, held in May 2016. If this remuneration policy is approved at 2017 Annual General Meeting, the remuneration policy will take effect from the date of our Annual General Meeting, currently expected to be held in June 2017. For independent non-executive directors, the Company’s policy is to compensate in cash for the time dedicated, subject to a maximum total annual compensation for non-executive directors in aggregate of two million dollars. Once a year, the Compensation Committee reviews compensation practices for independent non-executive directors in similar companies and the skills and experience required and may propose an adjustment in the current compensation. For other non-executive directors, the policy is not to compensate for the time dedicated. The Chief Executive Officer is currently the only executive director. The policy for the executive directors is as follows: Name of component Description of component Salary/fees Benefits Annual bonus remuneration payable Fixed monthly for Opportunity to join existing but plans without in any remuneration employees increase is bonus the end of paid Annual following the financial year for performance over the year. There are no forfeiture or retention provisions How does this component support the company’s (or group’s) short and long term objectives? What is the maximum that may be paid in respect of the component? Framework used to assess performance Helps to recruit and retain executive directors and forms the basis of a competitive remuneration package Maximum amount €700 thousand, maybe increased by 5% per year Salary levels for peers are considered Not applicable No retention or clawback Helps to offer a competitive remuneration and align company’s objectives it with package 200% of base salary 50% of CAFD 10% of EBITDA 40% of other operational or qualitative objectives No retention or clawback Long Term Incentive Awards LTIP is paid in early 2019 if the company achieves its total shareholder return targets Aligns pay with longer term returns to shareholders 3-year plan representing a maximum of 70% of salary and annual bonus for the 2016- 2018 period 50% Shareholder’s Return (TSR) Total Annual of 50% of TSR versus peers No retention or clawback Committee discretions The committee has discretion, consistent with market practice, in respect of, but not limited to participants, timing of payments, size of the award subject to policy, performance measures and when dealing with special situations, such as change of control or restructuring. 41 The annual bonus is a variable cash bonus, based on the objectives described above. Those objectives include Cash Available for Distribution (CAFD), with a 50% weight for executive directors, and EBITDA, as these are key financial metrics for our industry sector. Additionally, the annual bonus includes 2-3 objectives that reflect some of the key projects, initiatives or key objectives. For the management team and key personnel, our policy is to use two external consultants to estimate market conditions for similar positions in terms of fixed and variable remuneration and, based on a performance appraisal, set a target remuneration, as a general rule, within that market practice. Variable payments are based on a number of specific measurable targets in relation to the measures described herein, which are defined by the remuneration committee at the beginning of the year. For the rest of its employees, the Company establishes predefined remuneration ranges for different positions and reviews each individual remuneration depending on performance appraisal and within two ranges without employee consultation. The Company has a Long-Term Incentive Plan for the period 2016-2019 for the executive team approved at the 2016 Annual General Meeting. The plan includes: (cid:2) Approximately 10 executives, including the Chief Executive Officer (cid:2) Each executive is entitled to the payment of a LTIP cash bonus payable in March 2019 if the Company achieved its Total Annual Shareholders’ Return (TSR) objectives in the 2016-2019 period. The committee and the board have considered this metric as the best measure to align management and shareholders’ interests (cid:2) An annual bonus is capped at a 50% (a 70% for the Chief Executive Officer) of the total remuneration received by an executive in the 2016-2018 period (cid:2) 50% of the LTIP bonus will be based on the Company’s TSR and the other 50% on the relative performance in terms of TSR versus other yieldcos selected by the committee (cid:2) In case of change of control, the LTIP becomes due and is calculated based on the offer price or the last price applied in the TSR, up to and including the change of control (cid:2) In case of retirement, termination without cause, permanent disability or death, the LTIP is to be pro- rated for the period until that event and paid out at the end of the plan period once the TSR for the period is known. If an executive leaves the company for other reasons there would be no compensation. Executive directors do not receive any pension contributions. None of the non-executive directors receive bonuses, long-term incentive awards, pension or other benefits in respect of their services to the Company. There are no provisions for the recovery of sums paid or the withholding of any sum. Total remuneration of the only executive director for a minimum, target and maximum performance in 2017 is presented in the chart below. 42 Chief Ex xecutive Off ficer remune eration poli icy The Com Officer fo mpensation C or 2017 from Committee a m €550 thous approved an sand to €600 increase of thousand. f the fixed r remuneration n of the Chi e ief Executive Thous sand euros. 201 17 €1,025 41% 59% €6 600 10 00% €1 ,450 59% 41% Min nimum Target Ma aximum Salary and be enefits Ann nual bonus Assumpti ions made fo or each scena ario are as fo ollows: (cid:2) Minim (cid:2) Targe (cid:2) Maxim mum: fixed et: fixed mum: fixed d remuneratio d remuneratio d remuneratio on only on plus half o on plus maxi of maximum mum annual l bonus m annual bonu us as it would n not be paid u until 2019 and d is subject t to targets. bjectives are e the followin ng: LTIP is n not included For 2017 7 the bonus o CAFD D Ebitda a Techn nical improve ement plan Waive er for last ass sets Launc ch new health h and safety plan Imple ement improv vement plan on key proce esses and sys stems Perce entage weigh ht (50%) (10%) (15%) (5%) (10%) (10%) 3 43 Approach to recruitment As previously stated within this report, the recruitment of managers is largely based on the estimates of two external consultants of the market conditions for similar positions, in terms of fixed and variable remuneration. In addition, the remuneration policy reflects the composition of the remuneration package for the appointment of new executive directors. We expect to offer a competitive fixed remuneration, an annual bonus not exceeding 200% of the fixed remuneration and a participation in our LTIP plan. Lastly, whenever needed, the Company can contract a top-tier external advisor to hire key personnel. As stated in the “Single total figure of remuneration for each director”, each independent director receives a total annual compensation of $100 thousand. As a chairman of the board of directors and a chairman of our audit committee, Mr. Villalba receives an additional $35 thousand per year. Directors representing Abengoa do not receive any compensation from us. The stated above remuneration will be offered in recruitment of independent directors. Policy on payments for loss of office It is proposed to make a change to the remuneration policy in respect of the policy for loss of office as explained below. Consequently, the new policy will be submitted to shareholders for approval at the 2017 Annual General Meeting. The change to the policy relates to certain termination payments to key executives, including the Chief Executive Officer. In order to protect the Company's know-how and to ensure continuity in terms of attainment of business objectives, under the new policy, the Company may agree with certain executives with strategic and key responsibilities in the Company (“Key Managers”), including the Chief Executive Officer, to make payments for loss of office or employment in addition to the severance payment under the prevailing labour and legal conditions in their contracts or countries where they are employed if they should leave (by loss of office or employment) the Company within 2 years of a change in control. The payment will represent six months of remuneration and will be adjusted to ensure that total payment including severance payment required under prevailing laws represent at least 12 months of remuneration (including salary, benefits, long term incentive plans and variable pay), but never more than 24 months of remuneration, unless required by local law. A change of control means that a third party or coordinated parties (i) acquire directly or indirectly by any means a number of shares in the Company which (together with the shares that such party may already hold in the Company) amount to more than 50% of the share capital of the Company; or (ii) appoint or have the right to appoint at least half of the members of the Board of Directors of the Company. No payments will be made to Key Managers for dismissal for breach of contract, breach of fiduciary duties or gross misconduct, determined (in the event of a dispute) by a court of competent jurisdiction to reach a final determination. Consideration of employee conditions elsewhere For the management team and key personnel, our policy is to use two external consultants to estimate market conditions for roles of a similar level of managerial responsibilities and complexity in terms of fixed and variable remuneration and, based on a performance appraisal, set a target remuneration, as a general rule, within that market practice. The annual variable remuneration payment is calculated with reference to the achievement of a number of specific measurable targets defined at the previous year. Each specific target is measured on a performance scale of 0%-120%. 44 For the rest of its employees, the Company establishes predefined remuneration ranges for different positions and reviews each individual remuneration depending on performance appraisal within two ranges without employee consultation. The remuneration of all employees, including the members of the management team, may be adjusted periodically in the framework of the annual salary review process which is carried out for all employees. Overall we expect that, following the implementation of our policies, remunerations of the Company’s employees will increase in line with the market with the exception of individuals that have been recently promoted or whose remuneration is above market conditions. Statement of consideration of shareholder views There are no comments in respect of directors’ remuneration expressed to the Company by shareholders. The next Annual Shareholders’ Meeting is expected to be held in June 2017. Summary of Policy for Non-Executive Directors Name of component How does the component support the company’s objective? Operation Maximum Independent Non-Executive Directors: Fees Attract and retain the high-performing independent non-executive directors Reviewed annually by the committee and board The lead independent director/chairman receive additional fees total Annual - executive directors, in any case, will not exceed two million dollars compensation for Benefits Other Non-Executive Directors: Fees Benefits travel expenses the Reasonable Company’s registered office or venues for meetings to Customary control procedures Real costs of travel with a maximum of one million dollars for all directors Attract and retain the high-performing non-executive directors Directors appointed by shareholders receive no fees prescribed maximum No increase annual travel expenses Reasonable the Company’s registered office or venues for meetings to Customary control procedures Real costs of travel 45 Service Contracts Mr. Seage has a services contract with Atlantica Yield that includes a 6-month notice period. The non-executive directors do not have a service contract and have been elected for a period of three years starting June 2014. It is proposed to make a change to the remuneration policy regarding certain termination payments to key executives, including the Chief Executive Officer, as described in this remuneration policy. Consequently, the new policy will be submitted to shareholders for approval at the 2017 annual general meeting. In accordance with the changes proposed and in respect of the executives, the Company may agree with the executives to make payments for loss of office or employment in addition to the severance payment under the prevailing labour and legal conditions in theirs contract or countries where they may be employed if they should leave (by loss of office or employment) the Company within 2 years of a change in control. The payment will represent six months of remuneration and will be adjusted to ensure that total payment including severance payment required under prevailing laws represent at least 12 months of remuneration (including salary, benefits, long term incentive plans and variable pay), but never more than 24 months of remuneration, unless required by local law. A change of control means that a third party or coordinated parties (i) acquire directly or indirectly by any means a number of shares in the Company which (together with the shares that such party may already hold in the Company) amount to more than 50% of the share capital of the Company; or (ii) appoint or have the right to appoint at least half of the members of the Board of Directors of the Company. No payments will be made for dismissal for breach of contract, breach of fiduciary duties or gross misconduct, determined (in the event of a dispute) by a court of competent jurisdiction to reach a final determination. In respect of the Chief Financial Officer and in accordance with his services agreement, he is entitled to a 12-month, or period established by the labour law, compensation if he leaves the Company, voluntarily or otherwise, after a change of control. The Company may lawfully terminate the executive director’s employment without compensation in circumstances where the employer is entitled to be terminated for cause, as defined by applicable law. In the event of the termination by the Company, each executive director may have an entitlement to compensation in respect of his statutory rights under the employment protection legislation in the UK, Spain or elsewhere. Employee Benefit Trusts Our policy is not to use any employee trust for share plans. Key Management Compensation for 2016 € in thousands (cid:2) Short-term employee benefits (cid:2) Post-employment benefits (cid:2) Other long-term benefits (cid:2) Termination benefits (cid:2) Share-based payment (cid:2) Total 2016 3,439.8 2015 2,851.9 3,439.8 2,851.9 Key management includes Directors, Chief Executive Officer, CFO and 6 key executives Statement of Voting at General Meetings The remuneration report and the remuneration policy will be submitted to the Annual Shareholders’ Meeting in 2017. 46 Approval This report was approved by the board of directors on 24th February, 2017 and signed on its behalf by Santiago Seage, Chief Executive Officer. _________________________ Chief Executive Officer Santiago Seage 24th February, 2017 47 Directors’ Responsibilities Statement The directors are responsible for preparing the Consolidated Annual Report and the Financial Statements in accordance with applicable law and regulations. Company law requires the directors to prepare financial statements for each financial year. Under that law the directors are required to prepare the group financial statements in accordance with International Financial Reporting Standards (IFRSs) as adopted by the International Accounting Standards Board (IASB) and Article 4 of the IAS Regulation and have elected to prepare the parent company financial statements in accordance with Financial Reporting Standard 101 Reduced Disclosure Framework. Under company law the directors must not approve the accounts unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the company for that period. In preparing the parent company financial statements, the directors are required to: (cid:2) select suitable accounting policies and then apply them consistently; (cid:2) make judgments and accounting estimates that are reasonable and prudent; (cid:2) state whether Financial Reporting Standard 101 Reduced Disclosure Framework has been followed, subject to any material departures disclosed and explained in the financial statements; prepare the financial statements on the going concern basis unless it is inappropriate to presume that the company will continue in business. In preparing the group financial statements, International Accounting Standard 1 requires that directors: (cid:2) (cid:2) o properly select and apply accounting policies; o present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable information; o provide additional disclosures when compliance with the specific requirements in IFRSs are insufficient to enable users to understand the impact of particular transactions, other events and conditions on the entity's financial position and financial performance; and o make an assessment of the company's ability to continue as a going concern. The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the company’s transactions and disclose with reasonable accuracy at any time the financial position of the company and enable them to ensure that the financial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. Responsibility statement The directors are responsible for the maintenance and integrity of the corporate and financial information included on the company’s website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. We confirm that to the best of our knowledge: The Consolidated Financial Statements, prepared in accordance with the relevant financial reporting framework, give a true and fair view of the assets, liabilities, financial position and profit or loss of the company and the undertakings included in the consolidation taken as a whole; The Strategic Report includes a fair review of the development and performance of the business and the position of the company and the undertakings included in the consolidation taken as a whole, together with a description of the principal risks and uncertainties that they face; and The Consolidated Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the company’s performance, business model and strategy. 48 This responsibility statement was approved by the board of directors on 24th February, 2017 and is signed on its behalf by: By order of the Board _________________________ _________________________ Chief Executive Officer Santiago Seage 24th February, 2017 ___________________________ ___________________________ Chief Financial Officer Francisco Martinez-Davis 24th February, 2017 49 50 51 Consolidated Income Statement Amounts in thousands of U.S. dollars Note (1) For the year ended December 31, Revenue Other operating income Raw materials and consumables used Employee benefit expenses Depreciation, amortization, and impairment charges Other operating expenses Operating profit Finance income Finance expenses Net exchange gains/(losses) Net other finance (expenses)/income Net finance costs Share of profit/(loss) of associates carried under the equity method Profit/ (Loss) before income tax Income tax Profit/ (Loss) for the year Profit attributable to non-controlling interests Profit/ (Loss) for the year attributable to owners of the Company Weighted average number of ordinary shares outstanding (thousands) Basic and diluted earnings per share (U.S. dollar per share) (*) 4 9 8 13 10 10 10 14 11 30 30 2016 971,797 65,538 (26,919) (14,736) (332,925) (260,318) 2015 790,881 68,857 (23,243) (5,848) (261,301) (224,828) 402,437 344,518 3,298 (408,007) (9,546) 8,505 3,464 (333,921) 3,852 (200,153) (405,750) (526,758) 6,646 3,333 (1,666) 1,667 (6,522) (4,855) 7,844 (174,396) (23,790) (198,186) (10,819) (209,005) 100,217 92,795 (0.05) (2.25) (*) Earnings per share has been calculated for the period subsequent to the initial public offering, considering Net profit/(loss) attributable to equity holders of Atlantica Yield plc. generated after the initial public offering divided by the number of shares outstanding. (1) Notes 1 to 31 are an integral part of the consolidated financial statements All results are derived from continuing operations. 52 Consolidated Statement of other comprehensive income Amounts in thousands of U.S. dollars Year ended 2016 Year ended 2015 Profit / (Loss) for the year 1,667 (198,186) Items that may be reclassified subsequently to profit or loss: Gains / (losses) arising during the year Less: reclassification adjustments for gains / (losses) transferred to profit or loss (37,480) 72,774 56 55,841 Exchange differences on translation of foreign operations (22,150) (91,405) Income tax relating to items that may be reclassified subsequently to profit or loss (5,639) (12,010) Other comprehensive income/(loss) for the year net of tax 7,505 (47,518) Total comprehensive income/(loss) for the year 9,172 (245,704) Total comprehensive income/ (loss) attributable to: Owners of the Company Non-controlling interests (457) 9,629 (249,254) 3,550 53 Consolidated Balance Sheet Amounts in thousands of U.S. dollars Assets Non-current assets Contracted concessional assets Investments carried under the equity method Financial investments Deferred tax assets Total non-current assets Current assets Inventories Trade and other receivables Financial investments Cash and cash equivalents Total current assets Total assets Equity Share capital Parent company reserves Other reserves Accumulated currency translation reserve Retained earnings Equity attributable to the Company Non-controlling interests Total equity Non-current liabilities Long-term corporate debt Long-term project debt Grants and other liabilities Related parties Derivative liabilities Deferred tax liabilities Total non-current liabilities Current liabilities Short-term corporate debt Short-term project debt Trade payables and other current liabilities Income and other tax payables Total current liabilities Total equity and liabilities (1) Notes 1 to 31 are an integral part of the consolidated financial statements Note (1) As of December 31, 2016 As of December 31, 2015 13 14 23&24 11 15&23 23 16&23 8,924,272 55,009 69,773 202,891 9,251,945 15,384 207,621 228,038 594,811 1,045,854 9,300,897 56,181 93,791 191,314 9,642,183 14,913 197,308 221,358 514,712 948,291 10,297,799 10,590,474 21 17 18 19 27 24 11 17 18 20 10,022 2,268,457 52,797 (133,150) (365,410) 1,836,576 126,395 1,959,111 376,340 4,629,184 1,612,045 101,750 349,266 95,037 7,163,622 291,861 701,283 160,505 21,417 1,175,066 10,022 2,313,855 24,831 (109,582) (356,524) 1,882,602 140,899 2,023,501 661,341 3,574,464 1,646,748 126,860 385,095 79,654 6,474,162 3,153 1,896,205 178,217 15,236 2,092,811 10,297,799 10,590,474 54 The consolidated financial statements of Atlantica Yield plc, company registration no. 08818211, were approved by the board of directors and authorised for issue on 24th February, 2017. They were signed on its behalf by: Chief Executive Officer Santiago Seage 24th February, 2017 55 Statement of changes in equity Year ended 31 December 2016 Consolidated Statement of changes in equity Amounts in thousands of U.S. dollars Share Capital Parent company reserve Other reserves Retained earnings Accumulated currency translation differences Total equity attributable to the Company Non- controlling interest Total equity Balance as of January 1, 2016 10,022 2,313,885 24,831 (356,524) (109,582) 1,882,602 140,899 2,023,501 Profit/(loss) for the year after taxes Change in fair value of cash flow hedges Currency translation differences Tax effect Other comprehensive income Total comprehensive income Acquisition of non-controlling interest in Solacor 1&2 (a) Asset acquisition (Sevilla PV) (a) Dividend distribution - - - - - - - - - - - - - - - - - (45,398) - (4,855) 32,944 - (4,978) 27,966 - - - - 27,966 (4,855) - - - (4,031) - - - - (4,855) 32,994 6,522 2,350 1,667 35,294 (23,568) (23,568) 1,418 (22,150) - (4,978) (23,568) (23,568) 4,398 (457) (661) 3,107 9,629 (5,639) 7,505 9,172 - - - (4,031) (15,894) (19,925) - 713 713 (45,398) (8,952) (54,350) Balance as of December 31,2016 10,022 2,268,457 52,797 (365,410) (133,150) 1,832,716 126,395 1,959,111 Balance as of January 1, 2015 8,000 1,790,135 (15,539) (2,031) (28,963) 1,751,602 88,029 1,839,631 Profit/(loss) for the year after taxes Change in fair value of cash flow hedges Currency translation differences Tax effect Other comprehensive income Total comprehensive income Asset acquisition under the Rofo (a) Dividend distribution Capital Increase - - - - - - - - - - - - - - - (137,995) 2,022 661,715 - (209,005) 51,215 - (10,845) 40,370 - - - - - - (209,005) 10,819 (198,186) 51,215 4,682 55,897 (80,619) (80,619) (10,786) (91,405) - (10,845) (1,165) (12,010) (80,619) (40,249) (7,269) (47,518) 40,370 (209,005) (80,619) (249,254) 3,550 (245,704) - - - (145,488) - - - - - (145,488) 57,627 (87,861) (137,995) (8,307) (146,302) 663,737 - 663,737 Balance as of December 31, 2015 10,022 2,313,885 24,831 (356,524) (109,582) 1,882,602 140,899 2,023,501 (a) See Note 5 for further details. Notes 1 to 31 are an integral part of the consolidated financial statements (cid:2) For the year ended 2016 2015 1,667 (198,186) Cash flow statement 31 December 2016 (cid:2) Consolidated Cash flow statement Amounts in thousands of U.S. dollars Profit/(Loss) for the year Non-monetary adjustments Depreciation, amortization and impairment charges Finance costs Fair value (gains)/losses on derivative financial instruments Shares of (profits)/losses from associates Income tax Changes in consolidation and other non-monetary items Profit for the year adjusted by non-monetary items Variations in working capital Inventories Trade and other receivables Trade payables and other current liabilities Financial investments and other current assets/liabilities Variations in working capital Income tax received/(paid) Interest received Interest paid Net cash provided by operating activities Investments in entities under the equity method Investments in contracted concessional assets Other non-current assets/liabilities Acquisitions of subsidiaries Net cash used in investing activities Proceeds from Project & Corporate debt Repayment of Project & Corporate debt Dividends paid to Company´s shareholders Proceeds from capital increase Purchase of shares to non-controlling interests Net cash provided by/(used in) financing activities Net increase in cash and cash equivalents Note (1) 13 11 5 Cash, cash equivalents and bank overdrafts at beginning of the year 16 Translation differences cash or cash equivalent 332,925 397,966 (1,761) (6,646) 1,666 (59,375) 666,442 (729) (15,001) 11,422 6,341 2,033 (1,953) 3,342 (335,446) 334,418 4,984 (5,952) (3,637) (21,754) (26,359) 11,113 (182,636) (35,509) - (19,071) (226,103) 81,956 514,712 (1,857) Cash and cash equivalents at the end of the year 16 594,811 (1) Notes 1 to 31 are an integral part of the consolidated financial statements 261,301 553,300 (4,292) (7,844) 23,790 (91,410) 536,659 (1,198) 14,845 9,994 49,420 73,061 522 1,600 (312,357) 299,485 4,417 (106,007) 5,714 (833,974) (929,850) 459,366 (175,389) (137,166) 664,120 - 810,931 180,566 354,154 (20,008) 514,712 57 Notes to the consolidated financial statements 31 December 2016 Notes to the consolidated financial statements 1. General information Atlantica Yield plc. (‘Atlantica Yield’ or the Company) is a company incorporated in Great Britain under the Companies Act. The address of the registered office is Great West Road, Brentford TW8 9DF, Greater London (United Kingdom). The nature of the Group’s operations and its principal activities are set out in the strategic report on pages 3 to 17. These financial statements are presented in US Dollars because that is the primary currency in which the Group operates. Foreign operations are included in accordance with the policies set out in note 3. On November 27, 2015 Abengoa, reported that, it filed a communication pursuant to article 5 bis of the Spanish Insolvency Law 22/2003 with the Mercantile Court of Seville nº 2. The filing by Abengoa was intended to initiate a process to try to reach an agreement with its main financial creditors, aimed to ensure the right framework to carry out such negotiations and provide Abengoa with financial stability in the short and medium term. The Mercantile Court set a deadline of March 28, 2016 for Abengoa to reach an agreement with its main financial creditors. On such date, Abengoa filed with the Mercantile Court of Seville nº 2 an application for the judicial approval (“homologación judicial”) of a standstill agreement which obtained the support of 75.04 per cent of the financial creditors to which it was addressed. On April 6, 2016, the Judge of the Mercantile Court of Seville nº 2 issued a resolution declaring the judicial approval (“homologación judicial”) of the standstill agreement and extending the effect of the stay of the obligations referred to in the standstill agreement until October 28, 2016, to creditors of financial liabilities who had not signed the agreement or have otherwise expressed their disagreement. On September 24, 2016, Abengoa announced that it had signed a restructuring agreement with a group of investors and creditors, which included a commitment from investors and banks to contribute new money to the company. On the same date, Abengoa opened the accession period for the rest of its financial creditors. On October 28, 2016, Abengoa announced the filing of the request for judicial approval (“homologación judicial”) of its restructuring agreement to the Judge of the Mercantile Court of Seville. According to the announcement, Abengoa had previously obtained approval from creditors representing 86% of its financial debt, above the 75% limit required by the law. On November 8, 2016, the Judge of the Mercantile Court of Seville declared judicial approval of Abengoa´s restructuring agreement, extending the terms of the agreement to those creditors who had not approved the restructuring agreement. On February 3, 2017, Abengoa announced it obtained approval from creditors representing 94% of its financial debt after the supplemental accession period. The implementation of Abengoa’s restructuring is subject to a series of conditions precedent. On February 14, 2017, Abengoa announced that it launched a waiver request in order to approve certain amendments to the restructuring agreement and opened a voting period ending on February 28, 2017 (see note 23). The financing arrangements of some of the project subsidiaries of the Company (Solana, Mojave, Kaxu and Cadonal) contain cross-default provisions related to Abengoa, such that debt defaults by Abengoa, subject to certain threshold amounts and/or a restructuring process, could trigger defaults under such project financing arrangements. These cross-default provisions expire progressively over time, remaining in place until the termination of the obligations of Abengoa under such project financing arrangements. The Company has signed a forbearance agreement in Solana and Mojave in December 2016 according to which, such defaults will no longer trigger acceleration remedies or limitations on distributions remedies in both financing arrangements. In the case of Cadonal, the waiver obtained is subject to certain conditions. The only project for which waivers or forbearances have not been obtained yet is Kaxu. The company is currently in discussions with its project finance 58 Notes to the consolidated financial statements 31 December 2016 lenders. Although the Company does not expect the acceleration of debt to be declared by the credit entities, Kaxu and Cadonal did not have contractually as of December 31, 2016 what International Accounting Standards define as an unconditional right to defer the settlement of the debt for at least twelve months after that date, as the cross-default provisions make that right not totally unconditional, and therefore the debt of Kaxu and Cadonal has been presented as current in these consolidated financial statements in accordance with International Accounting Standards 1 (“IAS 1”), “Presentation of Financial Statements”. As of December 31, 2015, all the project financing arrangements except for ATN, ATS, Skikda and Honaine contained a change of ownership clause that would be triggered if Abengoa would cease to own at least 35% of Atlantica Yield´s shares. Based on the most recent public information, Abengoa currently owns 41.47% of the ordinary shares of the Company. In connection with various financing agreements, Abengoa has disclosed that as of today, 41,530,843 of Atlantica Yield shares, representing approximately 41.44% of the outstanding shares of the Company, have been pledged as collateral. If Abengoa defaults on any of these or future financing arrangements or sell or transfer enough ABY shares before obtaining the waivers, such lenders may foreclose on the pledged shares and, as a result, Abengoa could eventually own less than 35% of Atlantica Yield´s outstanding shares. As a result, the Company would be in breach of covenants under the applicable project financing arrangements. Additionally, if Abengoa sells, transfers or signs new financing arrangements considered a transfer of ABY shares, the Company could be as well in breach of covenants under the applicable project financing arrangements. During 2016 waivers and forbearances have been obtained for most of our project financing agreements from all the parties of these project financing arrangements containing the minimum ownership covenants previously explained (Palmatir, Quadra 1 and Quadra 2, Cadonal, Helioenergy 1&2, Solana, Mojave, Solnova 1, 3&4, Solacor 1&2 and Solaben 2&3). As of this date, waivers or forbearances are still required for ACT and Kaxu and the Company is working on obtaining them. In the case of Solana and Mojave, the forbearance agreement signed with the U.S. Department of Energy, or the DOE, with respect to these assets, covers reductions of Abengoa’s ownership resulting from (i) a court-ordered or lender-initiated foreclosure pursuant to the existing pledge over Abengoa’s shares of the Company that occurs prior to March 31, 2017, (ii) a sale or other disposition at any time pursuant to a bankruptcy proceeding by Abengoa, (iii) changes in the existing Abengoa pledge structure in connection with Abengoa’s restructuring process, aimed at pledging the shares under a new holding company structure, and (iv) capital increases by us. In the event of other reductions of Abengoa’s ownership below the minimum ownership threshold resulting from sales of shares by Abengoa, DOE remedies will not include debt acceleration, but DOE remedies available would include limitations on distributions to the Company from its subsidiaries. In addition, the minimum ownership threshold for Abengoa in the Company has been reduced from 35% to 30%. In addition, the Credit Facility entered into by the Company on December 3, 2014 with Banco Santander, S.A., Bank of America, N.A., Citigroup Global Markets Limited, HSBC Bank plc and RBC Capital Markets, as joint lead arrangers and joint bookrunners (the “Credit Facility”) does not include cross-default provisions related to Abengoa. Nevertheless, the Company is required to comply with (i) a maintenance leverage ratio of the indebtedness at Atlantica Yield level to the cash available for distribution and (ii) an interest coverage ratio of cash available for distribution to debt service payments. A potential payment default in several of the project companies or potential restrictions to distributions from several of the project companies may adversely affect compliance with these covenants. The Credit Facility also includes a cross-default provision related to a default by the project 59 Notes to the consolidated financial statements 31 December 2016 subsidiaries of the Company in their financing arrangements, such that a payment default in one or more of the non-recourse subsidiaries of the Company representing more than 20% of the cash available for distribution distributed in the previous four fiscal quarters could trigger a default under the Credit Facility. A payment default in several of our project companies or restrictions in distributions from several of our project companies may trigger these covenants. Considering all the progress in obtaining waivers and forbearances obtained, the Company considers that scenario as remote. Additionally, in such remote scenario, the Company would undertake initiatives including, but not limited to, asset disposals or changes in the dividend policy. Additionally, on February 10, 2017, the Company signed a Note Issuance Facility, a senior secured note facility with a group of funds managed by Westbourne Capital as purchasers of the notes issued thereunder for a total amount of €275 million (approximately $294 million). The proceeds of the Note Issuance Facility will be used for the repayment of Tranche B under our Credit Facility, which will be cancelled, as well as for general corporate expenses incurred as part of this transaction. The Company has significantly reduced the level of services received from Abengoa, terminating the Support Services Agreement, although it continues to rely on Abengoa for operation and maintenance services at most of its facilities and for minimum local support services in certain geographies. The Company has separated its IT systems from Abengoa during 2016 and has prepared plans to replace existing operation and maintenance suppliers if required. These consolidated financial statements were approved by the Board of Directors on 24th February 2017. 2. Adoption of new and revised Standards a) Standards, interpretations and amendments effective from January 1, 2016 under IFRS-IASB, applied by the Company in the preparation of these consolidated financial statements: • IFRS 10 (Amendment) ‘Consolidated financial statements, IFRS 12 ‘Disclosure of interests in Other Entities’ and IAS 28 ‘Investments in associates and joint ventures’ regarding the exemption from consolidation for investment entities. • Annual Improvements to IFRSs 2012-2014 cycles. • IAS 1 (Amendment) ‘Presentation of Financial Statements’ under the disclosure initiative. • IAS 27 (Amendment) ’Separate financial statements’ regarding the reinstatement of the equity method as an accounting option in separate financial statements. • IAS 16 (Amendment) ’Property, Plant and Equipment’ and IAS 38 ’Intangible Assets’, regarding acceptable methods of amortization and depreciation. • IFRS 11 (Amendment) ‘Joint Arrangements’ regarding acquisition of an interest in a joint operation. • IAS 16 ‘Property, Plant and Equipment’ and 41 ‘Agriculture’ (Amendment) regarding bearer plants. The applications of these amendments have not had any material impact on these consolidated financial statements. 60 Notes to the consolidated financial statements 31 December 2016 b) Standards, interpretations and amendments published by the IASB that will be effective for periods beginning on or after January 1, 2017: • IFRS 9 ’Financial Instruments’. This Standard will be effective from January 1, 2018 under IFRS-IASB, earlier application is permitted. • IFRS 15 ’Revenues from contracts with Customers’. IFRS 15 is applicable for annual periods beginning on or after January 1, 2018 under IFRS-IASB, earlier application is permitted. • IFRS 16 ’Leases’. This Standard is applicable for annual periods beginning on or after January 1, 2019 under IFRS-IASB, earlier application is permitted, but conditioned to the application of IFRS 15. • IAS 12 (Amendment) ‘Recognition for Deferred Tax for Unrealised Losses’. This amendment is mandatory for annual periods beginning on or after January 1, 2017 under IFRS-IASB, earlier application is permitted. • IAS 7 (Amendment) ‘Disclosure Initiative’. This amendment is mandatory for annual periods beginning on or after January 1, 2017 under IFRS-IASB, earlier application is permitted. • IFRS 15 (Clarifications) ’Revenues from contracts with Customers’. This amendment is mandatory for annual periods beginning on or after January 1, 2018 under IFRS-IASB, earlier application is permitted. • IFRS 2 (Amendment) ‘Classification and Measurement of Share-based Payment Transactions’. This amendment is mandatory for annual periods beginning on or after January 1, 2018 under IFRS-IASB, earlier application is permitted. • IFRS 4 (Amendment). Applying IFRS 9 ‘Financial Instruments’ with IFRS 4 ‘Insurance Contracts’. This amendment is mandatory for annual periods beginning on or after January 1, 2018 under IFRS-IASB, earlier application is permitted. • IFRIC Interpretation 22 ’Foreign Currency Transactions and Advance Consideration’, mandatory for annual periods beginning on or after January 1, 2018 under IFRS-IASB, earlier application is permitted. • IAS 40 (Amendment) ’Transfers of Investment Property’. This amendment is mandatory for annual periods beginning on or after January 1, 2018 under IFRS-IASB, earlier application is permitted. The Company does not anticipate any significant impact on the consolidated financial statements derived from the application of the new standards and amendments that will be effective for annual periods beginning after December 31, 2016, although it is currently still in process of evaluating such application. 3. Significant accounting judgements Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) as issued by the IASB, and on a basis consistent with the prior year. 61 Notes to the consolidated financial statements 31 December 2016 The financial statements have been prepared on the historical cost basis. Historical cost is generally based on the fair value of the consideration given in exchange for goods and services. The principal accounting policies adopted are set out below. Basis of consolidation a) Controlled entities The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company (its subsidiaries) made up to 31 December each year. Control is achieved when the Company: (cid:2) has the power over the investee; (cid:2) (cid:2) has the ability to use its power to affects its returns. is exposed, or has rights, to variable return from its involvement with the investee; and The Company reassesses whether or not it controls an investee when facts and circumstances indicate that there are changes to one or more of the three elements of control listed above. The Company uses the acquisition method to account for business combinations of companies controlled by a third party. According to this method, identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. Any contingent consideration is recognized at fair value at the acquisition date and subsequent changes in its fair value are recognized in accordance with IAS 39 either in profit or loss or as a change to other comprehensive income. Acquisition related costs are expensed as incurred. The Company recognizes any non-controlling interest in the acquiree either at fair value or at the noncontrolling interest’s proportionate share of the acquirer’s net assets on an acquisition by acquisition basis. Acquisitions of businesses from Abengoa were previously not considered business combinations, as Atlantica Yield was a subsidiary controlled of Abengoa. The assets acquired constituted an acquisition under common control by Abengoa and accordingly, were recorded using Abengoa’s historical basis in the assets and liabilities of the Predecessor. The difference between the cash paid and historical value of the net assets was recorded in equity. Results of operations of the assets acquired have been recorded in Atlantica Yield’s consolidated income statement since the date of the acquisition. Abengoa has no control over the Company since December 31, 2015. Therefore, any purchase to Abengoa is accounted for in the consolidated accounts of Atlantica Yield since December 31, 2015, in accordance with IFRS 3, Business Combination. All assets and liabilities between entities of the group, equity, income, expenses, and cash flows relating to transactions between entities of the group are eliminated in full. b) Investments accounted for under the equity method An associate is an entity over which the Company has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control over those policies. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Under the equity method, an investment in an associate is initially recognized in the statement of financial position at cost and adjusted thereafter to recognize the Company share of the profit or loss and other comprehensive income of the associate. 62 Notes to the consolidated financial statements 31 December 2016 Going concern The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Thus they continue to adopt the going concern basis of accounting in preparing the consolidated financial statements. Further detail is contained in the Strategic Report on page 27. Critical accounting judgements and estimates The critical judgements which have been made in the process of applying the accounting policies are detailed below: (cid:2) Contracted concessional assets and purchase price agreements The application of IFRIC 12 requires judgement to (i) the identification of certain infrastructures and contractual agreements in the scope of IFRIC 12; (ii) the understanding of the nature of the payments in order to determine the classification as a financial asset or as an intangible asset, and (iii) the timing and recognition of the revenue for construction and concessional activity. Key sources of estimation uncertainty The Group does not have any key assumptions concerning the future, or other key sources of estimation uncertainty in the reporting period that may have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year. Contracted concessional Assets and price purchase agreements Contracted concessional assets and price purchase agreements (PPAs) include fixed assets financed through project debt, related to service concession arrangements recorded in accordance with International Financial Reporting Interpretations Committee 12 (“IFRIC 12”), except for Palmucho, which is recorded in accordance with IAS 17 and PS10, PS20 and Seville PV, which are recorded as tangible assets in accordance with IAS 16. The infrastructures accounted for by the Company as concessions are related to the activities concerning electric transmission lines, solar electricity generation plants, cogeneration plants, wind farms and water plants. The useful life of these assets is approximately the same as the length of the concession arrangement. The infrastructure used in a concession can be classified as an intangible asset or a financial asset, depending on the nature of the payment entitlements established in the agreement. Under the terms of contractual arrangements within the scope of this interpretation, the operator shall recognize and measure revenue in accordance with IAS 11 and 18 for the services it performs. If the operator performs more than one service (i.e. construction or upgrade services and operation services) under a single contract or arrangement, consideration received or receivable shall be allocated by reference to the relative fair values of the services delivered, when the amounts are separately identifiable. Consequently, in accordance with the provisions of IFRIC 12, the Company recognizes and measures revenue and costs for providing construction services during the period of construction of the infrastructure in accordance with IAS 11 “Construction Contracts”. This applies in the same way to the two models. a) Intangible assets 63 Notes to the consolidated financial statements 31 December 2016 The Company recognizes an intangible asset to the extent that it receives a right to charge final customers for the use of the infrastructure. This intangible asset is subject to the provisions of IAS 38 and is amortized linearly, taking into account the estimated period of commercial operation of the infrastructure which coincides with the concession period. Once the infrastructure is in operation, the treatment of income and expenses is as follows: (cid:2) Revenues from the updated annual revenue for the contracted concession, as well as operations and maintenance services are recognized in each period according to IAS 18 “Revenue”. (cid:2) Operating and maintenance costs and general overheads and administrative costs are recorded in accordance with the nature of the cost incurred (amount due) in each period. (cid:2) Financing costs are expensed as incurred. b) Financial assets The Company recognizes a financial asset when demand risk is assumed by the grantor, to the extent that the concession holder has an unconditional right to receive payments for the asset. This asset is recognized at the fair value of the construction services provided, considering upgrade services in accordance with IAS 11, if any. The financial asset is subsequently recorded at amortized cost calculated according to the effective interest method. Revenue from operations and maintenance services is recognized in each period according to IAS 18 “Revenue”. The remuneration of managing and operating the asset resulting from the valuation at amortized cost is also recorded in revenue. Financing costs are expensed as incurred. c) Property, plant and equipment Property, plant and equipment includes property, plant and equipment of companies or project companies. Property, plant and equipment is measured at historical cost, including all expenses directly attributable to the acquisition, less depreciation and impairment losses, with the exception of land, which is presented net of any impairment losses. Once the infrastructure is in operation, the treatment of income and expenses is the same as the one described above for intangible assets. Borrowing costs Interest costs incurred in the construction of any qualifying asset are capitalized over the period required to complete and prepare the asset for its intended use. A qualifying asset is an asset that necessarily takes a substantial period of time to get ready for its internal use or sale, which is considered to be more than one year. Remaining borrowing costs are expensed in the period in which they are incurred. Asset impairment Atlantica Yield reviews its contracted concessional assets to identify any indicators of impairment at least annually. 64 Notes to the consolidated financial statements 31 December 2016 The recoverable amount of an asset is the higher of its fair value less costs to sell and its value in use, defined as the present value of the estimated future cash flows to be generated by the asset. In the event that the asset does not generate cash flows independently of other assets, the Company calculates the recoverable amount of the Cash Generating Unit ‘CGU’) to which the asset belongs. When the carrying amount of the CGU to which these assets belong is lower than its recoverable amount, the assets are impaired. Assumptions used to calculate value in use include a discount rate, growth rate and projections considering real data based in the contracts terms and projected changes in both selling prices and costs. The discount rate is estimated by Management, to reflect both changes in the value of money over time and the risks associated with the specific CGU. For contracted concessional assets, with a defined useful life and with a specific financial structure, cash flow projections until the end of the project are considered and no terminal value is assumed. Contracted concessional assets have a contractual structure that permits the Company to estimate quite accurately the costs of the project (both in the construction and in the operations periods) and revenue during the life of the project. Projections take into account real data based on the contract terms and fundamental assumptions based on specific reports prepared by experts, assumptions on demand and assumptions on production. Additionally, assumptions on macro-economic conditions are taken into account, such as inflation rates, future interest rates, etc. and sensitivity analyses are performed over all major assumptions which can have a significant impact in the value of the asset. Cash flow projections of CGUs are calculated in the functional currency of those CGUs and are discounted using rates that take into consideration the risk corresponding to each specific country and currency. Taking into account that in most CGUs the specific financial structure is linked to the financial structure of the projects that are part of those CGUs, the discount rate used to calculate the present value of cash-flow projections is based on the weighted average cost of capital (WACC) for the type of asset, adjusted, if necessary, in accordance with the business of the specific activity and with the risk associated with the country where the project is performed. In any case, sensitivity analyses are performed, especially in relation to the discount rate used and fair value changes in the main business variables, in order to ensure that possible changes in the estimates of these items do not impact the possible recovery of recognized assets. Accordingly, the following table provides a summary of the discount rates used (WACC) and growth rates to calculate the recoverable amount for CGUs with the operating segment to which it pertains: Operating segment Discount Growth Rate Rate EMEA ........................................................................ 4% - 6% North America ........................................................... 4% - 6% South America ........................................................... 5% - 7% 0% 0% 0% In the event that the recoverable amount of an asset is lower than its carrying amount, an impairment charge for the difference would be recorded in the income statement under the item “Depreciation, amortization and impairment charges”. Pursuant to IAS 36, an impairment loss is recognized if the 65 Notes to the consolidated financial statements 31 December 2016 carrying amount of these assets exceeds the present value of future cash flows discounted at the initial effective interest rate. Loans and accounts receivable Loans and accounts receivable are non-derivative financial assets with fixed or determinable payments, not listed on an active market. In accordance with IFRIC 12, certain assets under concessions qualify as financial assets and are recorded as is described in note 13. Pursuant to IAS 36, an impairment loss is recognized if the carrying amount of these assets exceeds the present value of future cash flows discounted at the initial effective interest rate. Loans and accounts receivable are initially recognized at fair value plus transaction costs and are subsequently measured at amortized cost in accordance with the effective interest rate method. Interest calculated using the effective interest rate method is recognized under other financial income within financial income. Derivative financial instruments and hedging activities Derivatives are recorded at fair value. The Company applies hedge accounting to all hedging derivatives that qualify to be accounted for as hedges under IFRS-IASB. When hedge accounting is applied, hedging strategy and risk management objectives are documented at inception, as well as the relationship between hedging instruments and hedged items. Effectiveness of the hedging relationship needs to be assessed on an ongoing basis. Effectiveness tests are performed prospectively and retrospectively at inception and at each reporting date, following the dollar offset method or the regression method, depending on the type of derivatives and the type of tests performed. Atlantica Yield applies cash flow hedging. Under this method, the effective portion of changes in fair value of derivatives designated as cash flow hedges are recorded temporarily in equity and are subsequently reclassified from equity to profit or loss in the same period or periods during which the hedged item affects profit or loss. Any ineffective portion of the hedged transaction is recorded in the consolidated income statement as it occurs. When interest rate options are designated as hedging instruments, the intrinsic value and time value of the financial hedge instrument are separated. Changes in intrinsic value which are highly effective are recorded in equity and subsequently reclassified from equity to profit or loss in the same period or periods during which the hedged item affects profit or loss. Changes in time value are recorded as financial income or expense, together with any ineffectiveness. When the hedging instrument matures or is sold, or when it no longer meets the requirements to apply hedge accounting, accumulated gains and losses recorded in equity remain as such until the forecast transaction is ultimately recognized in the income statement. However, if it becomes unlikely that the forecast transaction will actually take place, the accumulated gains and losses in equity are recognized immediately in the income statement. Fair value estimates Financial instruments measured at fair value are presented in accordance with the following level classification based on the nature of the inputs used for the calculation of fair value: (cid:2) Level 1: Inputs are quoted prices in active markets for identical assets or liabilities. 66 Notes to the consolidated financial statements 31 December 2016 (cid:2) Level 2: Fair value is measured based on inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices). (cid:2) Level 3: Fair value is measured based on unobservable inputs for the asset or liability. In the event that prices cannot be observed, the management shall make its best estimate of the price that the market would otherwise establish based on proprietary internal models which, in the majority of cases, use data based on observable market parameters as significant inputs (Level 2) but occasionally use market data that is not observed as significant inputs (Level 3). Different techniques can be used to make this estimate, including extrapolation of observable market data. The best indication of the initial fair value of a financial instrument is the price of the transaction, except when the value of the instrument can be obtained from other transactions carried out in the market with the same or similar instruments, or valued using a valuation technique in which the variables used only include observable market data, mainly interest rates. Differences between the transaction price and the fair value based on valuation techniques that use data that is not observed in the market, are not initially recognized in the income statement. a) Level 2 valuation Atlantica Yield derivatives correspond mainly to the interest rate swaps designated as cash flow hedges. Description of the valuation method Interest rate swap valuations are made by valuing the swap part of the contract and valuing the credit risk. The methodology used by the market and applied by Atlantica Yield to value interest rate swaps is to discount the expected future cash flows according to the parameters of the contract. Variable interest rates, which are needed to estimate future cash flows, are calculated using the curve for the corresponding currency and extracting the implicit rates for each of the reference dates in the contract. These estimated flows are discounted with the swap zero curve for the reference period of the contract. The effect of the credit risk on the valuation of the interest rate swaps depends on the future settlement. If the settlement is favourable for the Company, the counterparty credit spread will be incorporated to quantify the probability of default at maturity. If the expected settlement is negative for the Company, its own credit risk will be applied to the final future of variable rates, based on future outlooks. When quantifying credit risk, this model is limited by considering only the risk for the current paying party, ignoring the fact that the derivative could change sign at maturity. A payer and receiver swaption model is proposed for these cases. This enables the associated risk in each swap position to be reflected. Thus, the model shows each agent’s exposure, on each payment date, as the value of entering into the ‘tail’ of the swap, i.e. the live part of the swap. Variables (Inputs) Interest rate derivative valuation models use the corresponding interest rate curves for the relevant currency and underlying reference in order to estimate the future cash flows and to discount them. Market prices for deposits, futures contracts and interest rate swaps are used to construct these curves. Interest rate options (caps and floors) also use the volatility of the reference interest rate curve. To estimate the credit risk of the counterparty, the credit default swap (CDS) spreads curve is obtained in the market for important individual issuers. For less liquid issuers, the spreads curve is estimated 67 Notes to the consolidated financial statements 31 December 2016 using comparable CDSs or based on the country curve. To estimate proprietary credit risk, prices of debt issues in the market and CDSs for the sector and geographic location are used. The fair value of the financial instruments that results from the aforementioned internal models takes into account, among other factors, the terms and conditions of the contracts and observable market data, such as interest rates, credit risk and volatility. The valuation models do not include significant levels of subjectivity, since these methodologies can be adjusted and calibrated, as appropriate, using the internal calculation of fair value and subsequently compared to the corresponding actively traded price. However, valuation adjustments may be necessary when the listed market prices are not available for comparison purposes. c) Level 3 valuation Level 3 includes the preferred equity investment in ACBH and the Put/Call option (see Note 23). Detailed information on fair values is included in Note 23. Trade and other receivables Trade and other receivables are amounts due from customers for sales in the normal course of business. They are recognized initially at fair value and subsequently measured at amortized cost using the effective interest rate method, less allowance for doubtful accounts. Trade receivables due in less than one year are carried at their face value at both initial recognition and subsequent measurement, provided that the effect of not discounting flows is not significant. An allowance for doubtful accounts is recorded when there is objective evidence that the Company will not be able to recover all amounts due as per the original terms of the receivables. Cash and cash equivalents Cash and cash equivalents include cash in hand, cash in bank and other highly-liquid current investments with an original maturity of three months or less which are held for the purpose of meeting short-term cash commitments. Grants Grants are recognized at fair value when it is considered that there is a reasonable assurance that the grant will be received and that the necessary qualifying conditions, as agreed with the entity assigning the grant, will be adequately complied with. Grants are recorded as liabilities in the consolidated statement of financial position and are recognized in “Other operating income” in the consolidated income statement based on the period necessary to match them with the costs they intend to compensate. In addition, grants correspond also to loans with interest rates below market rates, for the initial difference between the fair value of the loan and the proceeds received. Loans and borrowings Loans and borrowings are initially recognized at fair value, net of transaction costs incurred. Borrowings are subsequently measured at amortized cost and any difference between the proceeds initially received (net of transaction costs incurred in obtaining such proceeds) and the repayment value is recognized in the consolidated income statement over the duration of the borrowing using the effective interest rate method. Loans with interest rates below market rates are initially recognized at fair value in liabilities and the difference between proceeds received from the loan and its fair value is initially recorded within “Grants and Other liabilities” in the consolidated statement of financial position, and subsequently 68 Notes to the consolidated financial statements 31 December 2016 recorded in “Other operating income” in the consolidated income statement when the costs financed with the loan are expensed. Bonds and notes The Company initially recognizes ordinary notes at fair value, net of issuance costs incurred. Subsequently, notes are measured at amortized cost until settlement upon maturity. Any other difference between the proceeds obtained (net of transaction costs) and the redemption value is recognized in the consolidated income statement over the term of the debt using the effective interest rate method. Income taxes Current income tax expense is calculated on the basis of the tax laws in force as of the date of the consolidated statement of financial position in the countries in which the subsidiaries and associates operate and generate taxable income. Deferred income tax is calculated in accordance with the liability method, based upon the temporary differences arising between the carrying amount of assets and liabilities and their tax base. Deferred income tax is determined using tax rates and regulations which are expected to apply at the time when the deferred tax is realized. Deferred tax assets are recognized only when it is probable that sufficient future taxable profit will be available to use deferred tax assets. Trade payables and other liabilities Trade payables are obligations arising from purchases of goods and services in the ordinary course of business and are recognized initially at fair value and are subsequently measured at their amortized cost using the effective interest method. Other liabilities are obligations not arising in the normal course of business and which are not treated as financing transactions. Advances received from customers are recognized as “Trade payables and other current liabilities”. Foreign currency transactions The consolidated financial statements are presented in U.S. dollars, which is Atlantica Yield functional and reporting currency. Financial statements of each subsidiary within the Company are measured in the currency of the principal economic environment in which the subsidiary operates, which is the subsidiary’s functional currency. Transactions denominated in a currency different from the subsidiary’s functional currency are translated into the subsidiary’s functional currency applying the exchange rates in force at the time of the transactions. Foreign currency gains and losses that result from the settlement of these transactions and the translation of monetary assets and liabilities denominated in foreign currency at the year-end rates are recognized in the consolidated income statement, unless they are deferred in equity, as occurs with cash flow hedges and net investment in foreign operations hedges. Assets and liabilities of subsidiaries with a functional currency different from the Company’s reporting currency are translated to U.S. dollars at the exchange rate in force at the closing date of the financial statements. Income and expenses are translated into U.S. dollars using the average annual exchange rate, which does not differ significantly from using the exchange rates of the dates of each transaction. The difference between equity translated at the historical exchange rate and the net financial position that results from translating the assets and liabilities at the closing rate is recorded in 69 Notes to the consolidated financial statements 31 December 2016 equity under the heading “Accumulated currency translation differences”. Results of companies carried under the equity method are translated at the average annual exchange rate. Equity The Company has recyclable balances in its equity, corresponding mainly to hedge reserves and translation differences arising from currency conversion in the preparation of these consolidated financial statements. These balances have been presented separately in Equity. Non-controlling interest represents interest from other partners in entities included in these consolidated financial statements which are not fully owned by Atlantica Yield as of the dates presented. Parent company reserves together with the Share capital represent the Parent’s net investment in the entities included in these consolidated financial statements. Provisions and contingencies Provisions are recognized when: (cid:2) (cid:2) there is a present obligation, either legal or constructive, as a result of past events; it is more likely than not that there will be a future outflow of resources to settle the obligation; and (cid:2) the amount has been reliably estimated. Provisions are initially measured at the present value of the expected outflows required to settle the obligation and subsequently valued at amortized cost following the effective interest method. The balance of Provisions disclosed in the Notes reflects management’s best estimate of the potential exposure as of the date of preparation of the consolidated financial statements. Contingent liabilities are possible obligations, existing obligations with low probability of a future outflow of economic resources and existing obligations where the future outflow cannot be reliably estimated. Contingences are not recognized in the consolidated statements of financial position unless they have been acquired in a business combination. Some companies included in the group have dismantling provisions, which are intended to cover future expenditures related to the dismantlement of the solar plants and it will be likely to be settled with an outflow of resources in the long term (over 5 years). Such provisions are accrued when the obligation for dismantling, removing and restoring the site on which the plant is located, is incurred, which is usually during the construction period. The provision is measured in accordance with IAS 37, “Provisions, Contingent Liabilities and Contingent Assets” and is recorded as a liability under the heading “Grants and other liabilities” of the Financial Statements, and as part of the cost of the plant under the heading “Contracted concessional assets.” 4. Financial information by segment Atlantica Yield’s segment structure reflects how management currently makes financial decisions and allocates resources. Its operating and reportable segments are based on the following geographies where the contracted concessional assets are located: • • North America South America 70 Notes to the consolidated financial statements 31 December 2016 • EMEA Based on the type of business, as of December 31, 2016 the Company had the following business sectors: Renewable energy: Renewable energy assets include two Solar plants in the United States, Solana and Mojave, each with a gross capacity of 280 MW and located in Arizona and California, respectively. The Company owns eight solar platforms in Spain: Solacor 1 and 2 with a gross capacity of 100 MW, PS10 and PS20 with a gross capacity of 31 MW, Solaben 2 and 3 with a gross capacity of 100 MW, Helioenergy 1 and 2 with a gross capacity of 100 MW, Helios 1 and 2 with a gross capacity of 100 MW, Solnova 1, 3 and 4 with a gross capacity of 150 MW, Solaben 1 and 6 with a gross capacity of 100 MW and Sevilla PV with a gross capacity of 1 MW. The Company also owns a Solar plant in South Africa, Kaxu with a gross capacity of 100 MW. Additionally, the Company owns two wind farms in Uruguay, Palmatir and Cadonal, with a gross capacity of 50 MW each. Conventional power: Conventional power asset consists of ACT, a 300 MW cogeneration plant in Mexico, which is party to a 20-year take-or-pay contract with Pemex for the sale of electric power and steam. Electric transmission lines: Electric transmission assets include (i) three lines in Peru, ATN, ATS and ATN2, spanning a total of 1,012 miles; and (ii) three lines in Chile, Quadra 1, Quadra 2 and Palmucho, spanning a total of 87 miles. In addition, the Company owns a preferred equity investment in ACBH, a subsidiary holding company of Abengoa that is engaged in the development, construction, investment and management of contracted concessions in Brazil, consisting mostly of electric transmission lines. Water: Water assets include a minority interest in two desalination plants in Algeria, Honaine and Skikda with an aggregate capacity of 10.5 M ft3 per day. Atlantica Yield’s Chief Operating Decision Maker (CODM) assesses the performance and assignment of resources according to the identified operating segments. The CODM considers the revenues as a measure of the business activity and the Further Adjusted EBITDA as a measure of the performance of each segment. Further Adjusted EBITDA is calculated as profit/(loss) for the period attributable to the parent company, after adding back loss/(profit) attributable to non-controlling interests from continued operations, income tax, share of profit/(loss) of associates carried under the equity method, finance expense net, depreciation, amortization and impairment charges of entities included in these consolidated financial statements, and dividends received from the preferred equity investment in ACBH. Further Adjusted EBITDA for 2016 includes compensation received from Abengoa in lieu of ACBH dividends. In order to assess performance of the business, the CODM receives reports of each reportable segment using revenues and Further Adjusted EBITDA. Net interest expense evolution is assessed on a consolidated basis. Financial expense and amortization are not taken into consideration by the CODM for the allocation of resources. In the year ended December 31, 2016, Atlantica Yield had two customers with revenues representing more than 10% of the total revenues, i.e., one in the renewable energy and one in the conventional power business sectors. In the year ended December 31, 2015, Atlantica Yield had three customers 71 Notes to the consolidated financial statements 31 December 2016 with revenues representing more than 10% of the total revenues, i.e., two in the renewable energy and one in the conventional power business sectors. a) The following tables show Revenues and Further Adjusted EBITDA by operating segments and business sectors for the years 2016 and 2015: Revenue $’000 Further Adjusted EBITDA $’000 For the twelve- month period ended December 31, For the twelve- month period ended December 31, Geography 2016 2015 2016 2015 North America South America EMEA Total 337,061 118,764 515,972 971,797 328,139 112,480 350,262 284,691 124,599 354,020 790,881 763,310 279,559 110,905 233,755 624,219 Revenue $’000 Further Adjusted EBITDA $’000 For the twelve- month period ended December 31, For the twelve- month period ended December 31, Business sector 2016 2015 2016 2015 Renewable energy Conventional power Electric transmission lines Water Total 724,325 128,046 95,137 24,288 971,797 543,012 138,717 86,393 22,759 790,881 538,427 106,492 104,795 13,596 763,310 413,933 107,671 89,047 13,568 624,219 The reconciliation of segment Further Adjusted EBITDA with the loss attributable to the parent company is as follows: 72 Notes to the consolidated financial statements 31 December 2016 For the twelve- month period ended December 31, 2016 $’000 2015 $’000 Loss attributable to the Company Profit attributable to non-controlling interests Income tax Share of profits/(losses) of associates Dividend investment in ACBH Financial expense, net Depreciation, amortization, and impairment charges from exchangeable preferred equity (4,855) 6,522 1,666 (6,646) 27,948 405,750 332,925 (209,005) 10,819 23,790 (7,844) 18,400 526,758 261,301 Total segment Further Adjusted EBITDA 763,310 624,219 b) The assets and liabilities by operating segments (and business sector) at the end of 2016 and 2015 are as follows: 73 Notes to the consolidated financial statements 31 December 2016 Assets and liabilities by geography as of December 31, 2016: North America South America EMEA Balance as of December 31, 2016 Assets allocated Contracted concessional assets 3,920,106 1,144,712 3,859,454 - 136,665 185,970 - 62,215 40,015 55,009 29,158 246,671 4,242,741 1,246,942 4,190,291 Investments carried under the equity method Current financial investments Cash and cash equivalents (project companies) Subtotal allocated Unallocated assets Other non-current assets Other current assets (including cash and cash equivalents at holding company level) Subtotal unallocated Total assets 8,924,272 55,009 228,038 472,656 9,679,975 272,664 345,160 617,824 10,297,799 North America South America EMEA Balance as of December 31, 2016 1,870,861 1,575,303 3,446,164 895,316 1,512 896,828 2,564,290 35,230 2,599,520 Liabilities allocated Long-term and short-term project debt Grants and other liabilities Subtotal allocated Unallocated liabilities Long-term and short-term corporate debt Other non-current liabilities Other current liabilities Subtotal unallocated Total liabilities Equity unallocated Total liabilities and equity unallocated Total liabilities and equity 5,330,467 1,612,045 6,942,512 668,201 546,053 181,922 1,396,176 8,338,688 1,959,111 3,355,287 10,297,799 74 Notes to the consolidated financial statements 31 December 2016 Assets and liabilities by geography as of December 31, 2015: North America South America EMEA Assets allocated Contracted concessional assets 4,054,093 1,206,693 4,040,111 Investments carried under the equity method - Current financial investments Cash and cash equivalents (project companies) 129,349 136,950 - 61,973 41,525 56,181 30,036 290,548 Balance as of December 31, 2015 9,300,897 56,181 221,358 469,023 Subtotal allocated Unallocated assets Other non-current assets Other current assets (including cash and cash equivalents at holding company level) Subtotal unallocated Total assets 4,320,392 1,310,191 4,416,876 10,047,459 285,105 257,910 543,015 10,590,474 North America South America EMEA Balance as of December 31, 2015 1,891,597 1,611,724 3,503,321 888,304 2,690,769 799 34,225 889,103 2,724,994 Liabilities allocated Long-term and short-term project debt Grants and other liabilities Subtotal allocated Unallocated liabilities Long-term and short-term corporate debt Other non-current liabilities Other current liabilities Subtotal unallocated Total liabilities Equity unallocated Total liabilities and equity unallocated Total liabilities and equity 5,470,670 1,646,748 7,117,418 664,494 591,608 193,453 1,449,555 8,566,973 2,023,501 3,473,056 10,590,474 75 Notes to the consolidated financial statements 31 December 2016 Assets and liabilities by business sectors as of December 31, 2016: Renewable energy Conventiona l power Water Electric transmissio n lines Balance as of December 31, 2016 Assets allocated Contracted concessional assets Investments carried under the equity method Current financial investments Cash and cash equivalents (project companies) Subtotal allocated Unallocated assets Other non-current assets Other current assets (including cash and cash equivalents at holding company level) Subtotal unallocated Total assets Liabilities allocated Long-term and short-term project debt Grants and other liabilities Subtotal allocated Unallocated liabilities Long-term and short-term corporate debt Other non-current liabilities Other current liabilities Subtotal unallocated Total liabilities Equity unallocated liabilities Total unallocated Total liabilities and equity and equity 7,255,308 12,953 13,661 420,215 646,927 - 136,644 30,295 929,005 - 62,215 11,357 93,032 42,056 15,518 10,789 8,924,272 55,009 228,038 472,656 7,702,137 813,866 1,002,577 161,395 9,679,975 272,664 345,160 617,824 10,297,799 Renewable energy Convention al power Electric Water transmission lines Balance as of December 31, 2016 3,979,096 1,611,067 5,590,163 598,256 239 598,495 711,517 739 712,256 41,598 - 41,598 5,330,467 1,612,045 6,942,512 668,201 546,053 181,922 1,396,176 8,338,688 1,959,111 3,355,287 10,297,799 76 Notes to the consolidated financial statements 31 December 2016 Assets and liabilities by business sectors as of December 31, 2015: Renewable energy Conventiona l power Water Electric transmissio n lines Balance as of December 31, 2015 the equity 7,597,771 14,064 649,479 - 957,235 - (project 14,892 437,455 128,999 784 61,807 17,755 96,412 42,117 15,660 13,029 9,300,897 56,181 221,358 469,023 Assets allocated Contracted concessional assets Investments carried under method Current financial investments Cash and cash equivalents companies) Subtotal allocated Unallocated assets Other non-current assets Other current assets (including cash and cash equivalents at holding company level) Subtotal unallocated Total assets Liabilities allocated Long-term and short-term project debt Grants and other liabilities Subtotal allocated Unallocated liabilities Long-term and short-term corporate debt Other non-current liabilities Other current liabilities Subtotal unallocated Total liabilities Equity unallocated liabilities Total unallocated Total liabilities and equity and equity 8,064,182 779,262 1,036,797 167,218 10,047,459 285,105 257,910 543,015 10,590,474 Renewable energy Convention al power Electric Water transmission lines Balance as of December 31, 2015 4,108,166 1,646,637 5,754,803 617,082 111 617,193 697,922 - 697,922 47,500 - 47,500 5,470,670 1,646,748 7,117,418 664,494 591,608 193,453 1,449,555 8,566,973 2,023,501 3,473,056 10,590,474 77 Notes to the consolidated financial statements 31 December 2016 c) The amount of depreciation, amortization and impairment charges recognized for the years ended December 31, 2016 and 2015 are as follows: Depreciation, amortization and impairment by geography 2016 2015 For the twelve-month period ended December 31, $’000 North America South America EMEA Total (129,478) (62,387) (141,060) (332,925) (129,091) (41,274) (90,936) (261,301) For the twelve-month period ended December 31, $’000 Depreciation, amortization and impairment by business sectors 2016 2015 Renewable energy Electric transmission lines Total (304,235) (28,690) (332,925) (232,699) (28,602) (261,301) 78 Notes to the consolidated financial statements 31 December 2016 5. Changes in the scope of the consolidated financial statements For the year ended December 31, 2016 On January 7, 2016, the Company closed the acquisition of a 13% stake in Solacor 1/2 from JGC, which reduced JGC´s ownership in Solacor 1/2 to 13%. The total purchase price for these assets amounted to $19,923 thousand. The difference between the amount of Non-Controlling interest representing the 13% interest held by JGC accounted for in the consolidated accounts at the purchase date, and the purchase price has been recorded in equity in these consolidated financial statements, pursuant to IFRS 10, Consolidated Financial Statements. On August 3, 2016, the Company completed the acquisition of an 80% stake in Seville PV. Total purchase price paid for this asset amounted to $3,214 thousand. The purchase has been accounted for in the consolidated accounts of Atlantica Yield, in accordance with IFRS 3, Business Combinations. For the year ended December 31, 2015 On February 3, 2015, the Company completed the acquisition of a 25.5% stake in Honaine and a 34.2% stake in Skikda and on February 23, 2015, the Company completed the acquisition of a 29.6% stake in Helioenergy 1/2. Total purchase price paid for these assets amounted to $94,009 thousand. In addition, on May 13, 2015 and May 14, 2015, the Company completed the acquisition of Helios 1/2, a 100 MW solar complex, and Solnova 1/3/4, a 150 MW solar complex, respectively, both in Spain. On May 25, 2015, the Company completed the acquisition of the remaining 70.4% stake in Helioenergy 1/2, a 100 MW solar complex in Spain. On July 30, 2015, the Company completed the acquisition of Kaxu, a 100 MW solar plant in South Africa. Total purchase price paid for these assets amounted to $682,300 thousand. On June 25, 2015 the Company completed the acquisition of ATN2, an 81-mile transmission line in Peru. On September 30, 2015, the Company completed the acquisition of Solaben 1/6, a 100 MW solar complex in Spain. The total purchase price agreed for these assets amounted to $359,104 thousand. The Company has significant influence over Honaine therefore it is accounted for using the equity method as per IAS 28 Investments in Associates in these consolidated financial statements. Under IFRS 10, Consolidated Financial Statements the Company had control over the rest of the assets acquired during the year 2015 and therefore they are fully consolidated in these financial statements. Given that Atlantica Yield was a subsidiary controlled by Abengoa at the time of acquisition, the assets acquired constituted an acquisition under common control by Abengoa and accordingly, they were recorded using Abengoa’s historical basis in the assets and liabilities of the predecessor. The difference between the cash paid and historical value of the net assets was recorded in equity. Results of operations of the assets acquired have been recorded in Atlantica Yield’s consolidated income statement since the date of the acquisition. 79 Notes to the consolidated financial statements 31 December 2016 Impact of changes in the scope in the consolidated financial statements The amount of assets and liabilities integrated at the effective acquisition date for the aggregated change in scope is shown in the following table: Concessional assets (Note 13) Investments carried under the equity method (Note 14) Deferred tax asset (Note 11) Other non-current assets Current assets Project debt long term (Note 18) Deferred tax liabilities (Note 11) Project debt short term (Note 18) Other current and non-current liabilities Asset acquisition under Rofo – purchase price Non-controlling interests Net result of the asset acquisition Asset Acquisition under ROFO Agreement for the year ended December 31, 2015 3,140,457 51,527 107,227 10,137 428,935 (2,087,362) (9,589) (102,012) (491,768) (1,135,413) (57,627) (145,488) Had the Asset acquisition under ROFO Agreement performed during 2015 been consolidated from January 1, 2015, the consolidated statement of comprehensive income would have included additional revenue of $162.9 million and additional loss after tax of $25.8 million. 80 Notes to the consolidated financial statements 31 December 2016 6. Profit/(loss) for the year Profit/(loss) for the year has been arrived at after charging/ (crediting): Year ended 2016 $’000 Year ended 2015 $’000 Net foreign exchange gains / (losses) Depreciation, amortization and impairment charges Impairment preferred equity investment in ACBH through finance costs (see Note 23) Employee benefit / (expenses) (see Note 8) (9,546) (332,925) 3,852 (261,301) (22,076) (210,435) (14,736) (5,848) (379,283) (473,732) 81 Notes to the consolidated financial statements 31 December 2016 7. Auditor’s remuneration The analysis of the auditor’s remuneration is as follows: Year ended 2016 $’000 Year ended 2015 $’000 Fees payable to the company’s auditor and their associates for 758 808 the audit of the company’s annual accounts Fees payable to the company’s auditor and their associates for other services to the group –The audit of the company’s subsidiaries Total audit fees - Audit-related assurance services - Other services Total non-audit fees 798 1,556 118 118 1,674 1,031 1,839 619 78 697 2,536 82 Notes to the consolidated financial statements 31 December 2016 8. Staff costs The average monthly number of employees (including executive directors) was: Executives Middle Managers Engineers and Graduates Assistants and Profesionals Interims Their aggregate remuneration comprised: Wages and salaries Social security costs Other staff costs 9. Other operating income Other Operating income Grants Income proceeds Total from various services and insurance 2016 Number 2015 Number 16 19 80 6 20 141 9 8 30 10 19 76 Year ended 2016 $’000 Year ended 2015 $’000 (13,102) (1,410) (224) (14,736) (5,251) (505) (92) (5,848) For the twelve- month period ended December 31, 2016 For the twelve- month period ended December 31, 2015 $’000 $’000 59,085 6,453 65,538 67,859 998 68,857 Grants primarily relate to the ITC cash grant of Solana and Mojave, and the implicit grant recorded for accounting purposes in relation to the FFB Loans in Solana and Mojave projects with interest rates below market rates. 83 Notes to the consolidated financial statements 31 December 2016 10. Finance income and expenses The following table sets forth our financial income and expenses for the years ended December 31, 2016 and 2015: For the twelve- month period ended December 31, 2016 $’000 For the twelve- month period ended December 31, 2015 $’000 Finance income Interest income from loans and credits Profit on interest rate derivatives: cash flow hedges TOTAL 286 3,012 3,298 933 2,531 3,464 Finance expenses Expenses due to interest: - Loans from credit entities - Other debts Losses on interest rate derivatives: cash flow hedges TOTAL For the twelve- month period ended December 31, 2016 $’000 For the twelve- month period ended December 31, 2015 $’000 (242,919) (90,995) (74,093) (408,007) (197,929) (81,853) (54,139) (333,921) Financial expenses increased in 2016 mainly due to the 2015 asset acquisitions under the ROFO Agreement. Interests from other debts are primarily interest on the notes issued by ATS, ATN, ATN2, Atlantica Yield, Solaben Luxembourg and interest related to the investment from Liberty (see Note 19). Losses from interest rate derivatives designated as cash flow hedges correspond mainly to transfers from equity to financial expense when the hedged item is impacting the consolidated income statement. For the twelve- month period For the twelve- month period 84 Notes to the consolidated financial statements 31 December 2016 Other finance income / (expenses) Dividend from ACBH (Brazil) Other finance income Impairment preferred equity investment in ACBH (see Note 23) Other finance losses TOTAL ended December 31, 2016 $’000 ended December 31, 2015 $’000 27,948 13,027 (22,076) (10,394) 8,505 18,400 1,520 (210,435) (9,638) (200,153) According to the agreement reached with Abengoa in the third quarter of 2016 (see Note 23), Abengoa acknowledged that Atlantica Yield is the legal owner of the dividends retained from Abengoa amounting to $28.0 million. As a result, the Company recorded $28.0 million as Other financial income in accordance with the accounting treatment given previously to the ACBH dividend. Other financial income mainly includes the income further to the cancellation of the subordinated debt Solnova Electricidad S.A. owed to Abener, a subsidiary of Abengoa, and income for discounts received from Abengoa for the prepayment of payables (see Note 27). Other finance losses mainly include guarantees and letters of credit, wire transfers and other bank fees and other minor finance expenses. Refer to note 27 for further details on the impairment of the preferred equity investment in ACBH. 11. Tax All the companies included in the Company file income taxes according to the tax regulations in force in each country on an individual basis or under consolidation tax regulations. The consolidated income tax has been calculated as an aggregation of income tax expenses of each individual company. In order to calculate the taxable income of the consolidated entities individually, the accounting profit is adjusted for temporary and permanent differences, recording the corresponding deferred tax assets and liabilities. At each consolidated income statement date, a current tax asset or liability is recorded, representing income taxes currently refundable or payable. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amount of assets and liabilities for financial statement and income tax purposes, as determined under enacted tax laws and rates. Income tax payable is the result of applying the applicable tax rate in force to each tax-paying entity, in accordance with the tax laws in force in the country in which the entity is registered. Additionally, tax deductions and credits are available to certain entities, primarily relating to inter-company trades and tax treaties between various countries to prevent double taxation. 85 Notes to the consolidated financial statements 31 December 2016 Corporation tax: Current year Deferred tax Year ended 2016 $’000 Year ended 2015 $’000 (1,018) (2,182) (1,018) (648) (2,182) (21,608) (1,666) (23,790) Taxation is calculated at the rates prevailing in the respective jurisdictions. The tax (charge)/income for the year can be reconciled to the profit/(loss) in the income statement as follows: Profit / (Loss) before tax Tax at the average statutory tax rate of 30% (2015: 30 %) Tax effect of share of results of associates Permanent differences Year ended 2016 $’000 Year ended 2015 $’000 3,333 (174,396) (1,000) 2,110 52,319 2,341 11,121 (19,456) Incentives, deductions, and tax losses carryforwards (11,110) (58,039) Change in Spanish corporate income tax Effect of different tax rates of subsidiaries operating in other jurisdictions Other non-taxable income/ (expense) Tax charge for the year - 884 (4,930) (2,389) 2,143 550 (1,666) (23,790) Permanent differences in 2016 and 2015 are mainly due to ACT (Mexico). Incentives, deductions, and tax losses carryforwards for the year 2015 included the impact of not recognizing deferred tax assets on the impairment charge of the preferred equity investment in ACBH ($63.1 million). In relation to tax loss carryforwards and deductions pending to be used recorded as deferred tax assets, the entities evaluate its recoverability projecting forecasted taxable income for the upcoming years and taking into account their tax planning strategy. Deferred tax liabilities reversals are also considered in these projections, as well as any limitation established by tax regulations in force in each tax jurisdiction. Most of the tax credits for net operating loss carryforwards correspond to Solana, Mojave, Peru, Kaxu and solar plants in Spain. The movements in deferred tax assets and liabilities during the years ended December 31, 2016 and 2015 were as follows: 86 Notes to the consolidated financial statements 31 December 2016 At 1 January 2015 Charge / (Credit) to profit or loss Charge to other comprehensive income Acquisition of subsidiary Exchange differences and other At 1 January 2016 Charge / (Credit) to profit or loss Charge to other comprehensive income Acquisition of subsidiary Exchange differences and other At 31 December 2016 12. Dividends 63,392 (21,608) (12,010) 97,638 (15,752) 111,660 (648) (5,639) - 2,481 107,854 Amounts recognised as distributions to equity holders in the period: (54,350) (146,302) Year ended 2016 $’000 Year ended 2015 $’000 The dividends indicated above primarily relate to the dividends declared by Atlantica Yield Plc. to its shareholders. These have been declared as follows: - On August 3, 2016, the Board of Directors declared a dividend of $0.29 per share corresponding to $0.145 per share for the first quarter of 2016 and to $0.145 per share for the second quarter of 2016. The dividend was paid on September 15, 2016. From that amount, the Company retained $12.2 million of the dividend attributable to Abengoa. - On November 11, 2016, the Board of Directors declared a dividend of $0.163 per share corresponding to the third quarter of 2016. The dividend was paid on December 15, 2016. From that amount, the Company retained $6.6 million of the dividend attributable to Abengoa. 13. Contracted concessional assets a) The following table shows the movements of contracted concessional assets included in the heading “Contracted Concessional assets” for 2016: 2016 87 Notes to the consolidated financial statements 31 December 2016 Cost At 1 January 2016 Additions Translation differences Changes in scope of the consolidated financial statements Reclassification and other movements At 31 December 2016 Accumulated amortization losses At 1 January 2016 Charge Translation differences Changes in scope of the consolidated financial statements At 31 December 2016 Carrying amount At 1 January 2016 At 31 December 2016 $’000 10,126,023 6,346 (68,199) 5,876 (2,450) 10,067,596 (825,126) (332,925) 17,108 (2,381) (1,143,324) 9,300,897 8,924,272 During 2016 contracted concessional assets decreased primarily due to the amortization charge for the year. Considering the low level of wind resources recorded since COD in Palmatir and Cadonal projects and the uncertainty around such level in the future, the Company identified a triggering of impairment during the year 2016 in compliance with IAS 36, Impairment of Assets. As a result, impairment tests have been performed resulting in the recording of an impairment loss of $17,229 thousand and $3,101 thousand for Cadonal and Palmatir, respectively, as of December 31, 2016. The impairment has been recorded within the line “Depreciation, amortization and impairment charges” of the consolidated income statement, decreasing the amount of “Contracted concessional assets” pertaining to the Renewable energy sector and South America geography. The recoverable amount considered is the value in use and amounts to $91,795 thousand and $123,912 thousand for Cadonal and Palmatir, respectively as of December 31, 2016. A specific discount rate has been used in each year considering changes in the debt/equity leverage ratio over the useful life of this project, resulting in the use of a range of discount rates between 6.7% and 7.0% for both projects. An adverse change in the key assumptions which are individually used for the valuation could lead to future impairment recognition; especially, a 5% decrease in generation over the entire remaining useful life (PPA) of the project would generate an additional impairment of approximately $5 million for Cadonal and $7 for Palmatir. An increase of 50 basis points in the discount rate would lead to an additional impairment of approximately $3 million for Cadonal and $4 million for Palmatir. 88 Notes to the consolidated financial statements 31 December 2016 In addition, the Company identified a triggering event of impairment for Solana as a result of the generation of the plant having been lower than expected during its first years of operation. This project pertains to the Renewable energy sector and North America geography. The Company therefore performed an impairment test as of December 31, 2016, which resulted in the recoverable amount (value in use) exceeding the carrying amount of the asset by 3%. To determine the value in use of the asset, a specific discount rate has been used in each year considering changes in the debt/equity leverage ratio over the useful life of this project, resulting in the use of a range of discount rates between 4.1% and 5.1%. An adverse change in the key assumptions which are individually used for the valuation could lead to future impairment recognition; especially, a 5% decrease in generation over the entire remaining useful life (PPA) of the project would generate an impairment of approximately $40 million. An increase of 50 basis points in the discount rate would lead to an impairment of approximately $30 million. The decrease included in “Reclassification and other movements” is mainly due to the reclassification from the long to the short term of the current portion of the contracted concessional financial assets. b) The following table shows the movements of contracted concessional assets included in the heading ‘Contracted Concessional assets for 2015: Cost At 1 January 2015 Additions Translation differences Changes in scope of the consolidated financial statements Reclassification and other movements At 31 December 2015 Accumulated amortization losses At 1 January 2015 Charge Translation differences Changes in scope of the consolidated financial statements At 31 December 2015 Carrying amount At 1 January 2015 At 31 December 2015 2015 $’000 7,025,576 13,426 (326,557) 3,430,362 (16,784) 10,126,023 (300,398) (261,301) 26,478 (289,905) (825,126) 6,725,178 9,300,897 89 Notes to the consolidated financial statements 31 December 2016 During 2015 contracted concessional assets increased mainly due to the asset acquisition under Rofo agreement ($3,140 million). No losses from impairment of ‘Contracted concessional assets’ were recorded during 2015. The decrease included in “Reclassification and other movements” is mainly due to the reclassification from the long to the short term, of the current portion of the contracted concessional financial assets. 14. Investments carried under the equity method The table below shows the breakdown and the movement of the investments held in associates for 2016 and 2015: 90 Notes to the consolidated financial statements 31 December 2016 Investments in associates Initial balance Change in the scope of the consolidated financial statements Share of profit/(loss) Dividend distribution Equity distribution Currency translation differences 2016 $’000 56,181 - 6,646 (3,954) (3,099) (765) 2015 $’000 5,711 51,528 7,844 (4,845) - (4,057) Final balance 55,099 56,181 Details of the Group's associates at the end of the reporting period are as follows: Name associate of Principal activity Place of incorporation and principal place of business Proportion ownership of interest / voting rights held by the Group Connection Facilities Caceres (Spain) 57.16% 57.16% 31/12/2016 31/12/2015 Water plant Dély Ibrahim (Algeria) Pretoria (South Africa) 25.50% 50.00% 25.50% 50.00 % Sevilla (Spain) 40.02% 36.64% Evacuación Valdecaballeros , S.L. Myah Bahr Honaine, S.P.A. Pectonex, R.F. Proprietary Limited Evacuación Villanueva del Rey, S.L Connection Facilities Connection Facilities All of the above associates are accounted for using the equity method in these consolidated financial statements as set out in the group’s accounting policies in note 3. There are no significant movement in the investments held in associates during the year 2016. The increase in 2015 is mainly due to the entrance of Geida Tlemcem, S.L., which owns 51% of Honaine desalination plant. The tables below show a breakdown of stand-alone amounts of assets, revenues and profit and loss as well as other information of interest for the years 2016 and 2015 for the associated companies: Company % Shares Non- Current Non- Current Revenue Operating Net Investment 91 Notes to the consolidated financial statements 31 December 2016 current assets current liabilities profit/ profit/ under the assets liabilities (loss) (loss) equity Evacuación Valdecaballeros, S.L. Myah Bahr Honaine, S.P.A. (*) Pectonex, R.F. Proprietary Limited 57.16 25.50 50.00 19,283 931 306 532 537 (545) (565) 202,150 67,120 104,704 14,158 52,770 34,247 14,066 3,730 - - 1 - (187) (187) method 9,528 42,056 3,425 Evacuación Villanueva del Rey, S.L 40.02 3,251 17 2,118 142 - 31 - - As of December 31, 2016 228,684 68,068 107,128 14,833 53,307 33,546 13,314 55,009 % Shares Non- Current Non- Current Revenue Operating Net Investment current assets current liabilities assets liabilities profit/ (loss) profit/ (loss) under the equity method Evacuación Valdecaballeros, S.L. Myah Bahr Honaine, S.P.A. (*) Pectonex, R.F. Proprietary Limited 57.16 25.50 50.00 Evacuación Villanueva del Rey, S.L 36.64 20,552 2,402 296 580 458 (631) 201,997 73,965 116,610 11,945 52,767 39,336 3,485 3,526 - 100 - 2,467 - 96 - - (54) 25 (651) 15,607 (54) - 10,475 42,117 3,589 - As of December 31, 2015 229,560 76,467 119,373 12,621 53,225 38,676 14,902 56,181 None of the associated companies referred to above is a listed company. (*) Myah Bahr Honaine, S.P.A., the project entity, is 51% owned by Geida Tlemcen, S.L. which is accounted for using the equity method in these consolidated statements. Share of profit of Myah Bahr Honaine S.P.A. included in these consolidated financial statements amounts to $7,647 thousand in 2016 and $7,821 thousand in 2015. 15. Trade and other receivables Trade and other receivable as of December 31, 2016 and 2015, consist of the following: Trade receivables Tax receivables Prepayments Other accounts receivable Total Balance as of December 31, 2016 $’000 Balance as of December 31, 2015 $’000 151,199 29,705 10,261 16,456 207,621 126,844 42,322 9,168 18,974 197,308 92 Notes to the consolidated financial statements 31 December 2016 As of December 31, 2016 and 2015, the fair value of trade and other receivable accounts does not differ significantly from its carrying value. The Group has not provided for these debtors as there are all considered to be fully recoverable. Trade receivables according to foreign currency as of December 31, 2016 and 2015, are as follows: Euro Rand Other Total Balance as of December 31, 2016 $’000 Balance as of December 31, 2015 $’000 98,798 12,807 7,151 118,756 74,535 6,208 6,646 87,389 The following table shows the maturity of Trade receivables as of December 31, 2016 and 2015: Balance as of December 31, 2016 $’000 Balance as of December 31, 2015 $’000 151,199 151,199 126,844 126,845 Up to 3 months Total 16. Cash and cash equivalents 2016 $’000 2015 $’000 Cash and cash equivalents 594,811 514,712 594,811 514,712 The following breakdown shows the main currencies in which cash and cash equivalent balances are denominated: US Dollar Euro 2016 $’000 2015 $’000 343,954 196,382 219,172 251,778 93 Notes to the consolidated financial statements 31 December 2016 Algerian Dinar South African Rand Others 10,736 39,689 4,050 13,019 25,962 4,781 594,811 514,712 17. Corporate debt The breakdown of the corporate debt as of December 31, 2016 and 2015 is as follows: Non-current Balance as of December 31, 2016 $’000 Balance as of December 31, 2015 $’000 Credit Facilities with financial entities Notes and Bonds 123,804 252,536 409,665 251,676 Total Non-current 376,340 661,341 94 Notes to the consolidated financial statements 31 December 2016 Current Credit Facilities with financial entities Notes and Bonds Total Current Balance as of December 31, 2016 $’000 Balance as of December 31, 2015 $’000 289,035 2,826 291,861 624 2,529 3,153 The Credit Facility Tranche B is classified as Current for $288,317 thousand as of December 31, 2016 (Non-Current as of December 31, 2015) as it matures in December 2017. As a result of this reclassification, current liabilities in the consolidated statement of financial position are higher than current assets. On February 10, 2017, the Company signed a Note Issuance Facility, a senior secured note facility with a group of funds managed by Westbourne Capital as purchasers of the notes issued thereunder for a total amount of €275 million (approximately $294 million), with three series of notes. Series 1 Notes for €92 million mature in 2022; series 2 notes for €91.5 million mature in 2023; and series 3 notes for €91.5 million mature in 2024. Interest on all three series accrues at a rate per annum equal to the sum of 3 month EURIBOR plus 4.90%. The proceeds of the Note Issuance Facility will be used for the repayment of Tranche B under our Credit Facility, which will be canceled, as well as for general corporate expenses incurred as part of this transaction. The Company intends to fully hedge the Note Issuance Facility with a swap to fix the interest rate as soon as possible after funding of the Notes. Residual Current Corporate debt fully relates to the accrued interest of the Notes and Credit Facility as of December 31, 2016 and 2015. The repayment schedule for the Corporate debt at the end of 2016 is as follows: 2019 Credit Facilities with financial entities Notes and Bonds 2017 289,035 2,826 2018 123,804 — 291,861 123,804 — 252,536 252,536 Total 412,839 255,362 668,201 On November 17, 2014, the Company issued the Senior Notes due 2019 in an aggregate principal amount of $255,000 thousand (the “2019 Notes”). The 2019 Notes accrue annual interest of 7.00% payable semi-annually beginning on May 15, 2015 until their maturity date of November 15, 2019. On December 3, 2014, the Company entered into a credit facility of up to $125,000 thousand with Banco Santander, S.A., Bank of America, N.A., Citigroup Global Markets Limited, HSBC Bank plc and RBC Capital Markets, as joint lead arrangers and joint bookrunners (the “Credit Facility”). On December 22, 2014, the Company drew down $125,000 thousand under the Credit Facility. Loans under the Credit Facility accrue interest at a rate per annum equal to: (A) for Eurodollar rate loans, LIBOR plus 2.75% and (B) for base rate loans, the highest of (i) the rate per annum equal to the weighted average of the rates on overnight U.S. Federal funds transactions with members of the U.S. Federal Reserve System arranged by U.S. Federal funds brokers on such day plus 1/2 of 1.00%, (ii) the U.S. prime rate and (iii) LIBOR plus 1.00%, in any case, plus 1.75%. Loans under the Credit Facility will mature on the fourth anniversary of the closing date of the Credit Facility. Loans prepaid 95 Notes to the consolidated financial statements 31 December 2016 by the Company under the Credit Facility may be reborrowed. The Credit Facility is secured by pledges of the shares of the guarantors which the Company owns. On June 26, 2015, the Company increased its existing $125 million Credit Facility with a revolver tranche B for an amount of $290,000 thousand (the “Credit Facility Tranche B). On September 9, 2015, Credit Facility Tranche B was fully drawn down and the proceeds were used for the acquisition of Solaben 1/6. Loans under the Tranche B Facility accrue interest at a rate per annum equal to: (A) for Eurodollar rate loans, LIBOR plus 2.50% and (B) for base rate loans, 1.50%. Loans under the Credit Facility Tranche B will mature in December 2017. Tranche B of the Credit Facility was signed for a total amount of $290 million with Bank of America, N.A., as global coordinator and documentation agent and Barclays Bank plc and UBS AG, London Branch as joint lead arrangers and joint bookrunners. 18. Project debt The main purpose of the Company is the long-term ownership and management of contracted concessional assets, such as renewable energy, conventional power and electric transmission line assets, which are financed through project debt. This note shows the project debt linked to the contracted concessional assets included in note 13 of these consolidated financial statements. Project debt is generally used to finance contracted assets, exclusively using as guarantee the assets and cash flows of the company or group of companies carrying out the activities financed. In most of the cases, the assets and/or contracts are set up as guarantee to ensure the repayment of the related financing. Compared with corporate debt, project debt has certain key advantages, including a greater leverage period permitted and a clearly defined risk profile. The movements for 2016 and 2015 of project debt have been as follows: 96 Notes to the consolidated financial statements 31 December 2016 Project debt - long term $’000 Project debt - short term $’000 Total $’000 Balance as of December 31, 2015 3,574,464 1,896,205 5,470,669 Increases Repayments Currency translation differences Reclassifications Balance as of December 31, 2016 36,842 - (64,426) 1,082,304 4,629,184 329,434 366,276 (480,969) (480,969) 38,917 (25,509) (1,082,304) - 701,283 5,330,467 Main variations in Project debt during the year 2016 are the result of: - Net decrease primarily due to repayment of debt; considering interests accrued are offset by a similar amount of interests paid during the year. - A reclassification of the entire debt of Solana and Mojave projects from short term to long term as of December 31, 2016 considering that as a result of the forbearance signed in December, 2016, Abengoa cross-defaults will no longer trigger acceleration remedies in the Solana or Mojave financing agreements. Debts of Kaxu and Cadonal projects remain classified as short term in accordance with International Accounting Standards 1 (“IAS 1”), “Presentation of Financial Statements” (see below for details). The waiver of the cross-default provisions related to Abengoa that has been obtained for Cadonal during 2016 is subject to the completion of certain conditions. Balance as of December 31, 2014 Increases Repayments Currency translation differences Reclassifications Changes in the scope of the consolidated financial statements Balance as of December 31, 2015 Project debt - long term $’000 3,491,877 72,406 - (201,958) (1,875,223) 2,087,362 Project debt - short term $’000 331,189 370,720 (772,886) (10,052) 1,875,223 102,012 Total $’000 3,823,066 443,126 (772,886) (212,010) - 2,189,374 3,574,464 1,896,206 5,470,670 During 2015 the increase in Project debt – short term is the result of: - A decrease for the repayment of the short term tranche of the loan with the federal financing Bank by Mojave Solar LLC debt amounting to $334 million on October 2015; 97 Notes to the consolidated financial statements 31 December 2016 - A reclassification of the entire debt of Solana, Mojave, Kaxu and Cadonal projects from long term to short term as of December 31, 2015 as a result of the cross-default provisions related to Abengoa further to the Insolvency Proceeding filed by Abengoa on November 25, 2015. Although the Company does not expect the acceleration of debt to be declared by the credit entities, the project entities did not have contractually as of December 31, 2015 an unconditional right to defer the settlement of the debt for at least twelve months after that date, and therefore the debt has been presented as current in these consolidated financial statements in accordance with International Accounting Standards 1 (“IAS 1”), “Presentation of Financial Statements”. The repayment schedule for Project debt in accordance with the financing arrangements, at the end of 2016 is as follows and is consistent with the projected cash flows of the related projects. 2017 2018 2019 2020 2021 Subsequent years Total Interest Repayment Nominal repayment 20,775 190,379 209,011 229,090 247,075 261,026 4,173,111 5,330,467 In 2016, the Company refinanced ATN2 debt. In 2015, the Company did not enter into any new project debt. Current and non-current loans with credit entities include amounts in foreign currencies for a total of $2,564,291 thousand as of December 31, 2016 ($2,690,769 thousand as of December 31, 2015). All of the Company’s financing agreements have a carrying amount close to its fair value. 98 Notes to the consolidated financial statements 31 December 2016 19. Grants and other long term payables Balances as of December 31, 2016 Balances as of December 31, 2015 $’000 $’000 Grants Other liabilities Grant and other non-current liabilities 1,297,755 314,290 1,612,045 1,354,967 291,781 1,646,748 As of December 31, 2016, the amount recorded in Grants corresponds mainly to the ITC Grant awarded by the U.S. Department of the Treasury for Solana and Mojave for a total amount of $803,233 thousand ($835,430 thousand as of December 31, 2015), which was mainly used to fully repay the Solana and Mojave short-term tranche of the loan with the Federal Financing Bank. The amount recorded in Grants as a liability is progressively recorded as other income over the useful life of the asset. The remaining balance of the “Grants” account corresponds to loans with interest rates below market rates for Solana and Mojave for a total amount of $492,406 thousand ($517,165 thousand as of December 31, 2015). Loans with the Federal Financing Bank guaranteed by the Department of Energy for these projects bear interest at a rate below market rates for these types of projects and terms. The difference between proceeds received from these loans and its fair value, is initially recorded as “Grants” in the consolidated statement of financial position, and subsequently recorded in “Other operating income” starting at the entry into operation of the plants. Other liabilities mainly relate to the investment from Liberty Interactive Corporation (‘Liberty’) made on October 2, 2013 for an amount of $300 million. The investment was made in class A shares of Arizona Solar Holding, the holding of Solana Solar plant in the United States. Such investment was made in a tax equity partnership which permits the partners to have certain tax benefits such as accelerated depreciation and ITC. According to the stipulations of IAS 32 and in spite of the fact that the investment of Liberty Interactive Corporation (‘Liberty’) is in shares, it does not qualify as equity and has been classified as a liability as of December 31, 2016 and 2015. The non-current portion of the liability is recorded in Grants and other liabilities for an amount of $263,885 thousand ($247,384 thousand as of December 31, 2015) and its current portion is recorded in other current liabilities for the remaining amount (see Note 20). This liability has been initially valued at fair value, calculated as the present value of expected cash-flows during the useful life of the concession, and is then measured at amortized cost in accordance with the effective interest method. 20. Trade and other payables 99 Notes to the consolidated financial statements 31 December 2016 Item Trade accounts payable Down payments from clients Suppliers of concessional assets current Liberty (see Note 19) Other accounts payable Total Balance as of December 31, 2016 Balance as of December 31, 2015 $’000 $’000 121,527 6,153 380 21,461 10,984 160,505 110,495 6,398 17,582 21,515 22,227 178,217 Trade accounts payables mainly relate to the operating and maintenance of the plants. Nominal values of Trade payable and other current liabilities are considered to approximately equal to fair values and the effect of discounting them is not significant. 21. Equity Transactions closed during the year 2015 On January 22, 2015, Abengoa closed an underwritten public offering and sale in the United States of 10,580,000 of ordinary shares of the Company for total proceeds of $327,980,000 (or $31 per share). As a result of such offering, Abengoa reduced its stake in the Company from 64.3% to 51.1% of its shares. On May 14, 2015 Atlantica Yield issued 20,217,260 new shares at $33.14 per share, which was based on a 3% discount versus the May 7, 2015 closing price. Abengoa subscribed for 51% of the newly- issued shares and maintained its previous stake in Atlantica Yield. The proceeds were primarily used by Atlantica Yield to finance asset acquisitions in May and June 2015. On July 14, 2015, Abengoa sold 2,000,000 shares of Atlantica Yield under Rule 144, reducing its stake to 49.1%. Transactions closed during the year 2016 and position as of December 31, 2016 As of December 31, 2016, the share capital of the Company amounts to $10,021,726 represented by 100,217,260 ordinary shares completely subscribed and disbursed with a nominal value of $0.10 each, all in the same class and series. Each share grants one voting right. As of the date hereof, according to Abengoa´s beneficial ownership reporting, Abengoa has delivered an aggregate of 7,595,639 Ordinary Shares to holders that exercised their option to exchange the $279,000 thousand principal amount of exchangeable notes due 2017 issued by Abengoa on March 5, 2015 (the “Exchangeable Notes”) for shares of Atlantica Yield. The Exchangeable Notes are exchangeable, at the option of their holders, for ordinary shares of Atlantica Yield. These operations reduced Abengoa´s stake to 41.47% as of December 31, 2016. Atlantica Yield reserves as of December 31, 2016 are made up of share premium account and distributable reserves. Retained earnings include results attributable to Atlantica Yield, the impact of the Asset Transfer in equity and the impact of the assets acquisition under the ROFO agreement in equity. The Asset Transfer and the acquisitions under the ROFO agreement were recorded in accordance with the 100 Notes to the consolidated financial statements 31 December 2016 Predecessor accounting principle, given that all these transactions occurred before December 2015, when Abengoa still had control over Atlantica Yield. Non-controlling interests fully relate to interests held by JGC in Solacor 1 and Solacor 2, by Idae in Seville PV, by Itochu Corporation in Solaben 2 and Solaben 3, by Algerian Energy Company, SPA and Sadyt in Skikda and by Industrial Development Corporation of South Africa (IDC) and Kaxu Community Trust in Kaxu Solar One (Pty) Ltd. Dividends declared during the year 2016: - On August 3, 2016, the Board of Directors declared a dividend of $0.29 per share corresponding to $0.145 per share for the first quarter of 2016 and to $0.145 per share for the second quarter of 2016. The dividend was paid on September 15, 2016. From that amount, the Company retained $12.2 million of the dividend attributable to Abengoa; - On November 11, 2016, the Board of Directors declared a dividend of $0.163 per share corresponding to the third quarter of 2016. The dividend was paid on December 15, 2016. From that amount, the Company retained $6.6 million of the dividend attributable to Abengoa. In addition, as of December 31, 2016, there was no treasury stock and there have been no transactions with treasury stock during the period then ended. 101 Notes to the consolidated financial statements 31 December 2016 22. Notes to the cash flow statement Analysis of changes in net debt January 1, 2016 $’000 Cash Flow $’000 Non monetary items $’000 December 31, 2016 $’000 Cash and bank balances 514,712 81,956 Borrowings 6,135,164 (488,206) (1,857) 351,710 594,811 5,998,668 Net debt 5,620,452 (570,162) 353,567 5,403,857 23. Financial instruments by category Financial instruments are primarily deposits, derivatives, trade and other receivables and loans. Financial instruments by category (current and non-current), reconciled with the statement of financial position as of December 31, 2016 and 2015 are as follows: Category Notes Derivative assets Preferred equity in ACBH Other financial accounts receivables Trade and other receivables Cash and cash equivalents Total financial assets Corporate debt Project debt Related parties Trade and other current liabilities Derivative liabilities Total financial liabilities 24 16 17 18 27 20 24 Loans and receivables / payables $’000 Available for sale financial assets $’000 Hedging derivatives $’000 Balance as of 12.31.16 $’000 - - 263,501 207,621 594,811 1,065,933 668,201 5,330,467 101,750 160,505 - 6,260,923 - 30,488 - - - 30,488 - - - - - - 3,822 - - - - 3,822 - - - - 349,266 349,266 3,822 30,488 263,501 207,621 594,811 1,100,243 668,201 5,330,467 101,750 160,505 349,266 6,610,189 Derivative assets Preferred equity in ACBH Notes 24 Loans and receivables / payables $’000 - - Available for sale financial assets $’000 - 52,564 Hedging derivatives $’000 Balance as of 12.31.15 $’000 4,741 - 4,741 52,564 102 Notes to the consolidated financial statements 31 December 2016 Financial accounts receivables Trade and other receivables Cash and cash equivalents Total financial assets Corporate debt Project debt Related parties Trade and other current liabilities Derivative liabilities Total financial liabilities 16 17 18 27 20 24 257,844 197,308 514,712 969,864 664,494 5,470,670 126,860 178,217 - 6,440,241 - - - 52,564 - - - - - - - - - 4,741 - - - - 385,095 385,095 257,844 197,308 514,712 1,027,169 664,494 5,470,670 126,860 178,217 385,095 6,825,335 As of December 31, 2016 and 2015, all the financial instruments measured at fair value have been classified as Level 2, except for the preferred equity investment in ACBH and the Put and Call Option agreement (see Note 24), classified as Level 3. The preferred equity investment in ACBH is an available for sale financial asset that gives the following rights: - During the five-year period commencing on July 1, 2014, Atlantica Yield has the right to receive, in four quarterly installments, a preferred dividend of $18,400 thousand per year. As of December 31, 2015, the Company received the dividend corresponding to 1.5 years and the portion corresponding to 3.5 years is pending to be received, as installment for the four quarters at 2016 hasn´t been paid to the Company yet; - Following the initial five-year period, Atlantica Yield has the option to (i) remain as preferred equity holder receiving the first $18,400 thousand in dividends per year that ACBH is able to distribute or (ii) exchange the preferred equity for ordinary shares of specific project companies owned by ACBH. On January 29, 2016, Abengoa informed the Company that several indirect subsidiaries of Abengoa in Brazil, including ACBH, initiated an insolvency procedure under Brazilian law (“reorganizaçao judiciaria”). The Company is currently assessing the potential impact of this event together with external advisors. Given that this process will likely negatively affect the value of the preferred equity investment and considering the high degree of uncertainty on its final outcome, the Company recorded an impairment of this preferred equity investment for a total amount of $210,435 thousand as of December 31, 2015. The valuation method used to calculate the value on the preferred equity investment in ACBH as of December 31, 2015 has been discounting the originally expected cash- flows from the instrument using a discount rate of 35%, based on the yields of bonds issued in Brazil by comparable companies with a rating indicating distress. In addition, in the third quarter of 2016, the Company signed an agreement with Abengoa on ACBH preferred equity investment among other things, with the following main consequences: - Abengoa acknowledged it failed to fulfill its obligations under the agreements related to the preferred equity investment in ACBH and, as a result, Atlantica Yield is the legal owner of the dividends amounting to $28.0 million, that the Company retained from Abengoa; - Abengoa recognizes a non-contingent credit for an amount of €300 million (approximately $316 million), corresponding to the guarantee provided by Abengoa, S.A. regarding the preferred equity investment in ACBH, subject to restructuring and subject to adjustments for dividends retained after the agreement. On October 25 2016, Atlantica Yield signed implementation of the Abengoa’s restructuring agreement and accepted, subject to 103 Notes to the consolidated financial statements 31 December 2016 restructuring, to receive 30% of the amount (approximately $95 million nominal value) in the form of tradable bonds to be issued by Abengoa. Upon completion of the restructuring, this debt (“Restructured Debt”) would have a junior status within Abengoa debt structure post restructuring. The remaining 70% (approximately $221 million) would be received in the form of equity in Abengoa. As of the date of this report, there is a high degree of uncertainty on the value of this debt and equity; - In order to convert this junior debt into senior debt, Atlantica Yield has agreed, subject to implementation of the restructuring, to participate in Abengoa’s issuance of asset-backed notes (the “New Money 1 Tradable Notes”) with up to €48 million (approximately $51 million), subject to scale-back following allocation process contemplated in Abengoa’s restructuring. In the fourth quarter of 2016, the Company reached an agreement with an investment fund to sell them approximately 50% of the New Money Tradable Notes that the Company is assigned, and as a result expects the final investment to be less than €24 million (approximately $25 million). The New Money 1 Tradable Notes are backed by a ring-fenced structure including Atlantica Yield’s shares and a cogeneration plant in Mexico (A3T). The New Money 1 Tradable Notes offer the highest level of seniority in Abengoa’s debt structure post restructuring. Upon the purchase by the Company of the New Money 1 Tradable Notes, the Restructured Debt would be converted into senior debt; - Upon receipt of the Restructured Debt and Abengoa equity, the Company would waive its rights under the ACBH agreements, including its right to retain the dividends payable to Abengoa. Further to this agreement, the Company updated the valuation of the instrument as of December 31, 2016 using a probability weighted method. This valuation method considers the probability of the restructuring agreement of Abengoa being made effective. The fair value of the instrument as of December 31, 2016 is the result of estimating the value of the instrument in case the restructuring agreement is made effective and in case it is not. In case the restructuring agreement is not accepted, the value of the instrument would remain the same as the one calculated as of December 31, 2015. In case the restructuring agreements is made effective, value of the instrument has been obtained by discounting the expected cash-flows from the Restructured Debt (approximately $95 million), using a discount rate of 25% based on the yields of bonds issued in Spain by comparable companies involved in a similar restructuring process. Result of this updated valuation is an additional impairment of this preferred equity investment recorded as of December 31, 2016 for an amount of $22,076 thousand. An adverse change in the key assumptions which are individually used for the valuation could lead to future impairment recognition; especially, an increase of 50 basis points in the discount rates used in the fair value exercise described above would lead to an additional impairment of approximately $1 million. Other financial accounts receivables include the short-term portion of contracted concessional assets (see Note 13). 24. Derivative financial instruments The breakdowns of the fair value amount of the derivative financial instruments as of December 31, 2016 and 2015 are as follows: 104 Notes to the consolidated financial statements 31 December 2016 Balance as of 12.31.16 Balance as of 12.31.15 Assets Liabilities Assets Liabilities $’000 $’000 $’000 $’000 Derivatives - cash flow hedge 3,822 349,266 4,741 385,095 The derivatives are primarily interest rate cash-flow hedges. All are classified as non-current assets or non-current liabilities, as they hedge long-term financing agreements. On May 12, 2015, the Company entered into a currency swap agreement with Abengoa which provides for a fixed exchange rate for the cash available for distribution from the Company’s Spanish assets. The distributions from the Spanish assets are paid in euros and the currency swap agreement provides for a fixed exchange rate at which euros will be converted into U.S. dollars. The currency swap agreement has a five-year term, and is valued by comparing the contracted exchange rate and the future exchange rate in the valuation scenario at the maturities dates. The instrument is valued by calculating the cash flow that would be obtained or paid by theoretically closing out the position and then discounting that amount. On November 7, 2016, the Company entered into a Put and Call option agreement with an investment fund to sell them approximately 50% of the New Money Tradable Notes that the Company is assigned. The fair value of the Put and Call agreement has been assumed to be the sum of the intrinsic value of the options, due to the short time period, 5 days, in which the options can be executed and the absence of the subjacent volatility. The intrinsic value of the contract is the difference between the nominal value of the debt and the fair value of the debt. The latter has been estimated by discounting the projected contractual cash flows using a single discount rate. It has been assumed that the best estimate of the credit risk profile of the New Money Notes is 18,9% which is the one reflected by the Lenders in the debt pricing, meaning the Internal Rate of Return (IRR) of the debt cash flows and that results in a net fair value of the Put and Call option as of December 31, 2016 of 0. Modifying the assumption of the IRR and considering the yield to maturity of the quoted bonds and different rating assumptions like a 25,1% discount rate (which would be an approximate discount for CC rated debt) and a 12,5% discount rate (which would be an approximate discount for CCC rate debt), the fair value of the Put and Call agreement would result respectively in a derivative liability of $5 million and a derivative asset of $3.7 million. With this agreement, the objective of the Company is to be able to obtain liquidity from the New Money. The net price paid to enter into the Put and Call option was 0 (€1 collected for the put and €1 paid for the call) and there will be no cash effect with regards to the sensibilities discussed. As stated in Note 25 to these consolidated financial statements, the general policy is to hedge variable interest rates of financing agreements purchasing call options (caps) in exchange of a premium to fix the maximum interest rate cost and contracting floating to fixed interest rate swaps. As a result, the notional amounts hedged, strikes contracted and maturities, depending on the characteristics of the debt on which the interest rate risk is being hedged, can be diverse: • • Project debt in Euros: the Company hedge between 75% and 100% of the notional amount, maturities until 2030 and average guaranteed interest rates of between 3.20 % and 4.87%. Project debt in U.S. dollars: the Company hedge between 75% and 100% of the notional amount, including maturities until 2043 and average guaranteed interest rates of between 2.52% and 6.88%. 105 Notes to the consolidated financial statements 31 December 2016 The table below shows a breakdown of the maturities of notional amounts of interest rate derivatives designated as cash flow hedges as of December 31, 2016 and 2015. 106 Notes to the consolidated financial statements 31 December 2016 Notionals Balance as of 12.31.16 Balance as of 12.31.15 Up to 1 year Between 1 and 2 years Between 2 and 3 years Subsequent years Total $’000 $’000 Cap Swap Cap Swap 24,261 25,934 27,880 400,239 75,837 199,832 83,897 1,500,789 $ 478,314 $ 1,860,355 $ 22,320 25,018 26,741 441,766 515,845 72,184 77,193 201,186 1,611,035 $ 1,961,598 The table below shows a breakdown of the maturity of the fair values of interest rate derivatives designated as cash flow hedges as of December 31, 2016 and 2015. The net position of the fair value of caps and swaps for each year end reconciles with the net position of derivative assets and derivative liabilities in the consolidated statement of financial position: Fair value Balance as of 12.31.16 Balance as of 12.31.15 Up to 1 year Between 1 and 2 years Between 2 and 3 years Subsequent years Total $’000 $’000 Cap Swap Cap Swap 250 262 275 3,035 (12,383) (14,927) (13,957) (307,999) 185 201 218 4,137 (15,741) (16,508) (16,580) (336,266) $ 3,822 $ (349,266) $ 4,741 $ (385,095) During 2016, fair value of derivatives increased mainly due to an increases in the fair value of interest rate cash-flow hedges resulting from the increase in future interest rates. The net amount of the fair value of interest rate derivatives designated as cash flow hedges transferred to the consolidated income statement is a loss of $72,774 thousand (loss of $55,841 thousand in 2015). Additionally, the net amount of the time value component of the cash flow derivatives fair value recognized in the consolidated income statements for the years 2016 and 2015 has been a gain of $1,694 thousand and $4,234 thousand, respectively. The after-tax result accumulated in equity in connection with derivatives designated as cash flow hedges at the years ended December 31, 2016 and 2015, amount to a $52,797 thousand gain and a $24,831 thousand gain respectively. 25. Financial risk management Atlantica Yield’s activities are exposed to various financial risks: market risk (including currency risk and interest rate risk), credit risk and liquidity risk. Risk is managed by the Company’s Risk Finance and Compliance Departments, which are responsible for identifying and evaluating financial risks quantifying them by project, region and company, in accordance with mandatory internal management rules. Written internal policies exist for global risk management, as well as for specific areas of risk. In addition, there are official written management regulations regarding key controls and control procedures for each company and the implementation of these controls is monitored through internal audit procedures. a) Market risk 107 Notes to the consolidated financial statements 31 December 2016 The Company is exposed to market risk, such as movement in foreign exchange rates and interest rates. All of these market risks arise in the normal course of business and we do not carry out speculative operations. For the purpose of managing these risks, we use a series of swaps and options on interest rates. None of the derivative contracts signed has an unlimited loss exposure. b) Interest rate risk Interest rate risk arises when the Company’s activities are exposed to changes in interest rates, which arises from financial liabilities at variable interest rates. The main interest rate exposure for the Company relates to the variable interest rate with reference to the Libor and Euribor. To minimize the interest rate risk, the Company primarily uses interest rate swaps and interest rate options (caps), which, in exchange for a fee, offer protection against an increase in interest rates. The Company does not use derivatives for speculative purposes. As a result, the notional amounts hedged, strikes contracted and maturities, depending on the characteristics of the debt on which the interest rate risk is being hedged, are very diverse, including the following: 1. Project debt in U.S. dollars: between 75% and 100% of the notional amount, maturities until 2043 average guaranteed interest rates of between 2.52% and 6.88%. 2. Project debt in euro: between 75% and 100% of the notional amount, maturities until 2030 and average guaranteed interest rates of between 3.20% and 4.87%. In connection with the interest rate derivative positions of the Company, the most significant impacts on these consolidated financial statements are derived from the changes in EURIBOR or LIBOR, which represent the reference interest rate for the majority of the debt of the Company. In the event that Euribor and Libor had risen by 25 basis points as of December 31, 2016, with the rest of the variables remaining constant, the effect in the consolidated income statement would have been a loss of $2,563 thousand (a loss of $1,795 thousand in 2015) and an increase in hedging reserves of $37,290 thousand ($41,702 thousand in 2015). The increase in hedging reserves would be mainly due to an increase in the fair value of interest rate swaps designated as hedges. A breakdown of the interest rates derivatives as of December 31, 2016 and 2015 is provided in Note 24. c) Currency risk The main cash flows in the entities included in these consolidated financial statements are cash collections arising from long-term contracts with clients and debt payments arising from project finance repayment. Given that financing of the projects is always closed in the same currency in which the contract with client is signed, a natural hedge exists for the main operations of the Company. In relation to the Spanish solar plants, on May 12, 2015, the Company entered into a currency swap agreement with Abengoa which provides for a fixed exchange rate for the cash available for distribution from the Company’s Spanish assets. The distributions from the Spanish assets are paid in euros and the currency swap agreement provides for a fixed exchange rate at which euros will be converted into U.S. dollars. Therefore, in the event that the exchange rate of the Euro had risen by 10% against the US Dollar as of December 31, 2015, with the rest of the variables remaining constant, there would not be any effect in the cash received from these assets (neither as of December 31, 2015). 108 Notes to the consolidated financial statements 31 December 2016 Additionally, to mitigate any potential risk that might arise from the current situation of Abengoa, the Company signed a currency option with a leading financial institution which guarantees a minimum Euro-U.S. dollar exchange rate for net distributions expected from Spanish solar assets. d) Credit risk The Company considers that it has a limited credit risk with clients as revenues derive from power purchase agreements with electric utilities and state-owned entities. The Company has investment grade offtakers in all the assets except for Quadra 1&2, ATN2, Skikda and Honaine, which represent a low percentage of the cash available for distribution on a run-rate basis. e) Liquidity risk Atlantica Yield’s liquidity and financing policy is intended to ensure that the Company maintains sufficient funds to meet our financial obligations as they fall due. Project finance borrowing permits the Company to finance the project through project debt and thereby insulate the rest of its assets from such credit exposure. The Company incurs in project-finance debt on a project-by-project basis. The repayment profile of each project is established on the basis of the projected cash flow generation of the business. This ensures that sufficient financing is available to meet deadlines and maturities, which mitigates the liquidity risk significantly. f) Capital risk management The group manages its capital to ensure that entities in the group will be able to continue as a going concern while maximising the return to shareholders through the optimisation of the debt and equity balance. The capital structure of the Company consists of net debt (borrowings disclosed in note 17 and 18 after deducting cash and bank balances) and equity of the group (comprising issued capital, reserves and retained earnings). The board of directors review the capital structure on a regular basis. As part of this review, the committee considers the cost of capital and the risks associated with each class of capital. Gearing ratio The gearing ratio at the year-end is as follows: Debt Cash and cash equivalents Net Debt Equity Net debt to equity ratio Balance as of December 31, 2016 $’000 Balance as of December 31, 2015 $’000 5,998,668 594,811 6,135,163 514,712 5,403,857 5,620,451 1,959,111 2,023,501 276% 278% 109 Notes to the consolidated financial statements 31 December 2016 26. Events after the balance sheet date On February 10, 2017, the Company signed a Note Issuance Facility, a senior secured note facility with a group of funds managed by Westbourne Capital as purchasers of the notes issued thereunder for a total amount of € 275 million (approximately $294 million), with three series of notes. Series 1 Notes for €92 million mature in 2022; series 2 notes for €91.5 million mature in 2023; and series 3 notes for €91.5 million mature in 2024. Interest on all three series accrues at a rate per annum equal to the sum of 3 month EURIBOR plus 4.90%. The proceeds of the Note Issuance Facility will be used for the repayment of Tranche B under our Credit Facility, which will be canceled, as well as for general corporate expenses incurred as part of this transaction. The Company intends to fully hedge the Note Issuance Facility with a swap to fix the interest rate as soon as possible after funding of the Notes. In February 2017, the Company signed a letter of intent for the acquisition of a 12.5% interest in a 114-mile transmission line in the U.S, from Abengoa. The asset will receive a FERC regulated rate of return, and is currently under development, with COD expected in 2020. The Company expects its total investment to be up to $10 million in the coming three years including an initial amount invested at cost. The Company would also gain certain rights to acquire an additional 12.5% interest in the same project. On February 24, 2017, the Board of Directors of the Company approved a dividend of $0.25 per share, which is expected to be paid on or about March 15, 2017. 27. Related party transactions During the normal course of business, the Company has historically conducted operations with related parties consisting mainly of Abengoa´s subsidiaries and non-controlling interests, mainly through loan contracts and advisory services. The transactions were completed at market rates. Details of balances with related parties as of December 31, 2016 and 2015 are as follows: Credit receivables (current) Total current receivables with related parties Credit receivables (non-current) Total non-current receivables with related parties Trade payables (current) Total current payables with related parties Balance as of December 31, 2016 Balance as of December 31, 2015 $’000 $’000 12,031 12,031 30,505 30,505 61,338 61,338 12,653 12,653 52,774 52,774 73,813 73,813 Credit payables (non-current) 101,750 126,860 110 Notes to the consolidated financial statements 31 December 2016 Total non-current payables with related parties 101,750 126,860 Receivables with related parties primarily correspond to the preferred equity investment in ACBH. The instrument was impaired and its fair value amounts to $30,488 thousand as of December 31, 2016 ($52,565 thousand as of December 31, 2015), classified as non-current (see Note 23). Trade payables (current) primarily relate to payables for Operation and Maintenance services. Credit payables (non-current) primarily relate to payables of projects companies with partners accounted for as non-controlling interests in these consolidated financial statements. The transactions carried out by entities included in these consolidated financial statements with Abengoa and with subsidiaries of Abengoa not included in the consolidated group during the twelve-month periods ended December 31, 2016 and 2015 have been as follows: For the twelve-month period ended December 31, 2016 $’000 - 1,220 2015 $’000 44,260 523 (115,779) (106,737) 60 (2,460) 1,466 (1,968) Sales Services rendered Services received Financial income Financial expenses During the period prior to the initial public offering, certain consolidated entities entered into one-year contractual arrangements with Abengoa from which the Company received certain administrative services. Such services included general services related to supporting functions such as financing, human resources management, and administration. The fee incurred by the operating companies was based on anticipated annual sales. During 2015 and 2016 the Company has internalized main support services cancelling the majority of these fees with Abengoa. At the date of the initial offering, the Company entered into a series of agreements to receive management, general and administrative services from Abengoa (the Support Services Agreement and Executive Service Agreement), and corresponding fees were properly accounted for as other operating expenses. The Executive Service Agreement was canceled in February 2015. During the year 2015 and 2016, some employees of Abengoa delivering services under the Support Services Agreement have been transferred to entities within the consolidation perimeter of Atlantica Yield and the Support Services Agreement has been cancelled. In addition, some external employees were hired. This resulted in the Company increasing its own employee benefit expenses as shown on the face of the consolidated income statement for the years 2015 and 2016. The figures detailed in the table above do not include the following financial income recorded in these consolidated financial statements for the twelve-month period ended December 31, 2016 and resulting from the agreement signed with Abengoa in the third quarter of 2016 (see Note 23): compensation received from Abengoa in lieu of dividends from ACBH for $28.0 million, income for the cancellation of the subordinated debt Solnova Electricidad S.A. owed to Abener for $7.6 million and income of $1.7 million for discounts received from Abengoa for the prepayment of payables. 111 Notes to the consolidated financial statements 31 December 2016 In addition, Abengoa maintains a number of obligations under EPC, O&M and other contracts, as well as indemnities covering certain potential risks. Additionally, Abengoa represented that as of the date of the accession to the restructuring agreement Atlantica Yield would not be a guarantor of any obligation of Abengoa with respect to third parties and agreed to indemnify the Company for any penalty claimed by third parties resulting from any breach in such representations. Finally, the Company entered into a financial support agreement on June 13, 2014 under which Abengoa agreed to facilitate a new $50,000 thousand revolving credit line and maintain any guarantees and letters of credit that have been provided by it on behalf of or for the benefit of Atlantica Yield and its affiliates for a period of five years. As of December 31, 2016, the total amount of the credit line has remained undrawn since the IPO. Aggregate directors’ remuneration The total amounts for directors’ remuneration in accordance with Schedule 5 of the Accounting Regulations were as follows: 2016 $’000 2015 $’000 Salaries, fees, bonuses and benefits in kind 2,034 2,133 2,034 2,133 The directors received no other benefits in respect of their services to the company, including any share option or pension schemes. Further information about the remuneration of individual directors is provided in the audited part of the Directors’ Remuneration Report on pages 35 to 49. 28. Contingent liabilities Contingent liabilities are possible obligations, existing obligations with low probability of a future outflow of economic resources and existing obligations where the future outflow cannot be reliably estimated. The Company had no contingent liabilities as of 31 December 2016. 29. Guarantees and commitments Third-party guarantees At the close of 2016 the overall sum of Bank Bond and Surety Insurance directly deposited by the Company as a guarantee to third parties (clients, financial entities and other third parties) amounted to $27,163 thousand attributed to operations of technical nature ($27,638 thousand as of December 31, 2015). 112 Notes to the consolidated financial statements 31 December 2016 Contractual obligations The following table shows the breakdown of the third-party commitments and contractual obligations as of December 31, 2016 and 2015: 2016 $’000 Total 2017 2018 and 2019 2020 and 2021 Subsequent Corporate debt Loans with credit institutions (project debt)* Notes and bonds (project debt)* Purchase commitments Accrued interest estimate during the useful life of loans 668,201 291,861 376,340 — 4,498,930 183,929 388,679 459,361 831,538 27,225 49,422 48,740 2,894,146 136,032 263,398 246,904 — 3,466,961 706,151 2,247,812 3,356,750 332,408 617,852 543,927 1,862,563 2015 $’000 Total 2016 2017 and 2018 2019 and 2020 Subsequent Corporate debt Loans with credit institutions (project debt)* Notes and bonds (project debt)* Purchase commitments Accrued interest estimate during the useful life of loans 664,494 3,153 409,665 251,677 4,634,505 170,213 356,328 430,153 836,164 25,514 44,314 47,699 4,158,576 169,951 320,287 344,338 3,761,305 338,543 667,427 594,263 — 3,677,812 718,638 3,323,999 2,161,072 *According to contracted maturities. 30. Earnings per share Basic earnings per share for the year 2016 has been calculated by dividing the Loss attributable to equity holders of the company by the number of shares outstanding. Diluted earnings per share equals basic earnings per share for the period presented. Basic earnings per share is only presented for periods subsequent to the initial public offering. 113 Notes to the consolidated financial statements 31 December 2016 Item For the twelve-month period ended December 31, 2016 $’000 For the twelve-month period ended December 31, 2015 $’000 Loss from continuing operations attributable to Atlantica Yield Plc. Profit/(loss) from discontinuing operations attributable to Atlantica Yield Plc. Average number of ordinary shares outstanding (thousands) - basic and diluted Earnings per share from continuing operations (US dollar per share) - basic and diluted Earnings per share from discontinuing operations (US dollar per share) - basic and diluted Earnings per share from profit for the period (US dollar per share) - basic and diluted (4,855) (209,005) - 100,217 92,795 (0.05) - (0.05) (2.25) - (2.25) 31. Service concessional arrangements Below is a description of the concessional arrangements of the Atlantica Yield group. Solana Solana is a 250 MW net (280 MW gross) solar electric generation facility located in Maricopa County, Arizona, approximately 70 miles southwest of Phoenix. Arizona Solar One LLC, or Arizona Solar, owns the Solana project. Solana includes a 22-mile 230kV transmission line and a molten salt thermal energy storage system. The construction of Solana commenced in December 2010 and Solana reached COD on 9 October, 2013. Solana has a 30-year, PPA with Arizona Public Service, or APS, approved by the Arizona Corporation Commission (ACC). The PPA provides for the sale of electricity at a fixed price per MWh with annual increases of 1.84% per year. The PPA includes limitations on the amount and condition of the energy that is received by APS with minimum and maximum thresholds for delivery capacity that must not be breached. Mojave Mojave is a 250 MW net (280 MW gross) solar electric generation facility located in San Bernardino County, California, approximately 100 miles northeast of Los Angeles. Abengoa commenced construction of Mojave in September 2011 and Mojave reached COD on 1 December 2014. Mojave has a 25-year, PPA with Pacific Gas & Electric Company, or PG&E, approved by the California Public Utilities Commission (CPUC). The PPA will begin on COD. The PPA provides for the sale of electricity at a fixed base price per MWh without any indexation mechanism, including limitations on the amount and condition of the energy that is received by PG&E with minimum and maximum thresholds for delivery capacity that must not be breached. 114 Notes to the consolidated financial statements 31 December 2016 Palmatir Palmatir is an on-shore wind farm facility in Uruguay with nominal installed capacity of 50 MW. Palmatir has 25 wind turbines and each turbine has a nominal capacity of 2 MW. UTE (Administracion Nacional de Usinas y Transmisiones Electricas), Uruguay’s state-owned electricity company, has agreed to purchase all energy produced by Palmatir pursuant to a 20-year PPA. Palmatir reached COD in May 2014. The wind farm is located in Tacuarembo, 170 miles north of the city of Montevideo. Palmatir signed a PPA with UTE on 14 September, 2011 for 100% of the electricity produced, approved by URSEA (Unidad Reguladora de Servicos de Energia y Agua). UTE will pay a fixed-price tariff per MWh under the PPA, which is denominated in U.S. dollars and will be partially adjusted in January of each year according to a formula based on inflation. Cadonal Cadonal is an on-shore wind farm facility in Uruguay with nominal installed capacity of 50 MW. Cadonal has 25 wind turbines and each turbine has a nominal capacity of 2 MW each. UTE (Administraction Nacional de Usinas y Trasmisiones Electricas), Uruguay´s state-owned electricity company, has agreed to purchase all energy produced by Cadonal pursuant to a 20-year PPA. Cadonal reached COD in December 2014. The wind farm is located in Flores, 105 miles north of the city of Montevideo. Cadonal signed a PPA with UTE on 28 December 2012 for 100% of the electricity produced, approved by URSEA (Unidad Reguladora de Servicios de Energia y Agua). UTE will pay a fixed tariff under the PPA per MWh under the PPA, which is denominated in U.S. dollars and will be adjusted every January considering both US and Uruguay´s inflation indexes and the exchange rate between Uruguayan pesos and U.S. dollars. Solaben 2 & 3 Solaben 2 and 3 are two 50 MW Concentrating Solar Power facilities located in Spain. Solaben 2 reached COD in June 2012 and Solaben 3 reached COD in October 2012. Solaben Electricidad Dos, S.A., or SE2, owns Solaben 2 and Solaben Electricidad Tres, S.A., or SE3, owns Solaben 3. Renewable energy plants in Spain, like Solaben 2 and Solaben 3, are regulated through a series of laws which guarantee the owners of the plants a reasonable remuneration for their investments. Solaben 2 and 3 sell the power they produce into the wholesale electricity market, where offer and demand are matched and the pool price is determined, and also receive additional payments from the Comision Nacional de los Mercados y de la Competencia, or CNMC, the Spanish state-owned regulator. Solacor 1 & 2 The Solacor 1 and Solacor 2 are two 50 MW Concentrating Solar Power facilities and are part of Abengoa’s El Carpio Solar Complex, located in the municipality of El Carpio, Spain. The Carpio Solar Complex consists in a conventional parabolic trough Concentrating Solar Power system to generate electricity. Abengoa commenced construction of Solacor 1 and Solacor 2 in September 2010. The COD was reached in two phases, the first one, Solacor 1, was reached in February 2012 and the second one, Solacor 2, was reached in March 2012. JGC Corporation holds 13% of Solacor 1 & Solacor 2, a Japanese engineering company. Renewable energy plants in Spain, like Solacor 1 and Solacor 2, are regulated by the Government through a series of laws and rulings which guarantee the owners of the plants a reasonable 115 Notes to the consolidated financial statements 31 December 2016 remuneration for their investments. Solacor 1 and Solacor 2 sell the power they produce into the wholesale electricity market, where offer and demand are matched and the pool price is determined, and also receive additional payments from the Comision Nacional de los Mercados y de la Competencia, or CNMC, the Spanish state-owned regulator. ACT The ACT plant is a gas-fired cogeneration facility with a rated capacity of approximately 300 MW and between 550 and 800 metric tons per hour of steam. The plant includes a substation and an approximately 52 mile and 115-kilowatt transmission line. On 18 September 2009, ACT Energy Mexico entered into the Pemex Conversion Services Agreement, or the Pemex CSA, with Petroleos Mexicanos, or Pemex. Pemex is a state-owned oil and gas company supervised by the Comision Reguladora de Energía (CRE), the Mexican state agency that regulates the energy industry. The Pemex CSA has a term of 20 years from the in-service date and will expire on 31 March 2033. According to the Pemex CSA, ACT must provide, in exchange for a fixed price with escalation adjustments, services including the supply and transformation of natural gas and water into thermal energy and electricity. Part of the electricity is to be supplied directly to a Pemex facility nearby, allowing the Comision Federal de Electricidad (CFE) to supply less electricity to that facility. Approximately 90% of the electricity must be injected into the Mexican electricity network to be used by retail and industrial end customers of CFE in the region. Pemex is then entitled to receive an equivalent amount of energy in more than 1,000 of their facilities in other parts of the country from CFE, following an adjustment mechanism under the supervision of CFE. The Pemex CSA is denominated in U.S. dollars. The price is a fixed tariff and will be adjusted annually, part of it according to inflation and part according to a mechanism agreed in the contract that on average over the life of the contract reflects expected inflation. The components of the price structure and yearly adjustment mechanisms were prepared by Pemex and provided to bidders as part of the request for proposal documents. ATN ATN, or the ATN Project, in Peru is part of the SGT (Sistema Garantizado de Transmision), which includes all transmission line concessions allocated by a bidding process by the government and is comprised of the following facilities: (i) the approximately 356 miles, 220kV line from Carhuamayo-Paragsha-Conococha-Kiman-Ayllu- Cajamarca Norte; (ii) the 4.3 miles, 138kV link between the existing Huallanca substation and Kiman Ayllu substations; (iii) the 1.9 miles, 138kV link between the 138kV Carhuamayo substation and the 220kV Carhuamayo substation; (iv) the new Conococha and Kiman Ayllu substations; and (v) the expansion of the Cajamarca Norte, 220kV Carhuamayo, 138kV Carhuamayo and 220kV Paragsha substations. 116 Notes to the consolidated financial statements 31 December 2016 Pursuant to the initial concession agreement, the Ministry of Energy, on behalf of the Peruvian Government, granted ATN a concession to construct, develop, own, operate and maintain the ATN Project. The initial concession agreement became effective on 22 May 2008 and will expire 30 years after COD of the first tranche of the line, which took place in January 2011. ATN is obliged to provide the service of transmission of electric energy through the operation and maintenance of the electric transmission line, according to the terms of the contract and the applicable law. The laws and regulations of Peru establish the key parameters of the concession contract, the price indexation mechanism, the rights and obligations of the operator and the procedures that have to be followed in order to fix the applicable tariff, which occurs through a regulated bidding process. Once the bidding process is complete and the operator is granted the concession, the pricing of the power transmission service is established in the concession agreement. ATN has a 30-year concession agreement with a fixed-price tariff base denominated in U.S. dollars that is adjusted annually after COD of each line, in accordance with the U.S. Finished Goods Less Food and Energy Index published by the U.S. Department of Labor. ATS ABY Transmision Sur, or ATS Project, in Peru is part of the Guaranteed Transmission System, or (Sistema Garantizado de Transmisión) which includes all transmission line concessions allocated by a bidding process by the government, and is comprised of: one 500kV electric transmission line and two short 220kV electric transmission lines, which are (i) linked to existing substations; (ii) three new 500kV substations; and (iii) three existing substations (two existing 220kV substations and one existing 550/220kV substation), through the development of new transformers, line reactors, series reactive compensation and shunt reactions in some substations. Pursuant to the initial concession agreement, the Ministry of Energy, on behalf of the Peruvian Government, granted ATS a concession to construct, develop, own, operate and maintain the ATS Project. The initial concession agreement became effective on 22 July 2010 and will expire 30 years after COD, which took place in January 2014. ATS is obliged to provide the service of transmission of electric energy through the operation and maintenance of the electric transmission line, according to the terms of the contract and the applicable law. The laws and regulations of Peru establish the key parameters of the concession contract, the price indexation mechanism, the rights and obligations of the operator and the procedure that has to be followed in order to fix the applicable tariff, which occurs through a regulated bidding process. Once the bidding process is complete and the operator is granted the concession, the pricing of the power transmission service is established in the concession agreement. ATS has a 30-year concession agreement with fixed-price tariff base denominated in U.S. dollars that is adjusted annually after COD of each line, in accordance with the U.S. Finished Goods Less Food and Energy Index published by the U.S. Department of Labor. Quadra 1 & Quadra 2 Transmisora Mejillones, or Quadra 1, is a 49-miles transmission line project and Tranmisora Baquedano, or Quadra 2, is a 32-miles transmission line project, each connected to the Sierra Gorda substations. Both projects have concession agreements with Sierra Gorda SCM. The agreements are denominated in U.S. dollars and are indexed mainly to CPI. The concession agreements each have a 21-year term that began on COD, which took place in April 2014 and March 2014 for Quadra 1 and Quadra 2, respectively. 117 Notes to the consolidated financial statements 31 December 2016 Quadra 1 and Quadra 2 belong to the Northern Interconnected System (SING), one of the two interconnected systems into which the Chilean electricity market is divided and structured for both technical and regulatory purposes. As part of the SING, Quadra 1 and Quadra 2 and the service they provide are regulated by several regulatory bodies, in particular: the Superintendent’s office of Electricity and Fuels (Superintendencia de Electricidad y Combustibles, SEC), the Economic Local Dispatch Center (Centro de Despacho Economico de Cargas, CDEC), the National Board of Energy (Comision Nacional de Energia, CNE) and the National Environmental Board (Comision Nacional de Medio Ambiente, CONAMA) and other environmental regulatory bodies. In all these concession arrangements, the operator has all the rights necessary to manage, operate and maintain the assets and the obligation to provide the services defined above, which are clearly defined in each concession contract and in the applicable regulations in each country. Helioenergy 1&2 The Helioenergy 1/2 project is located in Ecija, Spain. Abengoa started the construction of Helioenergy in 2010, and reached COD in 2011. Since COD, the projects have obtained good generation results achieving systematically year after year results aligned or above the target productions defined. Helioenergy relies on a Conventional parabolic trough Concentrating Solar Power system to generate electricity. Helioenergy evacuates its electricity through an aerial underground line 220 kV from the substation of the plant to a 220 kV line that ends in SET Villanueva del Rey (owned by Red Eléctrica de España), where the connection point of the plant is located. Renewable energy plants in Spain, like Helionergy 1 and Helionergy 2, are regulated by the Government through a series of laws and rulings which guarantee the owners of the plants a reasonable remuneration for their investments. Helionergy 1 and Helionergy 2 sell the power they produce into the wholesale electricity market, where offer and demand are matched and the pool price is determined, and also receive additional payments from the Comision Nacional de los Mercados y de la Competencia, or CNMC, the Spanish state-owned regulator. Helios 1&2 The Helios 1/2 project is a 100 MW Concentrating Solar Power facility known as Plataforma Solar Castilla la Mancha, located in the municipality of Arenas de San Juan, Puerto Lápice and Villarta de San Juan, Spain. Helios 1 COD was reached in 2Q 2012, Helios 2 COD was reached in 3Q 2012. Since COD, the projects have obtained good generation results aligned or above the production targets. Helios 1/2 relies on a Conventional parabolic trough Concentrating Solar Power system to generate electricity. The technology is identical to the one used at Solaben 2/3 and Solacor 1/2. Renewable energy plants in Spain, like Helios 1 and Helios 2, are regulated by the Government through a series of laws and rulings which guarantee the owners of the plants a reasonable remuneration for their investments. Helios 1 and Helios 2 sell the power they produce into the wholesale electricity market, where offer and demand are matched and the pool price is determined, and also receive additional payments from the Comision Nacional de los Mercados y de la Competencia, or CNMC, the Spanish state-owned regulator. Solnova 1, 3&4 The Solnova 1/3/4 project is a 150 MW Concentrating Solar Power facility, part of the Sanlucar Solar Platform, located in the municipality of Sanlucar la Mayor, Spain. Solnova 1 COD was reached in 2Q 2010, Solnova 3 COD was reached in 2Q 2010 and Solnova 4 COD was reached in 3Q 2010. Since 118 Notes to the consolidated financial statements 31 December 2016 COD, the projects have obtained good generation results achieving results aligned with the target production numbers. Solnova 1/3/4 relies on a Conventional parabolic trough Concentrating Solar Power system to generate electricity. The technology is identical to the one used at Solaben 2/3 and Solacor 1/2, projects already owned by us. Solnova 1/3/4 evacuates its electricity through an aerial-underground line 66 kV from the substation of the plant to a 220 kV line that ends in SET Casaquemada, where the connection point of the plant is located. Renewable energy plants in Spain, like Solnova 1, Solnova 3 and Solnova 4, are regulated by the Government through a series of laws and rulings which guarantee the owners of the plants a reasonable remuneration for their investments. Solnova 1, Solnova 3 and Solnova 4 sell the power they produce into the wholesale electricity market, where offer and demand are matched and the pool price is determined, and also receive additional payments from the Comision Nacional de los Mercados y de la Competencia, or CNMC, the Spanish state-owned regulator Honaine The Honaine project is a water desalination plant located in Taffsout, Algeria, near three important cities: Oran, to the northeast, and Sidi Bel Abbés and Tlemcen, to the southeast. Myah Bahr Honaine Spa, or MBH, is the vehicle incorporated in Algeria for the purposes of owning the Honaine project. Algerian Energy Company, SPA, or AEC, owns 49% and Sociedad Anonima Depuracion y Tratamientos, or Sadyt, a subsidiary of Sacyr, S.A., owns the remaining 25.5% of the Honaine project. AEC is the Algerian agency in charge of delivering Algeria’s large-scale desalination program. It is a joint venture set up in 2001 between the national oil and gas company, Sonatrach, and the national gas and electricity company, Sonelgaz. Each of Sonatrach and Sonelgaz owns 50% of AEC. The technology selected for the Honaine plant is currently the most commonly used in this kind of project. It consists of desalination using membranes by reverse osmosis. Honaine has a capacity of seven M ft3 per day of desalinated water and it is under operation since July 2012. The project represents approximately 9.0% of Algeria’s total desalination capacity and serves a population of 1.0 million. The water purchase agreement is a U.S. dollar indexed 25-year take-or-pay contract with Sonatrach / Algérienne des Eaux, or ADE. The tariff structure is based upon plant capacity and water production, covering variable cost (water cost plus electricity cost). Tariffs are adjusted monthly based on the indexation mechanisms that include local inflation, U.S. inflation and the exchange rate between the U.S. dollar and local currency. Skikda The Skikda project is a water desalination plant located in Skikda, Algeria. Skikda is located 510 km east of Alger. Aguas de Skikda, or ADS, is the vehicle incorporated in Algeria for the purposes of owning the Skikda project. AEC owns 49% and Sadyt owns the remaining 16.83% of the Skikda project. AEC is the Algerian agency in charge of delivering Algeria’s large-scale desalination program. It is a joint venture set up in 2001 between the national oil and gas company, Sonatrach, and the national gas and electricity company, Sonelgaz. Each of Sonatrach and Sonelgaz owns 50% of AEC. The technology selected for the Skikda plant is currently the most commonly used in this kind of project. It consists of the use of membranes to obtain desalinated water by reverse osmosis. Skikda has a capacity of 3.5 M ft3 per day of desalinated water and is in operation since February 2009. The 119 Notes to the consolidated financial statements 31 December 2016 project represents approximately 4.5% of Algeria’s total desalination capacity and serves a population of 0.5 million. The water purchase agreement is a U.S. dollar indexed 25-year take-or-pay contract with Sonatrach / ADE. The tariff structure is based upon plant capacity and water production, covering variable cost (water cost plus electricity cost). Tariffs are adjusted monthly based on the indexation mechanisms that include local inflation, U.S. inflation and the exchange rate between the U.S. dollar and local currency. ATN 2 ATN 2, in Peru, is part of the Complementary Transmission System, or Sistema Complementario de Transmision, SCT, and is comprised of the following facilities: (i) The approximately 130km, 220kV line from SE Cotaruse to Las Bambas; (ii) The connection to the gate of Las Bambas Substation (iii) The expansion of the Cotaruse 220kV substation (works assigned to Consorcio Transmantaro) The Client is Las Bambas Mining Company, a company owned by a partnership conformed by a subsidiary of China Minmetals Corporation (62.5%), a wholly owned subsidiary of Guoxin International Investment Co. Ltd (22.5%) and CITIC Metal Co. Ltd (15.0%). China Minmetals Corporation is the fifth largest metals company included in the Fortune Global 500 list. Abengoa started the permitting phase of ATN2 Project on May 2011; construction is already completed and completed formalities for COD during May 2015. The ATN2 Project has a 18-year contract period, after that, ATN2 assets will remain as property of the SPV and therefore it is likely a new contract could be negotiated. The ATN2 Project has a fixed-price tariff base denominated in U.S. dollars, partially adjusted annually in accordance with the U.S. Finished Goods Less Food and Energy Index as published by the U.S. Department of Labor. Our receipt of the tariff base is independent from the effective utilization of the transmission lines and substations related to the ATN2 Project. The tariff base is intended to provide the ATN2 Project with consistent and predictable monthly revenues sufficient to cover the ATN2 Project’s operating costs and debt service and to earn an equity return. Peruvian law requires the existence of a definitive concession agreement to perform electricity transmission activities where the transmission facilities cross public land or land owned by third parties. On May 31, 2014, the Ministry of Energy granted the project a definitive concession agreement to the transmission lines of the ATN2 Project. Kaxu Kaxu Solar One, or Kaxu, is a 100MW solar Conventional Parabolic Trough Project located in Paulpatus in the Nothern Cape Province of South Africa, approximately 30 km north east of the small town of Pofadder. Atlantica Yield, though Abengoa Solar South Africa (Pty) Ltd., owns 51% of the Kaxu Project. The Project Company, named Kaxu Solar One (Pty) Ltd., is owned by a consortium composed by Abengoa Solar South Africa (51%), Industrial Development Corporation of South Africa (29%) & Kaxu Community Trust (20%). The project reached COD in February 2015. Kaxu has a 20-year PPA with Eskom SOC Ltd., or Eskom, under a take or pay contract for the purchase of electricity up to the contracted capacity from the facility. Eskom purchases all the output of the Kaxu Plant under a fixed price formula in local currency subject to indexation to local inflation 120 Notes to the consolidated financial statements 31 December 2016 with protects us from potential devaluation over the long term. Being the project COD February 2015, the PPA expires on February 2035. Solaben 1&6 The Solaben is a 100MW Concetrated Solar Power facility part of the Extremadura Solar Platform, located in the municipality of Logrosán, Spain. Solaben 1/6 COD was reached in 3Q 2013. Since COD, the projects have obtained good generation aligned with the target production figures. Solaben 1&6 relies on a Conventional Parabolic through Concentrating Solar Power system to generate electricity. The technology is identical to the one used at Solaben 2/3 and Solacor 1/2 projects. Renewable energy plants in Spain, like Solaben 1 and Solaben 6, are regulated by the Government through a series of laws and rulings which guarantee the owners of the plants a reasonable remuneration for their investments. Solaben 1 and Solaben 6 sell the power they produce into the wholesale electricity market, where offer and demand are matched and the pool price is determined, and also receive additional payments from the Comision Nacional de los Mercados y de la Competencia, or CNMC, the Spanish state-owned regulator. 121 Company balance sheet 31 December 2016 Amounts in thousands of U.S. dollars Fixed assets Tangible assets Investments in subsidiaries Amounts owed by group undertakings Current assets Trade and other receivables Amounts owed by group undertakings Short-term financial investments Derivatives assets Cash and bank balances Total assets Creditors: Amounts falling due within one year Trade and other payables Amounts owed to group undertakings Borrowings Derivatives liabilities Net current assets/(liabilities) Total assets less current liabilities Creditors: Amounts falling due after more than one year Borrowings Amounts owed to group undertakings Derivatives liabilities Total liabilities Net assets (1) Notes 1 to 7 are an integral part of the financial statements Capital and Reserves Share capital Share premium account Distributable reserves Other Reserves Retained earnings Shareholders’ funds Notes (1) 2016 2015 3 4 4 6 4 5 5 4 7 110 2,035,598 704,916 2,740,624 2,032 15,795 5,000 999 122,154 145,980 135 2,014,487 822,263 2,836,885 296 173 5,000 - 45,487 50,956 2,886,604 2,887,841 7,949 9,704 291,861 - 309,514 (163,534) 17,328 9,214 3,152 95 29,789 21,167 2,577,090 2,858,052 376,340 44,983 2,347 423,670 733,184 661,341 26,917 11,773 700,031 729,820 2,153,420 2,158,021 2016 2015 10,022 1,981,881 286,576 13,879 (138,938) 10,022 1,981,881 331,974 4,345 (170,201) 2,153,420 2,158,021 122 Company balance sheet 31 December 2016 (1) Notes 1 to 7 are an integral part of the financial statements The Company recorded a profit after tax of $31.3 million for the period ended 31 December 2016 (2015: loss after tax of $219.6 million). The financial statements of Atlantica Yield plc, company registration no. 08818211, were approved by the board of directors and authorised for issue on 24th February 2017. They were signed on its behalf by: Chief Executive Officer Santiago Seage 24th February, 2017 123 Statement of changes in equity 31 December 2016 Company Statement of changes in equity Amounts in thousands of U.S. dollars Share Capital Share Premium Account Distributable Reserves Retained earnings Other Reserves Total Shareholder´s funds Balance at 1 January 2015 8,000 1,313,903 476,233 49,414 Loss for the year Issue of share capital and share premium Dividends Change in fair value of cash flow hedges (net of deferred taxation) Balance at 31 December 2015 - - - (219,615) 2,022 667,978 - - - - (6,264) (137,995) - - - - 10,022 1,981,881 331,974 (170,201) - - - - 4,345 4,345 Profit for the year Dividends Change in fair value of cash flow hedges (net of deferred taxation) Balance at 31 December 2016 - - - - - - - (45,398) 31,263 - - - - - 9,534 10,022 1,981,881 286,576 (138,938) 13,879 2,153,420 1,847,550 (219,615) 663,736 (137,995) 4,345 2,158,021 31,263 - 9,534 Notes to the Company financial statements 31 December 2016 Notes to the Company financial statements 1. Significant accounting policies The separate financial statements of the Company are presented as required by the Companies Act 2006. The Company meets the definition of a qualifying entity under FRS 100 (Financial Reporting Standard 100) issued by the Financial Reporting Council. As permitted by FRS 101, the Company has taken advantage of the disclosure exemptions available under that standard in relation to share-based payment, financial instruments, capital management, presentation of comparative information in respect of certain assets, presentation of a cash-flow statement and certain related party transactions. Where required, equivalent disclosures are given in the consolidated financial statements. The financial statements have been prepared on the historical cost basis except for the re measurement of certain financial instruments to fair value. The principal accounting policies adopted are the same as those set out in note 3 to the consolidated financial statements except as noted below. Investments in subsidiaries and impairment Investments in subsidiaries are stated at cost less, where appropriate, provisions for impairment. At each balance sheet date, the Company reviews the carrying amounts of its investments to determine whether there is any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset is estimated to determine the extent of the impairment loss (if any). Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset is estimated to be less than its carrying amount, the carrying amount of the asset is reduced to its recoverable amount. An impairment loss is recognised immediately in profit or loss. Where an impairment loss subsequently reverses, the carrying amount of the asset is increased to the revised estimate of its recoverable amount, but so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss been recognised for the asset in prior years. A reversal of an impairment loss is recognised immediately in profit or loss. Critical accounting policies and estimates The most critical accounting policies, which reflect significant management estimates and judgement to determine amounts in the Company’s financial statements, are as follows: (cid:2) (cid:2) Derivative financial instruments and fair value estimates. Impairment of investments; and 2. Profit/(Loss) for the year As permitted by section 408 of the Companies Act 2006 the Company has elected not to present its own profit and loss account for the year. The Company reported a profit for the financial year ended 31 December 2016 of $31.3 million (2015: loss of $219.6 million). The auditor’s remuneration for audit and other services is disclosed in note 7 to the consolidated 125 Notes to the Company financial statements 31 December 2016 financial statements. 3. Investments in subsidiaries Details of the Company’s subsidiaries at 31 December 2016 are as follows: Name Place of incorporation and principal place of business Proportion of ownership interest Proportion of voting power held Registered office % % Palmucho, S.A. Chile 100.00% 100.00% ABY Servicios Corporativos, S.L. Spain 99.99% 99.99% Transmisora Baquedano, S.A. Chile 100.00% 100.00% Transmisora Mejillones, S.A. Chile 100.00% 100.00% ASUSHI Inc. USA 100.00% 100.00% ACT Holdings, S.A. de C.V. Mexico 99.99% 99.99% ABY Concessions Perú, S.A. ABY S.L.U. Concessions Infrastructure, ASHUSA Inc Peru Spain USA 99.99% 99.99% 99.99% 99.99% 100.00% 100.00% ABY South Africa (Pty) Ltd South Africa 100.00% 100.00% ATN 2, S.A. Mojave Solar Holdings, Llc Mojave Solar, Llc ASO Holdings Company, LLC Arizona Solar One, LLC (USA) ATN, S.A. ABY Transmisión Sur, S.A. Peru USA USA USA USA Peru Peru 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 99.98% 99.98% 99.99% 99.99% Avda. Apoquindo, 3600, Piso 5, Oficina 517, Las Condes, Santiago de Chile C/ Energía Solar nº 1 41014, Sevilla (Spain) Avda. Apoquindo, 3600, Piso 5, Oficina 517, Las Condes, Santiago de Chile Avda. Apoquindo, 3600, Piso 5, Oficina 517, Las Condes, Santiago de Chile 1553 West Todd Dr., Suite 204 Tempe, AZ 85283 (USA) Avda. Jaime Balmes, 11, Piso 10, Torre C, Fracción C, Oficina 1001, Col. Los Morales Polanco, 11510, Ciudad de México Av. Canaval y Moreyra, 562, San Isidro, Lima C/ Energía Solar nº 1 41014, Sevilla (Spain) 1553 West Todd Dr., Suite 204 Tempe, AZ 85283 (USA) Office 103 Ancorley Building; 45Scott Street Upington 8801 (South Africa) Av. Canaval y Moreyra, 562, San Isidro, Lima 1553 West Todd Dr., Suite 204 Tempe, AZ 85283 (USA) 1553 West Todd Dr., Suite 204 Tempe, AZ 85283 (USA) 1553 West Todd Dr., Suite 204 Tempe, AZ 85283 (USA) 1553 West Todd Dr., Suite 204 Tempe, AZ 85283 (USA) Av. Canaval y Moreyra, 562, San Isidro, Lima Av. Canaval y Moreyra, 562, San Isidro, Lima 126 Notes to the Company financial statements 31 December 2016 ACT Energy Mexico, S.A. de C.V. Mexico 99.98% 99.98% Kaxu Solar One (Pty) Ltd South Africa 51.00% 51.00% Sanlucar Solar, S.A. Solar Processes, S.A. Palmatir, S.A Cadonal, S.A. Spain Spain 100.00% 100.00% 100.00% 100.00% Uruguay 100.00% 100.00% Uruguay 100.00% 100.00% Holding Eólica, S.A. Uruguay 100.00% 100.00% Ecija Solar Inversiones, S.A. Spain 100.00% 100.00% Helioenergy Electricidad Uno, S.A. Spain 100.00% 100.00% Helioenergy Electricidad, Dos, S.A. Spain 100.00% 100.00% Carpio Solar Inversiones, S.A. Solacor Electricidad Uno, S.A. Solacor Electricidad Dos, S.A. Spain Spain Spain 100.00% 100.00% 87.00% 87.00% 87.00% 87.00% Logrosán Solar Inversiones, S.A. Spain 100.00% 100.00% Solaben Electricidad Dos, S.A. Spain 70.00% 70.00% Solaben Electricidad Tres, S.A. Spain 70.00% 70.00% Hypesol Energy Holding, S.L. Helios I Hyperion Energy Investments, S.L. Helios II Hyperion Energy Investments, S.L. Solnova Solar Inversiones, S.A. Solnova Electricidad Uno, S.A. Spain Spain Spain Spain Spain 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% Solnova Electricidad Tres, S.A. Spain 100.00% 100.00% Solnova Electricidad Cuatro, S.A. Spain 100.00% 100.00% Logrosan Solar Inversiones Dos, S.L. Spain 100.00% 100.00% Solaben Luxembourg S.A. Luxembourg 100.00% 100.00% Avda. Jaime Balmes, 11, Piso 10, Torre C, Fracción C, Oficina 1001, Col. Los Morales Polanco, 11510, Ciudad de México Office 103 Ancorley Building; 45Scott Street Upington 8801 (South Africa) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) Avda. Uruguay, 1283, Montevideo Avda. Uruguay, 1283, Montevideo Avda. Uruguay, 1283, Montevideo C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) Plataforma Solar Extremadura, Carretera EX-116 PK 17,560, 10120 Logrosán (Cáceres, Spain) Plataforma Solar Extremadura, Carretera EX-116 PK 17,560, 10120 Logrosán (Cáceres, Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) C/ Energía Solar nº 1 41014, Sevilla (Spain) 6, rue Eugène RuppertL-2453 Luxembourg 127 Notes to the Company financial statements 31 December 2016 Logrosan Equity Investment S.a.r.l. Luxembourg 100.00% 100.00% Extremadura Equity Investment S.a.r.l. Luxembourg 100.00% 100.00% Solaben Electricidad Uno, S.A. Spain 100.00% 100.00% Solaben Electricidad Seis, S.A. Spain 100.00% 100.00% Geida Tlemcen, S.L. Spain 50.00% 50.00% Myah Bahr Honaine, S.P.A. Algeria 25.50% 25.50% Geida Skikda, S.L. Aguas de Skikda, S.P.A. Spain Algeria 67.00% 67.00% 34.17% 34.17% ABY Infrastructures USA, LLC. USA 100.00% 100.00% Fotovoltaica Solar Sevilla, S.A. Spain 80.00% 80.00% RRHH Servicios Corporativos Mexico 100.00% 100.00% ABY Infraestructuras, S.L. Spain 100.00% 100.00% 6, rue Eugène RuppertL-2453 Luxembourg 6, rue Eugène RuppertL-2453 Luxembourg Plataforma Solar Extremadura, Carretera EX-116 PK 17,560, 10120 Logrosán (Cáceres, Spain) Plataforma Solar Extremadura, Carretera EX-116 PK 17,560, 10120 Logrosán (Cáceres, Spain) Francisco Silvela, 42 - 4th Floor, 28028 Madrid 162 Bois des Cars III DelyIbrahim — Alger - Algerie Paseo de la Castellana 83-85, 28046 Madrid (Spain) 162 Bois des Cars III DelyIbrahim — Alger - Algerie 1553 West Todd Dr., Suite 204 Tempe, AZ 85283 (USA) C/ Energía Solar nº 1 41014, Sevilla (Spain) Avda. Jaime Balmes, 11, Piso 10, Torre C, Fracción C, Oficina 1001, Col. Los Morales Polanco, 11510, Ciudad de México C/ Energía Solar nº 1 41014, Sevilla (Spain) The investments in subsidiaries are all stated at cost. Information on the investments acquired in the year is disclosed in Note 5 in the consolidated financial statements. As of 31 December 2016, the carrying value of the direct investments was as follows: 2016 $’000 2015 $’000 128 Notes to the Company financial statements 31 December 2016 Palmucho, S.A. ABY Servicios Corporativos, S.L. Transmisora Baquedano, S.A. Transmisora Mejillones, S.A. ASHUSHI Inc. ACT Holdings, S.A. de C.V. ABY Concessions Perú, S.A. ABY Concessions Infrastructure, S.L.U. ASHUSA, Inc ATN, S.A. (*) ABY Transmisión Sur, S.A. (*) ABY South Africa (Pty) Ltd (*) ATN 2, S.A. ABY Infrastructure USA, Llc. - 5,483 - - 317,950 98,543 261,920 887,039 380,193 1,006 10,564 56,998 15,897 5 - 5,483 - - 317,950 98,543 261,920 868,281 380,193 1,044 18,727 46,449 15,897 - Total investments in subsidiaries 2,035,598 2,014,487 (*) Includes interest free loans accounted for at amortized cost (classified as amounts owed by group undertakings, see note 5) and initial difference with nominal value of the loans accounted for as capital contribution in accordance with IAS 39. Movements in the carrying value of investments during the years 2016 and 2015 were as follows: As at 1st January 2016 Increase As at 31st December 2016 As at 1st January 2015 Acquisitions Capital reduction As at 31st December 2015 $ ´000 2,014,487 21,111 2,035,598 $ ´000 1,392,481 647,074 (25,068) 2,014,487 The increase in 2016 primarily relates to a capital increase in ABY Concessions Infrastructure, S.L.U. in January 2016 for $19 million. The capital reduction in 2015 primarily relates to a capital reduction carried out in ACT Holding, S.A. de C.V. in April 2015 for $22 Million and in May 2015 for $3 Million. The date and method of the acquisition of each subsidiary in 2015 and 2016 were as follows: 129 Notes to the Company financial statements 31 December 2016 ATN 2, S.A ABY South Africa (Pty) Ltd 25/06/2015 Purchase 30/07/2015 Purchase Acquisition date Acquisition method On June 25, 2015, the Company completed the acquisition of ATN2 an 81 miles transmission line in Peru from Abengoa and Sigma, a third-party financial investor in the project and on July 30, 2015, the Company completed the acquisition of Kaxu a 100 MW solar plant in South Africa. 130 Notes to the Company financial statements 31 December 2016 4. Amounts owed by/to group undertakings Non-current receivables from group companies Preferred equity investment in ACBH 2016 $’000 2015 $’000 674,427 30,489 769,698 52,565 Non-current amounts owed by group undertakings 704,916 822,263 Current amounts owed by group undertakings Total amounts owed by group undertakings 15,795 173 720,711 822,436 Current amounts owed to group undertakings Non-Current amounts owed to group undertakings 9,704 44,983 9,214 26,917 Total amounts owed to group undertakings 54,687 36,131 The preferred equity investment in ACBH is an available for sale financial asset that gives the following rights: • During the five-year period commencing on July 1, 2014, Atlantica Yield has the right to receive, in four quarterly installments, a preferred dividend of $18,400 thousand per year. As of December 31, 2015, the Company received the dividend corresponding to 1.5 years and the portion corresponding to 3.5 years is pending to be received, as installment for the four quarters at 2016 hasn´t been paid to the Company yet; • Following the initial five-year period, Atlantica Yield has the option to (i) remain as preferred equity holder receiving the first $18,400 thousand in dividends per year that ACBH is able to distribute or (ii) exchange the preferred equity for ordinary shares of specific project companies owned by ACBH. On January 29, 2016, Abengoa informed the Company that several indirect subsidiaries of Abengoa in Brazil, including ACBH, initiated an insolvency procedure under Brazilian law (“reorganizaçao judiciaria”). The Company is currently assessing the potential impact of this event together with external advisors. Given that this process will likely negatively affect the value of the preferred equity investment and considering the high degree of uncertainty on its final outcome, the Company recorded an impairment of this preferred equity investment for a total amount of $210,435 thousand as of December 31, 2015. The valuation method used to calculate the value on the preferred equity investment in ACBH as of December 31, 2015 has been discounting the originally expected cash- flows from the instrument using a discount rate of 35%, based on the yields of bonds issued in Brazil by comparable companies with a rating indicating distress. In addition, in the third quarter of 2016, the Company signed an agreement with Abengoa on ACBH preferred equity investment among other things, with the following main consequences: 131 Notes to the Company financial statements 31 December 2016 (cid:2) Abengoa acknowledged it failed to fulfill its obligations under the agreements related to the preferred equity investment in ACBH and, as a result, Atlantica Yield is the legal owner of the dividends amounting to $28.0 million, that the Company retained from Abengoa; (cid:2) Abengoa recognizes a non-contingent credit for an amount of €300 million (approximately $316 million), corresponding to the guarantee provided by Abengoa, S.A. regarding the preferred equity investment in ACBH, subject to restructuring and subject to adjustments for dividends retained after the agreement. On October 25 2016, Atlantica Yield signed Abengoa’s restructuring agreement and accepted, subject to implementation of the restructuring, to receive 30% of the amount (approximately $95 million nominal value) in the form of tradable bonds to be issued by Abengoa. Upon completion of the restructuring, this debt (“Restructured Debt”) would have a junior status within Abengoa debt structure post restructuring. The remaining 70% (approximately $221 million) would be received in the form of equity in Abengoa. As of the date of this report, there is a high degree of uncertainty on the value of this debt and equity; (cid:2) In order to convert this junior debt into senior debt, Atlantica Yield has agreed, subject to implementation of the restructuring, to participate in Abengoa’s issuance of asset-backed notes (the “New Money 1 Tradable Notes”) with up to €48 million (approximately $51 million), subject to scale-back following allocation process contemplated in Abengoa’s restructuring. In the fourth quarter of 2016, the Company reached an agreement with an investment fund to sell them approximately 50% of the New Money Tradable Notes that the Company is assigned, and as a result expects the final investment to be less than €24 million (approximately $25 million). The New Money 1 Tradable Notes are backed by a ring-fenced structure including Atlantica Yield’s shares and a cogeneration plant in Mexico (A3T). The New Money 1 Tradable Notes offer the highest level of seniority in Abengoa’s debt structure post restructuring. Upon the purchase by the Company of the New Money 1 Tradable Notes, the Restructured Debt would be converted into senior debt; Upon receipt of the Restructured Debt and Abengoa equity, the Company would waive its (cid:2) rights under the ACBH agreements, including its right to retain the dividends payable to Abengoa. Further to this agreement, the Company updated the valuation of the instrument as of December 31, 2016 using a probability weighted method. This valuation method considers the probability of the restructuring agreement of Abengoa being made effective. The fair value of the instrument as of December 31, 2016 is the result of estimating the value of the instrument in case the restructuring agreement is made effective and in case it is not. In case the restructuring agreement is not accepted, the value of the instrument would remain the same as the one calculated as of December 31, 2015. In case the restructuring agreements is made effective, value of the instrument has been obtained by discounting the expected cash-flows from the Restructured Debt (approximately $95 million), using a discount rate of 25% based on the yields of bonds issued in Spain by comparable companies involved in a similar restructuring process. Result of this updated valuation is an additional impairment of this preferred equity investment recorded as of December 31, 2016 for an amount of $22,076 thousand. An adverse change in the key assumptions which are individually used for the valuation could lead to future impairment recognition; especially, an increase of 50 basis points in the discount rates used in the fair value exercise described above would lead to an additional impairment of approximately $1 million. 132 Notes to the Company financial statements 31 December 2016 As at 31 December 2016, the detail of the non-current amounts owed by group undertakings was as follows: ATN, S.A.. ABY Concessions Infrastructure, S.L.U. Carpio Solar Inversiones, S.A. ABY Transmisión Sur, S.A. Logrosán Solar Inversiones, S.A. ACT Holdings, S.A. de C.V. Ecija Solar Inversiones, S.A. Solnova Solar Inversiones, S.A. Hypesol Energy Holding, S.L. ABY South Africa (Pty) Ltd. ATN 2, S.A. ASUSHA, Inc. ABY Servicios Corporativos, S.L. Other 2016 $’000 2015 $’000 4,905 326,841 59,115 47,855 5,577 4,860 58,859 31,090 11,645 62,652 5,038 44,540 9,081 2,369 6,641 315,443 73,688 54,033 21,821 4,861 75,381 51,773 22,503 59,562 34,430 43,419 - 6,143 Amounts owed by group undertakings 674,427 769,698 The principal features of the main loans to subsidiary undertakings are as follows: ATN, S.A.. ABY Concessions Infrastructure, S.L. Carpio Solar Inversiones, S.A. ABY Transmisión Sur, S.A. Logrosán Solar Inversiones, S.A Ecija Solar Inversiones, S.A. Solnova Solar Inversiones, S.A. Hypesol Energy Holding, S.L. ATN 2, S.A. ABY South Africa (Pty) Ltd. ASUSHI Inc. Interest Rate Maturity 0% 7% 2.5% to Euribor 12 months 0% 2.5% to Euribor 12 months 4.25% to Euribor 12 months 4.25% to Euribor 12 months 4.5% to Euribor 12 months 8.96% - 5.9% Not applicable Not applicable 31 July 2031 Not applicable 15 December 2030 Not applicable Not applicable Not applicable Not applicable Not applicable 31 December 2024 As at 31 December 2016, the amounts owed to group undertakings primarily relate to ACT Energy Mexico, S.A. de C.V. for $45 million ($24 million as at 31 December 2015). As at 31 December 2016, Trade and other receivables primarily relate to corporate fees the Company invoices to its subsidiaries. 133 Notes to the Company financial statements 31 December 2016 5. Borrowings As at 31 December 2016, the details of the amounts owed to group undertakings was as follow: Secured borrowing at amortised cost Bonds Borrowings Total borrowings Amount due for settlement within 12 months Amount due for settlement after 12 months 2016 $’000 2015 $’000 255,362 412,839 254,205 410,288 668,201 664,493 291,861 3,152 376,340 661,341 The principal features of the borrowings and bonds are as follows: On November 17, 2014, the Company issued the Senior Notes due 2019 in an aggregate principal amount of $255,000 thousand (the “2019 Notes”). The 2019 Notes accrue annual interest of 7.00% payable semi-annually beginning on May 15, 2015 until their maturity date of November 15, 2019. On December 3, 2014, the Company entered into a credit facility of up to $125,000 thousand with Banco Santander, S.A., Bank of America, N.A., Citigroup Global Markets Limited, HSBC Bank plc and RBC Capital Markets, as joint lead arrangers and joint book-runners (the “Credit Facility”). On December 22, 2014, the Company drew down $125,000 thousand under the Credit Facility. Loans under the Credit Facility accrue interest at a rate per annum equal to: (A) for Eurodollar rate loans, LIBOR plus 2.75% and (B) for base rate loans, the highest of (i) the rate per annum equal to the weighted average of the rates on overnight U.S. Federal funds transactions with members of the U.S. Federal Reserve System arranged by U.S. Federal funds brokers on such day plus 1/2 of 1.00%, (ii) the U.S. prime rate and (iii) LIBOR plus 1.00%, in any case, plus 1.75%. Loans under the Credit Facility will mature on the fourth anniversary of the closing date of the Credit Facility. Loans prepaid by the Company under the Credit Facility may be re-borrowed. The Credit Facility is secured by pledges of the shares of the guarantors which the Company owns. On June 26, 2015, the Company increased its existing $125 million Credit Facility with a revolver tranche B for an amount of $290,000 thousand (the “Credit Facility Tranche B). On September 9, 2015, Credit Facility Tranche B was fully drawn down and the proceeds were used for the acquisition of Solaben 1/6. Loans under the Tranche B Facility accrue interest at a rate per annum equal to: (A) for Eurodollar rate loans, LIBOR plus 2.50% and (B) for base rate loans, 1.50%. Loans under the Credit Facility Tranche B will mature in December 2017. Tranche B of the Credit Facility was signed for a total amount of $290 million with Bank of America, N.A., as global coordinator and documentation agent and Barclays Bank plc and UBS AG, London Branch as joint lead arrangers and joint bookrunners. 134 Notes to the Company financial statements 31 December 2016 On February 10, 2017, the Company signed a Note Issuance Facility, a senior secured note facility with a group of funds managed by Westbourne Capital as purchasers of the notes issued thereunder for a total amount of € 275 million (approximately $294 million), with three series of notes. Series 1 Notes for €92 million mature in 2022; series 2 notes for €91.5 million mature in 2023; and series 3 notes for €91.5 million mature in 2024. Interest on all three series accrues at a rate per annum equal to the sum of 3 month EURIBOR plus 4.90%. The proceeds of the Note Issuance Facility will be used for the repayment of Tranche B under our Credit Facility, which will be canceled, as well as for general corporate expenses incurred as part of this transaction. The Company intends to fully hedge the Note Issuance Facility with a swap to fix the interest rate as soon as possible after funding of the Notes. 6. Trade and other payables As at 31 December 2016, Trade and other payables primarily relate to independent professional services. 7. Retained earnings Retained earnings Balance at 1 January 2016 Net profit for the year Balance at 31 December 2016 Retained earnings Balance at 1 January 2015 Net loss for the year Balance at 31 December 2015 $’000 (170,201) 31,263 (138,938) 49,414 (219,615) (170,201) 135 

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