REPOWER

Accounting and valuation principles

Accounting and valuation principles

Basis

Within the context of preparing the consolidated financial statements, the Board of Directors and Executive Board of Repower make estimates and valuations which have an impact on the recognised assets and liabilities as well as on income and expenses. This concerns the valuation of assets and liabilities for which no other sources (e.g. market prices) are available. Estimates and valuations are based on past experience and the best possible assumptions on future developments. Actual developments may differ from the assumptions made. The estimates and valuations are periodically reviewed. Any changes result in a revised valuation of the relevant assets and liabilities, and revisions are made and disclosed in the period in which they occur. The significant estimation uncertainties are explained on pages 68 -69.

Property, plant and equipment

Property, plant and equipment are recorded at acquisition or production cost less accumulated depreciation and any impairment losses recognised. The acquisition or production cost of property, plant and equipment covers the purchase price including any costs directly attributable to bringing the asset to the location and condition necessary for the intended use. Significant individual components are recorded and depreciated separately.

Depreciation is calculated using the straight-line method based on the estimated technical and economic life of an asset or, at most, over the concession period in the case of energy generation facilities.

Any residual values are taken into account when determining useful lives. The useful lives and residual values are reviewed annually. If an asset is sold or is no longer able to provide future economic benefits, it is derecognised from property, plant and equipment. The resulting gain or loss (difference between the net selling price and the net carrying amount of the derecognised asset) is recognised in the income statement in the period in which the asset is derecognised.

The estimated useful lives are calculated in accordance with the recommendations of the Association of Swiss Electricity Companies and are within the following ranges for each category:

CATEGORY USEFUL LIFE
Power plants 20 – 80 years depending on the type of
facility and concession period
Grids 15 – 40 years
Land Indefinite; any impairments are recognised
immediately
Buildings 30 – 60 years
Plant and business equipment 3 – 20 years
Assets under construction Reclassification to the corresponding
category when available for use; any impairments
are recognised immediately

 

Investments in upgrades or improvements to plant and equipment are capitalised if they significantly extend the useful life, increase the original capacity or substantially enhance the quality of generation. Repairs, maintenance and regular servicing of buildings and operating installations are recognised directly in the income statement. Costs for regular major overhauls are capitalised and depreciated.

Assets under construction cover property, plant and equipment not yet completed. During the construction phase these items are not depreciated unless impairment is recognised immediately. Interest on borrowings related to construction is capitalised along with other acquisition and production costs.

Property, plant and equipment are tested on each balance sheet date for indications of impairment. If indications of impairment are identified, the recoverable amount is measured and an impairment test is performed. If the recoverable amount (the higher of the value less costs to sell and the value in use) is below the carrying amount, the asset's carrying amount is reduced to the recoverable amount. The value in use is calculated based on the estimated future cash flows over a five-year period and extrapolated projections for subsequent years, discounted using an appropriate rate of interest before tax. If the reasons for a previously recognised impairment no longer exist, the impairment is reversed, at most, to what the carrying amount would have been had the impairment not been recognised.

Goodwill from business combinations

Business combinations are included in the Group financial statements using the purchase method. Goodwill corresponds to the difference between the acquisition costs and the fair value of the acquired company's identifiable assets, liabilities and contingent liabilities on the date of acquisition. The acquisition costs cover all payments used to acquire the company including any deferred and contingent purchase prices measured at fair value. If the acquisition costs are lower than the fair value, goodwill is negative and is recognised in the income statement at the time of acquisition.

Goodwill is allocated in order to determine the intrinsic value of a cash-generating unit on the date of acquisition. A cash-generating unit corresponds to the lowest level of the company whose goodwill is monitored for internal management purposes. Goodwill is tested for impairment at least once a year. If the carrying amount of the unit is higher than the recoverable amount in accordance with IAS 36, an impairment is recognised in the income statement in the reporting period.

For investments acquired in associates and partner plants, the difference between the acquisition cost of the holding and the fair value of the identifiable net assets is calculated. The difference is disclosed together with the investments under investments in associates and partner plants.

Assets and liabilities held for sale

Assets or groups of assets as well as directly attributable liabilities (disposal groups) are classified as held for sale if the benefit embodied in the remaining carrying amount is not realised through the continued use but primarily from the sale. The prerequisite is that the value of the asset can be sold directly and the sale is sufficiently probable. The value is reported separately under current assets and current liabilities as “Assets held for sale” and as “Liabilities held for sale”. The comparison figures from the previous period are not adjusted. The planned depreciations are based on the classification as available-for-sale. Non-current assets (or disposal groups) are recognised at the lower of the carrying amount and the fair value less costs to sell.

A discontinued operation is a part of the company that was sold or held for sale and a separate major business line or geographic branch of business. The results of discontinued operations are shown separately from the ongoing business activities. The comparison figures from the previous period are adjusted.

Intangible assets

Intangible assets are recognised at acquisition cost and have either a definite or an indefinite useful life. Intangible assets with a limited useful life are amortised using the straight-line method over their useful lives. Anticipated residual values are included when determining the amount of amortisation. They are tested for indications of impairment on each balance sheet date. If indications of impairment are identified, the recoverable amount of the intangible asset is determined in the same way as for property, plant and equipment, and an impairment test is performed.

The estimated useful lives for the individual categories are within the following ranges:

Customer relations 13 – 15 years

Brands (Note 10) 15 years

Other intangible assets 3 – 5 years

Intangible assets with an indefinite useful life are not amortised but tested annually for indications of impairment. If there are indications of impairment, the recoverable amount is determined in the same way as for property, plant and equipment. Any impairments are recognised in the income statement. The assumption of indefinite useful life is also reviewed annually. If events or circumstances indicate that a definite or indefinite useful life needs to be revised, this revised estimate is carried out in the current period.

Investments in associates and partner plants (joint ventures)

Companies over which Repower exerts a significant influence but not control are measured using the equity method. Jointly managed partner plants (joint ventures) are measured according to the same method and included in the consolidated financial statements. Partner plants constitute investments in power plants in which the shareholders are obliged to purchase electricity at cost in proportion to their investment.

The inclusion of major associates and partner plants requires the annual financial statements to be drawn up in accordance with IFRS. Where such financial statements are not available, transitional statements must be drawn up. The closing date for partner plants is usually 30 September and may differ therefore from the closing date for Repower. Important events occurring between the closing date for these partner plants and the closing date for Repower are accounted for in the consolidated financial statements.

Financial assets

Financial assets cover cash and cash equivalents, securities and other financial instruments, receivables, prepaid expenses and accrued income (anticipatory positions only), and other financial assets. All financial assets are recognised for the first time at fair value. This includes the transaction costs that can be directly allocated to the acquisition of the asset. Purchases are recorded on the settlement date. For subsequent valuation, financial assets are classified according to IAS 39.

Cash and cash equivalents, receivables as well as prepaid expenses and accrued income (anticipatory) are allocated to the category “loans and receivables” and carried at amortised cost. Due to their short-term nature, the carrying amounts are assumed to be the fair values less any necessary impairments.

Securities and other financial instruments disclosed in current assets fall into the category “held for trading”. These are measured at fair value, whereby corresponding gains or losses are recognised in the income statement.

Non-marketable interest-bearing investments are allocated to the category “loans and receivables” and carried at amortised cost. Long-term prepayments for the purchase of green electricity certificates are allocated to the category “designated at fair value through profit and loss” in order to avoid measurement inconsistencies. The position is measured using a valuation model based on observable market data. All other financial assets are classified as “available for sale” and recognised at fair value. Marketable fixed-income securities are measured at market value on the balance sheet date. Marketable shares and other equity securities for which an active market exists are measured at market value on the balance sheet date. The unrealised value adjustments of financial assets available for sale are recognised under other income. In the event of disposal or other derecognition, the value adjustments accumulated in equity since such assets were purchased are transferred to financial income in the current reporting period. In the event of a significant or prolonged decline in the fair value of an equity instrument held as available for sale below its acquisition cost, this is recognised as an impairment.

Financial assets not recognised at market values are tested for impairment on each balance sheet date. If there is objective evidence that an impairment loss has occurred, such as insolvency, payment default or other significant financial difficulties on the part of the issuer or debtor, an impairment calculation is performed. For interest-bearing assets carried at amortised cost, the impairment is measured as the difference between the carrying amount and the lower present value of estimated future cash inflows, discounted at the asset's original effective interest rate. For other assets carried at amortised cost, the impairment is measured as the difference between the carrying amount and the lower present value of estimated future cash inflows, discounted at the current market rate of return for a similar financial asset. Unlike the value adjustment above, an impairment is always recognised in the income statement immediately after it is identified.

Trade accounts receivable from customers who are also suppliers are offset against trade accounts payable if the contract terms provide for this and the intention to offset exists and is legally permitted.

Financial assets are no longer recognised if the rights, obligations, opportunities and risks associated with the ownership of an asset are transferred in full.

Held-for-trading positions / replacement values

Contracts in the form of forward transactions (forwards and futures) conducted with the intention of achieving a trading profit or margin (held for trading) are treated as derivative financial instruments in accordance with IAS 39 and recognised as held-for-trading positions or replacement values. On the balance sheet date, all open derivative financial instruments from energy trading transactions are measured at fair value and the positive and negative replacement values are recognised under assets and liabilities. The open contracts are measured on the basis of market data from electricity exchanges (e.g. EEX, Leipzig). For the contracts for which no liquid market exists, measurement is based on a valuation model.

Current transactions are offset at positive and negative replacement value if the respective contract terms provide for this and the intention to offset exists and is legally permitted. Realised and unrealised income from held-for-trading positions is recognised net as “Profit from held-for-trading positions”.

To reduce the currency risk, forward exchange transactions open at the end of the year can be reported in euros. Interest rate swaps can also be employed to reduce the interest rate risk of variable loans. If these types of financial instruments exist at the end of the year, they are measured at fair value . For accounting purposes, these and similar financial transactions are treated as derivative financial instruments in accordance with IAS 39, and if the values are positive they are reported as “replacement values” under “Securities and other financial instruments” and “Other financial assets”. If the values are negative, they are reported under “Current financial liabilities” and “Non-current financial liabilities”. All open receivables and liabilities arising from forward exchange transactions are measured at fair value on the balance sheet date. The value adjustment is contained in financial income or expense and thus recognised in the income statement.

Inventories

Inventories comprise materials used for operating purposes (e.g. operating materials, replacement parts and consumables) as well as CO2 or electricity quality certificates (origin, generation type). As long as these assets are not held for trading they are measured at the lower of acquisition/production cost and net realisable value. Acquisition/production costs are measured at the weighted average. The net realisable value corresponds to the estimated selling price less the estimated costs necessary to make the sale. Inventories for trading purposes are measured at fair value less costs to sell.

Treasury shares and participation certificates

Treasury shares and participation certificates are deducted from equity. Under IFRS, no gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of an entity's own equity instruments.

Provisions

Provisions are recognised for obligations (legal or constructive) resulting from a past event, when it is probable that an outflow of resources will be required to settle the obligation, and where a reliable estimate can be made of the amount of the obligation. If some or all of the expenditure required to settle a provision is expected to be reimbursed by another party (e.g. due to an insurance policy), the reimbursement is recognised when it is virtually certain that reimbursement will be received. If the interest effect is a significant influencing factor, estimated future cash flows are discounted to determine the provision amount.

Provisions are reviewed annually and revised in line with current developments. The discount rate is a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability.

Financial liabilities

Financial liabilities consist of current and non-current financial liabilities, other current liabilities as well as deferred income and accrued expenses (anticipatory positions only). Financial liabilities are initially recognised in the balance sheet at their fair value including the transaction costs that can be allocated directly to the entry of the liability. The subsequent measurement is conducted based on the rules of the “Other liabilities” category; this does not include the negative replacement values of held-for-trading positions. These negative replacement values are treated the same way as positive replacement values.

With the exception of interest rate swaps, non-current financial liabilities are recognised at amortised cost using the effective interest method. Interest rate swaps exist to hedge a portion of the company's interest rate risk (hedge accounting) relating to the variable-rate loan in respect of the construction of the gas-fired combined-cycle power plant in Teverola. These interest rate swaps are used to hedge cash flows, and the change in value is recognised under other income as a fair market adjustment of financial instruments.

Other current liabilities as well as deferred income and accrued expenses are recognised at amortised cost. Current financial liabilities are also recognised at amortised cost. Liabilities from current forward exchange transactions are excepted. These are measured at fair value. The value adjustment is contained in financial income or expense and therefore recognised in the income statement.

Trade accounts payable to suppliers who are also customers are offset against trade accounts receivable if the respective contract terms provide for this and the intention to offset exists and is legally permitted.

Other non-current liabilities

Other non-current liabilities include installation usage rights granted to third parties. Granted usage rights are contractual obligations which are fulfilled exclusively by permitting a third party to use installations. These are non-financial liabilities. The liabilities are amortised over the period of use of the corresponding installations using the straight-line method.

Pension plans

On the balance sheet date, employees of Repower in Switzerland were members of the PKE Pensionskasse Energie (PKE), which is a legally independent pension fund based on defined benefits or defined contributions.

The costs and obligations of the Group arising from defined benefit pension plans are calculated using the projected unit credit method. In line with actuarial calculations made on the balance sheet date, the total cost of a pension plan is based on the years of service rendered by the respective employees and their projected salaries until retirement, and is recognised annually in the income statement. Pension obligations are measured according to the fair value of estimated future pension benefits, using the interest rates on government bonds with a similar residual term to maturity. Actuarial gains and losses are recognised as income and expenses over the expected average remaining working lives of the insured, provided they exceed the greater of 10 per cent of the present value of the pension obligations and 10 per cent of the fair value of any plan assets (corridor approach).

Employees in foreign Group companies are insured under state pension plans, which are independent of the Group. Apart from the above pension plans, there are no significant long-term employee benefits provided by the Group.

Contingent liabilities

Potential or existing liabilities for which the probability of an outflow of funds is considered possible but not probable are not recognised in the balance sheet. Existing contingent liabilities and guarantee obligations are disclosed on the balance sheet date in the Notes to the consolidated financial statements.

Share-based payments

No employee share participation programmes or other forms of share-based payments exist.

Finance and operating leases

In the reporting period and the previous period there were no finance leases. IT outsourcing includes an operating lease for IT hardware. There continue to be leases with third-parties. The related future minimum leasing payments are disclosed in the Notes to the consolidated financial statements. Payments for operating lease transactions are recognised as expenses on a straight-line basis over the lease term.

Income taxes

Income taxes cover current and deferred income taxes. Current income taxes are calculated based on the current tax rates on the earnings of individual Group companies.

Deferred taxes are recognised in the Group financial statements based on the differences between the taxable value of the assets and liabilities and their carrying amounts. Deferred income taxes are calculated under IFRS using the balance sheet liability method based on temporary differences, i.e. differences between the taxable value of an asset or liability and its carrying amount in the balance sheet. The taxable value of an asset or liability is the value of this asset or liability for tax purposes.

Deferred tax assets related to loss carryforwards are recognised only to the extent that it is probable that temporary differences or taxable profit will be available against which the tax loss carryforward can be utilised.

Revenue

Revenue covers sales and services to third parties after deducting price discounts and value added tax. Revenue is recognised in the income statement when delivery or service fulfilment has been performed.

Energy transactions conducted for the purpose of managing the Group's own energy generating plants, as well as energy procurement contracts for the physical procurement of energy to customers, are treated as “own use” transactions in accordance with IAS 39 and settled gross under “Revenue from energy sales” and “Energy procurement”.

Energy transactions conducted with the intention of achieving a trading margin are treated as held-for-trading transactions in accordance with IAS 39 and recognised net under “Profit from held-for-trading positions”.

On the balance sheet date, all open derivative financial instruments from energy trading transactions are measured at fair value and the positive and negative replacement values are recognised under assets and liabilities. Realised and unrealised income from these transactions is disclosed net as «Net result with held-for-trading positions» under net sales.

Interest on borrowings

Interest on borrowings that can be allocated directly or indirectly to the purchase, construction or production of a qualifying asset are considered part of the acquisition/production costs of this asset and are capitalised. Other borrowing costs are recognised as expenses in accordance with IAS 23.8.