REPOWER

Principles of consolidation

Principles of consolidation

Basis

The consolidated financial statements of the Repower Group have been prepared in accordance with the International Financial Reporting Standards (IFRS) promulgated by the International Accounting Standards Board (IASB). They provide a true and fair view of the financial position, results of operations and cash flows of the Repower Group. All current standards and interpretations were applied in preparing the consolidated financial statements, which comply with Swiss law.

The consolidated financial statements are drawn up in Swiss francs (CHF). With the exception of items designated otherwise, all figures are rounded in thousands of francs (CHF thousands).

The consolidated financial statements were prepared on the basis of historical costs. Exceptions include replacement values in respect of held-for-trading positions, inventories as well as securities and other financial instruments for which IFRS requires other valuation methods. These are explained in the following accounting and valuation principles.

New and revised accounting and valuation principles

The accounting and valuation principles used correspond to the principles applied in the previous year. All standards and interpretations in force on the balance sheet date were applied when preparing the consolidated financial statements. New and revised standards and interpretations which came into force on 1 January 2012 have had no significant impact on the consolidated financial statements of the Repower Group.

Repower is currently analysing and assessing the impact of the following new or revised standards and interpretations whose adoption in the Repower Group's consolidated financial statements is not yet compulsory. They will be adopted no later than the financial year beginning on the date given in brackets.

IAS/IFRS Annual Improvements 2009 – 2011 cycle

(applicable to annual periods beginning on or after 1 January 2013)

IAS 1 Presentation of OCI Components in the Financial Statements (applicable to annual periods beginning on or after 1 July 2012)

IAS 19 Employee Benefits: Changes in the Recognition, Presentation and Disclosures of Defined Benefit Plans (applicable to annual periods beginning on or after 1 January 2013)

IAS 32 Changes concerning the offsetting of financial instruments (applicable to annual periods beginning on or after 1 January 2014)

IFRS 7 Changes in the Notes to the financial statements concerning the offsetting of financial instruments (applicable to annual periods beginning on or after 1 January 2013)

IFRS 9 Financial Instruments (2010) as well as Mandatory Effective Date and Transition Disclosures (2011) (applicable to annual periods beginning on or after 1 January 2015)

IFRS 10 Consolidated Financial Statements (applicable to annual periods beginning on or after 1 January 2013)

IFRS 11 Joint Arrangements (applicable to annual periods beginning on or after 1 January 2013)

IFRS 12 Disclosures of Interests in Other Entities (applicable to annual periods beginning on or after 1 January 2013)

Amendments to IFRS 10, IFRS 11 and IFRS 12 – Transitional Requirements (applicable to annual periods beginning on or after 1 January 2013)

Amendments to IFRS 10, IFRS 11 and IFRS 27 – Investment Entities (applicable to annual periods beginning on or after 1 January 2013)

IFRS 13 Fair Value Measurement (applicable to annual periods beginning on or after 1 January 2013)

In future, IAS 1 requires OCI (other comprehensive income) items to be presented separately depending on whether they may be reclassified (recycled) or not. An analysis of the new requirements was carried out which will result in an adjustment to the report in keeping with the requirements. The standard is applicable to annual periods beginning on or after 1 July 2012. For Repower this means that the new provisions will be adopted for the first time in the 2013 Semi-Annual Report and applied retrospectively.

Repower is applying the revised IAS 19 “Employee Benefits”, published in June 2011, for the annual period beginning on 1 January 2013. Up to now, application of the corridor approach has meant that actuarial gains and losses have been largely unrecognised in the balance sheet. Actuarial gains and losses result from adjustments to actuarial parameters (e.g. discount rate, changes in the value of externally financed plan assets, retirement age, life expectancy, changes in salaries and pension trends). In future, actuarial gains and losses must be recognised in other comprehensive income as they occur. Since recognition of these losses increases liabilities, equity is expected to show greater volatility in future. The interest rate used to calculate the expected return on plan assets must now correspond to the discount rate for pension obligations. Net interest rate components calculated in this way are recognised in the financial result. The difference between this amount and the effective return on plan assets is recognised in other comprehensive income under revaluation components. The revised guideline must be applied retrospectively and the prior-year figures adjusted accordingly (restatement). Application of the revised IAS 19 will increase plan liabilities from CHF 7.6 million at 31 December 2011 to CHF 45 million as at 1 January 2012, thereby reducing equity by CHF 37.5 million. At present this increase in liabilities gives rise to deferred tax assets, thus partly offsetting the negative effect on equity. Retroactive application of the revised IAS 19 to the 2012 period in the 2013 financial year improves the 2012 operating result by CHF 1.6 million but reduces financial income by CHF 1.1 million. Overall, therefore, this results in an increase of CHF 0.5 million in Group profit before tax for 2012.

The amendments to IAS 32 will not have any significant impact on the consolidated financial statements of the Repower Group. It is still only possible to offset financial instruments if there is a legally enforceable right to offset the amounts and the intention either to settle on a net basis or to realise the asset and settle the liability simultaneously. A clarification was then issued to the effect that offsetting is only possible if no further offsetting requirements are outstanding on the balance sheet date. In general, this affects unconditional netting rights. In the case of conditional netting rights, offsetting is permitted only if these rights have been complied with on the balance sheet date. The 2012 consolidated financial statements of the Repower Group take into account both the current provisions of IAS 32 and the clarification which is applicable for annual periods beginning on or after 1 January 2014. Application will be made retrospectively.

The amendments to IFRS 7 require additional disclosures, in particular, a reconciliation between the gross and net amounts reported for balance sheet items. The change is applicable to annual periods beginning on or after 1 January 2013. Early adoption is permitted but Repower has opted against this. Application will be made retrospectively.

The core (unchanged) principle of IFRS 10 is that a parent entity which controls one or more other entities must present consolidated statements. The principle whereby the parent entity and its subsidiaries must present consolidated financial statements as a single entity, as well as the applicable consolidation methods, remain unchanged. IFRS 10 changes the definition of “control”. Control exists when the entity has the power to decide on the relevant processes and activities of another entity, is exposed to variable returns from its involvement, and has the ability to affect those returns through its power over the other entity. An analysis of the new standards found that they have no material impact on the consolidated financial statements of the Repower Group. The standard is applicable to annual periods beginning on or after 1 January 2013. Early adoption is permitted but Repower has opted against this. Application will be made retrospectively.

The new IFRS 11 standard “Joint Arrangements” has resulted in a revision of the existing accounting regulations for joint arrangements. The standard distinguishes between joint operations and joint ventures. Joint operations are joint arrangements whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Under such arrangements, the joint operator must account for its share of the assets, liabilities, income and expenses relating to its involvement in a joint operation. In the case of joint ventures, the parties that exercise joint control have a right to the net assets arising from the arrangement. Joint ventures of this type are accounted for using the equity method in accordance with IAS 28. The criterion for a joint operation is that the parties are bound by a contractual arrangement that gives them joint control. In addition to being governed by an explicit arrangement, joint control can also be implicit, i.e. indirect, based on the ownership ratio. The introduction of new standards prompted Repower to analyse and review its arrangements with partner plants. There is no contractual arrangement governing Repower's joint control over the main activities of the partner plants AKEB Aktiengesellschaft für Kernenergie-Beteiligungen and Kraftwerke Hinterrhein AG. Repower exerts a significant influence over these companies and will continue to account for them using the equity method. Grischelectra AG is managed jointly with the Canton of Graubünden. Repower exercises all procurement rights related to Grischelectra and classifies this joint arrangement as a joint operation. All assets, liabilities, income and expenses of the company must therefore be recognised rather than accounted for using the equity method. This is not expected to have any significant impact on the assets and liabilities, expenses and income disclosed in the consolidated financial statements of the Repower Group. The standard is applicable to annual periods beginning on or after 1 January 2013. Early adoption is permitted but Repower has opted against this. Application will be made retrospectively.

IFRS 12 consolidates the disclosure requirements of several standards concerning an entity's interests in other entities, and defines additional requirements. The objective of IFRS 12 is to require the disclosure of the nature of, and risks associated with, an entity's interests in other entities, and the effects of those interests on its financial position, financial performance and cash flows. A new requirement governs the disclosure of significant judgements and assumptions in determining whether the entity controls another entity, has joint control or exercises significant influence over another entity. The type of joint arrangement must also be disclosed when the arrangement has been structured through a separate vehicle. Some of the required information is already disclosed in these consolidated financial statements, while other information now subject to mandatory disclosure is contained in separate figures for cash flows, dividends, balance sheet and revenue items for subsidiaries with significant minority interests, as well as in the details on associates and partner plants. The impact of these changes is that Repower will extend the Notes to the financial statements in future. The change is applicable to annual periods beginning on or after 1 January 2013. Early adoption is permitted but Repower has opted against this. Application will be made retrospectively.

IFRS 13 defines fair value, provides guidelines for measuring fair value, and requires disclosures about fair value measurements. This standard serves as the sole mechanism for determining fair value when another standard requires fair value measurements and requires the application of IFRS 13 in determining fair value. It is applicable for financial as well as non-financial assets and liabilities. Repower analysed all financial and non-financial items which it measures at fair value. This included determining whether Repower already measures fair value based on an exit price and whether the new definition of fair value requires changes in the measurement processes. The analysis found that the new IFRS 13 standard, with the exception of additional information in the Notes to the financial statements, will not have any significant impact on the consolidated financial statements of the Repower Group. The standard is applicable to annual periods beginning on or after 1 January 2013. Early adoption is permitted but Repower has opted against this. Application will be made prospectively.

The impact on the consolidated financial statements of some standards and interpretations, including IFRS 9 “Financial Instruments”, cannot yet be reliably determined. The Repower Group is currently analysing these standards and interpretations and expects to see a change in its reporting of certain areas at the given point in time.

Scope of consolidation

The consolidated financial statements cover Repower AG and all Swiss and foreign companies over which Repower is able to exercise operational and financial control. These companies are fully consolidated and designated as Group companies. Their financial year ends on 31 December.

Minority holdings in associates whose financial and business policies Repower Group is unable to control, but over which it is able to exert a significant influence, are accounted for in the consolidated financial statements using the equity method. Jointly-managed partner plants (joint ventures) are also accounted for in the consolidated financial statements using the equity method.

Consolidation method

Fully consolidated companies are included in the consolidated financial statements in their entirety (assets, liabilities, income and expenses). Investments in associates and partner plants are accounted for using the equity method on the basis of the share of equity. If these companies and partner plants apply accounting and valuation principles that deviate from those adopted by the Repower Group, appropriate adjustments are made in the consolidated financial statements.

Business combinations are accounted for using the purchase method. The acquisition costs are calculated by measuring the purchased net assets at fair value on the date of acquisition. A positive difference is capitalised as goodwill and subject to an annual impairment test. A negative difference is recognised in the income statement as negative goodwill on the date of acquisition. Group companies are deconsolidated from the date on which they are sold or no longer controlled by the Repower Group.

Intragroup transactions

All intragroup transactions (receivables and payables, income and expenses) are eliminated and the proportion of equity attributable to minority shareholders, as well as their share in the results of consolidated companies, are recognised separately. Income arising from intragroup transactions and holdings is eliminated and charged to income.

For internal billing between Group companies the agreed billing prices, which are based on market prices, apply. Electricity purchased by partner plants is billed to the Repower Group on the basis of existing partner contracts – irrespective of market prices – at actual cost.

Currency translations

The consolidated financial statements are drawn up and presented in Swiss francs. Each Group company defines its own functional currency in which the financial statements are drawn up. Foreign currency transactions are converted using the Group company's functional currency at the exchange rate on the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are converted to the functional currency at the closing rate on the balance sheet date. Currency translation differences are charged to income. Non-monetary foreign currency items measured at fair value are converted at the rate on the balance sheet date in order to determine the fair value.

The functional currency for the main foreign Group companies is the euro. Assets and liabilities of Group companies are translated into Swiss francs at the closing rate on the balance sheet date. Income statement items are translated using the average exchange rate for the year. When translating foreign currencies, euros were translated at the closing rate of EUR/CHF 1.2080 (previous year: 1.2156) and an average rate of EUR/CHF 1.2054 (previous year: 1.2320). Positions in other currencies are insignificant and were converted using the rates published by the European Central Bank (ECB Fixings). The translation differences between the closing exchange rate and the average exchange rate are recognised as an effect of currency translation under other comprehensive income in the statement of comprehensive income. If Group companies are disposed of, the corresponding accumulated translation differences are derecognised in the income statement.