2) PRINCIPLES OF CONSOLIDATION

Basis

The unaudited interim consolidated financial statements of the Repower Group as at 30 June 2013 have been prepared in accordance with International Accounting Standard (IAS) 34 "Interim Financial Reporting". The interim consolidated financial statements do not include all the information disclosed in the consolidated annual financial statements, and should therefore be read in conjunction with the consolidated annual financial statements as at 31 December 2012.

Foreign currencies were converted at the exchange rate of EUR/CHF 1.2338 on the balance sheet date and at an average rate of EUR/CHF 1.2301. Positions in other currencies are insignificant and were converted using the rates published by the European Central Bank (ECB Fixings). The unrealised exchange rate gains and losses on intragroup transactions are recognised in the consolidated cash flow statement under other income and expenses not affecting cash.

Accounting and valuation principles

The accounting and valuation principles used in these interim consolidated financial statements correspond to the principles applied in the consolidated financial statements as at 31 December 2012 with the exception of the new or revised standards described below which have been applied for the first time and have a significant impact on the interim financial statements.

New and revised accounting and valuation principles

IAS 1 requires OCI (other comprehensive income) items to be presented separately depending on whether they may be reclassified or not. Repower applied this rule for the first time in the 2013 semi-annual report. To reflect the change to IAS 1 "Presentation of Items of Other Comprehensive Income (OCI)", Repower revised how other comprehensive income is presented in the statement of comprehensive income. Greater weight is ascribed to other comprehensive income when it is grouped into items that are subsequently reclassified in the income statement for specific reasons and into items that are not subsequently reclassified in the income statement and when greater volatility is expected in equity with the application of the revised IAS 19 "Employee Benefits". The statement of comprehensive income includes the two reporting components "Consolidated income statement" and "Consolidated statement of comprehensive income". The presentation of the previous year's figures has been adjusted.

Repower began applying the revised IAS 19 "Employee Benefits", published in June 2011, for the annual period beginning on 1 January 2013 in line with the transitional requirements. The revised guideline will be applied with retrospective effect. As a result, the opening balances as at 1 January 2012 and the prior-year period have been adjusted. Up to now, application of the corridor approach has meant that actuarial gains and losses have been largely unrecognised. 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). The actuarial gains and losses must now be recognised under other comprehensive income in the period they are incurred. Recognition of these gains or losses increases or decreases obligations and thus makes equity more volatile. Interest expense and the expected income from plan assets were previously recognised under pension costs (personnel expenses). The interest rate used to calculate the expected return on plan assets must now correspond to the discount rate for benefit obligations. The net interest expense/income is made up of the net pension obligation/asset and the interest rate used to discount the obligation. This net interest component corresponds to the effect of the compounded interest of the non-current net pension obligation or the non-current net pension asset. From Repower's standpoint, this net interest component should be allocated to the financial result and is reported there. The difference between this amount and the effective return on plan assets is recognised in other comprehensive income via the revaluation components. The pension provisions will still be shown as a separate balance sheet item. The presentation of the previous year's figures has been adjusted accordingly.

The financial effects of the revised standard can be seen in the table below:

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 parties to the joint operation must account for their share of the assets, liabilities, income and expenses. 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 interest. The introduction of the new standard prompted Repower to analyse and review all of its arrangements with partner plants. From Repower's point of view, there is no contractual arrangement governing Repower's joint control over the main activities of the partner plants, with the exception of Grischelectra 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. Energy procurement rights are bundled in Grischelectra AG. 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 on a proportional basis rather than accounted for using the equity method. The new standard will be applied with retrospective effect. The financial effects on the consolidated financial statements as at 30 June 2013 are insignificant.

IFRS 13 has also been revised. 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 to financial as well as non-financial assets and liabilities. IFRS 13.91ff. now requires, in particular, the notes to the financial statements to include information on how fair value is determined. The standard distinguishes between fair value measurement on a recurring and non-recurring basis. More extensive details must be provided for recurring measurements as well as for measurements categorised within Level 3. Moreover, all assets and liabilities measured at fair value must be disclosed by class. The classes were created on the basis of those used to present the additional disclosures on financial instruments as at 31 December in the 2012 Annual Report. These classes, which were created on the basis of balance sheet items, have been defined in more detail. They will be applied prospectively and are used for the first time in this report.