Notes to the consolidated financial statements

3) Consolidation

Scope of consolidation

The consolidated financial statements cover Repower AG and all entities over which Repower AG exercises control. Control exists when Repower has the power to decide on the relevant processes and activities of the entity, is exposed to variable returns from its involvement, and has the ability to affect those returns through its decisionmaking authority over the other entity. These entities are fully consolidated and designated as Group companies. They are included in the consolidated financial statements from the date on which control has been transferred to the Repower Group, and deconsolidated when such control has ended. For all consolidated companies, the financial year ends on 31 December.

A joint arrangement is a contractual amalgamation of two or more parties that gives the parties joint management of an economic activity. IFRS distinguishes between joint operations and joint ventures. A joint operation is an arrangement whereby the parties that have joint control of the arrangement have rights to the assets, and obligations for the liabilities, relating to the arrangement. Assets, liabilities, income and expenses arising from joint operations are recognised in relation to the partner's ownership interest. The (proportionate) inclusion of assets, liabilities, income and expenses is based on the share (e.g. of output) contractually agreed between the parties. This need not necessarily be the same as the parties' share of capital in the legal entity. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Joint ventures are recognised in accordance with the equity method.

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

Partner plants are power plants which Repower plans, builds, maintains and/or operates in conjunction with partners. By acquiring a stake in a partner plant, both the acquirer and future partners undertake, in accordance with the memorandum of association, to assume a share of the annual costs commensurate with their stake in the authorised capital. In return partners have the right to procure, at cost, a share of the services and energy produced by the partner plant that corresponds to their share of the authorised capital (electricity purchase obligation or electricity purchase right).

The partner plants are accounted for depending on the quality of the potential influence or composition of the entity's articles of association and other agreements between the entity and/or its shareholders. Repower exercises significant influence over the main activities of partner plants AKEB Aktiengesellschaft für Kernenergie-Beteiligungen and Kraftwerke Hinterrhein AG; hence they are classified as associates and accounted for in the Repower Group's financial statements using the equity method. Grischelectra AG is managed jointly with Canton Graubünden. Repower administers all procurement rights related to Grischelectra AG and classifies this joint arrangement as a joint operation; hence Grischelectra AG's assets, liabilities, income and expenses are included 100 per cent in the Group's consolidated financial statements.

The companies included in the consolidation and any changes in the scope of consolidation are listed in Note 9.

Consolidation method

The Repower Group accounts for business combinations using the acquisition method. In doing so the acquisition costs are compared with 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 profit or loss as negative goodwill on the date of acquisition. In the case of an acquisition achieved via successive share purchases, the fair value of the interests already held in the acquired entity must be remeasured at the time of acquisition. The resultant gain or loss must be recognised in profit or loss. Non-controlling interests are accounted for in accordance with their proportionate share in identifiable net assets. Acquisition-related costs are recognised as expenses in the period in which they are incurred. Conditional payments are recognised at fair value on the date of acquisition. Changes in fair value are recognised in profit or loss in subsequent periods.

Fully consolidated companies are included in the consolidated financial statements in their entirety (assets, liabilities, income and expenses). A change in the interest in an entity that does not affect its full consolidation is recognised as an equity transaction and recorded by adjusting the carrying amounts of the controlling and non-controlling interests. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consideration paid or received is recognised directly in equity and attributed to the owners of the parent company. It is recognised in profit or loss only if the sale results in a loss of control and the subsidiary is therefore deconsolidated. At the same time, all positions in the statement of other comprehensive income (OCI) requiring reclassification are reclassified (recycling).

Investments in associates and joint ventures are accounted for using the equity method on the basis of the share of equity, whereby shares in an associate are initially recognised at cost. A positive difference between the total purchase price and the share of the acquired equity remeasured at the time of acquisition is capitalised as goodwill within the participating interest position. A negative difference is charged to profit or loss. The carrying amount of the investment subsequently increases or decreases depending on the investor's share of the gain/loss of the investment, which is recognised in profit or loss. Distributions from investments reduce the carrying amount of the shares. Non-cash increases and decreases in the carrying amount in the associate's financial statements are recognised directly in the investor's equity. If Repower's share of losses of an associate equals or exceeds its interest in the associate, Repower discontinues recognising its share of further losses, unless Repower has incurred obligations or made payments on behalf of the associate. If in this case there are long-term assets in relation to the associate for which no collateral has been lodged, these assets are reduced by the amount by which the loss exceeds the carrying value. If there are no such assets vis-à-vis this associate, a provision is recognised. If associates and joint ventures apply accounting and valuation principles that deviate from those adopted by the Repower Group, appropriate adjustments are made in the consolidated financial statements.

Intragroup transactions

All intragroup transactions (receivables and payables, income and expenses) as well as the share of a subsidiary's equity attributable to a parent company are eliminated. Existing shares of equity attributable to minority shareholders, as well as their share in the results of consolidated entities, are recognised separately. Gains arising from intragroup transactions and holdings are eliminated in the income statement.

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

Currency translation

Each Group company determines the functional currency in which it draws up its individual financial statements. 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 recognised in profit or loss. Non-monetary foreign currency items carried at fair value are translated at the rate that existed on the date on which the fair values were determined.

The consolidated financial statements are drawn up and presented in Swiss francs. The functional currency for the significant 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. The following exchange rates are incorporated in the Repower Group's consolidated financial statements:

    Closing fx rate Average fx rate
Currency Unit 31.12.2015 31.12.2014 2015 2014
BAM 1 0.55890 0.60700 0.54641 0.61189
CZK 100 4.02000 4.34000 3.91159 4.40719
EUR 1 1.08350 1.20240 1.06840 1.21456
GBP 1 1.47730 1.54720 1.46996 1.50605
HRK 100 14.23500 15.69300 14.03018 15.90231
HUF 100 0.34400 0.37940 0.34424 0.39290
MKD 100 1.76060 1.96150 1.72957 1.96869
PLN 100 25.53000 28.01000 25.51739 28.99044
RON 100 24.11033 26.84348 24.03459 27.35492
RSD 1 0.00896 0.00992 0.00886 0.01037
USD 1 1.00180 0.99410 0.96200 0.91533

When translating the functional currency into the reporting currency, 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, a foreign operation or associates are disposed of, the cumulative amount of the translation differences is reclassified to profit or loss.

Segment reporting

Repower's segment reporting reflects internal management and reporting structures (management approach) to provide the information used by management for steering and assessing the business performance and development of the individual segments. The CEO of the Repower Group has been designated as the chief operating decision maker. For each business segment, internal steering, performance measurement and capital allocation are carried out on the basis of the segment's income before interest and taxes (EBIT). Segment income is calculated on the basis of the accounting and valuation principles used at Group level.

Repower's Market Switzerland and Market Italy have been identified as reportable segments:

  • Market Switzerland covers the generation of electricity in Repower's own power plants and in plants operated by partners, as well as trading in electricity, gas and other commodities and certificates. Other elements in the value chain comprise the distribution and sale of energy to end-customers and distribution partners in Switzerland. Additional business activities cover the provision of energy and communication services. Following the disposal of sales operations in Germany, generation activities in Germany are now shown under Market Switzerland rather than under other segments and activities as they were the previous year.
  • Market Italy covers the generation of electricity in Repower's own power plants, trading in electricity, gas and certificates, and the delivery of electricity and gas to end-customers. Energy efficiency services are also offered.

No operating divisions were combined to create the reportable business segments. Other Repower Group business operations are combined under the “other segments and activities” segment. The main sources of revenue are the distribution and trading activities of Repower companies in Romania and Eastern Europe. Reconciliation with the consolidated figures of the Repower Group is based on the two reportable business segments plus other segments and activities, which are shown together with the consolidation effects.