Notes to the consolidated financial statements

6) Risk management and financial risk management


The Repower Group identifies and manages risks on the basis of a Group-wide management approach. A number of different components are used to put this approach into practice: the Enterprise Risk Management function, the concept of three lines of defence against risk, an integrated risk management process, and a specific risk culture fostered throughout the business. There are four main categories of risk to which Repower is exposed: business and strategic risks, market and credit risks, compliance risks, and financial reporting risks.

This report focuses on market and counterparty risks and liquidity risks as the main risks to which the operating activities of Repower are exposed. The parameters set by the Board of Directors and the Executive Board are implemented in the form of guidelines, directives and risk limit systems. The aim is to ensure a reasonable balance between business risks entered into, earnings, investments and risk-bearing capital. Compliance with the parameters set for each risk category is regularly reviewed and reported.

Market risks

Repower is exposed to various market risks within the scope of its business activities. The most important of these are energy price risks, interest rate risks and currency risks.

Energy price risks

Energy transactions, including proprietary trading, are conducted for the purpose of procuring energy and fuels in order to cover physical delivery contracts, to sell Repower's own generation volumes and to optimise the overall portfolio. When establishing energy price risks, a distinction is made between positions held for own use and those held for trading. The units responsible for sales and generation conduct transactions on the basis of the internal market model to ensure that a structure is in place to mitigate trading risks. Energy price risks arising from price volatility, changes in the price level and pricing structures and from changing market correlations are subject to defined limits and monitored by risk management on trading days. Each month the Risk Management Committee (RMC) assesses the risk situation in the energy business. The Board of Directors and the Executive Board are kept informed about the risk situation through reports submitted by the RMC on a quarterly basis and ad hoc reports in the case of extraordinary events

Interest rate risks

Interest rate risks primarily concern changes in interest rates on non-current interest-bearing liabilities. In the event that the agreed interest rate is variable and fixed-rate contracts are maturing, interest rates represent an interest rate risk. Owing to the long investment horizon for capital-intensive power plants and grids, Repower primarily obtains long-term financial loans with phased terms to maturity. The interest situation and hedging options are continuously reviewed. Derivative financial instruments – in particular interest rate swaps – are used and under certain conditions recognised as hedging relationships (hedge accounting). Another interest rate risk exists with regard to variable-rate positions of current assets, in particular in the case of sight deposits. This risk is minimised by pursuing an active cash management policy.

Currency risks

Energy deliveries and services are paid for and sold by the Repower Group mainly in euros and partly in Swiss francs. The foreign Group companies conduct nearly all of their other transactions in their functional currency. These transactions are not subject to currency risks. There is, however, a risk of currency fluctuation on those positions denominated in euros for Repower AG and its Group companies with a functional currency other than the euro. Intragroup loans in particular are subject to currency risks. The currency risk is eliminated in part by agreements for netting receivables and liabilities in the foreign currency. Forward exchange transactions are conducted to reduce the currency risk. Selected refinancing is also done in euros. Net investments in foreign Group companies are also exposed to exchange rate fluctuations. However, these long-term commitments are not hedged.

Counterparty risks

Counterparty risks consist of settlement risks and replacement risks:

Settlement risks

Settlement risks arise if customers are unable to meet their financial obligations as agreed. These risks are managed on the basis of ongoing credit checks on counterparties and collateral management.

Replacement risks

Replacement risks arise if, as a result of the counterparty defaulting, the position can only be procured or sold on the market at less favourable conditions.

Settlement and replacement risks are taken into account in the limit system and when measuring risk exposure.

Liquidity risks

Liquidity risks arise if the Repower Group cannot meet its obligations as agreed or is unable to do so under economically viable conditions. Repower continuously monitors the risk of liquidity shortfalls. Cash flow forecasts are used to anticipate future liquidity performance in order to respond in good time in the event of a surplus or a shortfall.

Liquidity risk has to be based exclusively on financial liabilities. To indicate the effective liquidity risk related to derivative financial instruments, the next table in the section “Derivative financial liabilities” shows cash inflows and outflows from contracts with negative and positive fair values.

At the balance sheet date, financial liabilities exist with the following due dates (amounts represent the contractual, undiscounted cash flows):

  Carrying amount Cash flows Until 3 months 4-12 months 1-5 years > 5 years
Derivative financial liabilities -5,314          
Forward foreign currency contracts 1,581          
Cash inflow   82 27 55 - -
Cash outflow   1,663 913 750 - -
Energy trading transactions -26,146          
Cash inflow   1,587,560 409,328 872,921 305,311 -
Cash outflow   1,555,425 378,074 882,869 294,482 -
Interest rate swaps 19,251          
Cash inflow   - - - - -
Cash outflow   26,708 388 1,891 9,118 15,311
Non derivative financial liabilities 985,161          
Non-current financial liabilities 414,237 527,488 - - 103,325 424,163
Current financial liabilities 202,900 220,778 1,926 218,852 - -
Other current liabilities 368,024 368,024 360,350 7,674 - -
Deferred income and accrued expenses 17,874 17,874 13,405 4,469 - -
  Carrying amount Cash flows Until 3 months 4-12 months 1-5 years > 5 years
2014 (Restated)            
Derivative financial liabilities 6,612          
Forward foreign currency contracts 65          
Cash inflow   198 198 - - -
Cash outflow   263 - 263 - -
Energy trading transactions -10,439          
Cash inflow   2,062,830 546,747 1,128,898 387,185 -
Cash outflow   2,036,307 545,541 1,102,577 388,189 -
Interest rate swaps 16,986          
Cash inflow - - - - - -
Cash outflow   24,548 305 1,036 7,743 15,464
Non derivative financial liabilities 1,076,523          
Non-current financial liabilities 551,738 660,765 - - 330,706 330,059
Current financial liabilities 83,806 101,747 1,391 100,356 - -
Other current liabilities 440,979 440,979 430,586 10,393 - -
Deferred income and accrued expenses 18,384 18,384 13,788 4,596 - -

Forward exchange transactions and interest rate swaps are disclosed on the balance sheet under current financial liabilities and non-current financial liabilities.Trade accounts receivable include the following overdue and non-impaired amounts:

  31.12.2015 31.12.2014
Less than 30 days overdue 15,829 17,933
31-60 days overdue 4,941 6,225
61-90 days overdue 1,692 3,039
91-180 days overdue 4,445 4,964
181-360 days overdue 4,563 9,167
More than 360 days overdue 16,990 31,623

The total amount of receivables which are neither impaired nor overdue is TCHF 304,202 (previous year: TCHF 371,918). There are no indications that would necessitate an impairment loss being recognised for these receivables.

Allowances for doubtful accounts amounted to:

  31.12.2015 31.12.2014
At 1 January 25,911 28,508
Additions 14,700 7,330
Utilizations -6,815 -6,416
Reversals -214 -1,600
Reclassifications IFRS 5 -3 -1,321
Translation differences -2,565 -590
Total 31,014 25,911

In the case of single significant items where receipt of payment is uncertain, individual impairments are determined based on internal and external credit rating information. In addition, lump-sum impairments are calculated based on historical accounts receivable losses and current information. Neither collateral nor any other enhancements are available for doubtful receivables.

At the balance sheet date, Repower also has the following bank credit lines which have been secured but remain unused:

  31.12.2015 31.12.2014
Unused general credit lines 131,332 140,000
Additional unused credit lines for the purpose of issuing guarantees 190,671 172,914

Sensitivity analyses of market risks

On the balance sheet date, Repower performs a sensitivity analysis for each market risk category to determine the potential impact of various scenarios on net profit for the year and equity. In the course of this analysis the impact of individual factors is investigated, meaning that mutual dependencies of individual risk variables are not taken into consideration. The following scenarios were analysed for each of the individual market risk categories:

Energy price risks

Own use positions are not measured at fair value and, accordingly, net profit for the year and equity are not affected. In the case of positions held for trading, the value at risk (VaR) for the open positions of the next 24 months is calculated with a confidence level of 99 per cent based on the changes in the trading price corresponding to the historical 180-day volatility.

  31.12.2015 31.12.2014
Energy, gas, CO2 7,288 5,097

Interest rate risks

Valuation effects may occur in the case of financial instruments for which an interest rate has been agreed and which are measured at fair value. The impact of the interest rate swaps held to which the valuation principle of hedge accounting does not apply is shown along with the financial liabilities with variable interest rates. The analysis was performed in 2015 and 2014 for interest rates which were 50 bp higher and lower.

  31.12.2015 31.12.2014
Impact on net income and equity due to a higher interest rate 4,907 3,955
Impact on net income and equity due to a lower interest rate -4,586 -4,736

Currency risks

Currency risks exist mainly in connection with euro positions for trade accounts receivable and payable, derivative receivables and payables from forward exchange transactions, cash and cash equivalents, intragroup loans, open financial instruments from energy trading transactions, and non-current financial liabilities. The analysis was performed using euro exchange rates which were 10 per cent higher and lower than the closing rate. The closing rate for the year under review is CHF/EUR 1.0835 (previous year: CHF/EUR 1.2024).

  31.12.2015 31.12.2014
  FX Rate EUR/CHF Effect FX Rate EUR/CHF Effect
Impact on net income and equity due to a higher exchange rate 1.1919 31,009 1.3226 36,505
Impact on net income and equity due to a lower exchange rate 0.9752 -31,009 1.0822 -36,505

On 15 January the Swiss National Bank removed the floor of CHF 1.20/EUR 1.