Notes to the consolidated financial statements: notes
1 Net sales from goods and services
Revenue from energy business and revenues from services and other usual business activities are recognised in the income statement when delivery of goods or services has been performed. Sales of products and related services are broken down into their material performance obligations, measured, and realised on the date they are performed.
A breakdown of net revenues by Repower business segment is presented in the note on segment reporting (Note 38).
2 Own costs capitalised
Own costs capitalised essentially comprise investments in Repower’s generation and grid assets.
3 Change in inventory of sales orders
The change in inventory of sales orders relates to as yet uncompleted work for third parties.
4 Other operating income
The profit from the sale of group companies in the 2016 financial year relates to the disposals of connecta ag, amounting to TCHF 1,066 (in the Market Switzerland segment), and Repower Furnizare România S.r.l., amounting to TCHF 1,661 (in other segments and activities).
The profit from the disposal of tangible assets in the current and prior year relate in particular to income from the sale of properties in other segments and activities.
5 share of earnings from associates and joint ventures
The development of interests in associates and joint ventures is shown in Note 17.
6 Energy procurement
The other energy expenses item essentially comprises broker fees.
7 Concession fees
8 Personnel expenses
9 Materials and third party services
The materials and third party services item contains expenses for maintaining and operating technical assets, external services for operational processes and the performance of services by third parties.
10 Other operating expenses
Information on the development of allowances for doubtful accounts can be found in Note 21.
11 Depreciation and value adjustments of tangible assets
Reversals of impairments of generations assets are explained by segment:
Market Switzerland segment
In 2016 THCF 2,834 in reversals of impairments of intangible assets was recognised for the Taschinas plant. This is due to a fall in the cost of capital (WACC) prompted by the interest rate environment and a reduction in maintenance and operating expenditure in line with the market situation.
Market Italy segment
A reversal of TCHF 12,672 in the 2016 financial year relates to the Teverola combined-cycle gas turbine plant. The reversal for the plant was prompted by a substantial improvement in revenues from ancillary services. The generation asset is valued on the basis of its value in use calculated on a discounted cash flow basis.
12 Depreciation and value adjustments of intangible assets
13 Net financial income
In 2017 the losses on premature repayment of liabilities relate to the premature closing of an off-balance-sheet interest rate swap held until that point for hedging purposes; in 2016 the losses related to the premature repayment of registered bonds.
The changes in the value of securities held for trading relate to interest rate swaps and forward exchange transactions to hedge currency and interest rate risks.
14 Income taxes
The reconciliation between the actual tax burden and the expected tax burden for the financial years ending on 31 December 2017 and 2016 is as follows:
Unrecognised tax loss carryforwards
On the balance sheet date there were unrecognised tax loss carryforwards of TCHF 174,317 (prior year: TCHF 203,114).
This results in unrecognised deferred tax assets of TCHF 37,770 (prior year: TCHF 40,154). Given the uncertainty involved in offsetting loss carryforwards against future earnings, deferred taxes are not capitalised (Swiss GAAP FER 11/23).
15 Tangible assets
Land and buildings connected with power generation and grid facilities are stated under power plants and grids.
Information on reversals of impairments in 2016 can be found in Note 11.
Leased tangible assets
The net carrying amount of the motor vehicles held as part of the finance leasing agreement totalled TCHF 64 (previous year: TCHF 80) at the closing date.
Total lease liabilities come to TCHF 53 (prior year: TCHF 74).
16 Intangible assets
17 Investments in associates and joint ventures
Part of the net investments in associates Swisscom Energy Solutions AG and Aerochetto S.r.l. are loans extended to these entities recognised under financial assets. Losses of TCHF 15,530 in excess of the carrying value of the investments (prior year: TCHF 11,926) were netted with the loans (Note 18).
Prior-year disposals amounting to TCHF 3,779 related to the sale of the interest in Rhiienergie AG. This resulted in income of TCHF 98, which is recognised under other financial income (Note 13). The transaction resulted in a cash inflow of CHF 3,877.
In 2016, together with Reichmuth Infrastruktur Schweiz KGK, Repower established the joint venture company Kraftwerk Morteratsch AG. The establishment of the company in cash entailed investment of TCHF 100 on Repower’s part.
18 Financial assets
Repower holds interests of 7.0 per cent and 6.5 per cent respectively in the partner plants AKEB Aktiengesellschaft für Kernenergie-Beteiligungen, Lucerne, and Kraftwerke Hinterrhein AG, Thusis. These investments are carried at acquisition cost.
The active loans relate to loans to associates and joint ventures. Accumulated impairments of TCHF 15,530 (prior year: TCHF 11,926) were recognised under this item (see Note 17).
Information on the development of the employer contribution reserve account can be found in Note 35.
19 Deferred tax assets
The tax rates used to calculate deferred income tax items are 16.1 per cent for Switzerland, 24.0 per cent for Italy, and between 27.9 and 32.8 per cent for Germany.
20 Inventories
Work in progress relates to services provided by Repower to third parties and not yet billed. In the 2017 financial year no impairment loss was recognised on inventories (prior year: TCHF 98), and TCHF 36 (prior year: TCHF 0) in impairment losses was reversed.
21 Trade accounts Receivable
In 2017 impaired receivables were sold to a factoring company. This transaction resulted in a loss of TCHF 586 recognised under other operating expense in the Market Italy segment.
The stated trade accounts receivable also include claims on associates and joint ventures amounting to TCHF 7,081 (prior year: TCHF 4,431).
Trade accounts receivable are measured by applying individual and lump-sum adjustments to the non-impaired positions based on their maturity structure and historical experience.
22 Other receivables
23 Prepaid expenses and accrued income
24 Securities
The positive replacement values are related to forward exchange transactions.
25 Replacement values of held-for-trading positions
26 Cash and cash equivalents
At the balance sheet date, Repower also had the following unused bank credit lines:
27 Provisions
Provisions for onerous contracts
Provisions were recognised for onerous energy procurement contracts. The reversal in the amount of TCHF 1,719 (previous year: TCHF 4,846) was recognised under energy procurement in the Market Switzerland segment. The provision was calculated on the basis of a risk-adjusted interest rate of 11.15 per cent (prior year: 10.37 per cent).
Severance pay
When an employment relationship is terminated in Italy, the employee is entitled to severance pay corresponding to around one month’s pay for each year of employment (see Note 35).
Dismantling provisions
The dismantling provisions category comprises various provisions for the dismantling of operating installations. Taken individually they are immaterial.
28 Deferred tax liabilities
The tax rates used to calculate deferred income tax items are 16.1 per cent for Switzerland, 24.0 per cent for Italy, and between 27.9 and 32.8 per cent for Germany.
29 Non-current financial liabilities
A bank loan originally due on 11 December 2020 and an interest rate swap maturing on 28 June 2024 were paid off prematurely.
30 Other non-current liabilities
This item comprises accrued connection fees and grid cost contributions received from customers, which are charged to profit or loss over a period of 35 years via net sales from goods and services in the Market Switzerland segment.
31 Current financial liabilities
The replacement values are related to forward exchange transactions.
The prior year’s current financial liabilities include a bank loan of TCHF 1,090 due on 31 March 2017. Mortgage assignments were pledged as security for this bank loan. The fixed assets pledged in this connection are disclosed in Note 15.
32 Trade accounts payable
The stated trade accounts payable also include liabilities vis-à-vis associates and joint ventures amounting to TCHF 889 (prior year: TCHF 4,720).
33 Other current liabilities
34 Deferred income and accrued expenses
35 Pension schemes
Employer contribution reserves
For reasons of materiality, employer contribution reserves are not discounted. The nominal value corresponds to the carrying value. Employer contribution reserves are recognised under non-current financial assets.
Economic benefit/economic liability and pension benefit expenses
The pension fund for employees of Repower AG is organised as a pension scheme of the collective foundation of the PKE Vorsorgestiftung Energie foundation. Swibi AG is affiliated to a joint pension scheme of the PKE Vorsorgestiftung Energie foundation. Based on the most recent financial statements available, neither of these pension schemes is under- or overfunded.
The item “Pension institutions without unfunded obligations” relates to the obligation to pay severance pay in Italy (see Note 27). The change in the stated provision in the income statement comes to THCF 141 at the average exchange rate.
36 Derivative financial instruments
The line “netting” refers to the netting of energy derivatives transactions entered into with the same counterparty and with whom there are enforceable netting agreements.
Cash flow hedges used as hedging transactions are not recognised on the balance sheet and therefore do not yet impact the balance sheet. Off-balance-sheet energy and interest derivatives are used to hedge future cash flows with a high probability of occurrence.
37 Transactions with related parties
The balances and liabilities reported on the balance sheet and the transactions contained in the income statement vis-à-vis related parties are related to business with the main shareholders and Repower entities, associates, partner works and joint ventures controlled by them.
The following balance sheet and profit and loss items contain the following amounts vis-à-vis related third parties:
Transactions are at market prices, or in the case of Grischelectra AG at annual costs.
Canton Graubünden is deemed to be a related party in its capacity as a shareholder. Official business such as levying taxes, concession-related charges, fees, etc., is done on a statutory basis and is therefore not included here. Canton Graubünden’s energy business is transacted via Grischelectra AG, which is included as a related party in the table above.
In 2017 Repower sold 6 per cent of its interest in Repartner Produktions AG to the related party Elektrizitätswerke des Kantons Zürich (EKZ). The net cash inflows for the sale of the interests and the shareholder’s loans granted to date by Repower come to TCHF 5,721 and THCF 9,779 respectively. The disposal was made at carrying values. The sale of minority interests in Repartner Produktions AG has resulted in a TCHF 5,721 increase in Repower’s consolidated equity.
In the financial year under review, Repower AG sold the Morteratsch power plant, which it built, to the joint venture Kraftwerk Morteratsch AG at a carrying value of TCHF 9,055, realising a gain of TCHF 1,001.
Compensation paid to members of the board of directors and executive board is disclosed in the corporate governance section.
38 Segment reporting
Segment reporting is done by geographic market and reflects internal management and reporting structures. The information provided is that used by management for steering and assessing the business performance and development of the individual segments. For each business segment, internal steering, performance measurement and capital allocation are carried out on the basis of the segment’s earnings before interest and income taxes (EBIT). Segment income is calculated on the basis of the accounting and valuation principles used at group level.
39 Treasury shares
Purchases/disposals of treasury shares relate to Repower AG registered shares. In the year under review Repower AG bought 2,637 shares (prior year 3,442) at CHF 57.83 (prior year CHF 48.74) and sold 2,763 shares (prior year 3,060) at an average price of CHF 59.38 (prior year CHF 50.48).
40 Off-balance-sheet business
In the course of regular business the group granted guarantees, bank guarantees and sureties in favour of third parties, directly and via commercial banks. These came to TCHF 179,744 (prior year: TCHF 177,225).
There is a service agreement for the Teverola power plant, concluded for 25 years and ending in June 2029. This resulted in an irrevocable payment obligation of TCHF 13,613 as per 31 December 2017 (prior year: TCHF 13,579).
In the course of usual business, litigation can arise which results in contingent liabilities. These contingent liabilities are not expected to result in material liabilities within Repower Group in addition to the provisions already made for litigation (Note 27). On the other hand there is litigation under way where Repower is asserting its rights, which, if it is successful, could resulting in inflowing payments.
At the reporting date of the financial year under review, the outstanding minimum lease payments consisted of TCHF 15,640 for property and buildings (prior year: TCHF 20,300) and TCHF 1,202 for motor vehicles (prior year TCHF 1,474). There were no liabilities for IT hardware (prior year: TCHF 90).
Obligations to take delivery of electrical energy on the basis of the interests in AKEB Aktiengesellschaft für Kernenergie, Lucerne, Kraftwerke Hinterrhein AG, Thusis, and Grischelectra AG are not included in the above table. The volume and price of electricity delivered depend on actual future production and costs incurred by these associates and joint ventures.
Pledges are recognised under the relevant assets.
41 Events occurring after the balance sheet date
In January 2018 Repower successfully completed the early repurchase of a portion of its outstanding CHF 115,000 2.375 per cent bond maturing on 20 July 2022. Bonds with a total nominal value of CHF 18,555 were repurchased for CHF 19,807 and destroyed.
The group financial statements were approved for publication by the board of directors on 5 April 2018. They are subject to the approval of the annual general meeting, which will take place on 16 May 2018.