Annual Report 2017 – Repower Group

1 Net sales from goods and services

2 Own costs capitalised

3 Change in inventory of sales orders

4 Other operating income

5 share of earnings from associates and joint ventures

6 Energy procurement

7 Concession fees

8 Personnel expenses

9 Materials and third party services

10 Other operating expenses

11 Depreciation and value adjustments of tangible assets

12 Depreciation and value adjustments of intangible assets

13 Net financial income

	2017	2016
CHF thousand


Financial income	21,431	4,043
Interest income	928	1,227
Dividend income	288	205
Other financial income	90	539
Changes in the value of securities held for trading	1,450	2,072
Currency translation	18,675	-

Financial expenses	–35,574	–31,855
Interest expense	–10,287	–17,741
Interest accumulated on provisions	–1,146	–760
Changes in securities held for trading	–18,370	–940
Currency translation	-	–2,056
Impairments	-	–4
Loss on premature repayment of liabilities	–1,468	–5,131
Other financial expenses	–4,303	–5,223

Net financial result	–14,143	–27,812

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

	2017	2016
CHF thousand

Income taxes referred to in the income statement	363	4,673
Current income taxes	335	–2,061
Deferred income taxes	28	6,734

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:

	2017	2016
CHF thousand

Reconciliation
Income before taxes	19,636	–5,694
Income tax rate for parent company	16.1%	16.7%

Income taxes at expected income tax rate	–3,165	950
Tax effect from income taxed at other tax rates	–1,878	–2,705
Tax effect from tax-free income/non-tax-deductible expenses	493	4,385
Tax losses in the current year for which no deferred tax assets were recognised	–8,434	–1,289
Tax loss carryforwards for which no deferred tax assets were recognised	4,018	2,974
Regional production tax in Italy - IRAP	–1,559	–995
Change in tax rate	-	908
Re-evaluation of deferred tax on intercompany receivables	9,728	-
Income taxes for previous years	–290	725
Non-usable withholding tax 1)	1,173	–1,276
Other	277	996
Income taxes referred to in the income statement	363	4,673

Effective income tax rate	1.8%	–82.1%

1) In 2017 this item includes a refund from the flat tax payment for the years 2013 and 2014. This amount was recorded as current income tax.

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

	Power plants	Grids	Assets under construction	Land and buildings	Other	Total
CHF thousand

Gross values at 1 January 2016	877,483	757,328	100,833	98,591	48,514	1,882,749
Own costs capitalised	-	293	7,678	-	-	7,971
Additions	5	526	15,034	185	1,227	16,977
Disposals	–4,540	–5,657	–288	–22,299	–2,094	–34,878
Disposals from changes in consolidation	-	–14,154	–19,470	-	–467	–34,091
Reclassifications between asset classes	4,104	11,263	–16,500	-	1,133	-
Effect of currency translation	–3,371	-	–228	–155	–164	–3,918
Gross values at 31 December 2016	873,681	749,599	87,059	76,322	48,149	1,834,810

Accumulated depreciation and value adjustments at 1 January 2016	–518,981	–423,015	–88,716	–50,692	–27,536	–1,108,940
Depreciation	–19,829	–17,687	-	–866	–3,462	–41,844
Reversal of impairments	15,506	-	-	-	-	15,506
Disposals	4,540	5,167	-	16,635	1,916	28,258
Disposals from changes in consolidation	-	10,120	19,433	-	275	29,828
Effect of currency translation	1,958	-	216	128	83	2,385
Accumulated depreciation and value adjustments at 31 December 2016	–516,806	–425,415	–69,067	–34,795	–28,724	–1,074,807
Net values at 31 December 2016	356,875	324,184	17,992	41,527	19,425	760,003
of which security pledged for debts						2,513

Gross values at 1 January 2017	873,681	749,599	87,059	76,322	48,149	1,834,810
Own costs capitalised	-	241	5,773	-	-	6,014
Additions	-	179	13,630	184	3,759	17,752
Disposals	–10,734	–4,328	–9,428	–4,490	–1,438	–30,418
Reclassifications between asset classes	3,525	12,980	–16,686	–1,182	1,363	-
Effect of currency translation	33,910	-	516	1,459	1,732	37,617
Gross values at 31 December 2017	900,382	758,671	80,864	72,293	53,565	1,865,775

Accumulated depreciation and value adjustments at 1 January 2017	–516,806	–425,415	–69,067	–34,795	–28,724	–1,074,807
Depreciation	–19,925	–17,447	-	–667	–3,685	–41,724
Disposals	10,734	3,683	-	3,111	1,259	18,787
Effect of currency translation	–20,334	-	–418	–1,276	–837	–22,865
Accumulated depreciation and value adjustments at 31 December 2017	–546,331	–439,179	–69,485	–33,627	–31,987	–1,120,609
Net values at 31 December 2017	354,051	319,492	11,379	38,666	21,578	745,166
of which security pledged for debts						2,458

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

	Software	Concessions and rights of use	Other	Total
CHF thousand

Gross values at 1 January 2016	24,828	15,969	1,125	41,922
Additions	2,392	1,099	231	3,722
Disposals	–1,606	-	–49	–1,655
Disposals from changes in consolidation	–139	-	–287	–426
Reclassifications between asset classes	59	-	–59	-
Effect of currency translation	–68	–9	–6	–83
Gross values at 31 December 2016	25,466	17,059	955	43,480

Accumulated amortisation and value adjustments at 1 January 2016	–18,800	–11,258	–226	–30,284
Amortisation	–2,850	–391	–45	–3,286
Impairments	-	–570	-	–570
Disposals	1,601	-	49	1,650
Disposals from changes in consolidation	24	-	19	43
Reclassifications between asset classes	–73	-	73	-
Effect of currency translation	45	-	1	46
Accumulated amortisation and value adjustments at 31 December 2016	–20,053	–12,219	–129	–32,401
Net values at 31 December 2016	5,413	4,840	826	11,079

Gross values at 1 January 2017	25,466	17,059	955	43,480
Additions	2,313	-	788	3,101
Disposals	–2,182	-	-	–2,182
Reclassifications between asset classes	234	-	–234	-
Effect of currency translation	648	87	77	812
Gross values at 31 December 2017	26,479	17,146	1,586	45,211

Accumulated amortisation and value adjustments at 1 January 2017	–20,053	–12,219	–129	–32,401
Amortisation	–3,275	–348	–35	–3,658
Disposals	1,906	-	-	1,906
Effect of currency translation	–457	-	–13	–470
Accumulated amortisation and value adjustments at 31 December 2017	–21,879	–12,567	–177	–34,623
Net values at 31 December 2017	4,600	4,579	1,409	10,588

17 Investments in associates and joint ventures

	2017	2016
CHF thousand

Investments in associates and joint ventures	3,632	3,162
EL.IT.E S.p.A.	3,508	3,050
Aerochetto S.r.l.	-	-
Swisscom Energy Solutions AG	-	-
Grischelectra AG	28	27
Kraftwerk Morteratsch AG	96	85


Carrying amounts at 1 January	3,162	6,885
Investments	-	100
Reclassification of active loans	-	-
Disposals	-	–3,779
Dividends	-	–49
Effect of currency translation	285	–29
Share of earnings	185	34
Impairments	-	-
Carrying amounts at 31 December	3,632	3,162


Decrease in loans receivable
01.01.2018	–11,926	–9,473
Share of earnings	–3,591	–3,318
Reclassification of loans receivable into equity	523	814
Effect of currency translation	–536	51
31 December	–15,530	–11,926

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

19 Deferred tax assets

20 Inventories

21 Trade accounts Receivable

	31.12.2017	31.12.2016
CHF thousand

Trade accounts receivable	382,940	313,852
Trade accounts receivable	392,539	357,659
Allowances for doubtful accounts	–9,599	–43,807

Development of allowances for doubtful accounts

Carrying amount at 1 January	43,807	31,014
Additions	9,515	23,640
Utilisations	–44,110	–8,319
Reversals	–3,527	–2,272
Effect of currency translation	3,914	–256
End balance at 31 December	9,599	43,807

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

25 Replacement values of held-for-trading positions

26 Cash and cash equivalents

27 Provisions

	Litigation and court proceedings	Dismantling provisions	Provisions for onerous contracts	Severance pay	Other provisions	Total
CHF thousand

Carrying value at 1 January 2016	1,132	2,428	9,164	3,053	6,941	22,718
Additions	959	-	5,531	406	368	7,264
Utilisations	–314	-	-	–177	–4,607	–5,098
Reversals	-	-	–4,846	-	–562	–5,408
Interest	-	28	732	-	-	760
Disposals from changes in consolidation	–63	-	-	-	-	–63
Effect of currency translation	–17	–16	-	–30	–10	–73
Carrying value at 31 December 2016	1,697	2,440	10,581	3,252	2,130	20,100

Carrying value at 1 January 2017	1,697	2,440	10,581	3,252	2,130	20,100
Additions	-	277	-	555	474	1,306
Utilisations	–423	-	-	–414	–96	–933
Reversals	–578	-	–1,719	-	–299	–2,596
Interest	-	30	1,116	-	-	1,146
Effect of currency translation	100	179	-	299	195	773
Carrying value at 31 December 2017	796	2,926	9,978	3,692	2,404	19,796

Non-current Provisions
Carrying value at 31 December 2016	1,697	2,440	10,581	3,252	2,110	20,080
Carrying value at 31 December 2017	796	2,926	9,978	3,692	2,145	19,537

Current provisions
Carrying value at 31 December 2016	-	-	-	-	20	20
Carrying value at 31 December 2017	-	-	-	-	259	259

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

29 Non-current financial liabilities

				31.12.2017	31.12.2016
CHF thousand

	Currency	Due date	Nominal interest rate
Non-current financial liabilities				378,452	301,007

Loans				139,450	115,000
Private placement	CHF	28.03.2018	3.660%	-	25,000
Private placement	CHF	20.03.2023	3.625%	10,000	10,000
Private placement	CHF	28.06.2030	2.500%	20,000	20,000
Bank loan	CHF	11.12.2020	3.100%	-	10,000
Promissory note (SSD)	EUR	23.01.2024	1.698%	29,255	-
Promissory note (SSD)	EUR	23.01.2025	1.922%	29,255	-
Bank loan	CHF	04.07.2026	1.820%	50,000	50,000
Bank loan	CHF	31.03.2020	1.160%	940	-

Bonds				114,144	113,893
Bond par value	CHF	20.07.2022	2.375%	115,000	115,000
Net expenditures	CHF			–856	–1,107

Registered bond				2,809	2,568
Registered bond	EUR	08.08.2034	3.400%	2,926	2,685
Net expenditures	EUR			–117	–117

Other financial liabilities				122,049	69,546
Investment loan 1)	CHF	31.12.2020	no interest	425	638
Loan (minorities) 2)	CHF	31.12.2070	no interest	20,281	18,139
Loan (minorities) 2)	CHF	31.12.2085	0.250%	56,951	-
Interest rate swap	CHF	28.06.2024		-	4,529
Interest rate swap	CHF	01.07.2031		5,764	6,392
Interest rate swap	CHF	18.11.2031		6,587	7,409
Other financial liability	EUR	31.12.2021	no interest	401	551
Loan (minorities)	EUR	30.06.2027	3.900%	31,608	31,835
Liabilities for finance leasing	CHF		2.500%	32	53

Financial liabilities are carried in the following currencies:
Swiss francs				285,123	266,053
Euro (translated)				93,329	34,954

1) Mortgage assignments were pledged as security for the investment loan of TCHF 425 (previous year: TCHF 638). The fixed assets pledged in this connection are disclosed in Note 15.

2) Loan from minority shareholders in Repartner Produktions AG to participate in the production of selected hydroelectric power plants in Canton Graubünden.

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

31 Current financial liabilities

32 Trade accounts payable

33 Other current liabilities

34 Deferred income and accrued expenses

35 Pension schemes

Employer contribution reserves

	Nominal value	Balance sheet		Additions/utilisations	Result of ECR in personnel expenses
	31.12.2017	31.12.2017	31.12.2016	2017	2017	2016
CHF thousand

Pension institutions	80	80	92	–12	–12	–51

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

	Overfunding/ underfunding	Organisation's share of economic liability		Change on prior year	Contributions concerning the business period	Pension benefit expenses within personnel expenses
	31.12.2017	31.12.2017	31.12.2016	2017	2017	2017	2016
CHF thousand

Pension plans without overfunding/underfunding	-	-	-	-	3,417	3,417	3,710
Pension institutions with unfunded obligations		–3,692	–3,252	–440	599	740	677
Total	-	–3,692	–3,252	–440	4,016	4,157	4,387

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

	Replacement values		Replacement values
	positive	negative	positive	negative
	31.12.2017		31.12.2016
CHF thousand

On-balance-sheet derivatives

Held for trading
Interest derivatives	-	12,351	-	18,330
Currency derivatives	414	9,742	2,160	308
Energy derivatives	373,370	372,495	383,261	377,430
Total on-balance-sheet derivatives	373,784	394,588	385,421	396,068
Netting	–265,342	–265,342	–235,489	–235,489
Net value on balance sheet	108,442	129,246	149,932	160,579

Off-balance-sheet derivatives

Held for cash flow hedges
Interest derivatives	-	-	-	1,406
Energy derivatives	38,419	63,655	148,105	161,483
Total off-balance-sheet derivatives	38,419	63,655	148,105	162,889

Total derivative financial instruments	146,861	192,901	298,037	323,468

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:

	31.12.2017	31.12.2016
CHF thousand

Income statement item
Net Sales from goods and services	88,383	28,968
Energy procurement	–35,047	–42,787
Financial and other operating income	402	562
Financial and other operating expenses	–200	–324

Balance sheet item

Assets
Financial assets	7,516	5,516
Trade accounts receivable	17,177	10,990
Positive replacement values of held for trading positions	2,626	896

Liabilities
Non-current liabilities	99	-
Trade accounts payable	981	12,773
Negative replacement values of held for trading positions	13,954	15,125

Off-balance-sheet energy derivatives

Held for cash flow hedges
Positive replacement values	786	292
Negative replacement values	6,126	5,674

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.

	Market Switzerland	Market Italy	Other segments and activities	Group
CHF thousand

2017

Net sales from goods and services	638,736	1,255,523	–58,790	1,835,469
Net sales from goods and services	620,640	1,214,675	154	1,835,469
Net sales from goods and services between segments	18,096	40,848	–58,944	-

Earnings before interest and taxes (EBIT)	16,066	24,271	–6,558	33,779

	Market Switzerland	Market Italy	Other segments and activities	Group
CHF thousand

2016

Net sales from goods and services	577,457	1,121,597	722	1,699,776
Net sales from goods and services	517,781	1,083,661	98,334	1,699,776
Net sales from goods and services between segments	59,676	37,936	–97,612	-

Earnings before interest and taxes (EBIT)	13,121	10,697	–1,700	22,118

39 Treasury shares

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.

	31.12.2017	31.12.2016
CHF thousand

Off-balance-sheet liabilities

Operating lease (nominal value)	16,842	21,864
Due within 1 year	3,184	3,607
Due in 1-5 years	6,269	7,380
Due in more than 5 years	7,389	10,877

Procurement contracts	765,397	860,297
Due within 1 year	109,967	94,901
Due in 1-5 years	416,910	437,159
Due in more than 5 years	238,520	328,237

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.

	2017	2016
CHF thousand

Other operating income	5,963	15,316
Profit from sale of group companies	-	2,727
Profit from disposal of tangible assets	2,860	11,178
Revenue from other operating activities	3,103	1,411

	2017	2016
CHF thousand

Share of earnings from associates and joint ventures	–3,406	–3,284
Associated organisations	–3,418	–3,270
Joint ventures	12	–14

	2017	2016
CHF thousand

Energy procurement	–1,600,944	–1,478,049
Procurement of electricity, gas and certificates	–1,598,664	–1,466,640
Other energy expenses	–2,280	–11,409

	2017	2016
CHF thousand

Concession fees	–17,831	–16,293
Water rates/hydro plant taxes	–9,608	–8,749
Other concession fees	–8,223	–7,544

	2017	2016
CHF thousand

Personnel expenses	–67,977	–69,700
Wages and salaries	–53,581	–54,837
Social security costs and other personnel costs	–14,396	–14,863

	2017		2016
	Number of shares	Carrying amount in CHF	Number of shares	Carrying amount in CHF

Initial balance at 1 January	382	20,713	-	-
Purchases	2,637	152,507	3,442	167,750
Disposals	–2,763	–157,855	–3,060	–147,037
Ending balance at 31 December	256	15,365	382	20,713

	2017	2016
CHF thousand

Other operating expenses	–46,573	–75,956
Cost of premises	–3,701	–3,909
Vehicle and transport costs	–2,284	–2,436
Administrative costs	–7,835	–8,370
IT costs	–8,280	–7,625
Marketing & communications	–7,078	–7,692
Allowances for doubtful accounts	–7,213	–32,863
Capital taxes, levies and fees	–3,842	–5,923
Other operating expenses	–6,340	–7,138

	31.12.2017	31.12.2016
CHF thousand

Inventories	24,745	16,343
Emission certificates	8,660	4,147
Gas	7,142	2,588
Work in progress	3,245	3,952
Inventories of materials	5,698	5,656

	31.12.2017	31.12.2016
CHF thousand

Other receivables	32,513	47,194
Current income tax receivables	6,290	7,870
VAT receivables	7,646	10,319
Advance payments for inventories	2,418	9,859
Security deposits paid	6,280	4,041
Other receivables	9,879	15,105

	31.12.2017	31.12.2016
CHF thousand

Cash and cash equivalents	394,479	318,171
Sight deposits	259,373	220,871
Cash invested for less than 90 days	135,106	97,300