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Notes to the Half-Year Financial Statements

1 Business activities

BKW AG, Bern (CH), along with its Group companies (hereinafter “BKW” or the “BKW Group”), is an international energy and infrastructure company. Its company network and extensive expertise allow it to offer its customers a full range of overall solutions. The Group plans, builds and operates infrastructure to produce and supply energy to businesses, households and the public sector, and offers digital business models for renewable energies. The BKW Group portfolio of services comprises everything from engineering consultancy and planning for energy, infrastructure and environmental projects, through integrated offers in the field of building technology, to the ­construction, servicing and maintenance of energy, telecommunications, transport and water networks.

2 Basis of preparation

2.1 General principles

The unaudited, consolidated half-year financial statements for the half-year ended 30 June 2019 have been prepared in accordance with the International Accounting Standard on Interim Financial Reporting (IAS 34) and should be read in conjunction with the consolidated financial statements to 31 December 2018. These half-year financial statements have been drawn up in accordance with the principles described in the Financial Report 2018 (pages 23 to 41). The consolidated half-year financial statements for the period ended 30 June 2019 were approved by the BKW AG Board of Directors on 29 August 2019 and released for publication.

The preparation of this Half-Year Report entailed assumptions and estimates. Actual results may differ from these estimates.

2.2 Adoption of new standards and interpretations

From 1 January 2019 BKW has applied various new and amended standards and interpretations which, with the exception of the changes brought by IFRS 16 as described in Note 3, have no material impact on BKW’s financial position, results of operations or cash flows.

2.3 Future adoption of new standards and interpretations

The following new and amended standards and interpretations had been published by the balance sheet date, but will not be applied until subsequent financial years. BKW intends to apply the changes from the date on which they enter into force (entry into force for financial years beginning on or after the dates in brackets):

No material effects on BKW’s consolidated financial statements are expected.

2.4 Foreign currency exchange rates

The reporting currency is the Swiss franc (CHF). The currency exchange rates in relation to the Swiss franc applied to the consolidated financial statements are as follows:

Closing date 31.12.2018

Closing date 30.06.2019

Average 1st half-year 2018

Average 1st half-year 2019

EUR/CHF

1.1269

1.1105

1.1698

1.1296

3 Changes to accounting principles

The first-time application of IFRS 16 had a material impact on the consolidated half-year financial statements. The effects of IFRS 16 are explained in more detail below, along with the accounting and measurement principles that have applied since 1 January 2019 or that differ from existing principles.

IFRS 16 – “Leases”

IFRS 16 amends the rules on accounting for leases and replaces the previous standard IAS 17 and related interpretations. The standard provides a single accounting model for lessees, which means that almost all assets (right of use to the leased asset) and liabilities from leases must be recognised in the balance sheet. The distinction between operating and finance leases does not apply to lessees. The right of use is depreciated on a straight-line basis over the shorter of the lease term and the useful life of the leased asset. The lease liability is carried forward using the effective interest method and taking lease payments into account. The lease liability is discounted by applying incremental borrowing rates specific to maturities and countries, unless the interest rate on which the lease payments are based is available. In the cash flow statement, the amortisation amount of the newly recognised leases reduces the cash flow from financing activities.Previously, lease payments from operating leases reduced the cash flow from operating activities. Interest payments continue to be reported as cash flows from financing activities.

Lessor accounting essentially corresponds to the former rules of IAS 17. Lessors continue to classify operating and finance leases on the basis of the distribution of opportunities and risks arising from the asset.

IFRS 16 was adopted using the modified retrospective approach. The comparative figures for the 2018 financial year have not been restated.

Using the option provided for in the standard, it was elected to keep the previous assessment under IAS 17 and IFRIC 4 instead of reassessing whether a lease that was concluded before the date of transition was or contained a lease at the date of initial application. BKW has also made use of the simplifications relating to the accounting for short-term and low-value leases. Payments made under leases with a term of no more than 12 months and leases in which the underlying asset is of low value are expensed linearly over the lease term, as permitted under the option provided. At the date of initial application, leases that expire before 1 January 2020 were classified as current leases regardless of the lease’s inception date.

With the transition to IFRS 16, right-of-use assets of CHF 139.7 million (“property, plant and equipment” balance sheet item) and lease liabilities (“financial liabilities” balance sheet item) in the same amount were recognised as at 1 January 2019. The transition had no effect on equity as at 1 January 2019.

Based on the operating lease liabilities as at 31 December 2018, the following reconciliation was made to the opening balance sheet value of the lease liabilities as at 1 January 2019:

CHF millions

Operating lease commitments as at 31.12.2018

82.0

Minimum lease payments (notional amount) on finance lease liabilities as at 31.12.2018

36.6

Relief option for short-term leases

– 2.0

Relief option for leases of low-value assets

– 1.5

Reasonably certain extension and termination options

79.1

Gross lease liabilities as at 01.01.2019

194.2

Discounting

– 24.1

Lease liabilities as at 01.01.2019

170.1

Present value of finance lease liabilities as at 31.12.2018

– 30.4

Additional lease liabilities as a result of the initial application of IFRS 16 as at 01.01.2019

139.7

The additional lease liabilities shown in the balance sheet were discounted using the incremental borrowing rate as at 1 January 2019. The weighted average interest rate was 2.3 %.

Payments from prior operating leases will no longer be recorded under “Other operating expenses”. In the income statement, this increased the operating profit before depreciation, amortisation and impairment by CHF 12.1 million. However, the amount of depreciation on the newly recognised right-of-use assets was similar, which is why there was only a minor impact on operating profit.

As at 30 June 2019, the following right-of-use assets and financial liabilities from leases existed in the balance sheet:

CHF millions

30.06.2019

Non-current assets

Right-of-use assets

Power plants

64.6

Distribution grid

5.3

Buildings and land

124.7

of which land lease for wind parks

40.7

Other property, plant and equipment

4.2

Total

198.8

Financial Liabilities

Current lease liabilities

27.9

Non-current lease liabilities

133.0

Total

160.9

4 Business combinations

Business combinations 1st half-year 2019

CHF millions

Miscellaneous

Cash and cash equivalents

5.8

Trade accounts receivable

7.7

Other current assets

5.9

Financial assets

1.6

Property, plant and equipment

7.3

Intangible assets

5.1

Deferred tax assets

0.4

Current liabilities

– 10.7

Non-current financial liabilities

– 4.9

Non-current provisions

– 0.4

Deferred tax liabilities

– 1.5

Pension liability

– 5.2

Fair value of acquired net assets

11.0

Goodwill

31.3

Purchase price

42.3

Cash and cash equivalents acquired

– 5.8

Deferred and contingent purchase price liabilities

– 8.3

Deferred and uncontingent purchase price liabilities

– 3.2

Cash outflow

25.0

The values for the transactions listed are provisional since the purchase price allocations have not yet been finalised.

BKW made the following corporate acquisitions in the first half of 2019. All of the businesses acquired have been assigned to the Services segment. Due to the number of acquisitions, their key financial figures and their allocation to the same segment, aggregated figures are shown with no separate presentation of individual business combinations. In the engineering sector in Germany, BKW acquired 100 % of the shares in Institut Gauer GmbH, Dr.-Ing. Gauer Ingenieur­gesellschaft mbH, KMT Planungsgesellschaft mbH and KMT Port Consult GmbH. Hascher Jehle Architektur was also taken over.

In the building solutions area, 100 % of the shares in WAB Technique S.à.r.l., Jaggi & Rieder AG, TECPLAN AG, Hensel AG Elektrotechnische Unternehmungen and ASAG Air System AG were acquired in Switzerland.

The transactions created total goodwill of CHF 31.3 million. The goodwill recognised is mainly attributable to the expected future synergies and the acquisition of a qualified workforce. There are no material value adjustments in trade accounts receivable.

The contingent purchase price liabilities recognised on the acquisition date are due depending on the future economic growth of the companies. The transaction costs amounted to CHF 0.5 million.

Had the companies already been acquired as at 1 January 2019, total operating income for the first half of 2019 would have been CHF 11.1 million higher and net profit CHF 0.2 million higher.

Between the point at which the individual companies were fully consolidated and 30 June 2019, the acquired companies recorded cumulative total operating income of CHF 10.4 million and a total net profit of CHF 0.4 million.

In the first half-year of 2019, CHF 10.1 million was paid for conditional purchase price liabilities and CHF 3.1 million for unconditional purchase price liabilities for acquisitions made in prior years.

Business combinations 1st half-year 2018

CHF millions

Miscellaneous

Cash and cash equivalents

5.4

Trade accounts receivable

5.4

Other current assets

5.8

Financial assets

0.2

Property, plant and equipment

1.6

Intangible assets

16.1

Deferred tax assets

0.0

Current liabilities

– 7.2

Non-current financial liabilities

– 0.4

Non-current provisions

– 0.5

Deferred tax liabilities

– 3.1

Pension liability

– 1.8

Other non-current liabilities

0.0

Fair value of acquired net assets

21.5

Non-controlling interests

– 0.1

Fair value of interests already held

0.0

Goodwill

41.8

Purchase price

63.2

Cash and cash equivalents acquired

– 5.4

Deferred and contingent purchase price liabilities

– 13.4

Deferred and uncontingent purchase price liabilities

– 3.8

Cash outflow

40.6

The values for the transactions conducted in the previous year are provisional since the ­purchase price allocations had not been finalised. The purchase price allocations are now final and only resulted in very minor changes.

BKW made the following corporate acquisitions in the first half of 2018. All of the businesses acquired have been assigned to the Services segment. Due to the number of acquisitions, their key financial figures and their allocation to the same segment, aggregated figures were shown with no separate presentation of individual business combinations.

In the area of infrastructure engineering in Germany, BKW acquired 90 % of the shares in Michael Thillmann GmbH and KHP Architekten Planungsgesellschaft mbH and 100 % of the shares in Kulla, Herr + Partner GbR, WALD + CoRBE GmbH & Co. KG, WALD + CoRBE Consulting GmbH and WALD + CoRBE Infrastrukturplanung GmbH. Podufal-Wiehofsky Architektin und beratender Ingenieur PartmbB was also taken over.

In the building technology sector, BKW acquired the electrical installation companies Michel Rime AG, Elektro Winter AG and Werner Electro AG in Switzerland.

The German company TSS Technischer Strahlenschutz e. K. was acquired and integrated into DfN Dienstleistungen für Nukleartechnik GmbH.

The transactions created goodwill of CHF 41.8 million. The goodwill recognised is mainly ­attributable to the expected future synergies and the acquisition of a qualified workforce. There are no material value adjustments in trade accounts receivable.

The contingent purchase price liabilities recognised on the acquisition date are due depending on the future economic growth of the companies. The transaction costs amounted to CHF 0.5 million.

Had the companies already been acquired as at 1 January 2018, total operating income for the first half of 2018 would have been CHF 6.3 million higher and net profit CHF 1.3 million higher. Between the point at which the individual companies were fully consolidated and 30 June 2018, the acquired companies recorded cumulative total operating income of CHF 14.2 million and a total net profit of CHF 0.5 million.

In the first half-year of 2018, CHF 3.6 million was paid for conditional purchase price liabilities and CHF 4.6 million for unconditional purchase price liabilities for acquisitions made in prior years.

5 Seasonality and fluctuations in business over the year

According to experience, performance of sales in the Services business is subject to seasonal fluctuations. Normally, business activity is higher in the second half of the year than in the first six months.

6 Segment reporting

Segments and segment results are defined on the basis of the management approach. In line with the strategy, BKW’s reporting lines are structured around the business areas Energy, Grid and Services.

BKW operates the following three reportable business segments:

The column “Other” covers activities that are centrally managed within the Group. These are ­primarily central services, real estate, fleet management and procurement. Some of the costs that arise in conjunction with the build-up of business areas (acquisition/integration costs, ­technology development costs, etc.) are borne centrally.

Segment figures are determined in accordance with the same accounting and valuation principles that are applied for the Group-level presentation of consolidated figures. The prices for intercompany transactions (transfer prices) are based on the market price on the transaction date.

Information by business segment

1st half-year 2019 CHF millions

Energy

Grid

Services

Other

Consoli- dation

Total

External revenue

658.6

261.5

425.0

10.0

15.1

1,370.2

Net sales

639.3

244.1

416.3

0.1

1,299.8

Own work capitalised

2.5

15.6

0.1

0.6

15.1

33.9

Other operating income

16.8

1.8

8.6

9.3

0.0

36.5

Internal revenue

13.7

3.8

50.0

69.0

– 136.5

0.0

Net sales

8.5

0.4

41.4

– 50.3

0.0

Other operating income

5.2

3.4

8.6

69.0

– 86.2

0.0

Total operating income

672.3

265.3

475.0

79.0

– 121.4

1,370.2

Total operating expenses

– 522.7

– 144.8

– 429.5

– 88.9

119.0

– 1,066.9

Operating profit before depreciation, amortisation and impairment

149.6

120.5

45.5

– 9.9

– 2.4

303.3

Depreciation, amortisation and impairment

– 51.1

– 40.8

– 21.6

– 11.5

1.4

– 123.6

Income from associates

16.0

11.6

0.0

0.1

27.7

Operating profit/loss

114.5

91.3

23.9

– 21.3

– 1.0

207.4

Financial result

41.5

Profit/loss before income taxes

248.9

Switzerland

Foreign ­countries

Switzerland

Foreign ­countries

CHF millions

1st half-year 2018

1st half-year 2018

1st half-year 2019

1st half-year 2019

Energy

396.4

230.0

364.2

275.1

Grid

250.7

0.0

244.1

0.0

Services

258.2

81.8

295.9

120.4

Other

0.4

0.0

0.1

0.0

Total net sales

905.7

311.8

904.3

395.5

1st half-year 2018 CHF millions

Energy

Grid

Services

Other

Consoli- dation

Total

External revenue

633.2

269.7

350.5

14.0

13.8

1,281.2

Net sales

626.4

250.7

340.0

0.4

1,217.5

Own work capitalised

1.2

15.4

1.3

13.8

31.7

Other operating income

5.6

3.6

10.5

12.3

32.0

Internal revenue

14.1

9.5

44.5

59.5

– 127.6

0.0

Net sales

7.6

0.5

39.1

– 47.2

0.0

Other operating income

6.5

9.0

5.4

59.5

– 80.4

0.0

Total operating income

647.3

279.2

395.0

73.5

– 113.8

1,281.2

Total operating expenses

– 553.2

– 146.5

– 364.6

– 31.4

111.5

– 984.2

Operating profit before depreciation, amortisation and impairment

94.1

132.7

30.4

42.1

– 2.3

297.0

Depreciation, amortisation and impairment

– 38.7

– 42.1

– 11.9

– 9.1

1.3

– 100.5

Income from associates

16.8

11.7

– 1.4

27.1

Operating profit/loss

72.2

102.3

18.5

31.6

– 1.0

223.6

Financial result

– 56.1

Profit/loss before income taxes

167.5

7 Energy procurement/transport

CHF millions

1st half-year 2018

1st half-year 2019

Cost of energy procurement from third parties and associates

423.3

394.3

Provision for onerous energy procurement contracts

Provisions used

– 19.9

– 17.9

Provisions added

0.0

0.0

Provisions released

– 3.9

– 3.9

Total energy procurement expenses

399.5

372.5

Energy transport expenses

51.3

52.1

Total

450.8

424.6

8 Financial result

CHF millions

1st half-year 2018

1st half-year 2019

Interest income

3.1

3.1

Dividend income

0.1

0.1

Value adjustment on state funds

0.0

94.4

Gains from the disposal of financial assets

0.0

0.5

Net gains on financial assets at fair value through profit or loss

0.0

0.7

Currency translations

1.4

0.0

Other financial income

1.5

0.8

Financial income

6.1

99.6

Interest expenses

– 24.9

– 24.0

Interest on provisions

– 31.6

– 30.8

Value adjustment on state funds

– 2.3

0.0

Losses from the disposal of financial assets

– 0.5

– 0.1

Net losses on financial assets at fair value through profit or loss

– 0.8

0.0

Currency translations

0.0

– 0.7

Other financial expenses

– 2.1

– 2.5

Financial expenses

– 62.2

– 58.1

Financial result

– 56.1

41.5

9 Dividends

In accordance with the decision made at the BKW AG Annual General Meeting held on 24 May 2019, a dividend of CHF 1.80 (previous year: CHF 1.80) per share was paid for the 2018 financial year.

10 Employee pension plans

The majority of BKW Group employees in Switzerland are covered by the Pensionskasse der ­Bernischen Kraftwerke pension fund. At the end of April 2018, the Board of the BKW pension fund decided to change the benefit plan with a view to improving long-term financial stability. The existing benefit plan was converted into a defined contribution plan under the Swiss Occupational Pensions Act (BVG) on 1 January 2019.

The conversion resulted in a one-off, non-cash effect of CHF 52.4 million in the 2018 half-year financial statements. Operating expenses for the first half of 2018 were lower by this amount. The reason for the one-off effect was the new pension scheme commitment based on a defined contribution plan, which by virtue of its configuration is lower than for a defined benefit plan. From 2019, the current service cost will be slightly lower than before owing to the change in the defined benefit plan.

11 Assets and liabilities measured at fair value

Assets and liabilities measured at fair value are classified according to a hierarchical structure for the purposes of valuation. The allocation is based on the principles described on page 86 of the 2018 Financial Report, which remain unchanged. As in the same period last year, there were no transfers between the different levels during the period under review.

CHF millions

Carrying amount at 30.06.2019

Level 1

Level 2

Level 3

Financial assets at fair value through profit or loss

Current financial assets

Debt instruments

73.6

43.8

29.8

Inventories

Certificates (proprietary trading)

13.7

13.7

Derivatives (current and non-current)

149.6

149.6

Non-current financial assets

Receivables from state funds

1,250.5

1,250.5

Financial assets at fair value through other comprehensive income

Non-current financial assets

Equity instruments

7.3

7.3

Financial liabilities at fair value through profit or loss

Derivatives (current and non-current)

144.9

144.9

Other financial liabilities

Contingent purchase price liabilities

53.2

53.2

Liabilities relating to non-controlling interests

6.5

6.5

In addition, the liabilities on 30 June 2019 include bonds in the amount of CHF 110.2 million (31 December 2018: CHF 111.8 million) as part of a fair value hedge (Level 2) measured at fair value.

CHF millions

Carrying amount at 31.12.2018

Level 1

Level 2

Level 3

Financial assets at fair value through profit or loss

Current financial assets

Debt instruments

136.9

106.9

30.0

Inventories

Certificates (proprietary trading)

0.7

0.7

Derivatives (current and non-current)

233.1

233.1

Non-current financial assets

Receivables from state funds

1,169.8

1,169.8

Financial assets at fair value through other comprehensive income

Non-current financial assets

Equity instruments

7.4

7.4

Financial liabilities at fair value through profit or loss

Derivatives (current and non-current)

245.4

245.4

Other financial liabilities

Contingent purchase price liabilities

56.8

56.8

Liabilities relating to non-controlling interests

8.1

8.1

The Level 3 assets and liabilities measured at fair value developed as follows in the first half of 2019:

Equity instruments

Contingent purchase prices

Liabilities to non-controlling interests

CHF millions

1st half-year 2018

1st half-year 2019

1st half-year 2018

1st half-year 2019

1st half-year 2018

1st half-year 2019

At 01.01.

8.6

7.4

41.4

56.8

11.7

8.1

Additions

0.1

0.2

13.4

8.3

Disposals

0.0

– 0.3

– 3.6

– 8.8

– 1.5

Value adjustment

Transfer to income statement

– 6.7

– 2.6

Changes in value included in other ­comprehensive income

– 0.4

0.0

– 0.2

– 0.5

0.0

– 0.1

At 30.06

8.3

7.3

44.3

53.2

11.7

6.5

12 Financial assets and liabilities measured at amortised cost

The carrying amounts of the financial assets correspond closely to the fair values.

Due to short residual terms to maturity, the carrying amounts of financial liabilities at amortised cost correspond approximately to the fair value. A difference exists between these values in respect of the bonds, which are included under financial liabilities. The market price of the bonds (fair value Level 1) as at the reporting date was CHF 1,140.4 million, while the carrying amount was CHF 1,042.5 million. At 31 December 2018, the corresponding market price was CHF 1,118.9 million and the carrying amount CHF 1,043.4 million.

13 Additional disclosures on the cash flow statement

CHF millions

31.12.2018

30.06.2019

Bank and cash balances

602.9

699.6

Term deposits

214.5

99.9

Total cash and cash equivalents

817.4

799.5

CHF millions

30.06.2018

30.06.2019

Depreciation, amortisation and impairment

100.5

123.6

Income from associates

– 27.1

– 27.7

Financial result

56.1

– 41.5

Gains/losses from sale of non-current assets

– 5.3

1.6

Change in non-current provisions (excl. interest and excl. utilisation of nuclear provisions)

– 23.8

– 21.2

Change in assigned rights of use

– 5.4

– 5.9

Change from the valuation of energy derivatives

9.4

– 17.8

Other non-cash positions

– 53.2

8.3

Total adjustment for non-cash transactions

51.2

19.4

Sub-total “cash flow from operating activities before utilisation of nuclear provisions”

To ensure better interpretability and comparability of the effective operating cash flow, the “cash flow from operating activities” item now includes a sub-total of the cash flow before ­utilisation of provisions for nuclear decommissioning and waste disposal.

This is because the costs for nuclear decommissioning and waste disposal have already been incurred in connection with the decommissioning of the Mühleberg Nuclear Power Plant and will continue to be incurred in the future. These costs represent the utilisation of existing provisions and are therefore charged to “cash flow from operating activities” determined in accordance with IAS 7. However, the nuclear decommissioning is not related to BKW’s actual operating per­formance and reported “cash flow from operating activities” is therefore not a suitable metric for assessing operating cash generation.

Most of the costs for nuclear decommissioning and waste disposal are borne by the state-run decommissioning and waste disposal funds. BKW is thus entitled to a refund of the costs incurred, although the costs incurred and the refund do not coincide chronologically. Both payments into and refunds from the state funds are classified in the cash flow statement as part of “cash flow from investing activities”. This means there is therefore a discrepancy in the ­presentation of these directly related cash flows. To adequately interpret cash flow, the corresponding individual items presented separately in the cash flow statement should be considered together. Therefore, the utilisation of provisions with and without claim to refunds is now reported separately in “cash flow from operating activities”.

14 Events after the balance sheet date

Green bond

In July, BKW became the first listed Swiss company to launch a green bond. The green bond was in great demand from investors and oversubscribed several times over. BKW’s fixed-interest, primarily green bond worth CHF 200 million has a coupon of 0.25 % and a term of eight years. The payment of the bond took place on 29 July 2019. BKW is thus refinancing the construction of various Swiss small hydroelectric power stations and wind farms in Norway and France. The bond will be listed on the SIX Swiss Exchange.

At the same time, the 3.375 % bond of CHF 350 million matured and was repaid.

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