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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 2020 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 for the year ended 31 December 2019. These half-year financial statements have been drawn up in accordance with the principles described in the Financial Report 2019 (Notes to the Financial Statements, chapter 2–6). The consolidated half-year financial statements for the period ended 30 June 2020 were approved by the BKW AG Board of Directors on 27 August 2020 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 or changed standards and interpretations

BKW applies new or changed standards and interpretations from the date they enter into force.

A number of amended standards have come into effect from 1 January 2020 that have no material effect on BKW’s financial position, results of operations or cash flows.

2.3 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 31.12.2019

Closing date 30.06.2020

Average 1st half-year 2019

Average 1st half-year 2020

EUR/CHF

1.0854

1.0651

1.1296

1.0640

3 Business combinations

Business combinations 1st half-year 2020

In the first half of 2020, BKW made no acquisitions. CHF 6.9 million was paid for contingent consideration and CHF 15.5 million for deferred consideration for acquisitions made in the previous years.

Business combinations 1st half-year 2019

CHF millions

Miscellaneous

Cash and cash equivalents

6.2

Trade accounts receivable and other receivables

7.0

Other current assets

5.6

Financial assets

0.2

Property, plant and equipment

7.3

Intangible assets

4.9

Deferred tax assets

0.2

Current liabilities

– 8.2

Financial liabilities

– 6.1

Provisions

– 0.4

Deferred tax liabilities

– 1.6

Pension liability

– 3.4

Fair value of acquired net assets

11.7

Goodwill

30.6

Purchase price

42.3

Cash and cash equivalents acquired

– 6.2

Contingent consideration

– 8.3

Deferred consideration

– 3.2

Cash outflow

24.6

The values for the transactions conducted in the previous year were provisional since the purchase price allocations had not been finalised. The purchase price allocations are now final and have only resulted in very minor changes. BKW made the following 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 goodwill of CHF 30.6 million. The goodwill recognised is mainly attributable to the expected future synergies and the acquisition of a qualified workforce.

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 contingent consideration and CHF 3.1 million for deferred consideration for acquisitions made in prior years.

4 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.

5 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 partly 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 2020 CHF millions

Energy

Grid

Services

Other

Consoli- dation

Total

External revenue

613.6

265.7

630.1

6.2

14.2

1,529.8

Net sales

584.0

238.0

623.5

0.6

0.0

1,446.1

Own work capitalised

2.0

16.9

0.1

0.4

14.2

33.6

Other operating income

27.6

10.8

6.5

5.2

0.0

50.1

Internal revenue

10.3

4.3

47.0

71.4

– 133.0

0.0

Net sales

7.4

0.4

42.7

0.2

– 50.7

0.0

Other operating income

2.9

3.9

4.3

71.2

– 82.3

0.0

Total operating income

623.9

270.0

677.1

77.6

– 118.8

1,529.8

Total operating expenses

– 468.5

– 143.4

– 625.0

– 90.0

115.8

– 1,211.1

Operating profit before depreciation, amortisation and impairment

155.4

126.6

52.1

– 12.4

– 3.0

318.7

Depreciation, amortisation and impairment

– 36.8

– 42.5

– 28.7

– 11.9

1.7

– 118.2

Income from associates

9.2

8.9

0.0

0.0

0.0

18.1

Operating profit/loss

127.8

93.0

23.4

– 24.3

– 1.3

218.6

Financial result

– 87.5

Profit/loss before income taxes

131.1

Switzerland

Foreign countries

Switzerland

Foreign countries

CHF millions

1st half-year 2019

1st half-year 2019

1st half-year 2020

1st half-year 2020

Energy

364.2

275.1

303.1

280.9

Grid

244.1

0.0

238.0

0.0

Services

295.9

120.4

420.7

202.8

Other

0.1

0.0

0.6

0.0

Total net sales

904.3

395.5

962.4

483.7

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

0.0

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

0.0

– 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

6 Energy procurement/transport

CHF millions

1st half-year 2019

1st half-year 2020

Cost of energy procurement from third parties and associates

394.3

358.3

Provision for onerous energy procurement contracts

Provisions used

– 17.9

0.0

Provisions added/released (–)

– 3.9

11.7

Total energy procurement expenses

372.5

370.0

Energy transport expenses

52.1

49.8

Total

424.6

419.8

7 Financial result

CHF millions

1st half-year 2019

1st half-year 2020

Interest income

3.1

4.8

Dividend income

0.1

0.1

Value adjustment on state funds

94.4

0.0

Gains from the disposal of financial assets

0.5

0.0

Reversal of impairment of financial assets

0.0

0.2

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

0.7

0.0

Other financial income

0.8

2.9

Financial income

99.6

8.0

Interest expenses

– 24.0

– 18.3

Capitalised borrowing costs

0.0

0.2

Interest on provisions

– 30.8

– 20.3

Value adjustment on state funds

0.0

– 51.8

Losses from the disposal of financial assets

– 0.1

0.0

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

0.0

– 1.1

Currency translations

– 0.7

– 2.7

Other financial expenses

– 2.5

– 1.5

Financial expenses

– 58.1

– 95.5

Financial result

41.5

– 87.5

8 Dividend

In accordance with the decision made at the BKW AG Annual General Meeting held on 15 May 2020, a dividend of CHF 2.20 (previous year: CHF 1.80) per share was paid for the 2019 financial year.

9 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 in the Financial Report 2019, which remain unchanged (Notes to the Financial Statements, chapter 37). 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 30.06.2020

Level 1

Level 2

Level 3

Financial assets at fair value through profit or loss

Financial assets (current and non-current)

Interest in state funds

1,211.2

1,211.2

Debt instruments

30.7

1.0

29.7

Derivatives (current and non-current)

138.3

138.3

Inventories

Certificates (proprietary trading)

28.3

28.3

Financial assets at fair value through other comprehensive income

Non-current financial assets

Equity instruments

7.6

7.6

Financial liabilities at fair value through profit or loss

Other financial liabilities (current and non-current)

Contingent purchase price liabilities

71.6

71.6

Liabilities relating to non-controlling interests

6.8

6.8

Derivatives (current and non-current)

156.1

156.1

In addition, the liabilities on 30 June 2020 include bonds in the amount of CHF 100.1 million (31 December 2019: CHF 99.0 million) as part of a fair value hedge (Level 2) measured at fair value.

CHF millions

Carrying amount at 31.12.2019

Level 1

Level 2

Level 3

Financial assets at fair value through profit or loss

Financial assets (current and non-current)

Interest in state funds

1,301.3

1,301.3

Debt instruments

30.9

1.0

29.9

Derivatives (current and non-current)

139.4

139.4

Inventories

Certificates (proprietary trading)

10.2

10.2

Financial assets at fair value through other comprehensive income

Non-current financial assets

Equity instruments

7.2

7.2

Financial liabilities at fair value through profit or loss

Other financial liabilities (current and non-current)

Contingent purchase price liabilities

79.0

79.0

Liabilities relating to non-controlling interests

10.8

10.8

Derivatives (current and non-current)

129.6

129.6

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

Equity instruments

Contingent purchase price liabilities

Liabilities to non-controlling interests

CHF millions

1st half-year 2019

1st half-year 2020

1st half-year 2019

1st half-year 2020

1st half-year 2019

1st half-year 2020

At 01.01.

7.4

7.2

56.8

79.0

8.1

10.8

Additions

0.2

0.7

8.3

Disposals

– 0.3

– 0.4

– 8.8

– 6.9

– 1.5

– 3.6

Value adjustment

Transfer to income statement

– 2.6

0.4

– 0.3

Changes in value included in other comprehensive income

0.0

0.1

– 0.5

– 0.9

– 0.1

– 0.1

At 30.06

7.3

7.6

53.2

71.6

6.5

6.8

10 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 961.4 million, while the carrying amount was CHF 893.4 million. On 31 December 2019, the corresponding market price was CHF 983.0 million and the carrying amount CHF 891.9 million.

11 Additional disclosures on the cash flow statement

CHF millions

31.12.2019

30.06.2020

Bank and cash balances

668.6

733.4

Term deposits

14.9

15.0

Total cash and cash equivalents

683.5

748.4

CHF millions

30.06.2019

30.06.2020

Depreciation, amortisation and impairment

123.6

118.2

Income from associates

– 27.7

– 18.1

Financial result

– 41.5

87.5

Gains/losses from sale of non-current assets

1.6

0.6

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

– 21.2

11.8

Change in assigned rights of use

– 5.9

– 6.4

Change from the valuation of energy derivatives

– 17.8

27.5

Other non-cash positions

8.3

9.9

Total adjustment for non-cash transactions

19.4

231.0

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

To facilitate comparison and interpretation of the effective operating cash flow, the “cash flow from operating activities” item 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 are incurred with the decommissioning of the Mühleberg Nuclear Power Plant. 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 utilisations of provisions with and without claim to refunds have been reported separately in “cash flow from operating activities”.

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