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Operating business makes solid progress

BKW was able to make solid progress in the further development of its operations. With two one-off effects playing their part, operating profit (EBITDA) rose significantly, totalling CHF 288.2 million, a year-on-year improvement of 14%. This increase can be attributed to both network business and energy business. The one-off items concerned the gains made on the sale of the transmission grid to Swissgrid and the reimbursement of costs for system services (SDL) in 2009 to various partner power plants. The cost-reduction programme continues to be implemented on a consistent basis.

One-off factors affect operating profit and net profit

Compared with the restated figure for the previous year, operating profit (EBITDA) rose by 14% to CHF 288.2 million. This increase includes the gain of CHF 31.2 million from the sale of the transmission grid to Swissgrid. Additionally, the ruling of the Federal Court with regard to SDL 2009 meant that various partner plants were to have costs that they had already paid refunded by Swissgrid, resulting in a reduction in BKW's energy procurement costs. BKW's share of this cost refund amounted to CHF 15.4 million. Operating profit (EBIT) grew by CHF 27.1 million to CHF 180.1 million. Negative factors impacting on net profit included the changes agreed in Italy to the Robin Hood tax for companies operating in the energy sector. The adjustment of deferred tax liabilities to take account of this new rate of tax resulted in an extraordinary charge of CHF 26.1 million. Net profit was slightly down on the same period of 2012, falling by 5.0% to CHF 103.6 million.

Changes in accounting principles and in the scope of consolidation

The unaudited consolidated financial statements for the half-year ended 30 June 2013 have been prepared in accordance with the International Accounting Standard on Interim Financial Reporting (IAS 34). In the 2013 financial year various changes in IFRS accounting standards entered into force, resulting in a need for prior-year figures to be restated.

The application of IFRS 11 Joint Arrangements means that two of BKW's interests that were previously measured using the equity method must now be proportionately consolidated. Their assets and liabilities, and revenues and expenses are now reported in the group financial statements using proportional consolidation. This change affects operating profit but not net profit.

The revised version of IAS 19 Employee Benefits contains various key changes, increasing the volatility of pension plan assets/obligations and of consolidated equity. Consequently, equity as at 31 December 2012 fell by CHF 246.8 million. The previously reported pension plan assets are now replaced by an employee benefit obligation.

The balance sheet reporting of emission rights and green certificates has also been changed. The certificates are no longer reported under intangible assets but have been reclassified under inventories. This change affects how the certificates are reported but does not impact on their measurement.

There was one significant addition to the BKW Group's scope of consolidation in the first half of 2013 with the acquisition of the Castellaneta wind farm, which has a total production of 56 MW.

Energy Switzerland: Sales slightly up, operating profit down

The overall performance of the Energy Switzerland segment was down by 5.4% to CHF 1,041.9 million. Net sales to external customers rose slightly, up by 0.7% to CHF 558.3 million. Lower average sales prices were offset by higher sales volumes. Net sales to other segments dropped by a considerable 13.1% to CHF 446.0 million due to price-related factors. Energy procurement, at CHF 184.5 million, was CHF 0.2 million higher than during the first half of 2012 and included a one-off effect to the amount of CHF 15.4 million. During the first half of 2013 the Federal Court ruled that Swissgrid should reimburse various partner power plants for the costs of system services in 2009. These partner plants are therefore reporting lower costs for the 2013 financial year, resulting in lower energy procurement costs for the shareholders. Operating profit (EBIT) fell markedly, down by 28.5% to CHF 73.3 million.

Energy and International Trading: A positive operating result in a still difficult market environment

The Energy International and Trading segment recorded operating revenue of CHF 1,004.2 million, which represents a year-on-year decrease of 6.2%. Net sales to external customers fell by 2.4% to CHF 641.1 million. This drop can be attributed in particular to business in Italy, where sales of CHF 76.5 million were 26.9% down on the previous year as a result of fewer opportunities in the balancing energy market. Electricity trading was down 10.1% to CHF 409.3 million. Revenue from electricity trading rose by CHF 0.4 million year on year due to market factors, with revenue from energy hedging up by CHF 17.3 million.

Net sales to other segments dropped by 12.4% to CHF 357.1 million due to price-related factors. In the same way, energy procurement costs from other segments fell by CHF 64.6 million to CHF 438.2 million. Operating profit (EBIT) grew by a considerable CHF 31.8 million to CHF 17.1 million.

Networks: A solid operating result with a one-off effect

The Networks segment grew its total operating revenue by CHF 35.9 million to CHF 372.9 million, mainly as a result of the gain of CHF 31.2 million made on the sale of the transmission grid to Swissgrid. Net sales to external customers remained at a gratifyingly stable level, totalling CHF 96.3 million (H1 2012: CHF 98.7 million). This meant that the loss of operating income associated with the sale of the transmission grid was practically offset by a rise in construction and engineering services and expansion in the electrical installation business. Net sales to other segments were also up slightly, reaching CHF 215.0 million. This increase was primarily due to a slightly higher throughput volume caused by lower average temperatures at the beginning of the year. Since external revenue for grid usage is largely invoiced by Energy Switzerland and disclosed as internal revenue under “Networks”, network revenue generated outside the Group is low. Operating profit (EBIT) rose by 51.1% to CHF 95.5 million due to the one-off impact of the transmission grid sale. Even without this one-off factor, however, EBIT increased.

Operating profit higher, net profit dealt a blow

Energy procurement costs in the reporting period amounted to CHF 686.7 million. This fall of 5.6% against the prior-year period can be explained by lower procurement volumes and was also affected by the one-off reimbursement to various partner plants of costs paid for system services.

Personnel expenses increased by CHF 10.9 million to CHF 189.6 million. This rise was due to the planned increase in staffing levels in line with BKW's strategy, coupled with the impact of the new accounting rules on employee benefits. The increase in personnel expenses was mitigated by HR measures in conjunction with the cost-reduction programme. Material and third-party services rose by CHF 9.1 million to CHF 111.7 million, mainly as a result of higher operating and maintenance expenses for power plants. Other operating expenses increased by CHF 5.9 million to CHF 112.7 million, primarily as a result of higher taxes and charges and following one-off expenses associated with changes to BKW's organisational structure.

Depreciation expenses were CHF 8.2 million higher on a year-on-year basis, totalling CHF 108.1 million. This increase is mainly attributable to the larger portfolio of power plants following acquisitions and project completions. Operating profit (EBIT) grew by 17.7% to reach CHF 180.1 million. Both energy business and grid services (service and infrastructure business) recorded a slight increase in their EBIT overall in what remained a challenging environment.

The financial result was down on the same period of 2012. The fall of CHF 8.7 million to CHF - 30.8 million is mainly due to the weaker development of the capital market compared with the previous year. This had a knock-on effect on the return on shares in the decommissioning and disposal funds, which are measured at fair value, and on the securities accounts. The state funds posted a gain of CHF 22.1 million in the first half of 2013, although this represented a year-on-year decrease of CHF 8.0 million.

Income tax expenses rose considerably, up by CHF 27.6 million to CHF 52.8 million due to a one-off factor. This one-off effect relates to the adjustment of the tax rate applicable to Italian companies operating in the energy sector (Robin Hood tax). The change to tax law adopted in Italy resulted in deferred tax liabilities being adjusted by CHF 26.1 million as at 30 June 2013. Compared with the restated figures for the previous year, BKW's net profit fell, down from CHF 109.1 million to CHF 103.6 million. This equates to a fall of 5.0%.

Higher total assets and a stable equity ratio

Total asset and the equity ratio were considerably affected by the changes in the IFRS accounting rules to be applied retrospectively. The new rules on the balance sheet treatment of pension plan obligations pushed down equity capital as at 31 December 2012 by CHF 246.8 million, with a corresponding impact on the equity ratio.

Total assets were up slightly against the restated prior-year figures, rising by CHF 351.8 million to CHF 7,690.2 million. This is an increase of 4.8% against the 2012 year-end. Non-current assets increased by 9.8%, mainly due to the acquisition of the Castellaneta wind farm, the increase in value of state funds for decommissioning and disposal, and the loan to Swissgrid. On the liabilities side, non-current liabilities for nuclear disposal and deferred tax liabilities increased, whilst pension plan liabilities pursuant to IAS 19 fell markedly as at 30 June 2013. Shareholders' equity rose by 6.1% against the 2012 year-end to total CHF 2,628.7 million. The equity ratio increased slightly, from 33.7% to 34.2%.

BKW's financing situation remains solid. The first refinancing of outstanding bonds is not due until 2018. The syndicated loan of CHF 300 million agreed in October 2011 remains unused. The financial framework for strengthening the liquidity reserves therefore remains unchanged.

Higher cash inflow from operating activities

Cash inflow from operating activities, at CHF 205.5 million, was CHF 38.3 million above the restated prior-year figure. This increase is mainly due to the change in net current assets.

Investments in non-current assets resulted in a cash outflow of CHF 328.0 million. The most significant investment was the acquisition of the Castellaneta wind farm. Approximately CHF 100 million in cash was also invested in time deposits with a term of more than 90 days. Cash outflow from financing activities fell by CHF 39.1 million to CHF 41.8 million, particularly as a result of the repayment of short-term financial liabilities during the previous year.