BKW GROUP. Annual Report Income Expenses. = efficient financial year

Transcription

1 BKW GROUP Annual Report Income Expenses = efficient financial year

2 For three years now, we have consistently pursued our three-pillar strategy of strengthening energy, de veloping networks and expanding services. The service business is growing strongly. Some two-thirds of our employees now work outside the traditional energy and grid business. Suzanne Thoma, CEO

3 Table of Contents 2 Letter to Shareholders 4 Review of the 2015 results 13 BKW Group Consolidated Financial Statements 14 Consolidated Income Statement 15 Consolidated Statement of Comprehensive Income 16 Consolidated Balance Sheet 17 Changes in Consolidated Equity 18 Consolidated Cash Flow Statement 19 Notes to the Financial Statements 90 Group companies and Associates 95 Report of the statutory auditor on the consolidated financial statements 101 Financial Statements of BKW AG 102 Income Statement 103 Balance Sheet 104 Notes to the Financial Statements 107 Proposal to the General Meeting 108 Report of the statutory auditor on the financial statements 111 Investor Information 112 Important information on the share, bonds and financial calendar 116 Production Facts and Figures 119 Corporate Governance 141 Remuneration Report 154 Addresses and Legal Notice

4 2 ANNUAL REPORT 2016 MANAGEMENT REPORT Letter to Shareholders Dear Shareholders, Once again, the BKW Group1 can look back on a successful financial year. This was by no means a given, as we continue to operate in a highly challenging environment. Our earnings from traditional electricity production were CHF 150 million lower than in However, we succeeded in offsetting two-thirds of this decline in the energy business thanks to excellent management of our electricity portfolio and further cost reductions. The focus in the last year has thus been on further reducing financial risks, eliminating uncertainty and cutting costs. And this focus paid off. Expansion of service business progressing For three years now, we have consistently pursued our three-pillar strategy of strengthening energy, developing networks and expanding services. BKW s transformation is proceeding apace. The service business is growing strongly: last year was the first in which we broke through the CHF 500 million revenue barrier and contributed over CHF 30 million to the operating result. The goal is to build up the service business in the coming years to a point where it becomes one of the main pillars of the BKW portfolio. That s why BKW is growing so strongly. This is also re flected in our employee figures: in the last 12 months, our staff numbers have grown by 25 percent to over 5,000. Some two-thirds of our employees now work outside the traditional energy and grid business. Expansion of engineering skills to international network While we were focused on the field of building technology in Switzerland, we are also expanding our engineering skills in Germany, Austria and Switzerland, wherever there is a particularly pressing need for investment in regeneration, expan - sion and maintenance of the energy, water and transport infrastructure. Our acquisition of engineering companies gives our customers access to a strong engineering network so that they benefit from wide-ranging expertise for the comprehensive planning of challenging projects. 1 The BKW Group comprises BKW AG and its Group com - panies. In order to make this report easier to read, the Group will be re - ferred to as BKW. Where the text relates specifically to BKW AG or BKW Energie AG, this is expressly mentioned.

5 ANNUAL REPORT 2016 MANAGEMENT REPORT 3 Buildings become power plants Almost half of all energy in Switzerland is consumed by buildings. There is major potential here in the area of energy efficiency and intelligent usage. The intelligent connection of photovoltaic plants with heaters, water heaters, battery stor - age and electric cars will become more widespread. The house will become an integral component of the energy supply system. Here, with our network of building technology specialists through - out Switzerland, we can offer truly integrated ser - vices from planning and implementation through to maintenance and servicing. We have thus further strengthened the areas of building technology planning and implementation in 2016 and now play an important role in the Swiss building technol ogy sector. With each company acquisition, we gain additional skills and build on existing expertise and our customers benefit from this too. Further expansion of renewable energies Of course, we remain committed to our core business of electricity production, distribution and sales. We are strengthening our energy business in order to profit from a future market recovery. In 2016 alone we completed and launched four small hydroelectric plants. In Norway, we are involved with Europe s largest on-shore wind farm project to date. Moreover, for Switzerland s largest wind farm, Mont-Crosin, we replaced the four oldest machines with new, significantly more powerful models that soon set a new production record. And in November we expanded our wind farm port folio in France. We are actively positioning ourselves to face the new challenges in the energy markets, and in trading, too, we are focusing increasingly on services for third parties such as direct marketing for electricity from renewable energies. Grid: the steady revenue stream The grid business is a stabilising factor for BKW. By increasing our investment in the national grid company Swissgrid, we have managed to fur ther increase this stability. Through additional share purchases, we have now become the largest Swissgrid shareholder and secured our returns from the grid business over the long term. A big thank-you We would like to thank our managers and employees for their outstanding commitment, and we look forward to counting on their expertise and capaci ty for change as we drive our strategy forward. We thank our shareholders and customers for their trust in us, and our suppliers and part -ners for the professional, enjoyable collaboration. They you have all made significant contributions to our com - pany s success. Together, we will also shape the future of energy in 2017 straight forward, reliable and networked as we continue to develop our company into one of the leading energy and infrastructure service companies. Kind regards, Urs Gasche Chairman of the Board Suzanne Thoma CEO

6 4 ANNUAL REPORT 2016 MANAGEMENT REPORT REVIEW OF THE 2016 RESULTS BKW increases operating revenue and profit The BKW Group achieved highly positive results in the 2016 financial year in an industry environment that remained challenging. The total operating revenue grew by 8 % to CHF 2,862 million, with the net profit rising disproportionately by 13 % to CHF 322 million. The Services business, which once again underwent significant expansion, and the high revenues from the Grid business more than offset the negative effects of electricity prices. With its 2016 financial result, BKW has once again proved the robustness of its business model. Services and Grid business areas contribute to higher total operating revenue At CHF million, the total operating revenue was 8 % higher than the previous year s figure. The Services segment, which is continuing to grow, improved its total operating revenue by 31 % to CHF 565 million. With this, BKW broke the half-billion CHF barrier for revenue in this segment for the first time. The expansion in the Services business went a long way towards compensating for the drop in revenue from the Energy business caused by lower electricity prices. Lower electricity prices had a negative effect on Energy business revenues in the order of CHF 150 million. Successful management of the energy position, acquisitions as well as higher revenues from commodities reduced the decline in total operating revenue in Energy to 5 %, or CHF 84 million. In the Grid business, the price rises applied as well as the expropriation compensation from Swissgrid contributed to growth of 2 1 % to reach CHF 925 million. Strong operational EBIT: negative effects of electricity prices successfully offset The consistent on-going implementation of strategy led to strong results for the 2016 financial year. BKW successfully offset the negative influence of low electricity prices and increased its reported operating profit (EBIT) to CHF 384 million. This EBIT includes a one-off positive effect in the amount of CHF 38 million. This resulted from the expropriation compensation for the BKW transmission system transferred to Swissgrid in Adjusted for one-off effects, the EBIT increased from CHF 309 million in 2015 to CHF 346 million. With a markedly higher contribution from solid growth in the service business, fee increases in the distribution system, continued successful management of the energy position along with cost reduction, BKW managed to more than offset lower electricity prices. Further reduction of operating costs in organic business Consistent cost management once again reduced operating costs in organic business (overheads) from the previous year, this time by CHF 20 million. Operating costs nonetheless increased by CHF 104 million to CHF 953 million due to acquisitions. By the end of 2016, BKW employed a total staff of 5,007 (full-time equivalent), representing an increase of more than 1,000 over the previous year. The Service business accounted for two thirds of this growth.

7 ANNUAL REPORT 2016 MANAGEMENT REPORT 5 Net profit increases by 13 % At CHF 322 million, the reported net profit is 13 % higher than in the previous year. Adjusted for one-off effects such as the disposal of participations in Group E and Romande Energie as well as the expropriation compensation from Swissgrid, the net profit for 2016 was 5 % higher than the comparable figure for the previous year. This rise is based on the increased operating profit as well as a significantly improved financial result. The financial result was offset in the reporting year following the significant financial expenses of CHF million in the previous year. This is attributable largely to the performance of the Decommissioning and Waste Disposal Fund. While the fund recorded a loss of CHF 5 million in the same period last year, both funds achieved returns of 6 % in 2016, representing a profit of CHF 61 million. In 2016, BKW also achieved a one-off profit of CHF 53 million from the dis posal of its non-strategic participations in Groupe E and Romande Energie S.A. Income tax expense amounted to CHF 61 million, a full CHF 70 million higher than the previous year when various one-off effects combined to produce a highly positive tax effect, resulting in net tax revenues of CHF 9 million. The effective tax rate for the 2016 financial year amounted to 16 %, which was below the normalised rate of 22 %, a difference primarily driven by tax-privileged revenue from sales of participations. CHF millions % change Total operating revenue 2, , % Energy procurement/transport 1, ,327.4 Operating costs Operating profit before depreciation, amortisation and impairment % Depreciation, amortisation and impairment Income from associates Operating profit/loss % Financial result Profit/loss before income taxes % Income taxes Net profit %

8 6 ANNUAL REPORT 2016 MANAGEMENT REPORT Strengthened Energy business manages to offset the negative electricity price effect The Energy business builds, operates and maintains BKW s pool of power plants in Switzerland and abroad. It is also responsible for the sale of energy in Switzerland and Italy and for trading in electricity, certificates and raw materials. CHF millions % change Electricity sales Switzerland Electricity sales International Other electricity sales Income from other energy business Other operating income and own work capitalised Total operating revenue 1, , % Energy procurement Expense from other energy business Operating costs Operating profit before depreciation, amortisation and impairment % Depreciation, amortisation and impairment Income from associates Operating profit/loss % As expected, total operating revenue for the Energy business declined in 2016 due to lower electricity prices, falling by 5 % to CHF 1,481 million. Lower electricity prices in the partially regulated Swiss distribution business resulted in a 3 % drop in revenue to CHF 500 million despite increased sales volumes from independent customers of 0.5 TWh. There was also a slight decline in earnings performance in the international distribution business. Although higher volumes were achieved (+ 0.2 TWh), price effects brought revenues down by 5 %. Lower prices also brought down other electricity sales (market sales and direct sales from power plants). Overall, BKW sold 21.5 TWh of energy across the various sales channels. It is faced with a total negative price effect of around CHF 150 million. The reported EBIT amounted to CHF 136 million. The Energy business thus lost 48 % or CHF 126 million over the previous year. For the operating result (without one-off effects), the decrease amounted to CHF 53 million from the previous year. This development is hardly surprising given the known negative impact of electricity prices and could in fact have been far more pronounced. Thanks to optimal management of the energy position, lower generation costs from partner plants and a further reduction in operating costs in the organic business, around two thirds of this negative electricity price influence was offset a truly outstanding achievement.

9 ANNUAL REPORT 2016 MANAGEMENT REPORT 7 At 11.2 TWh, overall electricity production was 5 % below the previous year s figures. The fossil-fuel power plants produced 1.4 TWh, significantly more than the previous period (1.1 TWh). Market conditions are seeing power plants in Italy, in particular, contribute higher volumes. The coal power station in Wilhelmshaven only began commercial operations in the fourth quarter of the previous year. Production volumes from hydroelectric plants was down by 0.4 TWh, the primary cause being lower volumes from storage power stations. Production volumes from new renewable energies, on the other hand, were slightly higher than the previous year s levels, at 0.9 TWh. Electricity generation from nuclear power stations was 0.6 TWh lower than the previous year due to the extended outage of the Leibstadt plant. The energy procurement cost fell by 2 % to CHF 888 million. This includes the partial release of the provision for onerous energy procurement contracts for the gas power plant in Livorno Ferraris in the amount of CHF 28 million. The majority shareholder of the power plant posted a depreciation for the facility in the 2016 financial year, which will bring down future generation costs. For BKW, this resulted in the partial release of provisions on the one hand, but a negative effect in the same amount on income from associates on the other. Because the previous year s figures also contained a one-off effect (currency conversion on provisions in the amount of CHF 45 million), energy procurement costs fell by CHF 37 million excluding one-off effects. In addition to lower market procurement prices and somewhat lower volumes, reduction in production costs of partner plants had a particularly positive effect. Thanks to improvements in efficiency and cost savings, operating costs fell by 4 % or CHF 14 million, despite the entry of new acquisitions AEK Group and WET Wind Energy Trading. Reduction in organic business amounted to 5 %. Income from associates was negative, at CHF 4 million (previous year CHF + 49 million). This was caused by the depreciation on power plant facilities in the financial statements of EP Produzione Livorno Ferraris (CHF 28 million). The previous year s high figures included a one-off effect from the claims for damages in connection with the coal power plant in Wilhelmshaven (CHF + 28 million).

10 8 ANNUAL REPORT 2016 MANAGEMENT REPORT Markedly higher contribution from the Grid business The Grid segment builds, operates, maintains and develops BKW s distribution grid. It is also responsible for the transport of energy for end customers outside BKW s supply region in Switzerland and Italy. CHF millions % change Distribution grid usage fees Energy transport income Other operating income and own work capitalised Total operating revenue % Energy transport expense Operating costs Operating profit before depreciation, amortisation and impairment % Depreciation, amortisation and impairment Income from associates Operating profit/loss % In 2016, the Grid segment improved its total operating revenue by 21 % to CHF 925 million. Income from grid usage increased by CHF 86 million to CHF 531 million. This can be attributed above all to previously announced fee increases as well as the the passing on of charges and costs for distribution grid. The energy transport income position relates to transport for end customers outside of the BKW supply region. The growth of this revenue is primarily attributable to increased transport volumes in Italy. Other operating revenue includes the one-off expropriation compensation from Swissgrid in the amount of CHF 38 million. Even without this one-off effect, total operating revenue in the Grid business grew by 16 % or CHF 125 million. Around 35 % of this revenue growth can be attributable to passed-on third-party costs. Fee increases meant that the Grid business was able to make a bigger contribution to the overall result, as anticipated. Along with the award of the expropriation compensation, BKW also realised a gain with the acquisition in connection with the AEK Group.

11 ANNUAL REPORT 2016 MANAGEMENT REPORT 9 Significant contribution from a Services business currently marked by accelerated expansion The growing business area of Services primarily encompasses the fields of building technology, infrastructure engineering and grid. It also covers BKW competencies in the wind and solar services area, and in energy efficiency. CHF millions % change Income from services Other operating income Total operating revenue % Operating costs Operating profit before depreciation, amortisation and impairment % Depreciation, amortisation and impairment Income from associates Operating profit/loss % Revenue for the Services business increased markedly, as it also did last year. With a growth rate of 31 %, BKW realised Services revenues of more than half a billion Swiss francs for the first time in Every strategic Services field contributed to this increase in total operating revenue to an overall CHF 565 million. This growth was primarily achieved through acquisitive means, with the purchase of 18 companies. BKW emphasised its geographical and vertically integrated presence as a national service provider in the area of building technologies with acquisitions in Zurich and central Switzerland. The company acquisitions in the infrastructure engineering business took place not only in Switzerland but also, to an increasing extent, in Germany, including the prestigious engineering company Lindschulte Group from the north of the country. Acquisitions in the grid services business area were focussed on Switzerland. The strategy of achieving growth through acquisition of selected companies is now reflected in a significant contribution to results. Despite the costs of acquisition and integration, there was once again a disproportionate rise in the operating profit. This increase amounted to a highly gratifying 82 %, coming after a 50 % increase the previous year. This helped to increase the EBIT margin to 6 % from 4 % in the previous year.

12 10 ANNUAL REPORT 2016 MANAGEMENT REPORT Solid cash inflow from operations once again In the reporting year, BKW achieved a cash inflow from operational business activities of CHF 358 million. This may be a little over CHF 200 million less than last year s record amount, but that result was driven by a major reduction in net working capital that is difficult to reproduce. The increase in net working capital in the 2016 financial year is distinguished largely by the claim from the expropriation compensation from Swissgrid for the transfer of the BKW transmission system. The associated payment in the amount of CHF 45 million was made in January Before the change in net working capital and income taxes paid (funds from operations), BKW managed a cash inflow of CHF 486 million, a marked increase of CHF 76 million over the previous year. Despite increased acquisition and investment activity with a capital outlay of around CHF 700 million, short-term liquidity, including current financial assets, amounted to CHF 1.2 billion at the close of the year (previous year: CHF 1.4 billion). Equity and financing situation: financial and operational flexibility maintained The balance sheet total rose by 7 % over the previous year to around CHF 8.6 billion. On the asset side, fixed assets in particular experienced a solid increase due to acquisition and investment activity. At CHF 2.9 billion, equity is around 14 % higher than in the previous year. Thanks to the strong annual result (despite the higher balance sheet total), the equity ratio increased by 2 percentage points to 34 %. CHF millions Current assets 2, ,400.5 Non-current assets 5, ,181.0 Current liabilities ,089.2 Non-current liabilities 4, ,551.4 Shareholders equity 2, ,940.9 Balance sheet total 8, ,581.5 BKW s financing situation remains solid. Increased acquisition and investment activity caused net debt (financial liabilities less current financial assets and cash and cash equivalents) to increase by CHF 147 million to CHF 439 million at year-end, although this remains at a low level. Conversions reduced convertible bonds included under financial liabilities by around CHF 30 million to CHF 129 million. Further conversions followed in the first few months of the new year. The first refinancing of outstanding bonds (nominal value CHF 150 million) is due in In addition, BKW maintains an unused syndicated loan of CHF 250 million. The financial framework for maintaining financial and operational flexibility therefore remains solid.

13 ANNUAL REPORT 2016 MANAGEMENT REPORT 11 Stable dividend A dividend of CHF 1.60 unchanged from the previous year will be proposed to the General Meeting on 12 May This makes the dividend yield an attractive 3.2 %, based on the year-end share price. This puts the payout ratio at around 45 % of net profit, adjusted for one-off items. Outlook The 2017 financial year will be marked by further falls in electricity prices. BKW will strive to offset this negative influence through active management of its energy position and continuing with its policy of consistent cost management. The Grid business will develop steadily and will once again represent a key revenue stream. The rapid expansion of the Services business will continue in the 2017 financial year, and we can expect its contribution to the operating profit to increase further. BKW expects the operating profit in 2017 (excluding exceptional items) to be in line with that achieved in 2016.

14 12 ANNUAL REPORT 2016 MANAGEMENT REPORT

15 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements

16 14 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements BKW GROUP CONSOLIDATED FINANCIAL STATEMENTS Consolidated Income Statement CHF millions Net sales 7 2, ,664.7 Own work capitalised Other operating income Total operating revenue 2, ,861.6 Energy procurement/transport 8 1, ,327.4 Material and third-party services Personnel expenses Other operating expenses Total operating expenses 2, ,280.4 Operating profit before depreciation, amortisation and impairment Depreciation, amortisation and impairment Income from associates Operating profit/loss Financial income Financial expenses Profit/loss before income taxes Income taxes Net profit attributable to: BKW shareholders Non-controlling interests Note Earnings per share in CHF (undiluted) Earnings per share in CHF (diluted)

17 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 15 BKW GROUP CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Comprehensive Income Note Net profit Actuarial gains/losses (Group companies) 25 Actuarial gains/losses Income taxes Actuarial gains/losses (associates) 19 Actuarial gains/losses Income taxes Total items that will not be reclassified to income statement, net of tax Currency translations 27 Currency translations Income taxes Available-for-sale financial assets 27 Value adjustments Reclassification to the income statement Income taxes Hedging transactions 27 Value adjustments Reclassification to the income statement Income taxes Total items that may be reclassified to income statement, net of tax Other comprehensive income Comprehensive income attributable to: BKW shareholders Non-controlling interests

18 16 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements BKW GROUP CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheet CHF millions Note Assets Cash and cash equivalents Trade accounts receivable and other receivables Current tax receivables Financial assets Derivatives Inventories Prepaid expenses and accrued income Total current assets 2, ,400.5 Financial assets 18 1, ,216.3 Derivatives Investments in associates 19 1, ,352.0 Property, plant and equipment 20 2, ,077.7 Intangible assets Deferred tax receivables Total non-current assets 5, ,181.0 Total assets 8, ,581.5 Shareholders equity and liabilities Trade accounts payable and other liabilities Current tax liabilities Financial liabilities Derivatives Provisions Deferred income and accrued expenses Total current liabilities ,089.2 Financial liabilities 23 1, ,604.0 Derivatives Pension liability Other liabilities Provisions 24 1, ,842.0 Deferred tax liabilities Total non-current liabilities 4, ,551.4 Total liabilities 5, ,640.6 Share capital Capital reserves Retained earnings 27 2, ,114.4 Other reserves Treasury shares Equity attributable to BKW shareholders 2, ,682.4 Equity attributable to non-controlling interests Total shareholders equity 2, ,940.9 Total shareholders equity and liabilities 8, ,581.5

19 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 17 BKW GROUP CONSOLIDATED FINANCIAL STATEMENTS Changes in Consolidated Equity CHF millions Share capital Capital reserves Retained earnings Treasury shares Other reserves Attributable to BKW shareholders Attributable to non-controlling interests Equity at , , ,525.0 Net profit Other comprehensive income Comprehensive income Dividend Transactions in treasury shares Share-based payments Acquisition of non-controlling interests Changes in the scope of consolidation Contribution to equity from non-controlling interests Equity at , , ,576.0 Net profit Other comprehensive income Comprehensive income Dividend Transactions in treasury shares Share-based payments Acquisition of non-controlling interests Changes in the scope of consolidation Contribution to equity from non-controlling interests Change in liabilities relating to non-controlling interests Equity at , , ,940.9 Total

20 18 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements BKW GROUP CONSOLIDATED FINANCIAL STATEMENTS Consolidated Cash Flow Statement CHF millions Note Result before income taxes Adjustment for non-cash transactions Change in net working capital (excl. financial assets/liabilities and derivatives) Income taxes paid Other financial expenses/income Cash flow from operating activities Investments in property, plant and equipment Disposal of property, plant and equipment Acquisition of Group companies 6/ Disposals of Group companies Investments in associates Disposals of associates Investments in current and non-current financial assets Disposals of current and non-current financial assets Investments in intangible assets Disposals of intangible assets Interest received Dividends received Cash flow from investing activities Sale/purchase of treasury shares Acquisition of non-controlling interests Contribution to capital from non-controlling interests Increase in current and non-current financial liabilities Decrease in current and non-current financial liabilities Increase in other long-term liabilities Decrease in other long-term liabilities Interest paid Dividends paid Cash flow from financing activities Translation adjustments on cash and cash equivalents Net change in cash and cash equivalents Cash and cash equivalents at start of reporting period Cash and cash equivalents at end of reporting period

21 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 19 BKW GROUP CONSOLIDATED FINANCIAL STATEMENTS Notes to the Financial Statements 1 Business activities BKW AG, Bern, Switzerland, together with the other companies in the BKW Group (BKW), is a leading supplier of energy and related services in Switzerland. BKW provides a comprehensive range of products and services to residential and business customers. In neighbouring countries, the Group sells energy through its own sales channels. BKW s activities extend throughout the value chain, from the production and distribution to the trading and sale of energy. In addition to simply supplying energy, BKW develops, implements and operates comprehensive energy solutions for private and business customers, and for energy utility companies and local authorities. 2 Basis of preparation 2.1 General principles The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS). They provide a true and fair view of the financial position, the results of operations and the cash flows of BKW. The consolidated financial statements also comply with Swiss company law. The closing date for the consolidated financial statements is 31 December. The consolidated financial statements are presented in Swiss francs (CHF). The consolidated financial statements have been prepared on the historical cost basis. Exceptions are described in Note 4 Accounting policies and valuation. 2.2 Adoption of new standards and interpretations in 2016 The following new and amended standards are applicable to BKW for the first time in the 2016 financial year: Amendments to IAS 1 Disclosure Initiative Amendments to IFRS 11 Accounting for Acquisitions of Interests in Joint Operations Amendments to IAS 16 and IAS 38 Clarification of Acceptable Methods of Depreciation and Amortisation Annual Improvements to IFRSs Cycle These changes have had no effect on the presentation of BKW s financial position, financial performance and cash flows. In applying the amendments to IAS 1 Disclosure Initiative, BKW has critically reviewed the disclosures in the Appendix for scope and relevance. Various sections with general descriptions of accounting and valuation principles have thus been shortened or omitted.

22 20 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 2.3 Future adoption of new standards and interpretations The following new and amended standards and interpretations that are potentially relevant to BKW were published before 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): IFRS 9 Financial Instruments (1 January 2018) IFRS 15 Revenue from Contracts with Customers (1 January 2018) IFRS 16 Leases (1 January 2019) Amendments to IAS 7 Disclosure Initiative (1 January 2017) Amendments to IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses (1 January 2017) Amendments to IFRS 2 Clarification of Classification and Measurement of Share-based Payment Transactions (1 January 2018) Annual Improvements to IFRSs Cycle (1 January 2017) IFRIC 22 Foreign Currency Transactions and Advance Consideration (1 January 2018) Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture (to be determined) BKW is currently examining the possible effects of applying other amended standards and interpretations. The application of the IFRS 9 standard Financial Instruments is not expected to result in mate - rial changes to the classification of financial instruments or to existing hedging transactions. Changes are expected in particular due to the new value impairment model, which is based on a more future-oriented expected loss model. This model is currently being developed and it may impact the recording of impairments to financial assets. The impact of the new IFRS 15 standard Revenue from Contracts with Customers on the financial position, financial performance and cash flows is expected to be greatest in the Services and Grid segments. The effects will have no material impact on the financial performance from today s perspective. Within the Grid segment, some elements will be recorded as net rather than gross with regard to revenue recognition. However, this will have no influence on the annual results. Upon its initial implementation, BKW plans to adopt the full application of IFRS 15 to prior reporting periods. The new IFRS 16 standard Leases results in fundamental changes to their recording on the balance sheet. The standard provides a single accounting model for the lessee, which means that in future all assets and liabilities from leasing agreements must be recorded in the balance sheet. In the case of BKW, the new requirement will lead to an increase in non-current assets and, at the same time, an increase in financial liabilities. BKW is currently examining the effects in detail. BKW s current leasing arrangements are detailed in Note 31.

23 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 21 3 Consolidation 3.1 Consolidation principles The consolidation is based on the financial statements of the individual Group companies, which have been drawn up according to uniform principles of valuation and presentation. Intragroup balances, transactions, profits and expenses are eliminated in full. The closing date for all Group companies is 31 December. The closing date for some associates and one joint arrangement differs from that of BKW since these companies close their accounts on 30 September in line with the hydrological year. The closing date for consolidation of these companies is set at 30 September. Adjustments are made for material transactions that occur between the closing date of the companies and the closing date of BKW. 3.2 Scope of consolidation Group companies Group companies are included in the consolidated financial statements in their entirety. There are no material restrictions on the transfer of funds from subsidiaries to the parent company. Joint arrangements Companies over which there is joint control are treated as joint ventures or joint operations. Joint operations are accounted for in the Group financial statements by recognising the Group s share of the assets and liabilities and of the revenues and expenses. The Group s joint ventures are accounted for using the equity method. Associates Investments in companies in which BKW is able to exercise significant influence but not overall control are classified as associates and accounted for using the equity method. A significant influence is generally held to be a share of voting rights of between 20 % and 50 %. Rights agreed in contract may in some circumstances mean that a significant influence can be exerted even though the share of voting rights is smaller than 20 %. This applies in particular in the case of partner plants. Partner plants comprise companies that build and operate power plants or that manage energy procurement rights and plan nuclear storage facilities. The energy produced by these companies is purchased at production cost in line with contractual agreements. Partner plants are assigned to the Energy segment.

24 22 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 3.3 Acquisition and sale of Group companies Companies acquired by BKW during the year are consolidated as from the effective date of acquisition. Net assets acquired are measured at fair value and integrated using the acquisition method. The excess of the cost of acquisition over the fair value of net assets acquired is classified as goodwill. Any negative difference is immediately recognised in income. Group companies that BKW ceases to control are excluded from consolidation as of the date on which control ceases. The difference between the proceeds from the sale and the net assets disposed of is recognised in the income statement on the effective date. Attributable goodwill and accumulated foreign currency translation differences and revaluations of financial instruments recognised in other comprehensive income are derecognised in income as a component of the gain or loss on sale. In the course of acquisitions, non-controlling interests are sometimes provided with put options, with BKW receiving call options under the same conditions. If this should cause BKW to receive economic ownership, the transaction is represented as though the shares in question had also been acquired. Otherwise, the non-controlling interest is recorded under Other liabilities due to the put option. Any surplus on balance sheet day is reclassified in retained earnings. 3.4 Foreign currency translation The reporting currency is the Swiss franc (CHF). BKW records transactions in foreign currencies at the prevailing exchange rates on the transaction date. Exchange rate gains and losses arising from such transactions and the translation of foreign currency balances on the balance sheet date are charged to the financial result. Foreign-currency financial statements of Group companies outside Switzerland are converted to Swiss francs according to the following principles: Balance sheet, at the prevailing exchange rates on 31 December; Income statement, at average exchange rates for the reporting year; Cash flow, at average exchange rates for the reporting year. Closing date Closing date Average 2015 Average 2016 CHF/EUR Goodwill and adjustments to fair value made in the apportionment of purchase prices to the carrying amounts of identified net assets of companies in foreign currency are carried in the foreign currency. Differences arising from the translation of the financial statements of Group companies, associates and joint arrangements in foreign currencies are accounted for in other comprehensive income.

25 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 23 4 Accounting policies and valuation 4.1 Revenue recognition Sales of energy to end customers and distributors are considered as having been realised and are recorded as revenue when delivery is complete. Revenue arising from customer-specific production contracts in the Services business is posted according to the Percentage of Completion (POC) method. The proportionate revenue is recognised according to the degree of completion. Energy-trading revenue is presented according to the purpose of the underlying transaction. Energy transactions are conducted either for the purpose of actively managing the power plant portfolio or to ensure physical coverage of energy supply or purchase contracts. Such management trans actions can be broken down into own-use and hedging transactions. Revenues from own-use transactions are recorded gross under revenue as other electricity sales and income from other energy business at the time of delivery. Hedging transactions result from extended activities to manage the production portfolio, comprising additional transactions undertaken to hedge BKW s own production. These additional hedging transactions qualify as financial instruments. Other energy transactions are conducted with the sole intention of achieving a trading margin. Such transactions also qualify as financial instruments. Energy transactions defined as financial instruments are measured at fair value at the closing date; realised and unrealised gains and losses from these transactions are recorded as net figures in Income from energy hedging and Income from proprietary energy trading (see Note 36.2). The income from such transactions consists of two components: on the one hand, the effective realised gains or losses from transactions in progress is recorded. On the other hand, the unrealised evaluation gains and losses flow from measurement at fair value of the open contracts. 4.2 Trade accounts receivable/payable, prepaid/accrued expenses and deferred and accrued income Receivables are stated at nominal value less any adjustment in value. Adjustments are made on the basis of assessments of individual receivables, non-performance of contractual receivables and debtor payment behaviour. Receivables are derecognised only if there is sufficient indication that payment can no longer be expected. Payables are not subject to interest and are recorded at nominal value. Prepaid/accrued expenses and deferred/accrued income cover the periodic adjustment of expenses and income and are also recorded at nominal value and broken down into financial and other accruals. Financial accruals consist of goods and services provided or purchased on a contractual basis but not billed by the balance sheet date.

26 24 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 4.3 Work in progress Construction contracts are valued according to the Percentage of Completion (POC) method. Anticipated losses are immediately recorded in their entirety. After taking account of part payments from customers, work in progress is stated under accounts receivable as a net amount from production contracts or as advance payment from customers in other current liabilities. 4.4 Inventories Stock materials Materials held in stock for grid construction and the electrical installation business are recorded at the lower of acquisition/manufacturing cost or net realisable value. The acquisition/manufacturing cost of raw and auxiliary materials is measured at the weighted moving average. Semi-finished and finished products include the directly assignable cost and share of overall construction costs. Stock materials with an unsatisfactory turnover are written off in full or in part Emission rights and green certificates For emission rights held under national or international emissions allowance schemes for the purpose of compliance with carbon emission allowances, the net liability method is used. These emission rights are recorded at the lower of acquisition cost or net realisable value. A provision is recognised as soon as the carbon output exceeds the emission allowances originally allocated and still held. The value of the emission rights and certificates is realised when they are sold or returned to the authorities as compensation for emissions. Green certificates certify the generation of electricity from renewable energies and can be sold separately from the delivery of electricity. Income from green certificates from BKW s own production is accrued at the time the energy is produced based on the expected proceeds from the sale. Purchased green certificates are carried in the balance sheet at acquisition cost. For transactions in emission rights and certificates conducted with the sole intention of achieving a trading margin, BKW applies the brokerage exemption for traders in raw materials and commo dities. The brokerage exemption stipulates that these may be recognised at fair value, less costs to sell. Changes in value on the balance sheet date as well as realised purchases and sales are recorded in the income statement. Transactions in derivatives on emission rights that are conducted with the intention of achieving a trading margin are treated in the same way as energy- trading derivatives (see Note 4.6.1).

27 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Financial assets Financial assets cover holdings, securities, loans, term deposits and other financial assets. Receivables from state funds that do not fall under the scope of IAS 32, IAS 39 and IFRS 7 are also included as financial assets. Financial assets are recorded and derecognised on the trade date. Stock exchange-listed securities that constitute part of a portfolio of financial instruments, that are jointly managed and that are regularly purchased and sold are categorised as assets at fair value through profit or loss and recorded under current assets. Other holdings and securities are categorised as available-for-sale and assigned to non-current assets. Term deposits, loans and other financial assets are valued at amortised cost. Nuclear power plant operators are required by law to make annual payments to state funds (federal decommissioning and disposal funds). The operators will be paid the future costs for disposal and decommissioning by these state funds according to the statutory requirements. Such payments are regarded as reimbursements and are charged to income as receivables from state funds. Changes in fund valuations are recorded in the financial result for the period in question. 4.6 Derivatives Energy derivatives BKW trades in contracts in the form of forwards with fixed and flexible profiles, and futures on electricity, gas, oil, coal and certificates. Contracts concluded with the sole intention of achieving a trading margin, as well as hedging transactions resulting from extended production portfolio management, are treated as financial instruments and designated as energy derivatives. Transactions that are open on the balance sheet date are measured at fair value. BKW receivables in respect of counterparties are recorded under assets as positive replacement values (under Derivatives), while payables are recorded under liabilities as negative replacement values (under Derivatives). Positive replacement values correspond to the costs that BKW would incur to replace all trans - actions that represent benefits for BKW if all counterparties were simultaneously unable to pay and the transactions could be immediately replaced. Negative replacement values correspond to the costs that counterparties would incur to replace all transactions that represent benefits for them if BKW were no longer able to meet its obligations. Ongoing transactions with positive or negative replacement values are netted if the respective contract terms provide for this, and settle ment is legally enforceable and intended. Realised and unrealised gains and losses from energy derivatives are recorded as income from proprietary energy trading or as income from energy hedges as applicable within net revenue.

28 26 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Hedge accounting Financial instruments can be used to hedge fluctuations in the fair value of an asset or liability (fair value hedge), to hedge exposure to variability in cash flows (cash flow hedge) and to hedge exposure of net investments in business operations abroad (net investment hedge). This is done in accordance with the existing guidelines governing BKW s hedging and credit risk policy. Realised and unrealised changes in the value of financial instruments that serve economically and according to Group guidelines to hedge against exchange rate and interest rate risks related to ongoing business activities, but which do not qualify as hedging transactions, are charged to income as financial income/expenses. 4.7 Property, plant and equipment Property, plant and equipment are recorded at acquisition or manufacturing cost less accumulated depreciation and recognised impairment losses. Depreciation is calculated systematically using the straight-line method and based on the useful lives of the assets. The useful lives and indications of impairment are reviewed annually. Impairments in respect of property, plant and equipment are determined according to the principles set out in Note 4.9. Property, plant and equipment dependent on concessions that are revertible without compensation are written down at most over the expected term of the concession. The present values of estimated dismantling, decommissioning and disposal costs are charged to the balance sheet together with acquisition or manufacturing costs (see also Note 4.13). Fuel elements produced specifically for the nuclear power plant are disclosed in the balance sheet under property, plant and equipment. They are written down on the basis of wear and tear (burn-up). For long-term investment projects, the borrowing interest is charged to the balance sheet during the set-up phase. Land is valued at acquisition cost. Depreciation is recorded only in the event of impairment. The costs of repairs and maintenance that do not add value are charged to the income statement as they are incurred. They are carried as assets only if the costs extend the original useful life or give rise to other significant economic benefits (cost reduction, increase in earnings). Costs incurred due to legal requirements that generate no direct future benefit are capitalised only if and when this enables other assets to generate benefits. The estimated useful lives of property, plant and equipment lie within the ranges listed below and are unchanged compared with the previous year: Buildings Power plants Distribution grid IT systems Operating facilities and vehicles Fuel rods 50 years 12 to 80 years 20 to 60 years 10 to 30 years 3 to 20 years After burn-up

29 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Intangible assets Intangible assets include rights of use, contractual or legal rights acquired as a result of acquisitions, brands, customer relationships as well as software and goodwill. Rights of use comprise contractually agreed one-off amounts to a contractual partner for the use of its operating installations as well as licences for the construction and operation of BKW s own installations. Intangible assets are amortised over the period of use, or at most the contract period, using the straight-line method. Goodwill is not written down but assigned to the relevant cash-generating unit and subjected to annual impairment tests or ad hoc tests whenever impairment is indicated. 4.9 Impairment of non-financial non-current assets On each balance sheet date, assets are tested for impairment or improvement in value. If indications of impairment or improvement are identified, the recoverable amount of the asset is measured. Assets with an indefinite useful life are assessed for impairment irrespective of whether there are any indications. The value of assets with a carrying value that exceeds the recoverable amount is adjusted in the income statement. If the amount estimated for an impairment loss is greater than the carrying value of the asset, a liability is recognised only if the requirements for a provision or other obligation are met. An impairment loss recognised in previous years for an asset other than goodwill is reversed if no impairment or only a reduced impairment exists. Impairment losses for assets subject to depreciation are reversed to the value that would have been determined had the acquisition value been depreciated on a systematic basis. The reverse posting is also charged to income. Energy produced by partner plants is billed to shareholders on the basis of existing agreements irrespective of the current market prices at the cost of production. Provisions for onerous energy procurement contracts are formed if the cost of production is above the future expected market price due to the contractual obligation to pay energy production costs. Based on the obligation of the shareholders to pay production costs, it is assumed that the holdings in partner plants measured at the proportionate equity value are recoverable.

30 28 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 4.10 Financial liabilities Financial liabilities comprise interest-bearing financial obligations, namely bonds, convertible bonds, loans and finance leasing liabilities. Bonds and loans are carried at amortised cost using the effective interest method. Finance leasing liabilities are carried in accordance with IAS Assigned rights of use Assigned rights of use are recognised under other non-current liabilities. They consist of third-party payments for transit rights to transmission systems, plant usage rights and contributions to grid costs (connection contributions). Such assigned rights are recognised in the balance sheet at the nominal value of the cash inflow less any reversed amounts charged to income. The liability is reversed on a straight-line basis over the useful life of the facility but for no longer than the life of the relevant assigned right Pension plans BKW operates various pension plans in accordance with legal requirements. The majority of employees are covered by the Pensionskasse BKW. This is a legally autonomous defined benefit scheme compliant with the terms of IAS 19. In addition, employees are also members of other pension funds, which are similarly classed as defined benefit plans.

31 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Provisions Provisions cover all obligations on the balance sheet date arising from past transactions and events where it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, the amount of which is not known but can be reliably measured. If an outflow of resources is no longer probable or determinable, a provision is charged to contingent liabilities. If the effect of the time value of the cash outflow is material, the amount of the provision is measured at the present value of the expected cash outflow. As the operator of Mühleberg Nuclear Power Plant, BKW is required by law to decommission the plant after the operating phase and to dispose of the nuclear waste. The resultant costs are subject to regular review. The present value of estimated decommissioning and disposal costs is provisioned and adjusted annually subject to interest. The same amount is carried together with the acquisition/ manufacturing costs of the plant and written down over the useful life using the straight-line method. The costs incurred related to commissioning were capitalised and the corresponding provision was recognised on the date on which the plant went into operation. Furthermore, the additional decommissioning and disposal costs incurred by power plant operation are capitalised annually and written down over the average useful life of the fuel elements using the straight-line method, and the corresponding provision is recognised. The provision is calculated based on the following key assumptions, which are unchanged compared with the previous year: Assumed operating period of 47 years (until 2019). Average inflation rate of 1.5 %. Interest rate of 3.5 %. The inflation and interest rate parameters are used in relation to the revised Decommissioning and Disposal Funds Ordinance (SEFV) ) that came into effect on 1 January The parameters used in the SEFV to calculate the contributions for the Decommissioning and Waste Disposal Funds have been applied in the calculation of the provisions. BKW holds non-controlling interests in power plant companies, under the terms of which it is com - mitted to purchasing the energy generated by these plants at production cost. Provisions are recognised for obligations to purchase energy at production costs that exceed the expected future realisable sales prices. The calculations are made using the discounted cash flow method.

32 30 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 4.14 Income taxes Income taxes include current taxes based on profit and deferred taxes based on valuation differences. Current income taxes are determined based on local tax regulations. Deferred taxes account for the income tax effects between internal and local tax valuation guidelines for assets and lia bilities according to the liability method. This is based on the actual tax rates or the tax rates expected to apply when this difference is adjusted. Deferred tax liabilities are always recognised in the balance sheet. Deferred tax assets are recognised only if it appears probable on the basis of future anticipated gains that they can be realised. Changes in deferred taxes are recorded in the income statement except when the origin of temporary differences is recognised as not affecting income. In this case, deferred taxes are recorded in other comprehensive income or sometimes directly under equity Leasing Leasing arrangements are divided into operating leases and finance leases. A finance lease is a leasing arrangement in which the lessor essentially transfers to the lessee all risks and opportunities associated with the ownership of an asset. Assets held by BKW as the lessee in a finance leasing arrangement are initially accounted for as property, plant and equipment at the lower of the fair value and the present value of the minimum lease payments. They are depreciated over the shorter of the lease term or the life of the asset. The lease instalments are divided into interest costs and repayment amounts using the annuity method. Finance leasing liabilities are presented in the balance sheet under current and non-current financial liabilities. Other leasing arrangements are classified as operating leases and are not recorded in the balance sheet. The leasing payments are recorded as operating expenses on a straight-line basis over the contract term Segment reporting The definition of segments and segment results is made on the basis of the company management structure. The reportable segments correspond to the business areas of BKW: Energy, Grid and Services. The CEO, who has prime decision-making authority, uses the operating result (EBIT) as the basis for allocating resources and measuring performance.

33 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 31 5 Measurement uncertainties Preparation of the financial statements in accordance with the applicable accounting standards necessitates the use of estimates and assumptions that affect the reported amounts of assets, provisions, liabilities and contingent liabilities on the balance sheet date, and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are based on past findings and best possible assessment of future developments. Actual results may differ from these estimates. Estimates and assumptions are regularly reviewed, and changes are recognised in the period in which they were identified. 5.1 Impairment testing of non-current assets The recoverable amount calculated for the purposes of impairment testing of non-current assets is the higher of the fair value minus sale costs and value in use (present value of estimated future cash flows). The calculation of the recoverable amount is reliant to a significant extent on estimates of the expected future cash flows from use, long-term growth rates, useful life of assets and discounting rates or estimates of the potential net sale price of the asset. The actual results may differ significantly from these estimates. 5.2 Mühleberg Nuclear Power Plant Measurement of the provision for nuclear waste disposal and the inherent value of property, plant and equipment recorded in the balance sheet (power plant and equipment, fuel rods, including present disposal value) is material for the purposes of assessing BKW s balance sheet and income statement. Detailed costs for decommissioning nuclear power plants and nuclear waste disposal are jointly calculated by the industry and updated every five years in accordance with the Ordinance on the Decommissioning and Disposal Funds for Nuclear Power Plants. These cost calculations are reviewed by the Swiss federal government. A new estimate of the decommissioning and waste disposal costs (KS16) occurred in 2016 as scheduled. The adjustment was carried out at the request of and in accordance with the strict requirements of the Decommissioning Fund for Nuclear Facilities and Waste Disposal Fund for Nuclear Power Plants (STENFO) and in collaboration with swissnuclear. The 2016 estimate weighted possible risks even more highly, increasing estimated costs by 9.4 %. This increase is primarily due to careful project planning and the higher risk allowances, plus changes and delays in the planning of the deep geological repositories for radioactive waste disposal. Despite the increase in overall costs, there was a reduction in provisions recorded in the balance sheet in the amount of CHF million. This is mainly due to the fact that the repository costs will become payable only at a much later stage than was assumed in the previous cost study. The Federal Department of the Environment, Transport, Energy and Communications (DETEC) is expected to give its approval in the first half of Changes to cost calculations and the statutory requirements for nuclear waste disposal may have a material effect on the Group s results of operations and cash flows.

34 32 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 5.3 Provision for onerous energy procurement contracts Provisions for onerous energy procurement costs are calculated using the discounted cash flow method. Measurement of the provision depends primarily on estimated future energy prices, estimated production costs of the power plant, and the assumed discount rates. The calculations are also usually made over an extremely long period, generally over the licence term or useful life of the power plants. These estimations and assumptions constitute uncertainties and can deviate significantly from actual results. 5.4 Pension plans The pension liabilities arising from defined benefit pension plans are calculated based on actuarial assumptions that may not reflect reality and hence may have an impact on BKW s results of operations and cash flows. The actuarial assumptions used in the calculation and a corresponding sensitivity analysis are disclosed in Note EICom legal proceedings The tariffs that BKW is permitted to charge to its customers for grid usage and energy are partly reviewed by the Federal Electricity Commission (EICom). At present, there are several proceedings awaiting decisions by various bodies. The main object of the proceedings is to rule on the chargeable capital and operating costs. Decisions issued by the court of last instance may have implications for BKW s future cash flows.

35 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 33 6 Business combinations Business combinations in 2016 CHF millions AEK Lindschulte Inag- Nievergelt Wind farms France Miscellaneous Total Cash and cash equivalents Trade accounts receivable Other current assets Financial assets Property, plant and equipment Intangible assets Deferred tax assets Current liabilities Non-current financial liabilities Non-current provisions Deferred tax liabilities Pension liability Other non-current liabilities Fair value of acquired net assets Non-controlling interests Fair value of interests already held Goodwill Purchase price Deferred and contingent purchase price payments Cash and cash equivalents acquired Cash outflow Unless stated otherwise, the values for the transactions listed are provisional as the purchase price allocations have not been finalised. AEK Energie AG (AEK) On 28 June 2016, BKW acquired 53.7 % of AEK Energie AG (AEK), increasing its stake from 39.5 % to 93.2 %. AEK is a leading energy provider for the Solothurn region, where the company is based. The AEK Group operates in various fields and therefore affects all three business areas Energy, Grid and Services. The goodwill recognised is attributable to the expected future synergies and the acquisition of a qualified workforce. CHF 11.0 million is allocated to the Energy business area and CHF 10.2 million to the Services business area. There are no material value adjustments in the trade accounts receivable. The transaction costs amounted to CHF 0.3 million. The revaluation of BKW s existing 39.5 % stake in AEK resulted in a gain of CHF 11 million, which is included in the result from asso ciates.

36 34 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Had the company already been acquired as at 1 January 2016, total operating revenue for 2016 would have been CHF 66.5 million higher and the net profit CHF 4.8 million higher. Between the point at which the company was fully consolidated and 31 December 2016, the AEK Group recorded total operating revenue of CHF 69.5 million and a net profit of CHF 4.6 million. The purchase price allocation for AEK has now been finalised and the disclosed values are definitive. Lindschulte Group On 22 April 2016, BKW acquired 100 % of the shares in Lindschulte Ingenieur-Holding GmbH, based in Nordhorn, Germany. The Lindschulte Group plans and implements projects of all sizes in the areas of infrastructure, environment and energy services. The company has been assigned to the Services business area. At the acquisition date, there were contingent purchase price payments of CHF 1.5 million. These purchase price payments depend on economic development in the coming years. Due to the predicted development, the maximum amount was recognised. The goodwill recognised is mainly attributable to the expected synergies and the assembled, qualified workforce. There are no material value adjustments in the trade accounts receivable. The transaction costs amounted to CHF 0.4 million. Had the company already been acquired as at 1 January 2016, total operating revenue for 2016 would have been CHF 8.6 million higher and the net profit CHF 0.5 million higher. Between the point at which the company was fully consolidated and 31 December 2016, the acquired company recorded total operating revenue of CHF 13.8 million and a net profit of CHF 1.4 million. Inag-Nievergelt AG On 14 June 2016, BKW acquired a majority stake of 80 % in Inag-Nievergelt AG (Inag). The longestablished Swiss company is one of the leading suppliers in the sanitary engineering, heating and plumbing sectors within the Greater Zurich area. By acquiring Inag, BKW has strengthened its strategic business area of building technologies considerably. The company has been assigned to the Services segment. As at the acquisition date, there were deferred purchase price payments of CHF 2.8 million. The goodwill recognised is attributable to the expected synergies and the acquisition of a qualified workforce. There are no material value adjustments in the trade accounts receivable. There were no material transaction costs. Had the company already been acquired at the start of the reporting year, total operating revenue for the first half of 2016 would have been CHF 16.4 million higher and net profit CHF 0.8 million higher. Between the point at which it was fully consolidated and the balance sheet date, the company recorded a total operating revenue of CHF 26.8 million and a net profit of CHF 2.8 million. Wind farms in France On 7 November 2016, BKW concluded a purchase agreement concerning four wind farms in France. One of the wind farms has been operating since 1 May 2016, the other three are still in the project planning or construction phase and are set to join the grid between 2017 and With 22 turbines and an installed capacity of more than 49 MW, the facilities will generate around 120 GWh of electricity per year. BWK is thus reinforcing its role as a leading Swiss company in the operation of both domestic and international wind farms. The company has been assigned to the Energy business area.

37 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 35 At the acquisition date, there were contingent purchase price payments of CHF 7.1 million. These purchase price payments are contingent on such factors as progress in building the facilities. There were no material transaction costs. Had the company already been acquired at the start of the reporting year, the total operating revenue for 2016 would have been CHF 0.6 million higher and the net loss CHF 0.5 million greater as three of the four wind farms are still under construction. Between the point at which the company was fully consolidated and the balance sheet date, it recorded total operating revenue of CHF 0.3 million; there was no impact on net profit. Miscellaneous In the reporting year, BKW acquired a number of other companies, for which summarised figures are reported due to the individual size of each operation. BKW acquired 100 % of the shares in Schmid Amrhein AG, Marcel Rieben Ingenieure AG, Aicher, de Martin, Zweng AG and Balzer AG, all of which specialise in building technologies. It also acquired 100 % of the shares in the elec - trical installation company Hug AG and electrical technology company Lami S.A., as well as in the Arpe Group and Aqua Innovation GmbH. The Arpe Group specialises in sewer rehabilitation and mainten ance, while Aqua Innovation GmbH operates in the areas of water preparation, filtration and disinfection, among others. BKW further purchased 100 % stakes in Frey & Gnehm AG, the IFB Eigenschenk Group, IFE Ingenieurteam AG, and 70 % of the Italian company Frosio S.r.l., all of which specialise in infrastructure engineering. In Italy, BKW took over the company Proxima S.r.l. and in Norway, it acquired a 60 % stake in Proxima Scandinavia. Both companies offer services to renewable energy producers. All companies have been assigned to the Services business area. BKW also acquired 60 % of the shares in WET AG. WET is active in the direct marketing of electricity from renewable energies and has also been assigned to the Services business area. At the acquisition date, there were contingent purchase price payments of CHF 12.4 million in relation to the acquisition of these companies and which are dependent on their economic performance in the next few years. The transactions included goodwill of CHF 44.1 million. The goodwill recognised is mainly attri butable to the expected future synergies and the assembled, qualified workforces. There are no material value adjustments in the trade accounts receivable. The transaction costs amounted to CHF 0.5 million. Had the companies already been acquired as at 1 January 2016, total operating revenue for the re - port ing year would have been CHF 37.0 million higher and the net profit CHF 4.2 million higher. Between the point at which the individual companies were fully consolidated and 31 December 2016, the acquired companies recorded cumulative total operating revenue of CHF 52.1 million and a total net profit of CHF 2.4 million.

38 36 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Business combinations in 2015 CHF millions Solare Datensysteme GmbH antec group AG Miscellaneous Total Cash and cash equivalents Trade accounts receivable Other current assets Financial assets Property, plant and equipment Intangible assets Deferred tax assets Current liabilities Non-current financial liabilities Non-current provisions Deferred tax liabilities Fair value of acquired net assets Non-controlling interests Goodwill Purchase price Deferred and contingent purchase price payments Cash and cash equivalents acquired Cash outflow In 2015, BKW acquired a number of companies. 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 have not resulted in any changes. Solare Datensysteme GmbH (SDS) On 1 September 2015, BKW acquired 100 % of the shares in Solare Datensysteme GmbH (SDS), which is headquartered in Geislingen-Binsdorf. The company has been assigned to the Services business area. At the acquisition date, there were contingent purchase price payments of CHF 33.5 million, which are dependent on the future economic performance of SDS. There were no material transaction costs. Had the company already been acquired as at 1 January 2015, total operating revenue for 2015 would have been CHF 8.9 million higher and the net profit CHF 0.4 million higher. Between the point at which the company was fully consolidated and 31 December 2015, the acquired company recorded total operating revenue of CHF 3.8 million and a net loss of CHF 1.4 million.

39 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 37 antec group AG On 31 July 2015, BKW acquired 100 % of the shares of antec group AG, based in Risch (ZG). The company has been assigned to the Services business area. At the acquisition date, there were contingent purchase price payments of CHF 7.5 million. This purchase price payment depends on future economic development in the years to come. There were no transaction costs. Had the company already been acquired as at 1 January 2015, total operating revenue for 2015 would have been CHF 7.0 million higher and the net profit CHF 1.5 million higher. Between 1 August 2015 and the end of the year, the company recorded total operating revenue of CHF 4.4 million and a net profit of CHF 0.1 million. Miscellaneous BKW acquired seven companies in the area of building technologies. In 2015 BKW acquired 100 % of the shares in Karl Waechter AG, Marzolo & Partner AG, Lutz Bodenmüller AG, Weber AG, Kasteler Guggisberg AG, Dietrich Kälte AG and Schönenberger & Partner AG. In addition, BKW acquired 100 % of the shares in the electrical installation specialist Elektro Aebi AG. In other service fields, BKW acquired a majority share of 75 % of the company Casa delle Nuove Energie S.p.A., which is based in Massazza (I). Furthermore, BKW acquired 100 % of the shares in the German company Kraftwerksund Anlagenengineering GmbH (KAE) and the Austrian company Ingenieurgemeinschaft Bilek & Krischner GmbH (IGBK). BKW also acquired 100 % of the shares of the companies Technische Informationen und Dienstleistungen (TID) and IWAG Ingenieure AG, which specialises in water, wastewater and environmental engineering. The companies acquired have been assigned to the Services business area. In addition, on 16 September 2015 BKW acquired 100 % of the shares of the company Parc Eolien de Fresnoy Brancourt SAS in Fresnoy-le-Grand, France. The company is the owner of a wind farm with an installed capacity of 13.8 MW. The company has been assigned to the Energy business area. Due to the individual size of each company, summarised figures are reported. At the acquisition date, there were contingent purchase price payments of CHF 4.1 million in relation to the acquisition of these companies. By the end of 2016, payments of CHF 1.6 million had been made in respect of these. The transactions included goodwill of CHF 24.8 million. There were no material transaction costs. Had the companies already been acquired as at 1 January 2015, total operating revenue for 2015 would have been CHF 45.1 million higher and the net profit CHF 2.9 million higher. Between the point at which the individual companies were fully consolidated and 31 December 2015, the acquired companies recorded cumulative total operating revenue of CHF 53.6 million and a total net profit of CHF 1.1 million.

40 38 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 7 Segment reporting Segments and segment results are defined on the basis of the management approach. Operating profit is used by the senior decision-maker, the CEO, as the basis for resource allocation and performance measurement. Since 1 January 2015, the reporting and management structure has been based on the segments of Energy, Grid and Services. The reporting segments now corre - spond to BKW s business areas. BKW operates the following three reportable business areas: The Energy business area builds, operates and maintains BKW s pool of power plants in Switzerland and abroad. It is also responsible for the sale of energy in Switzerland and Italy and for trading in electricity, certificates and raw materials. The Grid business area builds, operates and maintains BKW s distribution grid. It is also responsible for the transport of energy for end customers outside BKW s supply region in Switzerland and Italy. The Services business area provides energy services in the fields of building technologies, infrastructure engineering, grids, wind and solar plants, and energy efficiency. The column Other covers activities that are centrally managed within the Group; these largely consist of the decommissioning and disposal funds, along with various Group functions (overheads). 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.

41 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 39 Information by business segment 2016 CHF millions Energy External revenue 1, ,861.6 Grid Net sales 1, ,664.7 Own work capitalised Other operating income Internal revenue Net sales Other operating income Total operating revenue 1, ,861.6 Total operating expenses 1, ,280.4 Operating profit before depreciation, amortisation and impairment Depreciation, amortisation and impairment Income from associates Operating profit/loss Financial result 0.3 Profit/loss before income taxes Services Other Consolidation Total Additions: Property, plant and equipment and intangible assets From business combinations State funds Associates Investments in associates at ,352.0 Total assets at , , , , ,581.5

42 40 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 2015 CHF millions Energy External revenue 1, ,645.0 Grid Net sales 1, ,533.5 Own work capitalised Other operating income Internal revenue Net sales Other operating income Total operating revenue 1, ,645.0 Total operating expenses 1, ,114.8 Operating profit before depreciation, amortisation and impairment Depreciation, amortisation and impairment Income from associates Operating profit/loss Financial result Profit/loss before income taxes Services Other Consolidation Total Additions: Property, plant and equipment and intangible assets from business combinations State funds Associates Investments in associates at ,156.5 Total assets at , , , , ,007.3

43 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 41 Information by country Net sales to external customers by country are broken down by the place of delivery for the respective product. Non-current assets cover property, plant and equipment, intangible assets and investments in associates in the respective countries. Switzerland Germany Italy France Other countries Total CHF millions Net sales 1, , , ,664.7 Non-current assets 2, , , ,883.2 Information on significant customers There are no transactions with individual external customers that generate revenue accounting for 10 % or more of net sales.

44 42 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 8 Energy procurement/transport CHF millions Cost of energy procurement from third parties and associates Provision for onerous energy procurement contracts Provisions used Provisions added Provisions released Total energy procurement expenses Energy transport expenses Total 1, ,327.4 Energy transport costs include expenses for charges relating to the compensatory feed-in remuneration (KEV) and municipal taxes, with water rates recorded under Energy procurement. 9 Personnel expenses CHF millions Salaries and wages Social security contributions and other personnel expenses Total Other operating expenses CHF millions Charges, levies and other taxes Rent, fees for use and leasing Miscellaneous operating expenses Total

45 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Depreciation, amortisation and impairment CHF millions Depreciation Property, plant and equipment Intangible assets Impairment Property, plant and equipment Intangible assets Reversal of impairments Property, plant and equipment Total The depreciations captured in the reporting year relate to IT projects from the Energy business area and the centrally managed area Other. The impairments in the previous year concerned power plants from the Energy segment. 12 Financial result CHF millions Interest income Dividend income Value adjustment on state funds Gains from the disposal of financial assets Value adjustment on securities held for trading Other financial income Currency translations Financial income Interest expenses Capitalised borrowing costs Interest on provisions Value adjustment on state funds Losses from the disposal of financial assets Value adjustment on securities held for trading Impairment of financial assets Other financial expenses Currency translations Financial expenses The gains from the disposal of financial assets in 2016 relate to the disposal of shares in Groupe E and Romande Energie.

46 44 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 13 Income taxes CHF millions Current income taxes Deferred taxes Total Reconciliation with reported income taxes CHF millions Profit/loss before income taxes Tax expenses at anticipated rate of 22.0 % (2015: 24.2 %) Effects of changes in tax rate Participation reduction and non-taxable income Use/capitalisation of uncapitalised tax losses Non-tax-deductible expenses Uncapitalised or partially capitalised tax losses Taxes in respect of previous years Participation write-down Other items Total income taxes Effective tax rate 3.2% 15.9 % The anticipated tax rate is determined annually as a weighted average (based on the pre-tax earnings of individual Group companies and the applicable local tax rate). The decrease over the previous year can be attributed to the fact that companies subject to lower tax rates have increased their profits. In its decision of February 2015, the Italian constitutional court declared the Robin Hood Tax to be in breach of the constitution. The Robin Hood Tax is the name for an additional income tax levied only on companies in the energy sector at a rate of 6.5 %. Several BKW Group companies in Italy were previously subject to this tax. On 28 December 2015, the Italian parliament decided to lower the corporation tax (IRES) from 27.5 % at present to 24 % as of 1 January This reduction will affect all the Italian companies in the BKW Group. Due to these changes, BKW recalculated the deferred tax assets/liabilities of the Group companies affected for 2015 and reduced them by CHF 27.1 million. This led to a one-off reduction in income tax expense in 2015 in the same amount. This will also result in a lower tax charge and corresponding lower cash outflows as of 2016.

47 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 45 Changes in deferred tax assets/liabilities CHF millions Net deferred tax liabilities at Changes in the scope of consolidation Addition/release in the income statement Value adjustment to financial instruments in other comprehensive income Realisation of financial instruments from equity Change in value of cash flow and net investment hedges in other comprehensive income Taxes on actuarial gains/losses Transactions in treasury shares Currency translations Net deferred tax liabilities at Deferred tax assets/liabilities by origin of temporary difference CHF millions Assets Liabilities Assets Liabilities Current assets Financial assets and holdings Property, plant and equipment Intangible assets Current liabilities Provisions Other non-current liabilities Capitalised loss carry-forwards Credit/liability for gross deferred taxes Netting of assets and liabilities Credit/liability for deferred taxes according to balance sheet The change in temporary differences resulted in a deferred tax revenue of CHF 0.5 million recorded in the income statement (previous year: tax expense of CHF 50.4 million). As in the previous year, on 31 December 2016 no deferred tax liabilities were accounted in respect of temporary differences with associates. No deferred taxes are recognised for Group companies, joint arrangements or partner plants at which a dividend payment is contractually agreed, since BKW is able to monitor the reversal of the temporary difference and such a difference is not probable in the foreseeable future. The temporary differences for which no deferred tax liabilities have been recognised in this respect amount to CHF million in total (previous year: CHF million).

48 46 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Tax loss carry-forwards As at 31 December 2016, there were tax loss carry-forwards of CHF 28.9 million (previous year: CHF 28.8 million) for which deferred taxes were not capitalised. These were not capitalised since their charge against future taxable earnings is not regarded as probable within the permissible tax period. The average applicable tax rate on tax loss carry-forwards will be 23.6 % (previous year: 23.7 %). These loss carry-forwards fall due in the following periods: in CHF millions Expiry within 1 year Expiry within 2 to 5 years Expiry after 5 years Valid indefinitely Total

49 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Earnings per share The undiluted earnings per share is calculated based on the weighted average number of shares in circulation. The diluted earnings per share consists of the dilution effect arising from the issue of a convertible bond (see Note 23). When calculating the diluted earnings per share, it is assumed that the outstanding conversion rights had already been exercised at the beginning of the year. The net profit attributable to the shareholders is adjusted according to the corresponding interestexpense for the convertible bond after accounting for tax. Undiluted earnings per share Net profit attributable to BKW shareholders, in CHF millions Number of shares issued (weighted average) 52,800,000 52,800,000 Less treasury shares (weighted average) 4,359,680 4,162,890 Number of shares in circulation (weighted average) 48,440,320 48,637,110 Undiluted earnings per share in CHF Diluted earnings per share Net profit attributable to BKW shareholders, in CHF millions Tax-adjusted interest expense on convertible bonds BKW shareholders portion of net profit, adjusted for dilution effect Number of shares in circulation (weighted average) 48,440,320 48,637,110 Adjustment for theoretical conversion of convertible bonds 4,199,964 4,162,890 Number of shares in circulation, adjusted for dilution effect 52,640,284 52,800,000 Diluted earnings per share in CHF Dividend per share The dividend of CHF 1.60 per share for the 2016 financial year (previous year: CHF 1.60) corresponds to the proposal by the Board of Directors to the General Meeting and must be approved by shareholders at this meeting. Based on the shares in circulation on the balance sheet date, the proposed dividend amounts to CHF 78.9 million.

50 48 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 15 Trade accounts receivable and other receivables CHF millions Trade accounts receivable Other financial receivables Other receivables Prepayments Work in progress Total The work in progress position is composed of the cumulative costs, gains and losses at the balance sheet date of CHF million (previous year: CHF million) less partial payments of CHF million (previous year: CHF 83.1 million). The following table shows the age of trade accounts receivable that are overdue but not impaired: CHF millions Trade accounts receivable of which: not past due days past due days past due Over 360 days past due There were no indications as on the balance sheet date that trade accounts receivable and other financial assets included items that are neither overdue nor impaired and are owed by parties that are unable to meet their payment obligations. The value adjustments for trade accounts receivable and other financial receivables are as follows: Other CHF millions Trade receivables financial receivables Loans Provisions for impairment at Net formation/reversal Derecognition of uncollectable receivables Provisions for impairment at Net formation/reversal Derecognition of uncollectable receivables Provisions for impairment at There are no material value adjustments for other financial assets. The other balance sheet items contain no material overdue but unimpaired financial assets.

51 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Inventories CHF millions Goods and materials Valuation adjustment on goods and materials Certificates (proprietary trading) Certificates (own use) Valuation adjustment on certificates (own use) Total Accrued/deferred income and prepaid/accrued expenses CHF millions Financial accruals Other prepaid expenses and accrued income Total prepaid expenses and accrued income Financial accruals Other deferred income and accrued expenses Total deferred income and accrued expenses

52 50 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 18 Financial assets CHF millions Available-for-sale financial assets Securities held for trading At ,941.8 Changes in the scope of consolidation Additions Disposals Currency translations Value adjustment in the income statement Value adjustment in other comprehensive income Impairment At ,802.9 Changes in the scope of consolidation Additions Disposals Currency translations Value adjustment in the income statement Value adjustment in other comprehensive income Impairment At , ,525.8 of which: Current financial assets Non-current financial assets , ,216.3 of which: Financial assets according to IAS 32/ Other assets 1, ,080.8 Loans Term deposits Receivables from state funds Other non-current assets Total Since the state funds are managed by the federal government, BKW has no access to the managed assets. In November 2016, BKW sold a Swissgrid convertible bond totalling CHF 97.2 million to Credit Suisse. The loan was sold with the contractually associated conversion right. As certain conditions transpire, Swissgrid can or must convert the loan into equity. The contract with Credit Suisse stipulates that, in the event of conversion, BKW undertakes to acquire the resulting share of Swissgrid equity. Thus, while BKW has sold the loan, it has at the same time entered into a directly linked obligation in the amount of CHF 97.2 million. This transaction means that the loan cannot be derecognised. One part equalling CHF 77.2 million will be recorded under Other non-current assets, the remaining CHF 20.0 million under Other receivables. The liabilities resulting from the sale totalling CHF 97.2 million are entered under Other liabilities (see Note 26). Also recorded under Other non-current assets is credit from pension plans.

53 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Investments in associates CHF millions Total At ,173.5 Additions 9.7 Changes in the consolidation method 1.6 Disposals 7.0 Dividends 14.4 Pro rata income 68.0 Impairment 2.5 Currency translations 63.2 Actuarial gains/losses 9.2 At ,156.5 Additions Changes in the consolidation method 74.5 Disposals 33.6 Dividends 23.4 Pro rata income 22.8 Impairment 0.1 Currency translations 5.4 Actuarial gains/losses 9.6 At ,352.0 In the fourth quarter of 2016, BKW Netzbeteiligung AG acquired 30.3 % of Swissgrid shares previously held by Alpiq, with a value around CHF 300 million. It then transferred around 4.4 % of these shares to SIRESO under the same conditions agreed with Alpiq. This transaction provided BKW with a 36.4 % stake in Swissgrid. The change to the consolidation method mainly affects the AEK Energie AG Group (AEK), of which BKW had taken over a majority stake in the reporting year. For this reason, AEK will now be consolidated as a Group company rather than an Associate as previously (see Note 6). There were no non-cash additions or disposals (previous year: non-cash disposals of CHF 0.7 million).

54 52 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Pro rata key figures for associates at The table below gives the pro rata key figures for associates by segment. In addition, the Energy business area is broken down by type of power plant. BKW share CHF millions Hydro Nuclear Fossil-fuel Current assets Non-current assets , ,040.0 Current liabilities Non-current liabilities , ,802.5 Shareholders equity ,352.0 Income Expenses Net profit/loss Other comprehensive income Comprehensive income New renewable energy Other Total Energy Grid Services Total All associates are valued using the equity method. Of the total pro rata assets and liabilities, CHF 1,444.6 million (previous year: CHF 1,007.2 million) relate to net financial debt (financial liabilities less cash and cash equivalents and current financial assets). Associates in the Energy segment are, in particular, partner plants. For these, BKW is obliged to pay the annual costs due on its share (including interest and repayment of borrowed funds). The pro rata annual costs for BKW for the purchase of energy in 2016 amounted to CHF million (previous year: CHF million). These are included in the energy procurement expense. CHF million of the total pro rata assets and liabilities of partner plants (previous year: CHF million) relate to net financial debt.

55 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 53 Pro rata key figures for associates at The table below gives the pro rata key figures for associates by business area. In addition, the Energy business area is broken down by type of power plant. BKW share CHF millions Hydro Nuclear Fossil-fuel Current assets Non-current assets 1, , ,674.0 Current liabilities Non-current liabilities , ,518.9 Shareholders equity ,156.5 Income Expenses Net profit/loss Other comprehensive income Comprehensive income New renewable energy Other Total Energy Grid Services Total

56 54 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Key figures for major associates The table below gives the key figures for the major associates. The holdings ENGIE Kraftwerk Wilhelms haven, EP Produzione Centrale Livorno Ferraris and Kraftwerke Oberhasli are all part of the Energy business area. With its stake in Swissgrid AG now increased to 36.4 %, this will also be categorised as a major associate and its key figures presented separately. Swissgrid is assigned to the Grid business area. The reported figures are provisional and come from the respective companies, with the exception of Swissgrid that has bonds listed on the SIX Swiss Exchange. BKW has no final figures for Swissgrid. The key figures as at and the income statement including the net profit will be estimated by BKW on the basis of Swissgrid s business reports from the previous year, as well as relevant press releases issued in the current financial year and transferred to IFRS. Deviations from Swissgrid s actual figures will be captured in profit and loss calculations for the following year. 100 % key figures ENGIE Kraftwerk Wilhelmshaven GmbH & Co. KG EP Produzione Livorno Ferraris S.p.A. Kraftwerke Oberhasli AG Swissgrid AG CHF millions Non-current assets 1, , , ,617.1 Current assets ,214.1 Non-current liabilities , ,809.7 Current liabilities ,011.4 Shareholders equity 1, , ,010.1 Shareholding in % as at % 33.0 % 25.0 % 25.0 % 50.0 % 50.0 % % % Goodwill Reported carrying amount of the investment Income ,201.5 Expenses ,113.7 Net profit/loss Other comprehensive income Comprehensive income Shareholding in % as at % 33.0 % 25.0 % 25.0 % 50.0 % 50.0 % % 36.4 % Goodwill impairment Recognised proportionate result from associates Dividend received The company ENGIE Kraftwerk Wilhelmshaven GmbH & Co. KG is a limited partnership under German law. In companies with this legal form, the effective share of profit and capital of the partners may differ from their share of investment.

57 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Property, plant and equipment CHF millions Power plants Mühleberg Nuclear Power Plant Gross values at , , , ,898.7 Changes in the scope of consolidation Additions Disposals Reclassifications Currency translations Gross values at , , , ,173.5 Distribution grid Buildings and land Other property, plant and equipment Construction in progress Total Accumulated depreciation and impairments at , , ,052.4 Changes in the scope of consolidation Depreciation Impairment Disposals Reclassifications Currency translations Accumulated depreciation and impairments at , , ,095.8 Net values at , , ,077.7 thereof in financial leasing thereof pledged for liabilities The column Mühleberg Nuclear Power Plant covers all relevant property, plant and equipment including nuclear fuels. An adjustment has been made to the previous year s figures. Additions for power plants include non-cash additions in the amount of CHF 0.6 million in connection with increases from dismantling at wind farms. The additions to the Mühleberg Nuclear Power Plant include a non-cash increase in provisions of CHF 6.0 million owing to the annual additional disposal costs of operating the power plant (previous year: CHF 6.0 million). The Mühleberg Nuclear Power Plant also recorded a non-cash disposal in the amount of CHF million, of which CHF 5.1 million was included under Construction in progress. The disposal arose in connection with the estimate of decommissioning and waste disposal costs (KS16) carried out in the reporting year, which was also used to adjust decommissioning and waste disposal provisions accordingly. Borrowing costs amounting to CHF 1.3 million were capitalised in the reporting year (previous year: CHF 2.3 million). In the year under review, compensation of CHF 0.5 million for property, plant and equipment that was impaired, lost or decommissioned was charged to the income statement (previous year: CHF 1.4 million). Changes in the scope of consolidation relate to business combinations to the amount of CHF million (previous year: CHF 34.2 million) and disposals of companies to the amount of CHF 4.9 million (previous year: CHF 10.0 million).

58 56 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements CHF millions Power plants Mühleberg Nuclear Power Plant Gross values at , , , ,820.1 Changes in the scope of consolidation Additions Disposals Reclassifications Currency translations Gross values at , , , ,898.7 Transmission and distribution grid Buildings and land Other property, plant and equipment Construction in progress Total Accumulated depreciation and impairments at , , ,937.3 Changes in the scope of consolidation Depreciation Impairment Disposals Reversal of impairment Reclassifications Currency translations Accumulated depreciation and impairments at , , ,052.4 Net values at , , ,846.3 thereof in financial leasing thereof pledged for liabilities

59 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Intangible assets CHF millions Rights of use Goodwill Other Total Gross values at Changes in the scope of consolidation Additions from acquisitions Additions from internally generated intangible assets Disposals Currency translations Gross values at Accumulated depreciation and impairments at Changes in the scope of consolidation Depreciation Impairment Disposals Currency translations Accumulated depreciation and impairments at Net values at

60 58 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements CHF millions Rights of use Goodwill Other Total Gross values at Changes in the scope of consolidation Additions from acquisitions Additions from internally generated intangible assets Disposals Currency translations Gross values at Accumulated depreciation and impairments at Changes in the scope of consolidation Depreciation Disposals Currency translations Accumulated depreciation and impairments at Net values at On the balance sheet date, goodwill was distributed among the following cash-generating units: CHF millions Energy Services Total The goodwill carried in the balance sheet was tested for impairment by comparing the carrying value with the realisable value of the cash-generating units. The realisable value corresponds to the value in use. The calculations were made on the basis of estimated cash flows from business projections approved by management over a period of four years. Cash flows beyond this period were extrapolated using an estimated growth rate. The impairment test on goodwill disclosed in the balance sheet did not identify any need for impairment. The value in use is measured on the basis of the following material assumptions: WACC (before tax) WACC (after tax) Long-term growth rate % Energy Services Based on the findings of a sensitivity analysis, realistic changes in the material assumptions do not suggest that the recoverable amount will fall below the carrying amount.

61 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Trade accounts payable and other liabilities CHF millions Trade accounts payable Other financial liabilities Other liabilities Pension plans Customer prepayments Total Customer prepayments relate to work in progress and comprise advance payments of CHF million as at the balance sheet date (previous year: CHF 77.5 million) less cumulative costs, gains and losses of CHF 96.8 million (previous year: CHF 58.9 million). 23 Financial liabilities CHF millions Bonds Convertible bond Registered bonds Finance leasing liabilities Bank liabilities Other financial liabilities Total 1, ,686.4 of which: Current financial liabilities Non-current financial liabilities 1, ,604.0 In 2014, BKW issued a convertible bond in the amount of CHF million to run from 30 September 2014 to 30 September 2020 with an interest rate of %. On the balance sheet date, the conversion price was CHF Conversions were undertaken in 2016 for the first time. By 31 December 2016, conversions with a nominal value of CHF 29.9 million had been undertaken, resulting in 777,916 shares.

62 60 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 24 Provisions CHF millions At , ,088.6 Changes in the scope of consolidation Provisions added Interest Provisions used Provisions released Currency translations At , ,039.7 Changes in the scope of consolidation Provisions added Interest Provisions used Provisions released Change in estimate for nuclear disposal Currency translations At , ,915.0 of which: Current provisions Non-current provisions 1, ,842.0 Nuclear waste disposal Onerous contracts, energy procurement Other provisions Total Nuclear waste disposal At 31 December 2016, the provision for nuclear waste disposal comprised the following: CHF million (previous year: CHF million) is set aside for decommissioning of the nuclear power plant. This covers the costs of the post-operational phase after shutdown, as well as the costs of dismantling and disposing of the plant and rehabilitation of the surrounding area. Payments are anticipated from the end of commercial operation in 2019 until completion of the decommissioning work after approximately 15 years. The costs for disposal of decommissioning waste will fall due on an ongoing basis until the waste is put into the final storage depot for weak to medium-active nuclear waste (scheduled for 2061). A further CHF million (previous year: CHF million) is set aside for the disposal of spent fuel elements and radioactive waste outside the plant compound. These payments will fall due on an ongoing basis until the final storage depot for highly active nuclear waste is sealed off. This is currently scheduled for the year CHF 20.1 million is set aside for plant-specific costs (previous year: CHF 88.8 million). This covers the costs within the power plant and will be payable on an ongoing basis until a few years after commercial operations cease.

63 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 61 In 2016, the update to the cost estimate for the nuclear decommissioning and waste disposal of the Mühleberg Nuclear Power Plant (KS16) was carried out, which takes place every five years. The adjustment was carried out at the request of and in accordance with the strict requirements of the Decommissioning Fund for Nuclear Facilities and Waste Disposal Fund for Nuclear Power Plants (STENFO) and in collaboration with swissnuclear. The 2016 estimate weighted possible risks even more highly, increasing estimated costs to CHF 3 billion. The increase, up by 9.4 % on the previous study, is primarily due to adjustments in project planning and the higher risk allowances, plus changes and delays in the planning of the deep geological repositories for radioactive waste disposal. Despite the increase in overall costs, there was a reduction in provisions recorded in the balance sheet in the amount of CHF million. This is mainly due to the fact that the repository costs will become payable only at a much later stage than was assumed in the previous cost study. The release of provisions based on the findings of the 2016 study are recorded on a separate line, Change in estimate for nuclear disposal. Because this release resulted in a present-value adjustment of the acquisition costs of the Mühleberg Nuclear Power Plant (power plant, fuel rods and assets under construction), it had no effect on income. The reporting year also saw an allocation of CHF 6.0 million (previous year: CHF 6.0 million) owing to the annual additional disposal costs of operating the power plant. This also resulted in an increase in the acquisition cost for nuclear fuels without affecting income. BKW is required to make regular payments to the state funds for decommissioning and nuclear waste disposal. These funds pay the costs of decommissioning and disposal on behalf of operators following shutdown of the plants. The state fund receivables are disclosed under non-current financial assets (see Note 18). Onerous contracts, energy procurement The provisions for onerous energy procurement contracts cover the future purchase of energy from partner plants at production costs that exceed the expected realisable selling prices. These provisions are primarily associated with the energy procurement contracts agreed with the fossil- fuel power stations at Livorno-Ferraris in Italy and Wilhelmshaven in Germany. The cash outflow from provisions results from BKW s obligation to take the electricity produced at production cost and extends over a period of around 10 years. Other provisions The provision for restructuring, which covers future expenses for defined restructuring measures, stood at CHF 0.6 million as at 31 December 2016 (previous year: CHF 1.1 million). Other provisions include obligations related to personnel, estimations of probable payments in respect of legal disputes and various minor operating obligations. Cash outflows in respect of these provisions are largely anticipated over the next three years. There are also provisions for the dismantling and break-up of power plants and for rehabilitation of the environment. These costs will be incurred at the end of the useful life of the respective power plants; the cash outflow is anticipated within the next 20 to 25 years. Interest on provisions calculated at present value is charged through financial expenses.

64 62 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 25 Pension plans Pension funds are regulated by the Federal Act on Occupational Retirement, Survivors and Invalidity Pension (BVG). This requires pension funds to be managed by independent, legally autonomous bodies. Employees and their survivors are insured through the pension plan against the economic consequences of old age, invalidity and death. All actuarial risks are borne by the BKW pension fund (Pensionskasse BKW). The pension plan is financed through contributions and revenue from the assets. The member companies and insured persons pay the premium contributions to the pension scheme, as a percentage of the insured salary of the insured person. Responsibility for investing the pension assets is held by the Board of the foundation. Employees of BKW are covered by Pensionskasse BKW and other autonomous pensions funds, which are classed as defined benefit plans under IAS 19. Therefore, an independent pensions expert carries out an annual assessment in line with the terms of IAS 19, in addition to the assessment carried out by the pensions expert based on the project-unit-credit method. Pensionskasse BKW The majority of employees are covered by the Pensionskasse der Bernischen Kraftwerke (Pensions kasse BKW) pension fund. Pensionskasse BKW operates a pension plan as a defined benefit plan. Contributions are collected through the group mechanism. Pensionskasse BKW takes the form of a pension fund organised as a foundation established under private law. The supreme governing body of the Pensionskasse BKW foundation is the Board, which is composed of an equal number of representatives of the employer and the employees. The benefits and financing of Pensionskasse BKW are stipulated in pension regulations. These are issued by the Board of the foundation. The Board delegates the management of the business to the executive management. The foundation is subject to supervision by the relevant authority of the Canton of Bern. The pension plan assets are invested in a widely diversified portfolio in Switzerland and abroad in line with the statutory requirements and the guidelines issued by the Board. Assets are invested to guarantee security and an appropriate return on the investment, with a balanced distribution of risks and coverage of the forecast requirement of cash and cash equivalents. The occupational pensions expert prepares the annual actuarial valuation and verifies the financial and actuarial situation of Pensionskasse BKW. The unaudited actuarial coverage rate of Pensionskasse BKW in accordance with BVG at 31 December 2016 with an actuarial interest rate of 2.0 % (previous year: 2.5 %) was % (previous year: %). In the event of a coverage shortfall according to BVG, the Board must, in agreement with the occupational pensions expert, agree suitable recovery measures (such as increasing the ordinary contributions or collecting recovery contributions). The contribution made by the employer must be at least equivalent to the total contributions paid by the employee.

65 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 63 In the reporting period, the decision was made to adjust the pension plan in the Pensionskasse BKW as at 1 January 2017: the rate for calculating the present value of benefits acquired (= vested termination benefit) was adjusted to the reduced actuarial rate of 2.0 % and the pension rate acquired per year therefore reduces from 1.50 % to 1.44 % on 1 January These plan adjustments lead to lower insured old age and invalidity pensions and higher vested termination benefits on the reporting date. Overall, these plan adjustments resulted in a subsequent negative service cost of CHF 9.1 million Pension liability recorded in the balance sheet CHF millions Present value of defined benefit obligations 1, ,978.6 Fair value of plan assets 1, ,709.9 Credit from pension plans recorded in the balance sheet Pension liability recorded in the balance sheet at of which amount disclosed as credit of which amount disclosed as liability Pension expense according to IAS 19 CHF millions Current service cost (employer) Past service cost (employer) Interest expenses on defined benefit obligation Interest income from plan assets Administration costs excluding costs for management of plan assets Pension plan expenses Remeasurement of pension plans CHF millions Actuarial gains/losses Change in financial assumptions Change in demographic assumptions Adjustments based on experience Return on plan assets (excluding interest based on discount rate) Total revaluation reported in other comprehensive income

66 64 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 25.4 Change in present value of defined benefit obligation CHF millions Present value of defined benefit obligation at , ,821.7 Interest expenses on defined benefit obligation Current service cost (employer) Contributions paid/benefits paid out Employee contributions Past service cost (employer) Business combination Administration costs (excluding asset management costs) Actuarial gains/losses Present value of defined benefit obligations at , ,978.6 At the balance sheet date, the active members share of the defined benefit obligation was CHF 1,053.9 million (previous year: CHF million). The share of those drawing a pension in the defined benefit obligation was CHF million (previous year: CHF million) Change in fair value of plan assets CHF millions Fair value of plan assets at , ,563.9 Interest income from plan assets Employer contributions Employee contributions Contributions paid/benefits paid out Business combination Return on plan assets (excluding interest based on discount rate) Fair value of plan assets at , ,709.9

67 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Asset structure of plan assets CHF millions % % Cash and cash equivalents Equity instruments Debt instruments Other instruments Properties Total plan assets 1, , thereof own transferrable financial instruments thereof properties used by BKW Equity capital instruments include investments in shares and are generally listed at their market price in an active market. As a percentage of the total assets, the proportion of Swiss shares at the end of the reporting period was 15.4 % (previous year: 15.0 %) and that of foreign shares was 20.7 % (previous year: 20.7 %). Investments in Swiss and foreign shares are made directly (through external asset managers) and through investment foundations and funds. The composition of debt instruments as a percentage of total assets on 31 December 2016 was 15.7 % (previous year: 16.6 %) for Swiss bonds, 9.8 % (previous year: 10.0 % for foreign bonds with currency hedging and 11.0 % (previous year: 10.8 %) for mortgage loans and mortgage bonds. The bonds and mortgage bonds are listed in an active market at their market price, whereas there is no market price listing in an active market for the mortgage loans. Most of the other instruments are listed in an active market at their market price. On 31 December 2016, the proportion of property as a percentage of total assets was split between 12.8 % (previous year: 12.5 %) for properties (direct investments in Switzerland) and 6.7 % (previous year: 6.5 %) for property funds listed in active markets (of which almost half involved foreign properties). The effective return from the plan assets was 3.4 % in the reporting year (previous year: 0.6 %) Actuarial assumptions Discount rate 0.80 % 0.70 % Expected rate of future salary increases 0.50 % 0.50 % Expected rate of future pension increases 0.10 % 0.00 % Mortality table BVG 2010 GT BVG 2015 GT The weighted average term of the employee pension plan obligation amounted to 14.5 years (previous year: 14.2 years).

68 66 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Sensitivities of the major actuarial assumptions The discount rate, changes in salaries and pensions, and life expectancy constitute significant actuarial assumptions and were therefore subjected to a sensitivity analysis. In the event of an increase/decrease in the assumptions shown below, the employee pension plan obligation will vary as follows: Defined benefit obligation CHF millions Increase Decrease Discount rate (0.25 % change) Salary increase (0.25 % change) Changes in pensions ( % change) 46.7 Life expectancy (1 year change) Defined benefit obligation CHF millions Increase Decrease Discount rate (0.25 % change) Salary increase (0.25 % change) Changes in pensions ( %/ 0.10 % change) Life expectancy (1 year change) The sensitivity analysis was conducted on the basis of a method that extrapolates the impact on the employee pension plan obligation through changes in the above assumptions at the end of the reporting period Estimated contributions for the next period CHF millions Expected employer contributions Expected employee contributions Other liabilities CHF millions Assigned rights of use Other non-current financial liabilities Other non-current liabilities Total Liabilities resulting from the sale of the Swissgrid convertible bond totalling CHF 97.2 million are recorded under Other non-current liabilities. The transaction is detailed in Note 18.

69 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Share capital and reserves 27.1 Share capital The issued and fully paid-in share capital of BKW AG amounting to CHF million consists of 52,800,000 registered shares at a par value of CHF 2.50 each. Major shareholders and their direct ownership Canton of Bern % % Groupe E Ltd % % E.ON SE 6.65 % 3.33 % Treasury shares 8.13 % 6.60 % Transactions in treasury shares Number Carrying amount CHF millions Cash-relevant proportion CHF millions ,409, Purchases 10, Sales 128, ,290, Purchases 103, Sales 908, ,485, Reserves Capital reserves Capital reserves include reserves paid in by shareholders. Retained earnings Retained earnings consist of legal and statutory reserves (excluding capital reserves), retained earnings from previous years and gains/losses on the sale of treasury shares. Treasury shares BKW shares held by BKW or its Group companies are deducted from equity at acquisition cost. As at 31 December 2016, 3,485,021 shares (previous year: 4,290,951) were held by BKW AG and its group companies and no shares (previous year: 3,000) were held by associates.

70 68 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Other reserves CHF millions Currency translations Revaluation reserve available-for-sale financial assets At Currency translations Currency translations Available-for-sale financial assets Value adjustments Hedging transactions Value adjustments Reclassification to the income statement Actuarial gains/losses of Group companies of associates Income taxes At Currency translations Currency translations Available-for-sale financial assets Value adjustments Reclassification to the income statement Hedging transactions Value adjustments Actuarial gains/losses of Group companies of associates Income taxes At Hedging Actuarial gains/losses Total

71 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 69 Currency translations Reserves for currency translations contains currency differences arising from the translation of the financial statements drawn up in foreign currencies of foreign Group companies and associates. Revaluation reserve available-for-sale financial assets The revaluation reserve includes fair value adjustments for available-for-sale assets until their realisation or their classification as an impairment. Hedging The hedging reserve comprises unrealised changes in the value of financial instruments as a hedge of payment streams (cash flow hedge) and as a hedge of net investment in a foreign business operation (net investment hedge) in the amount of the effective portion of the hedge, as well as the realised gains and losses from completed hedging transactions that have not yet been recognised in profit or loss since the underlying transaction has not yet been recognised in income. Actuarial gains/losses The reserve for actuarial gains and losses recognises the effect of periodic actuarial recalculations Capital management BKW pursues a strategy aimed at the sustainable increase and retention of corporate value. The aim of BKW capital management is to ensure the Group s long-term capital market standing and financing capability by maintaining a balance sheet structure that is compatible with the defined target rating, and to keep the potential impact of fluctuations in the value of the entire financial and risk portfolio within narrow boundaries. BKW is committed to a consistent dividend payout based on a ratio of 40 % to 50 % of adjusted net profit. BKW s financial resources primarily serve the core business and provide the requisite scope for action in accordance with the requirements of the Group strategy. There were no changes in capital management in 2016.

72 70 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 28 Derivatives The following table provides information on replacement values and contract volumes for derivative financial instruments open on the balance sheet date in respect of energy trading, and of interest and exchange rate hedging. Derivatives that qualify as hedging instruments under IAS 39 and are treated according to hedge accounting provisions are disclosed separately. Derivatives are recorded at fair value in the balance sheet, as positive replacement values (receiv ables) or negative replacement values (liabilities). The contract volume corresponds to the basic value or contract volume of the underlying derivative financial instrument. The replacement value for futures is zero, since price fluctuations are offset daily compared with the agreed closing prices. Forward energy trading contracts include forwards with fixed and flexible profiles. Positive replacement value Negative replacement value Contract volume CHF millions Futures (energy trading) Forward contracts (energy trading) , ,408.5 Swaps Exchange rate hedging Hedge accounting Swaps Exchange rate hedging Total , ,712.0 of which: Current derivatives Non-current derivatives

73 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Hedge accounting The following hedging transactions were open on 31 December 2016: Fair value hedge On the balance sheet date, an interest rate swap existed for the purpose of hedging fluctuations in the fair value of a portion of the bonds issued. This hedging relationship is assessed as highly effective and qualifies as a fair value hedge. The change in the fair value of the underlying portion of the bonds amounted to CHF 2.9 million (previous year: CHF 0.8 million). In 2016, no ineffective portion of hedging relationships was reported in the financial result (2015: no ineffective portion). Cash flow hedge In relation to borrowings for power plants, interest rate swaps existed on the balance sheet date for the next year, in order to hedge fluctuations in interest payments. The hedging instrument qualifies as a cash flow hedge and is assessed as highly effective. The gain or loss measured for these cash flow hedges is recognised in other comprehensive income (CHF 0.1 million in the reporting year; CHF 0.2 million in the previous year). In 2016, no ineffective portion of hedging relationships was reported. Various forward contracts existed on the balance sheet date for the purpose of hedging euro exchange rate fluctuations. These hedging instruments are assessed as highly effective and qualify as cash flow hedges. They comprise hedges of euro-denominated revenue for the following financial year and hedges relating to outstanding investment obligations. The gain or loss measured for these cash flow hedges is recorded in other comprehensive income (CHF 0.3 million in the reporting year; previous year: CHF 0.8 million). Gains and losses associated with this hedging instrument are recognised in income in the same way as the underlying transaction. In 2016, no ineffective portion of hedging relationships was reported in the financial result. In the reporting year, a loss of CHF 0.1 million was recorded for hedging of euro exchange rate fluctuations (previous year: loss of CHF 4.1 million) in net revenue relating to amounts that had been hedged in the reporting year. Net investment hedge In previous years, BKW placed three registered bonds with nominal amounts of EUR million in total. The registered bonds were placed in Germany and allow BKW to obtain an element of matched-currency financing for its investment projects from local investors in that country. The registered bonds have been designated as a net investment hedge. Foreign exchange gains or losses on the registered bonds are recognised in other comprehensive income and correspondingly offset the gains or losses from currency conversion of net investments in a foreign business operation. In the reporting year, no ineffective portion of hedging relationships was reported under financial income.

74 72 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 30 Related parties The following financial relationships between BKW and related parties existed in the periods reported. Unless stated otherwise, all transactions were conducted under the same terms and conditions as with independent third parties: Parent Companies exerting significant influence over the Group Associates Pension funds CHF millions Income Energy sales Other sales and services Interest and dividends Expenses Assets Energy purchases Water charges Other purchases and services Taxes and charges Interest and dividends Income taxes Non-current financial assets Loans Rights of use Current financial assets Receivables and accruals Cash and cash equivalents Liabilities Loans Rights of use Liabilities and accruals Transactions with the parent The Canton of Bern is the majority shareholder of BKW. As such, it has a controlling influence on all decisions at the Annual General Meeting, including the election of members of the Board of Directors and the appropriation of retained earnings. The relationship with the Canton of Bern, its authorities, public-law institutions and the private-law companies it controls takes place on many levels: BKW delivers energy and other services, purchases material and services, and pays taxes, water rates and other levies and charges. In addition, financial transactions are conducted with Berner Kantonalbank, in which the Canton of Bern holds a majority interest.

75 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 73 Transactions with companies exerting significant influence over BKW Group E Ltd is represented on the BKW Board of Directors and is therefore able to influence decisions on BKW s financial and business policies. BKW supplies and procures energy, procures materials and services, and supplies services. BWK disposed of its 10 % participation in Groupe E AG in the reporting year. Of this Groupe E AG itself assumed 4.3 %. As part of this transaction, BKW also sold its participation in Gommerkraftwerke AG to Groupe E AG. Transactions with associates Reported transactions consist of energy deliveries, energy transports, dividends, engineering services (income), operational management and maintenance/servicing (income), energy purchases, material/third-party services and other services (expense). Energy produced by partner plants is billed to shareholders at production cost on the basis of existing agreements. In 2016, associates borrowed CHF 56.3 million in loans from BKW (previous year: CHF 13.2 million). Furthermore, loans were increased by CHF 1.7 million (previous year: CHF 1.0 million). Repayments reduced loans in the reporting year by CHF million (previous year: CHF 1.5 million). Moreover, loans in the amount of CHF 11.0 million were written down. In the reporting year, BKW acquired property, plant and equipment from associates at a purchase price of CHF 0.4 million (2014: purchased for CHF 0.7 million). Transactions with pension funds Transactions with pension funds are conducted as part of the occupational pension plan and consist of employer contributions, administrative charges (personnel, operational and administrative costs), real estate services (management of properties) and financial transactions (liquidity management including interest). Transactions with the Board of Directors and Group Executive Board Remuneration CHF millions Short-term benefits Contributions to pension plans Share-based payments Total The performance-related payments contained in short-term benefits reflect the variable profit shares for the corresponding financial year. Detailed information on the remuneration paid to the Board of Directors and the Group Executive Board can be found in the Remuneration Report, which is published in accordance with the Ordinance against Excessive Compensation in Listed Stock Companies.

76 74 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 31 Leasing 31.1 Operating leases Future minimum lease payments under non-cancellable operating leases on the balance sheet date: CHF millions Lessor Lessor Lessee Lessee Up to 1 year Later than 1 year and not later than 5 years More than 5 years Total The leases relate to rental agreements for operational properties, tenancies and vehicle leasing. The posted leasing expense from operational leasing agreements amounted to CHF 7.4 million in the reporting year (previous year: CHF 7.3 million) Finance leases CHF millions Minimum lease payments Minimum lease payments Present value Present value Up to 1 year Later than 1 year and not later than 5 years More than 5 years Total Financing costs Present value of minimum lease payments Finance leases are related to wind farms that are funded via long-term leasing contracts. Overall, leasing liabilities were accounted for in the balance sheet in the amount of CHF 57.0 million (previous year: CHF 63.7 million), of which CHF 8.3 million (previous year: CHF 8.0 million) represented current financial liabilities and CHF 48.7 million (previous year: CHF 55.7 million) non-current financial liabilities.

77 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Additional disclosures on the cash flow statement Cash and cash equivalents covers cash on hand, bank account balances and cash invested with financial institutes for a maximum period of three months. CHF millions Bank and cash balances Term deposits Total cash and cash equivalents Adjustments to the operating cash flow for non-cash transactions are composed as follows: CHF millions Depreciation, amortisation and impairment Income from associates Financial result Gains/losses from sale of non-current assets Change in non-current provisions (excl. interest) Change in assigned rights of use Change from the valuation of energy derivatives Other non-cash positions Total adjustment for non-cash transactions Details on acquisitions of Group companies in the reporting year are provided in Note 6. The cash flow arising from the acquisition of Group companies amounting to CHF million corresponds to the purchase price of CHF million less the acquired cash and cash equivalents of CHF 49.5 million and the deferred and contingent purchase price payments of CHF 28.0 million at the time of acquisition, plus the payment of CHF 5.4 million that had been made in respect of deferred and contingent purchase price payments in 2016 and acquired loans of CHF 0.5 million. Of material assets, CHF 6.6 million of additions and CHF million of disposals were non-cash (see Note 20).

78 76 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 33 Share-based payment BKW employees have the opportunity to purchase BKW AG share capital on preferential terms. Full-time employees of BKW and members of the Board of Directors (except the Group Executive Board and senior management) are offered a limited number of BKW shares every year at a fixed preferential price, set for that year, subject to a blocking period. In the reporting year, employees had the opportunity to acquire up to 334,875 shares in BKW (previous year: 287,652 shares) at a preferential price. In the 2016 reporting year, 89,411 shares (previous year: 82,141 shares) were purchased at a price of CHF per share (previous year: CHF 20.00). The underlying present value per share was CHF (previous year: CHF 33.00). The personnel expense for this sharebased payment was CHF 1.0 million (previous year: CHF 1.1 million). No purchase rights remained open on the balance sheet date. In addition, a performance-related bonus has been allocated to members of the Group Executive Board and senior management in the form of BKW shares as part of their fixed annual base salary. The allocation of shares is decided on an annual basis for the current financial year. The shares are subject to a blocking period. In the 2016 reporting year, 40,067 shares (previous year: 45,394 shares) were allocated at a price of CHF per share (previous year: CHF 37.55). The recorded personnel expense amounted to CHF 1.8 million (previous year: CHF 1.8 million). No purchase rights remained open on the balance sheet date. Allocation of shares to employees is not subject to any other conditions in either of the aforementioned cases, hence there is no vesting period and the compensation is recorded on the grant date. Fair value is measured on the basis of the share price. The corresponding expense is recognised in personnel expenses at the time of the grant being made. In relation to the share purchase programme, the personnel expense corresponds to the difference between the fair value and the preferential price paid by employees.

79 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Group companies with material non-controlling interests With BKW Netzbeteiligung AG, which is headquartered in Switzerland, BKW holds a Group company with material non-controlling interests. BKW Netzbeteiligung AG holds interests in Swissgrid AG in particular. After acquiring approximately 25.9 % of Swissgrid shares in the reporting year, BKW Netzbeteiligung AG now holds just under 36.4 % of the shares in Swissgrid. The purchase of additional shares in Swissgrid AG was financed by BKW Netzbeteiligung AG by means of an equity increase. The non-controlling interests contributed CHF million to this equity increase. For this reason, the financial information of BKW Netzbeteiligung AG is disclosed separately in the table below. The breakdown is before the elimination of inter-company transactions. BKW Netzbeteiligung Ltd. CHF millions Non-controlling interests in % 49.9 % 49.9 % Carrying amount of non-controlling interests Net income allocated to non-controlling interests Dividends on non-controlling interests Balance sheet Non-current assets Current assets Non-current liabilities Current liabilities Income statement Financial income Net profit Cash flow statement Cash flow from operating activities Cash flow from investing activities Cash flow from financing activities

80 78 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 35 Assets and liabilities measured at fair value Assets and liabilities measured at fair value are classified according to the following hierarchy: Level 1: valuations based exclusively on listed prices in active markets for identical assets or liabilities. BKW currently classifies listed securities and energy trading futures under this level. Level 2: valuations, the inputs to which are based on directly or indirectly observable market data. The inputs have a material impact on the recognised fair value. At this hierarchy level, BKW includes over-the-counter derivatives (all forward energy trading contracts, interest rate swaps and forward currency contracts) and the proportional share of net assets of the state funds (federal decommissioning and disposal funds). The assets of the state funds are managed by the government; BKW has no access to the managed assets. These assets are invested in accordance with the defined investment strategy, generally in products that have listed prices on active markets. To a limited extent, investments may also be made in assets for which there are no listed prices on active markets. Such investments are valued by the global custodian. BKW has no influence on the valuation method used. The annual statement of the funds is audited by external auditors each year and published by the federal offices responsible. Level 3: valuations that apply inputs with a material impact on fair value that are not based on observable market data. BKW mainly classifies unlisted securities designated as availablefor-sale financial assets, contingent purchase price payments and liabilities relating to non-controlling interests under this level. Valuation of such assets requires management estimates of non-observable input factors and deferred purchase price payments. The fair values of Level 3 financial assets were determined using the discounted cash flow method and discounted based on a WACC of 5.4 % (previous year: 5.4 %). A realistic, constant margin was applied to the valuation models (the annual growth in the margin corresponds to inflation). The contingent purchase price payments and liabilities relating to non-controlling interests result from business combinations. The fair values take into account expected cash flows, sales forecasts and other performance criteria. The effect of a change of 10 % in the most important non-observable input factors would have no material impact on comprehensive income and the equity of BKW. There were no transfers between the different levels during the year under review or during the previous year.

81 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 79 CHF millions Carrying amount at Level 1 Level 2 Level 3 Financial assets at fair value through profit or loss Current financial assets Securities held for trading Inventories Certificates (proprietary trading) Derivatives (current and non-current) Non-current financial assets Available-for-sale financial assets Receivables from state funds 1, ,068.4 Financial liabilities at fair value through profit or loss Derivatives (current and non-current) CHF millions Financial assets at fair value through profit or loss Current financial assets Carrying amount at Level 1 Level 2 Level 3 Securities held for trading Inventories Certificates (proprietary trading) Derivatives (current and non-current) Non-current financial assets Available-for-sale financial assets Receivables from state funds Financial liabilities at fair value through profit or loss Derivatives (current and non-current) In addition, the liabilities on 31 December 2016 include the following at fair value: Bonds with an amount of CHF million (previous year: CHF million) as part of a fair value hedge valued at Level 2. Other liabilities in the amount of CHF 44.5 million (previous year: CHF 46.3 million) from contingent purchase price payments in relation to business combinations and CHF 16.0 million (previous year: none) for liabilities relating to non-controlling interests (both Level 3). The Level 3 debts and assets measured at fair value developed as follows during the period under review: Contingent purchase price payments Available-for-sale financial assets CHF millions At Additions Disposals Value adjustment Transfer to income statement Changes in value included in other comprehensive income At

82 80 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 36 Disclosure of financial assets and liabilities 36.1 Carrying amount by balance sheet item and allocation to individual categories in accordance with IAS 39 Financial assets Loans and Fair value through Note receivables profit or loss Available-for-sale Total CHF millions Cash and cash equivalents Trade accounts receivable Other current financial receivables Current financial assets Derivatives (current and non-current) Financial accruals Non-current financial assets Total 1, , , ,342.3 Financial liabilities Recognised Liabilities at Fair value through according Note amortised cost profit or loss to IAS 17 Total CHF millions Trade accounts payable Other current financial liabilities Current financial liabilities Derivatives (current and non-current) Financial accruals Non-current financial liabilities 23 1, , , ,604.0 Other non-current financial liabilities Total 2, , , ,581.9 Due to short residual terms to maturity, the carrying amount of loans and receivables and financial liabilities at amortised cost correspond approximately to the fair value. On 31 December 2016, a difference existed between these values in respect of the bonds and the convertible bond, which are included under non-current financial liabilities. The share price of the bonds (fair value level 1) as at year-end amounted to CHF 1,270.3 million (previous year: CHF 1,272.1 million) with a carrying amount of CHF 1,133.0 (previous year: CHF 1,153.4 million).

83 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Net results of financial assets and liabilities measured in accordance with IAS 39 Net result Loans and receivables Fair value through profit or loss Available-for-sale Liabilities at amortised cost CHF millions Included in net sales: Income from proprietary energy trading Income from energy hedging Included in other operating revenue: Change in contingent purchase price payments Change in provision for impairment of receivables Included in financial result: Included in other comprehensive income: Total Total In the financial years shown, no financial instruments were designated as being measured at fair value. Due to the application of the principle of materiality following the amendment to the IAS 1 standard, only summarised figures are reported in the table above. The previous year s figures have been adjusted accordingly Netting arrangements BKW concludes reciprocal transactions with a range of contractual partners in the scope of its business activities. Where contractually agreed netting procedures have been agreed and the prerequisites for netting balance sheet items have been met, the resulting receivables and liabilities due and owed are reported as net items in the balance sheet. The following amounts are netted off in the balance sheet on the balance sheet date: CHF millions Gross values Netting off Net values Gross values Netting off Net values Trade accounts receivable , Trade accounts payable Positive replacement values Negative replacement values

84 82 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 37 Financial risk management 37.1 Principles of risk management Risk management is viewed as a supporting function for senior management. Its purpose is to provide decision makers with a transparent representation of the risks associated with individual business activities. The core element is the risk management process, which systematically identifies, assesses and manages risks and monitors the implementation of risk mitigation measures. It is integrated into the financial management process. The defined risk management principles govern the management of operational risks, as well as market price, share price, currency, interest rate and credit risks. Principles have also been laid down governing the management of cash and cash equivalents and short and long-term cash deposits. The Group monitors and controls these risks. Risk Management reports directly to the Head of Finance and Controlling, defines Group-wide requirements for measuring risk, and aggregates risks at Group level. The risk spectrum monitored by the Group Executive Board covers risks related to operating activities, as well as to strategy and its implementation in projects. A Risk Committee at Group Executive Board level prepares guidelines and risk reports as a decision-making basis for the Group Executive Board. The Risk Committee is an advisory body that submits independent recommendations on risk issues to the Group Executive Board in predefined processes. The Board of Directors last assessed the risks related to operating activities at its meeting on 1 December Credit risks A credit risk is the possibility of a loss that may be incurred if a customer or counterparty is unable to discharge its contractual obligations. Standardised credit risk management with defined limits per counterparty is practised with respect to accounts receivable from energy trading activities, sales activities and the investment of funds. The credit risks are managed centrally by Risk Management. The process is separated into two parts: credit appraisal with defined limits, and limit monitoring and reporting. Credit appraisal involves the use of an internal rating system that is similar to the nomenclature of Standard & Poor s (S & P) and assigns credit ratings to counterparties. Under the system, a rating above BBB- corresponds to an investment grade. The rating is calculated based on the Basel II Internal Rating approach. The credit appraisal also takes into account external ratings by recognised rating agencies. A limit is defined for each counterparty based on the defined credit rating and the counterparty s equity situation. The following table indicates the credit risk related to trade accounts receivable, to derivatives with a positive replacement value, and to current accounts and term deposits with credit institutions on the balance sheet date, broken down by credit rating. The standardised rating process covers trading, bank and sales counterparties, as well as other counterparties above a certain credit risk threshold. The monitoring of other counterparties is carried out decentrally on the basis of individual approaches.

85 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 83 CHF millions Rating AAA to AA Rating A+ to BBB- 1, ,049.8 Rating BB+ and lower Other counterparties Total 1, ,791.1 Included under: Trade accounts receivable Derivatives (current and non-current) Current financial assets (term deposits only) Cash and cash equivalents The maximum credit risk (excluding guarantees granted) corresponds to the amount of outstanding monetary financial assets on the balance sheet date. As at 31 December 2016, the maximum credit risk for BKW was CHF 2,323.8 million (previous year: CHF 2,278.3 million) and represents the carrying amount of all financial assets in accordance with Note 36.1, with the exception of the equity instruments contained therein. The maximum loss presented is based on the assumption that all counterparties simultaneously become unable to discharge their payment obligations and that existing collateral and netting arrangements cannot be utilised. As at the balance sheet date, there were issued guarantees of CHF 81.6 million (previous year: CHF 73.0 million), which increase the maximum default risk accordingly. Collateral is required primarily for counterparties in the energy trading business, whereby the creditworthiness of the collateral issuer is assessed and rated. Investment grade customers may be granted a higher limit than defined for the assigned credit category if collateral is provided. A business relation with non-investment grade counterparties is normally permissible only if collateral is provided. These securities can cover both billed and unbilled items. Collateral amounting to CHF 98.9 million was held for trade accounts receivable and derivatives recorded on the balance sheet as at 31 December 2016 (previous year: CHF million). A cluster risk would arise if excessive credit were granted to an individual customer. The potential loss and the resultant write-down would be disproportionately high if the counterparty were to default. For this reason, care is taken to ensure an adequate spread of risks and limits, with a maximum limit defined per credit category. In geographical terms, the credit risks are primarily concentrated in Switzerland. On the balance sheet date, counterparties in Switzerland accounted for 81 % of the credit risk (previous year: 85 %).

86 84 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 37.3 Liquidity risks Liquidity is defined as the ability to cover cash outflow requirements at any time without restrictions. At Group level, liquidity management is based on the Group s mid-term planning, budget and forecast. Rolling liquidity plans with a 12-month horizon are drawn up for the entire Group on the basis of these documents and current findings. These plans are used to examine the rationale behind long-term measures in light of the latest information, as well as to identify potential liquidity shortfalls and formulate tactics to optimise the financial result. Residual terms to maturity of financial liabilities The following tables provide information on the residual terms to maturity and cash flows of financial liabilities: CHF millions Note Carrying amount at Due within 1 year Due between 1 and 2 years Due between 2 and 3 years Due between 3 and 5 years Due after 5 years Non-derivative financial liabilities Trade accounts payable Other current financial liabilities Financial accruals Financial liabilities 23 1, ,169.7 Other non-current financial liabilities Total non-derivative liabilities 2, ,177.1 Derivative financial assets and liabilities Energy derivatives/options Positive replacement values Negative replacement values Net replacement values Currency forwards and swaps Positive replacement values Negative replacement values Net replacement values Gross cash flows related to derivatives Gross outflow 4, Gross inflow 4,

87 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 85 CHF millions Note Carrying amount at Due within 1 year Due between 1 and 2 years Due between 2 and 3 years Due between 3 and 5 years Due after 5 years Non-derivative financial liabilities Trade accounts payable Other current financial liabilities Financial accruals Financial liabilities 23 1, ,178.6 Other non-current financial liabilities Total non-derivative liabilities 2, ,179.8 Derivative financial assets and liabilities Energy derivatives/options Positive replacement values Negative replacement values Net replacement values Currency forwards and swaps Positive replacement values Negative replacement values Net replacement values Gross cash flows related to derivatives Gross outflow 3, , Gross inflow 3, , Amounts in foreign currencies are converted at the exchange rate on the balance sheet date. The table shows the cash flows for interest-bearing liabilities including the corresponding interest rate payments. The cash flows for derivative financial instruments do not take netting arrangements into account. A cash flow amounting to the outstanding nominal value of the convertible bond on the balance sheet date (CHF million) is given at the time of contractual maturity (in 2020).

88 86 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 37.4 Market risks Market risks arise from price and exchange rate fluctuations on unsecured positions of the energy and financial business. BKW s risk policy enables the existence of monitored, open positions. Energy price, interest rate, share price, exchange rate and CO 2 certificate price risks are managed centrally. BKW s market risks are aggregated in a Group-level risk portfolio. This aggregation takes account of the mutual dependencies of various risk classes (correlations and the associated diversification effects) and enables a systematic analysis, as well as efficient controls and effective limitation of the overall risk. The value at risk (VaR) limits required for the purpose of controls must be approved by the Group Executive Board Share price risk BKW is exposed to a share price risk for financial assets held for trading and available-for-sale financial assets, as well as for receivables from state funds (see Note 18). Receivables from state funds do not come under the definition of a financial instrument under the terms of IAS 32 and consequently are not covered by the following statements on risk measurement Interest rate risks The production of power and operation of transmission and distribution grids are capital-intensive. They are financed over the long term with phased due dates. This minimises the impact of interest rate changes on the cash flow situation. In addition, interest rate hedging instruments are used where necessary. Cash is invested over the short to medium term, primarily in variableinterest positions Currency risks Energy trading is largely conducted in euros. Exchange rate fluctuations have an impact on the results of operations and cash flows positions stated in Swiss francs. To the extent considered necessary, foreign currency positions are secured by means of forward exchange transactions or currency swaps Energy price risks/co 2 certificate price risks For the purpose of asset management and proprietary trading, unsecured positions in energy and CO 2 certificates trading are entered into, with smaller positions permitted for proprietary trading than for asset management. Smaller positions are permitted for proprietary trading than for asset management and unsecured material energy positions can only be entered into in the current year and in up to three subsequent years. The permissible trading window for CO 2 positions extends to Risk measurement Interest rate, share price and exchange rate risks are regularly measured and reported on the basis of value at risk. BKW uses a confidence level of 99 % with a one-year holding period for interest rate products and shares, and a one-day holding period for foreign exchange.

89 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 87 Value at Risk CHF millions Interest Share price, financial instruments available-for-sale Currencies The value at risk shows value fluctuation risk based on individual risks that, given no change, could occur in a 12-month/one-day period respectively, taking into account the defined confidence level. The values shown would impact the results and equity. In the absence of any impairments, fluctuations in the value of available-for-sale financial instruments have no influence on the annual results but are recorded directly in other comprehensive income. The risk of unfavourable price movements for unsecured positions in electricity, gas, CO 2, coal (financial) and oil (financial) is determined using the Cross-Commodity-Value-at-Risk (CC-VaR) method. CC-VaR factors in the mutual impact of these commodities. The calculation follows a model- based Monte Carlo method for a one-day holding period and a confidence level of 99 %. The model parameters are estimated based on a rolling 260-day observation period. Besides CC-VaR limits, risk control covers position and trading volume limits. Proprietary trading is additionally subject to loss limits. At 31 December 2016, the CC-VaR amounted to CHF 1.7 million (previous year: CHF 1.1 million).

90 88 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 38 Contingent liabilities and investment obligations CHF millions Guarantees in favour of associates in favour of third parties Investment obligations Total Contingent liabilities CHF 7.4 million of the guarantees granted (previous year: CHF 8.4 million) have a term to maturity of up to 12 months. Guarantees amounting to CHF 15.9 million (previous year: CHF 12.1 million) were granted for an unlimited term. Nuclear power plant operators are under a limited obligation to make supplementary contributions to the decommissioning and disposal funds in the event that an individual contributor is unable to pay. In the event of a claim, power plant operators that are members of the European EMANI insurance pool must pay a contractually defined supplementary contribution of six annual premiums, which for BKW corresponds to a maximum obligation of around CHF 1.5 million (previous year: CHF 1.5 million). Due to existing partner contracts, shareholders in partner plants are obliged to pay the annual costs due on their shares (including interest and repayment of borrowed funds). Investment obligations Investment obligations apply in particular to wind farms under construction in France and Norway. The wind farms are expected to be connected to the grid from 2017 to The expected investment costs for BKW amount to a total of EUR million. Around EUR 32.3 million was invested up to 31 December 2016.

91 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Events after the balance sheet date In the first quarter of 2017, BKW conducted a number of other corporate acquisitions. It bought Raboud S.A. in early Acquisition of this company means that BKW now has a presence in the field of building technology in French-speaking Switzerland. Raboud S.A. employs a staff of around 50. In the first quarter, BKW also bought various engineering companies in Germany. The purchase of the QSB Group came in February. With a staff of 56, the QSB Group can call on comprehensive experience in the areas of zero-defect testing, inspections and quality assurance, and is active throughout the world. The first quarter also saw BKW purchase a majority share in Giesen-Gillhoff- Loomans GbR. This planning bureau with a staff of 33 is active in the area of technical building equipment. This serves to expand BKW s service portfolio. In early March, BKW also bought the Germany company ASSMANN BERATEN + PLANEN. With 465 employees, this Berlin-based engineering company is one of the largest general contractor and project management firms in Germany. This acquisition strengthens BKW s international grid of engineering know-how for large-scale projects. Annual revenues of the companies acquired amount to a total of around CHF 70 million. The purchase price allocations for these acquisitions have not yet been completed as these were made only shortly before the completion and approval of the annual financial statements. BKW anticipates goodwill in the low double-digit millions from these transactions. The acquired companies will be assigned to the Services business area. Approval of the consolidated financial statements The Board of Directors of BKW authorised the approval of these consolidated financial statements on 14 March The consolidated financial statements are subject to the approval of the BKW General Meeting on 12 May 2017.

92 90 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Group companies and Associates Energy Grid Services Other Domicile Share/basic capital in millions Currency Direct ownership in % Company law closing date Group companies Switzerland A. Dietrich Kälte Klima Lüftung AG Beringen 0.2 CHF AEK Elektro AG Solothurn 0.5 CHF AEK Energie AG Solothurn 6.0 CHF AEK onyx AG Solothurn 1.0 CHF AEK Pellet AG Balsthal 9.0 CHF ahochn AG Dübendorf 0.3 CHF ahochn AG, Rotkreuz Risch 0.1 CHF Aicher, De Martin, Zweng AG Lucerne 0.1 CHF antec group AG Dübendorf 0.4 CHF Aqua Innovation GmbH Risch 0.1 CHF Arnold AG Wangen an der Aare 0.5 CHF Arpe AG Buckten 0.1 CHF Balzer Ingenieure AG Chur 0.1 CHF Baumeler Leitungsbau AG Buchrain 0.1 CHF BEBAG Bioenergie Bätterkinden AG Bätterkinden 0.1 CHF Biomassekraftwerk Otelfingen AG Otelfingen 0.5 CHF BKW EES Inc. Etziken 2.1 CHF BKW Energie AG Bern CHF BKW Grid Switzerland Ltd. Bern 0.1 CHF BKW ISP AG Ostermundigen 0.9 CHF BKW ISP Gebäudetechnik AG Dübendorf 0.2 CHF BKW Netzbeteiligung Ltd. Bern 25.2 CHF BKW Wallis AG Visp 0.1 CHF Cantoni Haustechnik AG Wohlen 0.2 CHF cc energie sa Morat 1.0 CHF CORELL Technologies Sàrl Martigny 0.02 CHF Curea Elektro AG Landquart 0.2 CHF Elektrizitätswerke Wynau AG Langenthal 0.1 CHF Elektro Aebi AG Aeschi (SO) 0.3 CHF Elektro Feuz AG Grindelwald 0.1 CHF Elektro Zaugg GmbH Solothurn 0.02 CHF Emeltec Sàrl Martigny 0.04 CHF Energie Biberist AG EBAG Biberist 5.0 CHF Frey + Gnehm Ingenieure AG Olten 0.1 CHF Gesellschaft Mont-Soleil Bern CHF Hertig Haustechnik AG Wohlen (AG) 0.1 CHF Holzwärme Grindelwald AG Grindelwald 2.5 CHF Inag-Nievergelt AG Zurich 0.7 CHF inelectro sa Porrentruy 0.5 CHF Ingenieurteam IFE AG Widnau 0.2 CHF IWAG Ingenieure AG Zurich 0.1 CHF Juvent SA Saint-Imier 6.0 CHF Karl Waechter AG Zurich 0.1 CHF Kasteler-Guggisberg AG Bern 0.2 CHF Kraftwerk Gohlhaus AG Lützelflüh 1.3 CHF Kraftwerk Lauenen AG Lauenen 2.0 CHF

93 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 91 Energy Grid Services Other Domicile Share/basic capital in millions Currency Direct ownership in % Company law closing date Group companies (continued) Reichenbach Kraftwerk Spiggebach AG im Kandertal 3.8 CHF Kraftwerke Fermelbach AG St. Stephan 4.5 CHF Kraftwerke Kander Alp AG Kandersteg 2.5 CHF Kraftwerke Milibach AG Wiler (Lötschen) 1.0 CHF Kraftwerke Ragn d Err AG Surses 6.0 CHF Lami SA Martigny 0.2 CHF Lutz Bodenmüller AG Beringen 0.1 CHF Marcel Rieben Ingenieure AG Köniz 0.1 CHF Marzolo & Partner AG Uster 0.1 CHF Mollet Energie AG Solothurn 0.2 CHF Neukom Installationen AG Rafz 0.2 CHF Onyx Energie Dienste AG Langenthal 2.0 CHF Onyx Energie Mittelland AG Langenthal 10.5 CHF Onyx Energie Netze AG Langenthal 10.5 CHF Onyx Energie Produktion AG Langenthal 3.0 CHF Regionaler Wärmeverbund AG Heimberg-Steffisburg (REWAG) Heimberg 2.5 CHF Schmid, Amrhein AG Lucerne 0.3 CHF Schönenberger & Partner AG Sanitäre Anlagen Rickenbach (TG) 0.1 CHF Securon AG Solothurn 0.1 CHF Simmentaler Kraftwerke AG Erlenbach i. S. 7.3 CHF Société des forces électriques de la Goule SA Saint-Imier 3.5 CHF Sol-E Suisse AG Bern 0.1 CHF TID Technische Informationen & Dienstleistungen P. Tschannen GmbH Schüpfen 0.1 CHF Weber AG, Stäfa Stäfa 0.1 CHF Wind Energy Trading WET AG Lausanne 0.1 CHF Ziegler AG Elektrounternehmung Zuchwil 0.1 CHF China Solar-Log New energy Technologies (Shanghai) Co. Ltd. Shanghai 10.0 CNY Germany BKW Bippen Wind GmbH Berlin 0.03 EUR BKW Borkum West II Beteiligungs-GmbH Berlin 0.03 EUR BKW Deutschland GmbH Berlin 0.1 EUR BKW Dubener Platte Wind GmbH Berlin 0.03 EUR BKW Energie Dörpen Beteiligungs-GmbH Berlin 0.03 EUR BKW Energie Wilhelmshaven Beteiligungs-GmbH Berlin 0.03 EUR BKW Erneuerbare Energien GmbH Berlin 0.03 EUR BKW Holleben Wind GmbH Berlin 0.03 EUR BKW Landkern Wind GmbH Berlin 0.05 EUR BKW Wind Service GmbH Berlin 0.03 EUR IFB Eigenschenk Deggendorf 0.03 EUR IFB Eigenschenk + Partner GmbH Freital 0.03 EUR KAE Kraftwerks- & Anlagen-Engineering GmbH Hausen 0.05 EUR Lindschulte + Kloppe Ingenieurgesellschaft mbh Düsseldorf 0.03 EUR Lindschulte + Schulze Ingenieurgesellschaft mbh Burgwedel 0.03 EUR Lindschulte Ingenieure TGA GmbH Nordhorn 0.03 EUR

94 92 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Energy Grid Services Other Domicile Share/basic capital in millions Currency Direct ownership in % Company law closing date Group companies (continued) Lindschulte Ingenieurgesellschaft mbh Münster 0.03 EUR Lindschulte Ingenieurgesellschaft mbh Erfurt 0.03 EUR Lindschulte Ingenieurgesellschaft mbh Emsland Meppen 0.03 EUR Lindschulte Ingenieur-Holding GmbH Nordhorn 0.06 EUR Lindschulte Ingenieurgesellschaft mbh Nordhorn 0.3 EUR Schwesig + Lindschulte GmbH Rostock 0.03 EUR SDS Entwicklung GmbH Berlin 0.03 EUR Solare Datensysteme GmbH Geislingen 0.03 EUR STKW Energie Dörpen GmbH & Co. KG Berlin EUR STKW Energie Dörpen Verwaltungs-GmbH Berlin 0.03 EUR France BKW France SAS Paris 0.1 EUR Ferme Eolienne de St. Germier SAS Paris EUR Ferme Eolienne St. Julien du Terroux SAS Paris EUR Parc Eolien de Fresnoy Brancourt SAS Vincennes 0.04 EUR RAZ Energie 3 SAS Paris EUR Saméole Bois du Goulet SAS Paris EUR Italy BKW Hydro Valle d Aosta S.r.l. La Salle 0.1 EUR BKW Italia S.p.A. Milan 13.4 EUR BKW Wind Italia S.r.l. Milan 0.01 EUR C.D.N.E. S.p.A. Milan 0.5 EUR CHI.NA.CO S.r.l. Roè Volciano 2.0 EUR Electra Italia S.p.A. Milan 1.0 EUR Frosio S.r.l. Brescia 0.02 EUR Green Castellaneta S.p.A. Milan 0.1 EUR Idroelettrica Lombarda S.r.l. Milan 25.4 EUR Proxima S.r.l. Milan 0.01 EUR Tamarete Energia S.r.l. Ortona 3.6 EUR Volturino Wind S.r.l. Milan 0.03 EUR Wind Farm Buglia S.r.l. Milan 0.03 EUR Wind Farm S.r.l. Milan 0.02 EUR Wind International Italy S.r.l. Milan 52.2 EUR Norway BKW Norway NWP AS Oslo 0.3 CHF Proxima Scandinavia AS Oslo 0.1 NOK Austria Ingenieurgemeinschaft DI Anton Bilek und DI Gunter Krischner GmbH Graz 0.04 EUR USA Solar Data Systems Inc. Bethel (CT) 0.1 USD Joint operations Bielersee Kraftwerke AG BIK Biel 20.0 CHF Kraftwerk Sanetsch AG (KWS) Gsteig 3.2 CHF

95 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 93 Energy Grid Services Other Domicile Share/basic capital in millions Currency Direct ownership in % Company law closing date Associates Switzerland Abonax AG St. Gallen 1.0 CHF Ampard Ltd. Zurich 0.2 CHF Biogaz du Vallon Sàrl Cortébert 0.02 CHF DEVIWA AG Leuk 0.1 CHF EDJ, Energie du Jura SA Delémont 7.4 CHF Electra-Massa AG Naters 20.0 CHF Electricité de la Lienne SA Sion 24.0 CHF Engadiner Kraftwerke AG Zernez CHF Erdgas Thunersee AG Interlaken 6.9 CHF ETRANS Ltd. Laufenburg 7.5 CHF EVTL Energieversorgung Talschaft Lötschen AG Wiler (Lötschen) 1.3 CHF Externes Lager der Kernkraftwerke Schweiz Baden CHF Forces Motrices de Mattmark SA Saas-Grund 90.0 CHF Forces Motrices de Mauvoisin SA Sion CHF GEBNET AG Buchegg 7.0 CHF Gesellschaft Mont-Soleil Bern CHF Grande Dixence SA Sion CHF Hertli & Bertschy AG, elektrische Anlagen Tafers 0.1 CHF Kernkraftwerk Leibstadt AG Leibstadt CHF Kernkraftwerk-Beteiligungsgesellschaft AG (KBG) Bern CHF Kraftwerk Berschnerbach AG Walenstadt 0.1 CHF Kraftwerk Wannenfluh AG Rüderswil 0.3 CHF Kraftwerke Färdabach AG Ferden 0.1 CHF Kraftwerke Hinterrhein AG Thusis CHF Kraftwerke Oberhasli AG Innertkirchen CHF La Prairie Biogaz SA Porrentruy 1.4 CHF Metanord SA Camorino 18.6 CHF MOHA ZOFI Brienz CHF Nagra, National Cooperative for the Disposal of Radioactive Waste Wettingen CHF NIS AG Sursee 1.0 CHF Oberland Energie AG Thun 9.1 CHF Officine Idroelettriche della Maggia SA Locarno CHF Officine idroelettriche di Blenio SA Blenio 60.0 CHF ProBus Espace AG Zuchwil 0.1 CHF Replacement nuclear power plant Beznau Ltd. Döttingen 1.0 CHF Replacement nuclear power plant Mühleberg Ltd. Mühleberg 1.0 CHF RESUN AG Aarau 1.0 CHF Société des Forces Motrices du Châtelot SA La Chaux-de-Fonds 6.0 CHF sol-e Suisse Biogas Zernez Zernez CHF Solutions Renouvelables Boudry SA Boudry 0.9 CHF Spontis SA Avenches 2.7 CHF Swissgrid Ltd. Laufenburg CHF Trinkwasserkraftwerk Saas-Grund AG Saas-Grund 1.2 CHF Wärmeverbund Roggwil AG Solothurn 1.0 CHF Zwilag Zwischenlager Würenlingen AG Würenlingen 5.0 CHF

96 94 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Energy Grid Services Other Domicile Share/basic capital in millions Currency Direct ownership in % Company law closing date Associates (continued) Germany ENGIE Kraftwerk Wilhelmshaven GmbH & Co. KG Wilhelmshaven EUR HelveticWind Deutschland GmbH Berlin 0.03 EUR France Centrale Electrique de la Plaine Dremil Lafage EUR Italy Biopower Sardegna S.r.l. Milan 0.1 EUR EP Produzione Livorno Ferraris S.p.A. Milan 10.0 EUR HelveticWind Italia S.r.l. Milan 0.01 EUR Norway Nordic Wind Power DA Oslo NOK

97 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 95 Report of the statutory auditor on the consolidated financial statements Ernst & Young Ltd Schanzenstrasse 4a P. O. Box CH-3001 Berne Phone Fax To the General Meeting of BKW AG, Berne Berne, 14 March 2017 Statutory auditor s report on the audit of the consolidated financial statements Opinion We have audited the consolidated financial statements of BKW AG and its subsidiaries (the Group), which comprise the consolidated balance sheet as at 31 December 2016 and the consolidated income statement, conso lidated statement of comprehensive income, changes in consolidated equity and consolidated cash flow statement for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies. In our opinion the consolidated financial statements (pages 14 to 94) give a true and fair view of the consolidated financial position of the Group as at 31 December 2016, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS) and comply with Swiss law. Basis for opinion We conducted our audit in accordance with Swiss law, International Standards on Auditing (ISAs) and Swiss Auditing Standards. Our responsibilities under those provisions and standards are further described in the Auditor s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the provisions of Swiss law and the requirements of the Swiss audit profession, as well as the IESBA Code of Ethics for Professional Accountants, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key audit matters Key audit matters are those matters that, in our professional judgment, were of most signifycance in our audit of the consolidated financial statements of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. We have fulfilled the responsibilities described in the Auditor s responsibilities for the audit of the consolidated financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstate ment of the consolidated financial statements. The results of our audit procedures, including the

98 96 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements procedures performed to address the matters below, provide the basis for our audit opinion on the consolidated financial statements. Classification and valuation of energy trading contracts Risk As disclosed in the valuation principles in 4.1 Presentation of revenue and Energy derivatives, BKW enters into energy supply and purchase contracts with third parties. Depending on the motive for entering into these contracts, they either qualify as own-use transactions or as financial instruments (hedges or trading). This distinction between own-use transaction and financial instrument has far-reaching implications, since the former is not recognized on the balance sheet and recorded as energy procurement and revenue on a gross basis, while the latter is recorded at fair value at each balance sheet date and income resulting therefrom is presented net under revenue. BKW has defined clear rules for categorizing, measuring and recognizing contracts on the balance sheet. Our audit response Our audit procedures based on internal controls and included interviews with the persons responsible to confirm that there were no reclassifications of contracts initially classified as own-use transactions or financial instruments, and that no accounting approaches were therefore changed contrary to the original motive of the contract. Furthermore, we tested the existing internal controls with regard to the re - conciliation of the contracts entered into with counterparties and assessed these controls on the basis of representative samples. At year end, we involved our valuation specialists in performing sample testing to assess balance sheet recognition of the contracts qualifying as financial instruments. Valuation of nuclear provision Risk BKW operates the Mühleberg nuclear power plant and is obliged by legal provisions to pay for the future decommissioning of the power plant and the disposal of its nuclear waste. As it is material, this provision is a key element of our audit. As described in Note 5.2, every five years an updated study is prepared which is subsequently assessed by the Swiss Federal Nuclear Safety Inspectorate (ENSI). In accordance with Note 24, the provisions are adjusted for every reassessment as well as in each business year using this cost estimate. Our audit response To assess the provision, among other things we gained an understanding of the different assumptions and of the recorded amounts, and compared them with the calculations and records of BKW. In addition, we compared the recorded amounts with the cost study prepared in 2016 and examined the cause and extent of the changes as well as of the estimate adjustment based on internal and external documents of BKW. Moreover, we assessed the recording of the adjustments.

99 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 97 Materiality and assessment of employee benefit plan obligation Risk BKW has its own pension fund, under which the risks of old age, death and invalidity are insured in accordance with the legal provisions. As described in Note 25 Employee benefits, these are material obligations that by law must be covered by plan assets in part or in full. The position is also very important for our audit work, because in calculating the employee benefit plan obligation, different assumptions are made that have a significant impact on the consolidated financial statements. Depending on the cause, changes of the employee benefit plan obligetion recorded in the balance sheet have to be recorded differently. Our audit response On the one hand, our audit procedures included tests regarding the complete consideration of all current and former employees in the employee benefit plan obligation. On the other hand, we compared, among other things, actuarial assumptions with our internal instructions and external sources. Moreover, we assessed the actuary s calculations as well as their competency, skills and objectivity to be able to include their work in our audit. We also tested the fair value of plan assets using available market data and valuation methods used. Finally, we evaluated the recognition of the changes in the Group s consolidated financial statements. Valuation of onerous contracts (price curves Risk According to the list of shareholdings, BKW holds investments in various associates. With regard to the so-called partner power plants, BKW has committed to purchasing energy at production costs plus a margin. Depending on the cost structure of the partner power plant as well as the current and expected development of prices, this can result in an onerous contract. BKW does not recognize such losses as an impairment on the investment itself, but records a provision under Onerous contracts energy procurement in accordance with Note 24. As with impairment testing, various assumptions concerning future values are made in connection with onerous contracts; these assumptions are comparable with those made in impairment testing and can have a significant impact. In addition, the provisions for onerous contracts are also material. Our audit response Among other things, we talked with management about the process for identifying onerous contracts. To assess the calculation of the onerous contracts, we involved internal valuation specialists, who reviewed the calculation as well as the assumptions. The price curves were compared with external studies in this area, too.

100 98 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements Recognition of acquisitions Risk According to Note 6, BKW has acquired a number of companies in the current business year. Acquisitions are complex transactions, as they include fair value measurement of assets and liabilities, incl. intangible assets that have previously not been recognized on the balance sheet. Various transactions involve so-called earn-out models, for which purchase prices to be paid at a later date must also be estimated at the time of acquisition. Depending on the significance of the transaction, these valuations are performed by BKW or by involving external specialists. The residual value, in the form of the difference between purchase price and acquired net assets, is goodwill. This distinction is important, since goodwill is later not systematically amortized but only reviewed for impairment at least annually. Our audit response Our work included, among other things, comparing the purchase prices with the underlying contracts and, if applicable, taking into account earn-out payments expected at a later date. Based on the interim or annual financial statements, we evaluated the reconciliation of carrying amounts at fair values. With regard to material intangible assets in particular, we involved internal valuation specialists to evaluate this position in terms of completeness and valuation. Finally, we also assessed the disclosure of the newly acquired companies in Note 6. Other information in the annual report The Board of Directors is responsible for the other information in the annual report. The other information comprises all information included in the annual report, but does not include the consolidated financial statements, the stand-alone financial statements, the remuneration report and our auditor s reports thereon. Our opinion on the consolidated financial statements does not cover the other information in the annual report and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information in the annual report and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibility of the Board of Directors for the consolidated financial statements The Board of Directors is responsible for the preparation of the consolidated financial statements that give a true and fair view in accordance with IFRS and the provisions of Swiss law, and for such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

101 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 99 Auditor s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with Swiss law, ISAs and Swiss Auditing Standards will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements. A further description of our responsibilities for the audit of the consolidated financial state-ments is located at the website of EXPERTsuisse: This description forms part of our auditor s report. Report on other legal and regulatory requirements In accordance with article 728a para. 1 item 3 CO and the Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of consolidated financial statements according to the instructions of the Board of Directors. We recommend that the consolidated financial statements submitted to you be approved. Ernst & Young Ltd Roland Ruprecht Licensed audit expert (Auditor in charge) Philippe Wenger Licensed audit expert

102 100 ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements

103 ANNUAL REPORT 2016 Financial Statements of BKW AG

104 102 ANNUAL REPORT 2016 Financial Statements of BKW AG FINANCIAL STATEMENTS OF BKW AG Income Statement CHF millions Dividend income Interest income Other operating income Total earnings Interest expense Other financial expenses Other operating expenses Direct taxes Total expenses Net profit

105 ANNUAL REPORT 2016 Financial Statements of BKW AG 103 FINANCIAL STATEMENTS OF BKW AG Balance Sheet CHF millions Assets Cash and cash equivalents receivables with third parties with shareholdings Prepaid expenses and accrued income Total current assets Loans 1, ,440.9 Other financial assets with third parties Investments 1, ,494.5 Total non-current assets 2, ,947.1 Total assets 2, ,956.2 Liabilities Trade accounts payable with third parties with shareholdings Other current liabilities Deferred income and accrued expenses Total current liabilities Non-current interest-bearing liabilities Bonds 1, ,133.5 Loans payable Total non-current liabilities 1, ,412.6 Total liabilities 1, ,457.8 Share capital Statutory capital reserves Reserves from capital contributions Statutory retained earnings 1, ,155.0 Voluntary retained earnings Profit carried forward Net profit Unappropriated retained earnings Treasury shares Total shareholders equity 1, ,498.4 Total liabilities and shareholders equity 2, ,956.2

106 104 ANNUAL REPORT 2016 Financial Statements of BKW AG FINANCIAL STATEMENTS OF BKW AG Notes to the Financial Statements Accounting and valuation principles Receivables Receivables are stated at their nominal value minus operationally necessary impairments. The receivables stated in the balance sheet are mainly current account receivables from BKW Energie AG. Fixed assets The holdings retained by BKW AG have been valued individually at acquisition cost minus any necessary impairments. Finance loans exist in respect of BKW Energie AG and are valued at the nominal value. Non-current liabilities The bonds include the convertible bond and the regular bonds. The registered bonds are stated as loans payable. Non-current liabilities are valued at nominal value. Investments Share capital Quote Company name, legal form, headquarters Purpose CHF % BKW Energie AG, Bern Energy, Grid, Services 132,000, BKW Netzbeteiligung Ltd., Bern Grid 25,200, BKW Grid Switzerland Ltd., Bern Grid 100, sol-e Suisse AG, Bern Energy 100, In all cases, the holding corresponds to the percentage of shares and voting rights. The companies in which BKW AG holds indirect interests are listed on pages 90 to 94. Dividend income Dividend income in the reporting year relates in particular to the cash dividend of BKW Energie AG.

107 ANNUAL REPORT 2016 Financial Statements of BKW AG 105 Bonds CHF millions % debenture bond % debenture bond % debenture bond % debenture bond % convertible bond Total 1, ,133.5 In September 2014, BKW issued a convertible bond amounting to CHF million to run to 30 September 2020 with an interest rate of %. The conversion period runs until 20 September On the balance sheet date, the conversion price was CHF The conversion price and conversion rate will be adjusted if a dividend of more than CHF 1.20 per share is paid out. Conversions with a nominal value of CHF 29.9 million were made in the reporting year. As at 31 December 2016, the convertible bond is valued at CHF million. Share capital The BKW AG share capital at 31 December 2016 amounts to CHF 132 million and is divided into 52,800,000 registered shares at a par value of CHF 2.50 each. Major shareholders Canton of Bern % % Groupe E Ltd % % E.ON SE 6.65 % 3.33 % Treasury shares 8.13 % 6.60 % Treasury shares BKW AG Group companies Total CHF millions Number CHF millions Number CHF millions Number At ,332, , ,409,097 Adjustment Additions , ,000 Transfer , , Disposals , ,146 At ,290, ,290,951 Additions , ,973 Transfer , , Disposals , ,903 At ,485, ,485,021 Contingent liabilities CHF millions Guarantees for consolidated companies in favour of third parties

108 106 ANNUAL REPORT 2016 Financial Statements of BKW AG Shares held by members of the Board of Directors and Group Executive Board Members of the Board of Directors Number of shares Urs Gasche Chairman 3,377 3,747 Hartmut Geldmacher Deputy Chair 3,120 3,720 Kurt Rohrbach 2 nd Deputy Chair (until ) 12,055 n/a Marc-Alain Affolter Member 4,320 4,920 Roger Baillod Member 2,200 2,800 Dr. Georges Bindschedler Member 6,320 6,920 Barbara Egger-Jenzer Member Dominique Gachoud Member (until ) 250 n/a Paul-Albert Nobs Member (from ) n/a 0 Kurt Schär Member 1,000 1,600 Beatrice Simon-Jungi Member (until ) 1,600 n/a Total 34,642 24,507 In 2016, the members of the Board of Directors acquired a total of 4,970 shares as part of the BKW share purchase programme (previous year: 4,800 shares). The share-based payments from the purchase amount to CHF 28,000 (previous year: CHF 40,000) and comprise the benefit in fair value of the preferential purchase of BKW shares. Members of the Group Executive Board Number of shares Dr. Suzanne Thoma CEO 13,493 19,493 Christophe Bossel Head of Grid 5,966 8,966 Hermann Ineichen Head of Production 8,693 11,693 Renato Sturani Head of Renewables & Efficiency 5,428 8,428 Ronald Trächsel CFO/Head of Finance & Services 3,870 6,870 Total 37,450 55,450 Individual shares held by members of the Board of Directors and Group Executive Board are subject to a blocking period of up to three years.

109 ANNUAL REPORT 2016 Financial Statements of BKW AG 107 APPROPRIATION OF RETAINED EARNINGS Proposal to the General Meeting CHF Profit carried forward 177,318,846 Net profit 111,904,966 Unappropriated retained earnings 289,223,812 The Board of Directors proposes that retained earnings be appropriated as follows: CHF Dividend of CHF 1.60 per share entitled to a dividend 1 78,903,966 Balance carried forward 210,319,846 Total 289,223,812 1 Dividends are not paid on treasury shares held by BKW AG. The number of shares that are entitled to receive a dividend at the time of preparation of the financial statements amounts to 49,314,979. The last trading day on which a right to receive dividends is granted is 15 May. As of 16 May, the shares will be traded ex-dividend. Had all shares been entitled to receive a dividend, the dividend payment would have amounted to CHF 84,480,000 and the balance carried over would have been CHF 204,743,812. Subject to approval by the General Meeting, the following will be paid out: CHF Dividend per share 1.60 Minus 35 % withholding tax 0.56 Net dividend 1.04 Bern, 14 March 2017 In the name of the Board of Directors Chairman of the Board Urs Gasche

110 108 ANNUAL REPORT 2016 Financial Statements of BKW AG Report of the statutory auditor on the financial statements Ernst & Young Ltd Schanzenstrasse 4a P. O. Box CH-3001 Berne Phone Fax To the General Meeting of BKW AG, Berne Berne, 14 March 2017 Report of the statutory auditor on the financial statements As statutory auditor, we have audited the financial statements of BKW AG, which comprise the income statement, balance sheet and notes to the financial statements (pages 102 to 106), for the year ended 31 December Board of Directors responsibility The Board of Directors is responsible for the preparation of the financial statements in accordance with the requirements of Swiss law and the company s articles of incorporation. This responsibility includes designing, implementing and maintaining an internal control system relevant to the preparation of financial statements that are free from material misstatement, whether due to fraud or error. The Board of Directors is further responsible for selecting and applying appropriate accounting policies and making accounting estimates that are reason able in the circumstances. Auditor s responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with Swiss law and Swiss Auditing Standards. Those standards require that we plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity s preparation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control system. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the financial statements for the year ended 31 December 2016 comply with Swiss law and the company s articles of incorporation.

111 ANNUAL REPORT 2016 Financial Statements of BKW AG 109 Report on key audit matters based on the circular 1/2015 of the Federal Audit Oversight Authority Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements of the current period. We have determined that there are no key audit matters to communicate in our report. Report on other legal requirements We confirm that we meet the legal requirements on licensing according to the Auditor Oversight Act (AOA) and independence (article 728 CO and article 11 AOA) and that there are no circumstances incompatible with our independence. In accordance with article 728a para. 1 item 3 CO and Swiss Auditing Standard 890, we confirm that an internal control system exists, which has been designed for the preparation of financial statements according to the instructions of the Board of Directors. We further confirm that the proposed appropriation of available earnings complies with Swiss law and the company s articles of incorporation. We recommend that the financial statements submitted to you be approved. Ernst & Young Ltd Roland Ruprecht Licensed audit expert (Auditor in charge) Philippe Wenger Licensed audit expert

112 110 ANNUAL REPORT 2016 Financial Statements of BKW AG

113 ANNUAL REPORT 2016 Investor Information

114 112 ANNUAL REPORT 2016 Investor Information INVESTOR INFORMATION Important information on the share, bonds and financial calendar Performance of the BKW share BKW registered Swiss Performance Index (indexed) The price performance of the BKW share was again positive in the 2016 calendar year. Despite a slight performance decline in the SPI, BKW shares increased by around 30 %. This means that BKW shares achieved double-digit growth rates in both 2015 and On 17 March 2016, BKW presented a convincing annual result for In a challenging environment, it was again able to neutralise the falling electricity prices and negative currency effects to a significant extent. The strong EBIT of CHF 382 million was up 10 % on the previous year and was characterised by successful operating activities as well as two one-off items that had a positive effect. The price of the BKW share responded positively to this result and recorded gains. It exceeded the CHF 40 mark for the first time since October 2011 and did not fall below this level again. The positive development of the share price continued throughout the second half of 2016, expe riencing an additional boost in December following publication of the new cost study for nuclear decommissioning and waste disposal, which found there was no need to revalue the Mühleberg Nuclear Power Plant at that point. BKW shares closed the year at CHF With recorded gains of 29.6 % since the beginning of the year, they once again outperformed the SPI ( 1.4 %) by a significant margin.

115 ANNUAL REPORT 2016 Investor Information 113 Listing The shares of BKW AG are listed on the main segment of the SIX Swiss Exchange. There is also a listing on the BX Berne exchange. Ticker symbol on SIX and BX BKW Securities number ISIN code CH Appropriation of retained earnings The Board of Directors proposes to the General Meeting a dividend of CHF 1.60 per share for the 2016 financial year. The dividend will be paid out on 18 May Restrictions on share transferability The Company may refuse to register an acquirer of shares in the register of voting shareholders for the following reasons: a) If the acquisition results in a natural person, a legal entity or a partnership holding (directly or indirectly) more than 5 % of the entire share capital. The same restriction applies to legal entitles, partnerships, groups of persons or joint ownerships that are bound by capital or voting rights, shared management or otherwise linked. Moreover, the restriction applies to all natural or legal persons or partnerships that act in concert to acquire shares; b) If the acquirer has not expressly declared that he has acquired the shares in his own name and on his own behalf. Major shareholders Canton of Bern % % Groupe E Ltd % % E.ON SE 6.65 % 3.33 % Treasury shares 8.13 % 6.60 % In 2014, E.ON SE issued a convertible bond in the amount of EUR 113 million (maturity: September 2018) that is convertible into BKW shares at a conversion price of EUR In the second half of 2016, this convertible bond was converted on a large scale. This reduced E.ON SE s stake to below 5 % in November E.ON SE s remaining stake was therefore assigned to the free float as at 31 December The proportion of shares held by the public (free float) is 30.9 %. The BKW share is listed on the Swiss Performance Index (SPI). BKW s stock market capitalisation rose to 30 % in the 2016 financial year, to about CHF 2.4 billion.

116 114 ANNUAL REPORT 2016 Investor Information Key figures per share CHF Result Equity Dividend Dividend yield (in %) Price/earnings ratio Year-end Year high Year low Based on year-end price Bonds At 31 December 2016, BKW had the following bonds outstanding: Nominal amount Term Due ISIN code % debenture bond CHF 150 million CH % debenture bond CHF 350 million CH % debenture bond CHF 200 million CH % debenture bond CHF 300 million CH % convertible bond CHF million CH The conversion price of the convertible bond issued in 2014 reduced slightly compared with the original value as a result of the dividend paid and is now CHF The convertible bond can be converted into around 4.2 million registered shares in BKW, which BKW guarantees with its stock of treasury shares. The bond will be repaid at the nominal value on Conversions were undertaken in the fourth quarter of 2016 for the first time. Of the nominal value of the convertible bonds, an overall value of CHF 29.9 million was converted into a total of 777,916 shares. This reduced the nominal value from CHF million to CHF million at year-end. Financial Calendar General Meeting 12 May 2016 Ex-dividend date 16 May 2016 Dividend payment 18 May 2016 Publication of 2016 half-year results 5 September 2016 Contact: investor.relations@bkw.ch

117 ANNUAL REPORT 2016 Investor Information 115

118 116 ANNUAL REPORT 2016 Investor Information Production Facts and Figures Energy portion 1 Installed production, BKW portion 2015 BKW purchases 2016 BKW purchases Change versus 2015 % MW GWh GWh % Own power plants and Group companies Hydroelectric plants Aarberg Bannwil Kallnach Kandergrund Mühleberg Niederried-Radelfingen Spiez Simmentaler Kraftwerke AG Isch Société des forces électriques de la Goule SA Onyx Energie Produktion AG Idroelettrica Lombarda S.r.l Total hydroelectric plants , , Nuclear power plants Mühleberg , , Fossil-fuel power plants Tamarete Energia S.r.l New renewable energy Photovoltaics Switzerland Biomass Switzerland Small hydro Switzerland CHI.NA.CO S.r.l BKW Hydro Valle d Aosta S.r.l Juvent SA Fresnoy Ondefontaine Bockelwitz wind farm BKW Holleben Wind GmbH BKW Bippen Wind GmbH BKW Dubener Platte Wind GmbH BKW Landkern Wind GmbH Wind Farm S.r.l Wind Farm Buglia S.r.l Wind International Italy S.r.l Volturino Wind S.r.l Green Castellaneta S.p.A Total new renewable energy Total own power plants and Group companies 1, , , Due to special energy supply agreements, the energy portion may deviate from the capital shareholding.

119 ANNUAL REPORT 2016 Investor Information 117 Energy portion 1 Installed production, BKW portion 2015 BKW purchases 2016 BKW purchases Change versus 2014 % MW GWh GWh % Holdings and purchasing rights Hydroelectric plants Bielersee Kraftwerke AG BIK Officine idroelettriche di Blenio SA Electra-Massa AG Electricité de la Lienne SA Engadiner Kraftwerke AG Gommerkraftwerke AG Grande Dixence SA Kraftwerke Hinterrhein AG Kraftwerke Mattmark AG Forces Motrices de Mauvoisin SA Kraftwerke Oberhasli AG Kraftwerk Sanetsch AG (KWS) Officine idroelettriche della Maggia SA Aarewerke AG Flumenthal Société des Forces Motrices du Châtelot SA Argessa AG Total hydroelectric plants 1, , , Nuclear power plants Kernkraftwerk Leibstadt AG , Cattenom , , Fessenheim Total nuclear power plants , , New renewable energy Mont-Soleil solar power plant Fossil-fuel power plants E.ON Produzione Centrale Livorno Ferraris S.p.A GDF SUEZ Kraftwerk Wilhelmshaven GmbH & Co. KG Total fossil-fuel power plants , Unmanaged energy from financial interests Total holdings and purchasing rights 2, , , Total production including purchases 3, , , Due to special energy supply agreements, the energy portion may deviate from the capital shareholding.

120 118 ANNUAL REPORT 2016 Investor Information

121 ANNUAL REPORT 2016 CORPORATE GOVERNANCE 119 ANNUAL REPORT 2016 Corporate Governance

122 120 ANNUAL REPORT 2016 CORPORATE GOVERNANCE Corporate Governance BKW s Board of Directors and the Group Executive Board attribute great importance to good corporate governance in the interests of its shareholders and other stakeholders such as customers, public corporations and employees. In addition to the relevant provisions of Swiss Company Law and the Ordinance against Excessive Compensation in Listed Stock Companies, the basic principles and rules relating to corporate governance at BKW are embodied in BKW s articles of incorporation, organisational regulations, Code of Conduct and regulations governing the BKW Board Committees. With the implementation and ongoing optimisation of these recognised corporate governance principles, BKW seeks to guarantee the required level of transparency and provide shareholders with the most comprehensive view of the Group, allowing them to make investment decisions that are based on sound facts. Moreover, with a balanced combination of management and controls, BKW also manages the company in a value-driven, sustainable manner according to statutory requirements. To this end, BKW systematically and bindingly integrates material sustainability aspects in its corporate strategy and management decisions. When disclosing its non-financial performance indicators, it is guided by the voluntary reporting standards of the Global Reporting Initiative (GRI). The management structure of BKW is designed so that responsibilities are clearly assigned and unilateral concentration of powers and conflicts of interest are avoided. In line with this, the functions of Chairman and CEO are separate. All members of the Board of Directors are independent, which means there are no Board members with executive functions. In May 2016, Paul-Albert Nobs, Director General of Cremo S.A. and Member of the Board of Groupe E S.A., was elected to the BKW Board of Directors. Paul-Albert Nobs with draws from all meetings of the BKW Board of Directors where a possible conflict of interest may arise. All members were nominated individually for election to the Board of Directors at the General Meeting in May For many years, the Board of Directors has included both male and female members. The Board of Directors thereby also ensures the diversity of its membership. In the reporting year, BKW revised its Code of Conduct, adding and clarifying the following principles: Zero tolerance of bribery or other forms of corrupt business conduct. No political donations. Disclosure of conflicts of interest. Our compliance requirements for third parties such as suppliers, consultants, sub-contractors, etc. The Code of Conduct has been supplemented with internal regulations. The information below is presented in accordance with the current requirements of the corporate governance guidelines of the SIX Swiss Exchange and the Swiss Code of Best Practice for Corporate Governance 2016 produced by economiesuisse, the Swiss employers organisation. Remuneration of the top-level management of the company is reported in the Remuneration Report contained on pages 141 to 152. The information disclosed in this report reflects the situation at 31 December Any material changes that have been agreed or have occurred between this date and the printing of the report are listed in Note 10 of this report. The articles of incorporation of BKW AG ( the organisational structure of the Group Executive Board ( the Code of Conduct ( and a range of other useful information can be found on the BKW website.

123 ANNUAL REPORT 2016 CORPORATE GOVERNANCE Group structure and shareholders 1.1 Operational Group structure The operational Group structure of BKW can be derived from the following illustration and the segment reporting under item 7 on pages 38 to 41 of the BKW Group s consolidated financial statements. The entire organisation of the BKW Group can be viewed on the website Board of Directors CEO Suzanne Thoma * Group Management Antje Kanngiesser Finance & Services Roland Trächsel * Networks Christophe Bossel * Production Hermann Ineichen * Renewables & Efficiency Renato Sturani * Market Mathias Prüssing * * Members of the Group Executive Board Listed Group companies BKW AG has its headquarters in Bern, and has been listed on the SIX Swiss Exchange and the BX Berne exchange since 12 December On 31 December 2016, BKW s stock market capitalisation amounted to CHF 2,428.8 million About the BKW share Securities code BKW Securities number ISIN CH Trading currency CHF Type of security Registered share Scope of consolidation of the BKW Group With the exception of BKW itself, BKW s consolidation group only includes companies that are not listed separately on the stock exchange. The individual holdings of BKW in companies that are fully consolidated in the consolidated financial statements are listed on pages 90 to 94. In all cases, the holding corresponds to the percentage of shares and voting rights.

124 122 ANNUAL REPORT 2016 CORPORATE GOVERNANCE 1.2 Major shareholders in % Holding at Holding at Canton of Bern Groupe E Ltd E.ON SE BKW AG and Group companies No other shareholders registered more than 3 % of the voting rights of BKW during the reporting year in accordance with Article 120 of the Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading (FMIA) on the electronic publication platform of the SIX Exchange Regulation can be viewed at the following link en/home/publications/significant-shareholders.html. 1.3 Cross shareholdings The disclosures pursuant to Art. 120 FMIA that were published by BKW in the reporting year BKW has no cross-shareholdings of more than 5 % in a company outside of the BKW Group. 2 Capital structure 2.1 Capital 2.2 Authorised and conditional share capital The share capital of BKW as of 31 December 2016 amounts to CHF 132,000, and is divided into 52,800,000 fully paid-up registered shares, each with a par value of CHF As of 31 December 2016, BKW has no authorised share capital or conditional share capital. 2.3 Changes in equity for the last three reporting years Statutory capital reserves Statutory profit reserves Voluntary profit reserves Total shareholders equity CHF thousands Share capital Treasury shares At 1 January ,000 26,129 1,154,961 71, ,384,385 Dividend payment 63,360 63,360 Addition of treasury shares 127, ,581 Net profit , ,883 At 31 December ,000 26,129 1,154, , ,581 1,417,327 Dividend payment 77,548 77,548 Sale of treasury shares 1,394 1,394 Net profit , ,809 At 31 December ,000 26,129 1,154, , ,187 1,441,982 Dividend payment 77,760 77,760 Purchase/sale of treasury shares 22,297 22,297 Net profit , ,905 At 31 December ,000 26,129 1,154, , ,890 1,498,424 1 of which reserves for treasury shares 315,523 CHF thousands 2 In the 2015 financial year, BKW applied the financial reporting legislation that came into effect on 1 January 2013 for the first time. The figures of the 2014 financial year have been adjusted to meet the new classification rules in order to ensure comparability. Treasury shares are now reported as a negative item under equity. Reserves for treasury shares have been reversed accordingly.

125 ANNUAL REPORT 2016 CORPORATE GOVERNANCE Shares and participation certificates All 52,800,000 registered shares in BKW with a par value of CHF 2.50 each are fully paid up. All shares carry equal voting rights. Every share represented at the General Meeting is entitled to one vote. The company does not print or provide certificates for registered shares. However, any shareholder may request that certification of their shareholding be issued free of charge. BKW has not issued any participation certificates. 2.5 Dividend rights certificates BKW has not issued any dividend rights certificates. 2.6 Restrictions on transferability and nominee registration Registered BKW shares can only be transferred by assignment or according to the provisions of the Swiss Intermediated Securities Act. BKW must be notified of the assignment. The Company may refuse to register an acquirer of shares in the share register for the following reasons: If the acquisition results in a natural person, a legal entity or a partnership holding (directly or indirectly) more than 5 % of the entire share capital. The same restriction applies to legal entities, partnerships, groups of persons or joint ownerships that are interrelated or otherwise linked and/or act in concert to acquire shares. If the acquirer has not expressly declared that he has acquired the shares in his own name and on his own behalf. 2.7 Convertible securities and options In September 2014, BKW completed a full issue of a convertible bond amounting to CHF 163 million to run from September 2014 to 30 September 2020, with an interest rate of % per annum. The conversion price was CHF 38.90, which equated to a conversion rate of shares per bond at a nominal value of CHF 5, per bond. For all conversions, BKW, as the issuer, is obliged under the bond s terms of issue to initially deduct the withholding tax of 35 % on the difference between the bond floor at the point of conversion and the bond floor at the point of issue. This results in a lower number of shares from the conversion. Fractions are paid out in cash. The conversion price and conversion rate will be adjusted if a dividend of more than CHF 1.20 per share is paid out. The General Meeting of BKW AG on 13 May 2016 agreed to the payment of a dividend of CHF 1.60 per share for the 2015 financial year. In accordance with Section 6 (a) (iv) of the bond s terms of issue, the conversion price was therefore changed to CHF on 18 May 2016 and the conversion rate was adjusted to shares per bond at a nominal value of CHF 5, per bond. The convertible bond could be converted into around 4.2 million registered shares in BKW at the point of issue, which are guaranteed by BKW s stock of treasury shares. The conversion period runs from 10 November 2014 to 20 September The bond will be repaid at the nominal value on 30 September In 2016, a nominal amount of CHF 29.9 million of the convertible bond was converted into 777,916 shares. The company has not issued any options. Nominees may be registered, but these shares carry no voting rights.

126 124 ANNUAL REPORT 2016 CORPORATE GOVERNANCE 3 Board of Directors According to the articles of incorporation, the Board of Directors shall consist of between 7 and 10 members. There are currently eight members, all of whom are non-executive and independent. On 13 May 2016, Paul-Albert Nobs, Director General of Cremo S.A. and Member of the Board of Groupe E S.A., was elected to the Board of Directors. Paul-Albert Nobs withdraws from all meetings of the Board of Directors where a possible conflict of interest may arise. This means that no member of the Board of Directors is also a member of the BKW Group Executive Board or of the management body of any Group company. One member is appointed to the Board of Directors by the Canton of Bern in accordance with Article 762 of the Swiss Code of Obligations (OR) and Article 19 of the articles of incorporation. Composition Year of birth Nationality Role Held office since Urs Gasche Switzerland Chairman 2011 (2002 *) Hartmut Geldmacher 1955 Germany Deputy Chair of the Board 2011 (2009 *) Marc-Alain Affolter Switzerland Member 2011 (2007 *) Roger Baillod Switzerland Member 2013 Dr. Georges Bindschedler Switzerland Member 2011 (2007 *) Barbara Egger-Jenzer 1, Switzerland Member 2011 (2002 *) Paul-Albert Nobs 1955 Switzerland Member 2016 Kurt Schär Switzerland Member Member of the Remuneration and Nomination Committee 2 Member of the Audit and Risk Management Committee 3 Representative of the Canton of Bern 3.1 Members Seats on the boards of listed companies None Urs Gasche (1955, CH) Lawyer Board member since 2011 (2002 *) Chairman of the Board, Chairman of the Remuneration and Nomination Committee Professional background, career Since 2011 Member of the Swiss National Council Since 2010 Partner in the attorneys-at-law and business consultants firm Markwalder Emmenegger ( formerly Markwalder & Partner), lawyer without forensic activity, mainly working on the boards of companies, foundations and associations in the energy sector (BKW), in the health sector and in cultural institutions Finance Minister of the Canton of Bern, Member of the Executive Council and Representative of the Canton of Bern on the Board of Directors of BKW FMB Energie AG Seats on the boards of for-profit companies Member of the Board of Kumagra AG, Bern Member of the Board of thunerseespiele AG, Thun Member of the Board of sitem-insel AG Seats on the boards of other legal entities Chairman of the Board of the Schloss Jegenstorf foundation, Jegenstorf Member of the Board of the Swiss Alpine Museum Foundation, Bern Seats on the boards of industry associations and non-profit organisations Chairman of the Swiss Medical Technology Industry association (FASMED), Muri bei Bern Chairman of the Quality Alliance Eco-Drive association, Zurich Member of the Board of the Public Private Partnership (PPP) association, Zurich Other major activities Member of the Swiss National Council * This is the year of entry to the Board of BKW FMB Energie AG before transition to the holding structure.

127 ANNUAL REPORT 2016 CORPORATE GOVERNANCE 125 Hartmut Geldmacher (1955, D) MBA Board member since 2011 (2009 *), Deputy Chair of the Board Professional background, career Since 2011 Independent businessman Member of the Board of Management and Employee Relations Director at E.ON Energie AG, Munich Various management positions at E.ON Energie AG, Munich, and the then PreussenElektra AG, Hanover Seats on the boards of listed companies None Seats on the boards of for-profit companies Member of the Supervisory Board and Chairman of the Accounts, Finance and Audit Committee of Bayernwerk AG, Regensburg Member of the Supervisory Board and Chairman of the Accounts, Finance and Audit Committee of Hansewerk AG, Quickborn Seats on the boards of other legal entities None Seats on the boards of industry associations and non-profit organisations Chairman of the Board of the Bayerische EliteAkademie foundation, Munich Other major activities None Marc-Alain Affolter, (1952, CH) Engineering diploma Board member since 2011 (2007 *), Member of the Audit and Risk Management Committee Professional background, career Since 1985 CEO of Affolter Holding S.A., Malleray Prior to 1985 Development engineer at various companies Seats on the boards of listed companies None Seats on the boards of for-profit companies Chairman of the Board of Affolter Holding S.A., Malleray Chairman of the Board of Affolter Technologies S.A., Malleray Member of the Board of Esco S.A., Les Geneveys-sur-Coffrane Member of the Board of AF Management S.A., Malleray Member of the Board of Affolter Pignons S.A., Malleray Seats on the boards of other legal entities None Seats on the boards of industry associations and non-profit organisations None Other major activities None Roger Baillod (1958, CH) Degrees in business studies and auditing Board member since 2013, Chair of the Audit and Risk Management Committee Professional background, career Chief Financial Officer (to ) and Member of the Group Executive Board of Bucher Industries AG in Niederweningen, Zurich (to ) Member of the management of two industrial companies Auditor and consultant at ATAG Ernst & Young AG in Zurich and St. Gallen Seats on the boards of listed companies Member of the Board of Rieter Holding AG, Winterthur Seats on the boards of for-profit companies Member of the Board of Migros-Genossenschafts-Bund in Zurich Seats on the boards of industry associations and non-profit organisations None

128 126 ANNUAL REPORT 2016 CORPORATE GOVERNANCE Seats on the boards of industry associations and non-profit organisations None Other major activities None Georges Bindschedler (1953, CH) Dr. iur., lawyer and notary Board member since 2011 (2007 *), Member of the Remuneration and Nomination Committee Professional background, career Since 2006 Delegate of the Board of Directors of merz+benteli ag, Niederwangen Professional director and independent entrepreneur Delegate of the Board of Directors and CEO of von Graffenried Holding AG Seats on the boards of listed companies None Seats on the boards of for-profit companies Deputy Chair of the Board of Habegger Immobilien AG, Thun Deputy Chair of the Board of Helvetic Estates AG, Bern Chairman of the Board of Lüthi Holding AG, Burgdorf Deputy Chair of the Board of Remaco AG and Member of the Board of Remaco Wealth Management AG, both in Basel (Group structure) Chairman of the Board and principle shareholder of Micamation AG, Dällikon, and QBIS AG, Wallisellen (Group structure) Member of the Board of Berakom AG, Konol fingen, and of Ursella AG, Hergiswil (NW) (Group structure) Member of the Board of Arton Real Estate AG, Zurich Member of the Board of SIV Swiss Immo Visions AG, Baar Member of the Board of SMH Verlag AG Seats on the boards of other legal entities Member of the Board of PK-AETAS, BVG foundation, Bern Deputy Chair of the Board of the UniBern research foundation, Bern Member of the Board and Committee of the Swiss Heart Foundation, Bern Chairman of the Board of the Werner and Hedy Berger-Janser foundation for cancer research, Bern Deputy Chair of the Board of the Steinmann foundation Schloss Wyl, Schlosswil Member of the Board of the zum Delphin foundation, Zurich Deputy Chair of the Schärpeter mutual association, Bern Member of the Board of the Mitarbeiterbeteiligung bei der Internationalen Treuhand AG foundation, Basel Deputy Chair of the Board of the Meinungs- Freiheit und MedienVielfalt foundation, Bern Member of the Board of the Schweizer Monatshefte foundation Seats on the boards of industry associations and non-profit organisations Member of the Advisory Board of FUP Freiheit. Unternehmertum.Publizistik foundation, Bern, and the StrategieDialog21 foundation, Zurich (Group structure) Deputy Chair of the Historische Militäranlagen association, Freiburg/Bern Delegate of the Board of R. G. Bindschedler Familienstiftung, Zurich Other major activities None Barbara Egger-Jenzer (1956, CH) Teacher, lawyer Board member since 2011 (2002 *), Deputy Chair of the Remuneration and Nomination Committee, Representative of the Canton of Bern Professional background, career Since 2002 Member of the Executive Council and Head of the Department of Construction, Transport and Energy Independent lawyer in Bern and Canton of Bern Ombudsman for age and residential matters

129 ANNUAL REPORT 2016 CORPORATE GOVERNANCE 127 Seats on the boards of listed companies None Seats on the boards of for-profit companies Member of the Board of BLS AG, Bern Member of the Board of BLS Netz AG, Bern Seats on the boards of other legal entities None Seats on the boards of other legal entities Member of the Advisory Board of the Helvetia pension foundation Member of the Advisory Board of J. Daler Spitals Seats on the boards of industry associations and non-profit organisations Member of the Board of the Freiburg Chamber of Commerce Seats on the boards of industry associations and non-profit organisations None Other major activities None Other major activities Executive Councillor of the Canton of Bern Paul-Albert Nobs (1955, CH) Degree in electrical engineering Member of the Board of Directors since 2016 Professional background, career Since 1994 Director General of Cremo AG From 1990 Additional function as Production Manager Since 1983 Employed at Cremo AG as Head of Division, responsible for all technical systems, development and procurement of facilities, buildings, commissioning and maintenance Development engineer at Métar SA in Fribourg, then Head of Electronics Division Seats on the boards of listed companies None Seats on the boards of for-profit companies Member of the Board of Groupe E SA, Granges-Paccot Member of the Board of Groupe E Celsius SA, Fribourg Member of the Board of Restoroute de la Gruyère S.A., Pont-en-Ogoz Deputy Chair of the Board of Lully.01 SA, Lully Chairman of the Board of MBZ Produktions AG, Lyss Kurt Schär (1965, CH) Radio/TV electronics engineer, marketing planner and board training Swiss Board School Board member since 2012, Deputy to the Chair of the Audit and Risk Management Committee Professional background, career Since 2014 Owner of Sunnsite Management AG CEO Biketec AG, manufacturer of the Flyer electric bicycle in Huttwil Seats on the boards of listed companies None Seats on the boards of for-profit companies Chairman of the Board of Emmental Tours AG, Burgdorf Chairman of the Board of Herzroute AG, Burgdorf Chairman of the Board of Härzdörfli AG, Madiswil Deputy Chair of the Board of Striebig AG, Lucerne Member of the Board of Stöcklin Möbel AG, Aesch (BL) Chairman of the Board of Sorglos Design AG, Luthern Member of the Board of IE Engineering Group AG, Zurich Chairman of the Board of Brau AG Langenthal, Langenthal Chairman of the Board of Erlebnismacher AG, Teufen AR

130 128 ANNUAL REPORT 2016 CORPORATE GOVERNANCE Seats on the boards of other legal entities Deputy Chair of the Board of the WBM foundation (workshop for disabled persons), Madiswil Member of the Board of the Pension Fund Foundation of the company Striebig AG, Lucerne Member of the Board of the Risiko-Dialog foundation St. Gallen Chairman of the Board of the Taunerhaus Roggwil foundation, Roggwil Seats on the boards of industry associations and non-profit organisations None Multiple mandates held within a single group are counted as one mandate. In justified cases, the Board of Directors may also grant exceptions for a transitional period of no more than 6 months in each case for no more than two additional mandates. 3.3 Election and term of office With the exception of the representative appointed by the Canton of Bern, the members of the Board of Directors are elected individually by the General Meeting. Other major activities None Retirements and resignations during the reporting period In the reporting year, the Board members Kurt Rohrbach, Beatrice Simon-Jungi and Dominique Gachoud retired when their period of office ended at the General Meeting on 13 May Statutory provisions on the number of permitted activities According to Article 21 of the articles of incorporation, members of the Board of Directors may hold no more than 10 senior managerial and governing body mandates in for-profit companies outside of the BKW Group, no more than 5 of which may be stock-exchange listed companies, and no more than 10 mandates with other legal entities such as foundations and associations that are required to be entered in the commercial register. Mandates with companies that are controlled directly or indirectly by the Company are not included in this numerical limitation. Seats on the boards of industry associations and non-profit organisations are not counted, provided that the total number of mandates per member does not exceed 10. Mandates in senior management and governing bodies of companies and legal entities in which the Company is directly or indirectly involved, or mandates that are taken up on the instruction of the Company, are also not included. However, the total number of such mandates per member shall not exceed 10. The term of office for members of the Board of Directors elected by the General Meeting shall be one year and shall end at the conclusion of the next General Meeting. Members may be re-elected subject to an age limit of 70 years. The term of office for members appointed by the Canton of Bern, in accordance with article 762 OR shall be determined by the cantonal government. The Chairman of the Board of Directors and members of the Remuneration and Nomination Committee are also elected by the General Meeting. No provisions that deviate from the statutory provisions on the nomination of the Chairman, the members of the Remuneration and Nomination Committee or the independent proxy are permitted in the articles of incorporation. 3.4 Internal organisation Division of roles in the Board of Directors According to Swiss company law and Article 18 of the articles of incorporation, the Board of Directors is responsible for overall management of the company and supervision of its corporate bodies. It decides on all matters that are not delegated to other corporate bodies, either by law or by the organisational regulations as defined in Article 20 of the articles of incorporation.

131 ANNUAL REPORT 2016 CORPORATE GOVERNANCE 129 The Board of Directors acts as a single body. In addition to the statutory standing committees, it may also create further committees of members and delegate further activities to these in separate regulations or by modifying existing regulations. The Board of Directors decides as a collective body. Its members have no personal authority in respect of the company and therefore cannot issue instructions except as decided by the Board of Directors and the organisational regulations or the committee regulations. The internal organisational structure of the Board of Directors is laid down in the articles of incorporation and the organisational regulations. No special functions are defined other than Chairman and the two Deputy Chairs. The Secretary need not be a member of the Board. The Board of Directors adopts its resolutions at meetings and in telephone or video conferences. It is quorate when the majority of its members are present at the meeting or participating in the telephone or video conference. Resolutions are adopted by a simple majority of members. In case of parity of votes, the Chairman shall have a casting vote. Minutes shall be taken of the discussions and resolutions. The minutes shall be approved by the Chairman before being distributed to the other members of the Board, and being accepted at the next meeting of the Board of Directors. The Board of Directors shall meet as often as business requires; in general there are six meetings per year. The dates of the ordinary meetings shall be agreed at an early stage so that all members may attend in person. Moreover, the Chairman of the Board of Directors or the Deputy Chair in a representative capacity shall convene meetings of the Board of Directors whenever business dictates. In addition, any member may ask the Chairman of the Board to convene a meeting by submitting their reasons in writing. Prior to each Board meeting, the members of the Board of Directors shall receive the documents that allow them to prepare for the items on the agenda. In 2016, six meetings were held in the presence of the CEO and the other members of the Group Executive Board. The CEO and other members of the Group Executive Board participate in each meeting of the Board of Directors in an advisory capacity, unless instructed otherwise by the Chairman of the Board of Directors. Senior company management, members of the BKW Audit Department and other experts may also be invited to the meetings in an advisory capacity. The Secretary of the Board of Directors, Fabian Stadler, attends the meetings of the Board of Directors. Committees The Board of Directors may decide to delegate some of its activities and responsibilities to committees from among its own members. The Board of Directors is supported by two standing committees, the Audit and Risk Management Committee and the Remuneration and Nomination Committee. The Board of Directors may also establish ad hoc committees at any time for matters such as major investments, alliances and cooperations. The functions, organisation and responsibilities of the Audit and Risk Management Committee and the Remuneration and Nomination Committee are defined in the relevant detailed directives authorised by the Board of Directors. In the case of ad hoc committees, the Board of Directors will elect the members from among its own members at the first meeting following the General Meeting. Audit and Risk Management Committee The Audit and Risk Management Committee is composed of three members elected by the Board of Directors. The Chairman of the Audit and Risk Management Committee is also elected by the Board of Directors, while the Deputy Chairman is elected by the Audit and Risk Management Committee.

132 130 ANNUAL REPORT 2016 CORPORATE GOVERNANCE Members of the Audit and Risk Management Committee Roger Baillod Kurt Schär Marc-Alain Affolter Member of the Board of Directors, Chairman Member of the Board of Directors, Deputy Chairman Member of the Board of Directors, Member The Audit and Risk Management Committee supports the Board of Directors in supervising the financial management of the company. In particular, it assesses the quality of the accounting and internal control system and proposes appropriate decisions to the Board of Directors. Role Discussion concerning the consolidated financial statements and the half-yearly consolidated financial statements with the internal and external auditors Oversight of the subordinate internal auditor and assessment of the activities of the external auditor and its collaboration with the internal auditor. Preparation for the appointment or discharge of the external auditor and the Head of Internal Audit, for submission to the Board of Directors. Assessment of the quality of accounting and financial reporting to the Board of Directors based on an assessment by the internal and external auditors. Assessment of the organisation and effectiveness of the internal control system. Assessment of compliance and the associated organisational structure. Assessment of the risk situation in the context of the financial statements, the budget and medium-term planning of the Board of Directors. Regular and timely reporting to the Board of Directors on the Committee s activities and results. Fostering of direct contact through the Chairman and members of the Committee with the internal and external auditors and with the CEO and CFO. Setting the amount of compensation paid to the Head of Internal Audit and of the external auditor. Meetings of the Audit and Risk Management Committee are normally attended by the CEO, the CFO, the Head of Corporate Controlling, Accounting and Tax, and the Head of Internal Audit, as well as one or two representatives of the external auditor. If required, the Chairman may call upon further members of the Group Executive Board, the extended Group Executive Board, senior management or external experts to attend and provide information. The Audit and Risk Management Committee is authorised to negotiate and adopt resolutions provided that a majority of its members are present; resolutions are adopted by simple majority of votes. In case of parity of votes, the Chairman shall have a casting vote. The regulations of the Audit and Risk Management Committee stipulate that at least four ordinary meetings should be held per year. The Committee convened four times during the 2016 financial year. No external consultants were engaged. Remuneration and Nomination Committee In accordance with Article 24 of the articles of incorporation, the Remuneration and Nomination Committee comprises three members who are each elected from the Board of Directors by the General Meeting for a term of one year. These members may be re-elected. The Remuneration and Nomination Committee decides how to organise all other matters regarding its operation. Members of the Remuneration and Nomination Committee Responsibilities Authorisation of accounts involving credit approved by the Board of Directors, with the proviso that any extraordinary credit overdrafts are reported to the Board of Directors. Awarding of audit contracts. Urs Gasche Chairman of the Board of Directors, Chairman Barbara Egger-Jenzer Member of the Board of Directors, Deputy Chairman Georges Bindschedler Member of the Board of Directors, Member

133 ANNUAL REPORT 2016 CORPORATE GOVERNANCE 131 The Remuneration and Nomination Committee is responsible for developing principles for the selection of candidates for the Board of Directors and the Group Executive Board, and, in particular, at top corporate level, for the remuneration strategy and performance targets and criteria of the BKW Group. It assists the Board of Directors in establishing and reviewing the remuneration system and remuneration principles, and in preparing the proposals to the General Meeting in respect of the total amount of remuneration to be paid to the Board of Directors and the Group Executive Board. The Remuneration and Nomination Committee submits motions to the Board of Directors in respect of all transactions negotiated under its responsibility. The role and responsibilities of the Remuneration and Nomination Committee are described on pages 145 to 146 of the Remuneration Report. The CEO participates in the meetings of the Remuneration and Nomination Committee in an advisory capacity and has the right to submit motions. The CEO does not attend meetings during which her own remuneration and/or performance are discussed. If required, the Chairman may call upon further members of the Group Executive Board, the extended Group Executive Board, or external experts to attend and provide information. The Remuneration and Nomination Committee is authorised to negotiate and adopt resolutions provided that a majority of its members are present; resolutions are adopted by simple majority of votes. In case of parity of votes, the Chairman shall have a casting vote. According to its regulations, the Remuneration and Nomination Committee meets as often as business requires, however at least three times a year. Two meetings were held during the 2016 financial year due to organisational reasons, however all topics were covered. 3.5 Competence regulations The Board of Directors is responsible according to law for the overall management and supervision of the BKW Group. In accordance with Article 716a para. 1 of the Swiss Code of Obligations (OR), this responsibility is both non-transferable and inalienable. In addition, the Board of Directors is authorised to adopt a resolution on all matters that have not been reserved for the General Meeting by law or in the articles of incorporation. Pursuant to Article 20 of the articles of incorporation, the Board of Directors delegates the full operational business management to the CEO and defines her responsibilities in the organisational regulations. The CEO is the Chairman of the Group Executive Board and is supported by its members. With responsibility for the operational management of the Group, the CEO represents the Group to third parties. The Group Executive Board consists of the CEO and the heads of the divisions Finance & Services, Networks, Production and Renewables & Efficiency. Decisions of the Group Executive Board are made by the CEO in consultation with the other members of the Group Executive Board. The other members of the Group Executive Board have a right to a voice and may submit motions. The Group Executive Board generally met every two weeks during the 2016 financial year. Subject to the authority of the General Meeting, the Board of Directors and the Board Committees, the Group Executive Board supports the CEO in her responsibility for the operational management of the BKW Group. The business divisions are managed directly by their respective division heads. The Group Executive Board may delegate tasks and authorisations within its remit. It also performs preparatory work on matters that are within the remit of official bodies at a higher level. Competences of the Board of Directors In addition to its statutory duties, and the business reserved to it in the articles of incorporation, the Board of Directors has the following particular roles and competences: Definition of the raison d être Definition of the overarching company strategy Approval of highly strategic business, based on the raison d être and potential economic consequences, or of individual projects that could foreseeably have significant negative consequen ces for the public image of BKW Approval of business that is not planned for in the budget or medium-term planning, where BKW s investment exceeds an amount of CHF 25 million

134 132 ANNUAL REPORT 2016 CORPORATE GOVERNANCE Approval of the expansion of geographical coverage into new countries Approval of the legal organisation and top-level management structure (Group Executive Board) Approval of financial matters such as budgets and planning, financial statements, the BKW Annual Report and accounting standards, and establishing the BKW Group s financing and investment policy Approval of the principles for operation of the internal control system and risk management of the BKW Group, and assessment of the significant risks Ensuring compliance with applicable standards Competences of the CEO The CEO has the following particular roles and competences: Integration of company strategy and operational business management by: (I) Ensuring the commercial success of the company in the context of the overall economic and industry conditions (II) Developing the main aspects of the implementation of the overall company strategy, including financing, for the attention of the Board of Directors (III) Ensuring the strategic direction set by the Board of Directors (IV) Leading the operational management of the company (V) Reporting on the success of highly strategic business transactions that have been authorised by the Board of Directors, in general around two years after their approval Oral reporting to the Board of Directors about the day-to-day business and important events of the BKW Group, and about any measures taken, unless requested by the Board of Directors to provide written reports. In the event of extraordinary events, the CEO shall inform the Chairman of the Board of Directors without delay Preparation of the financial plans of the company and responsibility for the overall financial results in accordance with the targets set by the Board of Directors Decision-making on the organisational structure and the roles and competences of members of the Group Executive Board within the context of the instructions of the Board of Directors Appointment of other employees of the BKW Group, particularly the heads of business units for their areas of responsibility, as members of the extended Group Executive Board. Management of the Group Executive Board and personnel under the CEO Creation of the performance assessment and preparation of the remuneration review and assessment for the members of the Group Executive Board to be submitted to the Remuneration and Nomination Committee Supervision of the Group Executive Board and creation of suitable supervisory bodies to ensure that the company remains on target to reach the defined objectives, meets basic commercial requirements and acts in accordance with the measures adopted by the Board of Directors Coordinating between the Group Executive Board and Board of Directors to ensure that the Board of Directors is provided with accurate information at an early stage Ensuring compliance with the raison d être, regulations and codes of conduct, and with applicable requirements of legislation and the articles of incorporation Representing the company to employees and third parties, in particular ensuring effective communication with shareholders and stakeholders, including representatives of governments, regulators and organisations Supporting the Chairman in his role of leading the Board of Directors and preparing for meetings of the Board of Directors Implementation of the decisions of the Board of Directors and its committees The CEO has delegated her roles and competences to qualified subordinate positions that she instructs and monitors accordingly.

135 ANNUAL REPORT 2016 CORPORATE GOVERNANCE 133 Responsibilities of the Group Executive Board The Group Executive Board has the following particular roles and competences: Contributing significantly to the process of ensuring commercial success within the context of the Group strategy and instructions of the CEO Actively participating in the leadership, planning and implementation of the company strategy Coordinating and harmonising the activities and business actions of the individual divisions from the perspective of the BKW Group s overarching interests through close cooperation with the other members of the Group Executive Board Contributing proposals for strategic planning and its execution, introduction and monitoring Defining and implementing the principles for cooperation within the BKW Group Determining the central risks and risk management Promoting ethical behaviour and compliance with internal and external rules and regulations Responsibility for leadership of the assigned divisions Decision-making on the entry of the purchaser of shares in the register of BKW AG shares with voting rights, unless the decision falls under the remit of the Board of Directors. This authori sation may be delegated in full or in part to subordinate organisational units Preparation, implementation and creation of the annual plans and budget The Group Executive Board may resolve to delegate part of its role and competences or the preparation, execution and monitoring of decisions of the Group Executive Board to committees. The composition, organisation, roles and competences of permanently staffed committees shall be defined in separate regulations. The roles and organisation of ad hoc committees shall be determined in the resolution adopted to create them. In respect of the decommissioning of the Mühleberg Nuclear Power Plant, the Group Executive Board has delegated some of its roles to the Group Executive Board Committee for the KKM Decommissioning Project. Additional information about the Group Executive Board is provided in Section 4 below. 3.6 Information and monitoring instruments in relation to the Group Executive Board The Board of Directors shall assume responsibility for supervision of its own committees and shall monitor the work of the CEO and the Group Executive Board by means of a range of reporting processes and rights to inspect business processes and business transactions: At each of its meetings, the Board of Directors is informed by the CEO and the other members of the Group Executive Board about current business and key business transactions. The Chairman of the Board of Directors is also informed of current business at regular meetings and discussions outside of the meetings of the Board of Directors. In the case of extraordinary events, the CEO shall inform the Chairman of the Board of Directors without delay. Business that must be dealt with by the Board of Directors is first discussed in a meeting of the Presiding Board. The participants in this meeting are the Chairman of the Board of Directors, the CEO, the other members of the Group Executive Board and the Head of Group Management. The Board of Directors is also kept up to date as follows: A report submitted in spring on the financial statement for the previous financial year and a report submitted in autumn on the financial statement for the first half of the current year. These reports are accompanied by an estimation of the anticipated annual result (forecast) based on current business performance. Comprehensive information about risk management in conjunction with the planning and financial statements Monitoring instruments of the Board of Directors in relation to the Group Executive Board The Board of Directors is responsible for setting up and monitoring the risk management, compliance and internal audit processes within the BKW Group.

136 134 ANNUAL REPORT 2016 CORPORATE GOVERNANCE Risk Management The Group Executive Board is responsible for implementing the risk management process as specified by the Board of Directors. The Board of Directors and the Group Executive Board are supported by the Risk Management division, which reports to the CFO. The Group Executive Board is advised by a Risk Committee, chaired by the CFO. Risk Management is responsible for the Group s strategic risk management, credit risk management and the operational risk management of trading and treasury. The Group Executive Board and the CFO are advised by the committee and a professional risk organisation. Risk Management continuously identifies and assesses risks to which the entire BKW Group is exposed, and formulates risk reduction measures. It takes account of internal and external events, and analyses and controls the risks of potential threats to people and the environment, risks relating to the security of the electricity supply, risks to BKW s reputation and to its liquidity, equity capital and results. The Group s risk bearing ability is also assessed. Special focus is currently on identifying and assessing new types of risk in newly developed business models and divisions on the basis of BKW s growth strategy in the services business. A system of limits applies to market, credit and liquidity risks. Individual measures are taken to counter the risks arising in relation to extraordinary market situations, and operational and strategic risks. Implementation of, and compliance with, the measures required for control purposes are monitored on a regular basis. Areas of trading and finance/treasury that are prone to higher risk are subject to more in-depth controls. Compliance The Board of Directors is responsible for ensuring compliance with applicable standards through its approval and regular inspection of the governance principles and Code of Conduct. The CEO ensures that an appropriately organised system is set up and that controls of compliance with applicable standards are implemented in all areas of the BKW Group. She provides the Board of Directors with a report to this effect at least once a year. In addition, she undertakes an annual comprehensive risk assessment and informs the Board of Directors of the results. The Board of Directors and Group Executive Board are supported by the Compliance team, which is assigned to the Group Management division. Audit Internal Audit submits a quarterly report on its auditing activities to the Audit and Risk Management Committee. In particular, the report covers audits of transaction and business processes for the whole Group. Internal Audit also reports annually to the Audit and Risk Management Committee on the audit of the annual financial statements, and on any priority issues determined by the Committee. In the event of serious shortcomings such as the detection of criminal acts or serious breaches of fundamental duties of care, the Internal Audit team will also provide the Audit and Risk Management Committee with a report. BKW s external auditor is Ernst & Young Ltd., Bern.

137 ANNUAL REPORT 2016 CORPORATE GOVERNANCE Group Executive Board From left to right: Martin Schweikert, Ronald Trächsel, Antje Kanngiesser, Christophe Bossel, Hermann Ineichen, Suzanne Thoma, Renato Sturani Group Executive Board Composition Year of birth Nationality Role Dr. Suzanne Thoma 1962 Switzerland CEO Christophe Bossel 1968 Switzerland Head of Networks Hermann Ineichen 1957 Switzerland Head of Production Renato Sturani 1967 Germany, Italy Head of Renewables & Efficiency Ronald Trächsel 1959 Switzerland CFO Antje Kanngiesser 1974 Switzerland, Germany Head of Group Management Martin Schweikert 1967 Switzerland Head of Corporate Communications