Annual Report 2016 Income Expenses = Efficient Financial Year

BKW GROUP Annual Report 2016

20Income 16Expenses = efficient financial year “For three years now, we have consistently pursued our three-pillar strategy of strengthening energy, developing 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 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 2 ANNUAL REPORT 2016 | MANAGEMENT REPORT Letter to Shareholders

Dear Shareholders, The goal is to build up the service business in the coming years to a point where it becomes one Once again, the BKW Group1 can look back on of the main pillars of the BKW portfolio. That’s a successful financial year. This was by no means why BKW is growing so strongly. This is also reflected a given, as we continue to operate in a highly in our employee figures: in the last 12 months, challenging environment. Our earnings from tradi- our staff numbers have grown by 25 percent to tional electricity production were CHF 150 million over 5,000. Some two-thirds of our employees lower than in 2015. However, we succeeded in off- now work outside the traditional energy and grid setting two-thirds of this decline in the energy business. business thanks to excellent management of our electricity portfolio and further cost reductions. Expansion of engineering skills The focus in the last year has thus been on further to international network reducing financial risks, eliminating uncertainty While we were focused on the field of building

and cutting costs. And this focus paid off. technology in Switzerland, we are also expanding 1 The BKW Group our engineering skills in Germany, Austria and comprises BKW AG Expansion of service business progressing Switzerland, wherever there is a particularly press- and its Group companies. In order For three years now, we have consistently pursued ing need for investment in regeneration, expan- to make this report our three-pillar strategy of “strengthening ener- sion and maintenance of the energy, water and easier to read, the gy, developing networks and expanding services”. transport infrastructure. Our acquisition of engi- Group will be re- ferred to as BKW. BKW’s transformation is proceeding apace. neering companies gives our customers access to Where the text The service business is growing strongly: last year a strong engineering network so that they benefit relates specifically was the first in which we broke through the from wide-ranging expertise for the comprehensive to BKW AG or BKW Energie AG, CHF 500 million revenue barrier and contributed planning of challenging projects. this is expressly over CHF 30 million to the operating result. mentioned. ANNUAL REPORT 2016 | MANAGEMENT REPORT 3

Buildings become power plants Grid: the steady revenue stream Almost half of all energy in Switzerland is con- The grid business is a stabilising factor for BKW. sumed by buildings. There is major potential here By increasing our investment in the national grid in the area of energy efficiency and intelligent company Swissgrid, we have managed to further usage. The intelligent connection of photovoltaic increase this stability. Through additional share pur- plants with heaters, water heaters, battery stor- chases, we have now become the largest Swissgrid age and electric cars will become more widespread. shareholder and secured our returns from the grid The house will become an integral component business over the long term. of the energy supply system. Here, with our net work of building technology specialists through- A big thank-you out Switzerland, we can offer truly integrated ser- We would like to thank our managers and employees vices – from planning and implementation through for their outstanding commitment, and we look to maintenance and servicing. We have thus further forward to counting on their expertise and capacity strengthened the areas of building technology for change as we drive our strategy forward. planning and implementation in 2016 and now play We thank our shareholders and customers for their an important role in the Swiss building technology trust in us, and our suppliers and part-ners for the sector. With each company acquisition, we gain professional, enjoyable collaboration. They – you – additional skills and build on existing expertise – have all made significant contributions to our com- and our customers benefit from this too. pany’s success. Together, we will also shape the future of energy in 2017 – straightforward, reliable Further expansion of renewable energies and networked – as we continue to develop our Of course, we remain committed to our core busi- company into one of the leading energy and infra- ness of electricity production, distribution and structure service companies. sales. We are strengthening our energy business in order to profit from a future market recovery. Kind regards, 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 portfolio in France. We are actively positioning ourselves to face the new challenges in the energy markets, and in Urs Gasche Suzanne Thoma trading, too, we are focusing increasingly on services Chairman of the Board CEO for third parties such as direct marketing for electricity from renewable energies. 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 2.862 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 elec tricity 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 2013. 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. 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 – 106.7 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 disposal 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 2015 2016 % change Total operating revenue 2,645.0 2,861.6 8.2 % Energy procurement/transport – 1,265.7 – 1,327.4 Operating costs – 849.1 – 953.0 Operating profit before depreciation, amortisation and impairment 530.2 581.2 9.6 % Depreciation, amortisation and impairment – 213.7 – 220.4 Income from associates 65.5 22.7 Operating profit/loss 382.0 383.5 0.4 % Financial result – 106.7 – 0.3 Profit/loss before income taxes 275.3 383.2 39.2 % Income taxes 8.7 – 61.1 Net profit 284.0 322.1 13.4 % 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 2015 2016 % change Electricity sales Switzerland 516.4 499.9 Electricity sales International 132.3 125.9 Other electricity sales 824.3 735.5 Income from other energy business 55.7 76.5 Other operating income and own work capitalised 35.8 43.2 Total operating revenue 1,564.5 1,481.0 – 5 % Energy procurement – 907.4 – 887.5 Expense from other energy business – 4.4 – 35.4 Operating costs – 319.2 – 305.3 Operating profit before depreciation, amortisation and impairment 333.5 252.8 – 24 % Depreciation, amortisation and impairment – 121.2 – 112.9 Income from associates 49.3 – 4.4 Operating profit/loss 261.6 135.5 – 48 %

As expected, total operating revenue for the Energy business declined in 2016 due to lower elec tricity 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. 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 gener ation 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 con tained 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). 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 respon sible for the transport of energy for end customers outside BKW’s supply region in Switzerland and Italy.

CHF millions 2015 2016 % change Distribution grid usage fees 444.9 531.1 Energy transport income 216.5 247.3 Other operating income and own work capitalised 100.1 146.1 Total operating revenue 761.5 924.5 21 % Energy transport expense – 354.7 – 404.1 Operating costs – 217.3 – 233.9 Operating profit before depreciation, amortisation and impairment 189.5 286.5 51 % Depreciation, amortisation and impairment – 73.3 – 77.5 Income from associates 16.1 26.8 Operating profit/loss 132.3 235.8 78 %

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. 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 2015 2016 % change Income from services 420.1 540.4 Other operating income 9.6 24.1 Total operating revenue 429.7 564.5 31 % Operating costs – 402.4 – 518.3 Operating profit before depreciation, amortisation and impairment 27.3 46.2 69 % Depreciation, amortisation and impairment – 10.1 – 15.0 Income from associates 0.1 0.3 Operating profit/loss 17.3 31.5 82 %

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 2016. 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. 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 2017. 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 2015 2016 Current assets 2,346.0 2,400.5 Non-current assets 5,661.3 6,181.0

Current liabilities 898.3 1,089.2 Non-current liabilities 4,533.0 4,551.4 Shareholders’ equity 2,576.0 2,940.9

Balance sheet total 8,007.3 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 2018. In addition, BKW maintains an unused syndicated loan of CHF 250 million. The financial framework for maintaining financial and operational flexibility therefore remains solid. 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 2017. 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. 12 ANNUAL REPORT 2016 | MANAGEMENT REPORT ANNUAL REPORT 2016 BKW Group Consolidated Financial Statements 14 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

BKW GROUP CONSOLIDATED FINANCIAL STATEMENTS Consolidated Income Statement

CHF millions Note 2015 2016 Net sales 7 2,533.5 2,664.7 Own work capitalised 58.3 72.5 Other operating income 53.2 124.4 Total operating revenue 2,645.0 2,861.6 Energy procurement/transport 8 – 1,265.7 – 1,327.4 Material and third-party services – 239.8 – 270.4 Personnel expenses 9 – 448.6 – 509.2 Other operating expenses 10 – 160.7 – 173.4 Total operating expenses – 2,114.8 – 2,280.4 Operating profit before depreciation, amortisation and impairment 530.2 581.2 Depreciation, amortisation and impairment 11 – 213.7 – 220.4 Income from associates 19 65.5 22.7 Operating profit/loss 382.0 383.5 Financial income 12 18.2 136.3 Financial expenses 12 – 124.9 – 136.6 Profit/loss before income taxes 275.3 383.2 Income taxes 13 8.7 – 61.1 Net profit 284.0 322.1 attributable to: ––BKW shareholders 276.7 311.6 ––Non-controlling interests 7.3 10.5

Earnings per share in CHF (undiluted) 14 5.71 6.41 Earnings per share in CHF (diluted) 14 5.29 5.93 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 15

BKW GROUP CONSOLIDATED FINANCIAL STATEMENTS Consolidated Statement of Comprehensive Income Note 2015 2016 Net profit 284.0 322.1 Actuarial gains/losses (Group companies) 25 ––Actuarial gains/losses – 49.0 – 2.4 ––Income taxes 10.8 0.5 Actuarial gains/losses (associates) 19 ––Actuarial gains/losses – 9.5 10.3 ––Income taxes 0.3 – 0.7 Total items that will not be reclassified to income statement, net of tax – 47.4 7.7 Currency translations 27 ––Currency translations – 112.4 – 13.5 ––Income taxes – 0.1 0.0 Available-for-sale financial assets 27 ––Value adjustments – 0.3 7.1 ––Reclassification to the income statement 0.0 – 53.0 ––Income taxes 0.1 10.1 Hedging transactions 27 ––Value adjustments 1.0 0.4 ––Reclassification to the income statement – 0.2 0.0 ––Income taxes – 0.3 – 0.1 Total items that may be reclassified to income statement, net of tax – 112.2 – 49.0 Other comprehensive income – 159.6 – 41.3 Comprehensive income 124.4 280.8 attributable to: ––BKW shareholders 116.0 269.0 ––Non-controlling interests 8.4 11.8 16 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

BKW GROUP CONSOLIDATED FINANCIAL STATEMENTS Consolidated Balance Sheet

CHF millions Note 31.12.2015 31.12.2016

Assets Cash and cash equivalents 32 834.2 938.0 Trade accounts receivable and other receivables 15 677.3 811.3 Current tax receivables 19.4 9.4 Financial assets 18 560.2 309.5 Derivatives 28 82.1 127.8 Inventories 16 86.7 42.4 Prepaid expenses and accrued income 17 86.1 162.1 Total current assets 2,346.0 2,400.5 Financial assets 18 1,242.7 1,216.3 Derivatives 28 59.1 46.3 Investments in associates 19 1,156.5 1,352.0 Property, plant and equipment 20 2,846.3 3,077.7 Intangible assets 21 319.6 453.5 Deferred tax receivables 13 37.1 35.2 Total non-current assets 5,661.3 6,181.0 Total assets 8,007.3 8,581.5

Shareholders’ equity and liabilities Trade accounts payable and other liabilities 22 468.4 588.8 Current tax liabilities 26.3 35.8 Financial liabilities 23 53.9 82.4 Derivatives 28 67.0 119.3 Provisions 24 69.0 73.0 Deferred income and accrued expenses 17 213.7 189.9 Total current liabilities 898.3 1,089.2 Financial liabilities 23 1,632.2 1,604.0 Derivatives 28 38.8 38.1 Pension liability 25 257.8 281.1 Other liabilities 26 276.2 393.6 Provisions 24 1,970.7 1,842.0 Deferred tax liabilities 13 357.3 392.6 Total non-current liabilities 4,533.0 4,551.4 Total liabilities 5,431.3 5,640.6 Share capital 27 132.0 132.0 Capital reserves 27 41.3 41.3 Retained earnings 27 2,924.2 3,114.4 Other reserves 27 – 318.1 – 360.7 Treasury shares 27 – 302.9 – 244.6 Equity attributable to BKW shareholders 2,476.5 2,682.4 Equity attributable to non-controlling interests 99.5 258.5 Total shareholders’ equity 2,576.0 2,940.9 Total shareholders’ equity and liabilities 8,007.3 8,581.5 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 17

BKW GROUP CONSOLIDATED FINANCIAL STATEMENTS Changes in Consolidated Equity

CHF millions capital Share reserves Capital earnings Retained shares Treasury Other reserves to Attributable BKW shareholders to Attributable non-controlling interests Total Equity at 31.12.2014 132.0 41.3 2,728.3 – 311.1 – 157.4 2,433.1 91.9 2,525.0 Net profit 276.7 276.7 7.3 284.0 Other comprehensive income – 160.7 – 160.7 1.1 – 159.6 Comprehensive income 276.7 – 160.7 116.0 8.4 124.4 Dividend – 77.5 – 77.5 – 1.0 – 78.5 Transactions in treasury shares – 6.1 8.2 2.1 2.1 Share-based payments 2.8 2.8 2.8 Acquisition of non-controlling interests 0.0 – 0.7 – 0.7 Changes in the scope of consolidation 0.0 – 1.0 – 1.0 Contribution to equity from non-controlling interests 0.0 1.9 1.9 Equity at 31.12.2015 132.0 41.3 2,924.2 – 302.9 – 318.1 2,476.5 99.5 2,576.0 Net profit 311.6 311.6 10.5 322.1 Other comprehensive income – 42.6 – 42.6 1.3 – 41.3 Comprehensive income 311.6 – 42.6 269.0 11.8 280.8 Dividend – 77.8 – 77.8 – 1.3 – 79.1 Transactions in treasury shares – 29.8 58.3 28.5 28.5 Share-based payments 2.9 2.9 2.9 Acquisition of non-controlling interests – 0.7 – 0.7 – 2.0 – 2.7 Changes in the scope of consolidation 0.0 18.8 18.8 Contribution to equity from non-controlling interests 0.0 131.7 131.7 Change in liabilities relating to non-controlling interests – 16.0 – 16.0 – 16.0 Equity at 31.12.2016 132.0 41.3 3,114.4 – 244.6 – 360.7 2,682.4 258.5 2,940.9 18 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

BKW GROUP CONSOLIDATED FINANCIAL STATEMENTS Consolidated Cash Flow Statement

CHF millions Note 2015 2016 Result before income taxes 275.3 383.2 Adjustment for non-cash transactions 32 135.1 102.4 Change in net working capital (excl. financial assets/liabilities and derivatives) 205.1 – 92.9 Income taxes paid – 38.0 – 35.7 Other financial expenses/income – 1.7 1.1 Cash flow from operating activities 575.8 358.1 Investments in property, plant and equipment 20 – 223.6 – 254.5 Disposal of property, plant and equipment 19.7 39.1 Acquisition of Group companies 6/32 – 96.5 – 195.2 Disposals of Group companies 1.1 4.3 Investments in associates 19 – 9.7 – 300.1 Disposals of associates 6.3 33.6 Investments in current and non-current financial assets – 83.8 – 161.4 Disposals of current and non-current financial assets 215.0 588.0 Investments in intangible assets 21 – 23.7 – 49.2 Disposals of intangible assets 0.1 1.1 Interest received 9.4 9.0 Dividends received 18.5 25.7 Cash flow from investing activities – 167.2 – 259.6 Sale/purchase of treasury shares 27 1.4 – 2.5 Acquisition of non-controlling interests – 0.7 – 2.7 Contribution to capital from non-controlling interests 34 1.9 131.7 Increase in current and non-current financial liabilities 12.3 14.1 Decrease in current and non-current financial liabilities – 32.2 – 35.0 Increase in other long-term liabilities 20.1 18.4 Decrease in other long-term liabilities – 0.7 – 7.7 Interest paid – 44.2 – 31.6 Dividends paid – 78.5 – 79.1 Cash flow from financing activities – 120.6 5.6 Translation adjustments on cash and cash equivalents – 6.0 – 0.3 Net change in cash and cash equivalents 282.0 103.8 Cash and cash equivalents at start of reporting period 552.2 834.2 Cash and cash equivalents at end of reporting period 32 834.2 938.0 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 supply- ing 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 2012 – 2014 Cycle

These changes have had no effect on the presentation of BKW’s financial position, financial per formance 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. 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 2014 – 2016 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 material 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. 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. Intra- group 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. 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 acqui sition. 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 Average 31.12.2015 31.12.2016 2015 2016 CHF/EUR 1.0835 1.0739 1.0679 1.0902

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. 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 transactions can be broken down into “own-use” and “hedging” transactions. Revenues from own-use transac‑ tions 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. 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. Antici- pated 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

4.4.1 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.

4.4.2 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 commodities. 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). ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 25

4.5 Financial assets

Financial assets cover holdings, securities, loans, term deposits and other financial assets. Receiv ables 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

4.6.1 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 Deriv- atives), while payables are recorded under liabilities as negative replacement values (under Deriva- tives). Positive replacement values correspond to the costs that BKW would incur to replace all transactions 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 settlement 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. 26 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

4.6.2. 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 50 years Power plants 12 to 80 years Distribution grid 20 to 60 years IT systems 10 to 30 years Operating facilities and vehicles 3 to 20 years Fuel rods After burn-up ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 27

4.8 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 de preciation 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. 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 17.

4.11 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.

4.12 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. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 29

4.13 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 2015. 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. 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 liabilities 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.

4.15 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.

4.16 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. 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 dis- counting 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 124.4 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 2018. 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. 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 oper ations and cash flows. The actuarial assumptions used in the calculation and a corresponding sensi tivity analysis are disclosed in Note 25.

5.5 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 charge able capital and operating costs. Decisions issued by the court of last instance may have implications for BKW’s future cash flows. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 33

6 Business combinations

Business combinations in 2016

Inag- Wind farms CHF millions AEK Lindschulte Nievergelt France Miscellaneous Total Cash and cash equivalents 14.0 5.5 2.5 0.9 26.6 49.5 Trade accounts receivable 22.3 2.5 9.1 0.2 14.4 48.5 Other current assets 13.3 19.0 1.5 2.7 20.3 56.8 Financial assets 13.1 0.3 0.2 0.5 0.9 15.0 Property, plant and equipment 246.5 0.4 0.4 57.7 7.4 312.4 Intangible assets 1.9 5.3 10.3 0.0 11.0 28.5 Deferred tax assets 0.0 0.0 0.0 0.0 0.3 0.3 Current liabilities – 35.1 – 19.9 – 10.0 – 24.0 – 34.0 – 123.0 Non-current financial liabilities – 30.0 – 0.8 0.0 0.0 – 1.3 – 32.1 Non-current provisions – 0.7 – 0.3 – 0.4 – 0.4 – 0.6 – 2.4 Deferred tax liabilities – 35.5 – 2.6 – 1.9 – 11.0 – 2.8 – 53.8 Pension liability 0.0 0.0 – 3.0 0.0 – 7.7 – 10.7 Other non-current liabilities – 25.1 0.0 0.0 0.0 0.0 – 25.1 Fair value of acquired net assets 184.7 9.4 8.7 26.6 34.5 263.9 Non-controlling interests – 12.6 – 0.5 – 1.7 0.0 – 4.2 – 19.0 Fair value of interests already held – 72.9 0.0 0.0 0.0 – 4.3 – 77.2 Goodwill 21.2 16.2 17.6 0.0 44.1 99.1 Purchase price 120.4 25.1 24.6 26.6 70.1 266.8 Deferred and contingent purchase price payments 0.0 – 2.9 – 2.8 – 7.1 – 15.2 – 28.0 Cash and cash equivalents acquired – 14.0 – 5.5 – 2.5 – 0.9 – 26.6 – 49.5 Cash outflow 106.4 16.7 19.3 18.6 28.3 189.3

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 receiv able. 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 associates. 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 long- established 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 2018. 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. 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 electrical 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 maintenance, 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 Ingenieur team 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 attributable 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 reporting 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. 36 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

Business combinations in 2015

Solare Daten- CHF millions systeme GmbH antec group AG Miscellaneous Total Cash and cash equivalents 2.5 3.0 8.3 13.8 Trade accounts receivable 1.2 2.2 12.4 15.8 Other current assets 6.5 3.1 10.1 19.7 Financial assets 0.0 0.0 1.4 1.4 Property, plant and equipment 0.4 0.2 33.6 34.2 Intangible assets 14.2 7.7 8.0 29.9 Deferred tax assets 1.4 0.0 0.0 1.4 Current liabilities – 2.3 – 2.6 – 18.0 – 22.9 Non-current financial liabilities 0.0 0.0 – 18.2 – 18.2 Non-current provisions – 0.3 – 0.2 – 1.6 – 2.1 Deferred tax liabilities – 4.5 – 2.0 – 6.1 – 12.6 Fair value of acquired net assets 19.1 11.4 29.9 60.4 Non-controlling interests 0.0 0.0 – 0.5 – 0.5 Goodwill 57.1 16.8 24.8 98.7 Purchase price 76.2 28.2 54.2 158.6 Deferred and contingent purchase price payments – 35.1 – 7.5 – 7.6 – 50.2 Cash and cash equivalents acquired – 2.5 – 3.0 – 8.3 – 13.8 Cash outflow 38.6 17.7 38.3 94.6

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. 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 Kraftwerks- und Anlagenengineering GmbH (KAE) and the Austrian company Ingenieurgemeinschaft Bilek & Krischner GmbH (IGBK). BKW also acquired 100 % of the shares of the companies Technische Infor- mationen und Dienstleistungen (TID) and IWAG Ingenieure AG, which specialises in water, waste- water 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. 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 correspond 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 inter- company transactions (transfer prices) are based on the market price on the transaction date. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 39

Information by business segment

2016

CHF millions Energy Grid Services Other Consoli- dation Total External revenue 1,454.2 873.5 474.6 33.8 25.5 2,861.6 ––Net sales 1,424.2 787.8 452.7 0.0 0.0 2,664.7 ––Own work capitalised 5.4 35.8 0.1 5.8 25.4 72.5 ––Other operating income 24.6 49.9 21.8 28.0 0.1 124.4 Internal revenue 26.8 51.0 89.9 124.8 – 292.5 0.0 ––Net sales 13.6 1.3 88.5 0.0 – 103.4 0.0 ––Other operating income 13.2 49.7 1.4 124.8 – 189.1 0.0 Total operating revenue 1,481.0 924.5 564.5 158.6 – 267.0 2,861.6 Total operating expenses – 1,228.2 – 638.0 – 518.3 – 157.9 262.0 – 2,280.4 Operating profit before depreciation, amortisation and impairment 252.8 286.5 46.2 0.7 – 5.0 581.2 Depreciation, amortisation and impairment – 112.9 – 77.5 – 15.0 – 16.9 1.9 – 220.4 Income from associates – 4.4 26.8 0.3 0.0 0.0 22.7 Operating profit/loss 135.5 235.8 31.5 – 16.2 – 3.1 383.5 Financial result – 0.3 Profit/loss before income taxes 383.2

Additions: ––Property, plant and equipment and intangible assets 118.4 155.4 6.5 35.0 – 5.1 310.2 ––From business combinations 115.0 177.6 39.1 9.2 340.9 ––State funds 77.2 77.2 ––Associates 32.4 267.7 300.1 Investments in associates at 31.12.2016 972.4 378.8 0.8 1,352.0 Total assets at 31.12.2016 6,070.3 2,430.4 582.6 6,715.5 – 7,217.3 8,581.5 40 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

2015

CHF millions Energy Grid Services Other Consoli- dation Total External revenue 1,538.3 713.1 355.0 18.7 19.9 2,645.0 ––Net sales 1,513.5 671.0 349.0 0.0 0.0 2,533.5 ––Own work capitalised 5.8 31.0 0.3 1.3 19.9 58.3 ––Other operating income 19.0 11.1 5.7 17.4 0.0 53.2 Internal revenue 26.2 48.4 74.7 128.2 – 277.5 0.0 ––Net sales 15.2 0.7 71.9 0.0 – 87.8 0.0 ––Other operating income 11.0 47.7 2.8 128.2 – 189.7 0.0 Total operating revenue 1,564.5 761.5 429.7 146.9 – 257.6 2,645.0 Total operating expenses – 1,231.0 – 572.0 – 402.4 – 162.9 253.5 – 2,114.8 Operating profit before depreciation, amortisation and impairment 333.5 189.5 27.3 – 16.0 – 4.1 530.2 Depreciation, amortisation and impairment – 121.2 – 73.3 – 10.1 – 10.8 1.7 – 213.7 Income from associates 49.3 16.1 0.1 0.0 0.0 65.5 Operating profit/loss 261.6 132.3 17.3 – 26.8 – 2.4 382.0 Financial result – 106.7 Profit/loss before income taxes 275.3

Additions: ––Property, plant and equipment and intangible assets 101.9 132.3 6.3 17.0 – 4.2 253.3 ––from business combinations 32.3 31.8 64.1 ––State funds 30.3 30.3 ––Associates 9.7 9.7 Investments in associates at 31.12.2015 990.6 165.1 0.8 1,156.5 Total assets at 31.12.2015 5,663.8 1,873.3 397.3 6,411.3 – 6,338.4 8,007.3 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 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 Net sales 1,393.2 1,619.9 417.0 400.5 523.6 467.6 171.0 133.9 28.7 42.8 2,533.5 2,664.7 Non-current assets 2,910.0 3,427.8 704.1 704.0 673.2 624.7 31.5 91.5 3.6 35.2 4,322.4 4,883.2

Information on significant customers

There are no transactions with individual external customers that generate revenue accounting for 10 % or more of net sales. 42 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

8 Energy procurement/transport

CHF millions 2015 2016 Cost of energy procurement from third parties and associates 996.5 971.7 Provision for onerous energy procurement contracts ––Provisions used – 14.0 – 39.8 ––Provisions added 2.8 32.0 ––Provisions released – 74.3 – 40.6 Total energy procurement expenses 911.0 923.3 Energy transport expenses 354.7 404.1 Total 1,265.7 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 2015 2016 Salaries and wages 361.6 420.8 Social security contributions and other personnel expenses 87.0 88.4 Total 448.6 509.2

10 Other operating expenses

CHF millions 2015 2016 Charges, levies and other taxes 21.0 26.3 Rent, fees for use and leasing 15.8 20.8 Miscellaneous operating expenses 123.9 126.3 Total 160.7 173.4 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 43

11 Depreciation, amortisation and impairment

CHF millions 2015 2016 Depreciation ––Property, plant and equipment 183.4 179.9 ––Intangible assets 13.1 18.7 Impairment ––Property, plant and equipment 18.1 0.1 ––Intangible assets 0.0 21.7 Reversal of impairments ––Property, plant and equipment – 0.9 0.0 Total 213.7 220.4

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 2015 2016 Interest income 10.6 9.7 Dividend income 4.1 2.4 Value adjustment on state funds 0.0 60.5 Gains from the disposal of financial assets 0.2 53.5 Value adjustment on securities held for trading 0.5 0.0 Other financial income 1.8 10.2 Currency translations 1.0 0.0 Financial income 18.2 136.3 Interest expenses – 49.2 – 49.9 Capitalised borrowing costs 2.3 1.5 Interest on provisions – 67.5 – 65.4 Value adjustment on state funds – 4.6 0.0 Losses from the disposal of financial assets 0.0 – 0.2 Value adjustment on securities held for trading – 0.4 – 0.7 Impairment of financial assets – 2.7 – 15.7 Other financial expenses – 2.8 – 6.0 Currency translations 0.0 – 0.2 Financial expenses – 124.9 – 136.6

The gains from the disposal of financial assets in 2016 relate to the disposal of shares in Groupe E and Romande Energie. 44 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

13 Income taxes

CHF millions 2015 2016 Current income taxes 43.0 63.2 Deferred taxes – 51.7 – 2.1 Total – 8.7 61.1

Reconciliation with reported income taxes

CHF millions 2015 2016 Profit/loss before income taxes 275.3 383.2 Tax expenses at anticipated rate of 22.0 % (2015: 24.2 %) 66.6 84.3 Effects of changes in tax rate – 27.1 0.0 Participation reduction and non-taxable income – 12.5 – 10.5 Use/capitalisation of uncapitalised tax losses – 3.3 – 0.8 Non-tax-deductible expenses 5.1 5.3 Uncapitalised or partially capitalised tax losses 0.7 1.0 Taxes in respect of previous years – 0.4 – 0.2 Participation write-down – 33.0 – 11.9 Other items – 4.8 – 6.1 Total income taxes – 8.7 61.1 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 2017. 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. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 45

Changes in deferred tax assets/liabilities

CHF millions 2015 2016 Net deferred tax liabilities at 01.01. – 382.2 – 320.2 Changes in the scope of consolidation – 11.2 – 53.5 Addition/release in the income statement 51.7 2.1 Value adjustment to financial instruments in other comprehensive income 0.1 0.0 Realisation of financial instruments from equity 0.0 10.1 Change in value of cash flow and net investment hedges in other comprehensive income – 0.3 – 0.1 Taxes on actuarial gains/losses 10.8 0.5 Transactions in treasury shares 0.8 2.9 Currency translations 10.1 0.8 Net deferred tax liabilities at 31.12. – 320.2 – 357.4

Deferred tax assets/liabilities by origin of temporary difference 31.12.2015 31.12.2016 CHF millions Assets Liabilities Assets Liabilities Current assets 3.4 – 12.5 5.2 – 15.0 Financial assets and holdings 8.1 – 61.0 7.4 – 58.8 Property, plant and equipment 15.2 – 232.4 16.2 – 276.3 Intangible assets 2.0 – 12.2 0.0 – 16.3 Current liabilities 3.6 – 7.2 7.7 – 4.2 Provisions 1.7 – 105.8 2.0 – 104.7 Other non-current liabilities 76.0 – 1.6 79.1 – 3.8 Capitalised loss carry-forwards 2.5 0.0 4.1 0.0 Credit/liability for gross deferred taxes 112.5 – 432.7 121.7 – 479.1 Netting of assets and liabilities – 75.4 75.4 – 86.5 86.5 Credit/liability for deferred taxes according to balance sheet 37.1 – 357.3 35.2 – 392.6

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 624.0 million in total (previous year: CHF 505.0 million). 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 31.12.2015 31.12.2016 Expiry within 1 year 0.0 0.0 Expiry within 2 to 5 years 1.0 5.4 Expiry after 5 years 7.4 5.4 Valid indefinitely 20.4 18.1 Total 28.8 28.9 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 47

14 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 interest- expense for the convertible bond after accounting for tax.

Undiluted earnings per share

2015 2016 Net profit attributable to BKW shareholders, in CHF millions 276.7 311.6 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 5.71 6.41

Diluted earnings per share

2015 2016 Net profit attributable to BKW shareholders, in CHF millions 276.7 311.6 Tax-adjusted interest expense on convertible bonds 1.7 1.7 BKW shareholders’ portion of net profit, adjusted for dilution effect 278.4 313.3 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 5.29 5.93

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. 48 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

15 Trade accounts receivable and other receivables

CHF millions 31.12.2015 31.12.2016 Trade accounts receivable 498.7 569.0 Other financial receivables 36.1 92.0 Other receivables 85.0 110.8 Prepayments 16.8 1.3 Work in progress 40.7 38.2 Total 677.3 811.3

The work in progress position is composed of the cumulative costs, gains and losses at the balance sheet date of CHF 190.1 million (previous year: CHF 123.8 million) less partial payments of CHF 151.9 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 31.12.2015 31.12.2016 Trade accounts receivable 498.7 569.0 of which: ––not past due 466.7 517.3 ––1 – 30 days past due 12.8 30.5 ––31 – 360 days past due 12.5 16.8 ––Over 360 days past due 6.7 4.4

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 Trade financial CHF millions receivables receivables Loans Provisions for impairment at 31.12.2014 8.2 2.4 10.5 Net formation/reversal 1.7 – 0.4 0.8 Derecognition of uncollectable receivables – 3.7 0.0 0.0 Provisions for impairment at 31.12.2015 6.2 2.0 11.3 Net formation/reversal 4.3 0.0 11.0 Derecognition of uncollectable receivables – 1.5 0.0 0.0 Provisions for impairment at 31.12.2016 9.0 2.0 22.3

There are no material value adjustments for other financial assets. The other balance sheet items contain no material overdue but unimpaired financial assets. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 49

16 Inventories

CHF millions 31.12.2015 31.12.2016 Goods and materials 16.1 21.1 Valuation adjustment on goods and materials – 0.5 – 0.7 Certificates (proprietary trading) 45.9 0.7 Certificates (own use) 25.2 23.7 Valuation adjustment on certificates (own use) 0.0 – 2.4 Total 86.7 42.4

17 Accrued/deferred income and prepaid/accrued expenses

CHF millions 31.12.2015 31.12.2016 Financial accruals 55.4 124.2 Other prepaid expenses and accrued income 30.7 37.9 Total prepaid expenses and accrued income 86.1 162.1 Financial accruals 168.5 127.2 Other deferred income and accrued expenses 45.2 62.7 Total deferred income and accrued expenses 213.7 189.9 50 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

18 Financial assets

CHF millions Available-for-sale financial assets Securities held trading for Loans deposits Term from Receivables funds state Other non-current assets Total At 31.12.2014 160.2 141.6 157.1 577.9 905.0 0.0 1,941.8 Changes in the scope of consolidation 0.1 2.2 2.3 Additions 3.0 37.2 14.8 315.0 30.3 400.3 Disposals – 35.9 – 3.0 – 490.1 – 529.0 Currency translations – 1.6 – 3.4 – 5.0 Value adjustment in the income statement 0.1 – 4.6 – 4.5 Value adjustment in other comprehensive income – 0.3 – 0.3 Impairment – 1.9 – 0.8 – 2.7 At 31.12.2015 159.5 143.0 166.9 402.8 930.7 0.0 1,802.9 Changes in the scope of consolidation 1.2 0.5 4.7 0.5 0.0 8.1 15.0 Additions 0.5 26.3 57.3 235.1 77.2 82.5 478.9 Disposals – 146.0 – 21.9 – 126.5 – 527.3 – 0.1 – 821.8 Currency translations – 0.1 – 0.3 – 0.4 Value adjustment in the income statement – 0.7 60.5 59.8 Value adjustment in other comprehensive income 7.1 7.1 Impairment – 3.7 – 12.0 – 15.7 At 31.12.2016 18.5 147.2 90.1 111.1 1,068.4 90.5 1,525.8 of which: ––Current financial assets 147.2 52.3 110.0 309.5 ––Non-current financial assets 18.5 37.8 1.1 1,068.4 90.5 1,216.3 of which: ––Financial assets according to IAS 32/39 18.5 147.2 90.1 111.1 78.1 445.0 ––Other assets 1,068.4 12.4 1,080.8

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. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 51

19 Investments in associates

CHF millions Total At 31.12.2014 1,173.5 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 31.12.2015 1,156.5 Additions 300.1 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 31.12.2016 1,352.0

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 consoli dated 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). 52 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

Pro rata key figures for associates at 31.12.2016 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 renewable New energy Other Energy Total Grid Services Total Current assets 254.4 45.6 42.5 14.3 4.6 361.4 453.0 1.2 815.6 Non-current assets 898.1 517.9 560.2 95.2 7.6 2,079.0 960.7 0.3 3,040.0 Current liabilities – 219.5 – 71.9 – 29.1 – 8.3 – 2.2 – 331.0 – 369.5 – 0.6 – 701.1 Non-current liabilities – 672.6 – 395.1 – 9.4 – 56.4 – 3.5 – 1,137.0 – 665.4 – 0.1 – 1,802.5 Shareholders’ equity 260.4 96.5 564.2 44.8 6.5 972.4 378.8 0.8 1,352.0 Income 183.8 120.6 82.3 14.2 7.0 407.9 231.2 2.1 641.2 Expenses – 168.5 – 115.5 – 109.1 – 12.1 – 7.2 – 412.4 – 204.3 – 1.8 – 618.5 Net profit/loss 15.3 5.1 – 26.8 2.1 – 0.2 – 4.5 26.9 0.3 22.7 Other comprehensive income 4.3 2.9 0.0 0.0 0.0 7.2 2.4 0.0 9.6 Comprehensive income 19.6 8.0 – 26.8 2.1 – 0.2 2.7 29.3 0.3 32.3

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 370.7 million (previous year: CHF 394.5 million). These are included in the energy procurement expense. CHF 771.1 million of the total pro rata assets and liabilities of partner plants (previous year: CHF 827.3 million) relate to net financial debt. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 53

Pro rata key figures for associates at 31.12.2015 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 renewable New energy Other Energy Total Grid Services Total Current assets 62.0 65.8 54.9 12.1 8.2 203.0 101.8 0.9 305.7 Non-current assets 1,112.9 508.9 617.4 56.7 6.8 2,302.7 371.0 0.3 2,674.0 Current liabilities – 90.1 – 82.2 – 41.8 – 8.2 – 3.0 – 225.3 – 78.6 – 0.4 – 304.3 Non-current liabilities – 824.9 – 399.6 – 12.2 – 49.5 – 3.6 – 1,289.8 – 229.1 0.0 – 1,518.9 Shareholders’ equity 259.9 92.9 618.3 11.1 8.4 990.6 165.1 0.8 1,156.5 Income 175.4 144.5 98.9 17.1 5.4 441.3 158.2 2.4 601.9 Expenses – 169.3 – 131.6 – 69.7 – 16.0 – 5.3 – 391.9 – 142.2 – 2.3 – 536.4 Net profit/loss 6.1 12.9 29.2 1.1 0.1 49.4 16.0 0.1 65.5 Other comprehensive income – 3.9 – 4.2 0.0 0.0 0.0 – 8.1 – 1.1 0.0 – 9.2 Comprehensive income 2.2 8.7 29.2 1.1 0.1 41.3 14.9 0.1 56.3 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 Wilhelmshaven, 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 31.12 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.

ENGIE Kraftwerk Wilhelmshaven EP Produzione Livorno Kraftwerke 100 % key figures GmbH & Co. KG Ferraris S.p.A. Oberhasli AG Swissgrid AG CHF millions 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 Non-current assets 1,646.0 1,576.7 296.8 159.7 863.8 860.2 2,521.9 2,617.1 Current assets 86.0 63.5 106.1 86.3 53.4 92.4 779.4 1,214.1 Non-current liabilities – 29.1 – 23.5 – 10.6 – 6.7 – 734.4 – 572.8 – 1,796.6 – 1,809.7 Current liabilities – 89.5 – 53.1 – 49.1 – 46.4 – 24.6 – 212.9 – 596.4 – 1,011.4 Shareholders’ equity 1,613.4 1,563.6 343.2 192.9 158.2 166.9 908.3 1,010.1 Shareholding in % as at 31.12. 33.0 % 33.0 % 25.0 % 25.0 % 50.0 % 50.0 % 10.87 % 36.40 % Goodwill 0.0 0.0 0.0 0.0 0.0 0.0 0.0 5.9 Reported carrying amount of the investment 532.4 516.0 85.8 48.2 79.1 83.5 98.7 373.6

Income 154.2 117.1 191.9 174.9 158.8 165.0 782.0 1,201.5 Expenses – 65.6 – 96.9 – 182.1 – 308.5 – 153.3 – 158.5 – 696.2 – 1,113.7 Net profit/loss 88.6 20.2 9.8 – 133.6 5.5 6.5 85.8 87.8 Other comprehensive income 0.0 0.0 0.0 0.0 – 0.4 2.2 – 9.3 21.9 Comprehensive income 81.0 20.2 9.8 – 133.6 5.1 8.7 76.5 109.7 Shareholding in % as at 31.12. 33.0 % 33.0 % 25.0 % 25.0 % 50.0 % 50.0 % 10.87 % 36.4 % Goodwill impairment – 2.5 0.0 0.0 0.0 0.0 0.0 0.0 0.0 Recognised proportionate result from associates 26.7 6.7 2.5 – 33.4 2.8 3.3 9.6 13.4 Dividend received 0.0 0.0 1.3 4.1 0.0 0.0 1.4 7.8

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. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 55

20 Property, plant and equipment

CHF millions plants Power Nuclear Mühleberg Plant Power Distribution grid Buildings and land plant Other property, and equipment Construction in progress Total Gross values at 31.12.2015 1,821.1 1,636.3 2,538.0 273.9 365.1 264.3 6,898.7 Changes in the scope of consolidation 72.6 163.2 17.4 10.7 43.6 307.5 Additions 1.2 16.1 0.4 0.3 5.5 237.5 261.0 Disposals – 13.5 – 209.7 – 27.6 – 22.1 – 6.5 – 5.4 – 284.8 Reclassifications 168.1 13.0 145.1 – 30.4 19.9 – 315.7 0.0 Currency translations – 8.5 – 0.4 – 8.9 Gross values at 31.12.2016 2,041.0 1,455.7 2,819.1 239.1 394.7 223.9 7,173.5

Accumulated depreciation and impairments at 31.12.2015 814.1 1,509.6 1,357.8 131.6 238.8 0.5 4,052.4 Changes in the scope of consolidation – 1.1 – 1.1 Depreciation 58.6 33.4 56.9 4.9 26.1 179.9 Impairment 0.1 0.1 Disposals – 10.5 – 87.3 – 24.3 – 4.3 – 6.2 – 0.3 – 132.9 Reclassifications 17.1 – 0.2 – 16.9 0.0 Currency translations – 2.6 – 2.6 Accumulated depreciation and impairments at 31.12.2016 875.6 1,455.7 1,390.2 115.3 258.7 0.3 4,095.8

Net values at 31.12.2016 1,165.4 0.0 1,428.9 123.8 136.0 223.6 3,077.7 ––thereof in financial leasing 140.0 2.9 142.9 ––thereof pledged for liabilities 83.8 83.8

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 124.4 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 312.4 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). 56 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

CHF millions plants Power Nuclear Mühleberg Plant Power and Transmission distribution grid Buildings and land plant Other property, and equipment Construction in progress Total Gross values at 31.12.2014 1,821.0 1,615.2 2,491.7 282.9 361.4 247.9 6,820.1 Changes in the scope of consolidation 31.8 – 18.6 0.1 1.8 15.1 Additions 1.4 12.8 0.6 0.1 4.6 210.1 229.6 Disposals – 14.4 – 3.7 – 12.8 – 10.9 – 25.3 – 0.3 – 67.4 Reclassifications 79.3 12.0 77.4 1.7 23.0 – 193.4 0.0 Currency translations – 98.0 – 0.3 – 0.4 – 98.7 Gross values at 31.12.2015 1,821.1 1,636.3 2,538.0 273.9 365.1 264.3 6,898.7

Accumulated depreciation and impairments at 31.12.2014 732.3 1,456.2 1,325.3 130.7 238.3 54.5 3,937.3 Changes in the scope of consolidation – 9.1 – 9.1 Depreciation 43.1 53.4 53.7 6.9 25.9 0.4 183.4 Impairment 18.1 18.1 Disposals – 13.6 – 11.1 – 6.0 – 25.1 – 0.3 – 56.1 Reversal of impairment – 0.9 – 0.9 Reclassifications 54.1 – 54.1 0.0 Currency translations – 19.9 – 0.1 – 0.3 – 20.3 Accumulated depreciation and impairments at 31.12.2015 814.1 1,509.6 1,357.8 131.6 238.8 0.5 4,052.4

Net values at 31.12.2015 1,007.0 126.7 1,180.2 142.3 126.3 263.8 2,846.3 ––thereof in financial leasing 151.9 151.9 ––thereof pledged for liabilities 69.6 69.6 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 57

21 Intangible assets

CHF millions Rights of use Goodwill Other Total Gross values at 31.12.2015 172.1 295.1 114.4 581.6 Changes in the scope of consolidation – 0.3 99.3 28.5 127.5 Additions from acquisitions 7.2 29.0 36.2 Additions from internally generated intangible assets 13.0 13.0 Disposals – 0.4 – 0.4 Currency translations – 0.9 – 1.2 – 0.3 – 2.4 Gross values at 31.12.2016 178.1 393.2 184.2 755.5

Accumulated depreciation and impairments at 31.12.2015 136.6 93.2 32.2 262.0 Changes in the scope of consolidation – 0.1 – 0.1 Depreciation 2.0 0.9 15.8 18.7 Impairment 21.7 21.7 Disposals – 0.4 – 0.4 Currency translations 0.3 – 0.2 0.1 Accumulated depreciation and impairments at 31.12.2016 138.8 94.1 69.1 302.0

Net values at 31.12.2016 39.3 299.1 115.1 453.5 58 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

CHF millions Rights of use Goodwill Other Total Gross values at 31.12.2014 180.4 197.1 65.7 443.2 Changes in the scope of consolidation 2.0 98.7 29.9 130.6 Additions from acquisitions 0.7 18.9 19.6 Additions from internally generated intangible assets 4.1 4.1 Disposals – 0.5 – 4.1 – 4.6 Currency translations – 10.5 – 0.7 – 0.1 – 11.3 Gross values at 31.12.2015 172.1 295.1 114.4 581.6

Accumulated depreciation and impairments at 31.12.2014 145.3 92.4 26.1 263.8 Changes in the scope of consolidation 0.2 0.2 Depreciation 2.1 0.8 10.2 13.1 Disposals – 0.4 – 4.0 – 4.4 Currency translations – 10.6 – 0.1 – 10.7 Accumulated depreciation and impairments at 31.12.2015 136.6 93.2 32.2 262.0

Net values at 31.12.2015 35.5 201.9 82.2 319.6

On the balance sheet date, goodwill was distributed among the following cash-generating units:

CHF millions 31.12.2015 31.12.2016 Energy 84.4 98.6 Services 117.5 200.5 Total 201.9 299.1

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 WACC Long-term (before tax) (after tax) growth rate % 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 Energy 7.4 7.4 6.0 6.0 1.0 1.0 Services 8.1 8.1 6.6 6.6 1.0 1.0

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. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 59

22 Trade accounts payable and other liabilities

CHF millions 31.12.2015 31.12.2016 Trade accounts payable 249.9 375.4 Other financial liabilities 120.8 109.6 Other liabilities 69.4 68.1 Pension plans 9.7 11.0 Customer prepayments 18.6 24.7 Total 468.4 588.8

Customer prepayments relate to work in progress and comprise advance payments of CHF 121.5 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 31.12.2015 31.12.2016 Bonds 997.3 996.1 Convertible bond 156.0 128.7 Registered bonds 277.0 279.1 Finance leasing liabilities 63.7 57.0 Bank liabilities 125.5 144.5 Other financial liabilities 66.6 81.0 Total 1,686.1 1,686.4 of which: ––Current financial liabilities 53.9 82.4 ––Non-current financial liabilities 1,632.2 1,604.0

In 2014, BKW issued a convertible bond in the amount of CHF 163.4 million to run from 30 Sep- tember 2014 to 30 September 2020 with an interest rate of 0.125 %. On the balance sheet date, the conversion price was CHF 38.09. 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. 60 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

24 Provisions

CHF millions disposal waste Nuclear contracts, Onerous procurement energy Other provisions Total At 31.12.2014 1,558.9 482.2 47.5 2,088.6 Changes in the scope of consolidation 2.1 2.1 Provisions added 6.0 2.8 2.7 11.5 Interest 53.3 13.6 0.6 67.5 Provisions used – 32.2 – 14.0 – 4.4 – 50.6 Provisions released – 74.3 – 2.4 – 76.7 Currency translations – 2.7 – 2.7 At 31.12.2015 1,586.0 410.3 43.4 2,039.7 Changes in the scope of consolidation 7.1 7.1 Provisions added 6.0 32.0 8.8 46.8 Interest 54.3 10.5 0.6 65.4 Provisions used – 32.4 – 39.8 – 3.8 – 76.0 Provisions released – 40.6 – 2.7 – 43.3 Change in estimate for nuclear disposal – 124.4 – 124.4 Currency translations – 0.3 – 0.3 At 31.12.2016 1,489.5 372.4 53.1 1,915.0 of which: ––Current provisions 16.5 44.9 11.6 73.0 ––Non-current provisions 1,473.0 327.5 41.5 1,842.0

Nuclear waste disposal At 31 December 2016, the provision for nuclear waste disposal comprised the following:

–– CHF 809.0 million (previous year: CHF 771.7 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 660.4 million (previous year: CHF 725.5 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 2116. –– 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. 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 124.4 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. 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 (Pensionskasse 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 105.9 % (previous year: 109.7 %). 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. 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 2017. 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.

25.1 Pension liability recorded in the balance sheet

CHF millions 31.12.2015 31.12.2016 Present value of defined benefit obligations – 1,821.7 – 1,978.6 Fair value of plan assets 1,563.9 1,709.9 Credit from pension plans recorded in the balance sheet 0.0 – 12.4 Pension liability recorded in the balance sheet at 31.12. – 257.8 – 281.1 of which amount disclosed as credit 0.0 12.4 of which amount disclosed as liability – 257.8 – 281.1

25.2 Pension expense according to IAS 19

CHF millions 2015 2016 Current service cost (employer) 39.6 41.4 Past service cost (employer) 0.0 – 9.1 Interest expenses on defined benefit obligation 19.2 14.6 Interest income from plan assets – 17.0 – 12.5 Administration costs excluding costs for management of plan assets 1.0 0.9 Pension plan expenses 42.8 35.3

25.3 Remeasurement of pension plans

CHF millions 2015 2016 Actuarial gains/losses ––Change in financial assumptions 36.9 4.5 ––Change in demographic assumptions – 12.9 23.2 ––Adjustments based on experience 17.1 15.7 Return on plan assets (excluding interest based on discount rate) 7.9 – 41.0 Total revaluation reported in other comprehensive income 49.0 2.4 64 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

25.4 Change in present value of defined benefit obligation

CHF millions 2015 2016 Present value of defined benefit obligation at 01.01. 1,755.3 1,821.7 Interest expenses on defined benefit obligation 19.2 14.6 Current service cost (employer) 39.6 41.4 Contributions paid/benefits paid out – 53.9 – 66.2 Employee contributions 19.5 19.6 Past service cost (employer) 0.0 – 9.1 Business combination – 0.1 112.2 Administration costs (excluding asset management costs) 1.0 1.0 Actuarial gains/losses 41.1 43.4 Present value of defined benefit obligations at 31.12. 1,821.7 1,978.6

At the balance sheet date, the active members’ share of the defined benefit obligation was CHF 1,053.9 million (previous year: CHF 941.8 million). The share of those drawing a pension in the defined benefit obligation was CHF 924.7 million (previous year: CHF 879.9 million).

25.5 Change in fair value of plan assets

CHF millions 2015 2016 Fair value of plan assets at 01.01. 1,557.8 1,563.9 Interest income from plan assets 17.0 12.5 Employer contributions 31.4 30.0 Employee contributions 19.5 19.6 Contributions paid/benefits paid out – 53.9 – 66.2 Business combination 0.0 109.1 Return on plan assets (excluding interest based on discount rate) – 7.9 41.0 Fair value of plan assets at 31.12. 1,563.9 1,709.9 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 65

25.6 Asset structure of plan assets

CHF millions 31.12.2015 % 31.12.2016 % Cash and cash equivalents 41.7 2.7 60.5 3.5 Equity instruments 557.8 35.7 592.6 34.7 Debt instruments 585.9 37.4 616.0 36.0 Other instruments 81.4 5.2 120.0 7.0 Properties 297.1 19.0 320.8 18.8 Total plan assets 1,563.9 100.0 1,709.9 100.0 ––thereof own transferrable financial instruments 1.7 2.3 ––thereof properties used by BKW 15.7 17.1

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 %).

25.7 Actuarial assumptions

2015 2016 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). 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:

31.12.2016 Defined benefit obligation CHF millions Increase Decrease Discount rate (0.25 % change) – 66.3 70.9 Salary increase (0.25 % change) 10.6 – 10.3 Changes in pensions (+ 0.20 % change) 46.7 – Life expectancy (1 year change) 64.9 – 66.1

31.12.2015 Defined benefit obligation CHF millions Increase Decrease Discount rate (0.25 % change) – 62.3 66.6 Salary increase (0.25 % change) 10.6 – 10.3 Changes in pensions (+ 0.20 % / – 0.10 % change) 43.6 – 15.5 Life expectancy (1 year change) 62.8 – 64.1

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.

25.8 Estimated contributions for the next period

CHF millions 2015 2016 Expected employer contributions 31.1 33.6 Expected employee contributions 20.1 22.9

26 Other liabilities

CHF millions 31.12.2015 31.12.2016 Assigned rights of use 229.3 267.2 Other non-current financial liabilities 40.6 125.9 Other non-current liabilities 6.3 0.5 Total 276.2 393.6

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. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 67

27 Share capital and reserves

27.1 Share capital

The issued and fully paid-in share capital of BKW AG amounting to CHF 132.0 million consists of 52,800,000 registered shares at a par value of CHF 2.50 each.

Major shareholders and their direct ownership

31.12.2015 31.12.2016 Canton of Bern 52.54 % 52.54 % Groupe E Ltd. 10.00 % 10.00 % E.ON SE 6.65 % 3.33 % Treasury shares 8.13 % 6.60 %

Transactions in treasury shares Carrying Cash-relevant amount proportion Number CHF millions CHF millions 31.12.2014 4,409,097 311.1 Purchases 10,000 0.3 0.3 Sales – 128,146 – 8.5 – 1.7 31.12.2015 4,290,951 302.9 Purchases 103,040 4.7 4.7 Sales – 908,970 – 63.0 – 2.2 31.12.2016 3,485,021 244.6

27.2 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. 68 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

Other reserves

CHF millions Currency translations reserve Revaluation available-for-sale financial assets Hedging gains/losses Actuarial Total At 31.12.2014 – 228.2 36.0 0.3 34.5 – 157.4 Currency translations ––Currency translations – 114.0 – 114.0 Available-for-sale financial assets ––Value adjustments – 0.3 – 0.3 Hedging transactions ––Value adjustments 1.0 1.0 ––Reclassification to the income statement – 0.1 – 0.1 Actuarial gains/losses ––of Group companies – 49.0 – 49.0 ––of associates – 9.1 – 9.1 Income taxes – 0.1 0.1 – 0.3 11.1 10.8 At 31.12.2015 – 342.3 35.8 0.9 – 12.5 – 318.1 Currency translations ––Currency translations – 13.6 – 13.6 Available-for-sale financial assets ––Value adjustments 7.1 7.1 ––Reclassification to the income statement – 53.0 – 53.0 Hedging transactions ––Value adjustments 0.4 0.4 Actuarial gains/losses ––of Group companies – 2.4 – 2.4 ––of associates 8.7 8.7 Income taxes 10.1 – 0.1 0.2 10.2 At 31.12.2016 – 355.9 0.0 1.2 – 6.0 – 360.7 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.

27.3 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. 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 (receivables) 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 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 Futures (energy trading) 0.0 0.0 0.0 0.0 96.9 99.3 Forward contracts (energy trading) 129.4 164.7 100.9 152.0 1,382.6 1,408.5 Swaps 0.0 0.0 4.6 4.6 25.0 25.0 Exchange rate hedging 0.3 0.1 0.2 40.9 2.1

Hedge accounting ––Swaps 11.1 8.1 0.2 0.1 114.0 112.2 ––Exchange rate hedging 0.4 1.3 0.0 0.5 72.6 64.9 Total 141.2 174.1 105.8 157.4 1,732.0 1,712.0

of which: ––Current derivatives 82.1 127.8 67.0 119.3 ––Non-current derivatives 59.1 46.3 38.8 38.1 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 71

29 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 275.0 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. 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:

Companies exerting significant influence Parent over the Group Associates Pension funds CHF millions 2015 2016 2015 2016 2015 2016 2015 2016 Income ––Energy sales 4.0 2.6 35.1 49.2 61.3 49.9 ––Other sales and services 7.0 8.4 9.2 34.8 35.8 68.1 1.1 1.1 ––Interest and dividends 2.3 2.5 2.2 2.2 21.1 36.0 Expenses ––Energy purchases 13.0 13.4 284.0 245.7 ––Water charges 21.4 20.4 ––Other purchases and services 0.7 0.4 0.1 0.1 111.0 114.9 30.8 29.9 ––Taxes and charges 2.9 2.0 ––Interest and dividends 44.7 44.4 8.4 8.5 ––Income taxes 14.5 21.1 Assets ––Non-current financial assets 3.1 0.0 ––Loans 133.3 25.9 ––Rights of use 13.4 12.9 ––Current financial assets 15.8 46.6 ––Receivables and accruals 2.0 2.4 4.5 7.9 36.7 82.8 ––Cash and cash equivalents 35.5 36.5 Liabilities ––Loans 1.1 1.9 0.0 0.9 ––Rights of use 0.3 0.3 ––Liabilities and accruals 8.3 18.5 0.2 0.5 62.9 37.8 10.2 11.0

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. 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 123.4 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 2015 2016 Short-term benefits 4.7 3.9 Contributions to pension plans 1.5 0.9 Share-based payments 0.6 0.7 Total 6.8 5.5

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. 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:

Lessor Lessor Lessee Lessee CHF millions 31.12.2015 31.12.2016 31.12.2015 31.12.2016 Up to 1 year 7.9 7.8 7.7 7.0 Later than 1 year and not later than 5 years 16.4 9.0 15.4 14.3 More than 5 years 2.1 1.6 42.8 37.8 Total 26.4 18.4 65.9 59.1

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).

31.2 Finance leases

Minimum Minimum lease lease payments payments Present value Present value CHF millions 31.12.2015 31.12.2016 31.12.2015 31.12.2016 Up to 1 year 11.8 11.7 8.0 8.3 Later than 1 year and not later than 5 years 40.8 39.9 30.0 31.2 More than 5 years 28.8 19.1 25.7 17.5 Total 81.4 70.7 63.7 57.0 Financing costs – 17.7 – 13.7 Present value of minimum lease payments 63.7 57.0

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. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 75

32 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 31.12.2015 31.12.2016 Bank and cash balances 649.2 668.0 Term deposits 185.0 270.0 Total cash and cash equivalents 834.2 938.0

Adjustments to the operating cash flow for non-cash transactions are composed as follows:

CHF millions 31.12.2015 31.12.2016 Depreciation, amortisation and impairment 213.7 220.4 Income from associates – 65.5 – 22.7 Financial result 106.7 0.3 Gains/losses from sale of non-current assets – 8.4 – 11.5 Change in non-current provisions (excl. interest) – 138.6 – 78.5 Change in assigned rights of use – 10.3 – 10.9 Change from the valuation of energy derivatives 26.4 15.9 Other non-cash positions 11.1 – 10.6 Total adjustment for non-cash transactions 135.1 102.4

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 195.2 million corresponds to the purchase price of CHF 266.8 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 124.4 million of disposals were non-cash (see Note 20). 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 27.00 per share (previous year: CHF 20.00). The underlying present value per share was CHF 38.50 (previous year: CHF 33.00). The personnel expense for this share- based 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 45.20 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 afore- mentioned 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. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 77

34 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 131.7 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 31.12.2015 31.12.2016 Non-controlling interests in % 49.9 % 49.9 % Carrying amount of non-controlling interests 47.8 181.6 Net income allocated to non-controlling interests 0.5 2.3 Dividends on non-controlling interests 0.0 0.3

Balance sheet Non-current assets 94.7 361.7 Current assets 17.3 5.2 Non-current liabilities 0.0 0.0 Current liabilities 16.2 3.0

Income statement Financial income 1.4 7.8 Net profit 1.1 4.6

Cash flow statement Cash flow from operating activities 0.9 2.5 Cash flow from investing activities 0.0 – 266.9 Cash flow from financing activities 0.0 263.4 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 “available- for-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. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 79

Carrying amount at CHF millions 31.12.2016 Level 1 Level 2 Level 3 Financial assets at fair value through profit or loss Current financial assets ––Securities held for trading 147.2 147.2 Inventories ––Certificates (proprietary trading) 0.7 0.7 Derivatives (current and non-current) 174.1 174.1 Non-current financial assets ––Available-for-sale financial assets 18.5 18.5 ––Receivables from state funds 1,068.4 1,068.4 Financial liabilities at fair value through profit or loss Derivatives (current and non-current) – 157.4 – 157.4

Carrying amount at CHF millions 31.12.2015 Level 1 Level 2 Level 3 Financial assets at fair value through profit or loss Current financial assets ––Securities held for trading 143.0 143.0 Inventories ––Certificates (proprietary trading) 45.9 45.9 Derivatives (current and non-current) 141.2 141.2 Non-current financial assets ––Available-for-sale financial assets 159.5 54.6 104.9 ––Receivables from state funds 930.7 930.7 Financial liabilities at fair value through profit or loss Derivatives (current and non-current) – 105.8 – 105.8

In addition, the liabilities on 31 December 2016 include the following at fair value:

–– Bonds with an amount of CHF 117.3 million (previous year: CHF 120.0 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 Available-for-sale price payments financial assets CHF millions 2015 2016 2015 2016 At 01.01. 1.5 46.3 103.1 104.9 Additions 50.2 21.0 2.9 1.8 Disposals – 2.0 – 5.9 – 51.2 Value adjustment ––Transfer to income statement – 3.4 – 16.5 – 43.5 ––Changes in value included in other comprehensive income – 0.4 – 1.1 6.5 At 31.12. 46.3 44.5 104.9 18.5 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 2015 2016 2015 2016 2015 2016 2015 2016 Cash and cash equivalents 32 834.2 938.0 834.2 938.0 Trade accounts receivable 15 498.7 569.0 498.7 569.0 Other current financial receivables 15 36.1 92.0 36.1 92.0 Current financial assets 18 417.2 162.3 143.0 147.2 560.2 309.5 Derivatives (current and non-current) 28 141.2 174.1 141.2 174.1 Financial accruals 17 55.4 124.2 55.4 124.2 Non-current financial assets 18 152.5 117.0 159.5 18.5 312.0 135.5 Total 1,994.1 2,002.5 284.2 321.3 159.5 18.5 2,437.8 2,342.3

Financial liabilities Recognised Liabilities at Fair value through according Note amortised cost profit or loss to IAS 17 Total CHF millions 2015 2016 2015 2016 2015 2016 2015 2016 Trade accounts payable 22 249.9 375.4 249.9 375.4 Other current financial liabilities 22 113.1 93.1 7.7 16.5 120.8 109.6 Current financial liabilities 23 45.9 74.1 8.0 8.3 53.9 82.4 Derivatives (current and non-current) 28 105.8 157.4 105.8 157.4 Financial accruals 17 168.5 127.2 168.5 127.2 Non-current financial liabilities 23 1,456.5 1,438.0 120.0 117.3 55.7 48.7 1,632.2 1,604.0 Other non-current financial liabilities 26 2.0 81.8 38.6 44.1 40.6 125.9 Total 2,035.9 2,189.6 272.1 335.3 63.7 57.0 2,371.7 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). ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 81

36.2 Net results of financial assets and liabilities measured in accordance with IAS 39

Net result Loans and Fair value through Liabilities at receivables profit or loss Available-for-sale amortised cost Total CHF millions 2015 2016 2015 2016 2015 2016 2015 2016 2015 2016 Included in net sales: ––Income from proprietary energy trading 8.4 12.2 8.4 12.2 ––Income from energy hedging – 18.6 2.4 – 18.6 2.4 Included in other operating revenue: ––Change in contingent purchase price payments 3.4 16.5 3.4 16.5 Change in provision for impairment of receivables 1.3 4.3 1.3 4.3 Included in financial result: 7.1 – 15.0 3.2 4.0 2.2 52.2 – 49.2 – 47.0 – 36.7 – 5.8 Included in other comprehensive income: – 0.3 – 45.9 – 0.3 – 45.9 Total 8.4 – 10.7 – 3.6 35.1 1.9 6.3 – 49.2 – 47.0 – 42.5 – 16.3

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.

36.3 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:

2015 2016 CHF millions Gross values Netting off Net values Gross values Netting off Net values Trade accounts receivable 802.1 – 303.4 498.7 1,043.8 – 474.8 569.0 Trade accounts payable – 553.3 303.4 – 249.9 – 850.2 474.8 – 375.4

Positive replacement values 590.2 – 460.8 129.4 840.3 – 675.6 164.7 Negative replacement values – 561.7 460.8 – 100.9 – 827.6 675.6 – 152.0 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 2016.

37.2 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. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 83

CHF millions 31.12.2015 31.12.2016 Rating AAA to AA- 581.0 406.9 Rating A+ to BBB- 1,020.7 1,049.8 Rating BB+ and lower 17.0 46.9 Other counterparties 250.4 287.5 Total 1,869.1 1,791.1 Included under: ––Trade accounts receivable 498.7 569.0 ––Derivatives (current and non-current) 141.2 174.1 ––Current financial assets (term deposits only) 395.0 110.0 ––Cash and cash equivalents 834.2 938.0

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 credit- worthiness 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 136.6 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 %). 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 31.12.2016 Due within 1 year 1 and Due between 2 years 2 and Due between 3 years 3 and Due between 5 years 5 years Due after Non-derivative financial liabilities

Trade accounts payable 22 375.4 375.4 Other current financial liabilities 22 109.6 109.6 Financial accruals 17 127.2 127.2 Financial liabilities 23 1,686.4 76.1 217.7 437.3 227.9 1,169.7 Other non-current financial liabilities 26 125.9 24.7 49.1 41.0 7.4 Total non-derivative liabilities 2,424.5 688.3 242.4 486.4 268.9 1,177.1 Derivative financial assets and liabilities Energy derivatives/options ––Positive replacement values 28 164.7 138.3 28.1 10.2 ––Negative replacement values 28 – 152.0 – 130.4 – 24.9 – 8.6 Net replacement values 12.7 7.9 3.2 1.6 0.0 0.0 Currency forwards and swaps ––Positive replacement values 28 9.4 1.4 0.1 8.1 ––Negative replacement values 28 – 5.4 – 0.6 – 0.4 – 4.6 Net replacement values 4.0 0.8 – 0.3 8.1 0.0 – 4.6 Gross cash flows related to derivatives ––Gross outflow – 4,628.6 – 640.6 – 158.9 – 1.3 ––Gross inflow 4,596.2 658.2 162.7 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 85

CHF millions Note Carrying amount at 31.12.2015 Due within 1 year 1 and Due between 2 years 2 and Due between 3 years 3 and Due between 5 years 5 years Due after Non-derivative financial liabilities

Trade accounts payable 22 249.9 249.9 Other current financial liabilities 22 120.8 120.8 Financial accruals 17 168.5 168.5 Financial liabilities 23 1,502.4 65.7 64.5 227.3 619.3 1,178.6 Other non-current financial liabilities 26 40.6 0.2 0.4 2.4 36.4 1.2 Total non-derivative liabilities 2,074.5 597.4 64.9 229.7 655.7 1,179.8 Derivative financial assets and liabilities Energy derivatives/options ––Positive replacement values 28 129.4 99.7 38.0 10.1 ––Negative replacement values 28 – 100.9 – 85.2 – 26.0 – 8.1 Net replacement values 28.5 14.5 12.0 2.0 0.0 0.0 Currency forwards and swaps ––Positive replacement values 28 11.8 1.0 11.1 ––Negative replacement values 28 – 4.9 – 0.3 – 0.3 – 4.6 Net replacement values 6.9 0.7 – 0.3 0.0 11.1 – 4.6 Gross cash flows related to derivatives ––Gross outflow – 3,748.1 – 1,153.9 – 273.8 – 2.5 ––Gross inflow 3,695.5 1,174.7 292.2

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 133.5 million) is given at the time of contractual maturity (in 2020). 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 CO2 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.

37.4.1 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.

37.4.2 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 variable- interest positions.

37.4.3 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.

37.4.4 Energy price risks/CO2 certificate price risks For the purpose of asset management and proprietary trading, unsecured positions in energy and

CO2 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 CO2 positions extends to 2021.

37.4.5 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. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 87

Value at Risk

CHF millions 31.12.2015 31.12.2016 Interest 11.7 9.5 Share price, financial instruments available-for-sale 57.2 8.6 Currencies 8.4 2.7

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, CO2, 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 addi- tionally subject to loss limits. At 31 December 2016, the CC-VaR amounted to CHF 1.7 million (previous year: CHF 1.1 million). 88 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements

38 Contingent liabilities and investment obligations

CHF millions 31.12.2015 31.12.2016 Guarantees ––in favour of associates 17.7 16.6 ––in favour of third parties 55.3 65.0 Investment obligations 300.0 110.8 Total 373.0 192.4

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 2020. The expected investment costs for BKW amount to a total of EUR 124.5 million. Around EUR 32.3 million was invested up to 31 December 2016. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 89

39 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 2017. 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 antici- pates 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 2017. The consolidated financial statements are subject to the approval of the BKW General Meeting on 12 May 2017. 90 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements Group companies and Associates Energy Grid Services Other Domicile capital Share/basic in millions Currency in % ownership Direct closing law Company date

Group companies Switzerland A. Dietrich Kälte Klima Lüftung AG • Beringen 0.2 CHF 100.0 31.12. AEK Elektro AG • Solothurn 0.5 CHF 100.0 31.12. AEK Energie AG • • • • Solothurn 6.0 CHF 93.2 31.12. AEK onyx AG • Solothurn 1.0 CHF 100.0 31.12. AEK Pellet AG • Balsthal 9.0 CHF 100.0 31.12. ahochn AG • Dübendorf 0.3 CHF 100.0 31.12. ahochn AG, Rotkreuz • Risch 0.1 CHF 100.0 31.12. Aicher, De Martin, Zweng AG • Lucerne 0.1 CHF 100.0 31.12. antec group AG • Dübendorf 0.4 CHF 100.0 31.12. Aqua Innovation GmbH • Risch 0.1 CHF 100.0 31.12. Arnold AG • Wangen an der Aare 0.5 CHF 100.0 31.12. Arpe AG • Buckten 0.1 CHF 100.0 31.12. Balzer Ingenieure AG • Chur 0.1 CHF 100.0 31.12. Baumeler Leitungsbau AG • Buchrain 0.1 CHF 100.0 31.12. BEBAG Bioenergie Bätterkinden AG • Bätterkinden 0.1 CHF 56.0 31.12. Biomassekraftwerk Otelfingen AG • Otelfingen 0.5 CHF 50.0 31.12. BKW EES Inc. • Etziken 2.1 CHF 100.0 31.12. BKW Energie AG • • • • Bern 132.0 CHF 100.0 31.12. BKW Grid Switzerland Ltd. • Bern 0.1 CHF 100.0 31.12. BKW ISP AG • Ostermundigen 0.9 CHF 100.0 31.12. BKW ISP Gebäudetechnik AG • Dübendorf 0.2 CHF 100.0 31.12. BKW Netzbeteiligung Ltd. • Bern 25.2 CHF 50.1 31.12. BKW Wallis AG • Visp 0.1 CHF 100.0 31.12. Cantoni Haustechnik AG • Wohlen 0.2 CHF 100.0 31.12. cc energie sa • Morat 1.0 CHF 66.7 31.12. CORELL Technologies Sàrl • Martigny 0.02 CHF 100.0 31.12. Curea Elektro AG • Landquart 0.2 CHF 100.0 31.12. Elektrizitätswerke Wynau AG • Langenthal 0.1 CHF 100.0 31.12. Elektro Aebi AG • Aeschi (SO) 0.3 CHF 100.0 31.12. Elektro Feuz AG • Grindelwald 0.1 CHF 100.0 31.12. Elektro Zaugg GmbH • Solothurn 0.02 CHF 100.0 31.12. Emeltec Sàrl • Martigny 0.04 CHF 100.0 31.12. Energie Biberist AG EBAG • Biberist 5.0 CHF 65.0 31.12. Frey + Gnehm Ingenieure AG • Olten 0.1 CHF 100.0 31.12. Gesellschaft Mont-Soleil • Bern – CHF 60.0 31.12. Hertig Haustechnik AG • Wohlen (AG) 0.1 CHF 100.0 31.12. Holzwärme Grindelwald AG • Grindelwald 2.5 CHF 93.4 31.12. Inag-Nievergelt AG • Zurich 0.7 CHF 80.0 31.12. inelectro sa • Porrentruy 0.5 CHF 100.0 31.12. Ingenieurteam IFE AG • Widnau 0.2 CHF 100.0 31.12. IWAG Ingenieure AG • Zurich 0.1 CHF 100.0 31.12. Juvent SA • Saint-Imier 6.0 CHF 65.0 31.12. Karl Waechter AG • Zurich 0.1 CHF 100.0 31.12. Kasteler-Guggisberg AG • Bern 0.2 CHF 100.0 31.12. Kraftwerk Gohlhaus AG • Lützelflüh 1.3 CHF 59.9 31.12. Kraftwerk Lauenen AG • Lauenen 2.0 CHF 85.0 31.12. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 91 Energy Grid Services Other Domicile capital Share/basic in millions Currency in % ownership Direct closing law Company date

Group companies (continued) Reichenbach Kraftwerk Spiggebach AG • im Kandertal 3.8 CHF 51.0 31.12. Kraftwerke Fermelbach AG • St. Stephan 4.5 CHF 80.0 31.12. Kraftwerke Kander Alp AG • Kandersteg 2.5 CHF 60.0 31.12. Kraftwerke Milibach AG • Wiler (Lötschen) 1.0 CHF 80.0 31.12. Kraftwerke Ragn d’Err AG • Surses 6.0 CHF 80.0 31.12. Lami SA • Martigny 0.2 CHF 100.0 31.12. Lutz Bodenmüller AG • Beringen 0.1 CHF 100.0 31.12. Marcel Rieben Ingenieure AG • Köniz 0.1 CHF 100.0 31.12. Marzolo & Partner AG • Uster 0.1 CHF 100.0 31.12. Mollet Energie AG • Solothurn 0.2 CHF 100.0 31.12. Neukom Installationen AG • Rafz 0.2 CHF 100.0 31.12. Onyx Energie Dienste AG • • Langenthal 2.0 CHF 100.0 31.12. Onyx Energie Mittelland AG • • Langenthal 10.5 CHF 100.0 31.12. Onyx Energie Netze AG • • Langenthal 10.5 CHF 100.0 31.12. Onyx Energie Produktion AG • Langenthal 3.0 CHF 100.0 31.12. Regionaler Wärmeverbund AG Heimberg-Steffisburg (REWAG) • Heimberg 2.5 CHF 51.0 31.12. Schmid, Amrhein AG • Lucerne 0.3 CHF 100.0 31.12. Schönenberger & Partner AG Sanitäre Anlagen • Rickenbach (TG) 0.1 CHF 100.0 31.12. Securon AG • Solothurn 0.1 CHF 100.0 31.12. Simmentaler Kraftwerke AG • Erlenbach i. S. 7.3 CHF 84.0 31.12. Société des forces électriques de la Goule SA • • Saint-Imier 3.5 CHF 84.3 31.12. Sol-E Suisse AG • Bern 0.1 CHF 100.0 31.12. TID Technische Informationen & Dienstleistungen P. Tschannen GmbH • Schüpfen 0.1 CHF 100.0 31.12. Weber AG, Stäfa • Stäfa 0.1 CHF 100.0 31.12. Wind Energy Trading WET AG • Lausanne 0.1 CHF 60.0 31.12. Ziegler AG Elektrounternehmung • Zuchwil 0.1 CHF 100.0 31.12. China Solar-Log New energy Technologies (Shanghai) Co. Ltd. • Shanghai 10.0 CNY 100.0 31.12. Germany BKW Bippen Wind GmbH • Berlin 0.03 EUR 100.0 31.12. BKW Borkum West II Beteiligungs-GmbH • Berlin 0.03 EUR 100.0 31.12. BKW Deutschland GmbH • • Berlin 0.1 EUR 100.0 31.12. BKW Dubener Platte Wind GmbH • Berlin 0.03 EUR 100.0 31.12. BKW Energie Dörpen Beteiligungs-GmbH • Berlin 0.03 EUR 100.0 31.12. BKW Energie Wilhelmshaven Beteiligungs-GmbH • Berlin 0.03 EUR 100.0 31.12. BKW Erneuerbare Energien GmbH • Berlin 0.03 EUR 100.0 31.12. BKW Holleben Wind GmbH • Berlin 0.03 EUR 100.0 31.12. BKW Landkern Wind GmbH • Berlin 0.05 EUR 100.0 31.12. BKW Wind Service GmbH • • Berlin 0.03 EUR 100.0 31.12. IFB Eigenschenk • Deggendorf 0.03 EUR 100.0 31.12. IFB Eigenschenk + Partner GmbH • Freital 0.03 EUR 100.0 31.12. KAE Kraftwerks- & Anlagen-Engineering GmbH • Hausen 0.05 EUR 100.0 31.12. Lindschulte + Kloppe Ingenieurgesellschaft mbH • Düsseldorf 0.03 EUR 75.0 31.12. Lindschulte + Schulze Ingenieurgesellschaft mbH • Burgwedel 0.03 EUR 75.0 31.12. Lindschulte Ingenieure TGA GmbH • Nordhorn 0.03 EUR 100.0 31.12. 92 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements Energy Grid Services Other Domicile capital Share/basic in millions Currency in % ownership Direct closing law Company date

Group companies (continued) Lindschulte Ingenieurgesellschaft mbH • Münster 0.03 EUR 87.5 31.12. Lindschulte Ingenieurgesellschaft mbH • Erfurt 0.03 EUR 75.0 31.12. Lindschulte Ingenieurgesellschaft mbH Emsland • Meppen 0.03 EUR 50.0 31.12. Lindschulte Ingenieur-Holding GmbH • Nordhorn 0.06 EUR 100.0 31.12. Lindschulte Ingenieurgesellschaft mbH • Nordhorn 0.3 EUR 100.0 31.12. Schwesig + Lindschulte GmbH • Rostock 0.03 EUR 75.0 31.12. SDS Entwicklung GmbH • Berlin 0.03 EUR 100.0 31.12. Solare Datensysteme GmbH • Geislingen 0.03 EUR 100.0 31.12. STKW Energie Dörpen GmbH & Co. KG • Berlin – EUR 100.0 31.12. STKW Energie Dörpen Verwaltungs-GmbH • Berlin 0.03 EUR 100.0 31.12. France BKW France SAS • Paris 0.1 EUR 100.0 31.12. Ferme Eolienne de St. Germier SAS • Paris 0.001 EUR 100.0 31.12. Ferme Eolienne St. Julien du Terroux SAS • Paris 0.001 EUR 100.0 31.12. Parc Eolien de Fresnoy Brancourt SAS • Vincennes 0.04 EUR 100.0 31.12. RAZ Energie 3 SAS • Paris 0.001 EUR 100.0 31.12. Saméole Bois du Goulet SAS • Paris 0.003 EUR 100.0 31.12. Italy BKW Hydro Valle d’Aosta S.r.l. • La Salle 0.1 EUR 100.0 31.12. BKW Italia S.p.A. • • • Milan 13.4 EUR 100.0 31.12. BKW Wind Italia S.r.l. • Milan 0.01 EUR 100.0 31.12. C.D.N.E. S.p.A. • Milan 0.5 EUR 74.9 31.12. CHI.NA.CO S.r.l. • Roè Volciano 2.0 EUR 100.0 31.12. Electra Italia S.p.A. • • Milan 1.0 EUR 100.0 31.12. Frosio S.r.l. • Brescia 0.02 EUR 70.0 31.12. Green Castellaneta S.p.A. • Milan 0.1 EUR 100.0 31.12. Idroelettrica Lombarda S.r.l. • Milan 25.4 EUR 100.0 31.12. Proxima S.r.l. • Milan 0.01 EUR 100.0 31.12. Tamarete Energia S.r.l. • Ortona 3.6 EUR 60.0 31.12. Volturino Wind S.r.l. • Milan 0.03 EUR 100.0 31.12. Wind Farm Buglia S.r.l. • Milan 0.03 EUR 100.0 31.12. Wind Farm S.r.l. • Milan 0.02 EUR 100.0 31.12. Wind International Italy S.r.l. • Milan 52.2 EUR 100.0 31.12. Norway BKW Norway NWP AS • Oslo 0.3 CHF 100.0 31.12. Proxima Scandinavia AS • Oslo 0.1 NOK 60.0 31.12. Austria Ingenieurgemeinschaft DI Anton Bilek und DI Gunter Krischner GmbH • Graz 0.04 EUR 100.0 31.12. USA Solar Data Systems Inc. • Bethel (CT) 0.1 USD 100.0 31.12.

Joint operations Bielersee Kraftwerke AG BIK • Biel 20.0 CHF 50.0 31.12. Kraftwerk Sanetsch AG (KWS) • Gsteig 3.2 CHF 50.0 30.09. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 93 Energy Grid Services Other Domicile capital Share/basic in millions Currency in % ownership Direct closing law Company date

Associates Switzerland Abonax AG • St. Gallen 1.0 CHF 34.0 31.12. Ampard Ltd. • Zurich 0.2 CHF 26.7 31.12. Biogaz du Vallon Sàrl • Cortébert 0.02 CHF 24.5 31.12. DEVIWA AG • Leuk 0.1 CHF 20.0 31.12. EDJ, Energie du Jura SA • Delémont 7.4 CHF 41.0 30.09. Electra-Massa AG • Naters 20.0 CHF 16.1 31.12. Electricité de la Lienne SA • Sion 24.0 CHF 33.3 30.09. Engadiner Kraftwerke AG • Zernez 140.0 CHF 30.0 30.09. Erdgas Thunersee AG • Interlaken 6.9 CHF 33.3 31.12. ETRANS Ltd. • Laufenburg 7.5 CHF 11.5 31.12. EVTL Energieversorgung Talschaft Lötschen AG • Wiler (Lötschen) 1.3 CHF 49.0 31.12. Externes Lager der Kernkraftwerke Schweiz • Baden – CHF 25.0 31.12. Forces Motrices de Mattmark SA • Saas-Grund 90.0 CHF 11.1 30.09. Forces Motrices de Mauvoisin SA • Sion 100.0 CHF 19.5 30.09. GEBNET AG • Buchegg 7.0 CHF 40.9 31.12. Gesellschaft Mont-Soleil • Bern – CHF 60.0 31.12. Grande Dixence SA • Sion 300.0 CHF 13.3 31.12. Hertli & Bertschy AG, elektrische Anlagen • Tafers 0.1 CHF 40.0 31.12. Kernkraftwerk Leibstadt AG • Leibstadt 450.0 CHF 9.5 31.12. Kernkraftwerk-Beteiligungsgesellschaft AG (KBG) • Bern 150.0 CHF 33.3 31.12. Kraftwerk Berschnerbach AG • Walenstadt 0.1 CHF 49.0 31.12. Kraftwerk Wannenfluh AG • Rüderswil 0.3 CHF 31.9 31.12. Kraftwerke Färdabach AG • Ferden 0.1 CHF 34.0 31.12. Kraftwerke Hinterrhein AG • Thusis 100.0 CHF 7.7 30.09. Kraftwerke Oberhasli AG • Innertkirchen 120.0 CHF 50.0 31.12. La Prairie Biogaz SA • Porrentruy 1.4 CHF 30.0 31.12. Metanord SA • Camorino 18.6 CHF 30.9 31.12. MOHA ZOFI • Brienz – CHF 38.5 31.12. Nagra, National Cooperative for the Disposal of Radioactive Waste • Wettingen – CHF 14.3 31.12. NIS AG • Sursee 1.0 CHF 25.0 31.12. Oberland Energie AG • Thun 9.1 CHF 49.0 31.12. Officine Idroelettriche della Maggia SA • Locarno 100.0 CHF 10.0 30.09. Officine idroelettriche di Blenio SA • Blenio 60.0 CHF 12.0 30.09. ProBus Espace AG • Zuchwil 0.1 CHF 50.0 31.12. Replacement nuclear power plant Beznau Ltd. • Döttingen 1.0 CHF 11.5 31.12. Replacement nuclear power plant Mühleberg Ltd. • Mühleberg 1.0 CHF 51.0 31.12. RESUN AG • Aarau 1.0 CHF 33.3 30.09. Société des Forces Motrices du Châtelot SA • La Chaux-de-Fonds 6.0 CHF 11.7 31.12. sol-E Suisse Biogas Zernez • Zernez – CHF 22.9 31.12. Solutions Renouvelables Boudry SA • Boudry 0.9 CHF 49.0 31.12. Spontis SA • Avenches 2.7 CHF 30.0 31.12. Swissgrid Ltd. • Laufenburg 317.9 CHF 36.4 31.12. Trinkwasserkraftwerk Saas-Grund AG • Saas-Grund 1.2 CHF 40.0 31.12. Wärmeverbund Roggwil AG • Solothurn 1.0 CHF 50.0 31.12. Zwilag Zwischenlager Würenlingen AG • Würenlingen 5.0 CHF 10.7 31.12. 94 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements Energy Grid Services Other Domicile capital Share/basic in millions Currency in % ownership Direct closing law Company date

Associates (continued) Germany ENGIE Kraftwerk Wilhelmshaven GmbH & Co. KG • Wilhelmshaven – EUR 33.0 31.12. HelveticWind Deutschland GmbH • Berlin 0.03 EUR 29.0 31.12. France Centrale Electrique de la Plaine • Dremil Lafage – EUR 33.3 31.12. Italy Biopower Sardegna S.r.l. • Milan 0.1 EUR 10.5 31.12. EP Produzione Livorno Ferraris S.p.A. • Milan 10.0 EUR 25.0 31.12. HelveticWind Italia S.r.l. • Milan 0.01 EUR 29.0 31.12. Norway Nordic Wind Power DA • Oslo – NOK 28.1 31.12. ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements 95 Report of the statutory auditor on the consolidated financial statements

Ernst & Young Ltd Phone +41 58 286 61 11 Schanzenstrasse 4a Fax +41 58 286 68 18 P. O. Box www.ey.com/ch CH-3001 Berne

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, consolidated 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 misstatement of the consolidated financial statements. The results of our audit procedures, including the 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 4.6.1 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 pro vision 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. 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. 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. 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: http://www.expertsuisse.ch/en/audit-report-for-public-companies. 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 Philippe Wenger Licensed audit expert Licensed audit expert (Auditor in charge) 100 ANNUAL REPORT 2016 | BKW Group Consolidated Financial Statements ANNUAL REPORT 2016 Financial Statements of BKW AG 102 ANNUAL REPORT 2016 | Financial Statements of BKW AG

FINANCIAL STATEMENTS OF BKW AG Income Statement

CHF millions 2015 2016 Dividend income 105.6 113.3 Interest income 42.1 41.9 Other operating income 0.5 3.9 Total earnings 148.2 159.1

Interest expense – 40.0 – 40.0 Other financial expenses – 0.7 – 0.7 Other operating expenses – 5.6 – 4.5 Direct taxes – 1.1 – 2.0 Total expenses – 47.4 – 47.2 Net profit 100.8 111.9 ANNUAL REPORT 2016 | Financial Statements of BKW AG 103

FINANCIAL STATEMENTS OF BKW AG Balance Sheet

CHF millions 31.12.2015 31.12.2016

Assets Cash and cash equivalents 1.3 3.2 receivables ––with third parties 0.3 0.2 ––with shareholdings 75.6 0.0 Prepaid expenses and accrued income 5.7 5.7 Total current assets 82.9 9.1 Loans 1,438.4 1,440.9 Other financial assets ––with third parties 13.4 11.7 Investments 1,362.4 1,494.5 Total non-current assets 2,814.2 2,947.1 Total assets 2,897.1 2,956.2

Liabilities Trade accounts payable ––with third parties 0.2 0.6 ––with shareholdings 0.0 29.1 Other current liabilities 1.1 2.0 Deferred income and accrued expenses 13.4 13.5 Total current liabilities 14.7 45.2 Non-current interest-bearing liabilities ––Bonds 1,163.4 1,133.5 ––Loans payable 277.0 279.1 Total non-current liabilities 1,440.4 1,412.6 Total liabilities 1,455.1 1,457.8 Share capital 132.0 132.0 Statutory capital reserves ––Reserves from capital contributions 26.1 26.1 Statutory retained earnings 1,155.0 1,155.0 Voluntary retained earnings ––Profit carried forward 154.3 177.3 ––Net profit 100.8 111.9 Unappropriated retained earnings 255.1 289.2 Treasury shares – 126.2 – 103.9 Total shareholders’ equity 1,442.0 1,498.4 Total liabilities and shareholders’ equity 2,897.1 2,956.2 104 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 132,000,000 100.0 BKW Netzbeteiligung Ltd., Bern Grid 25,200,000 50.1 BKW Grid Switzerland Ltd., Bern Grid 100,000 100.0 sol-E Suisse AG, Bern Energy 100,000 100.0

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. ANNUAL REPORT 2016 | Financial Statements of BKW AG 105

Bonds

CHF millions 31.12.2015 31.12.2016 3 % debenture bond 2007 – 2022 200.0 200.0 3.375 % debenture bond 2009 – 2019 350.0 350.0 1.875 % debenture bond 2010 – 2018 150.0 150.0 2.5 % debenture bond 2010 – 2030 300.0 300.0 0.125 % convertible bond 2014 – 2020 163.4 133.5 Total 1,163.4 1,133.5

In September 2014, BKW issued a convertible bond amounting to CHF 163.4 million to run to 30 September 2020 with an interest rate of 0.125 %. The conversion period runs until 20 September 2020. On the balance sheet date, the conversion price was CHF 38.09. 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 133.5 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

31.12.2015 31.12.2016 Canton of Bern 52.54 % 52.54 % Groupe E Ltd. 10.00 % 10.00 % 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 31.12.2014 303.1 4,332,123 5.4 76,974 308.5 4,409,097 Adjustment – 175.4 – 175.4 0 Additions 0.2 10,000 0.2 10,000 Transfer – 1.5 – 41,172 1.5 41,172 0.0 0 Disposals – 7.1 – 128,146 – 7.1 – 128,146 At 31.12.2015 126.2 4,290,951 0.0 0 126.2 4,290,951 Additions 3.0 62,973 3.0 62,973 Transfer 3.0 62,973 – 3.0 – 62,973 0.0 0 Disposals – 25.3 – 868,903 – 25.3 – 868,903 At 31.12.2016 103.9 3,485,021 0.0 0 103.9 3,485,021

Contingent liabilities

CHF millions 31.12.2015 31.12.2016 Guarantees for consolidated companies in favour of third parties 186.1 310.5 106 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 31.12.2015 31.12.2016 Urs Gasche Chairman 3,377 3,747 Hartmut Geldmacher Deputy Chair 3,120 3,720 Kurt Rohrbach 2 nd Deputy Chair (until 13.05.2016) 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 400 800 Dominique Gachoud Member (until 13.05.2016) 250 n/a Paul-Albert Nobs Member (from 13.05.2016) n/a 0 Kurt Schär Member 1,000 1,600 Beatrice Simon-Jungi Member (until 13.05.2016) 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 31.12.2015 31.12.2016 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. 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 108 ANNUAL REPORT 2016 | Financial Statements of BKW AG Report of the statutory auditor on the financial statements

Ernst & Young Ltd Phone +41 58 286 61 11 Schanzenstrasse 4a Fax +41 58 286 68 18 P. O. Box www.ey.com/ch CH-3001 Berne

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 2016.

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. 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 Philippe Wenger Licensed audit expert Licensed audit expert (Auditor in charge) 110 ANNUAL REPORT 2016 | Financial Statements of BKW AG ANNUAL REPORT 2016 Investor Information 112 ANNUAL REPORT 2016 | Investor Information

INVESTOR INFORMATION Important information on the share, bonds and financial calendar

Performance of the BKW share 31.12.2015 – 31.12.2016

30 31.12.2015 30.06.2016 31.12.2016

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 2016.

On 17 March 2016, BKW presented a convincing annual result for 2015. 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, experiencing 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 49.25. With recorded gains of 29.6 % since the beginning of the year, they once again outperformed the SPI (– 1.4 %) by a significant margin. 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 13.029.366 ISIN code CH0130293662

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 2017.

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 31.12.2015 31.12.2016 Canton of Bern 52.54 % 52.54 % Groupe E Ltd. 10.00 % 10.00 % 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: Septem- ber 2018) that is convertible into BKW shares at a conversion price of EUR 32.21. 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 2016. E.ON SE’s remaining stake was therefore assigned to the free float as at 31 December 2016.

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. 114 ANNUAL REPORT 2016 | Investor Information

Key figures per share

CHF 31.12.2015 31.12.2016 Result 5.71 6.41 Equity 51.05 54.39 Dividend 1.60 1.60 Dividend yield (in %) 1 4.2 3.2 Price/earnings ratio 1 6.7 7.7 Year-end 38.00 49.25 Year high 38.95 49.60 Year low 26.70 36.20

1 Based on year-end price

Bonds At 31 December 2016, BKW had the following bonds outstanding:

Nominal amount Term Due ISIN code 1.875 % debenture bond CHF 150 million 2010 – 2018 15.10.2018 CH0117843596 3.375 % debenture bond CHF 350 million 2009 – 2019 29.07.2019 CH0103164577 3 % debenture bond CHF 200 million 2007 – 2022 27.04.2022 CH0030356718 2.5 % debenture bond CHF 300 million 2010 – 2030 15.10.2030 CH0117843745 0.125 % convertible bond CHF 133.5 million 2014 – 2020 30.09.2020 CH0253592742

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 38.09. 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 30.09.2020.

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 163.4 million to CHF 133.5 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: [email protected] ANNUAL REPORT 2016 | Investor Information 115 116 ANNUAL REPORT 2016 | Investor Information

Production Facts and Figures

Installed 2015 2016 Energy production, BKW BKW Change portion 1 BKW portion purchases purchases versus 2015 % MW GWh GWh % Own power plants and Group companies Hydroelectric plants Aarberg 100.0 15.0 84.7 90.6 7.0 Bannwil 100.0 27.0 130.5 151.3 15.9 Kallnach 100.0 8.1 54.4 56.4 3.7 Kandergrund 100.0 18.8 98.4 94.9 – 3.6 Mühleberg 100.0 45.0 154.5 166.0 7.4 Niederried-Radelfingen 100.0 15.0 74.4 81.1 9.0 Spiez 100.0 18.6 100.4 102.7 2.3 Simmentaler Kraftwerke AG 100.0 29.1 91.3 123.9 35.7 Isch 100.0 1.4 6.0 6.6 10.0 Société des forces électriques de la Goule SA 100.0 5.2 19.7 25.5 29.4 Onyx Energie Produktion AG 100.0 20.2 82.5 86.1 4.4 Idroelettrica Lombarda S.r.l. 100.0 42.0 115.5 116.4 0.8 Total hydroelectric plants 245.4 1,012.3 1,101.5 8.8

Nuclear power plants Mühleberg 100.0 373.0 2,933.9 2,950.4 0.6

Fossil-fuel power plants Tamarete Energia S.r.l. 60.0 62.0 113.3 138.3 22.1

New renewable energy Photovoltaics Switzerland 100.0 8.2 1.8 2.7 52.2 Biomass Switzerland 100.0 1.4 19.9 21.4 7.4 Small hydro Switzerland 100.0 24.6 71.1 110.0 54.7 CHI.NA.CO S.r.l. 100.0 8.4 34.2 31.9 – 6.7 BKW Hydro Valle d’Aosta S.r.l. 100.0 8.2 30.2 16.8 – 44.4 Juvent SA 100.0 22.3 52.7 57.2 8.5 Fresnoy 100.0 13.8 13.9 32.2 131.4 Ondefontaine 100.0 10.0 6.9 Bockelwitz wind farm 100.0 15.0 20.5 16.6 – 19.0 BKW Holleben Wind GmbH 100.0 25.5 42.7 36.7 – 14.0 BKW Bippen Wind GmbH 100.0 27.6 45.3 36.8 – 18.8 BKW Dubener Platte Wind GmbH 100.0 40.0 71.1 55.7 – 21.7 BKW Landkern Wind GmbH 100.0 8.0 15.0 13.4 – 10.8 Wind Farm S.r.l. 100.0 41.4 47.7 59.4 24.5 Wind Farm Buglia S.r.l. 100.0 20.0 30.4 32.3 6.2 Wind International Italy S.r.l. 100.0 82.8 119.3 136.6 14.5 Volturino Wind S.r.l. 100.0 25.2 59.3 66.0 11.3 Green Castellaneta S.p.A. 100.0 56.0 126.9 128.6 1.3 Total new renewable energy 438.4 802.0 861.2 7.4

Total own power plants and Group companies 1,118.8 4,861.5 5,051.4 3.9

1 Due to special energy supply agreements, the energy portion may deviate from the capital shareholding. ANNUAL REPORT 2016 | Investor Information 117

Installed 2015 2016 Energy production, BKW BKW Change portion 1 BKW portion purchases purchases versus 2014 % MW GWh GWh % Holdings and purchasing rights Hydroelectric plants Bielersee Kraftwerke AG BIK 50.0 18.9 55.4 70.2 26.6 Officine idroelettriche di Blenio SA 12.0 50.0 134.4 95.1 – 29.2 Electra-Massa AG 16.1 54.8 111.9 107.9 – 3.6 Electricité de la Lienne SA 25.0 24.9 60.0 59.4 – 1.0 Engadiner Kraftwerke AG 29.7 121.8 435.0 367.6 – 15.5 Gommerkraftwerke AG 25.5 33.4 85.7 71.0 – 17.2 Grande Dixence SA 13.3 206.0 383.5 209.9 – 45.3 Kraftwerke Hinterrhein AG 7.6 50.0 121.7 97.1 – 20.2 Kraftwerke Mattmark AG 11.1 29.3 63.5 61.0 – 3.9 Forces Motrices de Mauvoisin SA 19.5 82.2 242.2 189.0 – 22.0 Kraftwerke Oberhasli AG 50.0 659.8 981.4 922.1 – 6.0 Kraftwerk Sanetsch AG (KWS) 50.0 9.0 19.4 20.1 3.6 Officine idroelettriche della Maggia SA 10.0 57.2 141.5 119.8 – 15.3 Aarewerke AG 0.0 0.0 11.6 0.0 – 100.0 Flumenthal 37.9 9.5 47.5 52.9 11.4 Société des Forces Motrices du Châtelot SA 11.7 4.6 8.3 12.4 49.4 Argessa AG 63.0 20.8 67.9 55.8 – 17.8 Total hydroelectric plants 1,432.3 2,970.9 2,511.3 – 15.5

Nuclear power plants Kernkraftwerk Leibstadt AG 14.7 179.3 1,263.9 893.8 – 29.3 Cattenom 3.0 155.0 1,040.8 1,000.0 – 3.9 Fessenheim 5.0 90.0 636.7 416.7 – 34.6 Total nuclear power plants 424.3 2,941.4 2,310.5 – 21.4

New renewable energy Mont-Soleil solar power plant 100.0 0.2 0.6 0.5 – 16.7

Fossil-fuel power plants E.ON Produzione Centrale Livorno Ferraris S.p.A. 25.0 200.0 793.7 863.9 8.8 GDF SUEZ Kraftwerk Wilhelmshaven GmbH & Co. KG 33.0 241.0 200.1 419.0 109.4 Total fossil-fuel power plants 441.0 993.8 1,282.9 29.1

Unmanaged energy from financial interests 56.0 62.9 64.1 1.9

Total holdings and purchasing rights 2,353.8 6,969.6 6,169.3 – 11.5 Total production including purchases 3,472.6 11,831.1 11,220.7 – 5.2

1 Due to special energy supply agreements, the energy portion may deviate from the capital shareholding. 118 ANNUAL REPORT 2016 | Investor Information ANNUAL REPORT 2016 | CORPORATE GOVERNANCE 119

ANNUAL REPORT 2016 Corporate Governance 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 In the reporting year, BKW revised its Code of Con- of these recognised corporate governance prin duct, adding and clarifying the following principles: ciples, BKW seeks to guarantee the required level of transparency and provide shareholders with –– Zero tolerance of bribery or other forms of corrupt the most comprehensive view of the Group, allow- business conduct. ing them to make investment decisions that are –– No political donations. based on sound facts. Moreover, with a balanced –– Disclosure of conflicts of interest. combination of management and controls, BKW –– Our compliance requirements for third parties such also manages the company in a value-driven, sus- as suppliers, consultants, sub-contractors, etc. tainable manner according to statutory requirements. To this end, BKW systematically and bind- The Code of Conduct has been supplemented with ingly integrates material sustainability aspects in internal regulations. its corporate strategy and management decisions. When disclosing its non-financial performance The information below is presented in accordance indicators, it is guided by the voluntary reporting with the current requirements of the corporate standards of the Global Reporting Initiative (GRI). governance guidelines of the SIX Swiss Exchange and the Swiss Code of Best Practice for Corporate The management structure of BKW is designed so Governance 2016 produced by economiesuisse, that responsibilities are clearly assigned and the Swiss employers’ organisation. Remuneration unilateral concentration of powers and conflicts of of the top-level management of the company is interest are avoided. In line with this, the func- reported in the Remuneration Report contained tions of Chairman and CEO are separate. All mem- on pages 141 to 152. The information disclosed bers of the Board of Directors are independent, in this report reflects the situation at 31 Decem- which means there are no Board members with ber 2016. Any material changes that have been executive functions. In May 2016, Paul-Albert agreed or have occurred between this date and Nobs, Director General of Cremo S.A. and Member the printing of the report are listed in Note 10 of of the Board of Groupe E S.A., was elected to this report. The articles of incorporation of the BKW Board of Directors. Paul-Albert Nobs BKW AG (www.bkw.ch/statutes), the organisa- withdraws from all meetings of the BKW Board tional structure of the Group Executive Board of Directors where a possible conflict of interest (www.bkw.ch/organisation), the Code of Conduct may arise. All members were nominated individ- (www.bkw.ch/codeofconduct) and a range of ually for election to the Board of Directors at the other useful information can be found on the General Meeting in May 2016. For many years, the BKW website. Board of Directors has included both male and female members. The Board of Directors thereby also ensures the diversity of its membership. ANNUAL REPORT 2016 | CORPORATE GOVERNANCE 121

1 Group structure and shareholders

1.1 Operational Group structure

The operational Group structure of BKW can be derived from The entire organisation of the BKW Group can be viewed on the following illustration and the segment reporting under the website www.bkw.ch/organisation. item 7 on pages 38 to 41 of the BKW Group’s consolidated financial statements.

Board of Directors

CEO Suzanne Thoma *

Group Management Finance & Services Networks Production Renewables & Market Antje Kanngiesser Roland Trächsel * Christophe Bossel * Hermann Ineichen * Efficiency Mathias Prüssing * Renato Sturani *

* Members of the Group Executive Board

Listed Group companies Scope of consolidation of the BKW Group BKW AG has its headquarters in Bern, and has With the exception of BKW itself, BKW’s consol- been listed on the SIX Swiss Exchange and the idation group only includes companies that are BX Berne eXchange since 12 December 2011. On not listed separately on the stock exchange. The 31 December 2016, BKW’s stock market capi individual holdings of BKW in companies that talisation amounted to CHF 2,428.8 million are fully consolidated in the consolidated financial statements are listed on pages 90 to 94. In all About the BKW share cases, the holding corresponds to the percentage Securities code BKW of shares and voting rights. Securities number 13.029.366 ISIN CH0130293662 Trading currency CHF Type of security Registered share 122 ANNUAL REPORT 2016 | CORPORATE GOVERNANCE

1.2 Major shareholders Holding Holding in % at 31.12.2015 at 31.12.2016 Canton of Bern 52.54 52.54 Groupe E Ltd. 10.00 10.00 E.ON SE 6.65 3.33 BKW AG and Group companies 8.13 6.60

No other shareholders registered more than 3 % of 2016 on the electronic publication platform of the the voting rights of BKW during the reporting year SIX Exchange Regulation can be viewed at the follow- in accordance with Article 120 of the Federal Act ing link https://www.six-exchange-regulation.com/ on Financial Market Infrastructures and Market en/home/publications/significant-shareholders.html. Conduct in Securities and Derivatives Trading (FMIA). 1.3 Cross shareholdings

The disclosures pursuant to Art. 120 FMIA that BKW has no cross-shareholdings of more than 5 % were published by BKW in the reporting year 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 As of 31 December 2016, BKW has no authorised amounts to CHF 132,000,000.00 and is divided into share capital or conditional share capital. 52,800,000 fully paid-up registered shares, each with a par value of CHF 2.50.

2.3 Changes in equity for the last three reporting years

Statutory Statutory Voluntary Total Share capital profit profit Treasury shareholders’ CHF thousands capital reserves reserves reserves shares equity At 1 January 2014 1 132,000 26,129 1,154,961 71,295 0 1,384,385 Dividend payment – 63,360 – 63,360 Addition of treasury shares – 127,581 – 127,581 Net profit 2014 223,883 223,883 At 31 December 2014 2 132,000 26,129 1,154,961 231,818 – 127,581 1,417,327 Dividend payment – 77,548 – 77,548 Sale of treasury shares 1,394 1,394 Net profit 2015 100,809 100,809 At 31 December 2015 132,000 26,129 1,154,961 255,079 – 126,187 1,441,982 Dividend payment – 77,760 – 77,760 Purchase/sale of treasury shares 22,297 22,297 Net profit 2016 111,905 111,905 At 31 December 2016 132,000 26,129 1,154,961 289,224 – 103,890 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. ANNUAL REPORT 2016 | CORPORATE GOVERNANCE 123

2.4 Shares and participation certificates 2.7 Convertible securities and options

All 52,800,000 registered shares in BKW with a par In September 2014, BKW completed a full issue of value of CHF 2.50 each are fully paid up. All shares a convertible bond amounting to CHF 163 million carry equal voting rights. Every share represented to run from September 2014 to 30 September 2020, at the General Meeting is entitled to one vote. with an interest rate of 0.125 % per annum. The The company does not print or provide certificates conversion price was CHF 38.90, which equated to for registered shares. However, any shareholder a conversion rate of 128.53755 shares per bond at may request that certification of their shareholding a nominal value of CHF 5,000.00 per bond. For all be issued free of charge. conversions, BKW, as the issuer, is obliged under the bond’s terms of issue to initially deduct the BKW has not issued any participation certificates. withholding tax of 35 % on the difference between the bond floor at the point of conversion and the 2.5 Dividend rights certificates bond floor at the point of issue. This results in a lower number of shares from the conversion. BKW has not issued any dividend rights certificates. Fractions are paid out in cash. The conversion price and conversion rate will be adjusted if a dividend 2.6 Restrictions on transferability and of more than CHF 1.20 per share is paid out. The nominee registration General Meeting of BKW AG on 13 May 2016 agreed to the payment of a dividend of CHF 1.60 Registered BKW shares can only be transferred by per share for the 2015 financial year. In accordance assignment or according to the provisions of the with Section 6 (a) (iv) of the bond’s terms of issue, Swiss Intermediated Securities Act. BKW must be the conversion price was therefore changed to notified of the assignment. The Company may re- CHF 38.09 on 18 May 2016 and the conversion rate fuse to register an acquirer of shares in the share was adjusted to 131.26805 shares per bond at a register for the following reasons: nominal value of CHF 5,000.00 per bond. The convertible bond could be converted into around –– If the acquisition results in a natural person, 4.2 million registered shares in BKW at the point a legal entity or a partnership holding (directly of issue, which are guaranteed by BKW’s stock of or indirectly) more than 5 % of the entire share treasury shares. The conversion period runs from capital. The same restriction applies to legal 10 November 2014 to 20 September 2020. The entities, partnerships, groups of persons or joint bond will be repaid at the nominal value on 30 ownerships that are interrelated or otherwise September 2020. In 2016, a nominal amount of linked and/or act in concert to acquire shares. CHF 29.9 million of the convertible bond was con- –– If the acquirer has not expressly declared that verted into 777,916 shares. he has acquired the shares in his own name and on his own behalf. The company has not issued any options.

Nominees may be registered, but these shares carry no voting rights. 124 ANNUAL REPORT 2016 | CORPORATE GOVERNANCE

3 Board of Directors

According to the articles of incorporation, the conflict of interest may arise. This means that no Board of Directors shall consist of between 7 and member of the Board of Directors is also a mem- 10 members. There are currently eight members, ber of the BKW Group Executive Board or of the all of whom are non-executive and independ- management body of any Group company. One ent. On 13 May 2016, Paul-Albert Nobs, Director member is appointed to the Board of Directors by General of Cremo S.A. and Member of the Board of the Canton of Bern in accordance with Article 762 Groupe E S.A., was elected to the Board of Direc- of the Swiss Code of Obligations (OR) and Article tors. Paul-Albert Nobs withdraws from all meet- 19 of the articles of incorporation. ings of the Board of Directors where a possible

Year of Composition birth Nationality Role Held office since Urs Gasche 1 1955 Switzerland Chairman 2011 (2002 *) Deputy Chair of the Hartmut Geldmacher 1955 Germany Board 2011 (2009 *) Marc-Alain Affolter 2 1952 Switzerland Member 2011 (2007 *) Roger Baillod2 1958 Switzerland Member 2013 Dr. Georges Bindschedler 1 1953 Switzerland Member 2011 (2007 *) Barbara Egger-Jenzer 1,3 1956 Switzerland Member 2011 (2002 *) Paul-Albert Nobs 1955 Switzerland Member 2016 Kurt Schär 2 1965 Switzerland Member 2012

1 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) Seats on the boards of for-profit companies Lawyer –– Member of the Board of Kumagra AG, Bern Board member since 2011 (2002 *) Chairman of the –– Member of the Board of thunerSeespiele AG, Thun Board, Chairman of the Remuneration and Nomi –– Member of the Board of sitem-insel AG nation Committee Seats on the boards of other legal entities Professional background, career –– Chairman of the Board of the Schloss Jegenstorf Since 2011 Member of the Swiss National Council foundation, Jegenstorf Since 2010 Partner in the attorneys-at-law –– Member of the Board of the Swiss Alpine and business consultants firm Museum Foundation, Bern Markwalder Emmenegger (formerly Markwalder & Partner), lawyer with- Seats on the boards of industry associations and out forensic activity, mainly working non-profit organisations on the boards of companies, founda- –– Chairman of the Swiss Medical Technology tions and associations in the energy Industry association (FASMED), Muri bei Bern sector (BKW), in the health sector –– Chairman of the Quality Alliance Eco-Drive and in cultural institutions association, Zurich

2002 – 2010 Finance Minister of the Canton of –– Member of the Board of the Public Private * This is the year of Bern, Member of the Executive Partnership (PPP) association, Zurich entry to the Board Council and Representative of the of BKW FMB Energie AG before Canton of Bern on the Board of Other major activities transition to the Directors of BKW FMB Energie AG Member of the Swiss National Council holding structure. ANNUAL REPORT 2016 | CORPORATE GOVERNANCE 125

Hartmut Geldmacher (1955, D) MBA Seats on the boards of for-profit companies Board member since 2011 (2009 *), –– Chairman of the Board of Affolter Holding S.A., Deputy Chair of the Board Malleray –– Chairman of the Board of Affolter Professional background, career Technologies S.A., Malleray Since 2011 Independent businessman –– Member of the Board of Esco S.A., 2002 – 2011 Member of the Board of Management Les Geneveys-sur-Coffrane and Employee Relations Director at –– Member of the Board of AF Management S.A., E.ON Energie AG, Munich Malleray 1980 – 2002 Various management positions at –– Member of the Board of Affolter Pignons S.A., E.ON Energie AG, Munich, and the Malleray then PreussenElektra AG, Hanover Seats on the boards of other legal entities Seats on the boards of listed companies None None Seats on the boards of industry associations and Seats on the boards of for-profit companies non-profit organisations –– Member of the Supervisory Board and Chairman None of the Accounts, Finance and Audit Committee of Bayernwerk AG, Regensburg Other major activities –– Member of the Supervisory Board and Chairman None of the Accounts, Finance and Audit Committee of Hansewerk AG, Quickborn Roger Baillod (1958, CH) Seats on the boards of other legal entities Degrees in business studies and auditing None Board member since 2013, Chair of the Audit and Risk Management Committee Seats on the boards of industry associations and non-profit organisations Professional background, career Chairman of the Board of the Bayerische 1996 – 2016 Chief Financial Officer (to 09.2016) EliteAkademie foundation, Munich and Member of the Group Executive Board of Bucher Industries AG in Other major activities Niederweningen, Zurich (to 12.2016) None 1993 – 1996 Member of the management of two industrial companies 1984 – 1993 Auditor and consultant at ATAG Marc-Alain Affolter, (1952, CH) Ernst & Young AG in Zurich and Engineering diploma St. Gallen Board member since 2011 (2007 *), Member of the Audit and Risk Management Committee Seats on the boards of listed companies Member of the Board of Rieter Holding AG, Professional background, career Winterthur Since 1985 CEO of Affolter Holding S.A., Malleray Prior to 1985 Development engineer at various Seats on the boards of for-profit companies companies Member of the Board of Migros-Genossen- schafts-Bund in Zurich Seats on the boards of listed companies None Seats on the boards of industry associations and non-profit organisations None 126 ANNUAL REPORT 2016 | CORPORATE GOVERNANCE

Seats on the boards of industry associations and Seats on the boards of other legal entities non-profit organisations –– Member of the Board of PK-AETAS, None BVG foundation, Bern –– Deputy Chair of the Board of the UniBern Other major activities research foundation, Bern None –– Member of the Board and Committee of the Swiss Heart Foundation, Bern –– Chairman of the Board of the Werner and Hedy Georges Bindschedler (1953, CH) Berger-Janser foundation for cancer research, Dr. iur., lawyer and notary Bern Board member since 2011 (2007 *), Member of the –– Deputy Chair of the Board of the Steinmann Remuneration and Nomination Committee foundation Schloss Wyl, Schlosswil –– Member of the Board of the ‘zum Delphin’ Professional background, career foundation, Zurich Since 2006 Delegate of the Board of Directors of –– Deputy Chair of the Schärpeter mutual merz+benteli ag, Niederwangen association, Bern 2002 – 2006 Professional director and inde –– Member of the Board of the Mitarbeiter pendent entrepreneur beteiligung bei der Internationalen Treuhand AG 1985 – 2002 Delegate of the Board of Directors foundation, Basel and CEO of von Graffenried –– Deputy Chair of the Board of the Meinungs Holding AG Freiheit und MedienVielfalt foundation, Bern –– Member of the Board of the Schweizer Monats Seats on the boards of listed companies hefte foundation None Seats on the boards of industry associations and Seats on the boards of for-profit companies non-profit organisations –– Deputy Chair of the Board of Habegger –– Member of the Advisory Board of FUP Freiheit. Immobilien AG, Thun Unternehmertum.Publizistik foundation, Bern, –– Deputy Chair of the Board of Helvetic Estates AG, and the StrategieDialog21 foundation, Zurich Bern (Group structure) –– Chairman of the Board of Lüthi Holding AG, –– Deputy Chair of the Historische Militäranlagen Burgdorf association, Freiburg/Bern –– Deputy Chair of the Board of Remaco AG –– Delegate of the Board of R. G. Bindschedler and Member of the Board of Remaco Wealth Familienstiftung, Zurich Management AG, both in Basel (Group structure) –– Chairman of the Board and principle shareholder Other major activities of Micamation AG, Dällikon, and QBIS AG, None Wallisellen (Group structure) –– Member of the Board of Berakom AG, Konolfingen, and of Ursella AG, Hergiswil (NW) Barbara Egger-Jenzer (1956, CH) (Group structure) Teacher, lawyer –– Member of the Board of Arton Real Estate AG, Board member since 2011 (2002 *), Deputy Chair Zurich of the Remuneration and Nomination Committee, –– Member of the Board of SIV Swiss Immo Representative of the Canton of Bern Visions AG, Baar –– Member of the Board of SMH Verlag AG Professional background, career Since 2002 Member of the Executive Council and Head of the Department of Construction, Transport and Energy 1987 – 2002 Independent lawyer in Bern and Canton of Bern Ombudsman for age and residential matters ANNUAL REPORT 2016 | CORPORATE GOVERNANCE 127

Seats on the boards of listed companies Seats on the boards of other legal entities None –– Member of the Advisory Board of the Helvetia pension foundation Seats on the boards of for-profit companies –– Member of the Advisory Board of J. Daler Spitals –– Member of the Board of BLS AG, Bern –– Member of the Board of BLS Netz AG, Bern Seats on the boards of industry associations and non-profit organisations

Seats on the boards of other legal entities –– Member of the Board of the Freiburg Chamber None of Commerce

Seats on the boards of industry associations and Other major activities non-profit organisations None None

Other major activities Kurt Schär (1965, CH) Executive Councillor of the Canton of Bern Radio/TV electronics engineer, marketing planner and board training Swiss Board School Board member since 2012, Deputy to the Chair of Paul-Albert Nobs (1955, CH) the Audit and Risk Management Committee Degree in electrical engineering Member of the Board of Directors since 2016 Professional background, career Since 2014 Owner of Sunnsite Management AG Professional background, career 2001 – 2014 CEO Biketec AG, manufacturer of the Since 1994 Director General of Cremo AG Flyer electric bicycle in Huttwil From 1990 Additional function as Production Manager Seats on the boards of listed companies Since 1983 Employed at Cremo AG as Head of None Division, responsible for all technical systems, development and Seats on the boards of for-profit companies procurement of facilities, buildings, –– Chairman of the Board of Emmental Tours AG, commissioning and maintenance Burgdorf 1980 – 1983 Development engineer at Métar SA –– Chairman of the Board of Herzroute AG, Burgdorf in Fribourg, then Head of Electronics –– Chairman of the Board of Härzdörfli AG, Madiswil Division –– Deputy Chair of the Board of Striebig AG, Lucerne –– Member of the Board of Stöcklin Möbel AG, Seats on the boards of listed companies Aesch (BL) None –– Chairman of the Board of Sorglos Design AG, Luthern Seats on the boards of for-profit companies –– Member of the Board of IE Engineering Group AG, –– Member of the Board of Groupe E SA, Zurich Granges-Paccot –– Chairman of the Board of Brau AG Langenthal, –– Member of the Board of Groupe E Celsius SA, Langenthal Fribourg –– Chairman of the Board of Erlebnismacher AG, –– Member of the Board of Restoroute Teufen AR 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 128 ANNUAL REPORT 2016 | CORPORATE GOVERNANCE

Seats on the boards of other legal entities Multiple mandates held within a single group are –– Deputy Chair of the Board of the WBM foundation counted as one mandate. In justified cases, the (workshop for disabled persons), Madiswil Board of Directors may also grant exceptions for –– Member of the Board of the Pension Fund Foun- a transitional period of no more than 6 months dation of the company Striebig AG, Lucerne in each case for no more than two additional –– Member of the Board of the Risiko-Dialog foun- mandates. dation St. Gallen –– Chairman of the Board of the Taunerhaus 3.3 Election and term of office Roggwil foundation, Roggwil With the exception of the representative appointed Seats on the boards of industry associations and by the Canton of Bern, the members of the Board non-profit organisations of Directors are elected individually by the General None Meeting.

Other major activities The term of office for members of the Board of None Directors elected by the General Meeting shall be one year and shall end at the conclusion of the Retirements and resignations during next General Meeting. Members may be re-elected the reporting period subject to an age limit of 70 years. The term of In the reporting year, the Board members Kurt Rohr- office for members appointed by the Canton of bach, Beatrice Simon-Jungi and Dominique Gachoud Bern, in accordance with article 762 OR shall be retired when their period of office ended at the determined by the cantonal government. General Meeting on 13 May 2016. The Chairman of the Board of Directors and members 3.2 Statutory provisions on the number of the Remuneration and Nomination Committee of permitted activities are also elected by the General Meeting. No provi sions that deviate from the statutory provisions on According to Article 21 of the articles of incorpora- the nomination of the Chairman, the members of tion, members of the Board of Directors may hold the Remuneration and Nomination Committee or no more than 10 senior managerial and governing the independent proxy are permitted in the articles body mandates in for-profit companies outside of incorporation. of the BKW Group, no more than 5 of which may be stock-exchange listed companies, and no more 3.4 Internal organisation than 10 mandates with other legal entities such as foundations and associations that are required Division of roles in the Board of Directors to be entered in the commercial register. Man- According to Swiss company law and Article 18 of dates with companies that are controlled directly the articles of incorporation, the Board of Direc- or indirectly by the Company are not included in tors is responsible for overall management of the this numerical limitation. Seats on the boards of company and supervision of its corporate bodies. industry associations and non-profit organisations It decides on all matters that are not delegated are not counted, provided that the total number to other corporate bodies, either by law or by the of mandates per member does not exceed 10. organisational regulations as defined in Article 20 Mandates in senior management and governing of the articles of incorporation. 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. ANNUAL REPORT 2016 | CORPORATE GOVERNANCE 129

The Board of Directors acts as a single body. In The CEO and other members of the Group Executive addition to the statutory standing committees, Board participate in each meeting of the Board of it may also create further committees of mem- Directors in an advisory capacity, unless instructed bers and delegate further activities to these in otherwise by the Chairman of the Board of Direc separate regulations or by modifying existing tors. Senior company management, members of regulations. the BKW Audit Department and other experts may also be invited to the meetings in an advisory The Board of Directors decides as a collective body. capacity. The Secretary of the Board of Directors, Its members have no personal authority in Fabian Stadler, attends the meetings of the Board respect of the company and therefore cannot of Directors. issue instructions except as decided by the Board of Directors and the organisational regulations Committees or the committee regulations. The Board of Directors may decide to delegate some of its activities and responsibilities to The internal organisational structure of the Board committees from among its own members. The of Directors is laid down in the articles of incor- Board of Directors is supported by two standing poration and the organisational regulations. No committees, the Audit and Risk Management special functions are defined other than Chairman Committee and the Remuneration and Nomi- and the two Deputy Chairs. The Secretary need not nation Committee. The Board of Directors may be a member of the Board. also establish ad hoc committees at any time for matters such as major investments, alliances The Board of Directors adopts its resolutions at and cooperations. meetings and in telephone or video conferences. It is quorate when the majority of its members The functions, organisation and responsibilities of are present at the meeting or participating in the the Audit and Risk Management Committee and telephone or video conference. Resolutions are the Remuneration and Nomination Committee are adopted by a simple majority of members. In case defined in the relevant detailed directives author- of parity of votes, the Chairman shall have a cast- ised by the Board of Directors. In the case of ad ing vote. Minutes shall be taken of the discussions hoc committees, the Board of Directors will elect and resolutions. The minutes shall be approved the members from among its own members at the by the Chairman before being distributed to the first meeting following the General Meeting. other members of the Board, and being accepted at the next meeting of the Board of Directors. Audit and Risk Management Committee The Audit and Risk Management Committee The Board of Directors shall meet as often as busi- is composed of three members elected by the ness requires; in general there are six meetings Board of Directors. The Chairman of the Audit and per year. The dates of the ordinary meetings shall Risk Management Committee is also elected by be agreed at an early stage so that all members the Board of Directors, while the Deputy Chairman may attend in person. Moreover, the Chairman of is elected by the Audit and Risk Management the Board of Directors or the Deputy Chair in a rep- Committee. resentative 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. 130 ANNUAL REPORT 2016 | CORPORATE GOVERNANCE

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

Responsibilities Urs Gasche Chairman of the Board –– Authorisation of accounts involving credit of Directors, Chairman approved by the Board of Directors, with the Barbara Egger-Jenzer Member of the Board proviso that any extraordinary credit overdrafts of Directors, Deputy Chairman are reported to the Board of Directors. Georges Bindschedler Member of the Board of Directors, Member –– Awarding of audit contracts. ANNUAL REPORT 2016 | CORPORATE GOVERNANCE 131

The Remuneration and Nomination Committee is not been reserved for the General Meeting by law responsible for developing principles for the or in the articles of incorporation. selection of candidates for the Board of Directors and the Group Executive Board, and, in particu- Pursuant to Article 20 of the articles of incorpo- lar, at top corporate level, for the remuneration ration, the Board of Directors delegates the full strategy and performance targets and criteria of operational business management to the CEO and the BKW Group. It assists the Board of Directors in defines her responsibilities in the organisational establishing and reviewing the remuneration sys- regulations. The CEO is the Chairman of the Group tem and remuneration principles, and in preparing Executive Board and is supported by its members. the proposals to the General Meeting in respect of the total amount of remuneration to be paid to With responsibility for the operational manage- the Board of Directors and the Group Executive ment of the Group, the CEO represents the Group Board. The Remuneration and Nomination Com- to third parties. mittee submits motions to the Board of Directors in respect of all transactions negotiated under The Group Executive Board consists of the CEO its responsibility. and the heads of the divisions Finance & Services, Networks, Production and Renewables & Efficien- The role and responsibilities of the Remuneration cy. Decisions of the Group Executive Board are and Nomination Committee are described on pag- made by the CEO in consultation with the other es 145 to 146 of the Remuneration Report. The members of the Group Executive Board. The other CEO participates in the meetings of the Remuner- members of the Group Executive Board have ation and Nomination Committee in an advisory a right to a voice and may submit motions. The capacity and has the right to submit motions. Group Executive Board generally met every two The CEO does not attend meetings during which weeks during the 2016 financial year. Subject to her own remuneration and/or performance are the authority of the General Meeting, the Board discussed. If required, the Chairman may call upon of Directors and the Board Committees, the Group further members of the Group Executive Board, Executive Board supports the CEO in her responsi- the extended Group Executive Board, or exter- bility for the operational management of the BKW nal experts to attend and provide information. Group. The business divisions are managed directly The Remuneration and Nomination Committee by their respective division heads. The Group Exec- is authorised to negotiate and adopt resolutions utive Board may delegate tasks and authorisations provided that a majority of its members are pres- within its remit. It also performs preparatory work ent; resolutions are adopted by simple majority on matters that are within the remit of official of votes. In case of parity of votes, the Chairman bodies at a higher level. shall have a casting vote. Competences of the Board of Directors According to its regulations, the Remuneration and In addition to its statutory duties, and the business Nomination Committee meets as often as business reserved to it in the articles of incorporation, the requires, however at least three times a year. Two Board of Directors has the following particular roles meetings were held during the 2016 financial year and competences: due to organisational reasons, however all topics were covered. –– Definition of the raison d’être –– Definition of the overarching company strategy 3.5 Competence regulations –– Approval of highly strategic business, based on the raison d’être and potential economic The Board of Directors is responsible according to consequences, or of individual projects that law for the overall management and supervision could foreseeably have significant negative of the BKW Group. In accordance with Article 716a consequences for the public image of BKW para. 1 of the Swiss Code of Obligations (OR), this –– Approval of business that is not planned for responsibility is both non-transferable and inalien- in the budget or medium-term planning, where able. In addition, the Board of Directors is author- BKW’s investment exceeds an amount of ised to adopt a resolution on all matters that have CHF 25 million 132 ANNUAL REPORT 2016 | CORPORATE GOVERNANCE

–– Approval of the expansion of geographical cover- –– Preparation of the financial plans of the company age into new countries and responsibility for the overall financial –– Approval of the legal organisation and top-level results in accordance with the targets set by the management structure (Group Executive Board) Board of Directors –– Approval of financial matters such as budg- –– Decision-making on the organisational structure ets and planning, financial statements, the and the roles and competences of members of BKW Annual Report and accounting standards, the Group Executive Board within the context of and establishing the BKW Group’s financing and the instructions of the Board of Directors investment policy –– Appointment of other employees of the BKW –– Approval of the principles for operation of the Group, particularly the heads of business units internal control system and risk management of for their areas of responsibility, as members of the BKW Group, and assessment of the signifi- the extended Group Executive Board. cant risks –– Management of the Group Executive Board and –– Ensuring compliance with applicable standards personnel under the CEO –– Creation of the performance assessment and Competences of the CEO preparation of the remuneration review and The CEO has the following particular roles and assessment for the members of the Group Exec- competences: utive Board to be submitted to the Remunera- tion and Nomination Committee –– Integration of company strategy and operational –– Supervision of the Group Executive Board and business management by: creation of suitable supervisory bodies to ensure (I) Ensuring the commercial success of that the company remains on target to reach the company in the context of the overall the defined objectives, meets basic commercial economic and industry conditions requirements and acts in accordance with the (II) Developing the main aspects of the imple- measures adopted by the Board of Directors mentation of the overall company strategy, –– Coordinating between the Group Executive including financing, for the attention of Board and Board of Directors to ensure that the the Board of Directors Board of Directors is provided with accurate (III) Ensuring the strategic direction set by the information at an early stage Board of Directors –– Ensuring compliance with the raison d’être, (IV) Leading the operational management of the regulations and codes of conduct, and with company applicable requirements of legislation and the (V) Reporting on the success of highly strategic articles of incorporation business transactions that have been –– Representing the company to employees and authorised by the Board of Directors, third parties, in particular ensuring effective in general around two years after their communication with shareholders and stake- approval holders, including representatives of govern- ments, regulators and organisations –– Oral reporting to the Board of Directors about –– Supporting the Chairman in his role of leading the day-to-day business and important the Board of Directors and preparing for meetings events of the BKW Group, and about any meas- of the Board of Directors ures taken, unless requested by the Board of –– Implementation of the decisions of the Board Directors to provide written reports. In the of Directors and its committees event of extraordinary events, the CEO shall inform the Chairman of the Board of Directors The CEO has delegated her roles and competences without delay to qualified subordinate positions that she instructs and monitors accordingly. ANNUAL REPORT 2016 | CORPORATE GOVERNANCE 133

Responsibilities of the Group Executive Board 3.6 Information and monitoring instruments in The Group Executive Board has the following par- relation to the Group Executive Board ticular roles and competences: The Board of Directors shall assume responsibility –– Contributing significantly to the process of en- for supervision of its own committees and shall suring commercial success within the context of monitor the work of the CEO and the Group Ex- the Group strategy and instructions of the CEO ecutive Board by means of a range of reporting –– Actively participating in the leadership, planning processes and rights to inspect business processes and implementation of the company strategy and business transactions: –– Coordinating and harmonising the activities and business actions of the individual divisions from At each of its meetings, the Board of Directors is the perspective of the BKW Group’s overarching informed by the CEO and the other members of interests through close cooperation with the the Group Executive Board about current business other members of the Group Executive Board and key business transactions. The Chairman of –– Contributing proposals for strategic planning and the Board of Directors is also informed of current its execution, introduction and monitoring business at regular meetings and discussions –– Defining and implementing the principles for outside of the meetings of the Board of Directors. cooperation within the BKW Group In the case of extraordinary events, the CEO shall –– Determining the central risks and risk management inform the Chairman of the Board of Directors –– Promoting ethical behaviour and compliance without delay. with internal and external rules and regulations –– Responsibility for leadership of the assigned Business that must be dealt with by the Board of divisions Directors is first discussed in a meeting of the Pre- –– Decision-making on the entry of the purchaser siding Board. The participants in this meeting are of shares in the register of BKW AG shares the Chairman of the Board of Directors, the CEO, with voting rights, unless the decision falls the other members of the Group Executive Board under the remit of the Board of Directors. This and the Head of Group Management. authorisation may be delegated in full or in part to subordinate organisational units The Board of Directors is also kept up to date –– Preparation, implementation and creation of the as follows: annual plans and budget –– A report submitted in spring on the financial statement for the previous financial year and The Group Executive Board may resolve to delegate a report submitted in autumn on the financial part of its role and competences or the prepara- statement for the first half of the current year. tion, execution and monitoring of decisions of the These reports are accompanied by an estima- Group Executive Board to committees. The com- tion of the anticipated annual result (forecast) position, organisation, roles and competences of based on current business performance. permanently staffed committees shall be defined –– Comprehensive information about risk manage in separate regulations. The roles and organisation ment in conjunction with the planning and of ad hoc committees shall be determined in the financial statements resolution adopted to create them. In respect of the decommissioning of the Mühleberg Nuclear Monitoring instruments of the Board of Directors Power Plant, the Group Executive Board has dele- in relation to the Group Executive Board gated some of its roles to the Group Executive Board The Board of Directors is responsible for setting Committee for the KKM Decommissioning Project. up and monitoring the risk management, com pliance and internal audit processes within the Additional information about the Group Executive BKW Group. Board is provided in Section 4 below. 134 ANNUAL REPORT 2016 | CORPORATE GOVERNANCE

Risk Management Compliance The Group Executive Board is responsible for The Board of Directors is responsible for ensuring implementing the risk management process as compliance with applicable standards through its specified by the Board of Directors. The Board approval and regular inspection of the governance of Directors and the Group Executive Board are principles and Code of Conduct. The CEO ensures supported by the Risk Management division, which that an appropriately organised system is set up reports to the CFO. The Group Executive Board is and that controls of compliance with applicable advised by a Risk Committee, chaired by the CFO. standards are implemented in all areas of the BKW Risk Management is responsible for the Group’s Group. She provides the Board of Directors with strategic risk management, credit risk manage- a report to this effect at least once a year. In addi- ment and the operational risk management of tion, she undertakes an annual comprehensive risk trading and treasury. The Group Executive Board assessment and informs the Board of Directors of and the CFO are advised by the committee and the results. a professional risk organisation. The Board of Directors and Group Executive Board Risk Management continuously identifies and are supported by the Compliance team, which is assesses risks to which the entire BKW Group is assigned to the Group Management division. exposed, and formulates risk reduction measures. It takes account of internal and external events, Audit and analyses and controls the risks of potential Internal Audit submits a quarterly report on its threats to people and the environment, risks auditing activities to the Audit and Risk Manage- relating to the security of the electricity supply, ment Committee. In particular, the report covers risks to BKW’s reputation and to its liquidity, equity audits of transaction and business processes for capital and results. The Group’s risk bearing the whole Group. Internal Audit also reports annu- ability is also assessed. Special focus is currently ally to the Audit and Risk Management Committee on identifying and assessing new types of risk in on the audit of the annual financial statements, newly developed business models and divisions and on any priority issues determined by the on the basis of BKW’s growth strategy in the Committee. In the event of serious shortcomings services business. such as the detection of criminal acts or serious breaches of fundamental duties of care, the Inter- A system of limits applies to market, credit and nal Audit team will also provide the Audit and Risk liquidity risks. Individual measures are taken Management Committee with a report. to counter the risks arising in relation to extra ordinary market situations, and operational and BKW’s external auditor is Ernst & Young Ltd., Bern. 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. ANNUAL REPORT 2016 | CORPORATE GOVERNANCE 135

4 Group Executive Board

From left to right: Martin Schweikert, Ronald Trächsel, Antje Kanngiesser, Christophe Bossel, Hermann Ineichen, Suzanne Thoma, Renato Sturani

Group Executive Board

Year of Composition 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 136 ANNUAL REPORT 2016 | CORPORATE GOVERNANCE

Suzanne Thoma (1962, CH) Christophe Bossel (1968, CH) Ph.D. in chemical engineering Degree in engineering and material sciences, CEO, Member of the Group Executive Board and an EMBA (Executive Master of Business since 2010 Administration) Head of Networks, Member of the Group Executive Professional background, career Board since 2013 Since 2013 CEO 2010 – 2013 Head of Networks Professional background, career 2007 – 2009 Head of the Automotive Division of Since 2013 Head of Networks the WICOR Group in Rapperswil 2012 – 2013 Head of Asset Management in 2002 – 2007 CEO of Rolic Technologies Ltd, Networks a high-tech supplier in the electrical 2009 – 2011 Head of Production, SBB Industrie sector werk, Yverdon 1990 – 2002 Various roles in a variety of countries 2005 – 2009 Management position in the devel- for Ciba Spezialitätenchemie AG opment of medical devices (now BASF AG) 1996 – 2005 Management positions in a variety of industrial companies Seats on the boards of listed companies –– Member of the Board of Schaffner Holding AG, Seats on the boards of listed companies Luterbach None –– Member of the Board of UPM Corporation, Helsinki Seats on the boards of for-profit companies None Seats on the boards of for-profit companies Member of the Board of Beckers Group, Sweden Seats on the boards of other legal entities None Seats on the boards of other legal entities None Mandates held on the instruction of BKW –– Deputy Chair of the Board of onyx Energie Mittelland AG, Langenthal Mandates held on the instruction of BKW –– Chairman of the Board of cc energie sa, Murten –– Chairman of the Board of Arnold AG, –– Member of the Board of the Swiss Centre for Wangen an der Aare Electronics and Microtechnology (CSEM) – –– Chairman of the Board of BKW ISP AG, Research and Development, Neuchâtel Ostermundigen –– Deputy Chair of the Board of EDJ, Energie du Jura S.A., Delémont Seats on the boards of industry associations and –– Deputy Chair of the Board of Spontis S.A., non-profit organisations Avenches None –– Deputy Chair of the Board of Ingenieurteam IFE AG –– Member of the Board of Directors of Société des Other major activities Forces Electriques de la Goule S.A., Saint-Imier None Seats on the boards of industry associations and non-profit organisations Head of Consumption at the Ostral commission, organisation for energy supply in extraordinary situations

Other major activities None ANNUAL REPORT 2016 | CORPORATE GOVERNANCE 137

Hermann Ineichen (1957, CH) Renato Sturani (1967, D, I) Degree in electrical engineering and Mechanical engineer and Executive Master of MSc in Energy Management Business Administration Head of Production, Deputy to the CEO, Member of Head of Renewables & Efficiency, Member of the the Group Executive Board since 2000 Group Executive Board since 2013

Professional background, career Professional background, career Since 2013 Head of Production Since 2013 Head of Renewables & Efficiency 2001 – 2013 Head of Energy Switzerland 2011 – 2013 Head of Renewable Energy at Alpiq 1996 – 2000 Head of Trading 2002 – 2011 Head of Electricity Generation Prior to 1996 Head of Pricing at Centralschweize Western Region at Alpiq rische Kraftwerke AG 1993 – 2002 National and international management positions at ABB Alstom Power Seats on the boards of listed companies None Seats on the boards of listed companies None Seats on the boards of for-profit companies None Seats on the boards of for-profit companies None Seats on the boards of other legal entities None Seats on the boards of other legal entities None Mandates held on the instruction of BKW –– Member of the Board of Kernkraftwerk Mandates held on the instruction of BKW Leibstadt AG, Leibstadt –– Chairman of the Board of antec group AG, Risch, –– Member of the Board of onyx Energie ahochn AG, Dübendorf and ahochn AG, Rotkreuz, Mittelland AG, Langenthal Risch (Group structure) –– Member of the Board of Engadiner –– Member of the Board of BKW ISP AG, Kraftwerke AG, Zernez Ostermundigen –– Member of the Board of Grande Dixence S.A., –– Member of the Board of the Swiss Centre Sion for Electronics and Microtechnology (CSEM) – –– Member of the Board of Kraftwerke Research and Development, Neuchâtel Oberhasli AG, Innertkirchen –– Member of the Board of Fosen Vind DA –– Member of the Administrative Commission of the Decommissioning and Waste Disposal Fund Seats on the boards of industry associations and non-profit organisations

Seats on the boards of industry associations and None non-profit organisations

None Other major activities None Other major activities None 138 ANNUAL REPORT 2016 | CORPORATE GOVERNANCE

Ronald Trächsel (1959, CH) Statutory provisions on the number lic.rer.pol of permitted activities CFO and Head of Finance & Services, Member According to Article 21 of the articles of incor- of the Group Executive Board since 2014 poration, members of the Group Executive Board may hold no more than six senior managerial and Professional background, career governing body mandates in for-profit companies Since 2014 CFO and Head of Finance & Services outside of the BKW Group, no more than three of 2008 – 2014 CFO of the globally active Sika Group which may be stock-exchange listed companies, 2000 – 2008 CEO and CFO of the globally active and no more than five mandates with other legal Vitra entities such as foundations and associations 1995 – 1999 CFO of Ringier International that are required to be entered in the commercial register. Before accepting such new mandates, the Seats on the boards of listed companies members of the Group Executive Board are obliged None to obtain the permission of the Chairman of the Board of Directors. Mandates with companies that Seats on the boards of for-profit companies are controlled directly or indirectly by the Company –– Chairman of the Board of Wyss Samen und are not included in this numerical limitation. Pflanzen AG, Zuchwil Seats on the board of industry associations and –– Member of the Board and Head of the Audit non-profit organisations are not counted, provided Committee of ContourGlobal GP Ltd., New York that the total number of mandates per member –– Member of the Board of Création Baumann does not exceed 10. Mandates in senior manage Holding AG, Langenthal ment and governing bodies of companies and legal entities in which the Company is directly or Seats on the boards of other legal entities indirectly involved, or mandates that are taken up None on the instruction of the Company, are also not included. However, the total number of such man- Mandates held on the instruction of BKW dates per member shall not exceed 10. –– Chairman of the Board of AEK onyx AG –– Member of the Board of Swissgrid Ltd., Bern Multiple mandates held within a single group are –– Member of the Board of Kraftwerke Ober counted as one mandate. In justified cases, the hasli AG, Innertkirchen Board of Directors may also grant exceptions for a transitional period of no more than six months in Seats on the boards of industry associations and each case for no more than two additional mandates. non-profit organisations None Management contracts BKW has not delegated any management responsi- Other major activities bilities to third parties outside the Group. None 5 Compensation, shareholdings and loans All information on remuneration, shareholdings and loans of the members of the Board of Direc- tors and the Group Executive Board can be found in the Remuneration Report on pages 141 to 152. ANNUAL REPORT 2016 | CORPORATE GOVERNANCE 139

6 Shareholders’ participation 6.2 Statutory quorum rights Decisions at the General Meeting require a simple The following provisions are taken from the BKW majority of votes unless otherwise provided by articles of incorporation. The current articles of law. A simple majority of votes also applies to incorporation are available to shareholders free of decisions concerning the relaxation or lifting of charge on request. restrictions on transferability of registered shares.

6.1 Voting-right restrictions and representation 6.3 Convening the General Meeting and setting the agenda Shareholders’ rights may only be exercised by persons listed in the share register as a shareholder Notice of the General Meeting is to be given by with voting rights. There are no limitations on the Board of Directors at least 20 days prior to the voting rights for BKW shareholders attending the date of the meeting. A meeting may also be called General Meeting. by one or more shareholders whose combined shareholding represents at least 10 % of the share Every shareholder with a voting right can attend capital. This must be requested in writing, stating the General Meeting in person or be represented the agenda items and motions. by another shareholder or an independent designated representative. Shareholders may also assign Shareholders representing shares with a par value their proxy and voting instructions electronically; of at least CHF 1 million may ask for items to be the Board of Directors shall determine the details included on the agenda. This request must be by which this is done. The independent proxy is submitted no later than 50 days before the date of obliged to exercise the assigned voting rights as the General Meeting. instructed by the shareholder. If instructions were not provided, the vote must be withheld. 6.4 Entries in the share register

Public corporations, legal entities and trading com- The right to attend or to be represented at the panies are represented by their corporate bodies, General Meeting shall be determined on the basis partners or legal representatives, or by representa- of the shareholders with voting rights who are tives with special written power of attorney. entered in the share register on the fifteenth day before the General Meeting. Every share listed in the share register with voting rights is entitled to one vote at the BKW General Meeting. Shareholders who have participated in 7 Changes of control and the management of the Company in any form shall defensive measures not be entitled to vote on the resolution to grant discharge of the Board of Directors. Under the terms of Article 6 of the articles of incorporation, BKW has opted to increase the The Chairman shall have full power to determine threshold for a mandatory takeover offer to 49 % the procedure for voting and elections. He may, in accordance with Article 135 of the Financial in particular, order that an open vote or election Market Infrastructure Act (FMIA). be repeated at any time by means of a written or electronic ballot or election, if he is in doubt about There are no agreements or plans for the benefit of the result, or order a secret ballot. members of the Board of Directors and/or the Group Executive Board in the event of changes of control. 140 ANNUAL REPORT 2016 | CORPORATE GOVERNANCE

8 Auditor 9 Information policy

Term of office BKW is committed to the timely dissemination BKW’s auditors are appointed on an annual basis. of transparent and comprehensive information The current auditors are Ernst & Young Ltd.; to its shareholders and clients as well as its the firm has acted as BKW’s auditor since 1990. employees and the general public. It regularly The lead auditor is Roland Ruprecht. informs the media about important events related to its business activities. A press conference on Fees its financial position is held at least once a year. The auditors’ fees for expenditures incurred by Along with a written invitation to the General statutory audits of BKW and its consolidated Meeting, shareholders receive a shareholders’ Group companies amounted to CHF 900,000.00 for letter and an order form for the Annual Report. the reporting year. The fees for auditing services Information on share prices is published in com- including non-mandatory audits and reviews, and pliance with the applicable legal requirements for consulting in financial reporting and tax matters, disclosure. BKW publishes press releases as well as amounted to CHF 170,000.00. special information for shareholders and investors (in particular Annual Reports and the results of Information instruments of the external auditors General Meetings) on the internet (www.bkw.ch). Oversight and control of the external auditor is a key responsibility of the Audit and Risk Man- agement Committee (cf. Section 3.4 under ‘Audit 10 Significant changes since and Risk Management Committee/Responsibili- 31 December 2016 ties’). The Audit and Risk Management Committee convenes four ordinary meetings per year, in which Organisational changes the auditors sometimes participate. The external No significant changes. auditors attended for parts of the agenda at two of these meetings during the 2016 reporting year. Changes in personnel Board member Paul-Albert Nobs will retire when On behalf of the Audit and Risk Management Com- his period of office ends at the General Meeting mittee, the external auditors examine the annual on 12 May 2017. financial statements according to the Swiss Code of Obligations (OR) as well as the consolidated annual financial statements. Towards the end of the year, the external auditors must advise the Committee of the audit priorities they have set for the forthcoming year and the rationale for these priorities. The Committee must approve this audit plan and may commission the external auditors to conduct additional specific audits.

The performance of the external auditors and their independence are assessed annually by the Audit and Risk Management Committee. This assessment is based on the quality of the reports, implementation of the audit plans approved by the Committee, and collaboration with the internal auditors. With regard to independence, the Com- mittee examines the relationship between the budgeted audit fee and the fee for other services provided by the auditing company, and what these additional services include. ANNUAL REPORT 2016 Remuneration Report 142 ANNUAL REPORT 2016 | REMUNERATION REPORT Remuneration Report

1 Introduction

Dear Shareholders, Dear Sir/Madam,

The Remuneration Report provides you with an The Remuneration Report meets the requirements overview of BKW’s salary policy and system of of the Swiss Code of Obligations, the Ordinance remuneration. It contains detailed information against Excessive Compensation in Listed Stock about the remuneration paid to the Board of Companies, and the corporate governance guide- Directors and the Group Executive Board during lines of the SIX Swiss Exchange, and is based on the 2016 financial year, and lists the shareholdings the Swiss Code of Best Practice for Corporate of the members of these boards in BKW AG. Governance.

In 2015, BKW adopted a simple, stability-oriented At the 2017 General Meeting, we will present this remuneration system for the Group Executive Remuneration Report for approval within the scope Board, the aim of which was to underline the of a consultative vote. importance of inter-divisional collaboration for the success of BKW and to focus on increasing the Kind regards, share price in the long term.

The remuneration system and the rates of pay for the Board of Directors have been stable since 2009.

Urs Gasche Chairman of the Remuneration and Nomination Committee ANNUAL REPORT 2016 | REMUNERATION REPORT 143

2 BKW salary policy amounts approved by the General Meeting for the remuneration of the Board of Directors relate to BKW offers competitive remuneration. It takes the period from the current General Meeting until particular account of the long-term interests of the next General Meeting. The overall amount of the Company. In addition, BKW aims to recruit remuneration of the Group Executive Board that suitable personnel from the labour market and is approved by the General Meeting relates to the to encourage them to make a long-term commit- amount paid for the full financial year that follows ment to the Company. the General Meeting. A consultative vote is also taken on the Remuneration Report for the com- Within the scope of its salary policy, BKW pleted remuneration period. regularly reviews its remuneration system and, where appropriate, sets new rates and partic- The members of the Board of Directors receive ipation programmes for the Board of Directors only a fixed remuneration and any meeting or and Group Executive Board. Recently during the attendance allowances, together with estimated 2014 financial year, an industry benchmarking employer contributions and any pension payments, exercise was carried out by the specialist firm of additional insurance payments and additional consultants, Mercer. Mercer acts independently benefits in kind. There is no performance-related of the Board of Directors and the Group Executive component for members of the Board of Directors. Board and has no other mandates at BKW. The This ensures the independence of the Board of level and structure of remuneration were both Directors in its supervision of the Group Executive reviewed. The information was benchmarked Board. Remuneration is paid out in cash. against similarly sized and comparably structured listed electricity and energy companies in The remuneration of the members of the Group Switzerland with similar business activities, as Executive Board consists of a fixed annual base well as industrial and service companies. Mercer salary and a variable remuneration element, plus also supported BKW in developing the system of any estimated employer contributions and pension remuneration of the Group Executive Board. BKW payments, additional insurance payments and has adopted a very simple remuneration system additional benefits in kind. The variable remuner- that focuses on stability. In accordance with this, ation comprises a short-term performance-related the base salary and the long-term profit sharing cash element, and a long-term element that is element for the Group Executive Board are meas- paid in the form of shares. The short-term variable ured at a sustainable market level. The short-term remuneration is paid to individual members of the variable remuneration, however, is set at a low Group Executive Board according to the achieve- level. No need for change was identified during ment of personal targets. The performance targets the regular review of the remuneration system for may comprise company and division-specific the Board of Directors. targets, personal targets or targets calculated on the basis of comparisons with the market, other companies or comparable benchmarks. 3 System of remuneration 3.2 Board of Directors 3.1 Overview of overall remuneration a) Fixed payment (base salary) The fundamental details of the remuneration of The base salary of the Board of Directors comprises the members of the Board of Directors and the a fixed Board member fee. The level of the fee Group Executive Board are governed by Articles 27 depends on the particular role (Chairman or Deputy and 28 of the articles of incorporation, which can Chair), and the membership and roles pertaining be found on the BKW website under ‘Investor Re- to Board committees. lations’. Each year, the Board of Directors submits the maximum total amount of remuneration of the Board of Directors and the Group Executive Board to the General Meeting for its approval. The overall 144 ANNUAL REPORT 2016 | REMUNERATION REPORT

b) Attendance allowance If performance is deemed to have been appropriate, A fixed attendance allowance is paid for each the CEO is entitled to a variable remuneration meeting of the Board of Directors or committee in of 20 % of her base salary, while the other members which the Board member participates. The Chair- of the Group Executive Board are entitled to 10 %. man does not receive an allowance for meetings. In the case of excellent performance, the CEO may receive 30 % of the base salary as variable c) Share-based remuneration remuneration and the other members of the Group Once a year, the Board of Directors determines Executive Board 20 %. The maximum variable the number of BKW shares that members of the remuneration is therefore subject to an upper Board of Directors may acquire, as well as the limit and is always less than one third of the base preferential price. This arrangement is designed remuneration. The short-term variable remuner- to motivate members of the Board of Directors to ation is paid out in cash during the calendar year achieve a sustainable increase in BKW’s enter- following the year for which it is awarded. prise value. Share-based payments comprise the benefit in fair value of the preferential purchase Irrespective of whether performance targets are of BKW shares. The shares acquired through this met, the variable remuneration may be reduced arrangement are subject to a three-year blocking or revoked in exceptional circumstances. Such period on their sale; this is taken into account exceptional circumstances arise if the company’s when measuring the remuneration for the deduc- existence is under threat and the payment of tion specified in item 3.3 of Circular no. 37 of the dividends and/or any variable components due to Federal Tax Administration of 22 July 2013 on the employees is cancelled. In this case, there may taxation of employee shareholdings. be no claim to short-term variable remuneration despite achievement of targets. Any reductions in d) Other remuneration the dividend payment made to finance investment The other remuneration paid to the members of projects shall have no impact on the calculation of the Board of Directors comprises fixed expense the variable remuneration. payments, payments by BKW to the national social insurance funds and any withholding taxes. The annual targets are agreed in December of each year for the following financial year. Both BKW does not provide loans, credit or pension pay- the Board of Directors and the Remuneration and ments to members of the Board of Directors. Nomination Committee rely on the following quantitative and qualitative objectives for assessing 3.3 Remuneration of the Group Executive Board the performance.

EBIT Strategy implementation a) Fixed annual base remuneration CEO 50 % 50 % The base remuneration provides recompense for Other Group the role held within the organisation. This takes Executive into account the person’s experience, scope of Board members 50 % 50 % responsibility and influence on the company’s success. The base remuneration is paid in cash. EBIT relates to that of the BKW Group. BKW’s budget is prepared excluding reserves, so the b) Short-term variable remuneration budgeted EBIT is a stretch figure. If the budget- The short-term variable remuneration is dependent ed EBIT is achieved, this equates to maximum on the achievement of annual targets. These focus target performance. Extraordinary, unforeseeable on the progress made over the course of the year events such as the removal of the CHF/EUR cap with regard to implementing the strategy, as are taken into account in assessing the level of well as the annual financial results achieved. The target performance. Remuneration and Nomination Committee prepare an overall assessment, taking into account the The strategy implementation relates to the personal general economic situation and industry-specific contribution made according to the individual’s role environment in which the company operated. and influence. ANNUAL REPORT 2016 | REMUNERATION REPORT 145

c) Long-term profit sharing 4 Organisation and The long-term profit sharing programme is aimed competences in setting at securing long-term success and is linked to the opportunities and risks associated with the share remuneration rates price performance. At the request of the Board of Directors, the Long-term profit sharing was introduced in 2014. General Meeting ratifies the maximum overall Except in exceptional circumstances, it amounts to amount of remuneration of the Board of Direc- 30 % of the CEO’s base salary for the current finan- tors in respect of the period of office starting cial year and 20 % for other members of the Group from the General Meeting until the next General Executive Board. When introducing the remuner- Meeting, and of the Group Executive Board in ation regulations, the share price performance in respect of the next financial year. The details of 2014/2015 was used as the basis. The BKW share the remuneration system and the consequenc- price has performed very well over the last two es of the General Meeting’s failure to ratify the years. Because the share component of the Group proposal are governed by Articles 26 to 28 of the Executive Board is calculated as a percentage of articles of incorporation. The articles of incorpo- the base salary, the steep rise in the share price ration also define the prerequisites and maximum over a short period of less than one year results amount of additional contribution that can be in a much lower number of shares being allocated. paid to a member of the Group Executive Board At the same time, there is a greater risk of the appointed during a remuneration period for which share price declining, which harbours considerable the proposed remuneration has already been rati- tax risks for the individual members of the Group fied by the General Meeting (Article 28). Executive Board. In light of this, the remuneration regulations were changed for long-term profit Membership of the Nomination and sharing, so that the allocation of shares continues Remuneration Committee to be based on an average share price for 2014 and 2015. The original sense and purpose of this Urs Gasche Chairman of the Board of element was considered in the change. The Remu- Directors, Chairman neration and Nomination Committee reviews the Barbara Egger-Jenzer Member of the Board of calculation of the share component of the Group Directors, Deputy Chairman Executive Board each year to account for any Georges Bindschedler Member of the Board of Directors, Member changes in the share price. The allocation of shares for the current financial year is carried out each December. The blocking period is three years from According to Article 25 of the articles of incorpo- the date of issue. ration, the Remuneration Committee is particularly concerned at senior company management level d) Pension contributions and with the remuneration strategy and performance social security contributions targets and criteria of the BKW Group. In addition, Pension contributions include the employer con- it is authorised to develop criteria for the selec- tributions to the pension fund. The BKW pension tion of candidates to the Board of Directors and fund (Pensionskasse BKW) operates a defined- the Group Executive Board. Due to this additional benefit pension plan in accordance with the statu- role, the Board of Directors has given the remu- tory requirements for occupational pensions (BVG). neration committee the name of Remuneration In addition to the ordinary employer contributions, and Nomination Committee, and this is reflected in the pension benefits therefore also include the the organisational regulations and regulations of employer’s share of any corrective payments the Remuneration and Nomination Committee. The arising from increases in the insured salary. Social Remuneration and Nomination Committee assists security contributions include the employer’s con- the Board of Directors in establishing and review- tributions to the national social insurance funds. ing the remuneration system and remuneration All remuneration subject to social security contri- principles, and in preparing the proposals to the butions is recorded gross. General Meeting in respect of the total amount of 146 ANNUAL REPORT 2016 | REMUNERATION REPORT

remuneration to be paid to the Board of Directors The table below shows how the responsibilities and the Group Executive Board. and competences are divided between the General Meeting, the Board of Directors and the Remuner- ation and Nomination Committee.

Overview of roles and responsibilities Remuneration and Nomination Board of General Object Committee Directors Meeting Maximum total amount of remuneration of the Board of Directors and the Group Executive Board PS 1 S 2 R 3 Additional amount for the remuneration of newly nominated members of the Group Executive Board 4 R 4, 5 BKW’s salary policy and remuneration system PS R Remuneration principles and system for the Board of Directors and Group Executive Board PS R Performance criteria for remuneration of the CEO and the members of the Group Executive Board PS R 5 Individual remuneration of the Board of Directors PS R 6 Performance assessment and individual remuneration of the CEO PS R 6 Performance assessment and individual remuneration of the members of the Group Executive Board (excluding the CEO) R 4, 5, 6 Remuneration Report PS R CV 7 Principles governing the selection of candidates for election or re-election to the Board of Directors PS R Election, dismissal and succession planning for members of the Group Executive Board PS R Treatment of elections and succession planning for the Board of Directors PS R

1 PS means preparation and submission to Board of Directors 2 S means submission to the General Meeting 3 R means ratification 4 CEO’s proposal 5 Within the scope of the articles of incorporation 6 Within the scope of the maximum total amount approved by the General Meeting 7 CV means consultative vote

5 Remuneration paid to the 5.1 Board of Directors Board of Directors and This section provides information about the remu- Group Executive Board neration paid to members of the Board of Directors for the financial years 2016 and 2015, and a com- The remuneration amounts are disclosed for the parison with the maximum overall remuneration accounting period (in this case, financial year) ratified by the 2016 General Meeting in respect of in which they are accounted for in the annual the 2016/17 term of office. financial statements, in accordance with the accounting principle of accrual. During the 2016 financial year, no changes were made to the fixed remuneration of the members of the Board of Directors or to the attendance allowances. For individual members of the Board, payment is made in whole or in part to their employers. ANNUAL REPORT 2016 | REMUNERATION REPORT 147

The amount of attendance allowance paid varies Share-based payments comprise the benefit in for each member of the Board of Directors fair value of the preferential purchase of BKW according to their attendance at the meetings shares. In 2016, each member of the Board of and participation in the Audit and Risk Mana Directors was offered the opportunity to purchase gement Committee and Remuneration and Nomi- 600 BKW shares (2015: 600 shares) at a preferen- nation Committee. The Chairman does not receive tial price of CHF 27.00 per share (2015: CHF 20.00). AUDITED an allowance for meetings. The underlying market value was CHF 38.50 per share (2015: CHF 33.00). The other payments comprise the fixed expenses payments, which remain unchanged, the social No loans or credits have been granted to active or security contributions and any statutory withhold- former members of the Board of Directors or par- ing taxes that have been incurred. ties related to them. Moreover, no typical market

remuneration has been paid to persons related to AUDITED The members of the Board of Directors do not the members of the Board of Directors. receive any pension contributions. AUDITED

Remuneration of members of the Board of Directors in 2016

Fixed Attendance Share-based Other CHF thousands remuneration allowance payments remuneration Total Urs Gasche Chairman 280 2 51 333 Hartmut Geldmacher Deputy Chair 52 10 3 41 106 2 nd Deputy Chair Kurt Rohrbach (until 13.05.2016) 22 4 3 3 32 Marc-Alain Affolter Member 40 20 3 15 78 Roger Baillod Member 50 20 3 16 89 Dr. Georges Bindschedler Member 40 16 3 5 64 Barbara Egger-Jenzer 1 Member 40 16 2 5 63 AUDITED Dominique Gachoud Member (until 13.05.2016) 17 4 3 4 28 Paul-Albert Nobs Member (from 13.05.2016) 27 10 9 46 Kurt Schär Member 40 20 3 5 68 Beatrice Simon-Jungi 1 Member (until 13.05.2016) 17 4 3 3 27 Total 625 124 28 157 934

1 All remuneration, including attendance allowances, was paid to the Canton of Bern.

Remuneration of members of the Board of Directors in 2015

Fixed Attendance Share-based Other CHF thousands remuneration allowance payments remuneration Total Urs Gasche Chairman 280 5 51 336 Hartmut Geldmacher Deputy Chair 52 14 5 44 115 Kurt Rohrbach 1 2 nd Deputy Chair 270 8 5 210 493 Marc-Alain Affolter Member 40 20 5 15 80 Roger Baillod Member 50 20 5 16 91 Dr. Georges Bindschedler Member 40 18 5 6 69 Barbara Egger-Jenzer 2 Member 40 14 5 59

Dominique Gachoud Member (from 08.05.2015) 27 10 7 44 AUDITED Dr. Eugen Marbach Member (until 08.05.2015) 17 4 5 5 31 Kurt Schär Member 40 20 5 65 Beatrice Simon-Jungi 2 Member 40 6 5 6 57 Philippe Virdis Member (until 08.05.2015) 17 6 3 26 Total 913 140 40 373 1,466

1 Full-time post until 31.05.2015. 2 All remuneration, including attendance allowances, was paid to the Canton of Bern. 148 ANNUAL REPORT 2016 | REMUNERATION REPORT

Maximum overall remuneration for the term The 2016 General Meeting ratified a proposal for of office 2016/2017 a maximum overall amount of CHF 1,500,000 in The General Meeting ratifies the maximum overall respect of remuneration of the Board of Directors amount of remuneration of the Board of Direc- for the 2016/2017 term of office. Calculated for tors for its term of office, i.e. from the General the period of eight months to 31.12.2016, the Meeting (each May) until the next General payments to members of the Board of Directors Meeting (the following April). Since the present amounted to CHF 597,000. The amounts already Remuneration Report refers to the financial year paid out and yet to be paid in 2017 (from January and therefore takes 31.12.2016 as its cut-off date to April 2017) are within the maximum overall for information to be disclosed, the amount dis- amount ratified by the General Meeting. closed in this report has been adjusted to a period of eight months (May to December 2016).

Overall remuneration Board of Directors 2016/2017

CHF thousands Period 05/2016 – 04/2017 Period 05 – 12/2016 Period 01 – 04/2017 Maximum overall remuneration ratified by the General Meeting 1,500 Information for the Amount actually paid out 597 General Meeting 2017

Overall remuneration Board of Directors 2015/2016

CHF thousands Period 05/2015 – 04/2016 Period 05 – 12/2015 Period 01 – 04/2016 Maximum overall remuneration ratified by the General Meeting 1,500 Amount actually paid out 1,195 857 338

The General Meeting 2017 will receive a report on –– Optimisation of traditional electricity generation the entire remuneration period (General Meeting and expansion of the regulated energy portfolio 2016 to General Meeting 2017). The Remuneration through project achievements and investment in Report for the 2017 financial year will show an wind farms and small hydroelectric power plants overall view of the remuneration period from the –– Customer-focused orientation and expansion of General Meeting 2016 to the General Meeting 2017. the trading business to cover the value chain more broadly 5.2 Remuneration paid to the –– Successful management of the project to decom Group Executive Board mission the Mühleberg Nuclear Power Plant –– Strengthening of decentralised energy business In 2016, the remuneration system detailed in 3.3 and the networks through investments, strate- was applied. This system focuses on the creation gic acquisitions and successful implementation of sustainable, long-term value. of optimisation projects –– Structured expansion of the engineering and Implementing the strategy and having a robust and infrastructure business in Germany, Austria, efficient structure are essential to BKW. The per- Switzerland and Italy, and rapid development of formance of the Group Executive Board is therefore building technology in Switzerland assessed on the basis of the progress made in imple- –– Development of convincing management and menting the strategy and on the financial perfor- organisational models for integrating the acqui- mance: both objectives were exceeded by the Group sitions and partnerships Executive Board. The strategy is being implemented –– Stringent implementation of numerous optimi- very quickly, successfully and ahead of schedule sation projects to improve efficiency and reduce (for specific details, see pages 4 to 11 of this costs in the central functions and divisions. Annual Report): ANNUAL REPORT 2016 | REMUNERATION REPORT 149

Although the contributions in the traditional en- processes as well as high-quality and innovative ergy business are declining considerably, operating products and services. The achievements in the profit (EBIT) was up 12 % on the previous year to area of recruitment were recognised with an award CHF 346 million due to specific operational meas- for best recruiter in the energy industry. BKW’s ures (for details, see pages 4 et seq. of this Annual corporate film was shown for the first time at Report). Operating cash flow before the change the international competition Cannes Corporate in net working capital and income tax payments Media & TV Award. saw an increase of CHF 76 million year-on-year to CHF 486 million. In light of the challenging The performance achieved is recognised through environment marked by political and regulatory the fixed-base salary and the share-based long- instability, low and volatile energy prices and the term profit sharing system. The reported variable after-effects of the franc shock, these achieve- remuneration is based on the achievement of ments are very pleasing. individual quantitative and qualitative annual objectives that depend on the role and scope of In this climate, the BKW’s remuneration system, influence of each Group Executive Board member. which focuses on the positive overall performance of BKW through inter-divisional cooperation and As part of implementing the remuneration system leadership, proved its worth once again. The ambi- introduced in 2014, the incremental increase in tious operational objectives and EBIT targets were remuneration of the Group Executive Board to exceeded by some margin. BKW remains on course. a competitive market level was completed as planned in 2016. As a result, the total remunera- Significant progress has been made in leadership tion of the highest earning member of the Group to ensure that the transformation of the company Executive Board (CEO Suzanne Thoma) increased progresses in a strong, sustainable fashion. The by 6 % in comparison to the previous year. The dialogue initiated around a shared vision and the total for the entire Group Executive Board de- further development of the BKW culture was con- creased by 13 % as there was one member less on tinued in 2016. This was accompanied by Group- the Board in 2016. wide projects that focused on lean and efficient

Remuneration of members of the Group Executive Board and the highest-earning member in 2016

Dr. Suzanne Thoma Group Executive CEO Board (including CEO) CHF thousands 2016 2016 Fixed remuneration 650 2,557 Short-term variable remuneration 195 530 Long-term profit sharing (share-based payments) 232 695

Pension benefits 227 851 AUDITED Total 1,304 4,633 150 ANNUAL REPORT 2016 | REMUNERATION REPORT

As in the previous year, at 31 December 2016, During the reporting year, the CEO received an allo- there were no loans outstanding payable by active cation of 6,000 shares (2015: 4,920 shares), while or previous members of the Group Executive Board the total allocation to all members of the Group or parties related to them. Moreover, no securities, Executive Board was 12,000 (2015: 17,431 shares). advances or any form of credit had been provided The shares acquired through this arrangement are

AUDITED and therefore there are no corresponding receiva- subject to a three-year blocking period on their bles. Neither has any typical market remuneration sale; this is taken into account with a deduction AUDITED been paid to persons related to the members of of 16.038 % in accordance with item 3.3 of Circular the Group Executive Board. no. 37 of the Federal Tax Administration of 22 July 2013 on the taxation of employee shareholdings.

Remuneration of members of the Group Executive Board and the highest-earning member in 2015

Dr. Suzanne Thoma Group Executive CEO Board (including CEO) CHF thousands 2015 2015 Fixed remuneration 612 2,929 Short-term variable remuneration 183 595 Long-term profit sharing (share-based payments) 155 547

Pension benefits 285 1,282 AUDITED Total 1,235 5,353

Maximum overall remuneration for the 2017 6 Shareholdings financial year The 2016 General Meeting ratified a proposal for At 31 December 2016 and 2015, the members of a maximum overall amount of CHF 7,000,000 in the Board of Directors and the Group Executive respect of remuneration of the Group Executive Board of BKW and/or persons related to them held Board for the 2017 financial year. The allocation of shares in the company as indicated in the table in the remuneration for 2017 will be reported in the the following table: Remuneration Report 2016.

Shareholdings of members of the Board of Directors

Number of shares 31.12.2015 31.12.2016 Urs Gasche Chairman 3,377 3,747 Hartmut Geldmacher Deputy Chair 3,120 3,720 Kurt Rohrbach 2 nd Deputy Chair (until 13.05.2016) 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 400 800 Dominique Gachoud Member (until 13.05.2016) 250 n/a AUDITED Paul-Albert Nobs Member (from 13.05.2016) n/a 0 Kurt Schär Member 1,000 1,600 Beatrice Simon-Jungi Member (until 13.05.2016) 1,600 n/a Total 34,642 24,507

Individual shares held by members of the Board of Directors are subject to a blocking period of up to three years. ANNUAL REPORT 2016 | REMUNERATION REPORT 151

Shareholdings of members of the Group Executive Board

Number of shares 31.12.2015 31.12.2016 Dr. Suzanne Thoma CEO 13,493 19,493 Christophe Bossel Head of Networks 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 AUDITED Total 37,450 55,450

Individual shares held by members of the Group Executive Board are subject to a blocking period of up to three years.

7 Employment contracts subject solely to the annual election to the Board with members of the of Directors by the General Meeting. The members of the Board of Directors are independent and their Group Executive Board and rights and obligations are based on the norms of contracts with members company law and the provisions of the articles of of the Board of Directors incorporation, regulations and mandate agreements. No employment contracts exist between In accordance with Article 29 of the articles of BKW and members of the Board of Directors. incorporation, contracts between the company and members of the Board of Directors or the Group The employment contracts of the members of Executive Board that include compensation of the Group Executive Board have been drafted in these members must only be concluded for a period accordance with the Ordinance against Excessive of less than one year or with a notice period of Compensation in Listed Stock Companies. During maximum 12 months. the reporting period, all Group Executive Board members had permanent employment contracts Fixed-term or permanent mandate agreements with a termination period of 12 months. The may be concluded with members of the Board of employment contracts do not provide for any Directors, but the effectiveness of the mandate is severance payments. 152 ANNUAL REPORT 2016 | REMUNERATION REPORT

8 Report of the statutory auditor on the remuneration report

Ernst & Young Ltd Phone + 41 58 286 61 11 Schanzenstrasse 4a Fax + 41 58 286 68 18 P. O. Box www.ey.com/ch CH-3001 Berne

To the General Meeting of BKW AG, Berne Berne, 14 March 2017

Report of the statutory auditor on the remuneration report

We have audited the remuneration report of BKW AG for the year ended 31 December 2016. The audit was limited to the information according to articles 14 – 16 of the Ordinance against Excessive Compensation in Stock Exchange Listed Companies (Ordinance) contained in the tables and sections labeled “audited” on pages 146 to 151 of the remuneration report.

Board of Directors’ responsibility

The Board of Directors is responsible for the preparation and overall fair presentation of the remuneration report in accordance with Swiss law and the Ordinance. The Board of Directors is also responsible for designing the remuneration system and defining individual remuneration packages.

Auditor’s responsibility

Our responsibility is to express an opinion on the remuneration report. We conducted our audit in accordance with Swiss Auditing Standards. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the remuneration report complies with Swiss law and articles 14 – 16 of the Ordinance.

An audit involves performing procedures to obtain audit evidence on the disclosures made in the remune ration report with regard to compensation, loans and credits in accordance with articles 14 – 16 of the Ordi- nance. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatements in the remuneration report, whether due to fraud or error. This audit also includes evaluating the reasonableness of the methods applied to value components of remuneration, as well as assessing the overall presentation of the remuneration report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Opinion

In our opinion, the remuneration report for the year ended 31 December 2016 of BKW AG complies with Swiss law and articles 14 – 16 of the Ordinance.

Ernst & Young Ltd

Roland Ruprecht Philippe Wenger Licensed audit expert Licensed audit expert (Auditor in charge) ANNUAL REPORT 2016 | REMUNERATION REPORT 153 154 ANNUAL REPORT 2016 | ADDRESSES AND LEGAL NOTICE

Addresses Legal Notice

Investor Relations Editorial team BKW AG Finance & Controlling, Investor Relations Corporate Communications, Bern Viktoriaplatz 2 CH-3013 Bern Translation Tel + 41 58 477 53 56 Supertext Ltd., Zurich [email protected] www.supertext.ch

Media Relations Concept and design BKW AG Process Brand Evolution, Zurich Media Relations www.process-group.com Viktoriaplatz 2 CH-3013 Bern Photography Tel + 41 58 477 51 07 Suzanne Schwiertz, Zurich [email protected] www.foto-schwiertz.ch

This report contains statements that con- Printing stitute expectations and forward-looking Neidhart + Schön, Zurich statements. Because these statements are www.nsgroup.ch subject to risks and uncertainties, actual future results may differ materially from those expressed or implied by the expectations and statements. This report is published in German, French and English. The German version is authoritative.

KS17E2003 (print) 1663-4578 ISSN ISSN 2234-9065 (online)

BKW AG Viktoriaplatz 2 CH-3013 Bern Telephone +41 58 477 51 11 www.bkw.ch