Repower : 08-26-14 - Repower successfully sets new priorities and achieves respectable 2014 half-year operating result

August 26, 2014 at 02:41 am EDT

08-26-2014 Repower successfully sets new priorities and achieves respectable 2014 half-year operating result

Repower achieved a respectable operating result (EBIT) in the first half year of 2014 of CHF 32 million. Profit totalled CHF 4 million. Total operating revenue was CHF 1.196 billion, in line with the previous year. Measures to increase efficiency produced positive results. Good progress was achieved by the Leverkusen, Chlus and Lagobianco power plant projects. In addition, Repower is increasingly establishing itself as a partner to regional energy suppliers.

The first six months of 2014 were characterised by persistently low wholesale prices. Hydropower in particular faces a challenging situation, which is being compounded by the current uncertainty with regard to energy policy across Europe.

Respectable EBIT
Total operating revenue amounted to CHF 1.196 billion in the first half of 2014 and is therefore almost on a par with the previous year. EBIT totalled CHF 32 million (down 26% year-on-year), in line with expectations. Market Switzerland contributed CHF 19.3 million to this and Market Italy CHF 21.6 million. Group profit was influenced by exchange rate losses, losses at associates and interest rate swaps and amounted to just under CHF 4 million (down 86% year-on-year). Cash flow increased by 51 per cent year-on-year, which was due in particular to a focus on receivables management, and totalled CHF 46 million, compared with CHF 30 million in the first half of 2013.

The equity ratio remained stable at a sound 39 per cent. Repower made investments of CHF 15 million in the first half of 2014 (previous year: CHF 33 million).

"In view of the circumstances, the operating result in the first half of 2014 can be characterised as respectable", commented CEO Kurt Bobst. The Repower strategy of focusing on several key markets has again proved itself with good contributions to results from Italy and Romania.

The on-going comprehensive efficiency programme bolstered the 2014 half-year results thanks to a marked reduction in operating expenses. The measures in the first half of 2014 included further simplifying internal structures, reducing the size of the Executive Board and making savings in other operating costs. The streamlining of the legal structures in Switzerland and Italy is reducing the administrative burden and, in particular, making it easier to comply with regulatory requirements. In total Repower will be able to make savings of approximately CHF 17 million in 2014. Further measures have been triggered so that the efficiency programme is expected to have an impact of over CHF 20 million in 2015.

In addition, Repower decided to withdraw from its sales business in Germany (sales to SME customers). However, Repower remains active in Germany in trading activities (certificates of origin, trading services, profile deliveries and standard products); it will continue to pursue the power plant project in Leverkusen and to operate the two wind farms in Lübbenau and Prettin.

Repower continues to pursue an extremely cautious investment policy. In addition, Repower is looking into selling its stake in Swissgrid AG, where it holds 3.69 per cent of the shares. The objective of this review is to further increase Repower's financial room for manoeuvre.

Despite cost optimisation and reduced investment, Repower attaches great importance to adequately maintaining its power plants and grids. For instance, the first machine group of the Campocologno power plant underwent a major revision and substations in Surselva, Prättigau and the Engadine were or are being upgraded.

Electricity sales amounted to around 9.1 terawatt hours (up 9% year-on-year) in the first half of 2014. The increase is attributable to trading business, with sales remaining virtually static. Gas sales increased by as much as 86 per cent, with gas trading more than doubling.

Generation projects widely accepted
Despite the aforementioned political uncertainties Repower is further developing its key generation projects with the aim of having projects that are ready to put into effect when market conditions improve and that can make a significant contribution to energy transition. The concessions for the Lagobianco project, which involves the construction of a pumped storage power plant in Valposchiavo, were approved by the Canton of Graubünden in the spring. This represents a key milestone in the approval process. The request for the project approval should be submitted later this year. The difficult environment means that Repower will prioritise the upgrading of the existing power plants in Valposchiavo, which is a component of the concessions. The Chlus hydropower project in Prättigau/Rhine valley is meeting with a pleasingly high degree of public acceptance. Eleven of the twelve municipalities involved in the project have already voted overwhelmingly to grant the concessions, with the last referendum scheduled for September. The federal government also highlighted the project's importance, rating it as a "project of national importance". This one plant alone could contribute eleven per cent to the national hydropower expansion targets by 2035. The combined-cycle gas turbine plant in Leverkusen is already at the detailed planning stage. Repower anticipates that decisions on the next steps will be able to be made within the space of a year.

Taking advantage of new opportunities
Repower considers the challenging situation in the energy markets less as a threat than an opportunity. Efforts in the New Tech business area have thus been intensified in recent months. In particular, Repower is working on projects to improve energy efficiency, to optimise energy management, to integrate systems and to enhance the benefit to customers. In so doing it is placing great emphasis on interdisciplinary, cross-industry collaboration. Combining the knowledge of various partners creates new competences, which is a precondition for innovative solutions in the ever-changing energy environment.

In recent months the company has also succeeded in winning several tenders for engineering and planning work for third parties. For instance, Repower is planning the replacement of a substation in Ticino for Swissgrid; Repower was also awarded a maintenance contract by Swissgrid for five years for six substations in southern and central Graubünden. In contracts such as these Repower can put the experience and knowledge of extensive, complex projects it has acquired in recent years to good use.

The Repower partner strategy is also developing successfully, with the company increasingly providing services for other energy suppliers and major companies. These services include balance group management, extensive trading services, procurement and sales services and support with power plant deployment and portfolio management matters. One example is Repower's development of a power plant optimisation tool for the Swiss Federal Railways (SBB) and its provision of additional trading services.

Outlook
Repower expects that the market situation will continue to be very challenging; it is hard to say in which direction the political and regulatory environment will go. However, Repower is well positioned thanks to the proven expertise of its employees, its innovative capacity, its openness to collaboration and its attractiveness to partners.

Based on the current situation, Repower expects its operating result (EBIT) at the end of 2014 to be, as previously announced, around 30 to 40 per cent below the 2013 level (before exceptional items). The above-mentioned strengths of Repower in combination with its rigorous implementation of the efficiency programme provide it with the foundation necessary to tackle the current major challenges.