REPOWER AG Persistently low energy prices and the hard Swiss franc have a massive negative impact on business performance in the first half of 2015. Currency-driven decline in total operating revenue (CHF 922 million) results in EBIT of CHF -34 million and net loss of CHF 108 million. Repower takes total charges of CHF 42 million for impairment on power generation assets and provisions on long-term energy supply agreements. The group systematically implements measures designed to boost cost-efficiency, adapt structures and streamline its portfolio of interests and projects. It also reviews its strategic positioning with a view to the future requirements of the market.
In the first six months of 2015, Repower generated total operating revenue of CHF 922 million, down 23 per cent versus the first half of 2014. Although volumes of electricity sold were down 8 per cent to around 8.3 terawatt hours, the decline in sales was primarily due to an unfavourable EUR/CHF exchange rate. This is the reason why the main decline in volumes sold was in Trading (down 11%), while the figure for supply and sales was more or less unchanged, down only 2 per cent. There was another sharp rise in the volume of gas sold, up 28 per cent.
Weak euro has massive impact
The first six months of 2015 were substantially affected by negative currency developments following the Swiss National Bank's decision to remove the floor on the EUR/CHF exchange rate on 15 January. This took around CHF 5 million off operating results for the first six months, and around CHF 62 million off financial results. The currency situation has had particularly serious implications for Repower because it generates a large part of its sales in euros while incurring a substantial portion of its costs in Swiss francs, in which it also does its accounting.
Operating results were also hit by declines in demand for ancillary services and the tough market environment for Trading.
Swiss hydro assets also subject to impairment
The combination of persistently low energy prices and a weak euro has also affected the value of Repower's assets. In the first half of 2015 the group took impairment charges on Swiss generation assets (hydropower) totalling CHF 16 million. In Italy impairment charges came to CHF 23 million; these affected the Teverola combined-cycle gas turbine plant, which has suffered a decline in demand on the balancing energy market. Repower also made additional provisions of CHF 3 million for long-term agreements.
Cash flow from operating activities remained positive at CHF 11 million. The equity ratio remains robust, and at 35 per cent is still within the defined range.
Repower CEO Kurt Bobst sums up as follows: "The impact of low prices and a difficult currency situation has become even more serious. Because of Repower's substantial market exposure, these effects have had massive repercussions for us."
Structural measures and improvements in efficiency
Repower has continued to systematically implement a programme of measures designed to boost cost-efficiency launched in 2013, and has been streamlining its structures. These efforts have already resulted in cost savings of more than CHF 20 million a year. Repower is also streamlining its portfolio of interests and projects, and is reviewing its strategic focus with the aim of reducing its dependence on the absolute price of electricity.
The group is looking into further measures in connection with the weak euro; any firm decisions would be announced on a case-by-case basis.
In May the current market situation prompted Repower to sell its project to build a combined cycle gas turbine plant in Leverkusen, Germany, which was already at an advanced stage. At the beginning of July the company completed the disposal of its retail sales business in Germany. It should be pointed out, however, that Germany remains a very important market for Repower; Repower markets energy and services to large German customers, and Germany retains its key role as the biggest trading market. Repower also operates two wind farms in Germany.
Highlights from the three segments
Developments in the three segments can be summarised as follows:
Market Switzerland segment: Very low electricity prices resulted in another decline in margins in the first six months of 2015. This erosion in margins was particularly tangible when it came to selling electricity from Repower's own plants, partner plants and long-term drawing agreements. While the volumes of hydropower generated were gratifyingly high, it is still more or less impossible to sell this electricity at a price sufficient to cover costs. Repower is endeavouring to improve efficiency on the grid side: it has joined forces with Axpo and City of Zurich utility ewz to establish a northern Graubünden grid alliance, and has refined its ripple control system in an effort to optimise loads. A joint project that Repower and ewz are planning in cooperation with Swissgrid to build a cross-border merchant line in Val Bregaglia (Bergell) is at the approval stage.
The Market Switzerland segment's contribution to EBIT came to CHF -5.4 million. This specifically reflected impairment on hydropower assets and provisions for long-term agreements.
Market Italy segment: In Italy Repower is expanding its offering on an ongoing basis in an effort to establish itself even more firmly among customers as a provider of comprehensive services. New, innovative products have been developed for both large and retail customers, basically designed to help consumers boost their efficiency. Between March and July Repower ran a creative, highly regarded advertising campaign; this helped underpin sales and increase awareness of the brand in the marketplace. Trading in Italy lagged behind expectations in the first half of 2015, while Sales made gratifying contributions to EBIT on virtually unchanged volumes. There was a sharp drop in demand for ancillary services from the Teverola combined-cycle gas turbine plant. Electricity generation at the wind farms in Italy, by contrast, was better than expected.
The Market Italy segment's contribution to EBIT came to CHF -23.4 million. Impairment on the Teverola combined-cycle gas turbine had a particularly serious impact on EBIT.
Other segments and activities: In Romania Repower also positions itself as a high-quality provider able to offer its customers innovative products and services. Repower launched the country's first certified green power product. This strategy has also made it possible to defend prices in the face of stiff competition.
Despite a slight recovery, Trading in Prague lagged behind expectations because of a lack of opportunities.
Other segments and activities include group functions, which for their part also made a contribution to the efficiency programme.
Other segments and activities contributed CHF -5.4 million to EBIT.
Outlook
Repower does not expect energy prices to recover from their low levels in the short to medium term. Despite the fact that the Swiss franc has softened somewhat against the euro recently, the currency situation looks set to remain difficult. As things stand at present, operating earnings before interest and tax (EBIT) for 2015, before exceptional items, will be a good 50 per cent lower than last year. Repower also expects a net loss substantially higher than in 2014.
Repower endeavouring to reduce dependence on absolute price of electricity
In a persistently challenging operating environment, Repower's response is manifold. It is continuing to implement a bundle of measures launched some time ago, has initiated a review of strategy, and is streamlining its portfolio of interests and projects. The main goal is to make the company less dependent on the absolute price of electricity. This includes the following areas of focus:
- Stepping up service components at all levels in all markets
- Continuing to develop the partner strategy in Switzerland
- Developing innovative products and services in all key markets, particularly in relation to energy efficiency, system integration and control
- Stepping up sales activities
- When renovating hydropower generation assets: where possible adapting generation to standard promotional mechanisms with the aim of taking greater advantage of government subsidies
- Optimising energy trading
- Enhancing traditional fields of business with the addition of new tech offerings, for example related to electric vehicles
- Safeguarding power generation projects and the value of existing assets.
CEO Kurt Bobst comments on the situation as follows: "Repower has a wealth of know-how, a highly developed culture of innovation, and motivated staff. This means we're well equipped, even under the challenging conditions we're currently having to contend with, to adapt our strategic positioning and develop new fields of business."
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Notes:
The 2015 semi-annual report can be viewed on the Repower website at www.repower.com/investors. There you will also find documentation containing additional information on the 2015 semi-annual results. The online report can be found at onlinereport.repower.com.
On 5 August 2015 Repower issued a press release on the downgraded earnings expectations.
Analysts and representatives of the media have been invited separately to a telephone conference.
Contact:
Kurt Bobst
CEO
CH-7742 Poschiavo
T +41 81 839 7111
M +41 79 221 4655
kurt.bobst@repower.com
Stefan Kessler
CFO
CH-7742 Poschiavo
T +41 81 839 7111
M +41 78 774 1419
stefan.kessler@repower.com
Werner Steinmann
Head of Media Relations
CH-7742 Poschiavo
T +41 81 839 7111
M +41 79 831 5213
werner.steinmann@repower.com
www.repower.com
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