REPOWER AG Even though hydroelectricity started to regain political support as the most important renewable energy resource in 2014, parliament's willingness to improve the framework so that hydropower can maintain its role still seems only selective. Nevertheless, for Repower these are the first positive signals after what was another very challenging financial year dominated by extremely low energy prices. In this environment Repower managed to post total operating revenue of around CHF 2.3 billion. Operating income (EBIT) came to CHF 26 million, or CHF 39 million before exceptional items. The Group recorded a net loss of CHF 33 million for 2014.
There was another sharp year-on-year decline in the price of electricity and other commodities (oil, coal and gas), and there are growing indications that these markets will not recover, in the medium term at least. The impact on Repower's business performance has been considerable. The situation has been exacerbated by the continued weakness of the euro: fluctuations in already low exchange rates are having tangible repercussions, and the abolition of the EUR/CHF exchange rate floor is likely to make matters considerably worse in this respect. Results for 2014 were impacted by around CHF 6 million in provisions for long-term agreements, translation differences from the disposal of non-Swiss subsidiaries (CHF -8 million) and various smaller exceptional items (totalling around CHF -4 million). On the positive side was an exceptional item of CHF 5 million resulting from the implementation of a new pension fund solution. There was a gratifying improvement in operating cash flow, up to around CHF 82 million from CHF 69 million the previous year. Repower was able to use these funds to cover investments and dividends and again reduce net debt.
Repower remains robustly financed with shareholders' equity of CHF 766 million and an equity ratio of 36 per cent.
In 2014 the ongoing efficiency programme, launched in 2013, yielded savings of around CHF 17 million, with savings of more than CHF 20 million anticipated for 2015.
Record hydro generation - substantial growth in gas sales
At 17,423 terawatt hours, volumes of electricity sold were slightly higher than the previous year, with 4 per cent more sold in trading and 1 per cent more on the supply and sales side. The highlight on the electricity procurement side was an 8 per cent increase in the volumes generated by Repower's own hydropower plants (due to good hydrological conditions and greater availability), a new record in terms of volumes generated. Energy from participations was up 25 per cent on the previous year, although plant overhauls had reduced the volumes of electricity available from participating interests in 2013. On the other hand it should be noted that owing to the massive distortions in the market that currently exist, sales of this domestically produced hydropower no longer cover costs. If this situation continues for much longer, the whole basis of Swiss hydropower will be in jeopardy.
Last year Repower saw volumes of gas sold increase by 41 per cent, with sales to end-consumers up 7 per cent to 223 million cubic metres, and gas traded up 47 per cent to 1.9 billion cubic metres. This means the gas business is of growing importance for Repower Italy. In 2014 Repower's gas trading unit in Milan implemented the trading platform already used across the Group for electricity trading, and increased flexibility by acquiring storage capacity in the Netherlands for 2015 and 2016; it is now working on building a portfolio of wholesale customers.
Intensive know-how transfer
Repower's strategy is based on three key markets: Switzerland, Italy and Romania. The Group is progressively augmenting its vertically integrated business model by adding new capabilities in the new tech business and services for third parties. Here Repower is able to harness intensive know-how transfer between teams in the different countries. In 2014 Repower also prepared to exit from the sales business in Germany.
Innovation in a tough environment
Despite the extremely challenging market, Repower continued to harness innovation as a means of positioning itself in various areas. The aim is to help reshape the world of energy and prepare the company for new challenges. The 2014 annual report contains detailed information on many projects of this type in all segments of Repower's business. Here are some examples:
- Generation projects: Repower made further progress on its major generation-related projects. Of particular note is the high degree of acceptance for the company's plans among the general public and other stakeholders. Nevertheless, the current economic environment makes it impossible to go ahead with delivering these projects at present. On the one hand there is no prospect of profitability, especially for the major hydropower projects. On the other hand, low prices and the current foreign exchange situation are limiting Repower's investment capabilities.
- Power plant refurbishment: In the next few years Repower will focus primarily on renovating existing assets and delivering subsidised projects. As part of the Lagobianco project, for example, it is possible to bring forward the refurbishment of Robbia power plant, with planning already at an advanced stage. Further plans include renovation work in the Valposchiavo valley, the rebuilding of Morteratsch power plant, and the addition of the Taschinas 2 plant to the Taschinas facility (commissioned in 2011).
- Electricity trading: The main role of electricity trading at Repower is to ensure optimum management of the company's own assets, participating interests, transmission capacity, supply agreements and retail business. Given the narrow margins, Trading did good work, especially in origination and proprietary trading. Pleasing news is a contract from Swiss Federal Railways (SBB), which have commissioned Repower to develop a power plant optimisation tool and provide additional trading services.
- Grid optimisation: Another priority for Repower is ensuring security of supply. This involves carefully maintaining grids and modifying them in line with changing customer expectations and new requirements such as the need to respond to unplannable, decentralised feed-in from photovoltaic installations. In 2014 Repower invested some CHF 16 million in its grids. It also optimised its grid load management by modernising its ripple control system. This will allow manageable load to be distributed more flexibly, which will have a positive impact on grid-related costs. Efforts to guarantee security of supply and prepare for new requirements have also included teaming up with ewz and Axpo to design and create a new grid association for level-3 grids.
- New tech: Repower is currently working on around 20 different sub-projects related to new tech business. The aim is to actively help enhance system stability and integrate systems and new applications. For example, Repower is working on various aspects of electric transportation. tiko, a smart storage network developed in collaboration with Swisscom, will contribute to the implementation of the Swiss federal government's Energy Strategy 2050, and will be able to provide ancillary services to the national grid operator. The federal government has included tiko on its list of flagship projects.
- Outside contracts: In 2014 Repower competed for a whole series of outside contracts. Happily, in many cases it was successful, winning contracts to carry out planning work, plan constructions, provide project support and deliver services for other energy companies or grid operator Swissgrid. Here Repower was able to exploit its recognised know-how. Thanks to lean internal hierarchies it was possible in many cases to make persuasive, innovative proposals with the edge in terms of cost. Having proved its ability to succeed in the marketplace with this type of offering in 2014, Repower intends to continue positioning itself in this area in the future.
- Customer-focused products: Repower is using highly innovative electricity and service products to position itself in the liberalised Italian and Romanian markets. Verde Dentro, an offering that with around 900 customers is already a success in Italy, combines green power with electric vehicles and other services. The service is especially attractive for customers operating in tourism. Other offerings in Italy include Staffetta, an index-linked pricing model, and eFFettiva, a service currently in the final test phase that is designed to help customers optimise their energy consumption. The VAMPA project is based on thermal imaging that helps consumers identify malfunctioning equipment much earlier and more cheaply than with conventional methods. Last but not least, the DIODA project aims to help LED lighting make the breakthrough. In Romania Repower has developed Naturepower, the country's first TÜV Rheinland-certified green power offering. Product developments in Italy and Romania are also incorporated in similar projects in Switzerland.
Outlook
Repower expects the market to remain challenging in the short to medium term. The levels at which energy for delivery in the next few years is currently trading clearly suggest that market prices are not set to recover just yet. It is also hard to predict at present how the political framework will develop. Added to this, events in Ukraine and Greece could potentially give rise to uncertainty that will militate against an easing of the political situation in Europe. With the Swiss National Bank's decision to remove the floor on the EUR/CHF rate, and the massive volumes of new money flooding the market from the European Central Bank, exchange rates can be expected to stay volatile, with the euro remaining weak against the franc.
The uncertainty surrounding the further development of the Swiss franc has made predictions much more difficult. As things stand at present we expect operating income for 2015 to fall below adjusted operating income for 2014. The profitability of existing generation assets will be monitored on an ongoing basis in the light of developments in the operating environment.
Repower is also looking into additional options for streamlining and optimising its business to further boost efficiency, and ways of facilitating the development of the Group by strengthening its service offerings.
The efficiency programme and clearly focused capital expenditure will continue to underpin Repower's business. The Group will continue to consolidate its robust core business and build its new tech business, an area still in its infancy. These factors, coupled with stable financing, recognised know-how and the ability to forge partnerships, will help assure Repower's good positioning, even through this challenging phase.
Motions to the Annual General Meeting
At its 27 March 2015 meeting the Repower Board of Directors approved a motion to the Annual General Meeting not to pay a dividend. The Board of Directors proposes Ernst & Young as the new statutory auditor. The agenda for the Annual General Meeting, to be held in Pontresina on 29 April 2015, will be published on 9 April.
Notes:
The full Annual Report is available for download at www.repower.com/investors.
Repower will be presenting its 2014 results on 31 March 2015 at a media conference in Chur and at an analysts' meeting in Zurich. Invitations have been sent out separately.
The Annual General Meeting will be held at the Rondo in Pontresina on 29 April 2015.
The 2015 interim financial results will be published on 27 August 2015.
This news release is published in German, Italian, English and Romanian. In the event of differing interpretations, the German text is definitive.
In this text, expectations and assumptions about possible future developments are expressed. Given that these comments are subject to uncertainty and risk, actual developments may diverge from the statements contained in this news release.
Contact:
Kurt Bobst
CEO
CH-7742 Poschiavo, Switzerland
T +41 81 839 7111
M +41 79 221 4655
kurt.bobst@repower.com
Stefan Kessler
CFO
CH-7742 Poschiavo, Switzerland
T +41 81 839 7111
M +41 78 774 1419
stefan.kessler@repower.com
Werner Steinmann
Head of Media Relations
CH-7742 Poschiavo, Switzerland
T +41 81 839 7111
M +41 79 831 5213
werner.steinmann@repower.com
www.repower.com
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