Alpiq faces challenges as wholesale prices remain low

Lausanne – In a market environment that remains highly challenging, the Alpiq Group held its ground in the 2015 financial year with net revenue of CHF 6,715 million (2014: CHF 8,058 million) and EBITDA of CHF 480 million before exceptional items (2014: CHF 609 million). These results are mainly due to continuing low wholesale prices as well as the strong Swiss franc. Thanks to rigorous cost management, Alpiq was able to actively buffer the decline in earnings. As planned, the cost reduction programme in the amount of CHF 100 million that was announced in 2014 was successfully implemented by the end of 2015. With this measure and other efficiency-increasing programmes, Alpiq cumulatively improved its result by approximately CHF 270 million over the last years.

The strong Swiss franc in particular led to impairment losses and provisions after taxes of CHF 855 million. The Swiss hydropower plants have been most affected by this development. In addition, the Gösgen (Alpiq share 40.0 %) and Leibstadt (Alpiq share 32.4 %) nuclear power plants decided to enter their entitlements to the decommissioning and waste disposal funds in their balance sheets on the basis of fair values. Due to this change, market performance of the two funds will have a direct impact on the results of partner plant shareholders in the future. This change in method has a one-off impact on Alpiq’s EBITDA with CHF 151 million; however, it has no effect on net income in the financial year 2015.

Alpiq once again reduced its future interest burden thanks to early bond repurchases. However, the financial result was negatively impacted by the strong Swiss franc. All these effects resulted in net revenue of CHF 46 million before exceptional items.

Further reduction of net debt

Owing to consistent management of net working capital, Alpiq improved operating cash flow by CHF 47 million to CHF 461 million compared to the previous year. With the goal of reducing net debt, the company has achieved a total cash inflow of CHF 412 million through the disposal of the entire Swissgrid package (of which CHF 337 million was in the previous financial year). Furthermore, Alpiq successfully divested additional non-strategic interests through on-going portfolio streamlining. These include the Bayet gas-fired combined-cycle power plant in France, small-scale hydropower plants and projects in Norway as well as interests in four Swiss hydropower plants and the shares in the two energy exchanges EEX and Powernext. With the proceeds, Alpiq reduced its net debt from CHF 1,939 million to 1,299 million. The company has a sound liquidity base of CHF 1.5 billion.

Power plants generate less income

The continued drop in wholesale prices diminished the results of the entire power plant production. Long-term hedging transactions partially compensated these impacts. In particular, profitability of the Swiss power plants has come under strain due to high subsidies for new renewable energies, low prices for primary energies such as oil, gas and coal, poor CO2 prices and high duties. Furthermore, Alpiq lacks access to end customers in the non-liberalised section of the Swiss market. Thanks to increased production and rigorous cost management, the company managed to partially compensate the lower income.

Energy trading offers innovative solutions

Overall energy trading results closed below the previous year. Owing to dry weather in the second half of the year and a restricted import capacity, Alpiq was able to exceed the previous year’s result in power plant management of the Swiss production portfolio. International power plant management was below the previous year, among other things owing to strong competition in the ancillary services markets. Alpiq remains the number 1 in cross-border trading in Eastern and South Eastern Europe. In implementing its strategy, Alpiq continued to develop the international origination and natural gas business. The company has already positioned itself as a leading player on the Swiss energy market in the 24/7 intraday business established in 2015. Together with the French facility management specialist Sodexo, Alpiq founded a partner company for the expansion of the end customer business with electricity and gas supply as well as energy services.

Energy Services with growth potential

Adjusted for foreign currency effects, Alpiq was able to maintain the EBITDA margin in Energy Services despite the challenging environment. Alpiq is the Swiss market leader in the area of building technology and infrastructure solutions for e-mobility. Adjusted for higher expenses for pension schemes and foreign currency effects, Alpiq exceeded the previous year’s operating results in this area. Order volume for new projects once again increased significantly. With its strategy implementation, Alpiq expanded its market leadership in energy services: in building technology, Alpiq acquired the Helion Solar Group, the largest Swiss solar specialist, as well as the smart building supplier IReL AG. Furthermore, industrialisation of the GridSense technology is advancing. In transport technology, Alpiq consolidated its leading position as a Swiss supplier of transport technology solutions and diversified geographically with the acquisition of railway technology specialist Balfour Beatty Rail Italy S.p.A. These acquisitions offer an ideal starting point for future growth.

Power plant engineering and service business outside of Switzerland is over the previous year’s level on a currency-adjusted basis. Despite cautious investments in conventional power plant technology, Alpiq won new major contracts. These include the construction of an eco-friendly steam turbine power plant in the Netherlands and the construction of a highly efficient, flexible gas-fired combined heat and power plant in Germany. Alpiq is also focusing on advanced, de-centralised power plant technologies and continues to diversify in the industrial sector.

Outlook

The operating result for 2016 will continue to be influenced by the extremely challenging market environment and low wholesale prices. In addition, the regulatory framework continues to distort competition. The top priority is maintaining capital market viability. On the one hand, Alpiq will continue to strictly pursue the already initiated cost reduction programme and measures to improve income. On the other hand, the company will review additional disposal opportunities and consistently follow through with selling non-strategic interests to reduce net debt. Additional steps include the structural measures announced at the end of August 2015, which will be communicated in a separate media release on 7 March 2016.

No dividends and no interest on the hybrid loan from syndicate shareholders

As a result of the continued tense income situation, the Alpiq Board of Directors proposes to the Annual General Meeting not to distribute any dividends. Furthermore, Alpiq will not pay interest on the hybrid loan from Swiss syndicate shareholders, who have expressed their understanding for this measure. However, interest on the public hybrid bond will be paid. The next interest payment on this loan is due on 15 November 2016.

Changes to the Board of Directors

Board members Heiko Berg and Philipp Büssenschütt will not stand for re-election at the Annual General Meeting on 28 April 2016. EDF proposes Patrick Pruvot and John Morris as new members of the Board of Directors. The shareholders will vote on these candidates at the upcoming General Meeting.