Chairman of the Board of Directors Dr Eduard Rikli (on the left), CEO Kurt Bobst.

Good operating result in turbulent times

The first half of 2011 was dominated by the political debate on the future of energy supply. Repower believes it has an obligation to contribute to the discussion and help shape the energy future. Despite the major unease on energy markets triggered by sweeping changes in North Africa and the Arab world as well as the accident in the Japanese nuclear power plants, we succeeded in increasing revenue to CHF 1.23 billion. The good operating income (EBIT) figure of CHF 58 million lies within our expectations.

Well equipped for the energy shift

The devastating events in Fukushima in March have changed the energy policy landscape substantially, reviving the debate not only about the benefits and risks of nuclear power, but also about energy supply in general. Whether the Swiss Council of States will toe the Federal Council's line on opting out of building new nuclear power plants will become clear in autumn. The adopted approach prompts the energy industry, the politicians and the general public to give serious thought to the new principles governing the future shape of electricity supply. This calls for political far-sightedness: The task is to define the parameters of the energy future objectively and in an international context. The framework conditions must be designed so as to ensure legal certainty and, in so doing, inject impetus into power generation and encourage efficiency enhancements rather than impede them through excessive regulation. Moreover, grid and storage capacities are essential criteria for the gradual expansion of the use of new renewable energies in Europe. An involvement in international grid expansion therefore needs to be accorded high priority. Swiss-specific solutions — for instance, in terms of grid charges for pumped storage power plants — have to be avoided since they would weaken the international standing of Switzerland's energy industry.

Given the current situation, Repower feels confident about its strategy. We remain convinced that, thanks to the geographic and technical diversification of our power generating facilities, we can make a contribution to securing the long-term supply of energy at acceptable economic and ecological conditions.

Solid result in turbulent times

In the first half of 2011, the Repower Group grew total operating revenue to CHF 1.23 billion (12 % higher than in the first half of 2010). As expected, operating income (EBIT) just fell short of the prior-year value, dropping 5 % to end the first half of 2011 at CHF 58 million. Given the strong Swiss franc and major uncertainty on the market, this result may be regarded as good. It is all the more remarkable given the fact that Repower conducts a large part of its business in euros and that the unfavourable exchange rate situation is exerting strong pressure on margins. This effect was to some extent cushioned by exploiting opportunities on the international electricity market. Repower's Romanian subsidiary, Elcomex EN, is currently having to contend with an extremely difficult market environment. Elcomex EN was faced with significant changes on the market in the first half of 2011, which resulted in high negative income figures. The reassessment led to additional impairments of goodwill and customer value totalling CHF 27 million. The associated reduction in liabilities in connection with the full takeover of Elcomex EN brought in compensation of CHF 13 million under “Other income”.

Thanks to extensive currency hedging, financial expenses were limited to the cost of financing borrowings and the usual costs for bank transactions. This in turn led to a significant improvement in financial income over the prior year. Group profit was double the prior-year figure at CHF 32 million.

While the electricity arm of the energy business was on a par with the prior-year levels, we saw strong growth in gas sales. Hydropower generation was negatively impacted by the dry spell at the beginning of the year, but this effect was cancelled out by reductions in reservoir levels due to revision work. The gas business performed well, growing strongly in keeping with our strategy of expanding gas trading activities. In the first half of 2011, the Group's total gas turnover volume amounted to 390 million cubic meters, corresponding to virtually four times the 2010 half-year figure.

Cutting-edge technology

The core element of the new Taschinas power plant — the machine group — in the underground powerhouse near Seewis. It comprises the generator, turbine and rotary valve, which is a safety element designed to close the pressure line.

Further development of wind and hydropower projects

Repower drove forward with its strategic projects in the first six months of 2011, and made important strides in the hydropower area in particular:

Lagobianco pumped storage power plant - on track: By the end of February 2011, all the concession municipalities for the Lagobianco project to build a 1,000-MW pumped storage power plant in Poschiavo had given the go-ahead. The concession application is now being prepared for submission to the Canton of Graubünden government. At the same time, detailed plans are being drawn up with a view to presenting the project for cantonal approval in the winter of 2011/2012. Work began on an exploratory tunnel at Lago di Poschiavo in summer to determine the geological conditions inside the mountain and provide information as a basis for decisions on the possible layout of the powerhouse. Since April 2011, all the activities related to the project have been carried out by the company Lagobianco SA, founded by Repower. Lagobianco SA is a wholly owned subsidiary of Repower AG and will be opened up to potential project partners at a later point in time.
Taschinas hydropower plant connected to the grid: Construction of the new facility in Lower Prättigau was successfully completed on schedule in April 2011. The new hydropower plant, with an installed capacity of around 10 megawatts, was connected to the grid in the spring. The Taschinas hydropower plant is an impressive expression of Repower's commitment to further developing the use of domestic hydropower through cost-effective, environmentally responsible projects.
Chlus hydropower plant: To also exploit the potential of hydropower at the lowest level in Prättigau, Repower is working on the Chlus-Rhine project. The aim is to complete the concession project and the environmental impact statement by the end of the year and submit them to the concession municipalities in the spring of 2012.
Lucera wind farm under construction: Another wind farm has been added to Repower's wind power portfolio, bringing their total to five: Lucera wind farm in Apulia, Italy, is now under construction. With thirteen turbines, the wind farm will have an installed capacity of 26 megawatts and is scheduled to go into operation in the second half of 2012. The investment costs amount to around EUR 45 million.
Power generation investment scheme attracting interest: Repower's idea of offering small and medium-sized electrical utilities a stake in a joint power generation investment company has recently been attracting keen interest. A large part of the investment volume has already been allocated — with a 51 % share, Repower holds the majority stake. Thanks to this project, Repower is meeting the needs of utilities for cooperation on power-generating facilities. In the longer term, the potential for cooperation can be tapped along the entire value chain. The investment company is scheduled to go into operation at the beginning of 2012.

Progress on Repower's other strategic projects is also on schedule.

Cohesive image for Repower across all markets

In July 2011, the Romanian sales company Elcomex EN took over the name and visual identity of the Repower Group, to which Elcomex EN has belonged since 2010. Repower now operates in all markets under the same brand. All Elcomex EN employees were taken over by Repower. We regard Romania as a country with major development potential, which can in future act as a European energy hub. The renaming underscores our objective of making further inroads into the Romanian market through our sales and trading activities. Consistent with its strategy, Repower is also aiming for a phased development of its power-generating capacities in Romania.

In June, a case of embezzlement was uncovered at Repower's office in Milan. An individual who has since been suspended is alleged to have embezzled funds in the single-digit millions. The case was handed over to the responsible legal authorities. The incident has no repercussions on the Group's business activities, and neither customers nor partners are affected. It is a regrettable one-off incident. A systematic failure of management and control functions can be ruled out in our opinion.

Outlook

The uncertainties dominating the market in terms of energy prices and exchange rates make it difficult to provide a reliable forecast. One thing, however, is certain: the environment will remain exceptionally challenging in the second half-year. Nevertheless, we firmly believe that we can weather the storms thanks to our positioning and the dedication of our employees. With regard to operating income, we abide by the statement we made in spring, and expect to close 2011 at a lower level than in 2010.