Report of the CEO

Kurt Bobst, CEO:

“The operating result reflects the extremely challenging situation on the energy market. New services and products are in demand more than ever before.”

Market situation and exceptional items adversely impact result

The 2012 financial year was shaped by the poor economic situation and low prices on the energy market. Repower posted a significantly lower year-on-year operating result of CHF 81 million and profit of CHF 31 million. The Group expects the environment to remain difficult and is responding by adapting its business processes and structures and making targeted investments.

The impact of the sovereign debt and economic crisis in the euro zone remained a dominant factor in the 2012 financial year. The shrinking economy was reflected in lower customer willingness to pay and in lower electricity demand, which continued to be below the figures before the financial and economic crisis in Europe. In the Italian market, where the Group generates two-thirds of its sales volume, demand fell year-on-year by as much as three per cent. The minimum euro exchange rate of 1.20 set by the Swiss National Bank gave Swiss companies greater planning security but pressure on prices is still considerable.

The price development on the energy market had an extremely adverse effect on operating business. Because the wrong subsidy models have been chosen, the prices of electricity from renewable sources are artificially lowered in such a way that the market price is no longer proportionate to the actual generating costs. The electricity price per megawatt hour traded on the stock exchange in Leipzig in 2012 was CHF 20 less than the average price of the last five years (see chart on page 7).

In the current political and public discussion about the future of energy, the sense of unease is palpable. The energy sector is feeling the pressure of always being stuck between conflicting economic, environmental and social interests. The situation is even more complex because it is not possible to predict how several factors will develop. It is very unclear today how the legal framework will change or how quickly new technologies will be ready for the market, to name just two examples. In the interest of a reliable energy supply, the legal basis must be established as quickly as possible so that the actors have a reliable framework at least in the regulatory area. We have also found that concrete power plant projects are being used as venues to conduct debates on basic principles. We welcome the fact that debates are taking place because they are a sign of a healthy democracy. However, supply principles may not be ignored during the current restructuring phase of the energy sector. Ideologically motivated posturing doesn't get us anywhere – what we need instead are comprehensive and objective points of view.