Electricity from water

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Comments on the consolidated financial statements of the Repower Group

Group results impacted by a Persistently difficult market situation and exceptional items

Market Remains challenging - negative trend continues

Repower's results for the 2014 financial year were mixed. The Group's core business had to contend with difficult market conditions. Added to this, financial results, and by extension Group results, were heavily impacted by the currency situation in the euro zone. There were also exceptional items affecting results.

The exceptional items in the year under review included the recognition of around CHF 6 million in provisions for onerous energy contracts – the first time this has happened. In addition it was necessary to derecognise cumulative translation differences of around CHF 8 million already recognised in equity in connection with the liquidation of Repower Slovenskà republika s.r.o., Repower Magyarország Kft. and Forze Motrici Pistoia S.r.l. Various additional, smaller exceptional items ultimately came to around CHF 4 million. On the other side of the equation was a positive CHF 5 million effect resulting from the change in the pension fund obligation. Taken together, the exceptional items described above eroded earnings before interest and tax (EBIT) by CHF 13 million.

The Repower Group closed 2014 with EBIT of CHF 26 million. Income before income taxes came to negative CHF 22 million, resulting in an annual loss including minority interests of CHF 33 million.

To give a realistic picture of financial performance during the year under review, the following comments on the Repower Group's financial results for 2014 refer only to achieved operating earnings before exceptional items. Comparisons with the prior year are also made on the basis of results before exceptional items. Comments relating to the balance sheet are based on figures after exceptional items. More in-depth remarks can be found from page 50 of the 2014 financial report.

Despite selling larger volumes of energy, the Repower Group saw total energy sales fall CHF 94 million to CHF 2,231 million from CHF 2,325 million the previous year. Gross margin also had a negative impact, with a year-on-year decline of CHF 58 million (19%) from CHF 305 million to CHF 247 million in 2014. This further reduction in gross energy margin reflects the difficult market with which the energy industry is having to contend.

Operating expenses (without energy procurement) fell CHF 19 million to CHF 198 million from CHF 217 million the previous year. This decline can largely be attributed to reductions in personnel expenses and other operating expenses. These reductions were due among other things to savings resulting from the systematic implementation of the ongoing efficiency programme.

Depreciation, amortisation and impairment, encompassing scheduled annual depreciation and amortisation, came to CHF 51 million (versus CHF 54 million the previous year).

In the year under review operating earnings before interest and tax (EBIT) declined CHF 35 million (47%) to CHF 39 million (versus CHF 74 million the prior year).

Financial expenses were impacted by the development of the euro exchange rate and the level of interest rates. Financial results were also eroded by results of associates, which came to CHF -6 million (CHF -3 million the previous year). The financial result deteriorated from CHF -9 million to CHF -48 million.

Group profit including minority interests came to CHF -22 million (versus CHF 33 million the prior year).

On the positive side was cash flow from operating activities, which thanks to effective working capital management improved substantially – up CHF 13 million (19%) to CHF 82 million – in a very difficult environment. Repower was able to use these funds to cover investments and dividends and again reduce net debt.

Solid balance sheet structure

There was an CHF 86 million year-on-year decline in non-current assets to CHF 988 million, primarily owing to reductions in property, plant and equipment (CHF 28 million) and other financial assets (CHF 53 million). The decline in other financial assets should be seen in the context of the sale of shares and convertible loans of Swissgrid to an intercantonal consortium in an agreement dated 23 December 2014. The assets in question were reclassified as assets and liabilities held for sale. Closing of this transaction is anticipated in the first half of 2015.

Current assets grew by CHF 85 million to CHF 1,054 million as a result of an increase in securities and other financial instruments (up CHF 156 million) and reductions totalling CHF 71 million in inventories, receivables, current income tax receivables, positive replacement values held for trading positions, and cash and cash equivalents.

Non-current liabilities increased by CHF 54 million, owing among other things to a CHF 8 million increase in non-current provisions (due especially to onerous energy contracts) and a CHF 46 million increase in non-current financial liabilities (repayment of the SET bank loan and a new registered bond issue).

There was an increase in current debts, up CHF 42 million to CHF 663 million. The main increase was in non-current financial liabilities (up CHF 46 million), in connection with the reclassification of the SET bank loan from non-current to current financial liabilities.

Equity came to CHF 766 million (previous year: CHF 805 million) and the equity ratio 36 per cent.