Consolidated financial statements of the Repower Group
Comments on the financial results
Repower has managed the coronavirus crisis well, posting a solid group profit of CHF 41 million – having seen operating income increase for the fifth financial year running.
The year 2020 will go down in history as an unusual financial year. The Covid-19 pandemic had a considerable impact on both society and the economy. Despite this, Repower can look back on a successful twelve months. Even though the year was dominated by Covid-19, the negative consequences were kept within limits. Shrinking volumes and margins resulting from the pandemic were offset by other factors, including very high margins on balancing energy in Italy. The Market Switzerland segment’s results were heavily impacted by one-off effects. The group closed the 2020 financial year with earnings before interest and taxes (EBIT) of CHF 77 million (prior year: CHF 65 million). Earnings before tax (EBT) came to CHF 65 million in 2020 (prior year: CHF 54 million). However, owing to a year-on-year increase in the group’s effective income tax rate, in 2020 group profit was CHF 9 million down on the prior year at CHF 41 million (versus CHF 50 million in 2019). The share of group earnings attributable to Repower shareholders per registered share comes to CHF 5.31 (CHF 6.28 the year before). In 2020 Repower’s equity continued to increase, growing CHF 24 million from CHF 845 million to CHF 869 million. With total assets currently high at CHF 1,982 million (versus CHF 1,876 million the prior year) there was a slight year-on-year decline, from 45 per cent to 44 percent, in the equity ratio. Net debt (or net liquidity when written with a minus sign) improved by CHF 58 million, now totalling CHF –89 million (prior year: CHF –31 million).
Development in sales, and strong operating results
At CHF 1,708 million, Repower Group net sales from goods and services were down 11 per cent on the prior year level of CHF 1,915 million. The decline in net revenues is due in particular to lower demand from small and medium-sized enterprises (SMEs) in Italy which were closed during the first wave of the Covid-19 pandemic.
Repower defines the gross energy gross margin as the difference between net revenue from energy business and energy procurement. In the Market Switzerland segment the gross energy gross margin saw a year-on-year decline of CHF 22 million from CHF 134 million to CHF 112 million.
In the year under review the margin was eroded by provisions of CHF 21 million recognised for energy procurement. These provisions were connected with onerous procurement contracts for energy and guarantees of origin. As part of a subsequent positive declaration of operating and capital costs for a feeder line, CHF 7 million flowed to Repower and were recognised as net sales.
Energy prices came under pressure, especially in the first half of 2020, as a result of Covid-19. Rapidly changing news regarding the pandemic also had a negative impact on the trading income generated. Despite this, Repower managed to maintain good margins on energy trading, although it was not able to repeat the extraordinarily good results of the previous year. Energy gross margins in asset optimisation and market access declined by CHF 3 million and CHF 5 million respectively.
The decline in energy gross margin was offset by positive developments of revenues and costs. There was a year-on-year increase in internally produced and capitalised assets in connection with the modernisation of Robbia and Madulain power plants. A further highlight was a decline of CHF 6 million in the cost of materials and third-party services in the Market Switzerland segment. In addition to general cost savings and a reduction in outsourcing-intensive contracts for third parties, also worthy of mention is the fact that development expenses that now accrue to the newly established EVUlution AG ceased to apply. On 30 January 2020, with retroactive effect to 1 January 2020, Repower and additional partners established EVUlution AG with the goal of developing and marketing innovative products and services for energy utilities. Repower holds 42.75 per cent of the company, recognising it as an associate according to the share of equity.
EBIT for the Market Switzerland segment came to CHF 16 million, CHF 14 million less than the prior-year figure of CHF 30 million.
In the Market Italy segment the energy gross margin increased by CHF 31 million, up from CHF 131 million to CHF 162 million. Energy gross margin was boosted among other things by Teverola combined-cycle gas turbine plant, and in particular by high demand for the balancing energy it generates to help assure grid stability. On the basis of the average exchange rate for 2020, the margin on the plant increased by CHF 23 million. A CHF 7 million improvement in margin was attributable among other things to the retail business. Owing to less favourable wind conditions, the energy gross margin on the renewable energy business (Repower Renewable) resultet lower than expectations, but compared to the previous year a CHF 1 million year-on-year increase in the margin was achived.
The Market Italy segment saw EBIT increase CHF 21 million (41 per cent) from CHF 51 million to CHF 72 million; the prior-year figure includes the reimbursement of CHF 10 million from business interruption insurance for Teverola power plant.
Negative EBIT, and thus costs in other segments and activities, declined CHF 5 million from around CHF 16 million to CHF 11 million. In 2019 a one-off deposit of CHF 3 million by Repower to the pension fund was recognised.
Net financial result (financial income and financial expenses) was unchanged versus the prior year, representing net financial expenses of CHF 12 million. The weakening in the euro was less pronounced than in 2019. As a result, fewer currency translation losses were recognised in 2020. At the same time, however, gains on forward exchange transactions were lower.
Earnings before taxes saw a year-on-year increase of CHF 11 million (20 per cent) from CHF 54 million to CHF 65 million. Income taxes increased by CHF 3 million year on year to CHF 24 million, which translates into an increase in the group’s effective tax rate of around 6 per cent to 37 per cent. The main reasons for this were an increase in earnings from Italy in 2020, the use of tax loss carryforwards in the prior year, which have now been fully offset, and income taxes recognised for previous years.
Healthy balance sheet
Total assets at 31 December 2020 were CHF 1,982 million, up 6 per cent or CHF 106 million from CHF 1,876 million the prior year. This increase is primarily the result of cash flow from operating activities, which in 2020 was deployed in particular for acquisitions and investments rather than manifesting in an increase in cash and cash equivalents.
Repower’s non-current assets grew CHF 98 million from CHF 899 million to CHF 997 million. Additions to the scope of consolidation alone came to CHF 72 million in 2020; they are related to twelve photovoltaic installations with a total installed capacity of 14 megawatts in the Market Italy segment, as well as a wind farm of five turbines with a total capacity of 7.5 megawatts in the Market Switzerland segment.
Current assets were up 1 per cent to CHF 985 million from CHF 977 million the previous year.
Equity grew 3 per cent from CHF 844 million to CHF 869 million. Contributory factors were good group earnings of CHF 41 million, a capital increase of CHF 3 million at minorities, and dividends of CHF 20 million paid to shareholders. The equity ratio is 44 per cent (prior year: 45 per cent). Return on equity (group earnings divided by equity) is 5 per cent, slightly below the prior year (6 per cent).
Liabilities came to CHF 1,113 million at 31 December 2020, up 8 per cent or CHF 82 million from CHF 1,031 million the prior year. In 2020 increases of long-term financial liabilities from acquisitions amounted to CHF 30 million. The current balance of negative replacement values at 31 December 2020 was CHF 95 million, CHF 31 million higher than the prior year. Other financial liabilities, including higher current income tax liabilities of CHF 17 million, continued to contribute to an increase in liabilities.
Marked increase in cash flow from operating activities
Funds from operations (FFO), representing cash flow before change in net current assets and taxes paid, were up from CHF 103 million to CHF 161 million, an increase of CHF 58 million. Income taxes paid increased CHF 2 million year on year to CHF 7 million. Together with the changes in net current assets, reduced compared to the previous year by about CHF 20 million, the result is a cash flow from operating activities of CHF 159 million (prior year: CHF 126 million).
Cash flow from investing activities came to CHF –167 million (prior year: CHF –69 million). In 2020 Repower made investments in group companies (less cash and cash equivalents acquired) in the amount of CHF 40 million. This was connected with the acquisition of solar and wind power installations in Italy and Germany. No businesses had been acquired the previous year. Direct investment in tangible assets, in particular grids and power generation assets, also increased by CHF 12 million versus the prior year. Investment in tangible assets (CHF 49 million), investment in intangible assets (CHF 3 million) and business acquisitions (CHF 40 million) totalled CHF 91 million in 2020. Repower also made net investments of CHF 81 million in current and non-current financial assets.
In 2020 cash flow from investing activities exceeded cash flow from operating activities. Free cash flow came to CHF –9 million in 2020 (prior year: CHF 57 million). Adjusted for incoming and outgoing payments in connection with investments and divestments of fully consolidated companies and associates, free cash flow came to CHF 31 million (versus CHF 59 million the prior year).
Cash flow from financing activities came to CHF –56 million (prior year: CHF 2 million). Overall in 2020 financial liabilities of CHF 30 million were repaid. In 2020 Repower paid dividends of around CHF 19 million to shareholders.
Repower’s cash and cash equivalents came to CHF 301 million (prior year: CHF 367 million), with a year-on-year improvement in net liquidity to CHF –89 million from CHF –31 million the prior year.
Sufficient strategic and financial room for manoeuvre
The figure for net debt or net liquidity (as the case may be) is calculated on the basis of cash and cash equivalents, marketable securities, fixed-term deposits, and current and non-current financial liabilities, as well as accrued interest. Net liquidity is indicated by a minus sign.
Net liquidity increased by CHF 58 million from CHF –31 million the prior year to CHF –89 million. Liabilities are lower than cash and cash equivalents. The net debt to EBITDA ratio is therefore also negative, improving from –0.3 to –0.7 and thus giving Repower more financial and strategic room for manoeuvre.
Dividend to shareholders
Given Repower’s good operating results, strong capital structure and healthy liquidity, the board of directors moves that the annual general meeting of 19 May 2021 approve a dividend of CHF 3.00 per share.
Repower cautiously optimistic about the future
Covid-19 is still an urgent concern for business and society at large. The specific risks related to the pandemic remain. Material risk factors include the effects on prices and volumes, as well as bad debt losses.
The Teverola combined-cycle gas turbine plant’s considerable contributions to earnings cannot be taken for granted. By its very nature, demand for balancing energy is highly volatile. The impending introduction of a capacity market for balancing energy in Italy could also have a considerable influence on the plant’s earning power.
The modernisation of Robbia power plant will at times involve a reduction in the volumes of electricity generated.
Despite all the uncertainty, however, we expect to see a further improvement in the economic situation in Switzerland and Italy.