Interim consolidated financial statements of the Repower Group
Comments on the financial results
Despite the current turmoil on the energy market, Repower closed the first six months of 2022 with a solid operating result and a group profit of CHF 33 million.
Energy prices rose again sharply in the first half of 2022 and were highly volatile. The primary reasons for this were the lack of nuclear power from France, the increased prices of European CO2 certificates and a faster-than-expected economic recovery after the coronavirus pandemic subsided, as well as the war in Ukraine that began in February.
Basically high energy prices are positive from an electricity producer’s point of view. From the point of view of trading and liquidity, however, the current high level of energy prices, combined with high price volatility triggered by geopolitical tensions, is a challenge.
Despite uncertainties and historically unique upheaval on the market uncertainties, Repower posted a solid result. Group profit for the first six months of 2022 was CHF 33 million (prior year CHF 42 million) and earnings before interest and taxes (EBIT) came to CHF 50 million (prior year CHF 60 million); results for the prior-year period were influenced by positive extraordinary items totalling CHF 23 million. EBIT for the period under review contains positive extraordinary items totalling CHF 16 million. Adjusted for extraordinary items, EBIT thus came to CHF 34 million (prior year CHF 37 million).
Development in sales and gross energy margin
Further prices increases have the effect of increasing net sales from goods and services and energy procurement. In the period under review, Repower Group’s net sales from goods and services and energy procurement were up CHF 922 million CHF (73 per cent) to CHF 2,186 million and CHF 909 million (82 per cent) to CHF 2,020 million respectively.
The gross energy margin, which Repower defines as the difference between net revenue from energy business and energy procurement, grew from CHF 140 million to CHF 153 million.
Market Switzerland segment
Total operating revenues in the Market Switzerland segment saw a year-on-year increase of CHF 349 million from CHF 421 million to CHF 770 million. This was due among other things to sales revenues from trading. High prices in particular drove sales up.
In the Market Switzerland segment, the gross energy margin, including a positive extraordinary item of CHF 8 million (prior year CHF 1 million) from the adjustment of provisions for onerous energy procurement contracts, came to CHF 91 million (prior year CHF 50 million). The gross energy margin before extraordinary items thus increased by CHF 34 million from an adjusted CHF 49 million to CHF 83 million.
Repower’s interest in the associate EVUlution AG declined from 42.8 per cent to 36.1 when ewz joined as a new shareholder. Impairment amounting to CHF 2 million recognised in the second half of 2021 on claims on EVUlution AG could be reversed to income in 2022 after they were settled through other operating expenses.
The same period of the previous year includes, in particular, positive extraordinary items amounting to CHF 20 million from the transfer of the transmission grid, which are reported under other operating income.
The Market Switzerland segment posted EBIT including extraordinary items of CHF 40 million (prior year CHF 21 million). EBIT before extraordinary items grew from CHF 0 million to CHF 30 million.
Market Italy segment
Total operating revenues in the Market Italy segment saw a year-on-year increase of CHF 578 million from CHF 874 million to CHF 1,452 million. This was due among other things to sales revenues from trading. High prices in particular drove sales up.
In the Market Italy segment the gross energy margin shrank CHF 28 million, down from CHF 90 million to CHF 62 million. Higher volumes of energy generated and higher prices in the renewable energy business (Repower Renewable) resulted in a CHF 2 million improvement in margin versus the prior-year six-month period. On the other hand there was a considerable drop in demand for balancing energy from the Teverola combined cycle gas turbine plant, and the corresponding margin fell by CHF 28 million.
In 2022 Repower received an insurance payment of CHF 6 million in connection with a 2020 claim for damage to a generator at Teverola combined cycle gas turbine plant; this is recognised in the income statement under other operating income in the Market Italy segment. The payment received for the damage and the replacement of the generator is reported in cash flow from investing activities. The share of the insurance payment to be credited to the minority shareholder in the power plant is reported under other operating expenses in the amount of CHF 2 million.
The result of the Market Italy segment thus includes by way of extraordinary items income in the net amount of CHF 4 million in connection with the damage claim at the Teverola plant as well as releases of other provisions in the amount of CHF 2 million.
EBIT for the Market Italy segment including extraordinary items came to CHF 15 million (prior year CHF 41 million). EBIT before extraordinary items declined by CHF 32 million from CHF 41 million to CHF 9 million.
“Other segments and activities” segment
Total operating revenues for the Other segments and activities segment essentially comprise eliminations between the Market Switzerland Market Italy segments. Here too, higher prices led to higher sales between the segments and thus to higher eliminations. The negative total operating revenues of the Other segments and activities segment, including eliminations, increased accordingly from CHF –2 million to CHF –22 million.
Negative EBIT, and thus costs in other segments and activities, came to CHF –5 million (prior year: CHF –2 million); the prior-year period included an extraordinary item in the form of income from a compensation payment of CHF 2 million.
Net financial income
Thanks to hedging it was possible to offset to a very large extent the effects of the weaker euro. At CHF –8 million, the net financial result was in line with the prior year.
Earnings before tax
Earnings before tax came in at CHF 42 million, CHF 10 million under the prior year level. Income taxes fell CHF 10 million to CHF 9 million, which translates into an increase in the group’s effective tax rate from 19 per cent to 21 per cent.
Asset and liquidity situation
Total assets at 30 June 2022 were CHF 4,353 million, up CHF 371 million from CHF 3,982 million in the prior-year period. The increase in total assets and liabilities is due in particular to an increase in market prices for energy. Positive and negative replacement values increased by CHF 683 million and CHF 662 million respectively, and could only be partially offset by opposing developments in other balance sheet items.
Repower posted a group profit of CHF 33 million in the first half of 2022, distributed dividends totalling CHF 34 million and recognised translation losses of CHF 8 million in consolidated equity owing to the weakening euro. Repower thus still has a very solid equity base of CHF 874 million (prior year CHF 883 million). However, owing to an increase in total assets, driven in particular by rising energy prices, the equity ratio has fallen from 22 per cent to 20 per cent.
Repower’s s trading activities require the temporary lodging of security deposits on the basis of regulations under stock exchange law or individual regulations. In the current market environment of high prices and price volatility, the amounts required for security deposits can be substantial. Rising or falling market prices lead to short-term adjustments to security deposits. Once the transactions expire or the energy is delivered, the funds flow back to the guarantor. Repower receives and pays security deposits.
In net terms, in the first half of the year Repower had to pay CHF 132 million in security deposits or repay security deposits received, which via the change in net working capital has an impact on cash flow from operating activities and cash and cash equivalents, as well as on net debt. Cash flow from operating activities came to CHF –150 million (prior year CHF +92 million).
Cash flow from investing activities increased by CHF 72 million to CHF +24 million (prior year:
CHF –48 million). Notably there were net divestments of CHF 42 million (prior year CHF 0 million) of current and non-current financial assets. A payment of CHF 10 million received from disposals of fully consolidated companies relates to receivables from the purchase price adjustment made for the transfer of transmission grids recognised as other receivables.
Cash and cash equivalents declined by CHF 172 million versus the end of the prior year and at the end of the first half of 2022 came to CHF 198 million. Net debt now comes to CHF 101 million (versus CHF –97 million at the end of the prior year).
The dominant themes of the first six months were high prices, volatility and the associated market and credit risks, as well as general issues related to the security of supply. There is no end in sight to the upheaval on the energy market. It can be assumed that there will continue to be an increased need for liquidity for trading. The net liquidity built up in the past is currently proving helpful and puts Repower in a good starting position for this challenging year, not only from a liquidity perspective. Repower will continue to actively manage its financial position through the selection of suitable instruments and good access to the capital market.
A further deterioration in the unfavourable economic conditions and rising energy prices couls increase the counterparty risks. Counterparty defaults would have a negative impact on the asset, financial and earnings situation.