Financial Review
Financial Review
The Alpiq Group generated operational EBITDA of CHF 262 million in the 2020 financial year. As announced, this is up on the previous year. All three business divisions made positive contributions to earnings. At CHF 135 million, Swiss power production was up on the previous-year period (previous year: CHF ‑6 million) as expected, on account of the hedged wholesale prices. Despite the phase-out of coal in the previous year, international power production closed positively at CHF 59 million, however, as expected did not reach the previous-year level. Energy trading generated earnings of CHF 99 million in the 2020 financial year, exceeding the previous year (CHF 56 million).
On 24 June 2020, the Annual General Meeting of Alpiq Holding Ltd. approved the squeeze-out merger with Alpha 2020 Ltd. proposed by the Board of Directors. Alpiq Holding Ltd. was merged as the transferring company into Alpha 2020 Ltd., which was renamed Alpiq Holding Ltd. on the same day. Subsequently, two investors each filed for compensation review proceedings against Alpiq Holding Ltd. pursuant to Art. 105 of the Swiss Merger Act (FusG) in order to receive higher compensation per share. Alpiq considers it unlikely that this litigation will result in a negative outcome for the company.
In December 2020, Alpiq and Bouygues Construction drew a line under the litigation in connection with the sale of the Engineering Services business, which has been ongoing since 2018. Alpiq refunded CHF 54.5 million to Bouygues Construction. The arbitration proceedings, which were simultaneously initiated by both parties in February 2019, therefore came to an end.
On 9 February 2021, the Swiss Federal Electricity Commission (ElCom) issued rulings on the margin differences in 2011 and 2012 as well as the regulatory values of the plants of the former company Alpiq Grid Ltd. Gösgen and Alpiq Grid Ltd Lausanne at the end of 2012, which have a positive effect on the amount of compensation to be paid for the shares in the Swiss high-voltage grid transferred from Alpiq to Swissgrid Ltd on 3 January 2013. In this context, additional sales proceeds of CHF 39 million and interest of CHF 11 million were recognised in the consolidated financial statements for 2020.
In order to allow transparent presentation and demarcation of the exceptional items, the consolidated income statement is presented as a pro forma statement. The commentary on the financial performance relates to an operational EBITDA view, in other words, to earnings development before exceptional items. The categories of exceptional items are described in the “Alternative performance measures of Alpiq” section.
Alpiq Group: results of operations (before exceptional items)
In the 2020 financial year, the Alpiq Group generated net revenue before exceptional items of CHF 3.8 billion (down CHF 0.2 billion on the previous year), EBITDA of CHF 262 million (up CHF 152 million) and EBIT of CHF 169 million (up CHF 186 million).
Consolidated income statement (pro forma statement before and after exceptional items)
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2020 |
2019 |
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CHF million |
Results of operations before excep- tional items |
Exceptional items 1 |
Results under IFRS |
Results of operations before excep- tional items (adjusted) 2 |
Exceptional items (adjusted) 1 / 2 |
Results under IFRS |
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Net revenue |
3,823 |
82 |
3,905 |
4,059 |
40 |
4,099 |
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Own work capitalised and change in costs incurred to fulfil a contract |
6 |
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6 |
5 |
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5 |
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Other operating income |
64 |
54 |
118 |
48 |
2 |
50 |
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Total revenue and other income |
3,893 |
136 |
4,029 |
4,112 |
42 |
4,154 |
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Energy and inventory costs |
– 3,350 |
– 101 |
– 3,451 |
– 3,708 |
55 |
– 3,653 |
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Employee costs |
– 185 |
– 1 |
– 186 |
– 184 |
– 6 |
– 190 |
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Other operating expenses |
– 96 |
– 3 |
– 99 |
– 110 |
– 33 |
– 143 |
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Earnings before interest, tax, depreciation and amortisation (EBITDA) |
262 |
31 |
293 |
110 |
58 |
168 |
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Depreciation, amortisation and impairment 3 |
– 93 |
13 |
– 80 |
– 127 |
– 274 |
– 401 |
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Earnings before interest and tax (EBIT) |
169 |
44 |
213 |
– 17 |
– 216 |
– 233 |
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Share of results of partner power plants and other associates |
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– 35 |
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– 44 |
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Finance costs |
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– 72 |
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– 73 |
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Finance income |
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17 |
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14 |
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Earnings before tax |
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123 |
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– 336 |
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Income tax expense |
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43 |
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110 |
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Earnings after tax from continuing operations |
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166 |
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– 226 |
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Earnings after tax from discontinued operations |
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– 56 |
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– 42 |
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Net income |
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110 |
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– 268 |
1 For more information, please refer to the explanations in the “Alternative performance measures of Alpiq” section
2 Due to the sale of Flexitricity Ltd. in 2020 and Alpiq’s decision to no longer pursue the e-mobility business, the EBITDA effects from these two businesses are now classified as exceptional items in internal reporting. The previous year’s figures were adjusted to improve comparability. As a result, the Alpiq Group’s EBITDA before exceptional items increased by CHF 4 million in 2019 from CHF 106 million to CHF 110 million.
3 In 2020, including reversals of impairment losses
Generation Switzerland business division
At CHF 135 million, EBITDA of Swiss power production was up year-on-year by CHF 141 million. The main drivers of this development are the hedged electricity prices from previous years, which increased compared to the same period in the previous year, strict cost management and high availability of the plants. Higher production volumes compared to the previous year also had a positive influence on earnings.
Generation International business division
At CHF 59 million, EBITDA of international power production was down year-on-year by CHF 35 million. Income of the Italian wind power plants was below the previous-year level on account of lower production volumes due to weather conditions, lower energy prices and the loss of feed-in tariffs. Income from thermal power plants primarily decreased as a result of the two Czech brown coal-fired power plants Kladno and Zlín not contributing to earnings anymore. The divestment at the end of August 2019 was carried out for strategic reasons, looking towards an increasingly decarbonised energy world. The contribution to earnings of the Spanish gas-fired combined-cycle power plant Plana del Vent was down on the previous year due to unexpected required repairs. By contrast, the thermal plants in Italy recorded an encouraging development. This was partly attributable to increased availability and investments in greater flexibility performed at an earlier stage.
Digital & Commerce business division
At CHF 99 million, EBITDA of international energy trading was up year-on-year by CHF 43 million. Despite the challenging market conditions in connection with the COVID-19 pandemic, market opportunities were successfully leveraged in Asset Trading and Merchant Trading. In the context of the optimisation of the hydropower portfolio in Switzerland and the optimisation in Italy, higher earnings were generated than in the previous year. Optimised trading strategies in Merchant Trading benefited from sharply rising prices. Alpiq continued to invest in the expansion of its industrial and commercial customer business.
Alternative performance measures of Alpiq
To measure and present its operating performance, Alpiq also uses alternative performance measures through to the level of “Earnings before interest and tax (EBIT)”. Alpiq makes adjustments to the IFRS results for exceptional items, which Alpiq does not consider part of the results of operations. These performance measures do not have a standardised definition in IFRS. This can therefore limit comparability with such measures as defined by other companies. These measures are presented in a pro forma statement in order to give investors a deeper understanding of how Alpiq’s management measures the performance of the Group. However, they are no substitute for IFRS performance measures. In the balance sheet and cash flow statement, Alpiq does not use any alternative performance measures.
Overview of exceptional items
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Fair value changes (accounting mismatch) |
Development of decommissioning and waste disposal funds |
Effects from business disposals |
Impairment losses and onerous contracts 1 |
Restructuring costs and litigation 1 |
Total exceptional items 1 |
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CHF million |
2020 |
2019 |
2020 |
2019 |
2020 |
2019 |
2020 |
2019 (ad- justed) |
2020 |
2019 (ad- justed) |
2020 |
2019 (ad- justed) |
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Net revenue |
60 |
38 |
– 1 |
– 8 |
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23 |
10 |
82 |
40 |
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Other operating income |
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54 |
2 |
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54 |
2 |
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Total revenue and other income |
60 |
38 |
– 1 |
– 8 |
54 |
2 |
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23 |
10 |
136 |
42 |
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Energy and inventory costs |
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21 |
119 |
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– 108 |
– 48 |
– 14 |
– 16 |
– 101 |
55 |
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Employee costs |
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– 1 |
– 6 |
– 1 |
– 6 |
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Other operating expenses |
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8 |
– 21 |
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– 11 |
– 12 |
– 3 |
– 33 |
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Earnings before interest, tax, depreciation and amortisation (EBITDA) |
60 |
38 |
20 |
111 |
62 |
– 19 |
– 108 |
– 48 |
– 3 |
– 24 |
31 |
58 |
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Depreciation, amortisation and impairment 2 |
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16 |
– 274 |
– 3 |
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13 |
– 274 |
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Earnings before interest and tax (EBIT) |
60 |
38 |
20 |
111 |
62 |
– 19 |
– 92 |
– 322 |
– 6 |
– 24 |
44 |
– 216 |
1 Due to the sale of Flexitricity Ltd. in 2020 and Alpiq’s decision to no longer pursue the e-mobility business, the EBITDA effects from these two businesses are now classified as exceptional items in internal reporting. The previous year’s figures were adjusted to improve comparability.
2 In 2020, including reversals of impairment losses
Alpiq has defined the following categories of exceptional items:
Fair value changes (accounting mismatch)
Fair value changes of energy derivatives entered into to hedge future power production do not reflect the operating performance of business activities because they are economically linked with the changes in value of production plants and long-term purchase contracts. Rising forward prices cause the future production volumes to increase in value and the corresponding hedges to lose value. According to IFRS guidelines, the fair value changes of hedges have to be recognised in the reporting year. As the future production volumes are not measured at fair value and these changes in value therefore cannot be recognised in the reporting year, this results in an accounting mismatch.
Development of decommissioning and waste disposal funds
The operating companies of Switzerland’s nuclear power plants are required to make payments into the decommissioning fund and the waste disposal fund to ensure that decommissioning and waste disposal activities are funded. Investments in these funds are exposed to market fluctuations and changes in estimates, which cannot be influenced by Alpiq but which do influence electricity procurement costs. The difference between the return actually generated by the funds and the return budgeted by the nuclear power plants of 2.75 % is classified and recorded as an exceptional item.
Effects from business disposals
The result from business disposals does not affect Alpiq’s operating performance and reduces comparability with other periods.
Impairment losses and onerous contracts
Effects in connection with impairment and reversals of impairment of property, plant and equipment and intangible assets (including assets held for sale) as well as onerous contracts relate to effects that are attributable to changes in expectations regarding future developments. Management does not therefore take these into account for the assessment of Alpiq’s operating performance.
Restructuring costs and litigation
Under restructuring costs, Alpiq includes expenses incurred for creating new structures in existing areas, company disposals as well as business closures. These expenses do not reflect the operating performance as they are incurred when the measures are implemented and therefore before any benefit is generated. Costs in connection with litigation, which comprise legal and litigation costs as well as any payments in connection with legal cases, are classified as exceptional items if they appear to be one-off and limit comparability between various periods.
Consolidated balance sheet and cash flow statement (after exceptional items)
Total assets remained unchanged on the previous year at CHF 7.4 billion at the 31 December 2020 reporting date, while non-current assets decreased by CHF 0.1 billion to CHF 4.4 billion. Impairment losses on individual power plants were more than compensated for by reversals of impairment losses on other power plants. The CHF 46 million decrease in other non-current assets primarily relates to the reclassification of a receivable to current assets. The reclassification reflects the fact that convertible loans of Swissgrid Ltd will be due for repayment within the next 12 months. Current assets increased by CHF 134 million. This is attributable to the aforementioned reclassification, to an increase in positive replacement values for derivative financial instruments due to higher commodity prices and changed volatilities as well as to higher compensation expected for the shares in the Swiss high-voltage grid transferred to Swissgrid in 2013.
Equity stood at CHF 3.8 billion at 31 December 2020, and is CHF 101 million higher than at the end of 2019. The increase chiefly stems from the net income and the effects from remeasurements of defined benefit plans, and was only partially compensated for by distributions to hybrid investors. The equity ratio increased from 49.9 % to 51.2 %.
Current and non-current financial liabilities declined by CHF 95 million and came to CHF 1.2 billion at 31 December 2020. The decrease is primarily due to the repayment of loans. Net debt increased from CHF 206 million to CHF 249 million. Due to higher results of operations, the gearing ratio (net debt / EBITDA before exceptional items) of 1.9 at 31 December 2019 decreased to 1.0 at 31 December 2020.
Non-current liabilities decreased by CHF 340 million compared to 31 December 2019. The main reasons for this are term-related reclassifications of financial liabilities and other non-current liabilities as well as the decrease in deferred income tax liabilities resulting from tax rate reductions in Switzerland. On the other hand, non-current provisions increased by CHF 92 million, attributable for the most part to the onerous contract from the Nant de Drance pumped storage power plant. The slight increase in negative replacement values of derivative financial instruments and liabilities from trading is especially due to higher commodity prices and changed volatilities.
Net cash flows from operating activities of continuing operations increased from CHF ‑17 million in the previous year to CHF 117 million. This mainly relates to improved earnings before tax from continuing operations and the smaller increase in net working capital. Net cash flows from investing activities decreased on the previous year. On the one hand, this is due to an out-of-court settlement with Bouygues Construction and, on the other, to the net cash inflow of CHF 265 million in the previous year from the sale of the Kladno and Zlín power plants. Cash and cash equivalents decreased by around CHF 100 million to CHF 340 million.
Outlook
In 2021, Alpiq will also invest in its tried-and-tested, sustainable business model. For the 2021 financial year, Alpiq expects positive results of operations that are down on the previous year. While the electricity and CO2 prices on the wholesale markets hedged in Swiss francs will also have a positive effect on Alpiq’s earnings in 2021, the annual results for 2020 contain one-off effects that had an above-average positive influence on earnings. In 2021, an extended overhaul of the Leibstadt nuclear power plant will have a major impact on earnings. Furthermore, the effects of the COVID-19 pandemic cannot yet be fully assessed at present.