Financial Review

Financial Review

The Alpiq Group generated operational EBITDA of CHF 302 million in the 2021 financial year, exceeding the previous year by CHF 40 million. Swiss power production did not reach the previous-year level, which was primarily due to maintenance work at the Leibstadt nuclear power plant being postponed and taking longer than planned. By contrast, international power production and energy trading generated higher earnings than in the previous year thanks to higher market volatility and a rise in energy prices.

The 2021 financial year was characterised by an extraordinarily sharp increase in energy prices, which were then highly volatile at a high level. This was attributable to a huge rise in demand for coal and gas in Asia, geopolitical uncertainties in European gas supply on account of increasing tension between Russia and the European Union, downtimes of French nuclear power plants and the imminent reduction in fossil production capacity. The rapid economic recovery following the end of the lockdowns imposed as a result of the COVID-19 pandemic coupled with concerns about the security of electricity and gas supply led in particular to a dramatic rise in gas and electricity prices. While these high prices made it possible to improve trading margins, they also resulted in higher financial security deposits having to be made at the energy exchanges. In accordance with IFRS, the hedging of wholesale prices led to earnings being shifted to the following financial years, as the fair value changes of financial hedges were already recognised in profit or loss this year (accounting mismatch). However, under IFRS, the positive effects on the hedged transactions may not be posted until later. The higher valuation of hedging and trading items also resulted in a considerable extension of the balance sheet.

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 2021 financial year, the Alpiq Group generated net revenue before exceptional items of CHF 7.7 billion (up CHF 3.9 billion on the previous year) and EBITDA of CHF 302 million (up CHF 40 million).

Consolidated income statement (pro forma statement before and after exceptional items)

Switzerland business division

At CHF ‑16 million, EBITDA of Swiss power production was down year-on-year by CHF 151 million. The main drivers of this development were the lower production volumes. The lower production volume in the area of nuclear power was primarily due to maintenance work at the Leibstadt nuclear power plant being postponed from 2020 to 2021 as a result of the COVID-19 pandemic. In addition, this overhaul took considerably longer than planned. In order to meet supply obligations, the missing quantity of electricity, which had already been sold as part of the hedging strategy at that time, had to be procured at a higher price on the spot market. In the area of hydropower, inflows were below the previous year and just below the long-term average.

International business division

At CHF 80 million, EBITDA of international power production was up year-on-year by CHF 21 million. Alpiq generated positive earnings in every country. In Italy, the increase in the price of renewable energies led to a positive development compared to the previous year despite the fact that feed-in tariffs no longer apply. In Spain, the year-on-year increase in EBITDA was primarily attributable to insurance payments received in connection with unexpected repairs at the gas-fired combined-cycle power plant Plana del Vent. In turn, the gas-fired combined-cycle power plants in Italy and Hungary contributed to system stability thanks to their high availability.

Digital & Commerce business division

At CHF 258 million, EBITDA of the Digital & Commerce business division was up year-on-year by CHF 159 million. In the context of the optimisation and marketing of the power plant portfolio in both Switzerland and Italy, considerably higher earnings were generated than in the previous year. Alpiq made very good use of the opportunities offered by a very volatile market. Furthermore, earnings from the ancillary services business in Italy developed very well. Market volatilities were also successfully exploited in trading. However, the market environment led to significantly higher liquidity requirements and a considerably increased credit risk associated with several counterparties, which had a strong negative impact on results of operations.

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, tax, depreciation and amortisation (EBITDA)”. Alpiq makes adjustments to the IFRS results for exceptional items, which Alpiq does not consider part of 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. Starting from 1 January 2021, Alpiq no longer presents any exceptional items on amortisation, depreciation and impairment in its internal or external reporting, as EBITDA is decisive for measuring performance. Alpiq still does not use any alternative performance measures in the balance sheet and cash flow statement.

Overview of exceptional items

Alpiq has defined the following categories of exceptional items:

Fair value changes (accounting mismatch)

Negative fair value changes of energy derivatives entered into to hedge future power production as well as energy procurement and energy delivery contracts do not reflect operating performance because they are economically linked with the changes in value of the hedged transactions. Rising forward prices cause the future production volumes and power purchase agreements to increase in value and the corresponding hedges to lose value. According to IFRS guidelines, the fair value changes of financial hedges have to be recognised in the reporting year. As the future production volumes and the power purchase agreements are not measured at fair value and positive 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 two 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.

Onerous contracts

Effects in connection with the future procurement of energy from the Nant de Drance pumped storage power plant and an onerous contract abroad 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 amounted to CHF 13.6 billion at the 31 December 2021 reporting date, compared to CHF 7.4 billion at the end of 2020. Non-current assets remained unchanged at CHF 4.4 billion. Amortisation, depreciation and impairment as well as the reclassification of a receivable to current assets due to maturity were compensated for by net investments in property, plant and equipment and intangible assets as well as the increase in plan assets.

Current assets rose by CHF 6.2 billion, amounting to CHF 9.1 billion at 31 December 2021. The rise is primarily due to the higher replacement values of energy derivatives and receivables from realised energy derivatives, mainly driven by the significant increase in energy prices. In addition, Alpiq had to make higher customary financial security deposits. For the same reason, negative replacement values and liabilities from realised energy derivatives increased at a similar rate.

Equity stood at CHF 3.6 billion at 31 December 2021 and was thus CHF 203 million below the previous year. The decrease chiefly stems from the lower net income, the dividend distribution as well as the distribution to the hybrid investors. This could only partially be compensated for by the positive effects from the remeasurement of defined benefit plans. The equity ratio decreased from 51.0 % to 26.2 %, primarily on account of the increase in total assets as a result of energy prices.

Current and non-current financial liabilities increased by CHF 361 million and came to CHF 1.6 billion at 31 December 2021. The increase is primarily attributable to taking out short-term loans in order to finance the short-term net working capital. Net debt increased from CHF 249 million to CHF 675 million. The gearing ratio (net debt / EBITDA before exceptional items) rose from 1.0 at 31 December 2020 to 2.2.

Compared to 31 December 2020, non-current liabilities declined by CHF 411 million to CHF 1.4 billion. The main reason for this were term-related reclassifications of financial liabilities and other non-current liabilities and the decrease in defined benefit liabilities due to the return on plan assets exceeding expectations.

Net cash flows from operating activities decreased from CHF 108 million in the previous year to CHF ‑298 million. This mainly relates to CHF 411 million lower earnings before tax from continuing operations and the increase in net working capital. Net cash flows from investing activities increased on the previous year. For one thing, more term deposits were due, for another, Alpiq sold securities that were held as a liquidity reserve. Net cash flows from financing activities were up on the previous year due to additional financial liabilities raised to increase liquidity. Cash and cash equivalents increased by around CHF 523 million to CHF 863 million.

Outlook

Alpiq is well positioned with its business model. The rising prices, which are hedged in advance, will have a positive effect on earnings. Due to the dynamic market development, Alpiq expects positive EBITDA before exceptional items at a level similar to the past two years for 2022.

From a current perspective, Alpiq expects positive net income (IFRS) for the 2022 financial year. The shift of earnings in the 2021 financial year and their negative accounting effects will have a delayed positive impact in subsequent years.