Financial Review

In financial year 2023, the Alpiq Group generated a very good result in a stabilising market environment. The new integrated steering of the Alpiq Group along the value chain, the adapted risk-return approach and the focus on core competences and core markets initiated in 2021 contributed significantly to this result. The flexible production portfolio and the high availability of the power plants were optimally used by the value chain element Assets. Excellent performance was also driven by Trading and Origination, thanks to good market positioning and long-standing customer relationships across Europe.

One of the decisive factors of the outstanding result in 2023 was the consistent and integrated management of the Alpiq Group along the value chain. Instead of separate business divisions, Alpiq is now steered along the three value chain elements: Assets, Trading and Origination. Alpiq’s production and asset trading are mapped in the Assets value chain element. Trading includes proprietary trading activities with electricity, gas, emission allowances and other certificates. The customer business for energy management, direct marketing of third-party renewable energy assets and structured energy products are combined in Origination. The new value chain steering is presented in the adjusted segment reporting and reflects management’s view on Alpiq’s business.

In addition, the adapted risk-return management approach was also central to success. Alpiq not only integrated liquidity steering and financing planning more fully into daily operations, but also adjusted the hedging strategy to reflect the changed market environment. The divestment of the Vetrocom windpark in Bulgaria in 2023 is a result of Alpiq’s focus on core competences and core markets.

Over the past few months, Alpiq’s management has been in close dialogue with the Board of Directors and the shareholders to define Alpiq’s future strategic direction. Since 2021, Alpiq has lived up to its new purpose and aligned its business to contribution to security of supply and to a better climate. Thus, Alpiq has focused on its core competences and core markets in order to increase resilience and profitability for future investments in security of supply and climate sensitive operations. Alpiq’s Board of Directors has confirmed this strategic path and sustains Alpiq’s further development as a low carbon flexibility provider with its asset, trading and origination business. Energy transition is doomed to fail without better integration of the growing base of intermittent wind and solar energy supply. This needs to be balanced with a continued reliable steady electricity demand for all customers. And it is precisely in this area that Alpiq wants to play a growing role. Alpiq has been one of the leading market players providing the flexibility solutions needed in European markets for decades thanks to its highly flexible hydroelectric fleet. Like this Alpiq can contribute significantly to the low carbon energy transition with increased security of supply. Alpiq intends to become Net Zero by 2040. So far, Alpiq has a strong asset base of hydro and thermal plants, nuclear and renewable assets. This low-carbon and flexible asset portfolio is operated and optimised in the best possible way. An example of Alpiq’s asset portfolio is the pumped-storage power plant Nant de Drance. The 900-megawatt power plant, now in its second year of operation, helps to stabilise the Swiss and European electricity grid through its ability to switch from pumping to generation in less than five minutes. The renovated power plants Fionnay and Nendaz, part of Grande Dixence, and Gabi, part of Energie Electrique du Simplon, were officially inaugurated in autumn 2023. All three power stations have been completely renovated over the past few years and were gradually put back into operation since the beginning of 2023. Started in 2023, Alpiq will also invest substantially in upgrading the highly flexible San Severo combined cycle gas turbine (CCGT) plant in 2024. This investment will not only extend the plant’s useful life, but also improve its performances in terms of power output and efficiency, thus reducing the emissions per MWh generated. In addition, the upgrade will enable gas to be blended with H2. By investing in Swiss hydropower and other flexible assets, Alpiq is able to procure urgent and massively needed winter energy and storage capacity, and contributes to security of supply in Switzerland and Europe.

Thanks to the strong business result in 2023, Alpiq Group was able to increase its liquidity compared with the previous year, which allowed the payment of an extraordinary dividend in 2023 and contributed to Alpiq’s net cash rather than net debt position.

To enable transparent presentation of the Group results before non-operating effects, the consolidated income statement is presented as a pro forma statement. The commentary on financial performance relates to a view of operating EBITDA, EBIT and net income before non-operating effects. The non-operating effects are detailed in the section “Alternative performance measures of Alpiq”.

Alpiq Group: results of operations (before non-operating effects)

Due to the lower price level on the energy markets, adjusted net revenue decreased by CHF 6.5 billion compared with the previous year to reach CHF 8.4 billion. Adjusted EBITDA increased by CHF 711 million to CHF 1’184 million; thus, the EBITDA margin rose from 3% to 14%. All three elements of the value chain – Assets, Trading and Origination – made an excellent contribution to earnings and exceeded the previous year’s results.

Consolidated income statement (pro forma statement before and after non-operating effects)

Results of operations by segment

Assets

With an adjusted EBITDA of CHF 1’040 million, the value chain element Assets exceeded the previous year’s result by CHF 570 million. This was driven primarily by the Swiss asset-based business with its flexible hydropower plants which were optimally used and optimised by anticipating the market. These hydropower plants also benefited from higher inflows and were able to increase production, driven mainly by heavy rainfall in autumn. Furthermore, Alpiq contributed substantially to Swiss grid stability by providing ancillary services to the grid operator. The Italian, Spanish and Hungarian asset-based business benefited from high availability of the thermal powerplants and the corresponding successful marketing of the flexibility on the energy markets. The powerplants also provided ancillary services and contributed to grid stability in the respective countries.

Trading

The Trading value chain element generated an adjusted EBITDA of CHF 54 million, exceeding the previous year’s result by CHF 66 million. The market environment normalised in financial year 2023. Despite lower prices, lower volatility and the associated fewer opportunities in the trading business, Alpiq achieved a good result with commodity trading. In the Western Europe region in particular, the previous year’s result was exceeded thanks to electricity and certificate trading and management of cross-border capacities.

Origination 

With an adjusted EBITDA of CHF 169 million, the result of the Origination value chain element was CHF 103 million higher than in the previous year. The customer business benefited from calmer market conditions compared with the previous year. Portfolio management, customer loyalty and proximity to major customers paid off. In the French market, the key account business increased significantly. The German market rose on the previous year thanks to day-ahead market access deals and structured and flexible products. The sales business in the Italian, Spanish and Hungarian markets also made a positive contribution to the result.

Alternative performance measures of Alpiq

To measure and present its operating performance, Alpiq also uses alternative performance measures through to the level of “Net income”. Alpiq makes adjustments to the IFRS results for non-operating effects 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 performance 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 2023, the category onerous contracts also contains impairment losses and reversals. This did not result in any adjustments of the comparative figures for the year 2022.

Overview of non-operating effects

Alpiq has defined the following categories of non-operating effects:

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 accounting policies, the fair value changes of financial hedges between the last and the current balance sheet date have to be recognised in the reporting year. As the future production volumes and the physical 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.

Accounting mismatch and expected reversals (based on energy prices as of 31 December 2023)

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. The investments of 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 a non-operating effect.

Impairment losses and onerous contracts

Effects in connection with the future procurement of energy from the Nant de Drance pumped storage power plant (until June 2022) relate to effects that are attributable to changes in expectations regarding future developments. Management therefore does not take these into account in the assessment of Alpiq’s operating performance. No onerous contracts are stated as non-operating effects after July 2022. No impairment or reversals of impairment losses occured during 2023. 

Consolidated balance sheet and cash flow statement (after non-operating effects)

Total assets amounted to CHF 10.5 billion at the 31 December 2023 reporting date, compared with CHF 15.1 billion at end 2022. Driven predominantly by lower energy prices, non-current assets fell by CHF 750 million to CHF 4.5 billion, due mainly to a decrease in non-current derivative financial instruments. Current assets also declined by CHF 3.9 billion to CHF 5.9 billion at 31 December 2023. Lower prices led to a fall in trade and other current receivables of CHF 2.1 billion and current derivative financial instruments of CHF 2.1 billion. Cash and cash equivalents (up by CHF 99 million excluding cash held for sale) and current term deposits (up by CHF 364 million) increased to a total of CHF 1.9 billion. The increase in cash and cash equivalents and current term deposits driven be the strong operational performance turned net debt of CHF 107 million at 31 December 2022 into net cash of CHF 347 million at 31 December 2023, leaving Alpiq in a strong financial position.

Total equity increased significantly by CHF 1.3 billion due to the strong financial performance of Alpiq in 2023 and stood at CHF 4.8 billion at 31 December 2023. As a result of the decrease in the total assets and a net income of CHF 1.3 billion in 2023, the equity ratio nearly doubled from 23.4% in the previous year to 45.9% at year-end 2023.

Financial liabilities were stable at CHF 1.6 billion at 31 December 2023. In 2023 two bonds with a nominal value of CHF 375 million were placed successfully on the market. The cash inflow of this financing was used to repay loans that fell due within 2023 and to repay one bond with a nominal value of CHF 141 million that matured in June 2023. Compared with 31 December 2022, non-current liabilities decreased by CHF 616 million to CHF 2.0 billion, while current liabilities decreased by CHF 5.3 billion to CHF 3.6 billion at 31 December 2023. This decrease of total liabilities by CHF 5.9 million was almost exclusively due to lower energy prices resulting in lower market values of derivative financial instruments and decreased trade payables.

Alpiq was able to generate a high operating cash flow due to a very good operational performance in 2023. The positive earnings before taxes of CHF 1.6 billion, partly offset by the change in fair value of derivative financial instruments led to positive net cash flows from operating activities of CHF 618 million (previous year CHF 734 million). Net cash flows from investing activities decreased by CHF 273 million to CHF –309 million in 2023 due to the increase in current and non-current term deposits as a result of cash management. Net cash flows from financing activities amounted to CHF –166 million and were down on the previous year by CHF 125 million, mainly as a result of the extraordinary dividend payment of CHF 93 million in 2023. Proceeds from financial liabilities and repayments of financial liabilities almost balanced each other out. Overall, the increase in cash and cash equivalents amounted to CHF 86 million (including cash held for sale) and thus remained fairly stable at CHF 1’573 million in 2023 compared with CHF 1’487 million in 2022.

Outlook

Following the very strong result in 2023, Alpiq is confident that it will also perform well in 2024 thanks to its highly flexible and reliable production plant portfolio, which helps to ensure security of supply across Europe. Not only is the value chain element Assets expected to generate good results, but the well-positioned Trading business and the firmly anchored Origination business, based on its long-term customer relationships, are also expected to do well. In line with its strategy, Alpiq will continue to focus on its core markets, invest in its flexible production portfolio and expand the Trading business and the Origination activities. Despite the easing in the energy markets, some uncertainty still exists on how the markets will develop in 2024 and the effect on Alpiq. Nevertheless, thanks to its strong financial position, Alpiq expects to maintain its good liquidity and net cash due mainly to a positive cash flow from operating activities in 2024.