Alpiq responds to drop in profits

Alpiq Holding Ltd. delivered disappointing results for the first half of 2011, with operating profit (EBITDA and EBIT) and Group profit for the period significantly down from the year-ago levels. The company is consequently implementing a comprehensive package of measures to improve profitability, streamline the organisation and strengthen its financial flexibility.

The Alpiq Group ended the first half of 2011 significantly below its targets. Consolidated revenue was down 3.7 per cent to CHF 6.8 billion compared with 2010. Operating profit before depreciation and amortisation (EBITDA) fell to CHF 581 million (down 21.0 per cent), operating profit before interest and tax (EBIT) to CHF 276 million (down 42.7 per cent) and consolidated Group profit for the period to CHF 155 million (down 47.1 per cent). This already includes the impairment charge of CHF 35 million to fully write off the accumulated project costs for a new nuclear power station in Niederamt (KKN) in the Canton of Solothurn. Excluding the impact of acquisitions and movements in exchange rates, revenue reached CHF 7.2 billion (up 2.8 per cent) and EBIT was CHF 322 million (down 33.2 per cent).

Difficult market environment weighing on results Although the spot and futures prices in the European electricity markets recovered somewhat from their levels at the beginning of the year, especially after the disaster in Japan and unrest in the Middle East, the considerable excess capacity that has remained in the markets for quite some time weighed down prices and margins, while limiting trading opportunities. Furthermore, natural water inflow for hydroelectric generation was 18 per cent below the long-term average. In addition, the strong Swiss franc weighed heavily on export business and translation of European subsidiaries’ results, having an adverse impact of some CHF 50 million.

The resulting shortfall in earnings in Energy business was not able to be offset by the cost savings generated or the good performance of the Swiss nuclear generation interests and the long-term contract between France and Italy, which is expiring at the end of 2011. In contrast, the Energy Services business ended the first half of the year successfully, with both revenue and profits ahead of expectations.

Outlook: lower-than-expected results for 2011 Alpiq currently does not expect to see a significant recovery in its profit drivers during the second half of 2011. In July, prices and spreads dropped below the June levels at times, while the Swiss franc exchange rate rose again. The contribution from business secured longer ago on favourable terms will continue to diminish. In addition, the stock market movements will also affect the investment performance of the decommissioning and waste disposal funds for nuclear facilities. Conversely, Alpiq believes that the Energy Services business will continue to turn in a positive performance. Current data indicate that the Alpiq Group’s reported EBIT for the full year 2011 will be considerably below its targets and down from last year’s level.

No signs of a clear improvement in the significant drivers are on the horizon for 2012 either. Prices and spreads will probably persist at a low level, with the problematic currency situation remaining unfavourable and uncertain. In addition, the long-term contract between France and Italy is expiring at the end of 2011 and will have a negative impact on profit.

Improving efficiency and financial flexibility In view of this challenging situation and outlook, the Board of Directors and Executive Board decided to put in place a series of sweeping measures. Their implementation should enable the Group to benefit significantly from the anticipated medium-term recovery. A programme lasting several years was already launched in early 2010 to enhance efficiency and improve financial flexibility. This was reinforced by additional measures in 2011. The programme comprises tight cost management, concentration and reduction of capital investments, mitigation of balance sheet risks and moves to consider and carry out disposals. So far, implementation has been going according to plan.

At the end of June 2011, Alpiq additionally decided to launch another package of measures to focus business operations, shed unprofitable businesses, consolidate financially and reorganise the company. This is aimed at further improving efficiency and earnings, while streamlining the Group’s structure. Alpiq also initiated the sale of the Alpiq Anlagentechnik Group (AAT) in Heidelberg in July 2011 and is preparing for more disposals. All in all, implementation of these measures will improve profits, while reducing debt by more than CHF 1 billion by the end of 2012.

Alpiq Group highlightsHalf-year H1 2010 Half-year H1 2011 % Change
Energy sales (TWh)70.45269.885-0.8
Net revenue (CHF millions)7,0416,782-3.7
Profit before interest, tax, depreciation and amortisation (EBITDA) (CHF millions)735581-21.0
     As a percentage of net revenue10.48.6 
Profit before interest and tax (EBIT) before KKN impairment charge (CHF millions)482311-35.5
Profit before interest and tax (EBIT) after KKN impairment charge (CHF millions)482276-42.7
Group profit for the period after KKN impairment charge (CHF millions)293155-47.1
     As a percentage of net revenue4.22.3 

Employees*

10,86010,806-0.5

*Average number of full-time equivalents.