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REVIEW OF THE 2019 RESULTS

Excellent annual performance

BKW posted a marked increase in revenue and profit despite the continuing negative impact of electricity prices. The Services business underwent significant expansion, while trading performance was excellent. Revenue grew by 7 % to CHF 2.9 billion. EBIT improved by 19 % to CHF 433 million compared with the previous-year’s figure adjusted for one-off effects. Net profit doubled to CHF 404 million.

Excellent EBIT – negative effects of electricity prices substantially offset

BKW closed 2019 with an extremely strong EBIT of CHF 433 million (previous year: CHF 417 million), achieving the best result of the last 15 years. Compared with the adjusted previous year’s figure, the increase amounted to CHF 69 million or 19 %. This easily offset the unchanged negative effects of the trend in the electricity price with historically low hedged electricity prices (CHF – 120 million). Contributing to this excellent result, besides the ongoing expansion of the Services business and reduced costs, was the successful trading business.

At CHF 404 million, net profit was twice as high as in the previous year. Adjusted for the one-off effect from the change in benefit plan in the BKW pension fund in 2018, the increase was as much as CHF 242 million (+ 149 %). The increase in net profit was due to the strong EBIT and the significantly better performance of the assets in the decommissioning and waste disposal funds.

Revenue and profitability higher

CHF millions

2018

Adjustments 1

2018 (adjusted)

2019

% change

Sales

2,675.2

2,675.2

2,866.6

7 % 

Energy procurement / transport

– 938.6

– 938.6

– 796.0

– 15 % 

Operating costs

– 1,140.3

– 52.4

– 1,192.7

– 1,392.2

17 % 

Material and third-party services

– 347.1

– 347.1

– 422.6

22 % 

Personnel expenses

– 589.3

– 52.4

– 641.7

– 767.6

20 % 

Other operating expenses

– 203.9

– 203.9

– 202.0

– 1 % 

EBITDA

596.3

– 52.4

543.9

678.4

25 % 

Depreciation, amortisation and impairment

– 208.1

– 208.1

– 280.7

35 % 

Income from associates

28.3

28.3

35.7

26 % 

EBIT

416.5

– 52.4

364.1

433.4

19 % 

Financial result

– 167.6

– 167.6

44.1

EBT

248.9

– 52.4

196.5

477.5

143 % 

Income taxes

– 45.9

11.5

– 34.4

– 73.9

115 % 

Net profit

203.0

– 40.9

162.1

403.6

149 % 

1 Adjusted for the effect of the transition from the defined benefit plan of the BKW pension fund to a defined contribution plan under the Swiss Occupational Benefits Act (BVG) as of 1 January 2019.

Revenue increased by 7 % resulting from substantial expansion of the Services business

At CHF 2,867 million, revenue was CHF 192 million higher (+ 7 %) than the previous year’s figure. The Services business continued to grow substantially. With a growth rate of 26 %, it exceeded the one billion mark for the first time ever, contributing almost 40 % of BKW’s total revenue. In the Grid business, revenue was marginally down (– 5 %) due to lower throughput volumes and reduced costs for the upstream grids. The Energy business area almost compensated for the price-driven decline in revenue thanks to the margin from trading, increased production volumes and higher volumes in the distribution business. Revenue fell by only 1 %. Overall, BKW more than offset the negative impact of electricity prices in the Energy business.

Stable operating costs in established business areas

The further expansion of the Services business resulted in an increase (+ 17 %) in operating costs. In the 2019 financial year, over 2,000 new employees joined BKW as a result of the acquisitions made, representing an increase of over 25 %. The Services business also grew organically. The number of personnel increased by 120. As a result of the consistent cost management, other operating expenses were cut in spite of this growth, so that overall operating costs in the organic business were stable. As at the end of 2019, BKW had over 10,000 employees in total.

The new IFRS standard on leases was implemented on 1 January 2019. The new standard stipulates that almost all assets (right to use the leased asset) and liabilities arising from leases are recognised in the balance sheet. The change in the recognition of lease expenses for operating leases boosted EBITDA in the income statement by CHF 26 million. However, the amount of depreciation on the newly recognised rights of use was similar, which is why there was only a minor impact at the EBIT level.

Positive financial result resulting from a very good performance of the decommissioning and waste disposal funds

In the 2019 financial year BKW posted a financial result of + CHF 44 million (previous year: CHF – 168 million). The reason was the strong performance of the state decommissioning and waste disposal funds. After a slightly negative return on investment in the previous year, the funds achieved a very good return in 2019 (+ 12 %). The funds were valued at CHF 1.3 billion as at the end of December.

The income tax expense amounted to CHF 74 million, CHF 40 million higher than the previous year. However, the effective tax rate for the reporting year was reduced to 16 % (previous year 19 %).

Energy: negative impact of electricity prices more than offset

The Energy business area builds, operates and maintains BKW’s pool of power plants in Switzerland and abroad. It is also responsible for the sale of and trading in electricity, certificates and raw materials.

CHF millions

2018

2019

% change

Electricity sales Switzerland

481.2

522.0

Other electricity sales

801.6

741.6

Other operating income and own work capitalised

42.9

51.8

Total operating income

1,325.7

1,315.4

– 1 % 

Energy procurement

– 832.1

– 704.4

Operating costs

– 277.6

– 281.2

Personnel expenses

– 98.1

– 106.4

Material and third-party services and other operating expenses

– 179.5

– 174.8

EBITDA

216.0

329.8

53 % 

Depreciation, amortisation and impairment

– 82.7

– 126.8

Income from associates

8.4

24.2

EBIT

141.7

227.2

60 % 

Low electricity prices continued to negatively impact revenue in the Energy business in 2019. Year on year, the average price realised in 2019 on the majority of the electricity sales that were hedged three years ago was lower, resulting in a negative effect of around CHF 120 million in total. But the negative impact of the lower electricity prices was almost completely compensated for by a very successful trading result, higher sales volumes in the distribution business, and additional production volumes of wind farms. At CHF 1,315 million, total operating revenue was just 1 % lower than in the previous year. In the regulated Swiss distribution business, weather conditions had a slightly adverse effect on sales. On the other hand, a significant number of business customers were acquired, so that the electricity sales through distribution channels increased by a total of 0.4 TWh to 7.9 TWh. Accordingly, sales revenue rose by 8 %. Revenue from other Energy business (market sales, direct sales from power plants) fell by 7 % due to the negative impact of prices.

Energy procurement costs were down by CHF 128 million to CHF 704 million. This is due to lower costs for procurement on the market and lower procurement costs at the partner plants. In particular, there was a fall in the procurement prices of Leibstadt nuclear power plant, where production costs were significantly lower due to the very good performance of the decommissioning and waste disposal funds. Total electricity production of the BKW’s power plant portfolio rose by 12.4 TWh (+ 0.7 TWh) in comparison to the previous year. The main reasons for the increase were higher inflows to the hydroelectric power plants in the second half of 2019, the annual outage of Mühleberg nuclear power plant not taking place, and higher volumes from the wind power plants, which saw output go up thanks to good wind volumes and the recent connection of the Norwegian wind farms to the grid. However, the scheduled outage of the Wilhelmshaven coal power plant caused output from fossil-fuel power plants to fall.

At CHF 227 million, EBIT was considerably higher than in the previous year (+ 60 %). The effect of the renewed negative trend in electricity prices was therefore offset substantially, in large part thanks to outstanding trading business.

Grid: stable earnings contribution

The Grid business area builds, operates and maintains BKW’s distribution grid.

CHF millions

2018

2019

% change

Distribution grid usage fees

480.4

468.3

Other operating income and own work capitalised

75.0

59.0

Sales

555.4

527.3

– 5 % 

Energy transport expense

– 106.7

– 91.7

Operating costs

– 195.4

– 186.7

Personnel expenses

– 71.9

– 64.8

Material and third-party services and other operating expenses

– 123.5

– 121.9

EBITDA

253.3

248.9

– 2 % 

Depreciation, amortisation and impairment

– 85.1

– 86.7

Income from associates

21.4

11.5

EBIT

189.6

173.7

– 8 % 

At CHF 527 million, total operating revenue from the Grid business was 5 % lower than the previous year’s figure. Revenue from distribution grid usage fees decreased by 3 % to CHF 468 million. This decrease was mainly due to lower throughput volumes and lower costs associated with the upstream grids.

Organisational changes coupled with further rigorous cost management cut operating costs by 4 %. The income from associates fell by CHF 10 million. This was due to an expected one-off correction to Swissgrid’s 2019 financial statements following conclusion of the ElCom proceedings. This had a correspondingly negative impact on the proportionate result for BKW.

Factoring in lower throughput volumes and the one-off effect on the Swissgrid investment, EBIT remained stable overall at CHF 174 million.

Services: strong growth

The Services business area includes Engineering (engineering planning and consulting) for energy, infrastructure and environmental projects, integrated services in the area of Building Solutions (building technology), as well as Infra Services (construction, servicing and maintenance of energy, water and telecommunication networks).

CHF millions

2018

2019

% change

Sales

880.8

1,106.8

26 % 

Operating costs

– 797.2

– 987.0

Personnel expenses

– 391.7

– 503.5

Material and third-party services and other operating expenses

– 405.5

– 483.5

EBITDA

83.6

119.8

43 % 

Depreciation, amortisation and impairment

– 25.6

– 47.6

EBIT

58.0

72.2

24 % 

The Services business continues to be successfully expanded in 2019. Sales rose by 26 % to CHF 1,106.8 million, which is significantly above the CHF 1 billion mark for the first time and accounts for some 40 % of BKW’s total revenue. The repeated double-digit growth rate was due to acquisitions. BKW made a total of 20 acquisitions in the reporting year, with the major transactions not taking place until the fourth quarter. All three main areas (Engineering, Building Solutions and Infra Services) posted growth. In Germany in particular, the BKW Engineering business is being further expanded and strengthened with skills in testing and construction, supplemented by architectural skills for general planning. The acquisition of the prestigious firm ingenhoven architects in particular significantly bolsters the focus on energy and resource-efficient building design.

BKW Building Solutions is making targeted acquisitions to optimally complement its network of companies across Switzerland both geographically and technically. The acquisition of the swisspro Group in particular puts the company in a strong position as Switzerland’s leading provider of integrated solutions in electrical engineering, ICT and building information technology. The range of services is being expanded not only geographically but also in terms of recurring services and for major customers.

By acquiring German firm LTB Leitungsbau, BKW Infra Services has taken a significant step into a new geographical region and in doing so strengthened its growth strategy in this area. BKW expects to see strong growth in the market for construction, upgrades and maintenance of high voltage and peak voltage transmission lines in Germany.

After its acquisitions in 2019, BKW is now one of the leading market players in all three areas: Building Solutions, Infra Services and Engineering.

Operating costs also increased due to the strong growth in sales. The reported EBIT of CHF 72 million (previous year: CHF 58 million) continued to be impacted by acquisition and integration costs. With the major acquisitions only carried out in the fourth quarter, the recorded M&A costs are only offset by a small proportion of the acquired sales, which dilutes the margin somewhat.

Funds from operations at record level

Funds from operations, cash flow before the change in net working capital and income taxes paid, amounted to CHF 584 million (previous year: CHF 385 million) and are at their highest since the IPO more than 15 years ago. Before utilisation of provisions for nuclear decommissioning and waste disposal, funds from operations amounted to CHF 648 million (+ 50 %).

The reported cash flow from operating activities includes not only cash flows from operating activities, but also the utilisation of provisions for nuclear decommissioning and waste disposal. Most of these utilisations lead to refund claims against the state-run decommissioning and waste disposal funds. For ease of comparability and interpretation, BKW therefore uses the key figure “cash flow from operating activities before use of nuclear provisions”. This cash flow figure, which is relevant for evaluating cash generation, amounted to CHF 533 million (previous year: CHF 421 million) and was 26 % higher than in the previous year. The reported cash flow from operating activities of CHF 469 million is also 26 % higher than in the previous year (CHF 373 million).

Investments in expansion of the Services business, in new power plants, and in the grid infrastructure amounted to CHF 575 million in the 2019 financial year (previous year: CHF 485 million). Around two-thirds of this was invested in expanding the Services business further. About CHF 165 million was invested in replacement / maintenance. 75 % of this was put into the grid. Acquisitions and investments were financed from the funds generated in 2019. Current liquidity, including current financial assets, remained unchanged at around CHF 0.9 billion at the end of the year.

CHF millions

2018

2019

% change

Funds from operations before utilisation of nuclear provisions

432.4

647.5

50 % 

Funds from operations

384.5

583.9

52 % 

Cash flow from operating activities before utilisation of nuclear provisions

421.3

532.5

26 % 

Utilisation of nuclear provisions with no claim to refunds of state funds

– 16.7

– 27.3

63 % 

Utilisation of nuclear provisions with a claim to refunds of state funds

– 31.2

– 36.3

16 % 

Cash flow from operating activities

373.4

468.9

26 % 

Liquidity as at 31.12

1,094.9

910.8

– 17 % 

Equity and financing situation permits further financial and operational flexibility

The balance sheet total rose slightly by 2 % to year-end, to CHF 9.2 billion. The main reason for the increase was the first-time application of the new IFRS 16 lease standard, which initially boosted non-current assets by around CHF 140 million and the lease liabilities by the same amount. Mainly as a result of the high net profit and despite the increase in the balance sheet total, the equity ratio rose to 40.4 % (end of 2018: 38.4 %).

CHF millions

2018

2019

Current assets

2,242.8

2,038.5

Non-current assets

6,810.5

7,200.0

Current liabilities

1,547.0

1,287.1

Non-current liabilities

4,034.0

4,216.2

Shareholders’ equity

3,472.3

3,735.2

Balance sheet total

9,053.3

9,238.5

BKW’s financing situation remains solid. Net debt (financial liabilities less current financial assets and cash and cash equivalents) was higher by CHF 151 million at year-end, reaching CHF 626 million. The reason for the increase in this metric was the first-time application of the new lease standard IFRS 16. Not adjusted for this accounting effect, net debt would have been on par with the previous year, despite the significant levels of acquisition activity.

In July 2019, the CHF 350 million bond due was repaid. At the same time, BKW successfully issued a 0.25 % green bond worth CHF 200 million with a term of eight years. The partial refinancing will produce future interest savings of around CHF 11 million. In addition, BKW continues to have access to an unused syndicated loan totalling CHF 250 million. The financial framework necessary for implementing and safeguarding financial and operational flexibility is sufficient and thus ensured at all times.

Dividend increase

Based on the net profit adjusted for the extraordinarily strong performance of the decommissioning and waste disposal funds, an increased dividend of CHF 2.20 per share (+ 22 % compared with the previous year) will be proposed to the General Meeting. This is equivalent to a payout ratio of around 40 % on adjusted net profit. The dividend yield thus amounts to 3.1 % of the share price at year’s end (previous year: 2.6 %). The proposed dividend is based on the stable principles of BKW’s dividend policy.

Outlook

For the 2020 financial year, BKW expects a lower operating EBIT year on year (i. e. excluding one-off effects) in the range of CHF 380 million to CHF 400 million. This outlook is based on a normalisation of trading and of returns on the decommissioning and waste disposal funds. However, it also reflects rising electricity prices and further profitable growth in the Services business. It is difficult to assess the effects of coronavirus on the economy in general and on BKW in particular at present. However, BKW’s strong position in the Energy and Services business will also be advantageous in these circumstances.

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