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FINANCIAL RESULT

Outstanding half-year results

BKW increased both its revenue and operating profit (EBIT) in the first six months of 2020, a period defined by the challenges of the coronavirus pandemic. Further significant growth in the Services business as well as the positive effects of hedged electricity prices were the main drivers of a 12% jump in revenue to CHF 1.5 billion. Increased electricity prices and another excellent trading result led to EBIT growth of 5% to CHF 219 million. In contrast to the first half of 2019, however, the Decommissioning and Waste Disposal Funds recorded a negative result, with a significant impact on the net profit which stands at CHF 112 million.

Excellent EBIT due to a strong trading result and higher electricity prices

In the first half of 2020, BKW achieved an EBIT of CHF 219 million, representing a further 5% increase on the previous year’s 10-year record high of CHF 207 million. Positive effects from electricity prices and another highly successful year’s trading have more than offset the drop in electricity sales caused by the coronavirus pandemic. Earnings for both the Grid and Services businesses were comparable to the previous year’s results. The Services business has proven highly robust during the coronavirus crisis and remained profitable in both its organic and acquisition-based activities.

In contrast, the uncertainty surrounding the coronavirus had a negative effect on performance in the financial markets. That includes the Decommissioning and Waste Disposal Funds, where negative returns impacted net profit, which stood at CHF 112 million. This was around CHF 90 million lower than the previous year, when the funds recorded a very high rate of return. Adjusted for the return on the funds, the net profit increased by 22%.

CHF millions

1st half-year 2019

1st half-year 2020

% change

Sales

1,370.2

1,529.8

12% 

Energy procurement/transport

– 424.6

– 419.8

– 1% 

Operating costs

– 642.3

– 791.3

23% 

Material and third-party services

– 178.8

– 254.0

42% 

Personnel expenses

– 356.9

– 438.1

23% 

Other operating expenses

– 106.6

– 99.2

– 7% 

EBITDA

303.3

318.7

5% 

Depreciation, amortisation and impairment

– 123.6

– 118.2

– 4% 

Income from associates

27.7

18.1

– 35% 

EBIT

207.4

218.6

5% 

Financial result

41.5

– 87.5

EBT

248.9

131.1

– 47% 

Income taxes

– 48.0

– 19.0

– 60% 

Net profit

200.9

112.1

– 44% 

Significant revenue growth of 12% thanks to the Services business

Despite the decommissioning of the Mühleberg Nuclear Power Plant and the resulting drop in energy production of almost 30%, plus the negative effects of the coronavirus on all three business areas, the Group’s revenue increased by 12%. This growth was primarily driven by 2019 acquisitions in the Services business. With most of these acquisitions completed towards the end of the year, they increased revenue in the Services business by more than 40%. This was more than enough to offset the negative effects of the coronavirus pandemic. While revenue in the Grid business remained at the previous year’s levels, the Energy business recorded a 7% drop in revenue. Higher electricity prices and increased production from renewables were unable to entirely compensate for the loss of production from the Mühleberg Nuclear Power Plant.

Increase in operating costs due to acquisitions made in the second half of 2019

Operating costs stood at CHF 791 million at 30 June 2020, a 23% rise driven largely by acquisition activities. There were no further acquisitions during the first six months of 2020. The number of employees in the company remained unchanged at around 10,000.

Financial result negatively impacted by the Decommissioning and Waste Disposal Funds

BKW’s financial result for the first half of 2020 was CHF – 88 million (previous year: CHF +42 million). This negative result was driven by the weak performance of the state Decommissioning and Waste Disposal Funds. While the assets in these funds managed an impressive return of 8% in the previous year, as at 30 June 2020 their value had decreased by 4%. This is attributable to uncertainty on the financial markets caused by the coronavirus pandemic. At the half-year mark, the funds were valued at CHF 1.2 billion. In the financial result, interest expenses were some CHF 16 million lower, with the 3.375% debenture bond of CHF 350 million refinanced by a CHF 200 million Green Bond with a 0.25% coupon at the end of July 2019. In addition, compounding of nuclear provisions was subject to a lower discount rate of 2.75% (previously: 3.5%).

Energy: excellent trading business boosts half-year results

The Energy business is consistently focused on the opportunities and challenges of a changing energy market. It is responsible for the production, sales and trading of electricity, certificates and energy-related commodities.

CHF millions

1st half-year 2019

1st half-year 2020

% change

Electricity sales Switzerland

264.1

250.9

– 5% 

Other electricity sales

383.7

340.6

– 11% 

Other operating income and own work capitalised

24.5

32.4

32% 

Total operating income

672.3

623.9

– 7% 

Energy procurement

– 372.5

– 370.0

– 1% 

Operating costs

– 150.2

– 98.5

– 34% 

Personnel expenses

– 51.8

– 28.9

– 44% 

Material and third-party services and other operating expenses

– 98.4

– 69.6

– 29% 

EBITDA

149.6

155.4

4% 

Depreciation, amortisation and impairment

– 51.1

– 36.8

– 28% 

Income from associates

16.0

9.2

– 43% 

EBIT

114.5

127.8

12% 

Revenue in the Energy business in the first half of 2020 was particularly affected by the end of production at the Mühleberg Nuclear Power Plant and a decrease in electricity sales caused by the coronavirus pandemic. Total operating revenue was CHF 624 million, 7% lower than in the previous year. The impact of the coronavirus pandemic was most keenly felt in transactions with SMEs and industrial customers, where revenue fell by approximately 10%. In contrast, revenue from the domestic supply business remained stable. The negative effects of warmer weather on household consumption were offset by somewhat higher usage arising caused by people working from home.

Revenue from the rest of the Energy business (market sales, direct sales from power plants, management and trading activities) fell by 11% due to a drop in the company’s own production (with the closure of the Mühleberg Nuclear Power Plant). Once again, outstanding trading results cushioned the fall in total revenue. BKW’s trading business successfully responded to the challenges and changes to the market resulting from the coronavirus pandemic.

While purchase volumes were lower overall, the costs of energy procurement remained at around the previous year’s level. One major factor here was the increased cost of procurement from the Leibstadt Nuclear Power Plant, with the negative performance of the Decommissioning and Waste Disposal Funds significantly increasing production costs.

Total electricity production from BKW’s own power plants fell by 1.5 TWh compared with the previous year, to 4.2 TWh, primarily because of the decommissioning of the Mühleberg Nuclear Power Plant. However, there was increased production in the hydroelectric plants and the remaining nuclear power plants. With the commissioning of the Marker wind farm in Norway in mid-2019, wind power also accounted for a higher production volume. By contrast, market prices proved a drag on production in the fossil-fuel power plants.

Operating costs were some CHF 50 million lower following the shutdown of the Mühleberg Nuclear Power Plant at the end of 2019. The costs are now being offset against the existing provisions. The loss of the Mühleberg Nuclear Power Plant had no material effect on the EBIT, with the fall in revenue largely offset by reduced costs.

At CHF 128 million, the EBIT was significantly higher than in the previous year (+12%). Higher electricity prices and the improved trading and management result more than compensated for the drop in revenue.

Grid: stable EBIT contribution

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

CHF millions

1st half-year 2019

1st half-year 2020

% change

Distribution grid usage fees

236.0

230.0

– 3% 

Other operating income and own work capitalised

29.3

40.0

37% 

Sales

265.3

270.0

2% 

Energy transport expense

– 52.1

– 49.8

– 4% 

Operating costs

– 92.7

– 93.6

1% 

Personnel expenses

– 33.4

– 35.1

5% 

Material and third-party services and other operating expenses

– 59.3

– 58.5

– 1% 

EBITDA

120.5

126.6

5% 

Depreciation, amortisation and impairment

– 40.8

– 42.5

4% 

Income from associates

11.6

8.9

– 23% 

EBIT

91.3

93.0

2% 

Total operating revenue from the Grid business stood at CHF 270 million, representing a 2% increase over the previous year’s figure. However, revenue from distribution grid usage fees fell by 3% to CHF 230 million, with the coronavirus and mild weather dampening grid usage. In contrast, other operating income increased by CHF 11 million. This included a one-off payment from Swissgrid of CHF 9 million in connection with an ElCom ruling relating to transmission grid assets transferred to Swissgrid in 2012.

Income from associates dropped by almost CHF 3 million compared with the previous year. This relates to Swissgrid pro rata income as assessed by BKW. The figure was affected by the corresponding BKW estimate for the 2019 financial statements, which differed from Swissgrid’s actual result in 2019. The difference arises because BKW is not in possession of the Swissgrid financial statements at the respective reporting dates and therefore has to estimate its result.

Taking account of the one-off payment resulting from the ElCom ruling and the difference in the expected Swissgrid pro rata income, the operating profit of CHF 93 million remains stable. This result means that BKW’s Grid business helped to stabilise the Group’s results during the first half of 2020, despite ongoing uncertainty. The company maintained the operational safety of the distribution grid at all times, even during the coronavirus lockdown period.

Services: strong growth once again

The main components of the Services business are BKW Engineering (engineering design and consultancy), BKW Building Solutions (building technology) and BKW Infra Services (services for energy, water and telecommunication networks).

CHF millions

1st half-year 2019

1st half-year 2020

% change

Sales

475.0

677.1

43% 

Operating costs

– 429.5

– 625.0

46% 

Personnel expenses

– 224.6

– 325.4

45% 

Material and third-party services and other operating expenses

– 204.9

– 299.6

46% 

EBITDA

45.5

52.1

15% 

Depreciation, amortisation and impairment

– 21.6

– 28.7

33% 

EBIT

23.9

23.4

– 2% 

There was further significant increase in revenue for the Services business in the first half of 2020. Growth of 43%, or around CHF 200 million, was driven by acquisition activities, in particular in the second half of 2019. New acquisitions ingenhoven architects (BKW Engineering), swisspro Group (BKW Building Solutions) and LTB Leitungsbau GmbH (BKW Infra Services) made a significant contribution to growth, with all three areas of the Services business expanding. BKW made no further acquisitions during the first half of 2020.

The coronavirus pandemic had a cooling effect on organic activity within the Services business. But even with severe disruption to some areas between March and May, the drop in revenue was in the low single-digit percentage range. With its sound, diversified business model, the Services division remained resilient during the coronavirus crisis, reaching a turning point in May and returning to growth in June.

Operating costs increased in line with the strong growth in revenue from acquisitions. BKW has so far deliberately refrained from structural measures in its response to the coronavirus pandemic, focusing instead on structural integrity and positioning itself to take advantage of opportunities that may arise during the recovery phase. The economic impact of the coronavirus is a continued source of uncertainty, but the company is constantly monitoring the situation, ready to intervene in its cost regime if necessary.

The Services business EBIT remained at the previous year’s impressive level. However, the effects of the pandemic on revenue and productivity put pressure on margins. The mid-point of the year brought clear signs of recovery and, notwithstanding the further development of the coronavirus situation, strong results are expected in the second half of the year in line with seasonal expectations.

Strong cash generation: funds from operations at record level

CHF millions

1st half-year 2019

1st half-year 2020

% change

Funds from operations before utilisation of nuclear provisions

268.3

362.1

35% 

Funds from operations

244.2

293.1

20% 

Cash flow from operating activities before utilisation of nuclear provisions

156.3

329.0

110% 

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

– 22.4

– 32.4

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

– 1.7

– 36.6

Cash flow from operating activities

132.2

260.0

97% 

Funds from operations, comprising the cash flow before change in net working capital and income taxes, outstripped the previous year’s already impressive level by CHF 49 million. The figure of CHF 293 million was the highest half-year result since the flotation of the company more than 15 years ago. Before utilisation of provisions for nuclear decommissioning and waste disposal, funds from operations amounted to CHF 362 million (+35%).

The reported cash flow from operating activities includes cash flows from operating activities as well as utilisation of provisions for nuclear decommissioning and waste disposal, subject to claims for refund from the state Decommissioning and Waste Disposal Funds. In the first half of 2020, BKW received CHF 54 million in refunds (previous year: CHF 24 million).

To facilitate comparison and interpretation, BKW therefore uses the indicators “funds from operations before utilisation of nuclear provisions” and “cash flow from operating activities before utilisation of nuclear provisions”. This measure of cash flow, which is relevant for evaluating cash generation, amounted to CHF 329 million, 110% higher than in the previous year. The reported cash flow from operating activities, CHF 260 million, is also significantly higher than in the previous year’s level (+97%).

BKW invested around CHF 90 million in the first half of 2020 (previous year: CHF 141 million). In contrast to previous years, no acquisitions were made during the first six months of 2020. The majority of the investments, achieved without third-party finances, related to the replacement and maintenance of the distribution grid (CHF 56 million). Current liquidity, including current financial assets, rose slightly to around CHF 950 million as at 30 June.

Equity and financing situation ensures financial freedom

CHF millions

31.12.2019

30.06.2020

Current assets

2,038.5

2,008.9

Non-current assets

7,200.0

7,031.7

Current liabilities

1,287.1

1,251.3

Non-current liabilities

4,216.2

4,153.8

Shareholders’ equity

3,735.2

3,635.5

Balance sheet total

9,238.5

9,040.6

The balance sheet total was CHF 9.0 billion, a 2% decline since the end of last year, a result in which the decommissioning of the Mühleberg Nuclear Power Plant proved a major factor. Dismantling work at the site started on 3 January 2020, coinciding with the planned utilisation of the provisions created for this purpose. At the same time, BKW received refunds from the state funds. On the liabilities side, pension liabilities increased after poor market conditions resulted in negative performance of the assets in the pension fund.

The equity ratio of 40.2% remained stable (end of 2019: 40.4%), with dividend payments and actuarial losses from pension liabilities bringing equity in line with the balance sheet total.

BKW’s financial position remains sound. Net debts (financial liabilities less current financial assets, cash and cash equivalents) fell by CHF 44 million to CHF 582 million thanks to excellent operating cash flow during the first half of the year and sound management of the net working capital.

BKW retains access to an unused syndicated loan totalling CHF 250 million. The financial framework necessary for financial and operational flexibility is thus well secured for the foreseeable future.

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