Marked growth in revenue â lower profit
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2007 Financial Year
Marked growth in revenue – lower profit
Address by Christian Sahli, Head of Finance and Controlling, to the Annual Media Conference on 13 March 2008
Growth in revenue – profit lower I'd like to begin with a review of the 2007 financial year. In 2007 the BKW Group recorded an 18.6 percent increase in consolidated operating revenue from CHF 2,373.1 million to CHF 2,813.9 million. At CHF 245.2 million, annual profit was around 26.3 percent lower than the 2006 figure, which was impacted by exceptional effects related to the revaluation of th e provision for onerous energy purchase contracts and the first-time valuation of the Onyx Group. Excluding these exceptional effects, profit declined by 13.4 percent compared to the adjusted prior-year result of CHF 283.2 million. Three factors have impacted the 2007 results: 1. Favourable developments in the energy business, where price-related factors drove up revenue from sales in Switzerland as well as international sales, and volume related factors resulted in a sharp rise in revenue from electricity tr ading. 2. Additional expenses related to strategic projects aimed at strengthening our future market position: These expenses concerned o
efforts to further expand our cooperation and sales platforms,
o
the cost of adjusting a wide range of processes and system s as part of BKW's preparations for the liberalised Swiss market, and
o
costs related to the drive to expand production in Switzerland, Italy and Germany.
The extra expense for these activities compared to 2006 is around CHF 20 million.
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3. The third factor impacting the 2007 results is the negative trend on financial markets: Unfavourable developments on financial markets resulted in a sharp drop in the financial result and a reduction in profit also compared to the adjusted prior -year result.
Changes in accounting principles The consolidated financial statements of the BKW Group at 31 December 2007 were prepared in accordance with International Financial Reporting Standards (IFRS), and cover the year-end statements of all companies controlled by BKW.. New or revised standards and interpretations have had no impact on the presentation of the financial position, the results of operations and the cash flows set forth in the statements for the year ended 31 December 2007. However, new disclosure requirements have resulted in a number of additional disclosures, for example on financial instruments and risk management. Since the consolidated financial statements must also comply with the requirements of the Swiss Code of Obligations, disclosures concerning compensation for members of the Board of Directors and Executive Board have also now been integrated in the statements. The following effects must be factored in when comparing the 2007 figures with the prior year results:
In 2007 the Onyx Group and Idroelettrica Lombarda S.r.l were included in the fullyear statements for the first time.
The absence of a provision worth CHF 145.6 million released in 2006 due to revaluation of the provision for onerous energy purchase contracts. This impacts energy purchase expenses.
The one-off effect in 2006 of CHF 92.4 million for the first-time valuation of Onyx Energie Mittelland, which impacts depreciation and impairment expenses.
Growth in all market segments In 2007 the BKW Group posted net sales of CHF 2,733.6 million: CHF 427.4 million or 18.5% higher than in 2006.
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This increase is due to expansion of BKW's position in the home market, price -related growth in revenue from sales in Switzerland and internationally, and higher trading volume. I'd now like to brief you on the performance of our various business areas: Sales Switzerland posted a slight increase of 1.1 percent from 7,674 to 7,760 Gigawatt hours and a slight rise of 2.3 percent in revenue (including separately billed grid revenue) to CHF 956.1 million, primarily due to the full-year inclusion of Onyx customers and targeted price increases, and despite the first-time effect of reductions in grid usage prices negotiated with the Price Inspector and totalling CHF 20 million. While the volume of international sales dipped, revenue from electricity trading was up by 10.5 percent to CHF 526.2 million due to price-related factors. Lower prices were offset by higher volumes, resulting in a 55.6 increase in revenue from electricity trading to CHF 894.5 million. Despite a difficult market environment, the result from energy derivative trading was CHF 1.2 million higher at CHF 18.2 million.
Net profit lower due to financial result Energy procurement expenses rose by 43.2 percent to CHF 1,727.7 million i n 2007. Factors affecting this figure include a volume-related increase of CHF 349.4 million for third-party electricity procurement as well as the absence of the exceptional effects amounting to minus CHF 145.6 million related to the revaluation in 2006 o f the provision for onerous energy purchase contracts. The higher number of employees coupled with higher salary costs resulted in an increase of CHF 37.4 million in personnel expenses to CHF 305.0 million. Other operating expenses were CHF 23.0 million higher at CHF 194.2 million. The extra expense is due on the one hand to the full inclusion of Onyx Energie Mittelland and Idroelettrica Lombarda (acquired in 2006), and on the other hand to higher expenses for strategic projects aimed at strengthening BKW's future market position. Strategic projects primarily cover all activities related to the expansion of BKW's market presence in Switzerland outside the traditional supply region (further expansion of cooperation and sales platforms), adjustments to a wide range of processes and
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systems in preparation for the liberalised market in Switzerland (energy data management), and expansion of production facilities in Switzerland (replacement for Mühleberg nuclear power plant and facilities for new renewable energies), in Italy (construction of gas-fired combined-cycle plants and new renewable energy plants) and Germany (interest in a coal-fired power plant). The extra expense for these activities compared to 2006 is around CHF 20 million. Operating profit before depreciation, amortisation and impairment (EBITDA) fell by 27.8 percent to CHF 436.0 million, while depreciation and impairment dropped sharply year on-year by CHF 74.4 million to CHF 125.6 million. In the previous-year period, CHF 92.4 million was attributable to the initial valuation of Onyx Energie Mittelland. Operating income (EBIT) fell by 23.2 percent to CHF 310.4 million. The financial result for 2007 was negatively impacted by unfavourable movements on financial markets, dropping by CHF 35.6 million to minus CHF 13.1 million by year-end. The main factors influencing this negative result were exchange rate losses on shares and securities measured at fair value and for the decommissioning/disposal funds. Income tax expense was CHF 41.9 million lower at CHF 52.1 million. This figure includes a one-off reduction of CHF 11 million due to the reversal of a tax accrual at BKW and a reduction in deferred tax liabilities in Italy. The BKW Group recorded a net profit of CHF 245.2 million, 26.3 percent lower than the previous-year figure. Adjusted for exceptional effects from the previous-year period related to the revaluation of the provision for onerous energy purchase contracts (with elimination of the effects arising from the use of and interest on this provision), the operating profit before depreciation, amortisation and impairment (EBITDA) of CHF 436.0 million is in the order of magnitude of the previous-year's adjusted figure of CHF 441.3 million. Adjusted for additional exceptional effects in 2006 arising from the initial valuation of Onyx Energie Mittelland, net profit of CHF 245.2 million is 13.4 percent lower than the previous-year figure of CHF 283.2 million, mainly due to the lower financial result.
Increase in balance sheet total and equity In 2007 the balance sheet total grew again slightly by another 4.1 percent year -on-year to CHF 5,830.0 million.
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Contributing factors on the assets side were the increase in non-current and current assets. On the liabilities side, shareholders' equity rose by 2.8 percent to CHF 3,049.1 million compared to the end of 2006, while equity ratio was down slightly from 53 percent to 52.3 percent. Provisions for nuclear waste disposal were made according to plan in the period under review. In the previous-year period a reversal of CHF 145.6 million was made in respect of provisions for energy purchase and sales contracts, following reassessment. The other provisions remained largely unchanged.
Higher cash flow from operating activities At CHF 362.1 million, cash flow from operating activities was approximately CHF 94.3 million above the prior-year figure. This increase is largely due to a slight drop in net current assets. Cash flow from investing activities amounted to CHF 1.7 million compared to minus CHF 21.8 million in the prior-year period, which was impacted by investments in Idroelettrica Lombarda S.r.l. and the Onyx Group. Cash flow from financing activities fell by CHF 117.3 million to minus CHF 126.8 million, primarily due to the purchase of one million BKW shares from the Cantonal Bank of Berne for CHF 127 million, and the issuance of loan worth CHF 200 million. The higher figure for interest and dividends paid is a result of an increase in the dividend from CHF 2.50 to CHF 2.70 per share.
In the year under review BKW issued a 3 percent bond for CHF 200 million with a term of 15 years, thereby benefiting from favourable capital market conditions.
Statutory financial statements of BKW FMB Energy Ltd The income statement of BKW FMB Energy Ltd for 2007 shows a profit of CHF 198.0 million, representing a year-on-year reduction of CHF 76.7 million.
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The balance sheet total increased from CHF 4,250.3 million to CHF 4,398.7 million. On the liabilities side, shareholders' equity was 5.6 percent higher at CHF 58.6 million, while provisions fell by CHF 32.3 million or 1.4 percent.
Stable dividend policy In summary, the BKW Group has recorded strong performance in 2007, resulting in a net profit of CHF 245.2 million. As in 2006, a dividend of CHF 2.70 per s hare will be proposed at the General Shareholders' Meeting on 9 May 2008.
Investor Information In conclusion, I would like to say a few words about the BKW share in 2007 and its performance compared to the SPI. The SPI remained virtually stable, dropping by only 0.05 percent compared to the previous year. Likewise the price of the BKW share changed only marginally, ending the year 0.49 percent higher.
2007 Financial Year
Marked growth in revenue – lower profit
Address by Christian Sahli, Head of Finance and Controlling, to the Annual Media Conference on 13 March 2008
Growth in revenue – profit lower I'd like to begin with a review of the 2007 financial year. In 2007 the BKW Group recorded an 18.6 percent increase in consolidated operating revenue from CHF 2,373.1 million to CHF 2,813.9 million. At CHF 245.2 million, annual profit was around 26.3 percent lower than the 2006 figure, which was impacted by exceptional effects related to the revaluation of th e provision for onerous energy purchase contracts and the first-time valuation of the Onyx Group. Excluding these exceptional effects, profit declined by 13.4 percent compared to the adjusted prior-year result of CHF 283.2 million. Three factors have impacted the 2007 results: 1. Favourable developments in the energy business, where price-related factors drove up revenue from sales in Switzerland as well as international sales, and volume related factors resulted in a sharp rise in revenue from electricity tr ading. 2. Additional expenses related to strategic projects aimed at strengthening our future market position: These expenses concerned o
efforts to further expand our cooperation and sales platforms,
o
the cost of adjusting a wide range of processes and system s as part of BKW's preparations for the liberalised Swiss market, and
o
costs related to the drive to expand production in Switzerland, Italy and Germany.
The extra expense for these activities compared to 2006 is around CHF 20 million.
2
3. The third factor impacting the 2007 results is the negative trend on financial markets: Unfavourable developments on financial markets resulted in a sharp drop in the financial result and a reduction in profit also compared to the adjusted prior -year result.
Changes in accounting principles The consolidated financial statements of the BKW Group at 31 December 2007 were prepared in accordance with International Financial Reporting Standards (IFRS), and cover the year-end statements of all companies controlled by BKW.. New or revised standards and interpretations have had no impact on the presentation of the financial position, the results of operations and the cash flows set forth in the statements for the year ended 31 December 2007. However, new disclosure requirements have resulted in a number of additional disclosures, for example on financial instruments and risk management. Since the consolidated financial statements must also comply with the requirements of the Swiss Code of Obligations, disclosures concerning compensation for members of the Board of Directors and Executive Board have also now been integrated in the statements. The following effects must be factored in when comparing the 2007 figures with the prior year results:
In 2007 the Onyx Group and Idroelettrica Lombarda S.r.l were included in the fullyear statements for the first time.
The absence of a provision worth CHF 145.6 million released in 2006 due to revaluation of the provision for onerous energy purchase contracts. This impacts energy purchase expenses.
The one-off effect in 2006 of CHF 92.4 million for the first-time valuation of Onyx Energie Mittelland, which impacts depreciation and impairment expenses.
Growth in all market segments In 2007 the BKW Group posted net sales of CHF 2,733.6 million: CHF 427.4 million or 18.5% higher than in 2006.
3
This increase is due to expansion of BKW's position in the home market, price -related growth in revenue from sales in Switzerland and internationally, and higher trading volume. I'd now like to brief you on the performance of our various business areas: Sales Switzerland posted a slight increase of 1.1 percent from 7,674 to 7,760 Gigawatt hours and a slight rise of 2.3 percent in revenue (including separately billed grid revenue) to CHF 956.1 million, primarily due to the full-year inclusion of Onyx customers and targeted price increases, and despite the first-time effect of reductions in grid usage prices negotiated with the Price Inspector and totalling CHF 20 million. While the volume of international sales dipped, revenue from electricity trading was up by 10.5 percent to CHF 526.2 million due to price-related factors. Lower prices were offset by higher volumes, resulting in a 55.6 increase in revenue from electricity trading to CHF 894.5 million. Despite a difficult market environment, the result from energy derivative trading was CHF 1.2 million higher at CHF 18.2 million.
Net profit lower due to financial result Energy procurement expenses rose by 43.2 percent to CHF 1,727.7 million i n 2007. Factors affecting this figure include a volume-related increase of CHF 349.4 million for third-party electricity procurement as well as the absence of the exceptional effects amounting to minus CHF 145.6 million related to the revaluation in 2006 o f the provision for onerous energy purchase contracts. The higher number of employees coupled with higher salary costs resulted in an increase of CHF 37.4 million in personnel expenses to CHF 305.0 million. Other operating expenses were CHF 23.0 million higher at CHF 194.2 million. The extra expense is due on the one hand to the full inclusion of Onyx Energie Mittelland and Idroelettrica Lombarda (acquired in 2006), and on the other hand to higher expenses for strategic projects aimed at strengthening BKW's future market position. Strategic projects primarily cover all activities related to the expansion of BKW's market presence in Switzerland outside the traditional supply region (further expansion of cooperation and sales platforms), adjustments to a wide range of processes and
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systems in preparation for the liberalised market in Switzerland (energy data management), and expansion of production facilities in Switzerland (replacement for Mühleberg nuclear power plant and facilities for new renewable energies), in Italy (construction of gas-fired combined-cycle plants and new renewable energy plants) and Germany (interest in a coal-fired power plant). The extra expense for these activities compared to 2006 is around CHF 20 million. Operating profit before depreciation, amortisation and impairment (EBITDA) fell by 27.8 percent to CHF 436.0 million, while depreciation and impairment dropped sharply year on-year by CHF 74.4 million to CHF 125.6 million. In the previous-year period, CHF 92.4 million was attributable to the initial valuation of Onyx Energie Mittelland. Operating income (EBIT) fell by 23.2 percent to CHF 310.4 million. The financial result for 2007 was negatively impacted by unfavourable movements on financial markets, dropping by CHF 35.6 million to minus CHF 13.1 million by year-end. The main factors influencing this negative result were exchange rate losses on shares and securities measured at fair value and for the decommissioning/disposal funds. Income tax expense was CHF 41.9 million lower at CHF 52.1 million. This figure includes a one-off reduction of CHF 11 million due to the reversal of a tax accrual at BKW and a reduction in deferred tax liabilities in Italy. The BKW Group recorded a net profit of CHF 245.2 million, 26.3 percent lower than the previous-year figure. Adjusted for exceptional effects from the previous-year period related to the revaluation of the provision for onerous energy purchase contracts (with elimination of the effects arising from the use of and interest on this provision), the operating profit before depreciation, amortisation and impairment (EBITDA) of CHF 436.0 million is in the order of magnitude of the previous-year's adjusted figure of CHF 441.3 million. Adjusted for additional exceptional effects in 2006 arising from the initial valuation of Onyx Energie Mittelland, net profit of CHF 245.2 million is 13.4 percent lower than the previous-year figure of CHF 283.2 million, mainly due to the lower financial result.
Increase in balance sheet total and equity In 2007 the balance sheet total grew again slightly by another 4.1 percent year -on-year to CHF 5,830.0 million.
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Contributing factors on the assets side were the increase in non-current and current assets. On the liabilities side, shareholders' equity rose by 2.8 percent to CHF 3,049.1 million compared to the end of 2006, while equity ratio was down slightly from 53 percent to 52.3 percent. Provisions for nuclear waste disposal were made according to plan in the period under review. In the previous-year period a reversal of CHF 145.6 million was made in respect of provisions for energy purchase and sales contracts, following reassessment. The other provisions remained largely unchanged.
Higher cash flow from operating activities At CHF 362.1 million, cash flow from operating activities was approximately CHF 94.3 million above the prior-year figure. This increase is largely due to a slight drop in net current assets. Cash flow from investing activities amounted to CHF 1.7 million compared to minus CHF 21.8 million in the prior-year period, which was impacted by investments in Idroelettrica Lombarda S.r.l. and the Onyx Group. Cash flow from financing activities fell by CHF 117.3 million to minus CHF 126.8 million, primarily due to the purchase of one million BKW shares from the Cantonal Bank of Berne for CHF 127 million, and the issuance of loan worth CHF 200 million. The higher figure for interest and dividends paid is a result of an increase in the dividend from CHF 2.50 to CHF 2.70 per share.
In the year under review BKW issued a 3 percent bond for CHF 200 million with a term of 15 years, thereby benefiting from favourable capital market conditions.
Statutory financial statements of BKW FMB Energy Ltd The income statement of BKW FMB Energy Ltd for 2007 shows a profit of CHF 198.0 million, representing a year-on-year reduction of CHF 76.7 million.
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The balance sheet total increased from CHF 4,250.3 million to CHF 4,398.7 million. On the liabilities side, shareholders' equity was 5.6 percent higher at CHF 58.6 million, while provisions fell by CHF 32.3 million or 1.4 percent.
Stable dividend policy In summary, the BKW Group has recorded strong performance in 2007, resulting in a net profit of CHF 245.2 million. As in 2006, a dividend of CHF 2.70 per s hare will be proposed at the General Shareholders' Meeting on 9 May 2008.
Investor Information In conclusion, I would like to say a few words about the BKW share in 2007 and its performance compared to the SPI. The SPI remained virtually stable, dropping by only 0.05 percent compared to the previous year. Likewise the price of the BKW share changed only marginally, ending the year 0.49 percent higher.
