Ronald Trächsel, in 2022 BKW generated a record EBIT of CHF 1.04 billion. As CFO, how do you rate this number?
Ronald Trächsel: We were able to achieve the excellent EBIT of over one billion Swiss francs because our strategy in the energy business was fully implemented last year and we had the financial strength to survive in volatile markets. BKW is a strong company with a solid financial basis and a strategy, which allows us to optimally utilize the arising opportunities.
Is the energy business finally «fun» again?
Prosperous businesses are always fun. The fact is, the Energy business sector more than quintupled its operating profit in 2022 and achieved an EBIT of almost CHF 900 million. We are not only able to compensate for the EBIT decline in services and grids, but we are also able to overcompensate it, thanks to this profit in the Energy business. This demonstrates the effectiveness of BKW’s three-pillar strategy of Energy, Services, and Grid. We've always been able to count on one of these three pillars. In 2022 it was Energy. In previous years, it was the services and grids that allowed BKW to maintain or increase earnings despite falling electricity prices.
Did BKW benefit from the high prices when it sold its electricity generation?
It will only benefit directly from price increases in the coming years. We typically hedge our production three years in advance, so the direct impact will not be noticeable until 2025 or 2026. However, the higher prices and, in particular, the high volatility helped trading. On the other hand, the high prices also bring negative effects with it. If one of our power plants fails or we don’t have enough water for production, we have to repurchase the energy, which we already sold at high prices on the market.
Is the 534% increase in EBIT in the Energy business segment (from CHF 140 million to CHF 886 million) attributed almost entirely to trade management?
That’s the case. Three factors explain this result— a highly successful and active management of the open spread positions, the strong distortions and the higher prices, which we received for the system services. The latter are required to ensure grid stability.
How does the management of open spread positions work?
We hedge our electricity generation three years in advance. Since the Swiss market is too small, we are not able sell them in Switzerland. Consequently, we must enter the German or French markets. These markets can provide reasonable futures prices for three years. This inevitably leads to so-called spreads, because prices in Germany and France will not rise in lockstep with those in Switzerland until the delivery date in three years. Retailers actively manage these differences (spreads) ensuring the bottom line is profitable. This was a huge success in 2022.
«Due to the price increases, we, like all of our competitors, had to pay large security deposits. We were able to secure these payments from our own resources at all times due to our strong financial position and agile liquidity management.»
Why were our traders so successful?
Due to the price increases, we, like all of our competitors, had to pay large security deposits. We were able to secure these payments from our own resources at all times due to our strong financial position and agile liquidity management. Consequently, our trading was not forced to close trades at suboptimal times due to liquidity constraints, but was able to hold positions for as long as the fundamental strategy indicated. The financial flexibility, combined with the successful fundamental strategy, enabled profits to be taken during the third-quarter price dislocations and subsequent normalization.
In contrast to trade, the grids achieved 6% lower sales and a 28% EBIT decrease from CHF 202 million to CHF 146 million. Why?
The warm weather resulted in a lower throughput volume. Furthermore, as announced in 2021, BKW reduced its own tariffs while Swissgrid charged higher tariffs.
Although sales in Services increased, EBIT declined. What are the reasons?n?
EBIT in services fell from CHF 92 million in the previous year to CHF 53 million. Difficulties in the supply chain, higher material prices, a shortage of skilled workers, and high Covid absences hampered services in the first half of the year. On top of that, various revaluations were carried out, resulting in a loss of approximately CHF 40 million. The sales trend, on the other hand, has remained positive with a 16% increase, and the order backlog is also excellent, providing a solid foundation for 2023.
What’s next?
«Fitness programs» were launched in all service businesses to address structural and procedural deficiencies. Aside from that, we will maintain our successful growth strategy, which we announced at Capital Markets Day in 2021. The foundation for this has been strengthened further by the excellent result in 2022.
Comments
BKW is open to respectful online dialogue (our netiquette) and welcomes your comments and questions. For questions that do not fit the topic above, please use the contact form.