Good results in unprecedented times

Axpo recently published its figures for the half-year from October 2021 to March 2022. Operating income was high, but so were cash outflows. Our CEO Christoph Brand answers the key questions that help to make sense of the numbers.

Christoph, if you had to describe the first half of the current financial year in a single word, what would that word be?

I think it would have to be “unprecedented”. During the period from October 2021 to March 2022, we saw turmoil on the energy markets late last year and of course the outbreak of this terrible war at the end of February. These caused prices for gas, coal and electricity to fluctuate wildly, at times reaching levels up to six times higher than they had been at 12 months previously.

How has Axpo performed in this period?

We were able to present solid results, which I find especially pleasing in such troubled times. We posted adjusted EBIT of CHF 1,094 million (up from CHF 515 million) and a result for the period of CHF 513 million (down from CHF 781 million). This was thanks to the diversification of our business as well as the outstanding skills and hard work of our staff, of whom I’m very proud.

What in particular stands out among the positive results?

The Trading & Sales segment once again played a key role in our success. Thanks to forward-looking risk management, our energy trading unit delivered excellent results in marketing power plant capacity and business with international customers. On top of this, we were able to absorb the massive increase in collateral payments for hedging Swiss electricity production through active liquidity management.

This hedging and the collateral needed for it have sparked a lot of debate in Switzerland. Can you explain it in brief?

Axpo lost its monopoly when the electricity market was partially deregulated and now sells its production from Swiss plants – around 25 terawatts a year – via wholesale channels. However, rather than just banking on rising prices to boost our profits, we hedge prices up to three years in advance. This is done to guard against falling prices as seen in 2015/16 and to smooth out fluctuations for the benefit of our customers, namely SMEs and industrial firms as well as Swiss energy suppliers and their customers.

The hedging has also had an impact on the first-half results, hasn’t it?

Yes, it caused a sharp increase in the collateral required under stock market law, which pushed our net debt up to CHF 2,221 million and led to a cash outflow of CHF 1,748 million in the first half-year. Active liquidity management and good access to the capital market allowed Axpo to absorb this additional expense. When prices fall or at the latest once the electricity has been delivered, all of the money tied up will flow back to the company.

Is it true that this increase in collateral payments is the reason why the Federal Council is planning a mechanism to protect electricity firms in Switzerland from a Europe-wide chain reaction?

That’s right. If the unprecedented situation continues to deteriorate, it could set off a systemic domino effect across European energy markets, and Swiss players wouldn’t escape unscathed. That’s why Axpo supports the Federal Council’s goal of establishing a mechanism to protect against these systemic risks. However, Axpo would only want to call on this bailout option on a voluntary, subsidiary basis and as a last resort, for example if its business partners start collapsing all over Europe. 

Looking ahead, how is Axpo’s outlook for the short to medium term shaping up?

In view of the war in Ukraine and high volatility in energy prices, the short-term outlook is of course fraught with uncertainty at the moment. Over the medium term, meanwhile, higher hedged prices for electricity production sold forward will have a positive impact on Axpo’s results, and – as I just explained – the money tied up as collateral will flow back to the company.

What about the long-term outlook?

Axpo’s strategy is proving its worth, and the company has shown itself to be robust in a highly challenging environment. That’s why I’m optimistic for the future – not only for our operations, but also for our contribution to the energy transition. Axpo will continue to play a vital role here as it expands its capacity in renewables and leads the way in marketing production capacity and energy trading.

The key figures and the Interim Report can be found here.