Axpo Group profits are down substantially for the third consecutive year.
Axpo reported a consolidated net profit of CHF 409 million (-28%) for the 2009/10 financial year (as per 30 September), even though customers used 4.3% more electricity, especially customers of the cantonal electricity utilities in Northeastern Switzerland. The unsatisfactory performance was due, inter alia, to project exit costs, regulatory decisions in Switzerland and a decline in margins in the international wholesale business. The weak euro also impacted on profitability.

Axpo customers used significantly more electricity in the 2009/10 financial year due to the improved economic environment and weather that was generally dry and cold. This shows once again that electricity consumption is significantly linked to the performance of the economy, despite efforts to improve energy efficiency and measures to save electricity. Given the projected electricity supply gap, this makes investments in new power plants and grids even more urgent to ensure security of electricity supply in Switzerland. Axpo is therefore committed to its proven electricity mix of hydropower, nuclear energy and new renewable energies.

Energy sales in the supply area rose by 4.3% to 20 850 million kilowatt hours (kWh). A high degree of operational utilization at the nuclear power plants resulted in production at a stable level (21 384 million kWh). Hydropower production was 7 990 million kWh, slightly below the multi-year average because of less rainfall and the resulting lower water levels of the rivers. Electricity generated from new renewable energies dropped by 22.4% to 184 million kWh due to a decline in production of 66 million kWh at the Domat/Ems wood-fired power plant. Financial difficulties and the bankruptcy of a major customer meant that the wood-fired power plant had to curb electricity production due to the drop in heating demand.

Free cash flow falls by 83% - dividend to be reduced

Despite a continuously difficult market environment, Axpo Group posted a consolidated net profit of CHF 409 million (previous year CHF 568 million). This reflects a contraction in Axpo's profit of CHF 159 million or 28%. The reasons for this decline include regulatory decisions, a decline in gross profits in international energy trading, the weak euro, exit costs for the withdrawal from a power plant project in Italy and the impact of the breakdown of the French nuclear power plant at Bugey. In addition, costs rose sharply due to the large number of construction projects, while the much needed increase in electricity prices was deferred by a year in consideration of the economic situation. For the first time in 16 years, Axpo increased the price of electricity in Northeastern Switzerland by 1.2 cents per kWh on 1 January 2011. The increase does not cover the massive rise in costs over the past few years. The end customer in Northeastern Switzerland is now paying around 7% more for electricity, but the price is still low compared to other Swiss and foreign suppliers.

Total revenue at Axpo Group was CHF 6 269 million, substantially lower (-17%) than in the previous year. The decline in profitability was also reflected in free cash flow of CHF 65 million, a significant decline of 83% compared to the previous year. The Board of Directors will propose to the General Meeting a dividend of CHF 2.20 (previous year CHF 3.75) per share, which equals CHF 81 million (previous year: CHF 139 million).

The Group added 294 jobs, including 251 in Switzerland, due to the expansion of business activities and the range of projects in Switzerland. As part of its social responsibility as an employer, Axpo is also committed to vocational training for young people. In the 2009/10 financial year Axpo employed 349 apprentices.

Billions for hydropower, green light for nuclear power plant locations

The bulk of investments made in production capacity and grid infrastructure during the reporting year were directed to renewable energies – most notably hydropower. The CHF 2.1 billion expansion of Kraftwerke Linth-Limmern AG is proceeding according to plan. The construction cableways, a central component of the logistics chain providing access to the construction site located at an altitude of 2 500 m, were completed in summer 2010. During a complete overhaul programme two new generators were commissioned at Kraftwerk Eglisau in Glattfelden in the canton of Zurich. The Eglisau plant is a protected building listed with the heritage commission. Four more generators are currently being overhauled. In October 2010, Kraftwerk Sedrun in the canton of Graubünden recommenced operations with a completely refurbished underground generator gallery. A new concession and building application for Kraftwerk Rüchlig in the canton of Aargau was submitted to the cantonal authorities on 5 July 2010. Once the concession and building permit are approved, construction of the plant will commence in autumn 2011.

On 23 December 2010, Axpo, Alpiq and BKW decided to merge their current nuclear power plant projects in a joint planning company. Decisions regarding the locations and sequence will be taken at a later date. On 10 January 2011, the Federal Nuclear Safety Commission (KNS) confirmed the assessment by the Swiss Federal Nuclear Safety Inspectorate (ENSI) of 30 September 2010, in which ENSI validated Beznau (Aargau), Mühleberg (Berne) and Niederamt (Solothurn) as suitable construction and operation locations.

Axpo continues to expand renewables despite resistance

Axpo is the largest producer of electricity from new renewable energies in Switzerland. However, opposition from local communities to the expansion of renewable energies and infrastructure projects is increasing. For example, a significant majority of the population of Bischofszell in the canton of Thurgau rejected a zoning amendment required for the construction of a wood-fired power plant in this area. The planned wood-fired power plant in Würenlingen in the canton of Aargau was suspended due to opposition from the community. Individual investments for new renewable energies projects are therefore being reviewed, but Axpo remains committed to contributing 40% (approximately 2.2 TWh) of the Federal government's target to boost the new renewable energies share of electricity production to 5.4 TWh by 2030. To achieve this, Axpo will invest CHF 3 billion to expand new renewable energies in the period to 2030.

In Wauwil (Lucerne) Axpo is building Switzerland's first Kompogas fermentation plant with reduced CO2 emissions, thereby contributing to climate protection. A further 14 Kompogas projects are planned in Switzerland, Germany and the Netherlands. In addition, Axpo has pushed ahead with sustainable low-CO2 energy provision via geothermal extraction. Axpo's involvement in a geothermal extraction project in Taufkirchen in Germany allows the company to assemble the skills for developing its own geothermal power plants in Switzerland.

Axpo invests in wind farms abroad

Axpo was confronted by various challenges abroad: the costs of withdrawing from the Energy Plus power plant project, the outage of the French nuclear power plant Bugey, lower demand for natural gas and the currency-related reduction in revenue from energy trading impacted on the results of the Axpo subsidiary EGL AG. In response, the company initiated a stronger focus on implementing strategy while costs were reduced significantly and planned investments were placed under review. EGL took a 24.1% stake in a project to build a 400 MW offshore wind farm in the German North Sea and a 46% stake in an existing wind farm in the north of Spain. The SE Ferrara gas-fired combined cycle power plant (Axpo has a 49% holding) went into commercial operation in October 2010. In the natural gas business, negotiations were finalized with Gazprom for price revisions and improved purchase conditions. The Trans-Adriatic Pipeline (TAP) joint project with Statoil was able to attract an additional partner in the German company E.ON Ruhrgas, which has significant experience in the gas industry.

A challenging business year expected

Axpo expects moderate economic growth in the coming years. Electricity generating capacity in Europe will become tighter, so international wholesale electricity prices are likely to rise again slightly. But Axpo also expects the euro to remain weak. The regulatory environment will remain uncertain. The 2010/2011 financial year will continue to be very challenging for Axpo.

Axpo Group key figures for 2009/10

Additional information:
Axpo Holding AG | Corporate Communications, Media Hotline | 0800 44 11 00

All documents for the financial results media conference including the financial report will be available on the www.axpo.ch website from 7:30 on 26 January 2011. An audio and video clip with statements by the CEO Heinz Karrer will also be available. No information will be provided in advance of the media conference. The complete 2009/10 annual/sustainability report will be available on www.axpo.ch at the start of February.