«Our strategy is robust and successful. It has also worked well in this coronavirus year.»

BKW has again reported strong results in the 2020 financial year. It has increased revenue, EBIT and cash flow. In the interview CFO Ronald Trächsel speaks about the uncertainties of the first coronavirus lockdown. He talks about BKW’s success formula and explains what the high cash flow figure means for the Group.

Ronald Trächsel, for several years BKW has presented excellent figures at the press conference on the financial position – this year is no different. What is the success formula for the BKW Group?

Ronald Trächsel: We have been very good at anticipating the developments in the energy market. We have always been able to adapt our strategy at the right time and also reshape the Energy business. I refer here specifically to the decommissioning of the Mühleberg Nuclear Power Plant, the expansion of renewable energy and to the professionalisation of electricity trading. Another important factor in our success formula is the development of the Services business. This has given us a certain degree of independence from the electricity price and opened the door to a growth market. The third element is the internal logic that underpins our entire value chain, namely the production, distribution and consumption of energy. This strategy is so robust that it has also worked well in this coronavirus year.

In the first year of the pandemic, revenue (+ 9 percent) and operating profit (+ 10 percent) have increased significantly. Would you have expected this result one year ago when the Federal Council enacted the first lockdown?

The impacts of coronavirus and the lockdown could hardly be estimated at that time. We had to be ready for everything, which is why we worked on different scenarios. Towards the end of the second quarter we could breathe a little easier again, because we could see that our robust position was paying off.

Were there periods in 2020 that you as CFO thought were particularly critical?

The uncertainties in the first half and getting the response just right presented the Group Executive Board with a difficult situation. From a financial viewpoint, however, the situation was never critical.

BKW repeatedly receives praise for its cash flow growth. How would you explain cash flow in simple terms to a non-expert?

This indicator represents the money that BKW can use to run its operations. This money is what is available to us to invest further in the company and to ensure the shareholders will participate in the success through dividends.

What is the significance of the high cash flow value for BKW?

Operating cash flow reveals the strength of a company. Therefore, BKW is a strong and robust company. Specifically, it means that BKW can finance itself and its strategy from its own resources. The company has a high degree of financial and operational flexibility and is therefore able to take advantage of existing and new opportunities quickly and successfully.

The Energy business still makes the biggest contribution to operating profit, and in the forward market electricity prices have recovered somewhat from the low point in 2019. Is the energy crisis now over?

The past has demonstrated that price forecasts are subject to huge uncertainties. Things could also move in the other direction again. BKW’s robust and diversified strategy continues to be the right response to this. We are expecting a stable development of electricity prices in the next few years. This means we will be able to earn some money again from our depreciated power plants. On the other hand, new investments do not pay off, or only in exceptional cases.

The Services business’s share of the Group’s profit as a whole is continuing to grow. Will this upward trend continue, even if the strong acquisition activity of the last few years declines slightly in the future?

The Services business is a growth market in which BKW is on a successful track. EBIT from this business will therefore continue to increase. In contrast to the past, when we primarily grew through acquisitions, we are now growing from our own resources. And we are doing this from a position of strength. We are now a market leader in all three Services businesses of Engineering, Building Solutions and Infra Services. We will also make further acquisitions if opportunities arise.

The two most recent larger acquisitions of Swisspro and LTB have developed very favourably from a revenue perspective (+ 35 percent) despite the Covid-19 crisis. What do you expect for the future?

I am also expecting a very positive future performance for both companies. The relevant markets are growing and we have the right capabilities to take advantage of opportunities.

Almost half of BKW’s total investments in 2020 were spent on maintaining your own grid. Why is the grid so expensive?

BKW is the largest distribution grid operator in Switzerland, with a grid totalling 22,000 kilometres in length. However, the investments are not being used for expansion but for the maintenance of the existing grid – and that costs money. Furthermore, we are upgrading the grid to meet the new requirements of increasing electromobility, and distributed and volatile electricity production.

BKW is on a stable footing. The balance sheet is rock solid with an equity ratio of 42 percent. The coffers are full as the Group has short term liquidity of one billion Swiss francs. What is the outlook for the coming year?

For the 2021 financial year we are expecting a similarly good result to 2020. And that is excluding the one-off effect of 40 million Swiss francs from the Swissgrid payment. The slightly higher electricity prices will help us and we are well positioned in the Services business. However, we must be prepared for some headwinds, as we can hardly expect trading to report another record year following on from 2019 and 2020. In addition, the extended overhaul in the Leibstadt Nuclear Power Plant will cause a negative EBIT effect of about 20 million francs in the books. Nevertheless, we are robust and in the right position and we trust in our strengths. We shall also prevail in 2021.

Interview: Tobias Habegger, Senior Communication Manager, BKW AG