The EGL Group increased its gross margin to CHF 437.0 million (+27%) in the first half of 2008/09 despite tough market conditions. Net profit fell marginally to CHF 123.1 million (-2%). The company made significant progress in all three strategic business areas.
In the first half of the 2008/09 financial year, the market environment in which EGL operates was characterised by falling demand, plummeting prices and high volatility on the energy markets. All of EGL’s divisions contributed to the 27% year-on-year increase in the Group’s gross margin to CHF 437.0 million, which included profit from energy derivatives trading amounting to CHF 163.2 million (-9%).
Significant strategic progress
EGL made significant progress in all three strategic business areas in the reporting period. In energy trading, it achieved excellent results in various trading regions. It also established the foundations on which to further expand its geographical reach as an energy trader. EGL also made further progress on its asset projects. Commissioning work on the SE Ferrara gas-fired combined-cycle power plant has been completed, and the plant is expected to be fully operational in early 2010. EGL will be able to start building a wind farm in the Italian province of Campania this year. With the acquisition of 51.6% of HS Kraft AB in February 2009, EGL also secured access to a series of wind power projects in southern Sweden. In the natural gas business, EGL intensified its procurement and sales activities and strengthened its local presence and trading activities in South East Europe. Substantial progress was made on the Trans Adriatic Pipeline project, both on a technical and on a political level.
The growth of the EGL Group is reflected in the fact that the company has created around 70 new full-time positions, thus increasing the headcount to 729 full-time equivalents as at the end of March 2009. Personnel expenses rose to CHF 68.1 million (+18%) as a result, while other operating expenses increased to CHF 130.8 million. This includes, in particular, expenses for IT and consultancy services as well as planned maintenance and repair work on the Calenia Energia and Rizziconi Energia gas-fired combined-cycle power plants.
Net profit marginally down
Depreciation and amortisation in the first half of 2008/09 amounted to CHF 48.6 million (+127%) and mainly concerned depreciation relating to the Calenia Energia and Rizziconi Energia gas-fired combined-cycle power plants as well as grid installations and fixtures and fittings. The Group's EBT fell by 11% to CHF 146.3 million, while the financial result was down CHF 4.7 million on the previous year to CHF -43.2 million. The earnings situation resulted in a consolidated income tax expense of CHF 23.2 million. Consequently, net profit after tax for the first half of 2008/09 is CHF 123.1 million (-2%).
Negative cash flow from operating activities
Due to the crisis in the international financial markets, there was a noticeable trend towards increased hedging of credit risks in energy trading. In this context, EGL excluded individual counterparties from its trading activities and focused on trading partners with whom it has standardised contracts with credit support annexes (CSA). It also moved more of its trading to exchanges.
The credit risks inherent in CSA transactions (payment risk and replacement risk) are reduced by means of daily (bilateral) cash payments. As a result of the fall in energy prices in the reporting period, the EGL Group had to hedge its trading positions with CSA trading partners and standardised exchange-traded transactions with high cash payments. Current trading positions also showed an unrealised profit as at the reporting data, which was also reflected in the cash flow statement. Net current assets were also higher due to the increase in other receivables.
These effects resulted in cash flow from operating activities of CHF -250.1 million for the first six months of the current financial year, which was CHF 297.1 million less than the previous-year period (CHF 47.0 million).
Cash outflow from investing activities amounted to CHF -70.0 million in the reporting period (previous-year period: CHF -110.5 million), while cash inflow from financing activities increased to CHF 169.9 million (previous-year period: CHF 6.2 million). Free cash flow amounts to CHF -330.9 million (previous-year period: CHF -57.9 million). As at 31 March 2009, cash and cash equivalents amount to CHF 615.8 million, which imply a reduction of CHF 170.7 million since the start of the financial year.
Stable equity ratio
Since 30 September 2008, the equity ratio including minority interests has dipped slightly to CHF 2,081.0 million (-1.4%). This is due in particular to the negative currency effects of CHF 57.1 million recognised in equity, as well as the reduction of CHF 55.9 million in reserves from hedge accounting. At 30.0%, the EGL equity ratio is still at a solid level.
Outlook
EGL will continue to expand its business activities in the current financial year. The focus will be on intensifying its presence and trading activities in various European regions, further developing its asset projects and expanding its natural gas business.
Due to the effects of the financial crisis on the real economy and the energy markets, energy trading will remain challenging in the second half of the year. Based on its current assessment of the future development of the energy markets, EGL expects that it will not be possible to repeat the outstanding results of the last financial year despite a good half-year result.