POWEO : 2011 Full-Year Results

PRESS RELEASE           Paris, 23 March 2012

2011 FULL-YEAR RESULTS

Annual results at breakeven excluding electricity generation facilities sold in February 2011 but still consolidated

Group Cash in significant improvement for POWEO SA

 Revenue generated by POWEO's new "controlled operating perimeter" - i.e. excluding the electricity generation facilities with effect from 1st March 2011 - reached €405.0 million, and net profit-Group share, was €6.3 million thanks to the largely positive contribution of Energy Management  

Supply business reported a slightly negative net result (€-3.8 million) for the second semester thanks to the positive impact of the NOME law on POWEO electricity sourcing conditions  

The electricity generation facilities, sold in February of 2011, are still fully consolidated due to the IFRS treatment of the 60% call option held by POWEO SA  

With consolidated revenue totalling €503.4 million, down 27.7%, the Group ended the year with a net loss of €63.4 million, due mainly to losses at the generation business and various write-downs  

Group cash stood at €78 million at end-February 

The state of discussions between POWEO and Direct Energie main shareholders about the merger of the two entities has been treated in a press release published on 21 March   

POWEO, an independent operator in electricity and gas, underwent far-reaching changes in 2011 in terms of its structure and businesses, with:

• The sale in February 2011 of its electricity generation facilities to VERBUND, Austria's national operator and the reference shareholder of POWEO since 2006; 

• The effective implementation of the NOME law on 1 July 2011, a development which gave the Group access to better power sourcing terms; and 

• The sale by VERBUND to Direct Energie of its 46% stake in POWEO in September 2011, followed by the initiation of discussions between the main shareholders about merging the operations of POWEO and Direct Energie. 

These structural modifications have led the Group, beginning with the H1 2011 earnings release, to present in addition to its consolidated financial statements, financial statements for the new "controlled operating perimeter" in order to make the latter easier to understand.

Therefore, the key financial data for the new "Controlled operating perimeter" are presented below for the 2011 fiscal year along with the highlights of the consolidated financial statements:

1. Excluding the contribution from the electricity generation facilities with effect from 1 March 2011 

2. Earnings before interest, tax, depreciation and amortisation  

3. Earnings before interest and tax  

Note: The consolidated financial statements have been audited. The certification report will be issued after verification of the management report and completion of the due diligence required for the publication of the annual financial report.

Implementation of NOME law and slower decline in number of customer sites

The NOME law (Nouvelle Organisation du Marché de l'Electricité), the primary objective of which was to increase competition in the French market, gave alternative electricity suppliers regulated access to the incumbent operator's nuclear power generation (ARENH) with effect from 1 July 2011. Under ARENH, prices were set at €40 per MWh for six months and then at €42 per MWh starting on 1 January 2012.

These new sourcing terms enable a significant improvement in POWEO's gross margin, but do not cover its operating costs in entirety. POWEO nonetheless has power sourcing solutions that were in place before the NOME law passed, and in 2011 these allowed it to lower the effective overall cost of sourcing.

In the first half of 2011, POWEO reorganised its commercial activity to benefit from new market conditions in the second half of the year. Against this backdrop, the number of customer sites declined by 9.3% in the first half, reflecting the application of prudent acquisition rules and marketing activities focused on the recruitment of high-quality customers.

This downward trend in customer numbers decelerated sharply in the second half (5% decline), as the anticipated benefits of the ARENH scheme effectively fed through and POWEO's efforts to build customer loyalty bore fruit. The churn rate for residential customers was reduced by 20% in 2011 vs 2010, option subscription rate went from 36% to 42%. Significant efforts were also made to improve the handling of unpaid bills, resulting in a 26% drop in payment rejection rates for residential customers.

Over the full year, the number of active customer sites continued to contract at a controlled pace to end 2011 at about 332,000, compared with 350,000 at end-June 2011 and 385,800 at end-December 2010, broken down as follows:

POWEO's focus on putting the customer first earned it the QualiWeb 2012 award for best online customer service in the "Consumer Services" category. As regards professional customers, POWEO continues to work proactively to deliver the energy supply solutions that are best adapted to their needs, focusing on profiled customers while also looking for potential opportunities in the remote metering customers segment.

Energy generation and supply down sharply due to the profound transformation undergone by the Group

Generally speaking, POWEO's revenue trends over 2011 as a whole were the same as in the first half of the year. Annual revenue came in at €503.4 million, down 27.7% on 2010. This includes the decline in generation revenue, which fell from €185.0 million to €124.3 million due to unfavourable conditions for the CCGT plant at Pont-sur-Sambre (insufficient 'clean spark spreads', and to the market price cap clause applied to MWh sold to 'off-takers', in totality to VERBUND since 1 March 2011).

As was the case in the first half of 2011, electricity sales contracted sharply (-34.6%) over the full year, reflecting the passive commercial strategy adopted in response to sourcing conditions that left room for only very low gross margins. This decline was also attributable to the deliberate reduction in sales to grids, which require substantial working capital.

1. Residential or professional customer sites for which consumption is estimated by reference to standard consumption profiles and corrected periodically by a visual reading of the meter  

2. Professional or industrial customer sites for which consumption is significant and therefore determined on a real-time basis using remote metering  

Trends in gas sales were similar (-34.3%), although the downtrend was less pronounced than in the first half, when sales contracted by 42%:

1. Residential or professional customer sites for which consumption is estimated by reference to standard consumption profiles and corrected periodically by a visual reading of the meter  

2. Professional or industrial customer sites for which consumption is significant and therefore determined on a real-time basis using remote metering  

Conversely, the Energy Management business recorded a gross margin of €28.6 million in 2011, for a 127.4% increase on 2010. Forward electricity prices ended the year lower than at the end of 2010, in spite of the sharp increase seen in the wake of the Fukushima nuclear catastrophe in Japan. Results at the Energy Management business were nevertheless boosted by the significant increase in the value of a financial asset deemed non-strategic, which was sold early in 2012, but based on the fair value as of 31 December 2011.

Indeed, after the sale of the generation facilities, several energy sourcing contracts were reclassified as financial derivative instruments and are therefore now marked to market. These contracts include the nuclear power portion of the capacity exchange agreement with the incumbent operator, which was deemed a non-strategic financial asset following the implementation of the ARENH scheme, a regulated mechanism serving as a long-term supply source. As announced in December 2011, this asset was sold early in 2012 in order to bolster the Group's financial structure.
Taking these developments into account, POWEO's exposure to market prices translates into sensitivity of €4.7 million on an annual basis for each €1 variation in forward prices per MWh.

Controlled operating perimeter at breakeven thanks to Energy Management, cash situation significantly improved

Analysis of financial data for POWEO's new controlled operating perimeter, which includes the core energy supply and optimisation activities as well as the contribution from the Generation division for January and February 2011 alone, shows that results were slightly positive in the 2011 fiscal year as a whole.

Revenue generated by this new controlled operating perimeter reached €405.0 million in 2011, taking gross margin to €63.6 million thanks to improved sourcing terms following the implementation of the NOME law and to the significant contribution from the Energy Management business, which was buoyed by the increase in the value of a financial asset. These positive developments, taken together with the Group's consistent efforts to reduce management costs while also preserving its internal skills and service quality, translated into EBIT of €5.9 million for the new operating perimeter in 2011. In particular, The Supply activity reported a slightly negative result (€-3.8 million) for the second semester thanks to the implementation of the NOME law, not including Energy Management contribution.

Factoring in financial expenses and corporation tax applicable to the new operating perimeter, net profit was a positive €3.4 million (and net profit, Group share, was €6.3 million).

With regard to the Group's financial situation excluding the generation facilities, POWEO SA ended 2011 with available cash of €31.7 million, not counting the amounts pledged as deposits and margin calls for the supply and optimisation activities. The latter stood at €75.6 million at 31 December 2011, putting the overall cash position at €107.2 million.

At end-January 2012, POWEO management decided to terminate one of three electricity sourcing contracts entered into with the incumbent operator during the auctions organised in 2008, 2009 and 2010 and subsequently complemented by the ARENH scheme. This decision will notably reduce POWEO's exposure to fluctuations in market prices for electricity and free up the cash pledged to secure that contract. A modification of the financial guarantee required from POWEO under the ARENH scheme also reduced the amount of cash pledged for that purpose.

These two measures, combined with the effective divestment of a non-strategic asset in January 2012, allowed POWEO to post net cash for the new operating perimeter of about €78 million at end-February 2012, which corresponded to available cash of close to €50 million not counting the cash access to which is restricted, which has been reduced to close to around €28 million.

Generation branch sold early in 2011 to bolster POWEO's financial structure

Starting in 2005, POWEO had built up a portfolio of generation capacity projects mainly comprising combined-cycle natural gas turbine (CCGT) power plants and renewable energy generation capacity representing installed capacity of 517 MW, of which 412 MW came from the Pont-sur-Sambre power plant in service since late 2009, with a sister plant of the same capacity under construction at Toul.

In February 2011, POWEO finalised the sale to VERBUND, for a         gross amount of €120 million, of the 60% of POWEO Production VERBUND did not already own. POWEO has a call option, expiring on 30 June 2013, to buy back this 60% stake in its generation assets based on a comparable strike price (deducting any dividends paid and adding any capital increases) plus interest charges. If the call option is not exercised, the agreement provides for a potential additional payment on top of the initial selling price, to be based on the fair market value of the assets on the considered date. It should be recalled that the renewable source generation assets were sold on 22 September 2011, such that the call option only applies to the power plants at Pont-sur-Sambre and Toul as well as the Blaringhem project.

Given the terms and conditions of this call option, and in accordance with IFRS rules under which this type of deal is considered as a financing transaction, POWEO is still fully consolidating these generation assets and the related long-term financings. Taking into account the various adjustments made to the asset portfolio initially sold, the call option now represents a financial commitment of €82.9 million excluding interest charges, an amount that is recorded under financial debt in the consolidated balance sheet as a counterpart to the assets still held within the IFRS scope of consolidation.

In addition, POWEO SA has been informed by POWEO Pont-sur-Sambre Production (PPSSP) of its unilateral decision to be placed under a safeguard procedure which has been pronounced on March the 12^th 2012 by the Valanciennes Court. POWEO SA having neither capitalistic nor operational link with PPSSP, PPSSP's difficulties or its managerial decision have no operational impact on POWEO SA's activities (see press release of March 16^th).

Statutory results impacted by poor performance of generation assets

Due to the IFRS treatment of the call option held by POWEO on the generation assets transferred to VERBUND, in POWEO's profit and loss account, the energy supply activities include the results of the generation activities, which recorded steep losses in 2011.

Consolidated gross margin dropped from €68.1 million in 2010 to €47.6 million in 2011. This decrease was attributable in large part to the sharp contraction in gross margin at the Generation branch, due to the aforementioned market price cap. Amortisation and depreciation expenses totalled €55.6 million in 2011, compared with €106.9 million in 2010, when significant one-off items were recorded (see 2010 full-year earnings press release published on 31 March 2011). Depreciation charges in 2011 included a €32 million depreciation of the value of the renewable generation assets recorded in the first half of 2011. As a result, the consolidated operating loss remained steep in 2011, at €88.9 million, but was substantially lower than the €146.2 million loss recorded the year before.

Taking into account net interest expense of €16.1 million, slightly below the 2010 level, and a €1.1 million tax credit, the consolidated net loss reached €104.0 million in 2011, against a €150.1 million loss in 2010. The share of the consolidated net loss attributable to the Group was €64.3 million, with a €39.6 million loss attributable to minority interests.

Group operating cash flow remained in the red in 2011, ending the year at a negative €11.3 million, and net investing cash flow, mainly corresponding to investments in the future thermal power plant in Toul, came in at a negative €223.3 million. Net financing cash flow reached €174.5 million, including financial debt of €82.9 million booked as a net counterpart to the cash received for the generation assets sold to VERBUND, due to the IFRS treatment of the call option. With total cash flow reaching a negative €60.1 million, gross consolidated cash stood at €36.4 million at 31 December 2011.

2012: Merger with Direct Energie to support new growth targets and improvements in operating results

Direct Energie is the leading alternative energy supplier in France with some 700,000 residential and professional customers. It is also active in power generation through the direct supervision of various generation assets (about ten hydro power plants, two wind farms and several natural gas-fired CCGT plants). The French government has notably just selected Direct Energie and Siemens to build a power plant in Brittany as part of the Breton Electric Pact signed on 14 December 2010.

In the summer of 2011, Direct Energie agreed to buy VERBUND's 46% stake in POWEO. Further to this transaction, which was approved by the French competition authority in September 2011, POWEO's share ownership structure is as follows: Direct Energie 46%, Ecofin 25%, Luxempart 10% and free float 19%. It should be recalled that Ecofin and Luxempart signed an agreement to act in concert on 22 November 2011.

The board of directors of POWEO, as composed in the wake of this major change in the shareholder base (see press release of 16 December 2011), appointed a committee comprising representatives of the main minority shareholders to study the possibility of a merger with Direct Energie.

The state of discussions between POWEO and Direct Energie main shareholders about the merger of the two entities has been treated in a press release published on March 21^st.  

About POWEO
As an independent French electricity and gas operator, POWEO supplies energy and energy efficiency and environmental services to more than 330,000 customer sites. POWEO's shares are listed continuously on the Alternext compartment of the Euronext Paris Stock Exchange (ALPWO/FR0004191674). For more information please visit our website: groupe.poweo.com.

Press relations
Ivan Roussin, Communication Director - ivan.roussin@poweo.com - Tel. +33 (0)6 19 30 05 03
Servane Taslé, Citigate - servane.tasle@citigate.fr - Tel. +33 (0)1 53 32 78 94

Investor relations
Charles Gaudin, CFO - charles.gaudin@poweo.com - Tel. +33 (0)1 70 60 74 00
Patrick Massoni, POLARIS Investor Relations - polaris.pm@gmail.com - Tel. +33 (0)1 70 60 75 09