Change is necessary to
preserve what is good
Despite the wide range of services SWM provides to the
citizens of Munich and the region, our business success
largely depends on the revenues generated in our tradi-
tional core business: energy generation, distribution and
sales. However, this keenly competitive and highly regulat-
ed market, in particular, has been subject to eroding mar-
gins for years.
The reasons are manifold. One of them is the energy turn-
around – an endeavour SWM has expressly supported
from the outset and driven forward with great commit-
ment: in our view, the transformation from conventional
energy provision to a supply network based primarily on
renewable energies is imperative but very cost-intensive,
especially during the transitional phase. This applies all the
more to companies proactively shaping this historic trans-
formation by converting their generation infrastructure
– as SWM is doing. On the one hand, we are investing in
new plants generating energy from renewable sources
with a view to ensuring a strong role for us in the energy
market of the future, too. On the other hand, the principle
of ensuring a secure supply does not allow us to simply
take old plants off the grid, which makes maintenance
and, in some instances, replacement investment necessary.
Thanks to forward-looking action and courageous decisions, SWM is in
a better position than many of its competitors in a very critical period for
energy utility companies. However, the current changes faced by German
municipal utilities are so fundamental and permanent that we followed
up on our successful ”Sustainably fit“ cost-reduction programme with the
launch of a further ambitious project in autumn 2016: SWM22 – a group-
wide transformation project. Across business units and hierarchies, we are
designing a strategy that will ensure SWM‘s long-term success.
In addition, we have repeatedly been confronted with high
non-recurrent burdens in the recent past, e.g. those arising
from our shareholding in the Isar 2 nuclear power plant.
And there are even more changes and challenges ahead.
After all, the general demand for heating will decline in
the long term due to the climate change and political initi-
atives such as the Climate Protection Plan 2050 adopted in
Germany in 2016. In addition, the oil price, in actual fact
still the energy reference price, will probably continue to
be volatile in the future, thus affecting our income trend.
Furthermore, capital-expenditure commitments running
into the billions are still required in the areas of public
transport and telecommunications to ensure Munich’s
continued quality of life and prosperity.
Many of these developments were or are foreseeable. We
thus began early on to tap new stable revenue sources,
e.g. in the area of renewable energies. Concurrently, we
realized several initiatives aimed at improving our cost
position. These efforts are indeed bearing fruit, as reflect-
ed in the pleasing operating profit we generated in 2016.
Our analysis shows, however, that they will not suffice to
put a permanent stop to the foreseeable negative income
trend, let alone ensure SWM’s continued ability to realize
its ambitious projects out of its own resources in the
SWM – GUARANTOR OF RELIABLE ENERGY AND
DRINKING WATER, MOBILITY AND COMMUNICA-
TIONS SERVICES IN MUNICH AND THE REGION
ANNUAL REPORT 2016 STADTWERKE MÜNCHEN