VERBUND Results for quarter 1/2013: Solid results in a difficult environment

The operating business in quarter 1/2013 was positively impacted by a good water supply from Austrian and Bavarian rivers. However, the declining level of wholesale prices for electricity as a whole negatively impacted the earnings trend as did the continued difficult economic situation for gas power plants. Italian Sorgenia’s negative contribution to earnings lowered the Group result. VERBUND confronts the demanding conditions for electricity suppliers with greater cost discipline and a stronger capital structure. The EBITDA forecast for financial year 2013 of around €1bn based on average own generation from hydropower is holding firm and is supported by the good water supply of the first three months. We plan to increase the dividend for financial year 2013, distributing a total of €1/share. This is due to the successful completion of the asset swap with E.ON on 24 April, which will be presented in the balance sheet in quarter 2/2013; our shareholders will participate in the value realised through this swap.

Wolfgang Anzengruber, Chairman of the Executive Board at VERBUND: “With our focus on hydropower and the Austrian and German markets, VERBUND is well-prepared for the massive upheaval in the electricity market since deregulation in 1999. Wholesale electricity prices have fallen further as a result of wind and solar power, which are not subject to competition, the failure of the CO2 market and weak demand for electricity due to the economy. With the exchange of our Turkish equity-accounted interest for shares in Bavarian hydropower plants which are now 100% subsidiaries, we are improving our capital structure and risk profile and strengthening our renewable generation portfolio with a focus on hydropower.”

More hydropower generation, but low wholesale prices

Negative impact from gas power plants and the equity-accounted interest in Sorgenia

The operating business was positively impacted in quarter 1/2013 by a good water supply. The run-of-river power plants’ hydro coefficient of 1.2 was 20% above the long-term average and 1 percentage point above the previous year’s figure. Generation from the annual storage power plants increased significantly by 8.8%. Thus, generation from hydropower increased by 3.5% overall. In contrast, generation from thermal power plants decreased by 9.1%. The CCGT in Mellach/Styria that went into full operation in 2012 generated 284 GWh (–111 GWh). Generation from other VERBUND thermal power plants in Austria was almost stable (–7 GWh). The two combined cycle gas turbine power plants in France generated less electricity (–43 GWh). The wind power plants generated 138 GWh (+87 GWh). Overall, VERBUND’s own generation in quarter 1/2013 was up 1.9% over quarter 1/2012.

The declining level of wholesale prices for electricity as a whole negatively impacted the earnings trend as did the continued difficult economic situation for gas power plants. At an average of €49.3/MWh, prices for electricity futures contracts applicable for financial year 2013 (front year base 2013) were down 12% from the previous year’s level. Based on its hedging strategy, VERBUND had already included the majority of its own generation in its pricing calculation in 2012 and the first three months of 2013 over the futures market with an average sales price of €50.2/MWh. Spot market prices (base price) fell by 6.3% to €42.3/MWh. Spot price performance was driven above all by low demand as a result of the economy as well as the low prices for fuel and emission rights.

Thus, EBITDA decreased by 10.5% to €312.3m, the operating result fell by 17.6% to €233.7m. The Group result decreased by 40.3% to €77.1m. This can be attributed in particular to the negative contribution of Italian Sorgenia, primarily impacted by the impairment of its 39% equity-accounted interest in Tirreno Power S.p.A. The resulting effect on VERBUND’s profit or loss in quarter 1/2013 totalled €–38.4 m. Cash flow from operating activities amounted to €285.1m, an improvement of 15.8%. Free cash flow in the first quarter increased considerably year-on-year from €–144.8m to now €53.4m.

Reduce costs and strengthen the capital structure

The challenging conditions for electricity suppliers call for strict cost discipline. As a first step, VERBUND is continuing to reduce cost across the Group in 2013 and is developing further measures. The investment programme was reduced from €2.2bn to €1.5bn until 2017. Due to the difficult market environment, VERBUND is investing primarily in regulated business areas such as the Austrian high-voltage grid and the development of wind power in Austria, Germany and Romania. In the area of hydropower, construction of the 430 MW Reisseck II/Carinthia pumped storage power plant (activation 2014) is still under way and the 50 MW Ashta/Albania run-of-river power plant will be completed in 2013. In addition, the Group continuously modernises existing facilities, thereby increasing the efficiency of its power plants. In order to increase the profitability of gas power plants, all options to increase profitability are currently being reviewed.

At the same time, the Group is strengthening its capital structure, thereby increasing its flexibility in an energy and general economic environment where risks are higher. In quarter 1/2013, VERBUND received approximately €270m from the sale of its shares in Styrian energy supplier STEWEAG STEG GmbH (SSG). This largely concludes the divestment programme in Austria.

VERBUND got a difference payment of around €400m from the asset swap with E.ON. This transaction closed on 24 April 2013 and will be presented in the balance sheet in quarter 2/2013.

Outlook for the full year

For financial year 2013, VERBUND plans to increase the dividend and pay a total of €1/share. This is based on successful completion of the asset swap with E.ON, the profits from which we will share with our shareholders. The EBITDA forecast for financial year 2013 of around €1bn based on average own generation from hydropower is holding firm and is supported by the good water supply of the first three months.