Corporate news: VERBUND results for quarters 1-3/2022
03.11.2022Vienna
Positive income trend fuelled by increase in wholesale prices for electricity; earnings forecast for 2022 adjusted because of the lower water supply
Tough geopolitical and energy market
developments cast a shadow over VERBUND in quarter 3/2022. The ongoing war
in Ukraine, record inflation and expectations of interest rate hikes were the
principal factors impacting on the Group’s business performance. The difficult economic
climate caused significant distortion in Europe’s energy markets above all and
presented challenges that led to rocketing prices and price volatility. Prices
for primary energy sources shot up during the course of the year, with gas prices
in particular being hugely affected by changes in gas supply volumes and the
off-take structure. European wholesale prices for electricity continued to rise
as a result of soaring global market prices for primary energy and the
increasing risks, reaching fresh highs.
In response to the headwinds in the European energy sector and to address the severe impending price pressure facing all customer groups, national and EU-level discussions on short- and long-term market intervention and skimming off of profits began with the intention of bringing down the extremely high energy prices and giving countries financial scope to reduce prices to the consumer. These discussions and decisions relating to market intervention generated uncertainty in the capital markets and also pushed down VERBUND’s share price. Trading at a closing price of €87.5 as at 30 September 2022, VERBUND shares recorded a loss of 11.6% in quarters 1–3/2022 against year-end 2021, which meant that the stock still outperformed the Austrian benchmark index ATX (–30.3%) and the sector index STOXX Europe 600 Utilities (–20.0%).
As a consequence of the dry summer, the volume of electricity VERBUND generated from its run-of-river power plants in quarter 3/2022 was well below average. The hydro coefficient was 0.75. Especially in July (0.71) and August (0.69), the hydro coefficient was significantly below the long-term average. The coefficient for quarters 1–3/2022 was 0.84. The reduced volume of electricity generated from hydropower had a pronounced negative impact on the development of earnings (EBITDA effect of around €640m in Q1–3/2022). The underproduction of hydroelectricity made it also necessary to purchase large volumes of electricity so that the electricity volumes that had already been sold on the basis of the long-standing hedging strategy could be delivered. Due to the market conditions, some of these purchases had to be made at exceedingly high prices, which put additional pressure on earnings. Another challenge in the European energy sector was the margining payments for hedging transactions in electricity trading provided as security for open positions held with exchange clearing houses. VERBUND overcame this challenge without suffering adverse effects thanks to its foresighted financial planning, excellent credit standing and the timely increase in credit lines. However, measurement effects arising from customary hedging transactions in the energy sector largely for own generation had a material adverse effect on the Group’s result (EBITDA effect of around €310m in Q1–3/2022). These effects will essentially be offset in subsequent periods by the realisation of the underlying transactions.
While VERBUND’s earnings were diminished by the effects described above, they received a significant boost from the sharp increase in wholesale electricity prices on the futures and spot markets in particular. The average sales prices obtained for VERBUND’s own generation from hydropower rose by €60.3/MWh to €111.6/MWh. The consolidation of Gas Connect Austria GmbH, the regulated gas transmission and distribution system operator in Austria acquired with effect from 31 May 2021, and the significantly higher contribution from flexibility products also had a positive effect. VERBUND therefore saw a significant improvement in the results posted for quarters 1–3/2022. EBITDA rose by 68.0% to €1,933.3m. The Group result surged by 81.4% to €1,065.2m compared with the same period of the previous year. The Group result for quarters 1–3/2022 was influenced by non-recurring effects of €82.6m (Q1–3/2021: €21.2m). Adjusted for these non-recurring effects, the Group result rose by 73.5% to €982.6m.
VERBUND is also planning an ordinary dividend based on a payout ratio for 2022 of between 45% and 55% of the Group result of between around €1,450m and €1,800m, after adjustment for non-recurring effects. In addition, the Executive Board of VERBUND AG resolved to propose a special dividend of €400m to the 2023 Annual General Meeting.
The earnings forecast and the information on the expected payout ratio are contingent on VERBUND not being impacted further by possible energy policy measures to skim off some of the profits at energy companies.
In response to the headwinds in the European energy sector and to address the severe impending price pressure facing all customer groups, national and EU-level discussions on short- and long-term market intervention and skimming off of profits began with the intention of bringing down the extremely high energy prices and giving countries financial scope to reduce prices to the consumer. These discussions and decisions relating to market intervention generated uncertainty in the capital markets and also pushed down VERBUND’s share price. Trading at a closing price of €87.5 as at 30 September 2022, VERBUND shares recorded a loss of 11.6% in quarters 1–3/2022 against year-end 2021, which meant that the stock still outperformed the Austrian benchmark index ATX (–30.3%) and the sector index STOXX Europe 600 Utilities (–20.0%).
As a consequence of the dry summer, the volume of electricity VERBUND generated from its run-of-river power plants in quarter 3/2022 was well below average. The hydro coefficient was 0.75. Especially in July (0.71) and August (0.69), the hydro coefficient was significantly below the long-term average. The coefficient for quarters 1–3/2022 was 0.84. The reduced volume of electricity generated from hydropower had a pronounced negative impact on the development of earnings (EBITDA effect of around €640m in Q1–3/2022). The underproduction of hydroelectricity made it also necessary to purchase large volumes of electricity so that the electricity volumes that had already been sold on the basis of the long-standing hedging strategy could be delivered. Due to the market conditions, some of these purchases had to be made at exceedingly high prices, which put additional pressure on earnings. Another challenge in the European energy sector was the margining payments for hedging transactions in electricity trading provided as security for open positions held with exchange clearing houses. VERBUND overcame this challenge without suffering adverse effects thanks to its foresighted financial planning, excellent credit standing and the timely increase in credit lines. However, measurement effects arising from customary hedging transactions in the energy sector largely for own generation had a material adverse effect on the Group’s result (EBITDA effect of around €310m in Q1–3/2022). These effects will essentially be offset in subsequent periods by the realisation of the underlying transactions.
While VERBUND’s earnings were diminished by the effects described above, they received a significant boost from the sharp increase in wholesale electricity prices on the futures and spot markets in particular. The average sales prices obtained for VERBUND’s own generation from hydropower rose by €60.3/MWh to €111.6/MWh. The consolidation of Gas Connect Austria GmbH, the regulated gas transmission and distribution system operator in Austria acquired with effect from 31 May 2021, and the significantly higher contribution from flexibility products also had a positive effect. VERBUND therefore saw a significant improvement in the results posted for quarters 1–3/2022. EBITDA rose by 68.0% to €1,933.3m. The Group result surged by 81.4% to €1,065.2m compared with the same period of the previous year. The Group result for quarters 1–3/2022 was influenced by non-recurring effects of €82.6m (Q1–3/2021: €21.2m). Adjusted for these non-recurring effects, the Group result rose by 73.5% to €982.6m.
Earnings forecast for 2022 adjusted
The earnings forecast for financial year 2022 has been adjusted as a result of the poor water supply in quarter 3/2022 and the EU’s measures to skim off profits at energy companies, which will be implemented beginning December 2022. Based on average own generation from hydropower, wind power and photovoltaic production in quarter 4/2022 and the opportunities and risks currently identified, VERBUND expects EBITDA of between approximately €2,800m and €3,300m and a reported Group result of between approximately €1,530m and €1,880m in financial year 2022.VERBUND is also planning an ordinary dividend based on a payout ratio for 2022 of between 45% and 55% of the Group result of between around €1,450m and €1,800m, after adjustment for non-recurring effects. In addition, the Executive Board of VERBUND AG resolved to propose a special dividend of €400m to the 2023 Annual General Meeting.
The earnings forecast and the information on the expected payout ratio are contingent on VERBUND not being impacted further by possible energy policy measures to skim off some of the profits at energy companies.
Additional
information as well as the Interim Financial Report for quarters 1–3/2022 is available at
www.verbund.com > Investor Relations > Latest financial results.
