Verbund Ag Ord

Ladies and gentlemen, thank you for standing by. Welcome and thank you for joining the Forbund AG Half-Year 2023 Results Conference Call. Throughout today's recorded call, all participants will be in a listen-only mode. The presentation will be followed by a question and answer session. If you would like to ask a question, you may press Start followed by 1 on your touchtone telephone. Please press the Start key followed by 0 for operator assistance. I would now like to turn the conference over to Peter Coleman, CFO of Forbund. Please go ahead, sir.

Thank you. I'm here with Andreas Wollheim. Ladies and gentlemen, let me welcome you to the presentation of our first half year, 23 results. And let me thank you for joining today's conference call. Before we move into the analysis of business development, let me make a few general comments. It's like easing on the energy markets already began at the end of 22. which continued in the first half of 2023. Wholesale prices for gas fell significantly in the first half year compared to the previous year. In addition to the high filling levels of the gas storage facilities, this is also due to the weaker demand for gas. This was accompanied by a drop in wholesale prices for electricity. However, the market environment is still very volatile. Let me highlight one regulatory issue at the beginning. In Austria, the cap for market revenues of infomercial generators was reduced in the second quarter. The reduction of the revenue cap was from 140 euros to 120 euros per megawatt hours, and that applies as of the 1st of June. However, crediting of investments in new renewable generation technologies in Austria is still permitted. Now let's move on to our financial details. At the beginning, I would like to highlight the most important influencing factors for the results development at a glance. Following the development of prices at the electricity exchanges and based on our hedging strategy for our own electricity generation from hydropower, the average achieved contract price increased by 69.6 euros to 182.1. The hydro coefficients determining the generation from our Runners River hydropower plant was better than last year, but below the long-term average. However, production from our hydro reservoirs was higher by 6.2% compared to last year. Generation from wind and PV was up compared to last year, mainly driven by the new renewable assets in Spain. Thermal generation, in contrast, strongly decreased due to lower use of our CCGT in Mellach. The contributions from flexibility products slightly decreased, mainly due to a decrease in pumping and intraday trading. GasConnect Austria was clearly positive for the grid segment results. The sales segment contributed negatively. among others due to higher procurement costs for energy. And finally, a negative impact on our results is coming from the MEVI on excess profits in Austria, Germany, and Romania, totaling 172 million in the first half year. The impact of these influencing factors on the key figures for FABUM in the first half year of 23 is as follows. EBITDA increased by 63.6% to 2.25 billion, and the reported group result increased by 57.5% to 1.287 billion. The adjusted group result increased by 78% to 1.3 billion, and the operating cash flow strongly increased to a level of almost 2.9 billion. The free cash flow after dividends was strongly positive at a level of 927 million and netted decreased by 24.5% to a level of slightly above 2.9 billion. Now let me give you our updated guidance for 23. Based on an average hydro wind and PV generation in the last two quarters of 23, As well as considering the opportunities and the risk situation of the group, we expect a reported and adjusted EBITDA between approximately 3.8 to 4.2 billion, and the reported group results between approximately 205 and 2.3 billion. The payout ratio will be between 45 and 55 percent of the adjusted group results between and 2.32 billion. The earnings forecast and the information on the expected payout ratio are, as you know, not being impacted further by possible energy policy measures just came off some of the profits at energy companies in Austria. On the next page, let me go into more details on the hedging volumes and the hedging prices, which are, of course, highly relevant for our results. I think you all know a one euro megawatt hour plus or minus higher or lower average achieved price has a sensitivity of approximately 25 million euros in our EBITDA line. The 30th of June, we reached an average achieved contract price for our hydro generation of 176.8 euros. And we had sold approximately 88%. For 24, we had sold 44% of our own generation volumes at a price of 155.6. And for 25, we had sold 37%. of our generation volume at 140.7. On a market-to-market basis, with prices as of the 14th of July, the average achieved contract price for 23 are at 168.8, for 24 at 148.8, and for 25 at 135 euros. Now let me comment on some developments in the various business segments. And let me start with the hydro segment. At 0.95, the hydro coefficient, which, as you know, is an index quantifying the hydro power generation of the run of river power plants, was 5 percentage points below the long-term average and 5 points above the level of the first half, 22. Production from annual storage power plants increased by 6.2%. All production from hydropower therefore overall increased by 947 gigawatt hours or 6.7% to slightly above 15 terawatt hours compared to the first half, 22. Higher average achieved prices. The main reason for our increased EBTA, however, slightly lower contributions on flexibility products and the leverage on excess profits had a negative effect on EBTA. In total, EBTA in the hydro segment increased by 62.1% to 1.984 billion. Regarding CATEX, Our main hugger project, the 480-megawatt Lindbergh 3 pump storage power plant, and the 45-megawatt RISIC 2 pump storage power plant. Both projects are on time. The 11-megawatt Run the River project, GATCOM, is also on time. Completion is expected in 24. In addition to the above, we started the 14.3 megawatt Stegenwald Run-of-the-River power plant project, where we have an expected completion in 2025. Now, let me continue with the analysis of our own generation from new renewables. The new renewables coefficient An index quantifying the generation for wind power and PD amounted to 1.01 in the first half of 23 compared to 1.04 in 22. Generation for wind power increased by 6.3%, was 33 gigawatt hours, and amounted to 546 gigawatt hours. in the first six months of 23. More favorable wind conditions in Germany, and especially new installations in Spain, more than upset less favorable wind conditions in Austria and Romania. Generations on PV amounted to 161 gigawatt hours in the reporting period, standing from PV installations in Austria, two gigawatt hours in Spain, 159 gigawatt hours. Now taking a look at the EBTA development in the new and new segment, we see that the EBTA increased to 109.2 million euros. In addition to the increase in volumes, mainly from our projects in Spain, higher average achieved prices contributed positively to this development. The chart also provides an overview on current developments in the renewable sector. Now, on the next page, you see our sales segment. Taking a look at the EBITDA development here, we see that EBITDA increased to a negative value of minus 143.2. The change in EVDA's view, among other things, to a much better result from the valuation of energy derivatives in connection with future energy deliveries, while the sharp increase in electricity and gas procurement prices had a counteracting effect. For Boons, we delivered electricity and gas to approximately 510,000 end customers. That represents a decrease of approximately 18,000 customers year-on-year. Now, on the all other segments, the generation from thermal power plants was down by 462 gigawatt-hours to 342 due to the decreased use of our Mela CCGT for old electricity and distributed production. This led to a declining electricity and district heating revenue. Positive effects from the valuation of energy derivatives in connection with future energy deliveries could not compensate for this and led to a drop in EBITDA despite lower fuel consumption as a result of the reduced generation. The contribution from flexibility products decreased by 5.9 million euros. The contribution from Kellogg, the provincial utility of Corinthia, increased from 5.7 million to 48.3 million as a result of better realized sales prices for their own generation. In addition, the heating and trading businesses also contributed positively. Let me remind you that our CCGP MEDLAV was contracted from Boston Power Grid for future congestion management. In detail, line 10 is contracted from the 1st of October 2021 to the 30th of September 2023, and line 20 from 1st of April 23 to the 30th, September 23. In Q1 and Q4, we use line 20 on a market-driven basis. The district heating power plant in Mela has contracted by APG for the period from the 1st of April 23, again, to the 30th, September 23. Now, on the next page, on our grid segment, as you know, the grid segment consists of our regulated business, Austrian Power Grid, as well as Gas Connect Austria. DEBTA for the first half from the electricity grid business according to IFRS was approximately 184 million, roughly the same as last year. As a reminder, Then we also highlight that as of January 1st, 23, a new regulatory period started. The regulatory system has been changed. E-Control, the Austrian regulator, has a new WAC for 23 and has split the WAC into a WAC for existing assets and a WAC for new assets. The WAC in 23 for existing assets has been set at 3.72%. The WACC for new assets has been set at 4.88%. Therefore, the overall WACC for 23 will be 3.9. On top of the WACC at APG can receive an incentive-based bonus of maximum 12 million euros a year. The WAC for existing and for new assets for 24 will be set again at the end of 23 and will definitely reflect the higher interest rate environment which we're currently in. ADG has appealed against the level of the WAC mainly because it reflects the historic development of interest rates and does not reflect the strong increase in rates since last year. The new EBITDA guidance for the electricity grid for 2023, based on the new regulatory parameters and the increasing regulatory asset base, is approximately €360 million. The main reason for the increased guidance are higher revenues from auctions. The planned amount of the regulatory account at the end of will be approximately 490 million euros. Now with regard to the results contribution of Gas Connect Austria, we reported EBTA of approximately 112 million for the half year. The main reason for the strong increase were higher revenues from the commodity tariffs and lower energy costs. The guidance for 23 with regard to Gas Connect Austria is approximately 140 million euros. On the next page, I will give you the non-recurring effects. We encountered impairments amounting to 15.4 million, stemming from an impairment of the FSHC Meller, devaluation of the trans-Austria gas pipeline TAG. Profit participation rights amounted to minus 0.8 million and had a negative effect on the other financial results. We also had impairments relating to the hallucinogenic participation of minus 15.8 million and TAG with minus 2.8 million. In total amounting to a minus 18.7 million. Also, the reversal of impairments related to our hydropower plant in Albania amounting to 6.3 million euros. In total, the effects on the financial results were 13.2 million euros, minus 13.2 million euros. After considering the effects on taxes and minorities, the non-recurring effects on the group result level amounted to minus 20 million euros. We also showed the non-recurring effects in the first half year of 22 in comparison. Now, going through the key financial figures. First of all, the aforementioned developments on the EBITDA where we had an increase by 63.6% to 2.25 billion. depreciation increased by 15% to 250 million euros, mainly due to the acquisition of Spanish assets and increased investments into the high-voltage grid. The financial result improved from minus 15.7 million to minus 7.1 million. This was attributable to the higher earnings contributions from interest accounted for using the equity method, mainly Kellogg, and higher interest income, while higher interest expense is mainly caused by the issuance of the ESG-linked Schultz and Barlin of $500 million in November. And the interest expense from the loans taken over from the Spanish companies acquired in the previous year had a counterbalancing effect. The group results increased by 57.5% to 1.287 billion. The group result after adjustment for non-recurring effects was up 78%. Finally, I would like to mention the decrease in addition to tangible assets in total from 588.1 in the first half, 22, to 311. in the first half of 23. The decrease is a result of the fact that in 22 for boom is an acquisition of a 70% share in one PV and for wind power project companies in Spain with a total capacity of 171 megawatts. On the bottom left you will find divisions into tangible assets of Gas Connect Austria and Austrian power grid. On the next page, we're looking at cash flows and net debt, for whom operating cash flow strongly increased to 2.89 billion, mainly due to a significantly higher average price achieved for electricity, as well as inflows from margining payments for hedging transactions in our electricity business, those were deposited with the clearinghouse of the exchange as a collateral for open positions. And they basically come back with the prices coming down. These positive effects were partly offset by higher income tax and higher interest payments. The free cash flow after dividends showed a positive development from minus 111 million euros to a level of plus $927 million. The significantly higher operating cash flow and lower investments in property, plant, and equipment were the reasons for this positive development. Dividend payments, on the other hand, increased significantly compared to the previous year. Our decrease in net debt is due to lower financial liabilities because of the repayment of shops and money market liabilities. The gearing correspondingly decreased to a level of 31.3 compared with 46.8 at year end 22. Now I'm coming to the end of our results presentation and would like to give you our earnings outlook. As always at this point, I would like to highlight the sensitivities as of the 30th of June. A deviation of plus minus 1% in the generation from hydropower has an impact of plus minus 10 million. In the Cooper South, a deviation of plus minus 1% in the generation from wind power and PV has an impact of plus minus 0.8 million. And a deviation of plus minus one euro in the wholesale price has an impact of plus minus two million euros in our group results for 23. Now, our updated guidance for 23 is as follows. For booms, expect a reported and adjusted EPTA of approximately between 3.8 and 4.2 billion euros. and a group result of approximately between $2.05 and $2.3 billion under the assumption of average hydro, average wind and PV generation in the third and fourth quarter. For the financial year 23, Forbund plans to pay out between 45% and 55% of our group results after the adjustment for non-recurring effects that would be approximately between 2.07 billion and 2.32 billion. The earnings forecast and the information on the expected payout ratio, as I mentioned before, are contingent on us not being impacted further by possible energy policy measures to skim off some of the profits of energy companies. Now with that, I would like to move on to our Q&A.

Ladies and gentlemen, at this time, we'll begin the question and answer session. Anyone who wishes to ask a question may press star followed by one on the touch-tone telephone. If you wish to remove yourself from the question queue, you may press star followed by two. In the interest of time, please limit yourself to two questions only. If you're using speaker equipment today, please click the answer before making your selections. Anyone who has a question, please start followed by one at this time. One moment for the first question, please. Our first question comes from with Credit Suisse. Please go ahead.