Verbund shows signs of improvement despite uncertain economic conditions

Austrian electricity company Verbund has presented a positive business development for the first quarter 2012 in spite of what it described as a “challenging market and industry environment”.

Revenue, operating result and Group result were all significantly improved due to the good water supply and higher average sales prices. Verbund continues to invest consequently in hydropower and wind power, above all in Austria, as well as in the modernisation of the electricity transmission grid.

Chairman of the Managing Board of Verbund, Wolfgang Anzengruber, said: “Europe’s energy sector is going through fundamental change. Added to this is the uncertainty that prevails in the European and global economy and leaves no industry unscathed. The nuclear phase-out in Germany and its consequences will, however, have a positive impact on our renewable energy-oriented business on the long run.”

The economic environment for the energy sector remains challenging. On the one hand, the expansion of wind and solar power is heavily subsidised, and on the other hand, the profitability of the gas power plants throughout Europe is limited. Weak clean spark spreads continue to be responsible for this. Relatively low wholesale prices for electricity are compensated by long-term gas supply agreements that are linked to the price of oil and therefore expensive. This problem affects the majority of gas power plants operating in Europe. In spite of this, Verbund managed to significantly improve sales, operating result and Group result in the first quarter 2012 – due, above all, to the exceptionally good water supply and higher average sales prices.

The operating result rose by 22.2 % to € 263.6 million. The primary reason for this was significantly higher electricity generation due to the good water supply. In quarter 1/2012, the hydro coefficient lay 19 % above the long-term average and 20 percentage points above the value recorded in the previous year. Verbund profited from an overall higher price level. At an average of €56.0/MWh, electricity prices applicable for the 2012 financial year (forward contracts “Year Base 2012” traded in 2011) were up 12.3% over the previous year’s level. This increase was due in particular to the nuclear disaster in Fukushima and Germany’s subsequent phase-out of nuclear energy. Verbund already included around 60% of its own generation in 2011 over the forward market based on its hedging strategy. Thanks to its hedging strategy, Verbund had already priced in approximately 60 % of its own generation in 2011 via the futures market. Spot price development was driven above all by low demand due to market conditions and the low prices for emission rights. The Group result increased by 10.2% year-on-year to €119.5m.

The Kalsdorf run-of-river power plant will go online in 2012 after the Gössendorf power plant on the Mur River in Styria. The Reisseck II pumped storage power plant in Carinthia will increase the turbine capacity of the Malta/Reisseck power plant group by 430 MW to 1,459 MW from 2014. Construction for the first part of the Casimcea wind farm in Romania will soon be completed, while construction for the second part began in quarter 1/2012. Verbund will build 3 wind farms with a total of 57 MW in the Lower Austrian Bruck an der Leitha district. The first of two CCGT generators at Mellach were put into operation at the end of March 2012 following trial operation. The second generator is scheduled to be put into operation soon.

The Verbund subsidiary Austrian Power Grid AG (APG) was recognised by E-Control Austria as an independent transmission system operator in March 2012, completing the separation of electricity generation and trading from electricity transmission as required by the EU.

The fast-growing Turkish market is developing continously well. The Menge hydropower plant (89 MW) on the Seyhan River has delivered electricity to the grid since January 2012. 13 other power plants are currently under construction, while the Dagpazari (39 MW) and Bares (143 MW) wind farms are scheduled to go online in 2012. VERBUND plans to have installed a total of approximately 5,000 MW capacity in Turkey by 2015. The Italian Aprilia CCGT will be put into operation in quarter 2/2012. Thus, Sorgenia has more than 4,500 MW of installed capacity at its disposal. The construction of the Ashta hydropower plant on the Drin River in Albania is proceeding as planned and will be placed into operation starting 2013. The Toul CCGT (413 MW) in France will be placed into operation at the end of 2012. The situation for gas power plants is currently very difficult in all European countries. We will examine all opportunities in 2012 and take corresponding measures to once again ensure the medium- to long-term profitability of gas power plants in the Group.

Given the uncertain macroeconomic and financial environment and the resulting difficult conditions in the energy industry, it is impossible at present to give a serious earnings forecast for 2012. Verbund plans to provide an outlook on the full year with the publication of its half-year results. The dividend policy will aim for a payout ratio of approximately 50% of the Group result.