Yeah, welcome, ladies and gentlemen, from my side as well. Thank you for joining us for today's Investor and Analyst Conference Call on EnBW's results for the first six months of 2023. In a second, our CFO, Thomas Kusterer, will provide you with details on the developments in our business and our outlook. Afterwards, as always, we look forward to your comments and questions. With that, I'll hand over directly to Thomas. The floor is yours.
Thank you, Marcel, and ladies and gentlemen, a warm welcome from me, too. Today, we published our figures for the first six months, 2023. As already stated on August 4th, adjusted EBITDA on group level increased by 65% to EUR 3.5 billion in the first six months this year. In this context, it should be noted that we decided to reclassify asset-related temporary valuation effects from adjusted EBITDA to a non-operating EBITDA from this point onward to better reflect the economic success of our segment's Sustainable Generation Infrastructure. I will get back to this in a minute. Looking forward to the remainder of 2023, we confirm our forecast for financial year 2023 of an adjusted EBITDA between EUR 4.7 billion-EUR 5.2 billion.
From today's perspective, we expect to achieve a result towards the upper end of the bandwidth, despite the impact resulting from the reclassification of valuation effects. With close to EUR 6 billion, liquidity position of EnBW Group remains very comfortable as of June 30, 2023. In addition to that, we continue to have undrawn credit facilities totaling more than EUR 6 billion at our disposal. Much in brief on the financial situation. Ladies and gentlemen, let me continue with some developments which have taken place since our last investor and analyst conference call. Being the only fully integrated utility in Germany, we continue to work very hard on driving forward the energy transition as a whole. This also presents significant investment opportunities for us, and we expect our gross CapEx to amount to around EUR 14 billion across all business areas until 2025.
In this context, we always focus on the triangle of the energy transition, simultaneously expanding renewable energies as well as grid infrastructure and ramping up low CO₂ dispatchable power generation. The substantial expansion of grid infrastructure is a crucial component in light of the changing electricity generation system. In February 2022, EnBW announced to review options to taking on board long-term investment partners for a minority stake of up to 49.9% in TransnetBW, one of four electricity transmission grid operators in Germany, in order to support the expansion of our overall balanced portfolio. At the end of May, we announced that we are selling a stake of 24.95% in TransnetBW to a consortium comprising more than 30 banks, insurance companies, and pension funds from Baden-Württemberg.
Moreover, the German state-owned KfW bank has an option to acquire another 24.95% stake on the same terms as that was offered by the consortium. Discussions with KfW are still ongoing. Final investment decision is expected after the summer break in Berlin. We expect completion of the transactions in the coming months. During Q2, we also achieved key milestones with our 960 megawatts offshore wind farm, He Dreiht, to accelerate the expansion of renewables. Ahead of the start of construction, we agreed to sell a minority stake of 49.9% to a consortium of Allianz Capital Partners, AIP, and Nordea Bank. Furthermore, EnBW has signed four long-term power purchase agreements for 335 megawatts in total, with financially very solid off-takers, Fraport, Evonik, Salzgitter, and Bosch.
Lastly, we secured two long-term loans to finance our share of the construction budget. In December 2022, we secured a EUR 600 million long-term financing from the European Investment Bank, one of the world's largest financiers of climate action and environmental sustainability. In April this year, we signed a EUR 500 million loan to a consortium of three banks, which is secured by the Danish export credit insurer, EIFO. Therefore, He Dreiht is already completely funded. In May, we took the decision to invest approximately EUR 280 million to enlarge our pumped storage power plant in Forbach. This project covers the third element of the triangle of the energy transition: low CO₂, dispatchable power generation.
The existing facility will be modernized and turned into a high-capacity pumped storage power plant to provide dispatchable capacity and storage reservoirs that can quickly deliver electricity on demand. The plant is a perfect complement to the expansion of our renewable capacity and will contribute to grid stability. Construction will start later in 2023, with completion expected by the end of 2027. Last but not least, a few comments on the development of our CO₂ intensity, which we had forecasted in our integrated annual report 2022, to decrease by 10% in the best case, and to increase by 5% in the worst case, compared with 2022. In the first half of 2023, we saw an increasing stabilization of the energy market environment, with market prices and spreads now lower than our original expectation for 2023.
Our hard coal procurement volumes in the first six months declined by 44% compared to the previous year. In addition to the damage-related outage of our power plant in Heilbronn, lower market prices and spreads led to a decrease in electricity generation from our coal power plant. Based on this, we now expect CO₂ intensity for the full year 2023 to decrease by 10-25% compared to 2022. Ladies and gentlemen, let's now have a closer look at our figures for the first six months of 2023. I would like to start with our operating earnings on slide three. As mentioned at the beginning, we decided to reclassify asset-related temporary valuation effects from adjusted EBITDA to non-operating EBITDA from the first half 2023 onwards, to reflect the economic success of our segment's Sustainable Generation Infrastructure even more accurately.
As part of our hedging strategy, we are hedging our generation margin for up to 3 years in advance against fluctuations of commodity prices. In accordance with IFRS9, valuation effects from these hedging transactions related to our generation assets must be recognized at fair value. This means that if market prices decrease compared to the hedge level, one has to record a profit or a loss if prices increase. These temporary effects unwind at the time the product which was hedged, has been delivered, e.g., a megawatt of electricity has been produced. In 2023, year to date, this means that EUR 1.7 billion in unrealized earnings are now shown as part of our non-operating results. At the same time, we restated our results for the first six months, 2022, by transferring unrealized losses of about EUR 700 million to non-operating EBITDA.
This in turn increased adjusted EBITDA for the prior year period by the same amount. Despite this reclassification, we recorded a very strong financial performance in the first 6 months of 2023, with adjusted EBITDA of EUR 3.5 billion. This marks an increase of some 65% compared to the restated figures of last year. This increase of adjusted EBITDA was largely driven by higher hedge prices and the fact that last year's six-month figures were negatively impacted by the curtailment of Russian gas supply and the resulting costs to replace the shortfall in gas volumes at our subsidiary, VNG. Based on the adjusted EBITDA development, adjusted Group net profit also increased significantly by almost EUR 850 million compared to the corresponding period in 2022. Let's now dive deeper into our operating segments on Slide four.
adjusted EBITDA in Smart Infrastructure for Customers was significantly below the prior year level, at EUR 21 million. The substantial decline is attributable largely to charges of about EUR 250 million related to the deconsolidation of a gas supply company, as well as the associated write down on receivables. Moreover, as anticipated, gas volume, gas sales volumes reduced meaningfully due to milder weather and savings behavior. This was partially mitigated by lower seasonality of procurement prices compared with the previous year. Let me add here that due to the current market situation, churn rates in electricity and gas sales were below the previous year level. Compared to the previous year, adjusted EBITDA of our segment, System Critical Infrastructure, on Slide five, increased by 70% to around EUR 1 billion. The increase was largely driven by two effects.
Firstly, a significant growth in revenues as a result of increased investment in grid expansion. Secondly, the fact that due to higher revenue caps, this year's grid usage charges already reflect the expenses expected for grid reserve and redispatch to maintain security of supply. On Slide six, let me turn to Sustainable Generation Infrastructure, the segment in which we saw the most significant increase in earnings compared to 2022. Adjusted EBITDA increased significantly to EUR 2.607 billion in the first six months of 2023, compared to the prior year period. Let's look in more detail at the results of the two components of this business segment, starting with renewable energies. Here, Adjusted EBITDA increased slightly by 3.2% to EUR 565 million.
In the first half of 2023, we saw a positive earnings trend from run-of-river electricity generation. We successfully increased our install capacity of renewable projects by around 200 megawatts. We are able to commission several wind and solar farms in France and Germany. The positive earnings trend from these additional capacities was almost offset by the impact of falling prices in the direct marketing of volumes generated from wind and photovoltaics. Adjusted EBITDA in Thermal Generation and Trading increased sharply in the first six months of 2023 compared to 2022, and reached a level of EUR 2,042 million.
This is predominantly due to the fact that we were able to lock in earnings at higher price levels in 2022 by hedging our generation margin for up to three years in advance, an approach we have not changed even during periods of pronounced market volatility. Contracts are closed on a back-to-back basis, taking into account the expected generation volumes of our power plant portfolio. As an integrated utility, we benefit from a natural hedge of own generation and sales activities, which offsets price movements in volatile times and a changing environment. As a result of our energy management activities, higher electricity price levels have a positive impact on EnBW's earnings when the output gets hedged gradually. For 2023, we are already completely hedged at the end of last year.
Based on this hedging strategy, the spot market does also offer opportunities to our trading department by trading around the assets during times of volatility. Adjusted EBITDA in our segment, Thermal Generation and Trading, also benefited from the fact that prior year periods included significant negative effects from the curtailment of gas supplies as a result of the Russian-Ukrainian war. Given that all supply contracts with Russian counterparties were terminated by the end of 2022, the negative impact no longer applies. Finally, less electricity was produced at the nuclear power station, Neckarwestheim II, compared to last year, since the final shutdown took place on April 15th, 2023. On slide seven, a few words on the development of our retained cash flow in the first six months, 2023.
Starting with significantly higher adjusted EBITDA of almost EUR 3.5 billion, we saw cash outflow for income taxes of EUR 418 million, as well as for contributions to cover pension and nuclear liabilities of EUR 187 million. Funds from operations came in at close to EUR 2.9 billion, which was also significantly higher than last year. Taking into account higher declared dividends of EUR 639 million, retained cash flow amounted to EUR 2,238 million, and hence exceeded the corresponding period, 2022, by about EUR 800 million. On slide eight, let me comment on the development of net debt.
During the first six months, 2023, retained cash flow was largely offset by two effects: an increase in net debt related, relevant working capital of roughly EUR 1.8 billion, mainly due to a lower positive margin balance, as well as an increase in receivables as a result of implementing the electricity and gas price brakes, which is rather temporary in nature. Net investments of about EUR 1.6 billion. We invested around EUR 770 million in System Critical Infrastructure, in the expansion of capacity, renewal of the distribution grid, as well as the execution of the electricity network development plan.
More than EUR 600 million were invested in Sustainable Generation Infrastructure, of which almost EUR 440 million in renewables, mainly our offshore wind farm, He Dreiht, in the German North Sea, for which the final investment decision was taken in March. The rest was mainly spent on our fuel switch project in Baden-Württemberg. In addition, the discount rate for calculating our pension provisions decreased slightly from 3.7% to 3.6%, which caused an increase in pension provisions by EUR 78 million. Summing all of these effects up, net debt reached a level of EUR 11.95 billion as of June 30th, 2023, which is roughly EUR 1 billion above the level of the end of December, 2022. Ladies and gentlemen, let me conclude today's presentation on slide 9 with our outlook 2023.
Based on past and expected developments, we confirm our forecast for adjusted EBITDA at group level for 2023, of between EUR 4.7 billion-EUR 5.2 billion. However, as already stated, from today's perspective, we expect to record an adjusted EBITDA at the upper end of the forecast range. Having said that, we now expect to fall short of the segment forecast of between EUR 400 million-EUR 500 million in Smart Infrastructure for Customers, as a result of the charges from the deconsolidation of a gas supply company, as well as the associated write-downs on receivables. In addition, we continue to expect decreasing volatilities and a normalization of the market in the B2B and B2C commodity business due to increasing competition. On the other hand, stable to slightly rising earnings from the growth of our new business areas are having a counteracting effect.
In System Critical Infrastructure, we continue to expect a significant increase over last year with an adjusted EBITDA between EUR 1.6 billion and EUR 1.9 billion. The negative effect from 2022 for grid reserve and redispatch do no longer apply in 2023, since the empirical values from 2022 have been included in the revenue cap of 2023. Grid revenues will also increase slightly due to the high investments in projects associated with the electricity and gas grid development plan. Last but not least, we expect to exceed the segment forecast of between EUR 2.9 billion and EUR 3.2 billion in Sustainable Generation Infrastructure, due to a significant increase in earnings in Thermal Generation and Trading. The positive earnings development in this segment is mainly the result of higher hedge prices and spreads.
However, due to the unusual seasonality of earnings distribution in recent years, and the final shutdown of our nuclear power plant, Neckarwestheim II, we expect adjusted EBITDA in the second half of 2023 to fall short of the level of the first six months. Against the backdrop of these overall very positive results during the first half of 2023, we continue to be vigilant and monitor developments in energy markets overall, and in our business areas carefully as we now move into fall and the upcoming winter period, 2023, 2024. With this, I would like to hand over to the operator to kick off the Q&A session.
Thank you very much. Ladies and gentlemen, at this time, we will begin the question and answer session. Anyone who wishes to ask a question may press star followed by 1. If you wish to remove yourself from the question queue, you may press star followed by 2. Anyone who has a question may press star followed by 1 at this time. One moment for the first question, please. We have our first question from Andrew Mulder. Please go ahead with your question.
Hi, Thomas and Marcel. I did hesitate a little bit to give someone else a chance to get in with the first question. Since I'm here. I wanted to be clear a little bit on what you're talking about when you looked at the net debt and you were looking at the change in net debt relevant working capital. I see you've got a slide in here, slide 14, which actually shows a EUR 4.1 billion change in working capital with a couple of other things in there. I don't quite understand why they don't feature in your net debt. I guess you're saying that there are things that you will recover, and they're not gonna have a long-term effect on net debt. Could you just explain to me a little bit the rationale behind that?
Also just to be clear on what you're doing with the EBITDA in terms of sort of unrealized earnings. Are you really saying there that it's really the mark to market derivative effect that you are now taking out of EBITDA and putting into non-operating earnings? Finally, I just really wanted given that we've had a lot of the renewables companies talking, RWE, Ørsted and so on, I just wondered what your take is on sort of the profitability of offshore wind. You know, when I look at your portfolio, yes, you've got He Dreiht, but the next two are, I think with BP joint ventures in the Irish Sea and also , in Scotland. You know, what's the thinking on the profitability of those projects?
I think you paid quite a lot for those projects in the Leasing Round four, certainly the one in the Irish Sea, you did. Is your thinking that those are still profitable? What are you doing in terms of trying to secure the cost around those projects? You know, how is BP thinking about it as a partnership with you? If you could also just comment, please, on generally on the profitability of offshore wind, and I guess what happens if those projects don't go ahead, and you're still looking for other active projects in the U.K. That's it for the moment. Thank you.
First of all, hi, Andrew. Great to hear you. Let me get started with your, the third question regarding, regarding offshore wind. Indeed, what, what we currently see is that competition is increasing. We've seen it in the German auction. However, when I look at, at our pipeline, and you mentioned He Dreiht, we have fully secured the procurement here, so we do not have any kind of issues regarding increasing price levels. It's different when it comes to our project, of course, in, the U.K. They're still in the design phase, so it's still early days. we do see increasing price levels here.
First of all, we, we still think that we do have the most attractive sites secured, and at the same time, we also see that energy price, electricity prices are going up. We still have the option actually to either enter into a CFD at some point in time or actually go to the market. From today's perspective, and that's our view, and also from my understanding, view of bp, we still have profitable projects here on hand. We would assume actually that we will be able actually to get these projects constructed and on the grid by the end of this decade. Then again, it's early days. We're still in the design phase of this project.
Overall, competition, as I mentioned in the beginning, is, is, is increasing, and we have seen that it's two oil majors were successful in the German auctions. However, actually, more auctions to, to come, as you know, we are not solely focused on, on offshore wind. We do have our wide portfolio and, and investment opportunities in various areas. We are not concerned overall. Actually, we still think that the offshore wind is, is going forward, it's going to be a profitable business because we do need offshore wind. We'll find a balance between costs and returns also in, in this business segment going forward. Let's move to a question. I hope I answered your question here, Andrew.
Yeah. No, that's good.
Regarding EBITDA, yep, absolutely right. We are talking here about the unrealized earnings or losses. It's about standalone valuation of derivatives. Effectively, under IFRS 9, you're only looking at one leg of the hedge, and the economic value of this transaction can be seen upon delivery, of electricity. That's normally what we're hedging. We think it's more accurate, more transparent if we have those effects in the non-operating result going forward and not in the adjusted EBITDA. It was not relevant or material until the end of 2021, that's why we had it in the previous year, in our operating results. With the high prices and the volatility, it does make sense going forward to account for it in the non-operating earnings.
Your first question was, if I got it right, actually, why we didn't reflect that in our working capital. Was that the question you were asking?
Yeah, I mean, when you were talking about your net debt, you were talking about the change in net debt relevant to working capital. But when I look at your slide 14, I can see that you've actually got a total change in working capital of about EUR 4.1 billion. I just wondered why you're not including those other two items...
I understand.
In your net debt.
When you look at our net debt and how we report it, yeah, fully understood, Andrew. All the changes in cash, all the cash-relevant changes are included in our net debt, and not valuation effects.
All right. It's kind of almost exactly the same thing as you're doing with EBITDA, then?
Yeah. Almost.
Okay.
Not, not, not quite, because, I mean, for our, for us, how we, how we show our net debt is actually that we show everything that, that has an impact on, on cash and not on valuation. That's, that's how we, that's how we show our net debt numbers. What we have.
Right.
The changes we have made to operating results is a pure, it's a pure valuation effect. That's why we have not included it into our net debt numbers.
Right. Okay, can I, can I just go back on the slide 14 then, which kind of shows the difference between the 1.8 that you say is relevant and the 4.1 that is the total? Surely, you still have to have funds available to, you know, make up any shortfalls, at least in terms of temporary financing arrangements for the EEG funds and also for cash-relevant derivatives, don't you?
Let me hand over to Marcel, because he's much more actually in this topic than I am.
Okay, thank you.
Andrew, Andrew, first of all, thanks a lot for raising the question because it's incredibly relevant. What Thomas has already said, and let me just stress that again, our net debt figure that you see includes all the cash positions that we have, and obviously all the debt positions as well, right? Irrespective of whether these are cash effects related to adjusted EBITDA or non-operating EBITDA. Okay?
Yeah.
All the cash movements you see in net debt. Having said that, as Thomas had mentioned, our adjusted EBITDA now excludes valuation effects. They are temporary in nature, and they unwind in future periods. Having said that again, some of these valuation re- effects, they are linked to margin movements, because we've hedged positions and we receive or we pay margins. These margins, they do have a cash impact, and they are included in our net debt, but, you know, since we are starting from an adjusted EBITDA without valuation effects, we can't include the full delta in working capital in our net debt bridge. That's the one aspect.
The second aspect that's also outlined on page 14, and you know that, that we don't include the EEG funds in the net debt position that we show, because these are funds that are effectively ring-fenced and cannot be used for operating purposes.
Right. Okay, yeah, I get the general idea.
I hope it, it clarified what you-
Yeah, I get the general idea.
Yeah.
I'll have a good.
Otherwise, you can get back to us, actually, at any time.
Yes, I will. Yeah, certainly. Okay. Thank you. Bye.
Ladies and gentlemen, I repeat, if you would like to ask a question, please press star and 1. Seems to be no further questions for today. I will hand back to Marcel Münch for your closing comments.
Yeah, thank you, Thomas, for your answers and comments, and thanks to all of you on the call for taking the time. We look forward to welcoming you all again when we present our figures for the first nine months of 2023 on our next conference call, which will take place on November 13th. Until then, we wish you all the best. Have a good weekend now, and goodbye.