Hello, welcome to the VERBUND AG First Quarter Results Conference. My name is George, I'll be your coordinator for today's event. Please note, this conference is being recorded, for the duration of the call, your lines will be in a listen-only mode. You will have the opportunity to ask questions at the end of the presentation. This can be done by pressing star one on your telephone keypad to register your question. If you require assistance at any point, please press star zero you will be connected to an operator. I have with me to host today, Mr. Peter Kollmann, CFO, to begin today's conference. Please go ahead, sir.
Thank you. I'm here with Andreas Wollein. Ladies and gentlemen, welcome to the presentation of VERBUND for the first quarter 2023. Let me thank you for joining today's conference call. Before we move into the analysis of our business development, let me make a few general comments. In the first quarter 2023, wholesale prices for gas and electricity fell significantly and, at times, even fell below the level recorded before the war in Ukraine, as concerns about security of gas supply in Europe decreased after the winter. This particularly due to historically high levels of gas storage. The proposals published by the EU Commission on the reform of the electricity market design should further stabilize the sentiment on the energy market.
The aim of the European Commission is to accelerate the expansion of renewable energies, as well as the phase-out of gas and, of course, to protect households from price fluctuations. To protect households against future price peaks and, of course, market manipulation. The revision of the act thus focuses on maintaining the existing market design and orienting the energy market more towards renewables and the expansion of infrastructure. Let me move on to the financial details of the first quarter. At the beginning, let me highlight the most important influencing factors. Based on our hedging strategy for our own electricity generation from hydropower, the average achieved contract price increased by EUR 89 - EUR 202.8 in the first quarter.
The hydro coefficients, as you know, determining the generation from our run-of-river hydropower plants, were slightly weaker than last year and below the long-term average. However, production from our hydro reservoirs was higher by 13.5% compared to last year. Generation from wind and PV was up compared to last year, mainly driven by the acquisition of renewable assets in Spain. Thermal generation, in contrast, strongly decreased due to the lower use of our CCGT in Mellach.
Contributions from flexibility products decreased mainly due to a decrease in pumping and intraday trading because of lower margins compared to last year. The sales segment also, and you will not be surprised about that, contributed negatively, among others, due to higher procurement costs for energy. Finally, a negative impact on our results derived from the implementation of the levy on excess profits in Austria, Germany, and Romania.
The impact of these influencing factors on the key figures is as follows. EBITDA increased by 18.7% to EUR 967 million. The reported group results increased by 2.8% to EUR 529 million. The adjusted group results increased by 14.1% to EUR 529 million. The operating cash flow strongly increased to a level of EUR 1.363 billion. The free cash flow after dividends was positive at a level of EUR 1.16 billion. Net debt decreased by 30% to a level of EUR 2.74 billion. Let me now give you our update and updated guidance for 2023.
Based on an average hydro, wind, and PV generation in the next three quarters, we expect the reported and adjusted EBITDA between approximately EUR 3.7 billion-EUR 4.3 billion, and the reported group results between approximately EUR 2 billion and EUR 2.4 billion for 2023. The payout ratio will be between 45%-55%. Now let me move into more detail. Let me start with the hedging volumes and hedging prices, which are, as you know, highly relevant for our results. A EUR 1, ±, in the achieved price has a sensitivity of approximately EUR 25 million in our EBITDA line. As of March 31st, 2023, we reached an average achieved contract price for our hydro generation of EUR 188.2 for 2023, and we have sold approximately 77%.
For 2024, we have sold 39% of our own generation volumes at a price of EUR 156. For 2025, we have sold 33% at a price of EUR 141. For the mark to market basis with prices as of the 27th of April, the average achieved contract price for 2023 is at EUR 174, for 2024 at EUR 155, and for 2025 at EUR 134. On the next page, I would like to comment on our hydro segments at 0.93. The hydro coefficients, as you know, an index quantifying the hydropower generation of the run-of-river power plants was 7 percentage points below the long-term average and 1% below the level of the first quarter 2022. Production from annual storage power plants increased by 13.5%.
All production from hydropower, therefore, overall increased by 121 gigawatt hours, about 2% to 6 TWh compared to the first quarter of 2022. Higher average achieved prices are the main reason for the increased EBITDA. Lower contribution from flexibility products, the levies on excess profits, and the lower hydro coefficients had a negative impact on our EBITDA. In total, EBITDA in the hydro segment increased by 70% to EUR 170 million. Regarding CapEx, our main hydro projects, the 480 MW Limberg III pump storage power plant, and the 45 MW Reißeck II pump storage power plant are on time. The 11 MW run-of-river project Radkersburg is also on time and the completion is expected for 2024. On the next page, a more detailed analysis of our own generation from new renewables.
The new renewable coefficient, which is an index quantifying the generation from wind power and PV, amounted to 1.03 compared to 1.06 in the first quarter 2022. Generation from wind power, nevertheless, increased by 7.3% or 23 GWh and amounted in total to 337 GWh. More favorable wind conditions in Germany and our new installations in Spain more than offset the less favorable wind conditions in Austria and in Romania.
Generation from PV amounted to 35 GWh in the reporting period, stemming from PV installations in Austria and Spain. Now taking a look at the EBITDA development in the new renewable segments, we see that the EBITDA increased strongly to an EBITDA amounting to EUR 60 million. In addition to the increase in volumes, higher average achieved prices contributed to this positive development.
The chart also provides an overview on current developments in the renewable sector. On the next page on our sales segment, taking a look at the EBITDA development there, we see that it decreased strongly to a negative value of more than EUR 100 million. The reason is, among other things, as a result of sharply higher procurement prices for electricity and gas, as well as lower earnings contributions from our flexibility products.
VERBUND delivered electricity and gas to approximately 520,000 end customers in the first quarter. That represents a decrease of approximately 13,000 customers year-on-year. On the next page, on all other segments, here, particularly our generation from thermal power, as mentioned before, it was down by 381 GWh to 307.
This is a result of a decreased use of our CCGT Mellach for both electricity and district heating production. This led to declining electricity and district heating revenues. Furthermore, negative effects from the valuation of energy derivatives in connection with future energy deliveries led to a sharp drop in EBITDA. The contribution from flexibility products decreased by EUR 5.6 million. The contribution from Kelag, which is the provincial utility of Carinthia, increased from EUR 8.8 million to EUR 14 million due to a better trading result and higher contributions from their heating business. Finally, I would like to remind you that the CCGT Mellach was contracted from APG, Austrian Power Grid, for future concession management.
In detail, line 10 is contracted from October 1, 2021 to September 30, 2023, and line 20 from April 1st, 2023, to September 30th, 2023. In the 1st quarter and the 4th quarter, we use line 20 on a market-driven basis. The district heating power plant in Mellach is contracted by APG for the period from April 1st, 2023, to September 30th, 2023. On the next page, the more detailed analysis on our grid segment. The EBITDA for the 1st quarter was approximately EUR 87 million. This is a decline which was mainly due to lower contributions from auctions. In addition, the higher shortfall in the current year regarding loss energy procurement had a negative effect. The largest positive deviation resulted from the contribution from balancing energy.
I would like to remind you that as of January 1st this year, we have a new regulatory period. The regulatory system has been changed. E-Control, the Austrian regulator, has set a new WACC for 23 and has split the WACC into a WACC for existing assets and a WACC for new assets. The WACC for existing assets has been set at 3.72%. The WACC 23 for new assets has been set at 4.88%. Overall, the WACC for 23 will be 3.9% when you take the mix of the new assets and the existing assets. On top of the WACC, APG can receive an incentive-based bonus of a maximum of EUR 12 million a year.
The WACC for existing and for new assets for 2024 will be set again at the end of 2023 and will reflect a higher interest rate environment. APG has appealed against the level of the WACC, mainly because of the reflection of historic development of interest rates, but not reflecting 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 increase in regulatory asset base, is approximately EUR 304 million, sorry, EUR 340 million. The reason for the increase in our guidance is a result of lower expenses for loss energy procurement due to lower electricity prices as well as lower prices for control energy. The planned amount of the regulatory account at the end of 2023 will be approximately EUR 470 million.
With regard to the results contribution of Gas Connect Austria, we report an EBITDA of approximately EUR 47 million for the first quarter. The main reason for the increase were higher profit margins from the transmission grid as a result of higher commodity tariffs, which we have received. The guidance for 2023 with regard to Gas Connect is approximately EUR 110 million under IFRS. The increase results from lower procurement costs for gas to run our compressor stations. The next slide shows how the effects described before influence VERBUND's key financial figures in the first quarter. Because of the aforementioned developments, EBITDA increased by 152 million or 18.7% to EUR 967 million.
Depreciation increased by 15% to EUR 126 million due to the acquisition of Spanish assets and increased investments into the high voltage grid. The financial result improved from minus EUR 27 million to plus EUR 2.2 million. This was attributable to higher earnings contribution from interest accounted for using the equity method, mainly Kelag and higher interest income, while higher interest expense is mainly caused by the issuance of our ESG linked Schuldscheindarlehen of half a billion in November 2022 had a counterbalancing effect.
Taxes on income increased significantly because of a positive non-recurring effect amounting to EUR 56.6 million in the first quarter 2022. This effect resulted from the reevaluation of deferred taxes due to the reduction of the corporate income tax in Austria as part of the Eco-social tax reform Act.
The group results therefore increased by EUR 14.6 million or 2.8% to EUR 529 million. The group results after adjustment for non-recurring effects was up 14%. I would like to mention the decrease in addition to tangible assets in total from EUR 360 million to EUR 117 million in Q1 2023. This decrease of 67.5% resulted mainly from the acquisition of a 70% share in one PV and four wind power project companies in Spain with a total capacity of 171 MW from Capital Energy in Q1 2022. On the bottom left, you will find the additions into tangible assets of Gas Connect and Austrian Power Grid.
On the bottom right, you will find the additions into tangible assets in the renewables business and others. On the next page, I'll start with the operating cash flow, which in the first quarter strongly increased to more than EUR 1.3 billion, mainly due to a significantly higher average price achieved for electricity, as well as inflows from margin payments for hedging transactions, which were deposited with the clearing house of the exchange as a collateral for open positions.
These positive effects were partly offset by higher income tax payments and higher interest payments. The free cash flow after dividends showed a positive development from minus EUR 105 in 2022 to a level of EUR 1.16 billion. The significantly higher operating cash flow and lower investments in property, plant and equipment were the reasons for this positive development.
As I mentioned before, net debt decreased from EUR 3.9 billion at the end of 2022 to EUR 2.7 billion at the end of the first quarter 2023, mainly due to lower short-term borrowings from banks in connection with the margining and the positive cash flow development. Gearing correspondingly decreased to a level of 27.5%, compared with 46.8% at year-end 2022. Coming to the final page of our presentation, the outlook. As always at this point, we wanna highlight our sensitivities as of the end of the first quarter. A deviation of +/-1% in the generation from hydropower has an impact of +/-EUR 18.8 million in our group results for 2023. A deviation of +/-1% in the generation from wind and PV has an impact of +/-EUR 1.7 million.
A deviation of ±EUR 1 in the wholesale price has an impact of ±EUR 3.8 million in the group results for 2023 because of our already high hedging levels, which we have for 2023. Our updated guidance for 2023 is the following. Won't expect to report an adjusted EBITDA between EUR 3.7 billion and EUR 4.3 billion, and the reported group result of between EUR 2 billion and EUR 2.4 billion.
Of course, as always, under the assumption of average hydro, wind and PV for the remaining quarters of the year. For the financial year 2023, we plan to pay out between 45% and 55% of the group results after adjustment for non-recurring effects. Now with that, I would like to hand back to our conference organizer for the Q&A. Thank you very much.
Thank you very much, sir. Ladies and gentlemen, if you'd like to ask a question, please press star one on your telephone keypad. Please also ensure that your mute function is not activated until I say to reach your equipment. Once again, ladies and gentlemen, please press star one at this time. Our first question is coming from Wanda Serwinowska, calling from Credit Suisse. Please go ahead, ma'am.
Hi. Good morning, Peter. Thank you very much for the presentation. Two questions from me. One is very straightforward. If you could give us the latest KPIs, so hedging and hydro levels, that would be appreciated. The second question is about the new framework or the proposal announced by the Austrian government yesterday.
I know it's early days, it was announced only yesterday, but any color would be appreciated. I mean, first of all, is it going to be retroactive or are we talking only about the volumes to be delivered in H2 this year? Would your 2024 and 2025 hedging will also be impacted? Then, it seems the revenue cap is lower, lowered by EUR 20 per MWh , so it's going to be 140 instead of 160. Should we expect the renewables benefit to be applied again for you? Anything that you can basically help us to estimate that?
Yeah. We'll split the answer. I will talk about the announcement from our chancellor, which was done yesterday. All your questions, Wanda, are perfectly rational and fully understandable. Quite frankly, we have exactly the same questions. I will comment on that. Andreas will give you all the details in terms of, you know, hydro development. Now, we were surprised about yesterday's announcement. I think it is a result of a very intense political discussion around inflation. Inflation in Austria is higher than in most of the other European countries. This has been a topic for quite some time. Quite an emotional topic.
The opposition parties are using it to attack for obvious reasons the governing parties for not doing enough. Yesterday, the chancellor has basically come up with a way forward for the reduction of prices around electricity and for the reduction of prices around a general cost of living. The one area I would like to talk about is on the electricity prices. He has not been very clear in terms of timing. He has not been very clear in terms of exactly the way it's going to be implemented. We don't know if it's going to be retroactive or not. We don't know exactly what the framework would look like.
What he has said is that he wants retail prices for electricity to come down. If he doesn't see electricity prices for retail coming down, he would consider the levy on excess profits to be changed. That sounds to me like a condition. Whenever you have a condition, you don't know exactly what is going to happen. Obviously, retail prices for consumers is a result of many providers of electricity.
Some of them are the regional utilities, some are smaller private companies than, of course, us, although we don't have a huge market share on the retail side. It remains to be seen how and when this will be implemented, you know, this lowering of electricity prices for retail.
Only then can we evaluate if that is going to lead to a changed levy on excess profits. We have to observe exactly what the implementation will be. It will go through parliament. There will be discussions, and the discussions have already started yesterday with comments from the opposition parties.
I know that this, you know, is uncertainty going forward because you don't know exactly what is going to be the impact. At this point in time, as you know, I would always like to give you as much transparency as possible. I like to give you the numbers which we have shared with you. We don't have them at this point in time because we don't have enough information.
As soon as we have more information, obviously, we inform the markets. I think that, because this is an important topic and there is a lot of media attention, I think that over the next few weeks, media will report on a regular basis on sort of like new developments. You know, with that, I would like to hand over to Andreas, to discuss hydro.
Yeah. Hi, Wanda . Quick information about the hydro development. I think, it is in the presentation that in the first quarter, hydro coefficient was 7% below the long-term average. That had, of course, a negative impact in EBITDA of around EUR 50 million.
Now going forward, April was better, still slightly below the average. It's around 4% below the long-term average. May is, I think improving. There's a lot of rainfall now, also in the next couple of days. I guess May will be much better than the long-term average. I think, in a nutshell, in the first quarter below the long-term average. In the second quarter, it looks much better.
Given the fact that it's raining now, I guess we will have a much better hydro situation in Q2. Yeah, with regard to the hedging levels, I think the latest figure I can give you is the data from May 9th. Here, what I can say is that we have hedged so far for this year, 81% of our own generation at a price level of EUR 184 per MWh. Because short-term prices are lower, the open volumes currently would be priced at EUR 127. In a mix, mark-to-market, it would be EUR 173.2 per MWh.
Going forward, for 2024, we have hedged 48% of the volumes at the price level of EUR 155 per MWh. Again, here, let's say when we would also take into account the open volumes priced at current market prices, we would currently reach an average sales price of EUR 156 per MWh. For 2025, we have sold 37% at EUR 140 per MWh. Mark to market, it will be at roughly similar levels, so around, close to EUR 140 per MWh.
Thank you very much, Andreas. 2025, it's 47%.
It's Yeah, it's 48%. Yeah.
For 2025?
No, for which year?
2025.
Oh, sorry. In 2025, it's a 37%.
Oh, 37.
Yeah.
Thank you very much. Peter, one more quick follow-up. Thank you very much for your comments, but it doesn't really seem that if it's only 2023 at risk, it could be 2024 and 2025. Have you heard anything about the Austrian government think about the extension of the revenue card? In theory, they should be effective only until end of this year, right?
Yeah, that's correct. No, we haven't heard anything in particular. There is a possibility that it would be expanded into 2024. I can't really say anything about 2025 because, you know, it's very hard to see what electricity prices in 2025 are going to be. I'm sure that we are going to discuss the electricity prices, you know, at a later point in this conference call. Yes, you're right. There is some uncertainty. The one thing which we're seeing, both in Austria and Germany and certainly in other areas of Europe as well, is a more intense discussion around electricity prices, both for retail and for the industry.
When you observe the latest discussions in Germany, for example, where an industrial price for electricity of EUR 60 per MWh is being discussed, that reflects the overall concern, both industry and the political leadership have, vis-a-vis the competitiveness of Europe, vis-a-vis other regions of the world. I think the discussion in Germany is a very serious one, because we have already seen that very large companies, particularly on the chemical side, but other users of electricity as well, are making investment decisions outside Germany. In many, many cases outside Europe because of very high electricity prices.
This is a trend, when we're talking about billions of investments that are not happening in Germany because of high electricity prices for the industry, and I'm pretty sure that the German government will make a decision on this. There is still a discussion, you know, within the coalition, but my prediction would be that they will come up with some sort of electricity price for the German industry. And that, of course, could have an effect on Austria, because if you have a support for the German industry, let's just say all the way down to EUR 60 and the Austrian industry is paying 50% more or 100% more, that would be unacceptable.
I'm pretty sure that the Austrian government would then react in tandem with the German government. As a result of that, there continues to be, I mean, this is something, you know, this has been our theme on our conference calls for the last 18 months. You know, since gas prices started to increase even before the invasion of Russia into Ukraine. With the invasion and the following discussions, higher gas prices leading to higher electricity prices. At the same time, inflation, which is not only a result of energy prices of course, but also of, you know, the tremendous increase in money supply over the last few years and the policy of the central banks.
You know, when you mix all that together, there will be a lot of uncertainty over the next one years , two years at a minimum. I think that we just have to be prepared that decisions will be made in terms of the electricity prices. Of course, overlay is the discussion around merit order, and the discussion around capacity markets.
What you see is in Europe, we will have a very strong build-out of renewables. Synchronized with that, we need to have, it's not an option, it's a must. We need to have a dramatic build-out and investment increase in our infrastructure, otherwise we cannot integrate the renewables. All that is related to very high cost.
At the same time, with the build-up of renewables, this is a topic which we have discussed in our last conference call, we have more and more necessity. Again, this is not an option, but this is a must for backup. Renewables obviously, you know, cannot give us the system stability.
As a result of that, we need a full backup for when we don't have any wind and have no solar. That backup is going to be very expensive. The backup by definition, cannot be renewable, because we don't have enough hydro in Europe. Obviously hydro, this is the unique aspect about hydro is renewable base load, but that's the only one except for nuclear.
We have to think in Germany very, very carefully around how we're going to create the backup. Mr. Habeck has already said that he needs a huge amount of gas CCGTs as a backup. Then the question, and that is open, will be how is that going to be financed, number one. Number two, will that enter the merit order in a normal way?
Will it enter the merit order at a specific cap, or will it not even enter the merit order because it is part of the capacity markets? I'm talking about Germany because Germany obviously, you know, whatever the merit order, whatever the capacity market in Germany is going to be, will directly or indirectly have an effect on the energy market design in Austria.
Thank you very much, Karlot.
Thank you. Our next question will be coming from Mr. Harrison Williams of Morgan Stanley. Please go ahead, sir.
Hi. Morning, everyone. Thanks for taking my questions. The first is just a follow-up on what you were just mentioning about this German power price corridor. You know, it's my understanding that the state would effectively subsidize industry down to that EUR 60 per MW level, so it wouldn't be punitive on the electricity generators.
I just wanted to confirm if this was to be replicated in Austria or a similar design. Do you envisage the same sort of design, or do you think, you know, given maybe some of the comments yesterday that it could be more punitive? That's the first question. The second question relates to grid investment opportunity. I think in your previous report, you flagged APG CapEx about EUR 3.5 billion over the next 10 years.
I wonder, given we're seeing, you know, companies across Europe revise higher their CapEx expectations into transmission grids along with this renewables build-out, how much higher could that number go? You know, what would you need to see to raise your own guidance here? That's it. Thanks.
Yeah, sure. Two good points. Start with the second one. We need more CapEx in Europe, way more CapEx. In Austria, yes, we have EUR 3.5 billion in our planning, but it will be higher. The same is true for Germany, the same is true for every other European country. We will see, and we have to see huge investments into infrastructure.
If we don't make those investments into infrastructure, the energy transformation is not going to work. I don't know if you remember, but for many, many years, starting in 2015, and I remember that very well, because I'm also responsible here, not just for finance, but also for infrastructure. I said that we cannot have an energy transformation without a grid transformation.
I'm really baffled and surprised that it has taken such a long time for decision makers to understand and to realize that the infrastructure development in the energy system across Europe is a condition sine qua non. As a result of that, we need to catch up and we need to further invest. Investments are obviously more expensive and more challenging, but we will see a dramatic increase in infrastructure investments across Europe.
That's to your second point. The first point, you're right. The government has basically said, "Look, we are going to subsidize the industry from our budget." The key question is, where's the money going to come from? I mean, budget just means that they have to take it from somewhere.
They can increase debt levels, which is always a big discussion in Germany, as you know. At the same time, you know, they will have to use either money that comes in through dedicated areas which are related to electricity or that are related to energy, or they just use, you know, taxpayers' money. That remains to be seen. If the government or if the state, it's not the government, if the state would subsidize Austrian industry in the same way as we have currently heard from the German government, I don't know. It could be exactly the same procedure, the same modus operandi, but it could be different.
You know, it could be, it could be more direct, sort of like levy on the electricity industry, which will then be reallocated. That is completely, you know, that is completely in the open. That is something we don't know. I would say, you know, as always, when you have, when you have complex system changes, which we currently have, there's a relatively wide bandwidth of decision-making possibilities.
That's useful, Karlot. Thank you.
Thank you, sir. Ladies and gentlemen, once again, if you have any questions or follow-up questions, please press star one. Next question is coming from Olly Jeffery of Deutsche Bank. Please go ahead.
Thanks. Two questions, please. One to follow up on what's been said already. I guess it's two parts. One is, I mean, just to, so we're clear, and it sounds like you're implying that you think one option here could be that the Austrian government sets the power price cap at EUR 60 a MWh. Is that kind of what you're implying? Cause that's how it's coming across as a possible outcome. The second question is just, and related to this, just thinking about the impact in 2023. I mean, so far it sounds like the power price cap's down EUR 20 a MWh.
If that were applied to the full year, given you've got around 25 terawatt hours of run-of-river and you only keep 10% of the upside above the power price cap, it sounds like it could be a EUR 500 million hit, would be my estimate for the full year, if it was applied for the full year. That's assuming you can still keep the renewable CAPEX offset. If that's true, you can keep the renewable CAPEX offset. Is that EUR 500 million estimate for the full year based on that cap coming down EUR 20 a MWh correct? Those two questions were the EUR 60 point and that last one.
The last question is, just can you please confirm that for the full year, that you're still assuming EUR 100 million provision for the consumer association issue that's likely to be resolved next year, and also EUR 200 million negatives for the derivatives, just to check that hasn't changed. Thank you.
I'll start with the third one. That's the easy one. The answer is yes. The first one, I'm glad you asked, because that's not what I'm insinuating. I've been talking about the current discussion in Germany, which has centered around 60. As you know, I have said that Austria or the Austrian industry cannot ignore the fact that there is a subsidy to the German industry all the way down to 60, and Austria would be producing at much, much higher cost. That would be a huge discussion in Austria, and there could be consequences here in Austria that the Austrian government decides to do something similar.
That would not be sort of like a cap, but that would basically be from the Austrian budget, similar to the German budget, giving a subsidy to the Austrian industry. All that obviously needs to be within the EU regulatory framework. You know, subsidies are very strictly observed in Europe. We have a very strict framework for subsidies across Europe. All that remains to be seen. I've definitely not inferred or insinuated on a price cap in Austria. I'm glad you asked, yeah. Otherwise there would have been a misunderstanding on that. On the 23 numbers, I wish I could give you a number.
Obviously, I could only give you a number if I knew all the parameters, and if I knew the timing. This, you know, this comes back to what Vanda asked me at the beginning. There is still uncertainty here, and there is still uncertainty around timing, implementation, exactly how much it would be. As a result of that, you know, I shy away from giving you a number which I then have to correct because, you know, what parliament decides is going to be different from what people now insinuate from yesterday's press conference, which is just basically giving a framework with a lot of conditions attached to it.
What I would like to share with you is how much we have used for our guidance, for our current guidance in terms of levy in the different regions. In Austria, we have used around EUR 350 million. That is, you know, that's the assumption which we have used. Again, here I have to say, you know, that depends obviously on the development of the power price.
In Germany we have used around EUR 40 million, and in Romania we have used around EUR 20 million. That is sort of like that is what we have today implemented as part of our guidance. All that remains to be seen, depends on developments which I have mentioned before.
Any new levy, if it were introduced, like for example, if there were a reduction of the cap in Austria, that is something that would then be recalculated if and when we know exactly what it's going to be and from when it is going to be applied, and at that point in time, we will immediately inform you.
Thank you.
Just answer the question there, Mr. Jeffery. Oh, sorry.
Yeah. No, just had one follow-up connected to... 'Cause in your opening answer to the first question that Vanda asked, I think you said that the chancellor wants retail prices for power to come down, and if they don't come down, then they'll consider changing the excess profits levy.
Yeah.
What I want to check is your understanding of the chancellor's comments. Is he referring from the levy changing from 140 to 120, or is he referring to the new levy of 120 possibly going lower?
I think what the chancellor meant. It's always difficult when you start interpreting a sort of like, you know, press conference of politicians. I think what he meant was basically to lower from the 140 to the 120. That is my understanding. The offset of renewable investments, which is something that is very important to the government, that in my view, and I don't have, you know, detailed information obviously, but in my view it would be, it would not be changed, because it was the government which particularly mentioned, you know, when the 140 was established, that they want to incentivize the utilities to invest into renewables.
As a result of that, you know, they have come up with that concept. I think they're not going to change anything in terms of the offsetting. As a result of that, it would be, it would then be, again interpreting what has been said in the press conference yesterday, a decrease from the 140 to the 120. But with the full ability of the utilities to offset it with renewable investments up to a specific point.
Okay. Thank you very much.
You're welcome.
Thank you, sir.
We now move to Mr. Joseph Kalwada calling from Will Asset Management. Please go ahead.
Hi, good morning. Thanks for letting me on. three, four quick questions. The first one will be a cash cost. Cash cost per MWh used to be roughly EUR 20, and I'm wondering how much that has changed over the last two years. Just a ballpark number. Second question would be, can you please share the amount or the size, the retail size, in terms of volume and price for overall numbers?
The third, you just pointed out before, it's not significant, but I'd like to get an idea how big that is. The third question will be, you've done an excellent job with the forward sales with the price of EUR 188, according to the presentation, with current stock prices slightly above EUR 100.
If you go to your homepage, as a retail client, you can actually get power directly from you, the current price as of today for retail clients is EUR 310.20 per MWh. I'm just wondering, because of this obvious, very significant, excessive price gap between the forward sales, EUR 188, and the current spot price of roughly EUR 100. As shareholders, do we have to brace here for more litigation? How high is the litigation risk? As you remember from last call, you've pointed out that you have made reserves already of EUR 40 million for last year because you were sued from a consumer organization.
Yeah.
You wanna answer right away, or you just want me to get the further questions? It's up to you. Whatever is more comfortable, whatever you feel more comfortable with.
No, no, please go ahead. I thought because you said third question. Okay. No, why don't we go through all your questions.
Yeah, sure.
work through it one by one.
Yeah. Yeah. Okay. another one is actually because of this excessive pricing gap, we are talking about 300, 180 and 100 spot price. Is this? Do you feel still being compliant with the S of the ESG? Finally, the final question actually was partially covered already on the Austrian government summit from yesterday.
Would you be rather, even though we don't know yet any details of those potential framework to bring down inflation, right, and the energy industry was specifically singled out as a culprit here, right? Would you be rather, for, as VERBUND, would you be rather inclined to swallow the excess tax or would you significantly reduce the price for the retail client?
Okay.
That's a strategic question. You can answer that already. You don't have to know the details of the framework, obviously, no?
Yeah. Sure. Well, do you have any further questions or shall I start?
No, this is for the moment, but I might have follow-ons.
Yeah. Okay. Sure, sure. Well, I'll start with the last one. I don't think it is sort of like a VERBUND decision because, you know, this concerns the entire Austrian utility industry. Some of the regional utilities have a very large retail business and a very important retail business. As a result of that, I think this is going to be an interesting few weeks of a very broad discussion around a lot of different utilities in Austria, particularly on the regional side, where the share of the retail business on the overall profit and loss is much higher than in the VERBUND case. As a result of that, I can't really answer that.
You know, if theoretically, we were in control of the entire Austrian market, it would be. I think this is what you are deferring to, it would be an optimization question. It would basically be, you know, what would be more beneficial? Would it be more beneficial to reduce the retail price? Not get a levy or keep the retail price where it is and absorb the levy. Yeah. That is a purely mathematical function. On the cash cost, I'm coming to the first one and I'm looking to Andreas here to help me with the other ones, because I'm not sure if I've written down everything correctly.
I think that your first one was, has the cash cost gone up? Yes, the cash cost has gone up, but only slightly.
Can you give a specific number?
Well, I won't give you a specific number because, you know, those numbers, we usually don't give out. I can tell you that the overall cost of production at VERBUND has gone up by approximately EUR 1. In terms of-
It's pretty much still in the EUR 20 range then.
It is still.
About that.
It is still in the well, like, it is still in the EUR 20 range. That's exactly right.
Okay.
On the ESG, I know what you're referring to. You're basically, if I understood you correctly, what about your social responsibility, if your retail or consumer power price, goes up a lot? Well.
Sorry to interrupt you. Always in relationship with the forward price you have sold and the spot price, you know. We are significantly above our own average forward sales of EUR 188. That's what I'm alluding to, you know?
Yeah. Okay, good. Okay, this has not been an ESG question.
No, it's all interrelated, you know. It's just the markup, you know. If you, if your pricing policy is close to the forward sales, there's this rationality, you know?
Mm-hmm.
Everything else is just, you know, especially if you are 80% owned by the public, you know, and by government.
Yeah. Okay. I, I-
It really puzzles me, you know.
Okay. If you allow, I will keep the ESG aspect aside. I will basically focus on hedging.
Just on the back. Go back to the point. I mean, is this ESG relevant, this aggressive pricing policy or not, from your point of view?
It's not aggressive.
Okay.
It is not aggressive. This is why, this is why I was asking you if you wanted to refer to the social aspect of high consumer prices. It is not aggressive. This is all relative.
Okay.
Of course, the retail prices has gone up because the procurement costs have gone up. It's perfectly rational. The fact that electricity prices have gone up has not been caused by the utilities, but has been caused by other aspects. Therefore, I don't think it is ESG relevant.
Okay. Even though, even though our cash costs have moved by EUR 1, right?
Yeah. if you
Always to put that into perspective, the EUR 20, the EUR 100, the EUR 188, and the EUR 310. Always to put that into relationship now.
Yes. Yes. Well, you're right that when you compare production costs of... I don't even want to talk about VERBUND. I want to talk about the generation business overall. When you compare production costs to current to current energy prices, then of course you have a very large gap wherever you have generators that have very low cost of production. That is true. As a result of that, last year, we have decided to do a special dividend.
That was basically a discussion which we had with the government, where we have said, yes, there is a gap, and we want to make our contribution on top of the very large dividend which we have paid out as a result of our high earnings. That special dividend was EUR 400 million. The EUR 400 million special dividend was related to that aspect.
The, the discussion around retail, and I need to be careful because I don't want to mix up different aspects. You're right that we have provided for potentially losing the claim by the consumer association against us, but also against other utilities vis-a-vis high power prices. For that, we have provided for 23 of around EUR 100 million. Yeah.
And-
You have topped that. You have topped that. I think last call you said, EUR 40 million, right? That has topped that number.
No, we've always said EUR 100 million.
Okay.
Yeah. We've always said EUR 100 million.
Okay.
In terms of the provision, yeah, for 2023, for that specific consumer association claim. We don't know what the result is going to be, and we think it's going to take a long time, and we might even get sort of like a result from the judges only next year, only in 2024. Then, were you referring, I just want to fully understand and as you can see, I want to ask you for more details so that I can give you a full and transparent answer. Were you also implying to the current hedging levels which we have and the future prices of electricity, or was that a misunderstanding?
No, I'm just talking about what do you currently charge? This is it. Just from your home page, EUR 310. This is it. The question I actually had is how much of your total business is retail in terms of volume and in terms of price? You know what I'm saying?
How much of our total business, in terms of EBITDA or in terms of the volume of-
No, in terms of volume, sales and in terms of price.
Yeah. The volume of our retail business is approximately 1.5 TWh.
Okay. Okay, what's the percentage of the total as a percentage?
Well, our total is 25 TWh of generation. Yeah.
Okay.
It is 1.5 TWh out of 25 TWh of generation per annum.
Okay, perfect. In terms of pricing? I mean, you charge a significantly higher price with the 310, price must have a higher share then.
Yeah, I don't.
But the pro-
I don't, I don't, I don't-
Talking about the proceeds.
Can I ask you something? Please don't get me wrong.
No.
You know, you have very detailed question. We have a conference call with a lot of investors. If you don't mind, I would refer you to investor relations, and there we can go through, you know, those points in great detail, because it might take longer. You know, it might take 20 minutes , 30 minutes, we're more than happy to, you know, to respond to all those points. Would that be okay with you?
It's just basically a final question. You know, it's only. If you divide the 1.5 from the total volume, this is 6%.
Yeah.
The cash proceeds must be significantly more than 6%, right? How much are they more?
Yeah. Yeah. Yeah. That's right.
How much?
1.5 out of 25.
Yeah. How much is on a, on a cash basis? What are the proceeds for those 1.5 on average? It's, I guess, more than 6% because you charge-
No. It's, no. We, no. The retail business is loss-making.
Loss-making. Okay.
Yes, of course. Yes. The retail business is loss-making.
Okay.
The procurement cost for the retail business is higher than what we are charging.
Okay. Okay. Okay. Very interesting. Very interesting. Okay. I didn't know that. Okay.
Yeah.
Okay. Perfect.
Yeah. That's great. Look, please, you know, call us, call our investor relations department, and we will go into every gory detail, you know, you wish, and give you all the answers. We have already received feedback from analysts and investors that they would like to, you know, to continue.
Sure. Just go ahead. All right.
Thank you very much.
Thank you.
Thank you.
Bye.
Thank you, sir. Our next question is coming from Teresa Schinwald of Raiffeisen Bank International. Please go ahead, ma'am.
Thank you. Hi, thanks for taking my questions. I have a follow-up on the revenue cap and tax expense effect on EBITDA you mentioned. Could you split these by country? I think the total was EUR 69 million. That's the one thing. Your outlook on short-term prices. How is the summer?
Chess has suggested a level between EUR 120 and EUR 140 for most of the remaining year. Would you agree on that? The third one is what's your outlook on the M&A in the new renewables business with the new interest rate environment? There was certainly an impact on demand, on project economics, valuations. Do you expect to speed up your efforts and take opportunities? These would be my three questions.
Well, thank you very much. On the first one, the split would be approximately 58 in Austria, seven in Germany, 4 in Romania.
Gotcha.
On the second question on the short-term power price, that again is very difficult to judge, as you can imagine. I give you my personal opinion. I think that gas prices will continue to fall for a number of reasons. You probably know most or all of them, followed by higher gas prices when we come towards winter, of course dependent on how cold the winter is going to be, et cetera, et cetera. In terms of our M&A activity, we will continue with our path of diversification into renewables, i.e., PV and wind.
We are constantly observing the market, and we are looking at opportunities, in, you know, in the core regions, i.e., in Austria and Germany, but also in Spain, in Italy, in Romania. We analyze opportunities, and when we feel that it fits, we do it. In terms of interest rates, I will share that with Andreas, as Andreas is our interest rate expert. He's also responsible for the treasury, as you know, and I will hand over to him on interest rate expectations. I will also give you my views afterwards. Please, Andreas.
Yeah, Teresa. I mean, I'm not sure why you're exactly referring to the interest rate expectations, but I'm sure you know exactly where rates currently are. Rates have moved up, and this is of course a topic which we have to reflect into our capital costs when we do M&A. What we also reflect in our financing assumptions when we do M&A. Currently of course, we expect, according to the developments in the market, that short-term rates will further increase by one or two steps. When we go into long term, let's see. I mean, we have, I think, an inverse yield curve and, yeah. This is our expectations.
Short term increase on the long term. On the long term, we will see in the coming years how interest rates will develop, but we expect the inverse price curve or the inverse yield curve to stay for a, let's say, a couple of months. Yeah.
Can I?
Sure, please.
Can I make a quick comment? Sorry. I think There was a misunderstanding. I was referring to the general yield environment, having an impact on the availability and attractiveness of.
Oh, okay.
of renewables projects and especially financial investors interest. Now, for the global investors, obviously the change in interest rate environment changed the attractiveness of some of the renewables projects. It was more geared towards the opportunities that might arise for the utilities players in the sphere.
Yeah. Teresa, I think, the higher yield environment of course has an impact on investors' behavior, and that's what we currently see, of course, that some of the business models of the past, of some of the investors may not work anymore. There is, I think, a change in behavior. Nevertheless, there is still a lot of money, let's say, in the market. If you're referring to if we see, let's say, a decline in investors' interest in inorganic opportunities, I would deny that. We still have a lot of interest. There's a lot of money here.
The market is still hot, because there is a strong intention of let's say, in a way of mainly of maybe more of industrial investors now to build up significant portfolios in renewables. Of course, it's more tricky now because it's more challenging now because we see the aforementioned political impact, which makes it more difficult to predict cash flows.
I think, we have this inflationary environment which directly corresponds into asset costs as and of course, into resulting CapEx. This is all, of course, more challenging going forward, and the rise in the interest rate environment as we mentioned before. It's more challenging.
I would say this increases in any case, capital costs and the various hurdle rates which investors are applying. Yeah. It's, it's the same for us, of course, when we participate into processes. Yeah. I would say in a nutshell, still, a hot market. A lot of investors' interest may be currently more from industrial investors, but there's still a lot of money, let's say, in the sector, with pressure to be invested into renewables. Yeah.
Thank you.
Thank you much, ma'am. Ladies and gentlemen, we only have time for one more question, and that next question is coming from Mr. Piotr Dzieciolowski, Morgan Stanley. Please go ahead. Your line is open.
Hi. Good afternoon, everybody. Thank you for squeezing me in. I have two questions, please. Firstly, I wanted to ask, go back to this discussion about the possible additional measures on the windfall taxes. Last year you've done some action, preemptive action to kind of show your contribution to, you know, you offer the special dividend, and then you offer special scheme for suppliers.
This year numbers seems to be better year-on-year than last year based on your guidance. Would you consider similar step of interactions in form of whatever you can think of, whether dividend or special offers? Then on supply prices, you know, reading these words of Mr. Chancellor, how is that possible that you see the offers coming lower quicker on the supply segment, whereas you're already making losses because of the high procurement cost and you are a really small part of the market? Is there any reason why the other suppliers would have a, you know, some room to offer lower prices or they would have to accept the losses and therefore all of the logic is not going to work and therefore we will see these measures?
Yeah. I'll start with the second one. I agree with you. It's going to be, it's going to be very complex. It remains to be seen what the effect on inflation is going to be. I think, you know, I understand the cooking that has happened, but I don't know what the results will be, and how tasty it will be, and how effective it will be. I think a lot of discussion needs to go into what has been said yesterday. I think that it needs to be carefully evaluated what the real impact on inflation would be, because that is the driver. The entire discussion has been around high inflation in Austria.
That has been the, I would say, the single catalyst for what happened yesterday. Yesterday was focused on electricity and food. The food industry has said the food prices are high because of electricity prices. Yeah. That was a quick and easy answer, right?
Yeah. I was just thinking like, you know, if we talk about the retail prices, there is no way. Why would VERBUND ever offer the lower prices having a minus EUR 100 million EBITDA? Is that possible? Your procurement co-cost profile is going down massively lower or that's fixed for the year.
Yes. Yes. No, exactly. We're already Sort of like our retail business is already loss-making. As a result of that, if we lowered more, then we would have more losses in our retail business. The question is going to be, and this is, you know, why at the outset I said, it is very hard to really put, you know, to put a timing, specific figures, specific rules on it, because how is the government going to do it?
Is the government going to expect that there will be a move from all the players across Austria to lower prices to retail in tandem? Yes. No. I don't know. How will that be done? There are currently a lot of different prices, from the regional, from the regional utilities.
There's not all have the same prices. There are different prices. There are different bonus schemes, et cetera, et cetera. I mean, this is an open market, right? That remains to be seen. Of course, how is if the prices were lowered on the retail side, how is it going to be calculated, what the impact on inflation is going to be? Because it could well be that there is no impact on inflation because there are other parameters. You know, inflation, as we all know, is very complex. And if you look at the European Central Bank, the Federal Reserve, and most of the economists, they can't even predict inflation for six months or nine months. Yeah.
How are we going to calculate the impact on Austrian inflation, you know, by sort of like short-term measures as reducing some of the food prices and the reduction of electricity prices? Yes, I basically agree with you that it is going to be, it's going to be very complex. The implementation is very complex, and the calculation of the effect is going to be, is going to be difficult. It's very difficult to pinpoint if there were a reduction in inflation, is it really coming from that or is it coming from other aspects, which is easily possible.
That is a real tough one, and I'm sure that in three months when we have our next conference call, we will discuss this point in great detail, hopefully with much more flesh and with much more facts and much more data points. On your first one, you are right. We have taken preemptive action. By preemptive action, we have reacted very quickly, and we have also reacted in a way that we were doing something for everybody. i.e. a special dividend doesn't only go to the Republic of Austria, but it also goes to you.
Now, with the levy for 23, with the new discussions, and with the large number of contributions which we have to make anyway. You know, the levy on excess profits, number one. Then with our higher earnings, obviously higher tax to the government. Of course, with higher earnings, our, you know, our dividend is going to be higher.
At the same time, we have, as you know, a very strong commitment to making investments into infrastructure and to make investments into renewables. If you take all that together, I don't think that we are going to have a special dividend in 23. Yeah. I cannot say an absolute no, but I don't think that we're going to pay a special dividend.
Just very last quick squeezing in. We've seen the, you know, cash conversion significantly above 100% versus the BTA. This is, as I understand, the recovery over variation margins. Is that going to continue for the next couple of quarters? How much of this variation margins by the end of the year you expect them to recover?
Yeah, well, that's an interesting one. I will share the answer with Andreas, because Andreas is looking at the sort of like, you know, at the variation margins at the, you know, at our margining provisions, the cash which we require on a daily basis. If you assume that gas prices, as I have said before, if you assume that gas prices will come down as a result of that, electricity prices will come down. Of course, the margin requirements will come down. Having said all that, and Andreas, you know, please add. As a result of that, we could see less cash flowing towards the exchanges.
And this is an important but, we don't know what will happen. And we have decided, we as a board have decided that we want to be prepared for short-term hikes as a result of things which we cannot predict today. And as a result of that, we are prepared, and we have enough availability for for cash, access to cash, that we can cover even very, very large short-term increases in power prices. Yeah. As a result of, I don't know, acts of terrorism, whatever it is. Yeah. Andreas.
Piotr, I think you recognized it very well. I think in Q1, I think the cash will improve by about EUR 1 billion because the net debt, sorry, the net debt, decreased by about EUR 1 billion. It's because on a quarterly comparison, I think there's roughly EUR 800 million-EUR 900 million difference in margining.
We currently have still outstanding around EUR 1.1 billion-EUR 1.2 billion of margining, which is a relatively constant figure, I would say. You know, we are proceeding with our hedging strategy, we are further selling our, let's say, electricity through futures, but also of course forwards. There is still also for new positions, for new trading positions, we need the flexibility.
It's difficult to predict. What Piotr said is we are very cautious because it's unpredictable, and we have decided to keep financial flexibility at very high levels until or over wintertime, at least until Q2 next year. Yeah. I for the time being, I think in our planning, we assume a relatively constant marginal requirement, which is around EUR 1 billion for this year. Yeah.
Okay. Thank you very much.
Thank you very much, sir. Ladies and gentlemen, that will conclude today's question and answer session. I turn the call back over to Mr. Kollmann for any additional or closing remarks. Thank you.
Yes. I would like to thank you for a very active, dynamic and interesting discussion, for your many questions which you have had. I fully understand, particularly as you know, we had news yesterday, only yesterday, and we had our conference call today. I can assure you that we will provide you with facts and figures, as soon as we have more clarity, on the regulatory framework. I very much look forward to talking to all of you in three months. All the best and have a wonderful day. Bye-bye.
Thank you much, sir. Ladies and gentlemen, that will conclude this conference. I thank you for your attendance. You may now disconnect. Have a good day and goodbye.