Dear ladies and gentlemen, welcome to the conference call on the quarter 1 2019 results of Sjogmund AG. At our customers' request, this conference will be recorded. As a reminder, all participants will be in a listen only mode. After the presentation, there will be an opportunity to ask questions. I now hand you over to Peter Kollmann, who will lead you through this conference.
Please go ahead, sir.
Thank you. I'm here with Andreas Waldein. Let us welcome you to the presentation of FORGUNE for the Q1 2019, and let me thank you for joining today's conference call. Before we move into the analysis of the business development of FUBBOMB, let me make a few general comments about the Q1. The year 2019 started very well for Vogt.
We were positively impacted by increasing contract prices for electricity and the hydro coefficient far above the long term average. Key figures reflect this favorable energy market and operating environment. Verbund's low cost base and the restructuring efforts of the past have supported this positive development. The strategic positioning of Verbund as almost 100% CO2 free, renewable producer with stable returns from the high voltage grid perfectly enables us to respond to future demands arising from changes in the energy world. Against this background, let me now present the figures for the Q1.
At the beginning, I will highlight the most important influencing factors. Following the development of long term futures prices at the electricity exchange
and based
on our long term hedging strategy for our own electricity generation, the average achieved contract price was higher due to increased forward and spot prices for electricity. The hydro coefficient determining the generation from our Round of River hydropower plants was considerably higher than the long term average and above the record levels of the Q1 2018. Furthermore, we achieved lower contributions from flexibility products, especially congestion management. We had higher contributions from the Grid segment and continued positive effects from our cost cutting and efficiency programs, which we implemented in the past few years. The impact of these factors on the key figures are as follows.
Our EBITDA increased by 28.9 percent to €348,000,000 and the group result increased by 46.5 percent to 178,100,000. The operating cash flow is very strong at the level of 378,000,000, which is a plus of 27%. The free cash flow after dividends was positive at a level of 305,000,000, dollars representing an increase of almost 27% and allowed us to reduce the debt level further. Net debt decreased by 6.3% to the level of $2,400,000,000 Now based on these results developments and the increasing level of our hedging, we narrowed the guidance range for 2019. We now expect for 2019 an EBITDA between approximately $1,100,000,000 to $1,200,000,000 and a group result between approximately $470,000,000 to $540,000,000 The payout ratio will be between 40% and 45% of our adjusted group results.
Now in the following charts, I will explain the influencing factors in more detail. Let me start with an analysis of our own generation volumes. With regard to the hydro coefficient, we saw, as I mentioned before, an excellent start into 2019. At 1.21, the hydro coefficients, which as you know is an index quantifying the hydropower generation of the run river power plants, was 4% above the level of the Q1 2018 and 21 percentage points above the long term average. However, the production from our annual storage power plants decreased by 21% due to reduced lowering of water levels and less turbine.
Home production from hydropower, therefore, slightly decreased by 1% compared to the Q1 2018. Now the generation from thermal power plants was also down by 15.3% or 69 kilowatt hours stemming from the decreased use of our CCGP in Mela for congestion management. Generation from wind power, however, increased by 28 gigawatt hours or close to 11% due to more favorable wind conditions, both in Germany and Austria. A second important parameter on Fabun's results, of course, the average achieved contract prices At the end of the Q1, based on our hedging strategy, we achieved an average contract price for our hydro generation of €37,800,000 Please note that we have already hedged approximately 80% of the volumes for 2019. On a mark to market basis, as of the 25th April, we calculate with a price of slightly above €40 And you know that €1,000,000 has a sensitivity of approximately €25,000,000 on our EBITDA line.
Now the next page of flexibility products. As you know, one of the major trends in the new energy world is an increasing volatility in the entire European grid system coming from mainly coming from the massive development of renewables. With our very flexible asset base consisting of CO2 free, low cost pump storage power plants and the most modern CCGT in Austria, we are very well positioned to benefit from this trend through the sale of our Flexibility products. After results of $44,000,000 in the Q1 2018 from Flexibility products, we registered the value of $23,000,000 in the Q1 2019. Now where is this decrease coming from?
Mainly from lower contributions from concession management. Please also note that since October 2018, Mellach has been put into a strategic reserve mechanism in Austria under which we received a fixed capacity payment and a payment for the generation. As a consequence, we have changed an unpredictable volatile cash flow against the secure stable cash flow for a period of 3 years. For 2019, we adjusted our guidance for flexibility products from originally €100,000,000 to approximately €90,000,000 Now on the next chart, when we go into the high voltage grid, as you know, we have interconnected capacities into 7 neighboring countries, strategically a very important asset for us as the entire European grid system gains importance. Furthermore, we very much like the regulated character of this business.
Under IFRS, in contrast to local GAAP, we have high volatility in the result contribution. This is because of main difference between IFRS and local GAAP. The chart on the left hand side provides you with a comparison between EBITDA according to local GAAP and the EBITDA according to IFRS for the Q1 2019 compared to the Q1 2018 as well as our guidance for 2019. The EBITDA from the grid business under IFRS increased to €98,000,000 mainly due to high contributions margins from concession management. Also note that we adjusted our IFRS guidance for 2019 upwards from originally €170,000,000 to now €230,000,000 Finally, I would like to remind you that the current regulatory period started on the 1st January 2018 with the WACC of 4.88%, pretax for existing assets and 5.2%, including an investment market for new assets, therefore, an average of approximately 5%.
The regulatory period loss from 2018 to 2022, the regulated asset base for 2019 is approximately RMB1.5 billion. The next slide shows how the effects described before influenced our key financial figures. EBITDA increased by $77,900,000 or 28.9 percent to $348,000,000 This increase is a result of the Renewable Generation segment, which was up by $81,000,000 mainly due to high achieved contract prices for electricity, as I mentioned before. EBITDA in the Grid segment was $7,600,000 higher. In addition, the cost reduction and efficiency increase programs continue to have a positive effect on the results development.
These effects were slightly counterbalanced by lower EBITDA contributions from all other segments being down by €11,000,000 mainly from lower results in the Thermal segment. Depreciation increased by 7,700,000 dollars due to the depreciation of usage rights in connection with the first application of IFRS 16. The financial result improved by 86.5 percent to minus 2,200,000 dollars due to higher earnings contributions from Kellogg as well as lower interest rates because of plans as well as unplanned repayments. In addition, the other financial result increased due to the positive measurement of securities according to IFRS 9. The group results, therefore, increased by 56,500,000 or 46.5 percent to $178,100,000 The EBITDA margin remained unchanged at the level of 36%.
The EBIT margin slightly increased from a level of 25.1 percent to 26.8%, reflecting the above mentioned effects. Finally, I would like to mention the additions to tangible assets, which were based on our increased CapEx plan above the previous year's level of $48,100,000 Additions concerned mainly investments into the modernization of our Austrian hydropower plants as well as investments into the grid. On next page, you see our operating cash flow, which increased substantially compared to the Q1 of 2018, we show an increase of 27% to €380,000,000 mainly due to higher achieved contract prices for electricity, higher tax payments had a contrary effect. The free cash flow after dividends showed an increase from $240,000,000 to a level of 305 point dollars dollars gearing decreased from 43,000,000,000 at the end of 2018 to 38% at the end of the Q1 2019. Now let me take you through Verbund's financial liabilities and the debt maturity profile.
The debt maturity profile shows the remaining repayment of $710,000,000 in 2019, mainly consisting of a fixed interest bond in the amount of $683,500,000 dollars The debt maturity profile for the following year shows another peak in 2024 with repayments of 525,000,000 mainly consisting of a fixed interest bond in the amount of €500,000,000 For liquidity backup, Verbund has access to a €500,000,000 syndicated loan facility, which is undrawn, has no MEC clause and is available until 2023 with 2 extension options. The facility has been renewed in December and the rating grid is solely linked to the ESG rating of Verbund, which is a worldwide innovation. Verbund has access to uncommitted lines with a large number of banks up to an amount of approximately $672,000,000 as well. The total amount of our financial liability is approximately $1,800,000,000 The average interest rate on our debt is approximately 3.7%, 98% of our debt are subject to fixed interest and 100% of our financial liabilities are denominated in euros. Our rating remains unchanged.
S and P rating of Agron is still at single A-, stable outlook. The Moody's rating is at BAA1 with a positive outlook. The rating development is a result of the numerous measures, which we have taken in the past to increase our cash flow and the strongly improved market environment. Now a short reminder on the next page on our updated CapEx plan. The volume of our CapEx plan has roughly doubled compared to the previous year, reflecting decreased investments into our regulated grid business and a better market environment for investments into our hydropower business.
Total CapEx for the 3 year period between 2019 2021 is more than $1,800,000,000 which is split into growth CapEx of €175,000,000 and maintenance CapEx of 959,000,000 dollars Please also take into account that we currently calculate new projects, accept projects into the regulated business at a WACC of 5% and a hurdle rate of WACC plus 2%. The main part of the growth CapEx, approximately €6,000,000,000 to €7,000,000 will be invested into the regulated grid business, especially into the 380 kilowatt sales spot line in order to increase the capacity to integrate new renewables and better address the volatility and concession in the grid system. At DKK 224,000,000 will be invested into renewables, the biggest project being the construction of Turan River Palfa and Tugging in that area, the project which we acquired in 209 when we bought the hydropower plant for the River Inn. In addition to the growth CapEx, we are planning to invest around $559,000,000 into maintenance between 2019 2021, approximately $300,000,000 per year. Maintenance CapEx has increased because we invest much more into efficiency improvement projects into the hydropower segment.
At the end of the results presentation, the outlook for 2019, As you know, key parameters for the development of the operational business are prices and hydro volumes. At the end of the Q1 2019, we have hedged approximately 45% for hydro generation at an average price of €49,400, which is approximately €20.1 above the level of the full year 2018. On a mark to market basis, as of April 25, 2019, the average achieved price would be at a level of €51,900,000 which is approximately €22,600,000 above the 2018 level. We have also hedged approximately 7% of our hydro generation at an average price of €44,400,000 for 2021. The mark to market valuation shows a level of €51.3 for 2021.
With regard to the year to date hydro situation, we have to report a very positive hydro coefficient of 1.18 as of the 25th April 2019, which is 20% above the long term average. Because of the high hedging levels, we have narrowed our guidance for the full year 2019, and we are now expecting an EBITDA of approximately $1,100,000,000 to $1,200,000,000 and the group results approximately between $470,000,000 $540,000,000 under the assumption of average hydro and wind generation
for the quarters 2 to
4 as well as the chances and risk situation of the group. For financial year 2019, Verbund plans to pay out between 40% 45% of the group results after adjustment for nonrecurring effect. As always, at the end, we want to highlight our sensitivities. A deviation of plusminus1% in the generation from hydropower has an impact of plusminus €5,500,000 and the group result, a deviation of plusminus 1% in the generation from wind power has an impact of plusminus €500,000 and a deviation of plusminus €1,000,000 in the wholesale price has an impact of plusminus €3,700,000 in the group results. With that, I would like to hand over to Q and A.
Thank you very much.
Thank you. First question we received is from Duncan Scott of Deutsche Bank. Your line is now open, sir.
Good morning. Thanks for taking my question. I just wanted to ask about the full year guidance. So you've increased your guidance in the grid segment by £60,000,000 and you've lowered your guidance on the flexibility products by £10,000,000 so net increase was £50,000,000 The midpoint of the full year guidance range for EBITDA has only increased by £25,000,000 however. So is this not an implicit downgrade of the full year guidance for the Renewables and Sales segments?
And given the excellent hydro conditions year to date and strength of power prices, does this not feel very conservative?
Yes. It is conservative. We as we have discussed, we had a very, very good start to the year with the very strong hydro conditions. We have a decrease in the concession management. Actually, we have a decrease in all the flexibility products, which is the reason why we lowered our guidance on the flexibility products.
At the same time, mainly because of concession management, but also because of IFRS 16, we have, as you have rightly pointed out, an increase in the guidance on the grid level. Overall, we're seeing a lot of volatility in the power price. So we have decided at this stage that we are going to increase the lower end of our guidance range. But at this point, we decided that we're not going to increase the higher end of the guidance range. We're observing another quarter, and we will then make another adjustment on our guidance at the end of the next quarter.
Okay. Thank you.
The next question received is from Andreas Bokker of SocGen. Your line is now open, sir.
Good morning. Well, 3 or rather 2.5 questions from my side. The first one is easy. It's just on the hydro coefficient year to date. I'm not quite sure if I called the numbers.
Is it 1.19? That will be easy one. The second one, it appears to be that your costs in the generation segment have come down quite a lot. Is that some kind of timing issue there? Or can we assume that this should remain at the same rate for the remainder of the year?
And lastly, this is going back to the first question you received. It's not only the grid guidance, the €60,000,000
take off
the fixed products. But you also expect 0.8 terawatt hours more hydro output. It's now 26 terawatt hours instead of 25.2 percent. And that's, I guess, is ignoring the hydro conditions that remain very strong. So also in the same direction, I mean, I know you like to be very, very conservative this time of the summer, but there seem to be many moving parts that are moving just in the right direction.
So just lifting the bottom of your guidance a bit it seems to be a bit odd.
Yes. Lueder, let me come to
the various points. But first of all, yes, it is conservative. Yes, there are a number of areas which are moving into our direction. That is true. I've mentioned before that we are extremely well positioned for the current environment.
I think we're also very well positioned for any future developments in the combination of a highly competitive generation combined with the very stable grid. But at the same time, what we have seen in the last few years, we have seen
a lot of
volatility. When we look at the Flexibility Products, you might recall that in 2016, we had 200,000,000 dollars contribution from Flexibility Products. Last year, we had around $150,000,000 contribution. Now we are estimating that we are going to have a EUR 90,000,000 contribution. We had an extremely dry historically dry quarters, the Q3 and the Q4 last year, which frankly we didn't expect.
We had a very good start of the year last year. So yes, there are a lot of moving parts. Those moving parts a lot of those moving parts are moving into our direction, but we are still in at a point of this year where a number of things can change. And this is why we have come to the conclusion that, yes, we're going to increase the lower part, but we have not yet increased the higher part of our guidance. In terms of the cost base, the cost base is highly competitive in terms of our hydropower generation.
It has come down over the last few years. Going forward, I would say that it is going to remain stable. There are no particular changes in terms of our cost base overall. There could be slight changes coming from the grid contributions, which has to be paid by generation. But apart from that, the cost base remains to be stable and highly competitive.
Lueder, I think that should cover the 2.5 questions which you have had. No, on the one thing missing, the hydro coefficient. If you take the hydro coefficient of the Q1 and you assume the hydro coefficient for the remainder of the year to be at 1.0, the hydro coefficient for the whole year would be 1.04. And year to date, it is 1.17.
1.17. That's great. Yes.
So I just have a
10 pet wonder. So the 26 terawatt hours of hydro output you assume for the full year, that is just based on the 1.21 for Q1 and then 1 for the remainder of the year. Is that correct?
That is absolutely correct, yes.
Okay. Thank you.
We received the next question from Tania Marklas from Commerzbank AG. Your line is open, madam.
Yes. Good morning. I would be interested in your CapEx program. To what extent you may be willing to extend your offshore wind for you as well and which regions
could be attractive at which?
Yes. In terms of
our CapEx plan, in our CapEx plan, which you have seen in the presentation and which we have included in the full year presentation, we have no particular CapEx planned for onshore wind. The CapEx plan for the next 3 years, which has almost doubled, basically includes hydropower and grid. On the grid, we have this very, very large investment called the Salzburg line, which is the last segment of the 3 HE JV ring going around Austria, which would be a very important contribution to the grid stability in the country, but also for the surrounding countries. If we see opportunities, both on the wind side and or on the solar side, within the EU, we are going to take advantage of that. We are we obviously have huge expertise in renewable production.
We also have a lot of experience and know how in merchant production. As a result of that, if we see opportunities that are close to our business and close to our expertise, that is something we're going to look at. In terms of the hurdle rate, we are going to use the same hurdle rates as we're using for hydro, I. E. We will use our WACC plus the 2%.
Thank you very much.
We received the next question is from Louis Rojas from ODDO VHF.
I have 3, in fact, if I may. The first one is regarding the grid and the IFRS question. Is it 3 years in a row that your local GAAP EBITDA is below the IFRS EBITDA contribution. I was wondering if we should expect next year the trend to reverse because debt is different consideration against the accounts, which is not the case of IFRS. Shall we consider that there is risk that start in 2020 as the local GAAP might be above the IFRS reduced in terms of EBITDA contribution?
And the second question is regarding hydro. So I'm sorry, I think that you gave some explanation on it, but maybe I missed it. I see that your reservoir are indeed pretty high and that means that your production and your output was slightly lower than last year. Could you please remind us what was the reason for the deviation between the level of the reservoir and the actual output that has been slightly below last year? Is there any maintenance effect or something that I need during the explanation?
And the last question is regarding your debt. You have a large bullet that will have to be refinanced this year, 2019. I was wondering if you could remind us what is the interest rate attached to this notes, please? Thank you very much.
Yes. Three questions. Question 23, and Andreas is going to talk about the grid IFRS question. Let me start with the last one, the large bullet. The interest rate related to that repayment is 4.75%.
So as a result of that repayment, we are going to lower our average interest rate significantly. It was 0.1. 0.2. Yes, U. S, if I understand you correctly, you asked the question why The reason is that we have a very sophisticated program how we are running our reservoirs.
So it is basically a question of optimizing when we are pumping and when we are selling. And we are constantly every day, we're constantly evaluating also in terms of our future expectations of prices both on a daily, on a weekly, on a monthly basis, when it makes sense to pump and when it makes sense to sell. As a result of that, you see differences, which are a result of that optimization, yes? But there is no specific maintenance reason. There is no specific other reason.
Otherwise, I would have mentioned it. Andreas?
Yes. Maybe to add to the last question, which Peter answered. I think you're fully right. We have not produced significant volumes, let's say, from our storage power plants
in the
Q1. But we have now very high storage levels available for the Q2. So there is additional potential compared to last year because of what Peter said before, it's an optimization topic. We had good hydro situation in Q1, so we didn't have to use the storage for the Q2. So we have here more potential available.
With regard to the debt question, it's also a point of refinancing. As far as you know that we have a €680,000,000 repayment scheduled for the mid of July this year. Based on the very good liquidity position, you can see that on our balance sheet. We currently, we have not a plan to refinance that. So we will do only a very small portion of that on a short term basis and refinance that in the money market at very, very low rates.
So you can assume that for, let's say, until the end of the year, the average interest rate goes down significantly. The third question with regard to the Greek business. It is absolutely right what you were saying that we have now a couple of years, consecutive years in the Greek business with higher returns and higher profits than allowed under the regulatory regime. As you know, the surplus is bundled or in a so called regulatory account. We have currently, I think, a little bit more than €200,000,000 in total on the regulatory account.
It is up to the regulator to decide how he wants to use this the funds in the regulatory account. Our best guess currently is that he will decide or he will use this the funds in the regulatory accountants and over a couple of years. So there is a split likely over, let's say, a 5 or 10 years period where this regulatory account will be reduced. And as a consequence, there will be an annual cash outflow and also a reduction in the grid result in the next years compared to the regulatory allowed one. So this is the answer to your question.
It's a little bit complex, but unfortunately, as we always have explained, the system is complex to explain.
As far as there are no further questions, I hand back to Peter Kaldmann.
I would like to thank you for joining our conference call. I would like to thank you for the Q and A and look forward to speaking to you for the next quarter results. Bye bye.