Dear ladies and gentlemen, welcome to the conference call on the Q1 2019 results of VERBUND 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. If any participant has difficulties hearing the conference, please press star key followed by zero on your telephone keypad for operator assistance. May 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 Wollein. Let us welcome you to the presentation of VERBUND for the first quarter of 2019, and let me thank you for joining today's conference call. Before we move into the analysis of the business development of VERBUND, let me make a few general comments about the first quarter. The year 2019 started very well for VERBUND. We were positively impacted by increasing contract prices for electricity, and a hydro coefficient far above the long-term average. Key figures reflect this favorable energy market and operative 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 first quarter. At the beginning, I will highlight the most important influencing factors. Following the development of long-term future 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 run-of-river hydropower plants was considerably higher than the long-term average, and above the record levels of the first quarter 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% to EUR 348 million, and the group result increased by 46.5% to EUR 178.1 million. The operating cash flow is very strong at a level of EUR 378 million, which is a +27%. The free cash flow after dividends was positive at a level of EUR 305 million, representing an increase of almost 27%, and allowed us to reduce the debt level further. Net debt decreased by 6.3% to a level of EUR 2.4 billion. 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 EUR 1.1 billion to EUR 1.2 billion, and a group result between approximately EUR 470 million to EUR 540 million. The payout ratio will be between 40% and 45% of our adjusted group results. 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 coefficient, which as you know is an index quantifying the hydropower generation of the run-of-river power plants, was 4% above the level of the first quarter 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 snowmelt. Own production from hydropower, therefore, slightly decreased by 1% compared to the first quarter 2018. The generation from thermal power plants was also down by 15.3% or 69 gigawatt hours, stemming from the decreased use of our CCGT in Mellach 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 VERBUND's results, of course, the average achieved contract prices. At the end of the first quarter, based on our hedging strategy, we achieved an average contract price for our hydro generation of EUR 37.8. Please note that we have already hedged approximately 80% of the volumes for 2019. On a mark-to-market basis, as of the 25th of April, we calculate with a price of slightly above EUR 40, and you know that EUR 1 has a sensitivity of approximately EUR 25 million on our EBITDA line. 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, mainly coming from the massive development of renewables. With our very flexible asset base consisting of CO2-free, low-cost pumped 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 a result of EUR 44 million in the first quarter of 2018 from flexibility products, we registered a value of EUR 23 million in the first quarter of 2019. Where is this decrease coming from? Mainly from lower contributions from congestion management. Please also note that since October 2018, Mellach has been put into a strategic reserve mechanism in Austria, under which we receive a fixed capacity payment and a payment for the generation.
In consequence, we have changed an unpredictable, volatile cash flow against a secure, stable cash flow for a period of three years. For 2019, we adjusted our guidance for flexibility products from originally EUR 100 million to approximately EUR 90 million. On the next chart, we go into the high voltage grid. As you know, we have interconnected capacities into seven 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 results contribution. This is because of the 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 first quarter 2019 compared to the first quarter 2018, as well as our guidance for 2019. EBITDA from the grid business under IFRS increased to EUR 98 million, mainly due to high contributions margins from congestion management. Note that we adjusted our IFRS guidance for 2019 upwards from originally EUR 170 million to now EUR 230 million. Finally, I would like to remind you that the current regulatory period started on the 1st of January 2018 with a WACC of 4.88%, pre-tax for existing assets and 5.2%, including an investment markup for new assets. Therefore, an average of approximately 5%. The regulatory period lasts from 2018 to 2022. The regulated asset base for 2019 is approximately EUR 1.5 billion.
The next slide shows how the effects described before influenced our key financial figures. EBITDA increased by EUR 77.9 million or 28.9% to EUR 348 million. This increase is a result of the renewable generation segment, which was up by EUR 81 million, mainly due to high achieved contract prices for electricity, as I mentioned before. EBITDA in the grid segment was EUR 7.6 million 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 EUR 11 million. Mainly from lower results in the thermal segment. Depreciation increased by EUR 7.7 million due to the depreciation of usage rights in connection with the first application of IFRS 16.
The financial result improved by 86.5% to EUR -2.2 million due to higher earnings contributions from KELAG, as well as lower interest rates because of planned 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 EUR 56.5 million or 46.5% to EUR 178.1 million. The EBITDA margin remained unchanged at a level of 36%. The EBIT margin slightly increased from a level of 25.1% 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 EUR 48.1 million. 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 first quarter of 2018. We show an increase of 27% to EUR 380 million, 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 EUR 240 million to a level of EUR 305.6 million. Net debt correspondingly decreased to around EUR 2.4 billion from EUR 2.6 billion. Gearing decreased from 43% at the end of 2018 to 38% at the end of the first quarter 2019. Now, let me take you through VERBUND's financial liabilities and the debt maturity profile. The debt maturity profile shows a remaining repayment of EUR 710 million in 2019, mainly consisting of a fixed interest bond in the amount of EUR 683.5 million.
The debt maturity profile for the following year shows another peak in 2024, with repayments of EUR 525 million, mainly consisting of a fixed interest bond in the amount of half a billion. For liquidity backup, VERBUND has access to a EUR 500 million syndicated loan facility, which is undrawn, has no MAC clause, and is available until 2023 with two extension options. The facility has been renewed in December, and the rating grade 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 EUR 672 million as well. The total amount of our financial liability is approximately EUR 1.8 billion. The average interest rate on our debt is approximately 3.7%. 98% of our debt is subject to fixed interest, and 100% of our financial liabilities are denominated in euros.
Our rating remains unchanged. S&P rating of VERBUND is still at single A minus, stable outlook. The Moody's rating is a 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 to strongly improve the market environment. 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 increased investments into our regulated grid business and a better market environment for investments into our hydropower business. Total CapEx for this three-year period between 2019 and 2021 is more than EUR 1.8 billion, which is split into growth CapEx of EUR 175 million and maintenance CapEx of EUR 959 million.
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 EUR 614 million, will be invested into the regulated grid business, especially into the 380-kilovolt Salzburgleitung, in order to increase the capacity to integrate new renewables and better address the volatility and congestion in the grid system. EUR 224 million will be invested into renewables, the biggest project being the construction of two run-of-river power plants on Töging in this area. A project which we acquired in 2009 when we bought the hydropower plant on the River Inn. In addition to the growth CapEx, we are planning to invest around EUR 959 million into maintenance between 2019 and 2021, approximately EUR 300 million per year.
The 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 first quarter 2019, we have hedged approximately 45% for hydro generation at an average price of EUR 49.4, which is approximately EUR 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 EUR 51.9, which is approximately EUR 22.6 above the 2018 level. We've also hedged approximately 7% of our hydro generation at an average price of EUR 44.4 for 2021. The mark-to-market valuation shows a level of EUR 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 of April, 2019, which is 20% above the long-term average. We have narrowed our guidance for the full year 2019, and we're now expecting an EBITDA of approximately EUR 1.1 billion-EUR 1.2 billion, and the group results approximately between EUR 470 million and EUR 540 million under the assumption of average hydro and wind generation for the quarters two to four, as well as the chances and risk situation of the group. For financial year 2019, VERBUND plans to pay out between 40% and 45% of the group results after adjustment for non-recurring effects. As always, at the end, we want to highlight our sensitivities. A deviation of ±1% in a generation from hydropower has an impact of ±EUR 5.5 million.
In the group results, a deviation of ±1% in the generation from wind power has an impact of ±EUR 0.5 million, and a deviation of ±EUR 1 in the wholesale price has an impact of ±EUR 3.7 million in the group results. With that, I would like to hand over to Q&A. Thank you very much.
Thank you. Dear ladies and gentlemen, we will now begin our question and answer session. If you have a question for our speakers, please dial 01 on the telephone keypad now to enter the queue. Once your name has been announced, you can ask a question. If you find your question answered before it's your turn to speak, you can dial 02 to cancel your question. If you're using speaker equipment today, connect the handset before making your selection. One moment, please, for the first question. The first question we received is from Duncan Scott of Deutsche Bank. The line is now open, sir.
Good morning. Thanks for taking my question. I just wanted to ask about the full-year guidance. You've increased your guidance in the grid segment by EUR 60 million, and you've lowered your guidance on the flexibility products by about EUR 10 million. Net increase is EUR 50 million. The midpoint of the full-year guidance range for EBITDA has only increased by EUR 25 million, however. Is this not an implicit downgrade of the full-year guidance for the renewables and sales segments? Given the excellent hydro conditions year to date and strength in power prices, does this not feel very conservative? Thank you.
Yes. It is conservative. As we have discussed, we had a very good start to the year with the very strong hydro conditions. We have a decrease in the congestion 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 congestion 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. We have decided at this stage that we are going to increase the lower end of our guidance range. At this point, we decided that we're not going to increase the higher end of the guidance range.
We are 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 Ulrich Schumacher of SocGen. Your line is now open, sir.
Good morning. Three or rather two and a half 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 caught the number. Is it 1.19? That is the 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? Lastly, this is going back to the first question you received, it's not only the grid guidance, the EUR 60 million take of the fixed products, but you also expect 0.8 terawatt-hours more hydro output. It's now 26 terawatt-hours. It's instead of 25.2. That, I guess, is ignoring the hydro conditions that remain very strong.
Output in the same direction. I know you like to be very conservative this side of the summer, there seem to be many moving parts that are moving just in the right direction. Just lifting the bottom of your guidance a bit seems to be a bit off.
Lueder, let me come to the various points. 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 are also very well-positioned for any future developments in a combination of a highly competitive generation combined with the very stable grid. At the same time, what we have seen in the last few years, we have seen a lot of volatility. When we look at flexibility products, you might recall that in 2016, we had EUR 200 million contribution from flexibility products. Last year, we had around EUR 150 million contribution. Now we are estimating that we're going to have the EUR 90 million contribution.
We had an extremely historically dry quarters, the third quarter and the fourth quarter last year, which quite frankly, we didn't expect. We had a very good start of the year last year. Yes, there are a lot of moving parts. A lot of those moving parts are moving into our direction, we are still at a point of the year where a number of things can change. This is why we have come to the conclusion that, yes, we're going to increase the lower part, 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, that there are no particular changes in terms of our cost base overall. There could be slight changes coming from the grid contributions which have to be paid by generation. Apart from that, the cost base remains to be stable and highly competitive. Luna, I think that it should cover the two and a half questions which you have had. Only one thing missing, the hydro coefficients. If you take the hydro coefficient of the first quarter 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. Year to date, it is 1.17.
1.17. That's great. Thank you.
Yeah.
Sorry, just have a look at one there. 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 1.0 for the remainder of the year. Is that correct?
That is absolutely correct, yes.
Okay. Thank you.
We received the next question. It is from Tanja Markhard from Commerzbank AG. You are live. Welcome, madam.
Yeah, good morning. I would be interested in your CapEx program, to what extent you may be willing to extend your offshore wind portfolio as well, and which regions could be attractive at which rates?
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 plan for onshore wind. The CapEx plan for the next three years, which has almost doubled, basically includes hydropower and grid. On the grid, we have this very large investment called the Salzburgleitung, which is the last segment of the 380 kV ring going around Austria, which will 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 obviously have a 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 IE. We're going to use WACC plus the 2%.
Thank you very much.
Ladies and gentlemen, as a reminder, if you would like to ask a question, please press 01 on your telephone keypad now. The next question is from Lueder Schumacher from Oddo BHF. You may now open, sir.
Yes. Hi, Lueder Schumacher. Thank you for taking my question. I have three, in fact, if I may. The first one is regarding the grid and the IFRS question. It has been three 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 we know that local GAAP is taken into consideration regulatory accounts, which is not the case of IFRS. Shall we consider that there is risks that starting 2020, as a local GAAP might be above the IFRS schedule in terms of EBITDA contribution? The second question is regarding Hydro. 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. In the meantime, 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 missed during the explanation? 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 note, please. Thank you very much.
Three questions. I will cover questions 2 and 3. Andreas is going to talk about the grid IFRS question. Let me start with your last one, the large bullet. The interest rate related to that repayment is 4.75%. As a result of that repayment, we are going to lower our average interest rate significantly. It was 0.1, 0.2. Yes. If I understand you correctly, you asked the question why the production from our reservoirs has come down in comparison to the first quarter of last year. The reason is that we have a very sophisticated program, how we are running our reservoirs. It is basically a question of optimizing when we are pumping and when we are selling.
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. There is no specific maintenance reason. There is no specific other reason, otherwise I would've mentioned it. Andreas.
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 first quarter. We have now very high storage levels available for the second quarter. 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. We didn't get to use the storage. For the second quarter, 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 EUR 680 million repayment scheduled for the middle of July this year. Based on the very good liquidity position, you can see that on our balance sheet.
Currently, we have not a plan to refinance that, so we do only a very small portion of that on a short-term basis and refinance that in the money market at very low rates. 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 grid business. It is absolutely right what you were saying, that we have now a couple of consecutive years in the grid 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 EUR 200 million in total on the regulatory account, and it's up to the regulator to decide how he wants to use the funds in the regulatory account.
Our best guess currently is that he will use the funds in the regulatory accounts over a couple of years. There is a split likely over, let's say, a 5 or 10 years period where this regulatory account will be reduced. 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. 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.
Thank you. It's very clear.
As far as there are no further questions, I hand back to Peter Kollmann.
I would like to thank you for joining our conference call. I would like to thank you for the Q&A. Look forward to speaking to you for the next quarter results. Bye-bye.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.