Dear, ladies and gentlemen, welcome to the conference call of Verbund AG. At our customer's 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. May I now hand you over to Peter Coleman, who will lead you through this conference.
Please go ahead.
Ladies and gentlemen, welcome to our presentation. Let me thank you for joining today's conference call. Before we move into the analysis, let me make a general comment about the business development of the 1st 3 quarters. Overall, the development of the energy environment continued to be positive for Fobond. With increasing wholesale prices for electricity, mainly driven by the rise in CO2 and for primary energy sources like coal, oil and gas.
As a fixed cost generator being a price taken in a market where wholesale prices are still determined by coal fired power plants, there is almost no other utility in Europe benefiting like us. At the same time, we have seen historically dry months in July, August September. And as you know, next to the price, the hydro availability is an important parameter on our results. Our current strategic positioning and the consequent focus on free cash flow with the resulting quick deleveraging in the last years was honored by the rating agencies in September when Verbund received an upgrade from SMP from BBB plus stable outlook to A- stable outlook and from Moody's from BAA2 positive outlook to BAA1 positive outlook. Against this background, I'll now present the figures for the 1st 3 quarters 2018.
As always at the beginning, let me highlight the most important influencing factors for the results development in the 1st three quarters. Hydro availability in the 1st three quarters was below the long term average but slightly higher than last year. Hydro availability in the Q3 was on historic low levels. Contribution from the grid segment was higher than in the 1st 3 quarters 2017, mainly due to lower expenses for concession management. The efficiency increase in cost cutting programs over the past contributed positively.
The contribution from our flexibility products was lower than compared to the record year 2017, but it's higher than originally planned. The overall impact of these influencing factors on the key figures in the 1st 3 quarters 2018 was positive. Reported EBITDA increased by 2.3 percent to SEK 680,000,000 adjusted EBITDA by 2.1 percent to SEK 6 77. The reported group result was higher by around 5% to CHF 282,800,000. The adjusted group result was up by 10% to EUR 278,000,000.
The operating cash was very strong at a level of CHF 542,000,000, representing an increase of 12%. The free cash flow before dividends was positive at the level of SEK 389,000,000, an increase of 21.5%. That allowed us to reduce the debt levels further. Net debt decreased by 7.4% to a level of SEK 2,633,000,000. Due to the very poor hydro situation in the Q3, we adjust our outlook for 2018.
We now expect an EBITDA of approximately EUR 870,000,000 and the group results of approximately EUR 340,000,000 based on average hydro and wind conditions for the last quarter of 2018. Verbund plans a payout ratio between 40% 45% on the adjusted group result for 2018, amounting to approximately €335,000,000 In the following charts, I will explain the influencing factors on the results development in more detail. Let me start with the analysis of our own generation volumes. Generation volumes in total were slightly lower in total compared to last year. Own production from hydropower increased by 4 55 gigawatt hours or 2% compared to the 1st 3 quarters 2017.
At 0.96, the hydro coefficients, which, as you know, is an index quantifying the hydropower generation of the Rand River power plants, was 2 percentage points above the level of 2017, but 4 percentage points below the long term average due to the dry weather conditions with almost no precipitation in the Q3. Generation from storage power plants, however, increased by 6.2%. Generation from thermal power plants was down by 47.8% or close to 800 gigawatt hours, stemming mainly from the decreased use of the CCGT MELA for flexibility services. Generation from wind power also decreased by 96 gigawatt hours or 14% due to less favorable wind conditions. A second important influencing factor on Cobunge's results are the average achieved contract prices.
At the end of the 1st 3 quarters 2018, we have hedged approximately 96% of our hydro generation at an average price of €29,200,000 compared to €30.4 for full year 2017. Please note that the majority of the hedging volumes for 2018 were hedged in early 2017 when prices were much lower. €1 per megawatt hour plus or minus has a sensitivity of approximately €25,000,000 in the EBITDA line. On a mark to market basis, as of the 17th October 2018, we calculate with the price of €31.1 per megawatt hour, which is higher than the level for the full year 2017. Now with regards and I'm on the next slide now, with regards to the development of Flexibility Products, let me remind you that 2017 has been an exceptional year because of many influencing factors having been very supportive.
In the first 3 quarters 2018, we had a contribution from Control Energy, concession management, grid system services, intraday trading and reserve and pumping operations of approximately SEK 115,000,000 up to EUR 140,000,000 in the corresponding period of 2017, representing a decrease of 18%. However, for 2018, we increased our guidance for the EBITDA contribution from originally €130,000,000 to approximately €160,000,000 The reason for the increase of the guidance is the higher than expected demand for concession management services because of the severe drought in Central Europe. Now on the next page, as you know from our last conference calls, the Austrian high voltage grid with a system length of approximately 7,000 kilometers and an interconnect the capacities into 7 neighboring countries is strategically of high importance for the group because of its growing importance in the European grid system and its regulated character. However, despite its regulated character, volatility in the results contribution cannot be avoided under IFRS in contrast to local GAAP. Why?
Because on the IFRS, the application of the regulatory account as a balancing tool for surpluses and shortfalls of actual returns compared to the allowed regulated return is not allowed. What are the main differences? First, revenue surpluses or shortfalls on the IFRS are not utilized or compensated by the regulatory accounts under IFRS, no rate provisions or asset line items are recognized, and IFRS uses different depreciation basis, useful lives and capitalization of borrowing costs in comparison to local GAAP. The chart on the left hand side provides you with the comparison between EBITDA according to local GAAP and EBITDA according to IFRS for the 1st 3 quarters 2018 in comparison with the 1st 3 quarters 2017 and our guidance for the full year 2018. EBITDA from the grid business strongly increased from SEK 94,000,000 to SEK 158,000,000 under IFRS.
The reason for the increase is mainly lower than planned expenses for concession management. We keep our guidance at approximately EUR 160,000,000 according to local GAAP and slightly decreased the guidance from approximately SEK 210,000,000 to approximately SEK 200,000,000 according to IFRS. The next slide shows the nonrecurring effects in the 1st 3 quarters. All of the nonrecurring effects have already been reported in the half year results and are of minor significance, but are of importance because they influence the basis for the dividend payout ratio. Just as a reminder, the positive one off effect in other operating expenses resulted from the adjustment of a provision for dismantling cost in connection with the resolution of an open issue with EVN amounting to EUR 800,000.
Impairment test conducted resulted in a reverse look impairment amounting to EUR 6,200,000 and was also related to the resolution of an open issue with EVN in relation to the power plants, Durnroe and Konigberg. In total, the operating results showed nonrecurring effects of EUR 6,900,000. After considering the impact from the nonrecurring effect above on taxes amounting to EUR 1,700,000 I should say minus EUR 1,700,000, the overall nonrecurring effects on a group result level amounted to approximately EUR 5,000,000. The nonrecurring effects in the 1st 3 quarters 2017 are also shown so that you have a comparison. Andreas Wallan will take us through the key financial figures and liabilities?
Please Andreas.
Yes. Thank you. So Slide 8 shows the development of the most relevant key financial figures. Reported and adjusted EBITDA both increased despite the low hydro levels by €14,900,000 or 0.3 percent to €678,400,000 and €14,200,000 or 2.1 percent to €677,700,000 respectively. This increase is mainly attributable to the grid segment, which was up by €64,000,000 mainly due to higher contributions from congestion management.
In addition, the cost reduction and efficiency increase programs of the past had a positive effect on the results development. These effects were counterbalanced by lower EBITDA contributions from the Renewables segment, which was down by €17,500,000 due to the slightly lower achieved average price this year to date. EBITDA in all other segments was also down by €38,100,000 stemming mainly from lower results in the Thermal segment because of lower congestion management services. Depreciation decreased by 4.9% due to the sale of assets and impairments last year. The financial result improved by 17.6% due to the higher results from our participation in the provincial utility, KELAG, as well as lower interest expenses because of planned as well as unplanned debt repayments.
The reported group result, therefore, increased by €13,300,000 or 4.9%. Adjusted for nonrecurring FX, the group result increased by €25,400,000 or 10.1%. The EBITDA margin increased from a level of 13.7% to 32.6%, reflecting on the EBITDA level. The EBIT margin showed a comparable increase up to 21.1%. Finally, I would like to mention the additions to tangible assets, which were based on our CapEx spend slightly up to a level of €167,000,000 D and D additions concerned mainly the investments into the modernization of our Austrian hydro power plants as well as investments into the grid business.
On Slide 9, we show the development of our cash flow figures and debt figures. The operating cash flow in the 3rd 3 quarters 2018 increased compared to the 3rd 3 quarters 2017. Despite the low hydro availability, it showed an increase of 12% to €542,100,000 due to lower payments for congestion management services in the grid segment and lower interest payments as a result of the deleveraging. Higher tax payments and lower revenues in the Renewables segment had an opposing effect. The free cash flow before dividends was strong and showed an increase from EUR 320,200,000 to a level of EUR 389,000,000.
Net debt correspondingly decreased to around €2,600,000,000 Gearing decreased from 50% at the end of 2017 to a level of around 46% at the end of the 1st 3 quarters 2018. Now to the financial liabilities. On this chart, you see the debt maturity profile. It shows a remaining repayment of EUR 149,000,000 in 2018 in December, consisting of the scheduled and unscheduled final and partial repayment of loans. The debt maturity profile shows 2 peaks, 1 in 2019, mainly consisting of a fixed interest bond in the amount of EUR 683,000,000 and 1 in 2024, also mainly consisting of a fixed interest fund in the amount of €500,000,000 For liquidity backup, Koppunde has access to a €500,000,000 syndicated loan facility, which is undrawn, has no MAC laws and is available until 2019.
We are currently in the process of refinancing this facility. The book is access to uncommitted lines with a large number of banks after the amount of approximately EUR 5 70,000,000 as well. The total amount of our financial liabilities is approximately EUR 1,900,000,000 The average interest rate on our debt is around 3.7%, 98 percent of our debt are subject to fixed interest rates. As already mentioned by Peter, the ratings of opportunity have been upgraded in Q3 and are now among the best within the European utility sector. S and P rating is currently at a minus stable outlook, Moody's rating at BAA1 with a positive outlook.
The rating development is a result of the numerous measures Fotbult has taken in the past to increase cash flows and to strongly improving market environment for the Fotbult business model with rising commodity and CO2 prices. Now I would like to hand over again
to Peter,
presenting the outlook for 2018.
Thank you, Andreas. At the end of the results presentation, we always look at both the outlook and the hedging going forward for 2019 2020, which you will find interesting. You know the key parameters for the development of the operational business are prices and hydro volumes. With regard to the price update on hedging of our own production, the mark to market figures reflect the strongly improved wholesale electricity prices, which is, of course, a major driver. At the end of the 1st 3 quarters 2018, we have hedged approximately 57% of our hydro generation at an average price of €32,900,000 for 2019, which is approximately EUR 2.5 above the level of the full year 2017.
On a mark to market basis, as of October 2017, 2018, the average achieved price would be at a level of EUR 43.4 which is approximately EUR 13 above the 2017 level. For 2020, we have so far hedged approximately 23% at a price of €43,100,000 On a mark to market basis, the average achieved price would be at a level of €51,500,000 With regard to the year to date hydro situation, we have to report a hydro coefficient of 0.94, that is as of 17th October, which is 6 percentage points below the long term average. On the basis of the historically weak hydro conditions in the Q3, the new guidance for the full year 2018 is an EBITDA of approximately EUR 870,000,000 and the group result of approximately EUR 340,000,000. Under the assumption of average hydro and wind generation in the last quarter 2018, those are the numbers. Verbund plans to pay out between 40% 45% of the group result 2018 after adjustment for nonrecurring effects amounting to approximately EUR 335,000,000.
As always, at this point, we want to highlight the sensitivities. A deviation of plusminus 1% in the generation from hydropower has an impact of plusminus EUR 2,200,000 in the group results, A deviation of plusminus 1% in the generation from wind power has an impact of plusminus EUR 0.1000000 in the group results. And finally, a deviation of plusminus €1,000,000 in the wholesale price has an impact of €700,000. Now thank you very much for your attention. And now let's move into Q and A.
Thank you. We've received the first question. It comes from Wanda Srivinozka. Please go ahead. Your line is now open.
Good morning. Wanda Srivnowska, Credit Suisse. Three questions for me, if I may. So firstly, could you please bridge a change in the EBITDA guidance? Because you cut the EBITDA guidance by EUR 80,000,000, of which minus EUR 10 is the grid, plus EUR 30 is the flexibility product.
So my question would be the delta is EUR 100,000,000. Is it a pure impact from lower revenues? Or is there something else there? My second question would be if you could comment on the potential impact on the German Ocean Power Zones, please. I know it's early days, but some time ago, ahead of the trading business, global trading business, that it will be negative.
Is there anything that you can share with us? And lastly, on your dividend policy, given your improved financial situation and the improved power price outlook, would you consider coming back to a higher and long term dividend policy? Thank you very much.
Thank you, Vanda. I will start with the 3rd one, with the dividend policy. At the moment, we remain at the 40% to 45% of our adjusted earnings. The border question is an important one, and we are observing it as closely as all the other market participants. As you have said yourself, it is early days.
We
had unusual dry weather. As a result of that, you cannot really take those 2 months as a guidance for a perfectly normalized situation. As a result of that, I would be very careful with deriving from the current spot differences to what the long term differences between Germany and Austria would be. As soon as we have more data points, possibly on the next conference call or maybe even later, we will give you more guidance on this. For the time being, I would say that all the studies which were produced before the frontier was established, that we're talking about a €3 difference, that is still something I would use as a guidance in your assumptions as a price difference between the 2.
Now the first one, the change in the EBITDA guidance, the impact, where is it coming from? It is, in fact, coming mainly from a very, very dry July, August September. When we say dry, we're talking very dry. We're looking at the last 100 years for a long term average for the hydro coefficients. We look at deviations over those 100 years.
And what we have seen, an accumulation of 3 very dry months is, in fact, among the worst dry periods over the last 100 years. So it is very exceptional, and this is where the key impact is coming from. However, also related to the very dry months, we had higher concession management because of the low water levels. There was the need for rebalancing the grid. And as a result of that, higher congestion management demand, as we had originally expected, that counterbalanced the very dry months to a certain extent.
And then, of course, we had on the grid, you remember what the original guidance had been at the beginning of the year. There, we have seen less expenses for Control Energy and less expenses for Congestion Management. As a result of that, the grid contribution overall this year is higher than we had originally expected. So those are the 3 key factors which really contribute to the difference to the original guidance.
So if I may follow-up, because you lowered your 2018 guidance on the generation by 2 terawatt hours. So is it fair to assume that the missing EUR 100,000,000 is related to terawatt Yes. Or missing something?
No, it is always a combination. The complexity comes from when you have lower hydro levels, there are 2 effects Well, there can be 2 effects. When you have very low hydro levels, I should say, you can have 2 effects. Number 1, you're selling much less. You have, at the same time, a higher level of power prices.
And when the water level is very low, as we have seen, you actually need to buy back in the market because you have already contracts where you have to deliver. So we had a situation of 2 factors. Number 1, we had to buy back to a certain extent, right, because the hydro levels were below the long term average of what we hedge, which is 80% of the hydro coefficient of 1.0. And in addition to that, we had lower volumes, which would have been able to sell at the higher prices. It's a combination of those two aspects, which give you the overall impact in terms of the low hydro levels, right?
So it's not just the power price, it is a combination of all factors.
Okay. Thank you very much.
Thank
And we've received another question of Lueder Schumacher of SocGen. Please go ahead. Your line is now open.
Yes. Good morning. A few questions from me. The first one is on the outlook. Normally, you always apply the hydro coefficient of 1.0 for the remaining quarters.
Now given that October's but hydro conditions haven't really improved, that was still rather poor in October. Have you taken this into account when giving us your new full year outlook? Or is this just based on the usual $1,000,000 for the entire quarter? That's the first question. The second question is the €160,000,000 of Flexibility Products.
Could you give us a breakdown by division? Where should we expect to find this? And lastly, life is good, cash flows are strong. Could you give us an idea where you see full year net debt? And ideally also where do you see the full year financial result?
Yes.
Duda, you always ask for the breakdown on the flexibility products. I hope that
I get it eventually.
And we never really give it. However, last time, I've given you some guidance, and I will do that again. The major contribution from the flexibility products, the largest contribution from the flexibility products comes from congestion management. That is almost 50%, yes, of the overall flexibility products. The control energy is the second most important one.
Then we have pumping and reverse operations and finally, the intraday trading contribution to the flexibility products. So in addition, that gives you approximately the EUR 160,000,000. In terms of the full year, that was your first statement you have made. And you're right. We always use the 1.0 hydro coefficient for the rest of the year.
We have not deviated from that. But you're also right that not just July or September, but also October and partly November has been dry months. So the dryness the overall dryness has continued. And if we take the year to date hydro coefficients, we are at the moment at 0.94, yes? So that shows you that despite the fact that we had very dry months for a relatively long period of time because we had such wet months at the beginning of the year, the overall year to date hydrocoficient is still 0.94, which is only 6% away from the long term average, yes?
So that is something you have to keep in mind. And on the net debt number, Andreas Wallen will respond to that, please. That was where is our full net debt level going to be at the end of the year?
At the end of the year, we expect a net debt level of around SEK 2,400,000,000 roughly. This is a figure, the current planning figure. And coming back to the split in the flexibility product, Nudor. What we can give you and I think that's what we always communicated is a split down the segments. So 40% roughly goes into the Renewables segment, 20% goes into the sales segment and 40% into all other segments because it's related to the thermal power plant, Mela.
Perfect. Thank you very much. Can I just ask the financial result, full year financial result, what should we be looking for there?
Enlighten us. When you say financial results, which ones are you talking about?
The what was it 36.8 at the 9 month stage?
The 36.8, you percent, you would you tell us what you mean with the 36.8 percent?
Sorry. At the just going into your P and L, I thought that was clear. You've got a financial result of $36,800,000 for the 9 months.
Yes, yes, yes. Okay.
What should this be looking like for the full year?
Yes. The in the financial results, the main contribution is from Kellogg. And that is a figure which you can use.
What we expect for the full year is a financial result of minus roughly minus €50,000,000 in total.
Minus €50,000,000 perfect.
Yes, consisting but also consisting of the income from participating interests, So the plan.
Okay, very clear. Thank you.
Thank you. The next question is from Domenic Olszewski of Morgan Stanley.
Two questions on numbers and guidance and one on kind of a longer term question. Firstly, on the guidance, does the 2018 guidance assume this EUR 3 per megawatt hour spread that you mentioned as starting from the 1st October, so that spread between Austria and German power markets? And the second question on hedging for 2020. The total hedged volume has gone up by, it looks, an equivalent amount to the amount that the auction downside protection has decreased. So I was just wondering whether you could explain how we should think about that.
Does that basically reflect a systematic hedging profile? Or is there a different approach to hedging?
I would just be curious to hear your thoughts
on that. And then the long term question relates to the recent press speculation and discussion with regards to your largest shareholder taking a more active role in managing state ownerships. Have you had increased discussions on that? Are you limited to discuss what those discussions are about? And does would that lead to a potential change in dividend approach?
Yes. I will start with the third one.
Yes, there has been a lot of price speculation because in terms of how the government manages our ownership has changed. For a very, very long period of time, we had kind of sort of like a dual reporting line, if you want to. On the one hand, we were owned by the Ministry of Economy. The Ministry of Economy was responsible for us in terms of the management of the government stake. The ownership is still with the Republic of Austria.
The management of the stake will move into the Ministry of Finance. Our dividend has always gone to the Ministry of Finance. So yes, there is a lot of press speculation, but at the end of the day, there will not be big changes. I don't predict any changes on the dividend in terms of the management. I think that the holding company, which is managing Telecom Austria, the Austrian Post, OMV and now for bund, I.
E, all the companies where the Republic of Austria has a stake, will certainly be very professional, very much shareholder oriented, and that is something which we are looking forward to. Then on the €3, yes, we have used the €3 in terms of our guidance, the differentiation. If we have more data points, if we have more information which is tangible and usable, then of course, we use that if and when it comes. And in terms of the 2020 hedging level, Andreas is going to respond to that.
Yes, Dominik, we have for 2020, we have this is the latest figure we have. So we have hedged around 20 3% physically at a price of 40 let me check, of €43.1 per megawatt hour. This is the current figure. You're right when you say that the amount of options which we take as a downside protection have been reduced. So we have sold some options into the market and changed it against future.
So the current status is that we have hedged 23% higher futures.
Okay, understood. Thank you.
Thank you. The next question we've received is from Duncan Scott of Deutsche Bank. Please go ahead. Your line is now open.
Hi, thanks for taking my questions. Firstly, on the Renewables business, I mean, if I'm looking at the revenue from your renewables segment in Q3 and the volumes in Q3, is it implying a power price and a cheap price for the quarter around €29, obviously it's well below the sort of power price for the quarter. Is this simply an effect of volumes being hedged back when the power price is much lower? And then also your hydro conditions, hydrogations limiting your ability to sell into the spot market? And then secondly, it's going back to an earlier question on the hydro conditions in Q4.
You said a coefficient of 0.94, I think it was year to date, but also that October November have been very dry so far. So does assuming a coefficient of 1 for the rest of the year, does that feel like your guidance might be slightly optimistic there? Any thoughts there would be really helpful. Yes,
sure. Now in terms of the your first question, We and that is something I mentioned before. The 2018 figures are low in comparison to where the power prices are today because we have seen a very dramatic increase in power prices. We have obviously hedged 18 months ahead of time. At the time, power prices were much, much lower.
And quite frankly, nobody predicted for power prices to move up so fast, so much. As a result of that, the only way to take advantage of the high spot prices would be a high volume because on the basis of the high volume, that high volume, you could actually sell in the spot market and take advantage of the higher prices. However, when you have a very dry situation as we have had for the last few months, we have not been able to actually sell at those high prices in the spot market. In the contrary, from time to time, because of our delivery commitments, we had to actually buy at those high prices in order to be able to make our deliveries, yes? That is and this is why I emphasize the fact that this is a historic situation, I.
E, that happens very rarely that for a prolonged period of time, we have seen such a dry month, Yes? But that is I hope that answers your question vis a vis how do you take advantage of higher power prices in the spot market? And the next question was on the hydro coefficient. Yes, the hydro coefficient year to date is 0.94. If we continue until the end of the year to have very low water levels, which as I always say on those conference calls, we don't know because when we had a super wet beginning of the year, where the numbers were almost 20% below the long term average, we never expected that, that would be turning into one of the historically dry periods, which we have seen.
So also for the rest of the year, it is very hard to predict. We could have a very wet rest of the year, maybe not. So that is exactly why, as we always do, we give the sensitivities because that is something we don't know because weather forecasting even for a few days is difficult, let alone for 2, 4, 6 weeks. And the other point is that those sensitivities you have on the hydro levels, but also, of course, on the power price, in the combination of the 2, which is exactly why we give those sensitivities on every conference call every quarter. I hope that answers your question.
Yes. Thank you. Very helpful.
Thank you. We have our next question from Theresa Schoenweid of RBC. Please go ahead. Your line is
now open. Hello. Good morning. I have 2 different issues of questions. 1st, is there already been an assessment of the flood damages that happened recently?
And maybe are they even included in the guidance? And my second question revolves around the reserve contracts that Melach is now working on. Would this market change also in the flexibility product earnings? Or what can we expect in terms of earnings impact from this contract?
Okay, great. I will start with the with your second question, and Andreas will respond to your first one. On the Melas situation, that has not been concluded yet. As a result of that, I cannot give you very specifically what the result is. However, what I can tell you is that we have been negotiating for quite some time on that long term grid reserve, which originally we discussed the reserve for around 5 years.
Now the discussion is 3 years, and I think that it will most likely be for 3 years. What does it mean? It means that we are basically which at the end of the day only consists of our gas C, which is similar, replaced by a quasi regulated return, which will be one specific number for the next 3 years. And as soon as we have that number, we will obviously give it to you. I would assume that in our next conference call, we can tell you what the grid reserve results of our discussions with the regulator will be.
Andreas, could you respond to the
floods we had here in the southern parts of Austria, as far as we can say now, I think based on the experiences we made in the past, we have been very well prepared for the blood. And as a consequence, and we can keep it very simple here, we have no major damages in power plants here in Austria. And also as a consequence, there is no direct impact into our earnings.
Great. Thanks a lot.
Thank you. The next question comes from Ingo Becker of Kepler Cheuvreux. Please go ahead. Your line is now open.
Yes. Good morning. Two questions. First, your sorry, that's a bit of a boring one. Your trade receivables and the trade payables more than doubled, respectively, to over $1,000,000,000 I was just wondering why that happened.
The second one, I think despite the lower generation from turbines this year, you had a lot of this offset by the comparatively high reservoir levels at the start of the year. I was just wondering if we should expect a negative year over year effect from reservoirs next year even if the hydro coefficient is normal.
Okay. I'll start with the with your last question on the reservoir. We don't in terms of pumping and reverse operations, that is part of the that is actually part of our flexibility products. There, we don't expect big changes, yes? It is more than we had in the 1st 3 quarters of 2017.
But in terms of sort of like the guidance, that is not something where we expect a big difference, I. E, the guidance on the Flexibility Products. And in terms of the you mentioned at the start of the year in terms of the reservoirs was good. That is correct. In terms of the strategy around the reservoir, it is part of our, call it, trading optimization, I.
E, the way we manage the reservoirs is that we try to sell the reservoirs at the highest possible price, which we basically need to predict almost like one day ahead. And depending on where we see the price developments and where we see the combination of volume versus price, That is part of our trading algorithms. That is part of our anticipation of price levels, short term price levels, and that is how we manage the reservoirs. This is on the this is basically a combination of the pumping. The pumping makes it more complex because with the pumping, we don't just have to make assumptions on where we sell and how much we sell.
There, of course, we also have to make assumptions on when do we pump. Obviously, that needs to be done at the lowest possible levels in order to increase the pump spread, yes? But the advantage which we have is that we don't just have the pumping reverse on our reservoirs, but we have the natural water inflows into the reservoirs, which actually makes a big difference and which makes the reservoirs very interesting because the inflows are very large, and that allows us sort of like for an overall optimization.
Peter, can I just inquire? So the very rare weather pattern this year did not have any effect on the operating capabilities of your reservoirs going forward?
So on the first question, Andreas will respond to the trading.
Yes. This is very simple. It's related. I mean, you saw the strong price increases in the market and the increase in receivables and liabilities, short term liabilities. It's based on the fact that it's a mark to market valuation of our, let's say, trading positions, which we have, but is at more or less close positions in the balance sheet.
So this is an increase, which will be unwinded more or less in the course of next year, step by step when the future contracts, the 1 year future contracts will be realized.
Thank you. As there are no further questions, I would hand back to you, Mr. Coleman.
Yes. Thank you very much for your many questions and for your interest. And we will talk again for our next conference call for the full year result 2018. Thank you very much, and good day.
Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect.