Ladies and gentlemen, welcome to the VERBUND AG conference call on the first quarter of 2025 results. I am George, the call operator. I would like to remind you that all participants will be listed on the board, and the conference will be recorded. The presentation will be followed by a Q&A session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and zero. The conference must not be recorded for publication or broadcast. At this time, it’s my pleasure to hand over to Peter Kollmann. Please go ahead.
Thank you very much. I'm here with Andreas Wollein. Let me welcome you to our presentation of VERBUND's first quarter 2025 results, and let me thank you for joining today's conference call. The development of the first quarter 2025 was characterized by ongoing geopolitical uncertainties, increasing risk related to the consequences of the tariff policies triggered by the US government, and, of course, regulatory uncertainties. In Austria, the new government expanded the taxation of windfall profits. In these highly volatile markets, VERBUND presents a solid business development for the first quarter. Now, let me highlight the most important influencing factors for the first quarter at a glance, and let me highlight two of them. First of all, the hydro coefficient, and then the average achieved contract prices. The hydro coefficient, which, as you know, determines the generation from our run-of-river hydropower plants, was significantly lower compared to last year.
At a level of 0.83, it was 17 percentage points below the long-term average and 46 percentage points below the first quarter 2024. The reason for the decline was an extraordinarily low snow level and little rainfall, and, as a consequence, a low hydro availability in the melting season. However, the average achieved contract price increased by EUR 8.7 to EUR 126.8 compared to the first quarter 2024, mainly because of limited sales at the beginning of 2023 and from November 2023 onwards as part of our hedging policy. This allowed VERBUND to benefit from the still high futures for electricity at that time and clearly shows that, despite being in a phase of normalization of power prices, volatility is still high. Now, let me go into more detail for the results. I’m starting with the hedging volumes. There you see that our hedging is highly relevant for our results.
You know that one euro plus or minus has a sensitivity of approximately EUR 25 million in the EBITDA line. The development of the average achieved contract prices reflects the backwardation of the electricity futures and the normalization I mentioned before. As of 31st of March 2025, we had sold 76% of our own generation volumes for 2025 at a price of EUR 116.8. For 2026, we had sold 43% of the generation volumes at a price of EUR 80.3, and for 2027, we had sold 1% of the generation volumes at a price of EUR 88. On a mark-to-market basis, with prices as of 30th of April 2025, the average achieved contract price for 2025 is EUR 109.4, for 2026 EUR 82.4, and for 2027 EUR 79.4.
Now, on the next page, let me comment on some developments in the various business segments of VERBUND, and let me start with the hydro segment. At 0.83, the hydro coefficient was 17 percentage points below the long-term average and 46 percentage points below the level of the first quarter of 2024. Production from annual storage power plants decreased by 4.8%. Own production from hydropower therefore decreased overall by 2,425 gigawatt-hours, or 30.7%, to 5,468 gigawatt-hours compared to the first quarter of 2024. The decreased volumes could not be compensated by the higher average achieved contract prices. Therefore, EBITDA in the hydro segment decreased by 32.7% to EUR 480.7 million. Regarding CAPEX, 2025 will be marked by the planned COD of two important projects.
Number one, the Limburg three-pump storage power plant project, which increases the flexible pumping capacity by 480 megawatts, as well as the 14-megawatt Stegenwald run-of-river power plant project.
Now, taking a look at the EBITDA development of the new renewable segment, we see a slight increase of 4% to an EBITDA amounting to close to EUR 60 million. The increase, despite lower production volumes, is a result of higher average prices. VERBUND operates currently approximately 1.2 gigawatts of new renewables in Spain, Austria, Germany, and Romania. In the first quarter, we have made final investment decisions for approximately 600 megawatts of additional capacity in Spain. It is part of the approximately 1.6 gigawatts of renewable pipeline, which we are going to build between 2025 and 2027. Now, we are coming to the sales segment. Taking a look at the EBITDA development here, we see that EBITDA strongly increased to a positive value of EUR 36.6 million. Why? We were able to stabilize the earnings development in the end customer business.
The EBITDA in the retail business improved from minus EUR 24 million in 2024 to a level of EUR 7 million. Now, the EBITDA in the trading business was more or less unchanged. Contributions from flexibility products slightly decreased by EUR 0.5 million. The improvement is a result of the implementation of several measures to increase our profitability, like an optimized electricity procurement strategy and some cost-cutting measures. Now, we're coming to the grid segment. As you know, the grid segment consists of our regulated electricity high-voltage grid and our gas grid. The EBITDA from the electricity grid business, according to IFRS, was approximately EUR 127 million. That's an increase of EUR 42 million. Why this increase? It is mainly due to higher contributions from auctions following the high price spread between the Austrian and the German market and as a result of congestion management.
As a result of that, we have also raised our EBITDA guidance for the electricity grid for 2025 to a level of approximately EUR 300 million. The planned amount of the regulatory account at the end of 2025 will be approximately EUR 570 million and will therefore increase again. With regard to the results contribution of Gasconnect Austria, we report an EBITDA of approximately EUR 17 million for the first quarter 2025. The EBITDA guidance for 2025 with regard to Gasconnect Austria is approximately EUR 40 million on the IFRS. The decline compared to last year can be explained by the cessation of Russian natural gas transport through Ukraine. As a consequence, a shortfall of approximately EUR 40 million will reduce the 2025 result and will be compensated with T plus two starting from 2027.
As the regulator will amend the volume for the tariff calculation at the end of 2025 for 2026, we do not expect a negative impact in 2026. With that, I will hand over to Andreas, who is going to cover the next three pages before we come to the outlook.
Yeah, thank you, Peter. Going on with the other segment, generation from thermal power plants was up by about 590 gigawatt-hours. In addition, higher average prices achieved — in particular, positive effects from the valuation of energy derivatives — contributed to the increase in EBITDA. The higher contribution from flexibility products also supported the improvement in EBITDA. The contribution from KELAG, the provincial utility of Carinthia, decreased from EUR 20.9 million to around EUR 15.9 million.
Depreciation increased by 7.4% to around EUR 148.8 million due to the increased investment volume at Austrian Power Grid and in the hydro segment. The financial results declined to about EUR 1.3 million. On the one hand, we saw weaker results from KELAG. On the other hand, interest expenses declined due to lower interest expenses from money market transactions. The other financial results had a negative effect. Taxes on income amounted to EUR 131 million. The group result, therefore, decreased by around 21% to EUR 397 million. Finally, I would like to mention the slight decrease in additions to tangible assets to a total from EUR 160 million in Q1 2024 to EUR 152 million in Q1 2025. Major investments mainly related to the hydropower plant Limburg Three and various electricity grid investments. On the next slide, we see the development of the operating cash flow and the free cash flow.
VERBUND’s operating cash flow decreased to EUR 538 million, mainly due to the lower contribution margin from the hydro segment as a result of the aforementioned significantly lower hydro availability and the change in margin in payments for hedging transactions in the electricity business, which were deposited as collateral for open positions with the exchange clearing house. This was partially offset by lower income tax payments. The lower operating cash flow was also the main reason for the negative development of the free cash flow after dividends. It declined from EUR 675 million to a level of EUR 239 million. Net debt decreased again from a level of EUR 1.97 billion at the end of 2024 to a level of EUR 1.69 billion at the end of the first quarter 2025 due to the positive free cash flow. Gearing correspondingly decreased to a level of 14.6% compared with 17.9% at year-end 2024.
Now, I would like to hand over again to Peter for giving you the outlook for year 2025.
Thank you, Andreas. Yeah, at the end of the presentation, our outlook, as always at this point, we highlight the sensitivities as of the 31st of March. A deviation of plus minus 1% in the generation from hydropower has an impact of plus minus EUR 11.4 million in our 2025 results. A deviation of plus minus 1% in the generation from wind and PV has an impact of EUR 1.3 million, and a deviation of plus minus EUR 1 in the wholesale price has an impact of EUR 4 million. Our updated guidance for 2025 is as follows. We expect the reported and adjusted EBITDA of approximately between EUR 2.7 billion and EUR 3.2 billion, and the reported group results of approximately between EUR 1.35 billion and EUR 1.7 billion under the assumption of average hydro, wind, and PV generation in the quarters two to four.
The earnings forecast is contingent on the group not being impacted by any further legal or regulatory changes. For the financial year 2025, we are planning to pay out between 45% and 55% of our adjusted group result. With that, let's move into Q&A.
Ladies and gentlemen, we will now begin the question-and-answer session. Anyone who wishes to ask a question may press star and one on the chart. You will hear a tone to confirm that you have entered the queue. If you wish to remove yourself from the question queue, you may press star and two. Participants are requested to use only handsets while asking questions. Our first question comes from Olly Jeffery with Deutsche Bank. Please go ahead.
Thanks. Good morning. Thanks for taking the questions. The first one is just on, could you please give the latest hydro coefficient year to date? I gather April’s particularly low. I’d just be interested to know, was it so low that you had to buy any power off the open market to compensate for any generation shortfall? The other question I have is around APG and the build-up in the regulatory account expected from the increased guidance for that division this year. When would be your best estimate on when you would expect that to come out of the account? Is it generally kind of two years forward, or how should we think about when that additional regulatory account build-up should come out? Thanks very much.
Sorry, acoustically, could you repeat the second question, please?
The second question was on APG. We have seen an increase in the guidance this year for that division quite materially. My understanding is that because the APG guide has been increased, that additional EBITDA that you are earning will go into the regulatory account, and we should therefore expect that to come out over the following years. Could that come out in two years’ time? Could that come out next year? Is it negotiating with the regulator? Could you just remind me how this build-up against the regulatory account, how you expect that will come out of your IFRS P&L, and at what point you think that might happen?
Yeah, sure. I will start with the second one. You’re right that as a result of higher auction results and better results as a result of congestion management, we have better results. You might remember our last guidance has been EUR 210 million for 2025. We have increased our guidance to EUR 300 million. That is a significant increase. That is good. The downside is that, as you have rightly said, the regulatory account is going up. We had, on various conference calls last year and for the full-year 2024 results, we discussed the regulatory account. Our objective has been to actually decrease the regulatory account step by step in a linear way, as it is obviously a burden for us, and we are okay with the regulatory account. However, we would like to see the level going down and not going up.
Now, with the unexpectedly high auction results, we have a movement where instead of being below EUR 500 million, we are now significantly above EUR 500 million at EUR 570 million. We will obviously enter, I would say, forceful negotiations with the regulator, and we will argue that we would like to continue with our policy of decreasing our regulatory accounts. The objective would be that we do not have a sudden move, but that, again, as I mentioned before, we do it in a linear way. Can I give you an exact number of how much we would like to reduce it year by year? The answer is no, not because I do not want to give it to you, but because it is the result of the negotiation with the regulator. The regulator has to agree.
We think that the regulator will be constructive because the reduction of the regulatory account allows to lower the tariffs, and that is actually something that is positive for the end customer. You know that the big discussion in Europe is, of course, that with the build-up, the massive build-up of infrastructure, the grid costs go up. The decrease in the regulatory account is actually a very positive move. On your first question, our hydro coefficient currently is 0.79, which is obviously very low in comparison to the long-term average.
Olly, as you pointed out, yes, we were forced to some buybacks in the market. You know that usually we are selling our average dry year, and if we are below, then we have to buy back electricity in the market. This was especially relevant in March when the hydro coefficient only for this month for March was 0.67, so 23% below the long-term average. Sorry, 33%.
33%, yeah.
33%. Here we had to buy back close to 40 million of electricity with a value of around EUR 30 million or close to EUR 40 million. Yes, the impact was around EUR 40 million for the first quarter.
Is there no impact from the hydro coefficient that you've seen in Q2 on that same buyback, or were you sufficiently okay because you had enough room in your hedge book?
Yeah, we can only say that for April. For April as well, hydro levels were low, and we had to buy back some volumes, but not the amount like in March, but there was a negative impact. I cannot give you the number right now, but we had to buy back volumes.
Yeah. I mean, the hydro coefficient for the first quarter, that is something that has been widely discussed. As Andreas has mentioned, the low hydro availability has continued into April, but also into May. The hydro coefficient in April has been 0.72, which is obviously very low. In May, the hydro coefficient is below 0.8 as well. This is a trend from the first quarter that has continued into the second quarter. If you would take the hydro coefficient, which we have until the end of the first quarter, and you take the rest of the year with the long-term average, you would be at 0.97. However, if you basically continued with the low hydro coefficient into April and May, then, of course, the overall expectations for year-end would be even below that. Yeah.
That's clear. Thanks for turning over there.
The next question comes from Alberto de Antonio with BNP Paribas. Please go ahead.
Hi. Thank you so much for taking my questions. The first one will be regarding the renewables, and specifically in Spain. During the first quarter, you have seen a PPA with Endesa, if I’m not wrong, linked to a wind farm in Huelva. Could you provide some details about the terms, duration, quantities, and prices of this PPA, and what’s your expectation for future PPAs there in Spain, specifically? For the solar PV in the presentation, you are still targeting 2 gigawatts of installations up until 2030. If you look at the data from Red Eléctrica in Spain, there are already 33 gigawatts installed, and during peak demand, only 15 gigawatts are generating. What’s your rationale for keeping those investments there? My second question will be regarding CAPEX.
I think during the first quarter, you have invested around EUR 250 million, but the total CAPEX target for the year, adding maintenance and gross CAPEX, is around EUR 1,950 million. Could you give us some kind of bridge between the current investments and the investments for the remaining part of the year? Thank you so much.
Yeah. That was the first one, and Andreas will take the second one. I mean, what you said is an important point, and that is, of course, a big discussion in the market in terms of the build-up of Spanish solar. I think the entire discussion has been triggered again by the massive blackouts. By the way, Austrian Power Grid, and we are very proud of that, has been selected to lead the European Committee to look into the causes and the remedies for this massive blackout. As you can see from the media and from the reporting, it has been very, very complex. I think there will be a lot of learning from what happened and why. There were wide discussions around oscillations. There is sort of like a second-by-second playbook of what exactly happened. That is going to be very interesting.
As I said, Austrian Power Grid is leading the European Committee on the investigation. That has triggered the discussion around solar in Spain. As far as your specific question is concerned, we do not give out the specific terms of our PPAs, but PPAs will certainly play a very important role in the Spanish market going forward in order to secure cash flows in solar. The cannibalization, those are data widely available from the regulator. The cannibalization continues. There are more hours with low prices or negative prices as a result of that. There will be certainly a demand for what I call synthetic baseload, which can be generated by either combining different technologies or indeed by using batteries. I think that the usage of batteries in the Spanish market will certainly ramp up significantly in order for load shifting from when the production is highest.
In terms of going forward, as I said in the presentation, we have a large pipeline. We continue to work on that pipeline, but at the same time, we also continue to work on the combination between solar and wind. Certainly, with a big intensity, we’re looking into the combination with batteries as well for the reasons I mentioned above. Andreas, on the CAPEX bridge.
Yeah, with the CAPEX, Alberto, there is a lot of seasonality, and you’re rightly pointing out that in the first quarter, there has been a relatively low CAPEX number. For Q2, 3, and 4, there will be a significant ramp-up, especially because of higher CAPEX in the grid business, but also into the build-up of the renewable pipeline in Spain. In Q2, we’re going to have around EUR 500 million. In Q3, around EUR 700 million, and in Q4, around EUR 600 million. That would make up roughly the EUR 1.92 billion for the total year. That’s the current planning. It is a massive ramp-up with, I would say, around EUR 600 million–EUR 700 million additionally for CAPEX in Spain for renewables. The biggest part of the remainder is going to be invested in the regulated grid business.
Can you repeat the numbers of the CAPEX for the quarter?
For Q2, 3, and 4, 500, 700, 600.
Thank you. As a reminder, if you wish to register for a question, you may press star and one. Our next question comes from Thibault Dujardin with Bernstein. Please go ahead.
Thank you very much for taking my question. Regarding the project on batteries, may I ask if you are taking into account your project support mechanism and what is the expected IRR for such a project? This would be my first question.
Okay. So you said, if I may paraphrase, you said what would be the IRR for battery projects in Spain, correct?
Correct. If you are assuming support mechanism, capacity mechanism, for instance.
Okay. Yeah. The second point is a very important one and has been widely discussed in Spain, particularly last year. It has slowed down a little bit at the beginning of this year, but it will continue. That is capacity payments to battery installations, including auctions, etc. I think that would be a very important move by Spain. It is in the interest of the stability of the Spanish market to support battery build-up. It should go hand in hand with the build-up of solar. At the end of the day, in order to provide stability, that is not only true for Spain, but actually for all the markets. You need to synchronize the build-up of the renewables with the build-up of the grid. By the way, that is something the new Minister for Energy has said within the last few days.
We were very happy about that statement because, as you know, this is something we have been saying for the last 10 years — that the synchronization between the grid build-up and the renewable build-up needs to be executed. Finally, there seems to be a better understanding that this has to happen. I would add that you’re totally right. It would include batteries too. That synchronization, because batteries will play a very important role to stabilize the renewable build-up. As a result of that, support subsidies for batteries would be an important move.
In terms of the IRR, we don’t give specific battery IRRs, but what we do — and I would assume most of our competitors do the same thing — is we look at the solar projects, we look at the IRR of the solar project, we add the CAPEX of the batteries, we look at the cash flows, which we generate as a combination of both, and then we calculate our IRR. We usually have the same IRR objectives as we have on any project, i.e., our capital cost plus a hurdle rate. In challenging markets with a lot of volatility, obviously, sometimes we have to go below the 200 basis points, but generally speaking, that’s our objective
Thank you very much. An additional question: flexibility revenues increased this quarter. May I ask if you maintain your guidance on lower global contribution for the year in the context of higher production? Sorry — do you maintain your guidance of lower contribution from flexibility for the full year?
Okay. Again, let me paraphrase because acoustics are not very good. You are saying if the current guidance of flexibility products is fully included in our guidance numbers, and the answer is yes.
Okay. With higher CCGT production, does it change anything?
No. No. That is included in our guidance.
Thank you.
Our next question comes from Jude Wellin with Holdon. Please go ahead.
Yes. Hi. Good morning, everyone. Thank you for taking my question. Maybe two on my side, just for clarification. The first one regarding the hydro coefficient. We know that you posted the figure at Q1 — end of Q1, sorry. We know now that April was poor and May is most likely very poor as well. My question would be regarding your guidance for the full year. Do you include already the poor output up until May, or do you even include a further lower level of hydro for the full first half, for instance? Considering that it is unlikely that it will revert to 1 by the 1st of July, for instance? Are you just considering that it is normalized from the remaining nine months of the year, Q2, Q3, Q4?
Just to understand a little bit the underlying assumptions that you have taken and your volume assumptions of the hydro for the full-year guidance adjustment. The second question would be — I would like to come back a little bit and have your thoughts regarding the Spanish blackout. Eventually, if you could share with us what you think could be the reasons, if it can have an impact regarding the investment plan in renewables going forward, or if it could have more impact into interconnection development, or into batteries and flexible development into the country. Where do you think it could lead us in terms of potential investment to be expected into the country? Is it something that should put a brake, or is it something that should eventually enlarge new development into the Spanish country? Thank you very much.
Yeah. Thank you. Both questions are very relevant. I’ll start with the first one with hydro. As always, for the first quarter, we have taken the numbers until the end of the first quarter, and that has been put into our guidance. The weak hydro coefficients of April and May have not entered our guidance because that would not be sort of like the regular methodology which we use. If you included April and May into the guidance, there is, in terms of volumes, a certain downside. At the end of the day, and we have seen that before, it could be very rainy during the summer, it could be very rainy during the fall, and then we’re going to have a surprise on the upside. Yeah? So I’m just mentioning it.
I want to give you a very clear answer in terms of April and May not being part of the guidance, but I also want to make you aware of the fact that it is extremely difficult to predict weather and rainfall for the rest of the year. Is that the answer to the question which you have had on hydro?
Yes, yes, indeed. That's indeed the answer I expected. Thank you for this part.
Okay. Perfect. On the second one, I mean, you are perfectly right, and you are asking all the right questions. Now, I could give you an answer as a result of what I think, being very much involved with Austrian Power Grid and the Austrian infrastructure. However, to be fair, as there is a committee which has been put into place in order to look exactly at what happens and the learnings and the consequences, I think it would be too early to come up with a personal opinion. It is a little bit dangerous as well. The one thing I can tell you, and this is something that has been said from the Spanish side, both from the regulator and also from the grid operators, is that they certainly will look into the overall impact of renewables on the market.
They will certainly look, and I do not want to get too technical, but they will look into inertia. When we had the old centralized system, we had the generators running at 3,000 cycles per minute. As a result of that, you had a lot of stability in terms of 50 Hz. The 50 Hz were given by the mass of the generators that was basically producing a lot of stability. When you take those massive generators out of the system and you replace it basically with decentralized, more volatile generation, then a stabilizing factor in the system lacks. That is something that needs to be looked at. That is something all the grid experts and the technicians and the electrical engineers are very well aware of.
We basically—and this is not just true for Spain, this is true for all of Europe—need to look very specifically into situations where we have no rotating masses in the system, very little rotating masses in the system, and where we basically have mainly renewables. Under those circumstances, how can we make sure that we have the stability, which is one of the primary objectives of the European system? It could well be that—and here I am speculating—it could well be that the result will be to look even more intensively into the grid, into the technologies the grid can provide in terms of products. The stabilizing products—and we discuss this on our conference call quite a lot—are, of course, the control energy, primary, secondary, tertiary control energy, to keep the level as close as possible at the 50 Hertz in order to avoid the blackout.
There is congestion management, but there could be other measures as well. What I will do is when we have our next conference call in approximately three months’ time, we will already have the results from the commission, and I’m more than happy to then discuss.
Thank you very much for sharing your thoughts on this. Thank you.
Our next question is a follow-up from Olly Jeffrey. Please go ahead.
Thanks very much. Two follow-ups. The first is just leaning on the rental tax, the EUR 200 million which you’ve spoken about at an overall level for the wider sector. Is your expectation still that it would be within the EUR 50 million–EUR 100 million range for the full year? Do you have a lot of confidence in that estimate? Do you think that could be either higher or lower than what’s in the guide? I’m just trying to understand how much uncertainty there is around that.
Taking into account the coefficients for April and so far in May, I think it would be about 1 terawatt-hour under budget for this point of the year for Q2, appreciating some change in the future. Is that a reasonable estimate for where you are under budget from a terawatt-hour perspective for Q2 so far, or am I being too high in that estimate? Thank you.
I totally rely on your calculations. You know the company well. Quite frankly, I haven’t done the calculation myself, but in terms of gut feeling, it sounds about right. On the windfall tax, yeah, it’s still between EUR 50 million and EUR 100 million. We don’t have specific results. We’re still in negotiations, or should I say in discussions. It’s going to be somewhere in between. Is it going to be towards the EUR 100 million, or is it going to be towards the EUR 50 million? I don’t know. We are within that range.
Do you think that the impact of that tax will be booked in the EBITDA line or in the tax line? Just wondering how you’ll treat that come the end of the year. Thank you.
That is on the earnings line.
It will be included within your overall tax rate for the year.
Yeah. The 50–100 is a number. If you put yourself in the shoes of the Ministry of Finance, the Ministry of Finance is basically saying, “Overall, I would like to achieve EUR 200 million from the energy sector.” I mean, we are obviously the key player in Austria in the energy sector. Therefore, the biggest contribution is going to come from us. And those EUR 200 million he wants to get, i.e., that would be below the tax line.
All right. Super. Thanks very much.
Our last question is a follow-up from Thibault Dujardin. Please go ahead. Your line is open. You may proceed.
Hello. Can you hear me? Hello. May I ask if you could give an update on the hedging levels and back to market?
Yeah, sure. In terms of the hedging levels per today, for 2025, we are 80% hedged at a mark-to-market of EUR 111. For 2026, we are 45% hedged at a level of approximately EUR 87. For 2027, it is a relatively small amount. It is only 3% at a level of EUR 85. For 2027, we still have obviously a very large exposure to power price movements, either up or down. On 2026, slightly above the 50%. Yeah? The mark-to-market is EUR 87.
Thank you. Thank you.
You're welcome.
Ladies and gentlemen, this was our last question. I hand back over to the management for any closing remarks.
Yes. As always, I would like to thank you also in the name of Andreas for a very interesting discussion, very relevant questions, which we're always happy to answer. Thank you very much for your interest and for your participation. I look forward to talking to you either in person or during our next conference call. All the best. Bye-bye.
Ladies and gentlemen, the conference is now over. Thank you for choosing our call, and thank you for participating in the conference. You may now disconnect your lines.