Earnings Call: Q3 2026

Nov 5, 2026

Summary

Historically weak hydrology and lower realized prices drove 9M EBITDA down ~29% to ~€1.5bn, partly offset by stronger sales and flexibility. FY 2026 guidance is €2,120m EBITDA, with adjusted group result of ~€1,050m.

Ladies and gentlemen, welcome to the conference call on the quarters one to three 2026 results of VERBUND AG. I am Moritz, your Chorus Call operator. I would like to remind you that all participants will be in the listen-only mode and the conference is being recorded. The presentation will be followed by a question-and-answer session. You can register for questions at any time by pressing star and one on your telephone. For operator assistance, please press star and 0. The conference must not be recorded for publication or broadcast. At this time, it is my pleasure to hand over to Michael Strugl, CEO. Please go ahead, sir. Thank you very much, ladies and gentlemen. Good morning, and thank you for joining VERBUND's conference call to discuss our results for the first three quarters 2026. The first nine months of the year were characterized by an increasingly challenging market environment for VERBUND, as you know. Hydrological conditions, already exceptionally weak in the first half of the year, deteriorated further in the third quarter, significantly weighing on hydropower generation. At the same time, realized electricity prices continued to decline, adding further pressure on our earnings. Beyond these company-specific effects, European electricity markets remained exposed to persistent and intensifying geopolitical uncertainty, volatile commodity markets, and changing generation patterns. The continued expansion of intermittent renewable generation increased price volatility and the need for flexibility, while regulatory challenges added further complexity to the operating environment. Despite these headwinds, VERBUND's integrated business model continued to provide resilience. Improved contributions from sales segment and from thermal generation, as well as from flexibility products, partly offset the weaker hydropower performance, while we maintained our focus on the execution of our long-term investment program. Let us now go more into details, and let me begin with the key drivers. As in the first half year 2026, two largely external factors had again the greatest impact on earnings. The first was, as mentioned, hydrology. The hydro coefficient further deteriorated and amounted to only 0.61 at the end of September, reflecting the weakest water availability in the first three quarters in around 100 years. Limited precipitation and prolonged heat waves reduced generation from both run-of-river and storage hydropower plants. The second factor was the normalization of achieved contract prices. Compared with the exceptionally favorable pricing environment of the previous year, realized prices declined by around EUR 34 per megawatt hour to EUR 79.7. These headwinds were partly offset by stronger contributions from other parts of our portfolio. The sales and all other segments delivered improved earnings. The contribution from flexibility products are slightly increased compared to the last year and remained an important earning pillar. The key takeaway is straightforward. The decline in group earnings were largely driven by two external factors, while the underlying performance of our diversified portfolio remained resilient. Let me now turn to our hedging position. The slide illustrates the continued discipline and consistency of our hedging strategy. For 2026, around 94% of our expected hydropower generation has already been hedged at an average achieved contract price of EUR 86 per megawatt hour, providing a high degree of earnings visibility for the current financial year. At the same time, we have continued to build our hedge position for 2027 and 2028. By the end of September, approximately 56% of expected generation had been secured at an attractive average price of around EUR 107 per megawatt hour for 2027. For 2028, we hedged approximately 6% at an average price of EUR 96.5. Based on forward market prices as at 27th October 2026, the mark-to-market values remain far above our achieved hedge prices for 2026, for 2027, and 2028, preserving additional upside on the remaining open volumes. Our approach has not changed. We continue to hedge gradually over time, balancing earnings stability with participation on favorable market opportunities. Let me now move to another increasingly important earnings contributor, our flexibility products. As European power markets become increasingly dominated by intermittent renewable generation, flexibility is becoming one of the most valuable attributes of an integrated utility. VERBUND is particularly well-positioned to benefit from this structural trend through its portfolio of storage hydropower plants, pumped storage assets, thermal generation, batteries, and sophisticated trading capabilities. In the first three quarters of 2026, flexibility products contributed approximately EUR 241 million to earnings. This was slightly above the level of the previous year's period. For the full year, we now expect a contribution of around EUR 310 million from flexibility products, compared with our half-year guidance of EUR 250 million. This strong increase is driven by a broad-based improvement in earnings expectations. We already saw higher pumping spreads in the third quarter and are also benefiting from a higher spot market price environment. Looking beyond 2026, we remain convinced that the value of flexibility will continue to increase. Higher shares of wind and solar generation, growing intraday price volatility, and increasing system balancing requirements will further strengthen demand for flexible generation and storage assets. This structural trend represents an important long-term growth opportunity for VERBUND and complements our traditional hydropower business. Let me now turn to our hydro segment, which was naturally the business most affected by the exceptionally weak hydrological conditions. The very low hydro coefficient of 0.61 reflects the lowest first three quarters water availability since records began. As the chart illustrates, hydrological conditions remained consistently below average throughout the period and deteriorated further during the third quarter. Lower inflows also reduced storage generation, and as a result, our hydropower generation declined by around 20% year-on-year. The contribution from flexibility products was also slightly below the previous year's level. On the other hand, expenses related to the windfall profit tax in the hydro segment decreased by EUR 120 million year-on-year. Combined with the expected normalization of achieved electricity prices, these developments resulted in a 47% decline in hydro EBITDA. Now, let me briefly update you on Limberg III. Repair works continue according to plan. Unit two entered the commissioning phase end of September, and unit one will enter the recommissioning as planned in December this year. Once fully operational, Limberg III will significantly strengthen our flexibility portfolio and our ability to capture value from increasingly volatile power markets. Although the first three quarters were exceptionally challenging, nothing has changed in our long-term view. Hydropower remains the backbone of VERBUND's business model and one of our most valuable strategic assets, combining low-cost generation with unique flexibility. Now, let me turn to new renewables. The new renewables segment delivered solid operational progress despite a more challenging market environment. Wind generation increased by 6.5%, supported by improved wind conditions and additional installed capacity, while photovoltaic generation slightly decreased. Overall, EBITDA in the segment declined to around EUR 86 million. The main reason were lower realized electricity prices for wind generation and negative valuation effects in connection with energy derivatives. Positive effects came from lower operating expenses. In general, VERBUND will continue to develop renewable projects selectively while increasingly combining solar generation with battery storage, hybrid solutions, and optimization capabilities. This improves capture rates, reduces curtailment risk, and strengthens long-term project economics. In total, VERBUND had an installed wind and PV capacity of 1,280 MW as of end of September 2026, 19 MW more than at half-year. Construction and development activities across Spain, Germany, Austria, Romania, Italy, and Albania continue according to plan and remain fully aligned with our disciplined investment approach. Let me now move to our sales segment. The sales segment once again demonstrated the benefits of diversification. EBITDA increased to approximately EUR 280 million, driven mainly by positive valuation effects from energy derivatives and higher margins from the optimized marketing of our own generation. Moreover, the positive trend in the end customer business continued. Earnings from flexibility products were slightly below the previous year's level. Battery storage is becoming an increasingly important element of our commercial strategy. We continue to expand our storage portfolio in attractive markets where batteries can create value through balancing services, intraday optimization, and the integration of renewable generation. Overall, the sale segment illustrates how VERBUND is steadily broadening its earning space beyond electricity generation by combining trading expertise, customer solutions, and flexibility. Let me now turn to our regulated grid business. The grid segment once again provided stable and resilient earnings, highlighting the value of our regulated infrastructure business. Overall, EBITDA in the grid segment decreased to around EUR 289 million. APG's EBITDA declined by EUR 34.1 million to EUR 221.8 million, mainly due to lower contributions from congestion management and auctions. By contrast, GCA's EBITDA increased from EUR 49.4 million to EUR 66.9 million, mainly due to a higher contribution margin from the transmission system. We significantly increased our EBITDA guidance for APG by around EUR 65 million, mainly because the regulator now allows us to use a special account instead of the ordinary regulatory account. As the use of the special account is P&L neutral under IFRS, the resulting lower use of the ordinary regulatory account has a positive impact on our full-year guidance. GCA's EBITDA guidance remains unchanged at EUR 65 million. Looking ahead, the grid business will remain one of VERBUND's key growth platforms. Significant investments in transmission infrastructure is essential for the energy transition and provides stable, predictable earnings supported by an expanding regulated asset base. With that, now finally let me turn to our remaining business. Utilization of CCGT Mellach remained broadly at the previous year's level, while EBITDA has increased significantly, driven by higher realized margins, particularly at the beginning of the year, and a EUR 10.8 million higher contribution from flexibility products. Mellach continued to play an important role in supporting system stability through congestion management and reserve capacity, underlining the ongoing value of flexible thermal generation in an increasingly renewable power system. The contribution from our equity investment in Kelag was below last year's level, mainly reflecting weaker hydrological conditions and lower sales prices. Now let's turn to the non-recurring effects during the first half, and I will hand over to Andreas Wollein. Thank you, Michael. Now turning to the non-recurring effects. During the first three quarters, we recognized several non-recurring items that should be considered when assessing our underlying performance. Please note that the impairments were already reported at half-year results. The largest effect was an impairment at Gas Connect Austria level, amounting to approximately minus EUR 42.9 million. This was necessary due to the regulatory decision for the 2027 tariff period, which reduced expected future earnings. In addition, we had impairments of renewable assets in Spain amounting to minus EUR 8.7 million, reflecting updated assumptions for electricity prices, capture prices, and financing costs. This is consistent with our commitment to reflecting changing market conditions in a timely manner. Within the financial result, we recorded two main effects: a positive valuation effect from the measurement of the obligation to return an interest in the Jochenstein hydropower plant and an EUR 18 million impairment of TAG. Income taxes included a negative one-off effect of EUR 23.6 million resulting from the remeasurement of deferred taxes following the increase in the corporate tax rate from 23% to 24% for financial years beginning at December 31st, 2027. Overall, the net impact on the reported group result amounted to around minus EUR 40 million. Excluding these one-off effects provides a clearer picture of the underlying operating performance, which I will now discuss. On slide 11, you see quickly the turning of the financial performance. EBITDA declined by around 29% to around EUR 1.5 billion, primarily reflecting the impact of historically weak hydro and lower realized prices. The resilience of our sales and thermal business partly mitigated these headwinds, but could not offset the weaker hydro contribution. The group result, or the reported group result amounted to approximately EUR 685 million, while the adjusted group result, excluding non-recurring effects, reached approximately EUR 725 million. At the same time, we continued to execute our investment strategy. Capital expenditure increased by approximately 40% to a little bit more than EUR 1 billion, with the largest investments directed towards electricity transmission infrastructure, hydropower modernization, renewable generation projects, as well as battery storage. This underlines an important point. Despite temporary earnings pressure, we remain fully committed to investing in the long-term growth and resilience of VERBUND. On the next page, on slide 12, you see some of the cash flow developments. Operating cash flow declined, mainly reflecting the lower earnings contribution from hydropower, combined with significantly higher investment activity and the dividend payment. This resulted in a negative free cash flow during the first three quarters and an increase in net debt and gearing. This development is fully consistent with our financial planning. We are currently executing one of the largest investment programs in VERBUND's history while navigating an exceptionally weak hydrologic year. Importantly, our balance sheet remains strong. We continue to benefit from excellent access to debt capital markets, substantial committed liquidity facilities, and a solid investment-grade credit profile. Our capital allocation priorities remain unchanged, investing in profitable growth, maintaining a strong balance sheet, and delivering attractive shareholder returns. Now let me hand over to Michael again for giving you the outlook for 2026. Thank you, Andreas. What are the conclusions when it comes to the outlook for 2026? As with the exception of water supply, we are currently able to assess and plan for the vast majority of the existing opportunities and risks with a high degree of confidence. We have decided not to provide guidance ranges in this earnings outlook. Our updated and more specific guidance for financial year 2026 is therefore as follows. Based on the current opportunities and risk identified, VERBUND expects EBITDA of around EUR 2,120 million, a reported group result of EUR 1,010 million, and the adjusted group result of around EUR 1,050 million. These projections supersede the previously published forecast ranges, as I mentioned. The updated forecast takes account of below-average water supply in October 2026, and for November and December 2026, the guidance assumes average own generation from hydropower, wind power, and photovoltaics. VERBUND's planned payout ratio for financial year 2026 is between 45% and 55% of the group result after adjusting for non-recurring effects. With that, thank you for your attention, and we are now happy to take your questions. 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 their touch-tone telephone. 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 a question. Anyone who has a question may press star and one at this time. One moment for the first question, please. The first question comes from Wanda Serwinowska from UBS. Please go ahead. Hi, Wanda Serwinowska, UBS. Three questions from me, if I may. The first one is on the Constitutional Court cases for the windfall profit tax in Austria. When do you expect the decision, and what is the likelihood of winning the case, if I may ask you? What have you embedded on the windfall profit tax into your 2026 guidance? That would be helpful. Point number two, I do not remember last time VERBUND gave us a single-point guidance, even during Q3 results. What gives you confidence to give us the exact number for the full year, given that we still have two months of hydro? How has been the hydro developing over the past one week or so? You assume one in your guidance. Maybe further to that, how much money have you lost on the volumes buybacks in Q3, or nine months, if you could isolate the impact? That would be helpful. The last question is, you mentioned that the mark-to-market hedging would be above the hedging levels and prices at the end of September, but would you be able to disclose the latest hedging, the volumes, and prices without mark-to-market so we can make our own forecast as a weighted average. Thank you very much. If you agree, I would start with the question of the Energy Crisis Contribution for Electricity and the Constitutional Court decision which can be expected. In early 2025, the court confirmed that the Energy Crisis Contribution for Electricity, which is a federal act, was constitutional for the periods one and maybe two. In July 2026 this year, it again challenged the constitutional grounds and decided to review the constitutionality of this federal act. If a ruling finding it to be unconstitutional would have an impact on subsequent assessment periods, as you know, this is planned for the years to come as well, this Energy Crisis Contribution. When the court is challenging this will have an impact because, and the background is that the legal framework was tightened further from the assessment period three onwards. Now the court is reviewing that, and there is not yet an official timeframe being published to that. However, a ruling may follow maybe this year, in the last quarter of this year, but so far we do not know it for sure. If that will happen, it will have impact on subsequent assessment periods. When that happens, maybe the government will discuss about subsequent regulation, but we do not have any indication what will happen then. This is the state of play we know so far. For the other question concerning guidance, I would hand over to Andreas. Yeah. With regard to the guide, I think we, I mean, the open point still for the rest of the year is, of course, hydro availability. But on all the other items, I think we have reflected already in the current guidance. What is built in is now already the low hydro availability in October. So, hydro in October was 0.5. For the first days now in November, we saw a slight increase, but of course, it's a little bit too early in November now to talk about what's going to happen in November, December. But we have built in October, and all the other, let's say, aspects as already communicated, like the provisions which we set up, we have basically unwinded. We have also reflected the potential upside coming from the treatment of the regulatory account in the grid business. We have also reflected the better forecasts and upsides from flexibility products. So, that is all already included, and that's why we changed to a number instead of a range. With regard to what we have reflected for the full year for the Energy Crisis Contribution for Electricity, is in total a number of around, of a little bit less than EUR 40 million, so around EUR 35 million. That's the impact of the expected contribution for this year for Austria and for Spain. With regard to the impact of hydro, that's what you, I think, were asking, coming from the buyback. I think the total buybacks, so the gross buybacks, year-to-date, so until the end of September, we have to say, is around EUR 470 million. The net effect, so also taking into account the hedge price for these volumes, is only minus EUR 120 million. So, only for Q3, the gross buyback is around EUR 260 million, and the net effect is around EUR 90 million. Yeah. This is with regard to guidance change. And with regard to numbers, to our hedging numbers, I mean, for 2026, yeah, basically we have sold or hedged now 95% of the volumes at 81. Given the fact that short-term prices are extremely high, mark-to-market, we are still at around 90, so EUR 10 per megawatt hours higher. For 2027, we have hedged, so that's the status end of October, and so we have hedged around 58% of volumes at a price of EUR 109 per megawatt hours. Mark-to-market, we are at 134. And for 2028, we have hedged a little bit less than 10% at the level of around EUR 100 per megawatt hours. Mark-to-market is EUR 121 per megawatt hours. Yeah, so this is, I guess, I hope to answer all the questions you asked. If not, then I think you may repeat. No, no, that's all questions. Thank you very much for the answers. As a reminder, anyone who wishes to ask a question may press star and one. The next question comes from Olly Jeffery from Deutsche Bank. Please go ahead. Mr. Jeffery, your line is open. Thanks very much, and good morning. There are a couple questions I'd like to Hello? Can you hear me? Yes, we can hear you. Hello? Yeah, we can hear you. Can you hear me? Yeah. Can you hear me? Hello? Speaker. We can hear you. Hello. A couple questions, please. The first one is just coming back to good stuff. The first one is just coming back to the spot hydro. When I look at figures, I see the hydro perhaps at kind of the 0.6 level for the start of November. Is that something you see? When looking for November, December, with regard to your internal teams that look at this, how do you see that? Because some of the data I can see, I can see it potentially normalizing, but there is quite a lot of debate around that. What are your expectations of how that could evolve into the start of 2027, given where the snow levels are at? The other question I would ask, please, is on the Constitutional Court. If the court rules against the current generation levy, what do you think happens after that, given the state of the Austrian government finances? Do you think an alternative mechanism would likely be brought into place, such that there still would be some impact on the burdens going forward? Thank you very much. Thank you for your question. I start with the forecast for hydro levels and precipitation. As I mentioned in the presentation, October is still weak. We had in October a coefficient of 0.6. When we look at our latest forecast and our long-range forecast, we assume that in the second half of November and December, we expect to have a level which is nearing to the average. November, particularly in the second half, and December should be more wet than the previous months we saw. With that, and as not all of the precipitations will run off, we expect a generation coefficient to be revised slightly upwards, with full-year generation coefficients to be between 0.62 and maybe 0.65. If we look at the first months of the coming year, particularly on November, our forecast says that it will be more precipitation. It will be warmer, but with more rain. That should help us in order to see a more normalized situation when it comes to water supply for hydropower. This is the outlook from October, and as of today, more or less. With that, we are optimistic to have more water supply in the months to come. Concerning the ruling of the Constitutional Court, all indications from the court we saw so far are more or less a direction that The law is unconstitutional. So, when that will happen and the court rejects the law, then government has to think about how to repair that federal act, which will not be very easy because it has a European framework to raise that levies on generations. And with that, I think they have to re-engineer that completely with maybe a very different approach in order not to risk another rejection by the court. That will take maybe some time to have a discussion with legal experts and within the coalition. As I mentioned, we do not have any indication in which direction a new approach could look like, but with the arguments the Constitutional Court is now presenting, it seems to be that the framework this federal act is built on will, in fact, not be a basis for a new regulation. They have to do it again with new approach, and we do not know how it looks like, and it takes some time, as I already said. That is, as of today, we can look at it. As a reminder- Very much If you would like to ask a question, you may press star and one. The next question comes from Louis Boujard from ODDO BHF. Please go ahead. Yes. Hi, good morning, and thank you for the presentation. Maybe a first bit of question on the hedging and what you witness at this point in time. Do you anticipate on your side any change in your hedging policy following the exceptionally dry year that you have faced in 2026? Would you eventually be open to take a little bit more buffer going forward with a kind of under hedge compared to what you did in 2026? Still, I would say on the hedging front, the mark-to-market for 2027 is currently EUR 134.4 per megawatt hour. If you were locked into this kind of level, what would be, according to you, the blended achieved price that it could imply in 2027, considering also the tax issues and the discussions about this topic at this point in times? This would be for the hedging and for the, I would say, expected price that we could have in 2027. Maybe on another topic, going to the sales business. We know that a large part of the performance is related to some non-cash effect. Could you quantify the respective contribution of each driver of the performance with the EUR 280 million of EBITDA into the sales business? Could you also say which part of the sales improvement is linked to the volatility created by the low hydrology and the higher spot price, so that we could eventually know what could be an appropriate level of remuneration for the next years as a recurring basis? Thank you very much. I open it with a general remark on our hedging policy. What we do is that we create, with our hedging strategy, a stable visibility on our earnings over time. With this model, which consists of hedging across 18 months and with stop-loss and take-profit limits, this model served us across different economic and business environments over a longer time. This is the reason why we will stick to that, in spite we see a lot of challenges, particularly this year when it came to these extremely conditions on hydrology. But at the end of the day, we reacted to hold back volumes in order to avoid buybacks to a certain extent. But in the big picture, we continue with that model. This is what I wanted to make as a very general statement on our hedging policy. I would hand over to Andreas. Coming to your second question, Louis. What is the blended rate for the 2027, I think, price or hedge you mentioned? As I said, mark-to-market, we are currently at around 134.4, so this is taking into account the hedge price and the open or the unhedged volumes priced with the prices as of 27th October 2026. As you know, the effective or the cap in the tax system according to the law currently is about 90. As you rightly pointed out, it is not the effective cap. I would say based on current calculations for next year, but it is still a little bit uncertain because we have to, because the exact amount of the renewables deductible is open, but we currently would assume a blended rate of around, let's say, EUR 103, EUR 104, EUR 105 per megawatt hour. This is currently roughly, I would say, the blended rate for next year. For 2028, it could be at a similar level. With regard to the details of the sales segment, you were referring to the strong increase and the EUR 280 million EBITDA. What I can give you is, let's say, the valuation effect, which is of course non-recurring. The valuation effect in this EUR 280 million is around EUR 75 million. That is roughly the figure. Then there is another EUR 40, EUR 50 million of additional margins coming from flexibility, so coming from the intraday spreads and also from the spreads between the Austrian and the German market. An underlying figure for the years to come is according to our planning for the next years. There is going to be an increase because there is an increasing share of pumped storage attributable to the sales segment coming from optimization. There is also a strong support and increase coming from the batteries build-out, which also feeds into optimization. So, it is an increasing number, going up on a normalized level within the next two to three years, according to our planning, to about EUR 250, between EUR 250 and EUR 300 million of EBITDA. Thank you very much. Ladies and gentlemen, this was the last question. I would now like to turn the conference back over to Michael Strugl for any closing remarks. Thank you again for joining us today and discussing with us the results of the first three quarters. Hopefully, this was also helpful for you in our today's session, and with that, I would thank you again all and have a good time. See you next time. Thank you very much. Ladies and gentlemen, the conference is now over. Thank you for choosing Chorus Call, and thank you for participating in the conference. You may now disconnect your lines. Goodbye.