Q1-2/2009: Verbund secures strong position in difficult market environment


After having good key ratios in quarter 1/2009, Verbund is now once again reporting good development of operating earnings for the first half-year of 2009, which however, is influenced by negative one-off effects.

Sales increased by 1.1% to € 1,667.8 million, the operating result dropped by 5.4% to € 533.7 million, and the group result shrunk by 16.1% to € 359.9 million. Nevertheless, the Group was able to continue to strengthen its position in Austria and in Europe in a difficult market environment.

The development of the operating business of the Verbund Group remains stable in the first two quarters of 2009. Nevertheless, the massive worldwide economic crisis is not passing by the energy sector unnoticed and has also affected Verbund. Therefore, the Group adjusted its strategy. Verbund CEO Wolfgang Anzengruber summarises: "We are focussing our business model, continuing to reduce business risks, and mainly investing in developed electricity markets." In 2009, Verbund invests more than € 1 billion. Through its anticyclic  investments - primarily in renewable energies and power grids - the company wants to increasingly profit from the coming economic boom phase.

Strong position solidified
Against this background, Verbund was able to further solidify its strong position in the European electricity market in the first two quarters of 2009. By signing a purchase agreement in June with the German power supplier E.ON for 13 hydropower plants on the Bavarian Inn River, Verbund became the fourth-largest hydropower Group in Europe. Verbund also strengthened its position as the leading electricity company in Austria. The Group will supply a total of 10 TWh of local hydropower electricity to the provincial utilities EVN and Wien Energie between 2010 and 2013. That is more than one-third of Verbund's annual electricity production. The corresponding contract was signed just a few weeks ago.

Low spot market prices and one-off effects burden results
Earnings development was essentially determined by three factors: the low European spot market prices for electricity, an above-average water supply, and negative one-off effects. The spot market price level for electricity dropped sharply by approx. 35 % in quarters 1-2/2009 compared to the same period of the previous year. This decline is the consequence of the lower level of the CO2 spot market prices, the considerably lower prices for primary energy sources and the lower demand for electricity.  The prices for quarterly and monthly forwards were also dropping. Verbund sells approximately 40% of its own generation on the basis of spot market prices as well as quarterly and monthly forwards. The remaining 60% had already been sold one year in advance for electricity prices that were still considerably higher as part of the tried and proven hedging strategy.

The above-average water supply in Austria’s streams had a positive effect on the quarterly results. At 1.07, the hydro coefficient in quarters 1-2/2009 was 7% higher than the long term average and around 3% above last year's value. Hence, it was possible to generate more electricity in the run-of-river power plants. However, it was also possible to increase generation from storage power plants as a consequence of the higher storage levels at the beginning of the year compared to 2008 and outstanding tributary conditions from the melting snow. The Verbund Group’s hydropower generation increased by a total of 4.0% or 519 GWh. However, it was only possible to sell these additional quantities on the basis of the low spot market price level described above, which put a damper on the positive effect of the additional quantities.

The development of Verbund's earnings was influenced by special financial effects, as was the case in the first quarter of 2009. In total, they had negative effects on the operating result to the extent of around € 65 million and around € 10 million on the financial result. The negative one-off effects in the operating result mainly concerned extraordinary maintenance and value adjustments for fuels. Furthermore, grid revenue dropped due to the amendment to the System Utilisation Tariff Directive.

Verbund is ranked no. 4 in European hydropower
In June 2009, Verbund was able to sign a purchase agreement with Germany’s E.ON for 13 run-of-river power plants on the Inn River in Bavaria with an installed capacity of 312 MW and annual generation of 1.874 GWh. This transaction enabled Verbund to climb the ladder of European producers generating electricity from hydropower one more rung to fourth place. The price for the power plant chain is comprised of a cash share and a 20-year supply contract for electricity from our Zemm/Ziller power plant group. Verbund will manage a company in Germany for the 13 Inn power plants and intends to offer interested Bavarian municipalities up to 30% holdings in the company. Closing the transaction and hence takeover of the power plants is planned for the third quarter of 2009, conditional on anti-trust regulation approvals.
“Hydropower is and will remain our strong backbone. Our ambitious goal is to move up and become the third-largest hydropower producer in Europe," says Anzengruber of his vision for the coming years.

Activities intensified in Italy, France, and Turkey
Verbund is also continuing to develop its successful international joint ventures. After successfully increasing its investment in the Italian Sorgenia Group last summer, Verbund carried out another one-sided capital injection in June 2009 through the conversion of a convertible bond in the amount of € 150 million. Verbund’s share of the Sorgenia Group has now increased to just short of 45%. This has considerably increased Verbund’s position in the Italian market.

In Turkey, the decisions made at the end of January for construction of the Bandirma gas power plant with 920 MW and seven hydropower plants with an installed capacity of around 870 MW was followed by the implementation decision for the Canakkale wind farm. The erection of 30 MW is planned for the first stage of development and there are plans for expansion up to 60 MW. Hence, the joint venture company Enerjisa of Verbund and Sabanci Holding is taking another step towards implementation of the planned 5,000 MW generation portfolio.

In France, Verbund will increase its holdings in POWEO S.A. in the third quarter of 2009 during the course of a capital increase to the amount of € 75 million and purchase another 13.4% of the company from the controlling shareholder Charles Beigbeder and his Holding Graviation.  This transaction increases Verbund’s holdings of POWEO S.A. to a maximum of 48% making it the largest single shareholder of the listed company. Today, POWEO has a portfolio of wind and hydropower plants amounting to 71 MW and a 412 MW gas power plant in Pont-sur-Sambre, which will start-up operations in the fourth quarter of 2009. Other generation projects are in development. In addition, POWEO acquired around 340,000 end customers.

Styria line transports the first power
After just short of two years of construction, the first line system of the 380 kV Styria line was switched on just a few weeks ago. Hence – 27 years after the first plans – another important 100 km segment of the Verbund high-voltage ring is active. This ring will considerably improve the reliability of the power supply in Austria.

"Even under continued difficult, economic conditions, and in spite of falling half-year results, we are still aiming for approximately the same results as in 2008, provided that operating business is stable," according to Anzengruber’s forecast for the entire year of 2009.