Operating result regaining stability

10/28/2010Vienna

Result for quarters 1-3/2010: Operating result regaining stability, capital increase planned for November.

As already indicated in the half-yearly report, VERBUND, Austria's leading electricity company, presents a declining result for quarters 1-3/2010.

The operating activities in quarter 3/2010 were, however, considerably more stable. Following a decline in the operating result of approx. 28 % in the first half of 2010, the operating result at the end of the third quarter lies 22.1% below the level of the previous year at € 625.6 million. Sales revenue sank 1.7 % compared to 2009. The increase in thermal generation and the stable development of the spot market prices – even if still at a low level – had a positive and stabilising effect on operating activities in quarter 3/2010.

The group result in quarter 3/2010 was, however, burdened by negative one-off effects in the financial result sank 39.5 % to € 334 million compared to the previous year. The capital increase is planned for November 2010. The exact time, however, will depend on the market environment.

Following the well below average water supply in the first half of 2010, the hydro coefficient in quarter 3/2010 rose above the long-term average. Above-average values were recorded in August and, in particular, September. Despite this improvement, the water supply from the rivers in quarters 1–3/2010 lay with a hydro coefficient of 0.97 3 % below the long-term average and 10 % below the exceptionally high value recorded in 2009.

The reduction in energy production from hydro power, however, was shored up considerably by the acquisition of power plants on Bavaria’s River Inn in August 2009. Generation from annual storage power plants also dropped due to a significant decline in inflows compared to the previous year. Compared to last year, hydro power production in total sank 4.5 % from 21,472 GWh to 20,513 GWh.

Thermal generation, on the other hand, rose 95.5 % from the value recorded in 2009 to 2,962 GWh. This increase is among others attributable to VERBUND's electricity procurement rights at the POWEO power plant Pont-sur-Sambre (France), which was commissioned at the end of September 2009.

The relevant spot market prices for the current fiscal year recently displayed a stable development. The spot market prices for electricity in quarter 3/2010 lay, on average, approx. € 2/MWH above the prices for first half of 2010. In total, the wholesale prices for electricity remain unchanged at a comparatively low level.

Thanks to the above described positive influencing factors in quarter 3/2010, we were able to stabilise our operating activities. Following a decline in the operating result of approx. 28 % in the first half of 2010, the operating result at the end of the third quarter lies 22.1 % below the level of the previous year at € 625.6 million. Sales revenue sank 1.7 % compared to 2009.
The group result in quarter 3/2010 was, however, burdened by negative one-off effects in the financial result, in particular, by the devaluation of the shareholding in POWEO S.A. due to the clear drop in the stock market price. As a result, the group result sank 39.5 % to € 334 million compared to the previous year.

VERBUND focuses upon hydropower
The future belongs to renewable energy sources. Hydro power is the most important and most economic form of power production. For this reason, VERBUND will invest swiftly and massively in the expansion of this energy source, above all in Austria. The planned capital increase will give VERBUND more flexibility to implement its long-term investment plan. VERBUND will continue to focus on hydro power in future as we are convinced that this energy source will play an increasingly important role in European electricity supply.

Shareholder approve capital increase
At the Extraordinary General Meeting of 24 September, the VERBUND shareholders approved the creation of authorised capital for the planned capital increase in the amount of approx. € 1 billion. The motion was approved by a majority of 99.9%. This confirms the support of the VERBUND shareholders for the planned capital increase. We view this as an unequivocal mandate for the swift implementation of our projects.

On the basis of the resolution of the Council of Ministers from August 2010, the National Council passed the Enabling Act for the participation of the Republic of Austria in the capital increase. Apart from the Republic of Austria, which holds a 51 % stake in VERBUND AG, the other major shareholders – EVN AG, Wiener Stadtwerke Holding AG and TIWAG – have announced their intention to participate in the capital increase through the complete or partial exercising of their subscription rights.

The capital increase is planned for November 2010. The exact time, however, will depend on the market environment. The capital increase will give VERBUND more flexibility to implement its long-term investment plan and achieve further corporate growth. The investments include major hydro power projects such as the pumped storage power plant Limberg ll and the pumped storage power plant Reißeck II. The important expansion of the high-voltage grid in Austria is also a priority. Parallel to this, the planned measures will strengthen the capital structure of VERBUND and pave the way for a solid A rating.

Outlook
Assuming an average water supply in quarter 4/2010 and stable wholesale prices, the company expects a decline by maximum 25 % for the operating result. Due to the negative one-off effects in the financial result, VERBUND has to downgrade its earnings forecast for the group result 2010 and expects a decline of approx. 35%. Dividends will approach a payout ratio of 45 to 50%.