The European electricity market continues to undergo a process of transformation. Reorganising the electricity market involves incorporating a growing number of new renewable technologies and an increasingly decentralised generation structure in addition to meeting the new requirements for power grids and storage capacity. Regulatory intervention – such as the oversubsidation of new renewable energy sources and an overallocation of carbon certificates – has resulted in massive market distortions in recent years, leading to declining electricity wholesale prices while overall system costs continue to rise. These changes, along with the increasing digitalisation occurring at all levels of the value chain, are forcing electricity suppliers to alter their business models to support new trends.
Thanks to VERBUND’s clear strategic approach coupled with consistent implementation of sustainable restructuring and efficiency improvement in financial year 2016, the Group has succeeded in continuing to develop its position as a profitable and sustainable European energy producer and service provider that is nearly 100% carbon-free. In 2016, 96% of the electricity generated by VERBUND came from renewable energy sources.
VERBUND significantly reduced debt in 2016 based on the Group’s success in improving free cash flow through a variety of measures. This was also reflected in the upgrade from “negative” to “stable” in the ratings outlook for VERBUND AG issued by Standard & Poor’s (BBB) and Moody’s (Baa2).
The Group’s income trend was positive in financial year 2016. EBITDA increased by 17.5% to €1,044.2m and the Group result rose to €424.4m, or 104.3% over the previous year’s figure. In both the current and previous reporting periods, however, earnings were impacted by non-recurring effects. In 2016, non-recurring income was generated from the settlement of outstanding issues relating to gas deliveries for the Mellach combined cycle gas turbine power plant as well as from the settlement of all outstanding issues arising from the agreement to supply district heating from the Mellach power plants site. The most significant non-recurring expense was the impairment loss recognised on the Romanian wind farms. After adjusting for these non-recurring effects, EBITDA increased by 6.6% to €894.5m despite the continued market-related decline in sales prices. The adjusted Group result even climbed by 21.2% to €325.9m. The improvement was primarily due to the increase of seven percentage points in the water supply compared with the prior year, a substantial improvement in the results of our thermal operations, higher earnings in the Grid segment, the Group-wide programme to reduce costs and increase efficiency and a reduction in interest expense.
Dividend for 2016
At the Annual General Meeting on 5 April 2017, we plan to propose a dividend of €0.29 per share for financial year 2016. The payout ratio will thus amount to 30.9% based on the adjusted Group result.
Outlook for 2017
On the basis of average own generation from hydropower and wind, we expect EBITDA to amount to around €800m and the Group result to around €280m in financial year 2017.