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Edited Transcript of VER.VA earnings conference call or presentation 9-May-18 8:00am GMT

Q1 2018 Verbund AG Earnings Call

Vienna Aug 15, 2019 (Thomson StreetEvents) -- Edited Transcript of Verbund AG earnings conference call or presentation Wednesday, May 9, 2018 at 8:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Andreas Wollein

VERBUND AG - Head of Group Finance, M&A and IR

* Peter F. Kollmann

VERBUND AG - CFO & Member of the Executive Board

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Conference Call Participants

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* Dominik P. Olszewski

Morgan Stanley, Research Division - Research Analyst

* Ingo Becker

Kepler Cheuvreux, Research Division - Head of Utilities Sector Research

* Lueder Schumacher

Societe Generale Cross Asset Research - Equity Analyst

* Tanja B. Markloff

Commerzbank AG, Research Division - Equity Analyst of Utilities

* Teresa Schinwald

Raiffeisen CENTROBANK AG, Research Division - Chief analyst

* Wanda Wierzbicka

Crédit Suisse AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Dear ladies and gentlemen, welcome to the conference call of VERBUND AG. At our customer's request, this conference will be recorded. (Operator Instructions) May I now hand you over to Dr. Peter Kollmann, who will lead you for this conference. Please go ahead, sir.

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Peter F. Kollmann, VERBUND AG - CFO & Member of the Executive Board [2]

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Good morning, ladies and gentlemen. I'm here with Andreas Wollein, our Head of Finance and Investor Relations. Let me welcome you to our presentation for the first quarter 2018 figures and let me thank you for joining today's conference call.

Before we move into the analysis of the business development of VERBUND, let me make a few general comments about the first quarter. Hydro conditions were exceptionally positive in the first quarter. That's why we decided to increase our outlook for 2018. Flexibility products were lower than the year before. However, 2017 represented, as you know, an extraordinary year with regards to almost all flexibility products. The performance in the Grid segment was strong compared to last year. All of these developments had a positive effect on our performance and on our key figures.

Now let's move into more detail. At the beginning, let me highlight the most important influencing factor for the results development in the first quarter. The water supply determining the generation from our run-of-river hydropower plants was 17 percentage points above the long-term average and 25 percentage points above the level of 2017. Contributions from flexibility products were lower than in the corresponding period of 2017. I would like to remind you that 2017 was exceptionally strong. Why? Cold weather, outages of nuclear power plants in France at the beginning of the year and a few other influencing factors. Contributions from the Grid segment were higher than in the first quarter 2017, mainly due to low expenses for congestion management. Finally, cost-cutting programs of the past years had positive effect on the results development. The impact of these factors on the key figures on VERBUND are as follows: EBITDA increased by almost 19% to EUR 270 million. Group result was high by 30% to EUR 121 million. Operating cash flow is very strong at a level of almost EUR 300 million, representing an increase of 94.6%. Free cash flow before dividends was positive at a level of EUR 241 million, which is an increase of 165%. That allowed us to reduce the debt level further. Net debt decreased by 17.3% to a level of EUR 2.589 billion. Now due to the very good hydro conditions in the first quarter, we decided to increase our outlook for 2018. We now expect EBITDA of approximately EUR 870 million and group result of approximately EUR 320 million based on average hydro and wind conditions for the remainder of the year. As announced with the full year results, we plan the payout ratio between 40% and 45% on the adjusted group result for 2018.

On the next page of the following chart, I will explain the influencing factors in more detail. Let me start with our generation volumes. Generation volumes in total were significantly higher despite the fact that the production from thermal and wind power plants decreased. In the first quarter, we saw a strong increase from a profitable run-of-river hydropower plant. Hydropower increased by 1,600 gigawatt hours or almost 29% compared to 2017. At 1.17, as you know, hydro coefficient, an index which quantifies the hydropower generation, was 25 percentage points above the level of 2017, i.e., the first quarter 2017, and 17 percentage points above the long-term average. Generation from storage power plants also increased by 34.7%. However, generation from thermal power plants was down by more than 50%, or 520 gigawatt hours, which is a result of the decreased use of our Mellach CCGT for flexibility services, particularly congestion management. Generation from wind power also decreased by 50 gigawatt hours or 5.4% due to less favorable wind conditions in Romania. A second important influencing factor in our results, of course, the average achieved contract prices. At the end of the first quarter 2018, we have hedged approximately 83% of our hydro generation at an average price of EUR 27.9 for 2018 compared to EUR 30.4 for full year 2017. As you know, EUR 1, plus or minus, has a sensitivity of approximately EUR 25 million on the EBITDA line. Based on the increasing wholesale price environment, you can see an increasing trend of the achieved contract prices for 2018. On a mark-to-market basis, as of end of April 2018, we calculate with a price of EUR 30.1 per megawatt hour, which is already pretty close to the level for the full year 2017, which was EUR 30.4.

On the next page, with regard to flexibility products. As I mentioned before, 2017 has been a record year. We should not take that as a guidance for the future. We had a number of effects at the beginning of 2017, which I mentioned before, which led to the very, very strong flexibility product development last year. In the first quarter this year, we had a contribution from control energy, congestion management, grid system services, intraday trading, capacity reserve and pumping operations of, in total, approximately EUR 44 million after close to EUR 70 million in the corresponding period of last year. That is a decrease in flexibility products of 36%. I already mentioned the reason for the exceptional development in 2017. For 2018, we guide an EBITDA contribution from flexibility products of approximately EUR 130 million. Again, as I mentioned before, that figure is highly volatile, and predictability is very limited.

On the next page, as you know, from our full year conference call, the Austrian high-voltage grid was a system length of approximately 7,000 kilometers and an interconnected capacity into 7 neighboring countries. It's of high importance for the group strategically. As we mentioned before, we see a growing importance in the European grid system of our very central position within Europe. And we like the regulatory character of our Grid business. And the IFRS, in contrast to local GAAP, we have a volatility in the result contribution, which, unfortunately, we cannot avoid. We would like to have the same "regulatory" account system as with the local GAAP and IFRS. Unfortunately, it has not been accepted so far, despite the fact that we had a number of conversations with the IFRS board over the last few years. As a result of that, we have revenue surpluses and shortfalls in IFRS, which are not utilized or compensated via the regulatory accounts that we have in local GAAP.

The chart on the left-hand side provides you with the comparison between the EBITDA according to local GAAP and EBITDA according to IFRS for the first quarter of 2017 in comparison with the first quarter of 2018, and I'll revise guidance for the full year 2018. EBITDA from the Grid business strongly increased from EUR 57 million to EUR 90 million under IFRS. What is the reason? Reason is mainly lower-than-planned expansions for congestion management. Therefore, we increased our guidance to EUR 160 million according to local GAAP and to EUR 206 million according to IFRS. However, there is a lot of volatility, and we can't really predict congestion management and control energy for the remainder of the year. So that is something we just need to observe.

I would like to hand over to Andreas Wollein, who is going to take you through the next 3 charts.

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Andreas Wollein, VERBUND AG - Head of Group Finance, M&A and IR [3]

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Yes. The next 3 charts show the -- how the FX [is described] before influence of VERBUND's key financial figures. On the first slide you see, more or less, the P&L figures. EBITDA increase by more than EUR 40 million to EUR 270 million. This increase is mainly attributable to the renewable generation segment, which was up by about EUR 35 million, mainly due to the better hydro availability in Q1. The EBITDA in the Grid segment was up by EUR 32.7 million due to the lower expenses for congestion management. In addition, the cost reduction and efficiency increase programs had a positive effect on the results development. This FX was slightly counterbalanced by lower EBITDA contributions from all other segments being down by EUR 13.6 million, stemming mainly from the lower results coming from the thermal segment.

Depreciation slightly decreased due to the sale of assets and the impairments, which we did last year. The financial result improved due to the lower interest rates because of planned as well as unplanned repayments, debt repayments. The group result, therefore, increased by EUR 28.1 million or 30%, to EUR 121.6 million.

The EBITDA margin increased from an already high level of 28.1% to 36.1%. We are collecting above-mentioned FX on the EBITDA level. The EBIT margin showed a comparable increase from a level of 17.4% to 25.1%.

Finally, I would like to mention the additions to tangible assets, which were slightly higher than in the first quarter last year at the level of EUR 33.7 million. The additions concerned mainly the investments into the modernization of these -- of some of our hydropower plants in Austria as well as some investments into the Greek business.

The next slide shows the cash flow and debt situation. VERBUND's operating cash flow in the first quarter was extremely strong. It showed an increase of close to 100%, so 94.6% to EUR 298.5 million, due to the better hydro availability but also due to the repayments from marginings -- or margining FX on the bond trading activities and increased earnings contribution from the Greek segment. The free cash flow also strongly up from EUR 94 million to a level of EUR 241 million, and this is the reason why we would further deleverage the company significantly. So net debt decreased from EUR 2.8 billion to below EUR 2.6 billion. The gearing decreased from 50% at the end of 2017 to 44.1% at the end of the first quarter 2018.

A few words to our financial liabilities. So on the next slide, you see the debt maturity profile, which shows our remaining repayment of around EUR 170 million in 2018. This is a loan which is due in December this year. It is also worth mentioning that VERBUND additionally performed an unscheduled repayment of a loan before maturity of around EUR 62 million in March this year as part of our active liability management. Furthermore, the debt maturity profile shows 2 peaks: one in 2019, mainly consisting of a fixed interest bond in the amount of EUR 680 million; and one in 2024, mainly consisting of a fixed interest bond in the amount of EUR 500 million.

For liquidity backup, VERBUND has access to a EUR 500 million syndicated loan facility, which is undrawn, has (inaudible) and is available on the year 2019 with 2 extension options. The total amount of our financial liabilities is now approximately EUR 1.9 billion. The average interest rate on our debt is approximately 3.8%. 97% of our debt is based on fixed interest rates, and we are more or less 100% financed in euro. The rating of VERBUND AG remains unchanged. We have a rating of BBB+ with a stable outlook at S&P. And Moody's, we have a Baa2 rating with a positive outlook.

Now let me hand over again to Peter Kollmann, who will present you the last chart. It's the outlook for 2018 and 2019. Thank you.

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Peter F. Kollmann, VERBUND AG - CFO & Member of the Executive Board [4]

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Thank you, Andreas. As you know, key promises for the development of our operational business are mainly prices and higher volumes. At the end of the first quarter 2018, we have hedged approximately 45% of our hydro generation at an average price of EUR 30.1 for 2019, which is approximately EUR 0.3 below the level of the full year 2017. On a mark-to-market basis, as of the 26 of April, the average achieved price would be at a level of EUR 36.1, which is approximately EUR 5.7 above the 2017 level. With regard to the year-to-date hydro situation, we have to report a very positive hydro coefficient of 1.16, again, as of the 26 of April, which is 16 percentage points above the long-term average. On the basis of the aforementioned developments, the increased guidance for the full year 2018 is an EBITDA of approximately EUR 870 million and a group result of approximately EUR 320 million under the assumption of average hydro and wind generation for the rest of the year. VERBUND plans to pay out between 40% and 45% of the group results after adjustment for nonrecurring effects.

As always, at this point, we want to give you our sensitivities. A deviation of plus/minus 1% in the generation from hydropower has an impact of plus/minus EUR 4.7 million in the group result. A deviation of plus/minus 1% in the wind generation has an impact of EUR 0.3 million. And a deviation of plus/minus EUR 1 in the wholesale price has an impact of EUR 3.1 million in the group results.

With that, I would like to open to Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) The first question is from Wanda Wierzbicka of Crédit Suisse.

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Wanda Wierzbicka, Crédit Suisse AG, Research Division - Research Analyst [2]

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Wanda Wierzbicka, Crédit Suisse. Three questions for me, if I may. Firstly on your 2018 EBITDA guidance. You guide your -- the group EBITDA guidance by EUR 20 million, but at the same time, you increased your EBITDA guidance for the group business by EUR 47 million -- EUR 46 million. So isn't it reflected in you guidance or what we are missing here? My second question is, if you could give us the updated 2020 hedges, because I couldn't find it in your presentation. And my last question is on the carbon outlook. During the FY '17 conference call, you said that the carbon price is an outcome of the trading. Do you think then carbon price has gone up by 25%? Do you reiterate your view on the carbon pricing?

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Peter F. Kollmann, VERBUND AG - CFO & Member of the Executive Board [3]

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Right. Okay, thank you. Let me start with the carbon outlook. Yes, you're right. I have been relatively negative for many, many years on the carbon outlook. And carbon has indeed gone up quite dramatically this year. Year-to-date, I think it's almost 60%, where carbon price has gone up. There are different schools of thought within the markets vis-à-vis the entire ETF scheme. There are many different opinions in terms of how much the actual oversupply is. And as a result of that, is the current price a proper reflection of the demand and supply within the market over the next few years. My personal opinion is that we have -- we still have a structural significance, structural oversupply in the market. I continue to be of the opinion that we are currently at a very solid level in terms of the carbon price. And I think that the upside from here, I think we're currently at around 13, the upside from here is limited. That is the view, which could be right, could be wrong. I think it depends a lot on the trading, the trading sentiments. On the one hand, on the other hand, I think it depends a lot on the political will over the next few years vis-à-vis emissions and climactic changes, which are going to be reflected in political measures. On the 2020 hedges, we have not included the 2020 hedges in our presentation because we have only hedged 1% so far. So we have not really started with the 1-year forward hedges. As a result of that, we have not included it in our presentation. And as far as the 2018 guidance is concerned, you're absolutely right, we have not, one-to-one, included the increase in the grid into our full year guidance. We have only taken the water -- very good water conditions. As a result of the water conditions and assuming that we have 1.0 hydro coefficient for the rest of the year, we have increased. So why not the grid. The reason is that we have seen, particularly in the IFRS, a lot of volatility within -- not just within the last few months, but within the last few years. And therefore, as we don't know how things are going to evolve for the remainder of the year in terms of congestion management and control energy, we have decided at this point in time, relatively early in the year, not to include it in our full year guidance.

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Wanda Wierzbicka, Crédit Suisse AG, Research Division - Research Analyst [4]

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Okay. So there's a potential EUR 50 million upside on the EBITDA on the top of EUR 870 million, right? Is the congestion management and control energy...

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Peter F. Kollmann, VERBUND AG - CFO & Member of the Executive Board [5]

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If the conditions remain as they are and if there are no -- and if volatility does not lead to any negative developments, there is a potential upside on the grid sector.

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Operator [6]

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The next question is from Lueder Schumacher of SocGen.

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Lueder Schumacher, Societe Generale Cross Asset Research - Equity Analyst [7]

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Two questions from my side. One again on the grid. The EUR 206 million you mentioned there, how much of that is due to timing differences, clawbacks, et cetera? And how much would be a sustainable level due to rapid turns in the international business, which I appreciate can be volatile as well? But if you can give us the components that is due to these one-off items. And on the flexibility products, just the usual question, can you tell us how they roughly break down by the different divisions?

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Peter F. Kollmann, VERBUND AG - CFO & Member of the Executive Board [8]

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Yes. So on the grid, the EUR 40 million roughly, they come from both the congestion management and from control energy. Control energy expenses have come down. Why. The price for control energy has come down. So it has been a more competitive market at the beginning of the year. As a result of that, APG has spent less money on the control energy. Therefore, you have approximately half of the EUR 40 million coming from the control energy, and the other half approximately is coming from less expensive for congestion management, yes. So it's -- so that's really where it's coming from. It's less regulatory asset base differences, and it is less timing differences. On the flexibility products, we usually don't give sort of like the exact figures in terms of the changes, but I always, on the conference call, give you a feeling or give you an idea how things have evolved and how they might evolve. On the control energy -- and I'm not comparing to sort of like 2017, because 2017 has been, as we've discussed also on the last conference call, an exceptional year. On the control energy, we are slightly down in terms of contribution. Congestion management, we are predicting to be way down from last year and to be approximately at a level of 2016. On the pumping, that again has been exceptional in 2017. We think we're going to be down there as well. And on the intraday trading, we think that the level is going to be about the same as in '16 and '17. So overall, when you put it all together, that is where the EUR 70 million are coming from, between the EUR 200 million to the EUR 130 million.

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Lueder Schumacher, Societe Generale Cross Asset Research - Equity Analyst [9]

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And the EUR 130 million, which divisions can we expect to find how much of it? How does it break down between the different divisions?

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Peter F. Kollmann, VERBUND AG - CFO & Member of the Executive Board [10]

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Yes. We -- the biggest part is congestion management, and congestion management is between 40% and 50%, the entire figure.

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Operator [11]

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The next question is from Tanja Markloff of Commerzbank.

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Tanja B. Markloff, Commerzbank AG, Research Division - Equity Analyst of Utilities [12]

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I have a question on the financial liabilities, the maturity profile that you mentioned. I would be interested of the EUR 172 million and the EUR 719 million bonds on just -- well, the EUR 680 million bond, the other one. To what extent you may reduce your financial charges from the refinancing? Should we probably be able to achieve the refinance?

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Andreas Wollein, VERBUND AG - Head of Group Finance, M&A and IR [13]

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When we talk about the repayment in 2018, so the December repayment of about EUR 170 million, based on the good liquidity position we have currently on the balance sheet, we will not refinance it. This is the repayment. So I would say here is a potential that we reduce the interest expenses -- or, let's say, the interest rate level from around 4% to basically 0 for this amount. And when we talk about 2019, the peak repayment of the big bond, I think we have not made a decision yet, but this bond is also carrying a fixed coupon of around 4.75%. So given the fact that -- or under the assumption that we have to fully refinance the bond, which, I guess, based on the current conditions, is not very likely, so the amount will be lower. There is also, let's say, a strong reduction in interest expenses, which we expect for next year. As I said, the bond carries a coupon of 4.75%. If we are, let's say, issuing a bond today, a 10-year bond, we would roughly pay a 1.5% coupon. So this is roughly the spread reflecting the potential improvement in the interest expenses.

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Operator [14]

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(Operator Instructions) The next question is from Ingo Becker of Kepler Cheuvreux.

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Ingo Becker, Kepler Cheuvreux, Research Division - Head of Utilities Sector Research [15]

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Yes, Ingo Becker from Kepler. Two questions on CO2 and coal. Can you give your view on what has been a new experience driving the CO2 price so steadily lately? Some argue that, right now, you have a (inaudible) price level that makes a lot of fundamental sense. On the other side, it seems we have a lot of liquidity concerns in the market that has been fueling people -- getting people to buy. What's your take on that? And I was wondering if you have a view on coal, which was pretty erratic year-to-date, down earlier this year, lately recovering in [full] . (inaudible) essentially, is back up where it started at the year. And probably for you, pretty crucial, what was the next direction would be? And I was wondering what your view is on this.

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Peter F. Kollmann, VERBUND AG - CFO & Member of the Executive Board [16]

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Yes. Yes, Ingo, on CO2, to be perfectly frank, I'm struggling slightly in terms of really fully understanding the dynamics of the CO2 market. I think you're right about liquidity concerns, that's something I've been observing as well, that there is a prediction of potentially higher CO2 prices, call it, market psychology. As a result of that, there seems to be some trading and some to be prepared and to buy certificates. Then, of course, when you have liquidity concerns, there's a self-fulfilling prophecy because, then, of course, you think that there is -- there could be, as a result of the liquidity concern, a supply shortage, and therefore, price could go up further. That is market dynamics, which is short term. I usually look at the -- I usually look at -- structurally at the overall supply and demand. And there, I have not changed my opinion, which I've had for the last 5 years almost in terms of the CO2 market. And where there to say so far has been right, that the structural oversupply in the market has always put a cap on the development of the CO2 prices. And whenever in the past we have seen that -- because the market dynamics of CO2 price has gone up and there has been very positive sentiment in the market, and we've seen that like a year ago and 2 years ago, then, all of a sudden, things have changed and the CO2 prices come back. So the key questions to me is, is there anything I have missed. Is there anything I'm not seeing. Is there anything that has structurally changed. I mean, the one thing that has potentially changed is there seems to be a more constructive and a slightly more forceful attitude within the European Union on CO2. I think that is a sentiment which we see in many countries on a political level. I mean, we see it here in Austria with the new energy policy 2030, which is very optimistic in terms of cutting CO2 and producing more and more from renewables. We can see it in the discussions in Germany, which, Ingo, I know you're observing very well in the detail. And then, of course, we have similar discussions across Europe and other countries as well. I think that we just need to observe political will and how political will is going to be transferred into very specific measures and how those are going to be implemented, are going to have a real effect in terms of CO2, CO2 pricing and how people are going to decide to potentially take coal out of the market. And that brings us to your second question, which is coal. I can only give you a personal opinion, and I'm -- unfortunately, I don't have enough time to really go into coal analysis, commodity analysis despite the fact that it would interest me highly. I think that the market is currently trading at a level which is higher than I had originally anticipated. So I think that there is a trend -- or there should be a trend towards coal going down. Again, I always look at supply and demand, and I see that when I talk to colleagues in China and when I talk to people that are responsible for coal, that the trend definitely is -- that the demand for coal is going to come down. That is a real trend, and that is something which we're going to see in China as well as in other countries, but particularly in China. And I think that China is the key factor for the coal price. However, even if you're right on the trend, you could see short-term developments that are contrary to that. The one thing that is absolutely certain is that the coal price is still the price setting mechanism for the German power price. And as long as that is the case, and I think that is what you have implied in your question, we have to observe coal developments very, very intensely in order to really fully understand and grab power price development in our markets.

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Operator [17]

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The next question is from Dominik Olszewski of Morgan Stanley.

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Dominik P. Olszewski, Morgan Stanley, Research Division - Research Analyst [18]

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Firstly, with regards to operating cash flow, which has obviously seen meaningful year-on-year improvement, in your presentation, you mentioned margining reversals. Are there any particular working capital or cash flow effects that we should be aware of for the rest of this year? And then secondly, with regards to the approaching price [and] separation and the potential premium between Austria and Germany, how much of any premium is already reflected within your disclosed hedging via proxy hedges or otherwise?

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Peter F. Kollmann, VERBUND AG - CFO & Member of the Executive Board [19]

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Yes. I will start with the second question. Andreas Wollein is going to do the operating cash flow one. On the border differential, we are currently taking the market differential, which we have for '19 and '20. And that differential for the month, which have not hedged, is implied in our numbers. And on the operating cash flow, Andreas.

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Andreas Wollein, VERBUND AG - Head of Group Finance, M&A and IR [20]

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Yes. We have -- as we mentioned before, we have a strong increase in the operating cash flow. The reason for that is we have roughly EUR 70 million positive FX coming from, let's say, liquidity repayments or cash repayments from congestion management. We have here about a EUR 45 million positive FX coming from the water supplies or the positive water -- hydro situation. And about EUR 65 million is coming from, let's say, trading -- the trading business, which I mentioned is a cash flow coming back out of the margining because of the price developments and, let's say, running out of some of our futures or forward contract. So this is the main -- or the main effects why the operating cash flow has been so strong.

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Operator [21]

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The next question is from Teresa Schinwald of Raiffeisen CENTROBANK.

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Teresa Schinwald, Raiffeisen CENTROBANK AG, Research Division - Chief analyst [22]

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My first question refers to the operation and also talking to other analysts (inaudible) Austrian utility and they complained (inaudible) about the transparency of the market. And looking at your mark-to-market, I was -- about 2 years, probably (inaudible) 2019. Could you talk a little bit more sort of the pricing -- prices, especially when it comes to the more short-term product? That's my first question. And the second one is regarding Mellach power plant. You were so kind in the past years to provide us with an outlook for this type of the business and if you could help us this year again.

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Peter F. Kollmann, VERBUND AG - CFO & Member of the Executive Board [23]

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Right. I will start with Mellach. And I don't know about all the others, but the line has been very bad. So if I have not -- acoustically, if I have not fully understood the question, forgive me. On the Mellach one, and I'd just repeat your question, you asked about the Mellach development for this year, how we predict it?

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Teresa Schinwald, Raiffeisen CENTROBANK AG, Research Division - Chief analyst [24]

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Yes.

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Peter F. Kollmann, VERBUND AG - CFO & Member of the Executive Board [25]

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Yes. The -- let me take a step back in terms of Mellach. Mellach for us is, at the moment, and I think that is not going to change in the foreseeable future, an asset for flexibility products and particularly for congestion management. The Mellach congestion management contribution last year has been very strong. For regulatory reasons and for competitive reasons, we don't give the specific numbers in terms of the specific Mellach contribution. But it has been very strong last year. And most of the congestion management, which we have delivered in [2017], has come from Mellach. In terms of 2018, as you know, we have been more careful in terms of our predictions from congestion management. As a result of that, we think that the contribution from Mellach as opposed to 2017 is going to be smaller. However, it depends on the long-term grid reserve contract, which is currently negotiated. So that is something, some of you might remember, we have discussed on the full year conference call. We are currently negotiating with our Austrian regulator in terms of a long-term grid reserve where we would get payment for a period of 3 to 5 years. We're actually thinking that is going to be probably the 5 years, which we view as more positive than the 3 years. And that is going to be a contribution -- a fixed contribution to our Mellach power plant, which would make Mellach a quasi-regulatory business. I think we have a lot of background noise. Could somebody who is walking around the room, because we're hearing loud steps, go on mute? Great. Thank you. Thank you. Now in terms of the hedges, the transparency is as good as the market. And the liquidity in the market is not fantastic. The highest liquidity, obviously, we had in the (inaudible) market, where we had very liquids futures market, which has been used by everyone. With the separation of the markets, we have a very liquid market, which is the German market, and we have a much less liquid market, which is the Austrian market. As a result of that, you could argue that when you have an illiquid market and a liquid market and you look at the price difference, it is not perfect. I would agree with that statement. However, it is what it is. So we have to take it as a given, and that is the only indication which we have from the market, and that's the one we're using. It could well be that with more liquidity coming into the Austrian futures market, then we're going to see slight differences. However, we have, and as you might remember, when we had those conversations sort of like 1.5 years ago, looked like 2 years, when we first talked about the potential separation of Austria and Germany, you asked me at the time what my prediction would be if I had to predict on the basis of what I know, and at the time, I said it's -- in my view, it's going to between EUR 2 and EUR 3. And that's exactly where we are at the moment. We're between EUR 2 and EUR 3. So I think, at this time, I thought it makes sense. I still think it makes sense. I don't think that we're going to go way above the EUR 3, and I don't think that we're going to go below the EUR 2. And that is a good -- so if you try to put sensitivities in your model, that's probably a good range to use.

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Operator [26]

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There are no further questions. I hand back to the speakers.

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Peter F. Kollmann, VERBUND AG - CFO & Member of the Executive Board [27]

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Great. Thank you very much for your questions, and I look forward to speaking to you on our next conference call. Have a good day.

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Operator [28]

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Ladies and gentlemen, thank you for your attendance. This call has been concluded. You may disconnect now.