Shareholders letter 35

Transcription

1 The Verbund share 1. International market mood: The international market mood of the first half of 2001 was still beset by uncertainty Shareholders letter 35 regarding the stock markets. After a short recovery period affecting growth stocks, prices fell again in the 2nd quarter of 2001, while value stocks continued to post price gains. There was a clear indication 7/2001 of a trend towards investments for the medium to long term. European Hydro Power 2. Concentrated The Austrian Hydropower market mood from Verbund and E.ON During the first half of 2001, ATX performed especially well, by international comparison, and grew by approx %. At STEWEAG-STEG Joining forces in Styria the Vienna Stock Exchange, it was primarily value stocks that posted price gains in RWA the first Wasserkraft half of the year. This was brought Clean about hydropower by positive factors for end such ascustomers talk of possible privatizations and the reduction of valuation discounts of domestic companies. The MSCI change, however, proved to be a burden, because the Vienna Stock Exchange, by international standards, has only a limited number of freely floated stocks. 3. Utility stocks The first half of 2001 saw a slight decline in the index of European utility stocks. While the average of European utility stocks of Euro STOXX Utilities posted an average price loss of about 2.1 %, the EUROSTOXX Total Market Index Europe fell by approx. 9.3 %. Within the utility stocks, the best performing stocks were those that were affected by talk of possible takeovers. Negative factors included, primarily, uncertainty as a result of unprofitable acquisitions and vis-à-vis

2 Vienna, July 2001 Dear Shareholder, Europe's largest pure-hydropower group will have its headquarters in Austria. Verbund and E.ON have reached an agreement on the establishment of a joint hydropower company. The new hydropower giant will be called "European Hydro Power GmbH (EHP)" and will have more than 200 power plants with a regular work capacity of over 35,000 GWh. By bundling the activities of E.ON Wasserkraft GmbH and Verbund Austrian Hydro Power AG (AHP), we are creating the second largest producer of hydropower in continental Europe. Verbund's share in EHP, according to initial valuations, will be approximately 60 %. This helps ensure that the company will be under Austrian management. EHP is a company in charge of managing the joint hydropower activities and of ensuring that the power plants be used and operated with optimal efficiency. The power plants will remain the property of AHP and E.ON Wasserkraft. The water rights will also remain with each company. With the creation of EHP, a strong European player was born - one that has the ability to face the fierce competition of the deregulated European electricity markets and to score high thanks to crucial strategic advantages. In addition to an optimal increase in synergies due to regional proximity, these advantages, primarily, include the strengthening of goodwill, enhancing the competitive position within the deregulated market and playing the role of a low-cost producer in Europe. Together with Energie Steiermark AG (EStAG), we were able to take one important step towards consolidation of the Austrian electricity industry. EStAG will contribute the power plants of its utility subsidiary STEWEAG to AHP and Verbund Austrian Thermal Power (ATP). AHP will also come to include the power plants of STEG, a Verbund subsidiary. Through the merger of the two largest power generators in Styria, it will be possible to create clear structures in the Styrian electricity sector. However, cooperation is not limited to Styria. Rather, the partners' objective is, by means of a 25 % share that EStAG would acquire in Verbund-StromvertriebsGmbH, to coordinate their market entry and obtain a top position in the Austrian market throughout all customer segments. The distribution and sales activities of STEWEAG and STEG will be merged into a new STEWEAG-STEG GmbH. The objective of this joint company is to acquire about 500,000 customers in Styria. Given the geographical proximity of the new Styrian regional utility to the countries of Slovenia and Croatia, Verbund and STEWEAG-STEG intend to target these markets jointly. Also, we are about to enter the competition for private, commercial and agricultural small-scale customers, and the odds are definitely in our favor. The newly formed joint venture for electricity distribution, Raiffeisen Ware Wasserkraft (RWW) - a company of Verbund and Raiffeisen Ware Austria - has customized its products and services to specifically cater to the needs of that target group. The Raiffeisen Ware Austria group, which enjoys excellent customer relations, especially in rural areas, will start offering "green" Verbund electricity in its warehouses as of October of this year. RWW aims to acquire approx. 50,000 new customers by Starting this fall, the members of the electricity pool of the Economic Chamber of Lower Austria, will be "powered by Verbund." So far, more than 2,000 companies with an electricity volume of 160 million kwh have joined the pool. With energy savings of 30 to 50 percent, these customers will soon be the true winners of the market deregulation. The Austrian Agricultural Chamber has been won over by these arguments as well: more than 216,000 farmers across Austria will be able to buy Verbund electricity as of October 1. Strategic partnerships, the implementation of innovative marketing and distribution concepts as well as the creation of clear structures make up the foundations of our future strategy. Verbund, Austria's leader in the electricity industry, will remain a driving force in the deregulated Austrian electricity market as well. The Managing Board Dipl.-Ing. Hans Haider Dipl.-Ing. Dr. Herbert Schröfelbauer Dr. Michael Pistauer Dr. Johann Sereinig

3 VERBUND 1st half of 2001 according to IAS Sales revenue up significantly Despite a high degree of market deregulation, electricity sales were up significantly by approx. e million or 20.7 % on the previous year. The main triggers of this positive trend have been the expansion in electricity trade, which was pursued successfully, and our initial success in the Austrian end-customer market. The export share of electricity sales has already reached % and more than compensates for the marked decline in sales from provincial utility companies. Increased electricity exports (e million or %) have also contributed to the growth in grid sales, which have increased by approx. e million or %. Increase in electricity purchase and fuel expenses The strong expansion and success in trading activities, especially in exports, has resulted in an increase in electricitypurchase expenses by about e or %. Verbund is among the most active electricity traders in Central Europe. Fuel expenses have gone up by about e 7.72 million or % on the previous year. In this context, it bears mentioning that the existing coal inventories of the thermal power plant Zeltweg, which has been transferred to the status of available reserve since midyear, have been depleted significantly. In order to cover the demand, more electricity has been generated by the thermal power plants. Significant reduction in payroll expenses The number of employees was reduced by 339 (-10 %) on the previous year. Pension pay-offs realized in previous years have decreased pension expenses by 25 % and have resulted, in combination with the continued decline in salaries and wages, in a reduction of payroll expenses by e 21.3 million. The drop in other operating expenses by e 15 million (21.9 %) is essentially due to maintenance expenses allocated to the repair of the head water duct of the power plant Rosegg in the previous year (e 10.9 million) and the consistent implementation of cost-savings programs. Improved finance result The improvement of the finance result of approx. e 32.1 million or 37.6 % is due to currency valuation losses of e 27 million with respect to liabilities denominated in CHF in the previous year and due to the injection of cash from cross-border leasing transactions successfully concluded. Operating result at previous year's level The operating result for the first half of 2001 was kept at the previous year's level despite a continued squeeze on margins. Continued increases in electricity sales, consistent reductions in staff levels, maintenance and administrative expenses as well as lower depreciation have more than compensated for the increases in electricity purchase and fuel expenses. Profit after tax significantly improved Profit after tax was increased by e 20.4 million or 47.4 % on the previous year as a result of the positive trends affecting the finance result. Earnings per share went up considerably to e 2.02, compared to e 1.16 for the first half of Cash flow The decline in operating cash flow was mainly due to the increases in sales generated with smaller margins. The positive cash flow from financing activities is the result of advance payments received for interests and of short-term borrowings. This is set off against repayment of longterm loans and borrowings. Massive improvements to capital structure Verbund managed to improve its capital structure significantly compared to the first half of This was primarily due to the repayment of financial obligations, the reduction in provisions (in particular, the pension obligations, which have been paid off) and the cross border leasing transactions. Debt clearance in the amount of over e 500 million has contributed to the improvement of Verbund's capital ratios.

4 Consolidated income statement for the 1st half and the 2nd quarter 2001 according to IAS (in e thousand) 2nd quarter 2nd quarter 1st half 1st half Sales revenue 259, ,880 a. Electricity sales 582, ,610 75,426 61,950 b. Grid sales 154, ,910 9,989 15,230 c. Other 25,009 24, , ,060 Total 761, ,930 2 Other operating income and 19,618 23,880 changes in inventory 33,539 37, , ,940 3 Operating performance 795, ,170 4 Expenses for electricity purchases, fuels and other purchased production services -115,660-55,110 a. Electricity purchases -292, ,970-13,039-8,800 b. Fuel and other expenses -43,478-35, ,699-63,910 Total -336, ,730 5 Payroll and related expenses -59,817-59,920 a. Salary, wages and incidental wage costs -117, ,790-36,196-46,600 b. Severance payments and pensions -46,154-61,530-96, ,520 Total -164, ,320 6 Amortization and depreciation of -47,011-51,070 intangible assets and fixed assets -94,685-99,880 7 Other operating expenses -9,709-18,460 a. Operating and maintenance expenses -14,544-30,090-14,192-9,010 b. Other -38,838-38,280-23,901-27,470 Total -53,382-68,370 69,495 72,970 8 Operating result 147, ,870-32,897-33,800 9 Finance result -53,366-85,510 36,598 39, Profit before tax 93,698 61,360-12,598-10, Taxes on income -30,240-18,320 24,000 28, Profit after tax 63,458 43,040-1,006-4, Minority interests -1,277-7,420 22,994 24, Group result 62,181 35,620 Consolidated cash flow statemement for the 1st half of 2001 according to IAS (in e thousand) 1st half 1st half Cash flow from operating activities 137, ,601 Cash flow from investing activities 20,049 13,150 Cash flow from financing activities 50, ,448 Changes in cash and cash equivalents 207,202-69,696 Cash and cash equivalents at ,418 27,260

5 Consolidated balance sheet as of according to IAS (in e thousand) Assets As of As of Change absolute in % A. Non-Current assets 1. Intangible assets and goodwill 77,307 84,001-6, Property, plant and equipment 4,254,721 4,330,602-75, Interests (thereof at equity: 150,799; Prev. year: 148,918) 420, ,355-16, Other long-term investments 1,510,269 1,522,519-12, ,263,032 6,374, , B. Current assets 1. Inventories 29,013 31,956-2, Receivables and other assets 278, , Cash and cash equivalents 297,418 90, , , , , C. Deferred tax assets 87, ,514-22, D. Deferred charges and prepaid expenses 8,672 12,143-3, Total Assets 6,964,144 6,897,520 66, Liabilities As of As of Change absolute in % A. Shareholders equity 977, ,723 29, B. Minority interests 122, ,231-2, C. Long-terms liabilities 1. Borrowings 3,480,200 3,493,987-13, Provisions 581, ,143 14, Other liabilities and advance payments from customers 22,479 23,898-1, ,084,512 4,085, D. Short-terms liabilities 1.Borrowings 487, ,690-57, Provisions 196, ,612-27, Trade payables 22,461 33,417-10, Other liabilities 242, , , , ,616 37, E. Deferred assets and income 831, ,922 2, Total liabilities 6,964,144 6,897,520 66, Key figures for the 1st half Change 1st half st half 2000 of 2001 according to IAS absolute in % Hyrdo coefficient EBIT margin 19.3 % 22.8 % ROCE 1) 4.4 % 4.5 % ROE (excl. minority interests) 1) 6.7 % 4.2 % Capital ratio 1) 17.3 % 15.2 % Net gearing 1) % % Average number of employees 2) 3,096 3, % 1) Calculated differently from the previous year; previous year has been adjusted 2) Due to the transformation of Ennskraftwerke AG to at-equity consolidation, its employees have not been included in no. of employees. Number for previous year adjusted (-115 employees).

6 Electricity balance 1st half of 2001 in GWh Generation 1st half st half 2000 change % Hydropower plants 12,982 13, thereof STEG s 1) own generation Thermal power plants 1,619 1, Total own generation 14,601 14, Purchase from prov. comp STEG s ext. generation Total dom. generation 15,840 15, Import and trade 9,265 3, Group total 25,105 19, ) Steiermärkische Elektrizitäts-Aktiengesellschaft Electricity business: Gains across all customer segments Electricity sales increased by 30.1 % to 25,105 GWh in the first half of Activities abroad gained 72.6 %, while domestic sales recorded increases of 4.8 %. The trend of the first quarter with respect to activities abroad continued. Trade activities with foreign utility companies and traders increased by 84 %; supplies to end customers in Italy and Germany grew by 61 %. The increase in domestic activities was mainly due to a business expansion in the end customer market and the ÖBB. In addition, electricity supplies to domestic provincial companies grew slightly. Still favorable water supply The output of hydropower plants was only slightly below the levels for the previous year, but it still exceeded the long-term average by 11 % due to the favorable water supply. The improvement in market prices also allowed for an increased use of thermal power plants. Overall, own generation was only slightly lower than in the previous year. Increases in electricity purchases were the result of increased purchasing needs for new customers in the international market. During the first half of the year, we also saw a marked improvement in the prices of the international markets compared to the same period the year before. For example, the prices in the short-term market were more than e 5/MWh higher than the year before. Verbund was able to take advantage of this trend, in particular, in its marketing of additional output. This increases considerably the value and the flexibility of use of our storage power plants. Group electricity sales amounted to e million in the first half of the year and even exceeded the level reached the year before by 21 %. At e million, sales from business with foreign partners accounted for a share of 50.5 %. Apart from the rise in short-term prices, the first half of the year also saw a recovery in the long-term market-price levels. Verbund has already concluded agreements, for the second half of the year, for most of its own generation; as for foreign electricity trade, Verbund has also sold considerable volumes already. Positive business trends are also expected for the business customer segment. Since Verbund-StromvertriebsGmbH commenced operations at the beginning of this year, the company has acquired a considerable number of commercial, industrial and municipal customers. For the purposes of processing private, commercial and agricultural small-scale Consumption 1st half st half 2000 change % Provincial companies 9,398 9, Industry ÖBB (Austrian Railways) STEG customers Sales to dom. customers 11,860 11, Pumping, own consumption, loss Domestic consumption 12,556 12, For. traders/end customers 12,548 7, Group total 25,105 19, customers, a new electricity-sales joint venture was set up in June of this year, Raiffeisen Ware Wasserkraft. This company, too, has already begun to develop the market. One of the first major success stories of this company, a partially owned (50 %) subsidiary of Verbund- StromvertriebsGmbH, was the contract it was awarded for the electricity pool of the agricultural sector. As a result, Austrian farmers, beginning on October 1 of this year, will be able to purchase all of their electricity through the agricultural electricity pool. As for activities abroad, Verbund took yet another step towards expansion. In June of this year, APT-Power-Trading SL d.o.o., domiciled in Ljubljana, was founded. Due to its geographical location in the heart of Southeastern Europe as well as due to an ever-increasing exchange of energy and in view of added transit options towards Italy, Slovenia is an interesting location for Verbund. Following the joint venture in Italy and the cooperation agreement with EStAG in Styria, the creation of a subsidiary in Slovenia is the logical continuation of Verbund's strategic focus on the south and southeast of Europe.

7 Grid services: Full deregulation as of October 1, 2001 VERBUND-Austrian Power Grid GmbH (APG), Austria's largest transmission company and control zone manager, has largely completed all preparatory work leading up to the 100 % deregulation of the Austrian electricity market and has, thus, created the foundation for the timely implementation of the new clearing and settlement system. Elektrizitäts Control GmbH (ECG), the regulatory agency for the Austrian electricity market, commenced operations on March 1, 2001, and announced that it would carefully examine all the rate-effective network costs relating to transmission and distribution companies in order to bring about a general reduction in rates. Trends in power transmission volumes During the first half of 2001, the entire volume of energy physically transmitted OUTLOOK Throughout the 2nd half of 2001, Verbund will stay the course - reinforcing its strong domestic market position, internationalizing its electricity business and expanding its commercial activities - the company will continue to pursue its strategy rigorously. The main focus will be on the operative implementation of the cooperation agreement with Energie Steiermark AG, the purpose of which is to strengthen its domestic position regarding generation, distribution and electricity sales in a sustainable fashion. The company aims to expand the market leadership of Steweag-Steg in Styria within the entire level of the output chain and, throughout all of Austria, to successfully defend the number-one position reached by Verbund- StromvertriebsGmbH, as a result of that cooperation agreement in the field of came to 17,419 GWh, which was only slightly below the previous year's volume. As a result, the number of associated, independent transmission services went up by a factor of 2 to 11,307 applications submitted during the first half of 2001, as compared to 5,494 in the first half of the previous year. Sales revenues from APG s transmission network increased to e 142 million in the first half of up from e 135 million the year before. In terms of staff, the number of employees dropped from 396 in 2000 to 375. Network expansion APG and the Styrian power utility STEWEAG entered into an agreement which is to speed up the project involving a new 380-kV line in Styria. This agreement provides for, among other things, shared lines that incorporate 110-kV systems of STEWEAG into the APG line, the disassembly of lines no longer needed and cooperation regarding substations. business-customer marketing, against strong competition from within and outside of Austria as well as to reinforce it. For Verbund, today's main market is clearly Europe. Against this background, we will pave the way for the intended strategic partnership with E.ON Energie, the second largest electricity provider in the world. The core of this cooperation project will be the bundling of the hydro capacities of both companies and their integration into one joint hydro group. Together with E.ON Energie, we will thus become the second largest producer of hydropower in continental Europe. Raiffeisen Ware Wasserkraft GmbH, a joint venture for electricity sales founded by Verbund in cooperation with Raiffeisen Ware Austria, will, in the second half of 2001, increasingly compete for private and commercial small-scale customers throughout Austria by supplying them The new high-voltage transmission line, about 90 km in length, is to connect the substations "Südburgenland" and "Kainachtal", to decisively increase supply security for Austria and Styria as well as to cut back on transmission losses. For more information, please visit As part of the planned cooperation between Verbund and Energie Steiermark AG (ESTAG), there is also talk of incorporating the Styrian 110-kV grid of APG into a new marketing and distribution company, which would have to be established. with clean, domestic hydropower. This way, Verbund will be active in all customer segments, which will enhance our sustainability when it comes to stabilizing our entire sales portfolio in the overall market, which is marked by volatility and varying levels of liquidity. In the area of generation, we will further lower our favorable production costs, which our competitors have been unable to match. The transmission area will also see further cost reductions. The grid is to continue to generate for Verbund constant earnings contributions and cash flows, despite planned rate reductions. Additional restructuring measures affecting the personnel and a consistent program of debt clearance will also ensure that the operating result of the previous year will be matched in spite of the 100 % deregulation of the market beginning on October 1, 2001.

8 The Verbund share 1. International market mood The international market mood of the first half of 2001 was still beset by uncertainty regarding the stock markets. After a short recovery period affecting growth stocks, prices fell again in the 2nd quarter of 2001, while value stocks continued to post price gains. There was a clear indication of a trend towards investments for the medium to long term. 2. The Austrian market mood During the first half of 2001, ATX performed especially well, by international comparison, and grew by approx %. At the Vienna Stock Exchange, it was primarily value stocks that posted price gains in the first half of the year. This was brought about by positive factors such as talk of possible privatizations and the reduction of valuation discounts of domestic companies. The MSCI change, however, proved to be a burden, because the Vienna Stock Exchange, by international standards, has only a limited number of freely floated stocks. 3. Utility stocks The first half of 2001 saw a slight decline in the index of European utility stocks. While the average of European utility stocks of Euro STOXX Utilities posted an average price loss of about 2.1 %, the EUROSTOXX Total Market Index Europe fell by approx. 9.3 %. Within the utility stocks, the best performing stocks were those that were affected by talk of possible takeovers. Negative factors included, primarily, uncertainty as a result of unprofitable acquisitions and vis-à-vis utility companies that had embarked on the telecommunications business. Five-year relative price development (in %) Verbund share ATX Euro Stoxx 600 Utilities Stock exchange ratios 1st half st half 2000 Highest share price 134 e e Lowest share price 98 e e Closing price 98 e e Earnings per share 2.02 e 1.16 e Cash flow per share 4.45 e 5.44 e Market capitalization 3.02 Mrd. e 3.31 Mrd. e EV/EBITDA Stock-exchange turnover approx Mio. e Mio. e Stock-exchange turnover (in units): 32,779 Stk. 29,793 Stk. 4. The Verbund share The Verbund share came under pressure in the 2nd quarter of 2001 and lost approx. 9.3 % during the first half of the year. While the Verbund share had been among the best performing stocks at the Vienna Stock Exchange and among European utilities during the first quarter of 2001, it lost ground in the second quarter as a result of index sales. This can be explained by the reaction of the capital market to the announcement that the Morgan Stanley Capital Index (MSCI) would be changed to an index of freely floated stocks. Verbund, because of its ownership structure and considerable cross-shareholdings, has only few shares that are floated freely - making up only 25 % of its portfolio. However, the long-term performance of the Verbund share is still excellent; only recently, it was named as being among the best shares traded on the ATX, based on a 5-year and 10-year comparison. 5. Turnover and market capitalization The stock-exchange turnover of the Verbund share was e million - a record performance among ATX stocks. Market capitalization, in terms of the total number of shares, amounted to e 3.02 billion. This makes Verbund the third highest rated company traded on the ATX. Impressum: Publisher: Österreichische Elektrizitätswirtschafts- AG (Verbundgesellschaft), Am Hof 6a, A-1010 Vienna, Phone: (+43-1) , Fax: (+43-1) , Internet-Homepage: investor@verbund.at, Impressum: Investor Relations: Mag. Andreas Wollein, Production, Layout & Graphics: Power Agency GmbH, Wipplingerstraße 32, A-1010 Vienna, Tel.: (+43-1) , Translation: Werner Patels, B.A., M.A. Print: Raser, A-1100 Vienna Provisional capital market dates 2001 First-half 2001 result st 3 rd quarter 2001 result