VERBUND AG - AT0000746409

Financial Performance

Revenues for the year were impacted by lower energy prices and reduced market volatility, though the company maintained a strong net debt position. The decrease in EBITDA was driven by lower contract prices across all segments, particularly in hydro and new renewables. Margins were pressured, with EBITDA margins falling to 40.2% from 46.8% in 2023. Despite these headwinds, the company’s focus on cost management and disciplined capital allocation provided some stability, with EBITDA in the sales segment improving slightly to €7 million.

Hydro Segment

The hydro segment demonstrated resilience, with production up 9.6% to 33,448 GWh, supported by a hydro coefficient 9% above the long-term average. However, EBITDA fell 23% to €3 billion, reflecting the impact of lower contract prices. Management highlighted the importance of hydro as a cornerstone of the company’s portfolio, though the segment’s profitability remains sensitive to weather conditions and market prices. Snow levels in the Alps are currently below average, raising concerns about future hydro output and its ability to offset higher gas plant usage during dry periods.

New Renewables and Thermal Power

New renewables saw strong generation growth, with wind up 30.2% and PV up 23%, driven by new installations in Spain, Austria, and Germany. However, EBITDA in this segment dropped 25% to €170 million, reflecting lower prices and higher operational costs. Thermal power generation increased, but EBITDA declined due to lower prices and negative valuation effects, underscoring the challenges of transitioning away from fossil fuels. While the company remains focused on renewable investments, particularly in Spain, the near-term profitability of these assets is contingent on favorable market conditions and regulatory support.

Valuation and Market Context

VERBUND’s financial performance reflects broader market trends, with energy prices remaining under pressure as the industry transitions to a low-carbon future. The company’s valuation metrics, including a trailing P/E of 12.55 and a price-to-book ratio of 2.36, suggest investors are pricing in the risks associated with transitioning to renewables while maintaining confidence in the company’s long-term growth potential. The enterprise value over EBITDA of 7.25 highlights the premium placed on the company’s stable cash flows and strong balance sheet.

Outlook and Growth Initiatives

Looking ahead, VERBUND aims to invest €5.9 billion over the next three years, with a focus on renewable projects in Spain, grid infrastructure, and hydro assets. The company’s guidance for 2025 EBITDA of €2.7-3.3 billion reflects cautious optimism, balancing growth opportunities with near-term market headwinds. Management emphasized the importance of hedging to mitigate price volatility, with 74% of 2025 production hedged at €117/MWh. However, the marked-to-market value of unhedged volumes at €90/MWh introduces significant uncertainty, particularly as market prices remain volatile.

Market Context and Risks

Overall, VERBUND AG’s 2024 results reflect the broader challenges facing Europe’s energy sector as it transitions to a low-carbon future. While the company’s financial performance has been impacted by lower energy prices and market volatility, its strong balance sheet and strategic investments position it well for the long term. The coming year will be pivotal in determining whether the company can achieve its growth targets while maintaining financial discipline.