VERBUND AG (VER) Earnings Call Transcript & Summary

Dear ladies and gentlemen, welcome to the Conference Call of VERBUND AG. At our customers' request, this conference will be recorded. [Operator Instructions] May I now hand you over to Peter Kollmann, CFO, who will lead you through this conference. Please go ahead.

Ladies and gentlemen, let me welcome you to our presentation of VERBUND for the first half year '22, and let me thank you for joining today's conference call. With me today is Andreas Wollein. Before we move into the analysis of the business development of VERBUND, let me make a few general comments. The second quarter '22 continues to be marked by tremendous geopolitical tensions. The ongoing war in the Ukraine, as well as inflation records, rising key interest rates, the possibility of recession in Europe, the difficult framework, which we are facing, led to strong distortions on the European energy markets and to strongly rising and volatile energy prices. Changes in gas supply volumes and the changed purchasing structure were particularly noticeable in the development of gas prices. As a result of the strong increase in world market prices for primary energy sources and the high cost for CO2 certificates, European wholesale prices for electricity went up dramatically. The current development on the international energy markets drastically demonstrates the urgency of expanding electricity generation from renewable sources, as well as the expansion of grids and storage facilities. The focus needs to be on the phase out of fossil fuels, and we, at VERBUND, are making a valuable contribution in this context. Against this background, VERBUND had a positive development of its key figures in the first half year '22. Now let's move into details. At the beginning, I would like to highlight the most important influencing factors on our results developments. Based on our hedging strategy for our own electricity generation from hydropower, the average achieved price increased by EUR 65.9 to EUR 112.5 in the first half year '22 in comparison to '21. The hydro coefficient, which as you know is determining the generation from our run-of-river hydropower plants was 10 percentage points below the long-term average and 6 percentage points below the first 6 months in '21. The production from our hydro reservoirs on the other hand was much higher compared to last year. Contributions from flexibility products increased in all categories, especially control energy and pumping in total by 134.6% compared to last year. We also had a positive contribution from the full consolidation of Gas Connect Austria. And finally, there were positive non-recurring effects of in total EUR 86.6 million compared to EUR 9.3 million in '21. Now the impact of these influencing factors on the key figures of VERBUND in the first half year '22 is as follows. EBITDA strongly increased by 110.5% to almost EUR 1.4 billion and the reported Group result increased by 151% to EUR 817 million. The adjusted Group result increased by 133% to EUR 734 million and the operating cash flow increased to a level of EUR 920 million. The free cash flow after dividends however was negative at a level of minus EUR 111 million. Net debt increased only slightly by 1.6% to a level of EUR 3.568 billion. Now let me give you an update on our guidance. VERBUND expects for '22 a reported and adjusted EBITDA between approximately EUR 3 billion to EUR 3.5 billion and the reported Group result between approximately EUR 1.68 billion to EUR 2.03 billion based on average generation from hydro, wind and PV, as well as the opportunities and risk situation of the Group. The payout ratio will be between 45% and 55% of the adjusted Group result between approximately EUR 1.6 billion to EUR 1.95 billion. The earnings forecast and the information on our expected payout ratio are obviously contingent on not being impacted by possible energy policy measures to skim off some of the profits at energy companies, more specifically at VERBUND. The guidance for '22 for flexibility products is approximately EUR 250 million. Our old guidance was EUR 190 million. So we see an increase there related to the overall rising energy prices. The reason for this increase, the exceptional results in the first half year '22, especially from pumping and turbining due to high spreads. Now in terms of the hedging volumes, that of course, for you is a very important factor. For '22, we achieved an average -- achieved contract price for hydro generation of EUR 109.9 per megawatt hour, a EUR 115.5 for '23 and EUR 102 for '24. Please note, that we had already hedged approximately 88% of the volumes for '22, 42% of the volumes for '23 and approximately 21% of the volumes for '24. On a mark-to-market basis, as of 14th of July, we calculated with a price of EUR 153.5 for '22, EUR 250 for '23 and EUR 207 for '24. As you know there is a very high sensitivity to every single euro change in prices, which is EUR 25 million on our EBITDA line. So EUR 1 equals EUR 25 million in EBITDA. With that, I'm coming to the next page, where we show you the hydro segment. At 0.9, the hydro coefficient, as you know, is an index quantifying the hydropower generation of the run-of-river power plants was 10 percentage points below the long-term average and 6 percentage points below the level of the first half year '21. However, the production from our annual storage power plants increased by 18.7%, mainly due to higher turbining. Own production from hydropower, therefore, overall slightly decreased by 455 gigawatt hours or 3.1% to a total of 14.1 gigawatt hours compared to the half year '21. Higher average achieved prices and an increase in the contribution from flexibility products more than compensated the reduction volumes. Therefore, the EBITDA in the hydro segment increased by 150 -- sorry, by 175.6% to EUR 1.22 billion. Now on our key projects, the 480 megawatt Limberg III pumped storage power plant, this is going according to plan. We are within the given timeframe. The 45 megawatt Reisseck II pumped storage power plant project, as well as the project in Toging in Germany are all delivering according to our planned time framework. Now let me talk about our new renewable segment, there we have a coefficient as well, which is obviously an index quantifying the generation from wind power and PV, that amounted to 1.03 in the first half year '22 and that compared to 0.91 in the half year '21. Generation from wind power increased by 15.7% or 70 gigawatt hours and amounted to 513 gigawatt hours in the half year '22. More favorable wind conditions in all markets were the reason for this development. Generation from PV amounted to 2.2 gigawatt hours in the reporting period. Now taking a look at the EBITDA development in the new renewable segment, we see that the EBITDA increased by 145.7% to an EBITDA amounting to EUR 60 million. In addition to higher volumes, higher average achieved prices are the main reasons for this increase in our EBITDA development. Now on the next page, on the sales segment, now taking a look at the EBITDA development there, we see that EBITDA decreased strongly to a negative value of a -- a negative EUR 166 million. This negative EBITDA is mainly due to a negative result from the valuation of energy derivatives in connection with hedging transactions for future energy deliveries and higher procurement prices of electricity and gas for end customers. In principle, the negative valuation effect should balance out again in the future with the realizations of the underlying transactions. A positive contribution in the sales segment resulted from flexibility products. There we saw an increase of EUR 33.2 million compared to last year. VERBUND delivers electricity and gas to approximately 530,000 end customers, that represents an increase of approximately 1% year-on-year. VERBUND, like many other companies, decided to take measures to help end customers from rising electricity prices. Now in our all other segments there we have the generation from thermal power, thermal power plant was up by 588 gigawatt hours to 805 gigawatt hours. So that is a large increase, that is due to the market-driven use of one line of the CCGT in Mellach. Higher volumes and higher spreads had a positive contribution to our EBITDA development there. The negative EBITDA in the thermal segment in the second quarter resulted mainly from a negative effect from the valuation of energy derivatives. Now the contribution from flexibility products decreased by EUR 7.8 million. Contribution from KELAG, as you know, that's the provincial utility of Carinthia, to our financial result decreased to EUR 5.7 million due to a lower hydro situation and non-recurring effects based on the current opportunities and risks. A stable earnings development is expected for the full-year '22 as far as KELAG is concerned. Now finally, I would like to remind you that our CCGT in Mellach was contracted from APG, Austrian Power Grid, for future congestion management starting with the 1st of October '21. In detail, our Line 10, as we call it, is contracted from the 1st of October '21 to the 30th of September '23, and our Line 2, which is called Line 20, from the 1st of April '22 to the 30th of September '22. In the first quarter and in the fourth quarter, we use Line 20 on the market-driven basis. Now the district heating power plant, Mellach, was not contracted by APG and is, therefore, mothballed since the 1st of October '21. Discussions on how to convert it back to use it with coal for securing the security of supply, ongoing main topics includes, obviously, workforce and the sourcing of coal, et cetera, et cetera. Now on the next page on the grid segment, the contribution from APG, which is our 100% owned subsidiary responsible for the entire Austrian high voltage grid, there we have a difference between local GAAP with IFRS, which is something we always mention on the conference call because the numbers are different under IFRS in contrast to local GAAP, we have a much high volatility as a result of not having the so-called regulatory account that is something where we hope that IFRS will introduce that within the next few years, so that we can take out that volatility. The EBITDA for the first half year '22 from the electricity grid business, according to IFRS, was approximately EUR 179 million. The EBITDA guidance, and this is important now for the electricity grid is only EUR 65 million. Now what is the reason? The reasons for this are the following. In congestion management, there have so far been only very low call of cost for the Austrian control area in the first 2 quarters due to the very high prices and the assumptions that in congestion management. The usually strongest demand months are still to come. We expect an increase in costs for the second half of the year. Another very important point, even more important than congestion management is the auctions. We had very high revenues in the first half of the year due to the increased price spreads at the borders, especially with Germany. Since the go-live of the core region, however, there are currently losses from auctions due to the new regulations. This has now been planned accordingly. In addition, the clawbacks of the regulator to reduce the regulatory account will have a negative impact as well. So those are the key reasons for the decrease in terms of our guidance for the full year in APG. Now Gas Connect Austria. Gas Connect Austria operates and constructs natural gas high-pressure pipelines. In Austria, the company is also responsible for marketing and provision of transport capacity at border points, the so-called entry and exit capacities and of course, the transport capacity required for the domestic natural gas demand. The company plays a very important role in the supply of natural gas in Austria and in Europe. The natural gas is transported to the Austrian federal states, but also to Germany, France, Slovenia, Croatia, Hungary and Italy. With regard to the results contribution of Gas Connect Austria, we report an EBITDA of approximately EUR 46 million for the first half year, and the guidance for the full year is approximately EUR 100 million. On the next page, we show you our non-recurring effect in detail. We encountered impairments amounting to EUR 31.9 million, stemming mainly from an impairment in the Austrian hydropower plant, Gratkorn, and the goodwill of Gas Connect Austria, then there was also reversal of impairments relating to the CCGT Mellach in the amount of EUR 56 million. In addition, the measurement of an obligation to return an interest in the hydropower plant, Donaukraftwerk Jochenstein, amounted to EUR 28 million, that had a positive effect on the other financial result. And then the valuation of the Trans Austria Gas Pipeline, short TAG, there the profit participation right amounted to a negative EUR 11.3 million and had a counteracting effect on the other financial result. We also had impairments relating to our hydropower plant in Ashta and TAG amounting to minus EUR 4.2 million in total. So the overall effect on the financial result was EUR 12.5 million. In taxes, we had in addition to the effects, which I've just mentioned, a revaluation of deferred taxes as a consequence of the decision to lower Austria's corporate income tax in connection with the Eco-social Tax Reform Act. This effect amounted to EUR 56.6 million on an isolated basis. So in total, the effects from taxes were EUR 44 million. Now after considering the effects on minorities, the non-recurring effects on the Group result level amounted to EUR 82.6 million. We also show the non-recurring effects in the first half year of '22 in comparison, for your information. Now with that, I will hand over to Andreas, who is going to take you through our key financial figures. Please, Andreas.

Yes. Thank you, Peter. Quick words to the consolidated key financial figures. So on Page 10, so EBITDA on a consolidated basis increased by EUR 724 million or 110% to a level of EUR 1.378 billion. I think Peter already explained the various developments in the segments. Basically, all segments were positive except the sales segment. Depreciation increased by around 12% to EUR 219 million due to the acquisition of Gas Connect Austria last year and increased investments, mainly into the high voltage grid of APG and into the hydropower plants. The financial result deteriorated from around EUR 19 million positive to minus EUR 15 million or minus EUR 16 million. This was mainly attributable to lower earnings contributions from the interests accounted for using the equity method, mainly KELAG. Taxes on income were influenced by positive non-recurring effect amounting to around EUR 57 million. And as a consequence, the Group result, therefore, increased by EUR 492 million or 152% to EUR 817 million. The Group result after adjustment for non-recurring FX was up by around 133%. Finally, I would like to mention the increase in additions and inefficient to tangible assets in total from EUR 250 million to EUR 588 million, the increase resulted in particular from the acquisition of the 70% of shares in 4 wind and [ farm PV power ] project company in Spain with a total capacity of 171 megawatts from Capital Energy, as well as investments in connection with the pumping storage power plant Limberg III into the hydropower plant Toging in Bavaria and the 380 kilovolt Salzburg high voltage line. On the bottom left, you will find the additions into tangible assets of the regulated business of the Gas Connect Austria and the Austrian Power Grid, whereas on the bottom right you will find the additions into tangible assets in the core business and others. When we're moving to the next slide, Page 11, you'll see the development of the operating cash flow, free cash flow and our debt position. Suppose operating cash flow in the first half year increased compared to the first half year 2021, it showed an increase of around 116% to EUR 920 million, mainly due to higher achieved contract prices and the higher operating cash flow from the grid segment, higher tax payments and the increased margining payments for the energy derivatives had a counterbalancing effect. Excluding the margining effects, the operating cash flow would have been higher by approximately EUR 680 million. The free cash flow showed a positive development from minus EUR 473 million to a level of positive EUR 111 million. The higher operating cash flow had a positive effect, whereas the high payments for investments in intangible assets and property, plant and equipment had a negative impact. The net debt figure was quite stable, so it's around EUR 3.6 billion, gearing increased from 55% at the end of 2021 to 67%. Moving on to Slide 12, a quick overview about the financial liabilities. The debt maturity profile shows our remaining repayment of EUR 13 million in 2022. You can also see a peak in 2024 with the repayment of EUR 675 million, mainly consisting of a fixed interest bond of around EUR 500 million. As liquidity backup, VERBUND has currently access to a committed EUR 500 million syndicated loan facility, which is undrawn, and we have also access to various committed and uncommitted lines with a large number of different banks up to approximately EUR 3.1 billion. The total amount of our financial liabilities is approximately EUR 2.7 billion. The increase is caused by the considerably higher amount of short-term money market liabilities due to the margining requirements for our electricity trading business. The average interest rate on our debt is approximately 1.7%. With regard to the rating, the S&P outlook of VERBUND AG was changed recently from stable to positive at the beginning of July, now being at -- seeing A flat positive outlook. And Moody's rating is still at A3 stable outlook. Yes. Now let me hand over again to Peter for presenting the last chart, which is the outlook for the actual year. Thank you.

Yes. Thank you, Andreas. Now on the basis of the aforementioned developments, our guidance for '22 is the following. We expect the reported and adjusted EBITDA of approximately between EUR 3 billion and EUR 3.5 billion and the reported Group result of approximately between EUR 1.68 billion to EUR 2.03 billion under the assumption of average hydro, wind and PV generation in the quarters 3 and 4, as well, of course, the chances and risk situation of the entire Group. For the financial year '22, VERBUND plans to pay out between 45% and 55% of the Group result after adjustment for non-recurring effects of approximately between EUR 1.6 billion and EUR 1.95 billion. In addition to the regular dividend, the Executive Board of VERBUND has resolved to propose to the '23 AGM, the distribution of a special dividend in the amount of EUR 400 million. Distribution of the dividends must be approved by the Supervisory Board at the meeting at which the annual financial statements are to be approved and also requires the approval of the shareholders of VERBUND AG at the 2023 Annual General Meeting. The earnings forecast and the information on the expected payout ratio are contingent on not being impacted by possible energy policy measures to skim off some of the profits at energy companies. Now with that, I am happy to answer your questions. Please.

[Operator Instructions] And the first question is from Wanda Serwinowska at Crédit Suisse.

Wanda Serwinowska, Crédit Suisse. 2 questions from me. The first one is on the hedging in hydro levels. Would you be able to disclose the latest data point? That would be very helpful. And when I look at the 2024 hedges, it has really moved versus the end of Q1 and I would like to ask about the reason. Is it because the 2024 contract is inliquid or you are not willing to hedge it because of the potential margin improvements? That would be the first question. The second question, if you could comment the recent 2 pieces of news. The first one was on the VKI, that sued VERBUND on the pricing in Austria. And the second one, there was a proposal on a partial price cap on household power built in Austria. Any comments from you on the potential impact on VERBUND would be appreciated?

Yes. Sure. Now first of all on the actual numbers in terms of hedging. Yes, more than happy to share that with you. As far as the year '22 is concerned, we are already 88% hedged with EUR 110.7 as the average hedged price. The mark-to-market currently and that obviously can change as we have dramatic volatility, would be EUR 153 -- approximately EUR 153. Now as far as '23 is concerned, there we are already 50% hedged at a price of EUR 113. There again, on the mark-to-market, with very high volatile unhedged prices, we would come to EUR 150 and for '24, we are 29% hedged, there at a price of EUR 94. The unhedged volumes priced at around EUR 255 would give us a total of around EUR 208. So that would be the latest on the hedging. As I mentioned, even when you look at the amounts in '22, i.e., the 12% unhedged figures, with the high prices and with the high volatility, that can still have an impact, which obviously you would never have seen in previous years, and the same is obviously true for '23 and '24. Now in terms of the potential price cap in Austria, that is, of course, a very important topic. There is a very wide political discussion here in Austria now for several weeks. It's almost daily in the papers, in the media. There is a very strong tendency at this point in time to introduce a potential price cap to consumers. One of the federal states, i.e., Lower Austria has already done that for 3,500 kilowatt hours at a price of EUR 0.11. I think it would be a fair assumption that something will be introduced on the federal level, i.e., for all of Austria, and at that point in time, no specific decisions have been made. But that is an open discussion.

Can I ask about the hydro year-to-date, because it was pretty weak in H1?

Yes. Sure. As you can imagine, hydro conditions, like everywhere in Europe, has been lower. We have, like today for example, a hydro coefficient of 0.73. Yesterday we had lower. We have already seen, within the last few weeks, a level of, for example, 0.56. Those numbers that are very rare. So this is -- currently, it is very dry. Year-to-date, we have 0.87, which is a 13 percentage points below the long-term average. It is very difficult to predict what we are going to see in fall. We had situations within the last 3 years where after a relatively dry summer we have seen a very wet fall. But as always at this point, I say, weather very difficult to predict. But yes, I agree with you, the last few months in terms of dry conditions has been challenging.

And if I may follow-up on what you said on the price cap, is there any discussion how it is going to be financed? I mean, is there any potential impact on VERBUND? Or would it be -- would you be asked to cover part of the delta or is it coming from the federal budget? What are the proposals on the table? And then if you could also comment on the VKI lawsuit that would be also appreciated?

Yes. Well, Andreas is going to comment on the VKI lawsuit. I will cover the potential financing of price caps if they were introduced. Well, we are not aware of how this is going to be refinanced. However, at this point in time, I cannot exclude that could have an impact on the energy sector. You know the European discussions, you know what other countries have done in terms of windfall taxes. So at this point in time, it is very difficult to evaluate what could be introduced in fall. So I would assume that there is an analysis phase over the summer. If a price cap were introduced, it would probably be in fall. And also very difficult to predict what is going to happen in '23 on that front. The best, obviously would be synchronization on the European level. Again, difficult to see what the discussions will bring out. It doesn't sound like a lot of certainty at this point in time, but that's the way it is. And I think there, we are in good company with other energy companies in other countries.

On the VKI lawsuit, is a lawsuit which has been filed by some clients because of the indexation clauses in our contracts. We have been, to be honest, a little bit surprised because we have a clear indexation clause, always stated in our electricity contracts to customers. This clause is taken from the Austrian Energy Agency. It's public and we apply this also of course, to end customers. So we -- I mean, it's an open lawsuit. I would say, we have to wait what is the outcome, but potentially, I would say, is limited.

The next question is from Olly Jeffery, Deutsche Bank.

Couple of questions from me, please. The first one is just following up on the -- your comments on the potential price cap for household bills. 2 questions on that. Firstly, if the plan of having, you mentioned the federal -- that you mentioned one of the state has already gone ahead with this 3.5 kilowatt hour or megawatt hour consumption limit. If that were extended across the rest of Austria to suggest it just could happen, do you have an indication of what the total bill that would need to be funded might be? I know you don't know who might fund that, but do you have an indication of what that total cost based on current commodities could look like this year and next year? And then you've also mentioned windfall tax in other countries. I just want to clarify, I know previously the Austrian authorities had taken the notion of a windfall tax off the table. Can you just please clarify that your understanding that within Austria, the prospect of windfall tax is still off the table? And the other thing I wanted to ask you about was, there were some comments from a line on Bloomberg earlier from, I think, in the previous conference earlier today, where you were talking about the separation of gas from renewables regarding the energy market. Can you please just clarify what you think is the best outcome for the power market regarding marginal pricing, annual fees and how that might develop? I'll leave it at that.

Yes, I'll start with the last one, the separation of gas. Olly, you might remember the discussion we had in the last conference call, I have basically stated that in my view, any change in the merit order needs to be synchronized across Europe. We have a very complex system within the core region, where the entire energy market, depends on their respective neighbors, they are very complex algorithms, which basically calculate system stability across Europe. Now if you were to introduce a change in merit order in one specific country that would not be synchronized with all the other countries that would basically create chaos. It worked in Spain, because the Spanish market is relatively separate from other markets, but it would not work in a place that is in the middle of Europe. It would not work in Austria, nor in Germany. Therefore, if the European Union would consider a modification of the merit order, it needs to be done in a synchronized way. That is the first point. The second point is windfall tax. I mean, there are so many different words to describe how you could take excess profits from energy companies. You mentioned off the table, that is something I cannot confirm. There have been comments from the Ministry of Finance, even from the Prime Minister that the special dividends basically covers the point. I am not in a position to exclude, and there want to be totally transparent and fair to you. I cannot exclude that something would be introduced, if that something would be in '22, if it would be in '23, what it would look like, I have no idea. I don't know, but I cannot exclude measures as this is a very intense discussion, not just in Austria, but across Europe. A lot of people are suffering from the very high energy prices and as a result of that, media are focusing on it on a daily basis and that puts a lot of pressure on political decision makers. And then on the price caps, I'm going to be brave now as I'm sometimes do in this conference calls, I can give you a figure. That figure could be different, but if you did a simple model and you basically look at a cap of around 3,500 kilowatt hours across Austria, you would talk about cost of something around EUR 2 billion. It could be slightly higher, but that would be sort of like a simplistic calculation. And how would those EUR 2 billion be financed? I don't know, that is something, as far as I know, the Ministry of Finance is currently analyzing and thinking about.

[Operator Instructions] And the next question is from Louis Boujard, ODDO BHF.

Maybe as a follow-up, if you could drive us a little bit on the EUR 2 billion that you just mentioned in terms of potential cost? And then what we could expect as market share for VERBUND? If it's possible for you to give us a bit more detail on this [ computation ]? Also regarding the sales earnings trend that we have seen into the first half, which has been, of course, pretty weak because of rising raw material prices. Could you tell us if we should expect it to remain very efficient over the next 2 quarters if there was specific elements in the first half that might eventually offset it further into the second half of the year?

Would you be so kind as to repeat the second one, because I had kind of an echo? And if you don't mind, the first one I got. You asked for sort of like more clarification on the EUR 2 billion, which I mentioned before. But could you please repeat the second question?

Yes, sure. The second question is regarding the sales earning segment, the one that where you posted minus EUR 166 million in the first half of this year and just [ EUR 56 million ] last year. My question is to understand, if -- of course, the trend is normal considering the rising raw materials prices. But I would like to know if there is any element that were a bit specific into the second half and that might eventually offset it further by the end of the year? Or is the trend should remain difficult in this segment by the end of the year considering the raw material prices for the sales segment?

Yes. Okay. I will come back to the EUR 2 billion, and I'm already regretting that I've said it, because I should have known that there is going to be a follow-up question. So you caught me there. And on the second one, the sales segment, Andreas will give you a detailed response on that one. Okay. Now the EUR 2 billion, as I mentioned before, that is a simplistic calculation in terms of taking the retail. The consumers in Austria, you basically take the consumption, what we call the base consumption of the 3,500 and then you can basically adjust the cap. And then you would come up with -- it depends where you put the cap. Could be EUR 2 billion, could be EUR 2.5 billion, but something in that ballpark, in that order. Now who would be hit in terms of financing that, by how much, is impossible to say. There are -- the Latin say, [indiscernible], there are so many different variations to the theme. It could be the taxpayer. So it could be socialized. It could basically come from the channel budget. It could be partly financed by the higher taxes which the Ministry earns, higher petrol prices, higher energy prices. The energy bill, when you look at the energy bill, a relatively high percentage is basically taxes and all those taxes, that tax income has gone up. So it could be financed by that as well. It could be financed by the energy sector, but by people on the sales side, by people on the generation side by a combination of both. So as I said, there are so many different ways that, at this point in time, it's impossible to say. The important message to your questions was that I wanted to be totally transparent and I didn't want to -- because somebody made a statement in terms of, it's off the table, and I want to be careful there because that is something I don't know. And that is something I'm not in a position to predict because those decisions have not been made by the political decision makers. But I would say from changes in the merit order next year, potential decoupling of the gas price, maybe in conjunction with some sort of capacity market, different measures in different countries. You remember that quite some time ago, the EU has already come out with the tool box. There is the many different possibilities. Now over to Andreas on details on the sales side.

Yes, Louis. We had this negative impact, let's say, valuation impact in the sales segment coming from the derivatives valuation. So we've always had said in the past, but based on the strong price increases, especially for specific products, I'm coming to that in a second, and also because of the high volatility, the impact this time is higher. So at this time, there is this negative impact basically coming from specific products, which we basically entered into in order to reduce risk. So it's basically the hedging of the German, Austrian price spread, it's products, also for hedging the pumping spread and to a certain extent also the monthly hedging. And because the prices have increased so strongly, especially at the end of last quarter, we have here an impact because these products cannot be classified as cash flow hedges. And there's a consequence going into the P&L. So biggest part of that valuation effect will be reverted until the end of the year, roughly EUR 120 million. The rest will be reverted next year when these contracts are closed. The hedging instruments are closed. And so it's basically only valuation effect. But based on this high price levels and the volatility, there may be also some impact in the coming quarters. Yes. So this basically is the explanation.

The next question is from Teresa Schinwald, Raiffeisen Bank.

The revolve actually around the same. The change in the cost of capital and the discount rate, obviously, interest-rate driven. But so far only impacting the Gratkorn project. Can we expect a similar move for other asset valuations that are performed later this year? And is this move -- the 100 basis point move, can it be expected for the rest of the Group?

Yes, you are right. Cost of capital is going up. There might even be further increases for until the end of the year. That obviously is not just in Austria, it's across Europe. We are observing that very carefully in terms of potential impairments. But and this is a big but, there are so many influencing factors in terms of future cash flows, which are going to be determined by our power price assumptions as well. That it is very hard to say, is power price assumptions in the future going to outweigh higher discount rates in terms of the impairment calculations? Something we are analyzing and something to observe.

We have a follow-up question from Olly Jeffery.

And this is a simple follow-up really. Just looking at the mark-to-market prices on your hedge volumes and what we -- I'm sorry, and the mark-to-market price of '22, '23. I mean, broadly, you're talking about on a mark-to-market basis a EUR 100 a megawatt hour increase. I mean, using your rough rule of thumb EUR 25 million per megawatt hour that's around EUR 2.5 billion in additional EBITDA. Is that [indiscernible] activity of yours that's where you get to because that -- is that also -- is that roughly where you see things going as things would stay like that in the mark-to-market basis or are there other things going on that might rather increase that or decrease that as things stand and [indiscernible] lots of things might change, so it's looking at the things they are as they are today, is that the order EBITDA increase you'd expect in '22-'23?

Yes. Well, you're right. The key factor would be, if we assume that we are going to have average production and you take the increase in power prices and if that theoretical increase because there is still a lot of open volumes, then of course, you would have an impact. Yes. You could even say, you would have a dramatic impact. At the same time, there is still a number of question marks, i.e., what is the price development going to be next year, we are sticking to our hedging policy. So we are not dramatically accelerating. If we had done that a year ago, we would have left a lot of money on the table. So as a result of that, we stick to our hedging policy. At the same time, we have the Austrian Power Grid and we have Gas Connect Austria. So there we have -- on the grid side, we have the regulatory account, which is going to be reduced. On Gas Connect Austria, we will, in the future, continue to have challenges on energy cost for the compressor station. The flexibility products have gone up dramatically. But then, again, it's always very difficult to judge flexibility products. The sales side, Andreas has explained, but if we -- next year if we were not able to do any increases on the sales side, then of course, the losses on the sales side would be higher. So there are many different aspects to, which need to be observed. But coming back to your key point, yes, the key influencing factor on our results, of course, the power prices and if you take the open numbers, and if you multiply those open numbers with current power prices, yes, you would have a large impact both on EBITDA and, of course, on our results.

The next question is from Martin Tessier, Stifel.

I have 2 questions on Gas Connect Austria, especially on the [indiscernible] country had for gas. Could you provide us with an update on the current situation on the amount of gas supplies there and more specially whether or not [indiscernible] allow supply from Russia? And second question, could you tell us what would be the financial impact on Gas Connect Austria if Russian supplies are [ kept at 0 ]? And whether or not you would be protected, thanks to the regulated nature of the business?

Yes. That's a good point. We are in the midst of analyzing with top European specialists on global gas flows, what the impact would be if much less Russian gas came into Europe. As you know, Gas Connect Austria is in the heart of Europe and is connecting a lot of different countries. A lot of gas is flowing through Austria are coming from Russia, that has a direct impact on capacity and, of course, on tariffs. So there we do a gas flow analysis. And if the extreme situation occurred, that would be no more Russian gas coming into Gas Connect Austria, the question would be, would it be replaced with LNG gas from -- coming from Northern Europe and from Italy and how much would that be? But it would definitely have a substantial impact on the revenues of Gas Connect Austria. Now you're right, you said it yourself, since Gas Connect Austria is a regulated business, the regulator would then basically have to find a solution to provide Gas Connect Austria with the regulated return under all circumstances. That was your second question. The first question was, if I understood you correctly on the [ task ], which we have, this is actually sort of like a granddaughter of Gas Connect Austria. This is a special purpose vehicle called ASGN that has been contracted by the Republic of Austria to provide a strategic reserve for the country because of their official status, they need to be very transparent in terms of what they do and how much they have already put into storage. So I can tell you exactly what the latest figure is. They have contracted 20 terawatt hours of gas. So that would be approximately 2 billion cubic meters of gas at a relatively high price. They have done it in 2 different tranches. There was an open bidding process, and those 20 terawatt hours are the sort of like the latest figures from like 2 days ago.

Okay. Just a clarification. These 20 terawatt hours are from Russia?

The 20 terawatt hours don't have sort of like a market attached to it. So we don't know where the gas is coming from. This is basically contracted out to traders. It could theoretically be partly from Russia. It could be LNG. It could be from other sources. It could be from Netherlands. It could be from anywhere.

There are no further questions. I hand back to you, gentlemen, for some closing remarks.

Yes. As always at this point, I would like to thank you, not just for participating in our conference call, but also for the lively discussion which we also have, your important and interesting questions. And I look forward to speaking to you again for our next quarterly conference call. I wish you a very relaxed, hopefully not too stressful summer, nice vacation and talk to you soon. Thank you very much. Bye-bye.

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