Report of the Managing Board

Dear Shareholder,

The positive business trend at Verbund, Austria’s leading electricity supplier, continued in Q1/2005. Once again, the result developed positively with robust double-digit growth rates. The operating result improved by 21.4 % to € 134.0 million and the group result rose by no less than 95.7 % to € 96.7 million.

This is largely attributable to the increase in the electricity wholesale prices in Europe as a result of the steep rise in oil and gas prices. The average forward prices for baseload and peakload products were up 19.5 % and 12.4 % respectively on the values reported in the corresponding period the previous year. In spite of the keen international competition, the price increases were successfully passed on to customers in Austria and abroad by way of market price indexed contracts.

The result was negatively impacted by a 6 % drop in generation from hydropower as well as by the reduction in the grid tariffs imposed by the electricity regulator.

Verbund share reaches all-time high

The Verbund share improved – after a positive performance of +77.0 % last year – by a further 6.8 % to reach a record high at € 186.8 in Q1/2005. We see this as confirmation that the capital market takes an extremely positive view of our current positioning.

Positive environmental impact analysis for the 380 kV Styria line

By constructing the 380 kV Styria line, Verbund aims to make a significant contribution to enhancing supply security in Austria. Moreover, this project focuses on creating the necessary prerequisites for the functioning of the deregulated European electricity market. The positive decision received in Q1/2005 pertaining to the environmental impact analysis for the "Styria line" represents an important milestone in this project which has been already been running for a number of years. We expect that construction on the line will commence after the expiration of the objection period in 2006. The planned investment volume for this project which has a construction period of ca. two years is € 130 million.

Significant cut in grid tariffs

In Q1/2005, the Austrian electricity regulator reduced the high-voltage grid tariffs, which – based on a European comparison – were already at an extremely low level, by a further 11 %. The resulting revenue losses are, however, more than compensated by the positive earnings trend within the group. This reduction in the grid tariff represents a significant contribution on Verbund’s part to the lowering of the electricity distribution costs in Austria.

Austrian Electricity Solution: not at any cost

The negotiations on the "Austrian Electricity Solution" have not yet brought the desired results. Since the start of negotiations three years ago, the market environment and the positioning of the participating companies in the European electricity market have changed fundamentally. These changes must, of course be considered by the group within the framework of future contractual negotiations so as ensure that the full synergistic potential can be secured long term within the meaning of the shareholder-value principle. Here, account must also be taken of the second interim report of the Federal Competition Authority.

Profitable growth in Austria and abroad

Within the framework of its strategy, Verbund engages in a numerous new projects that are designed to secure profitable growth in the future. The "Gerlos II" project, for example, will triple the capacity of the existing storage power plant and the modern pumped-storage power plant "Limberg II" will double the capacity of the Kaprun storage power plant. In addition, we are currently planning the construction of two 800 MW gas power plants which will be located in the South of Austria and – within the framework of a partnership – in Slovenia. Last but not least, we are working on the further expansion of our thermal power plant park via the successful joint venture "Energia” in Italy.

Positive outlook 2005

The outlook for fiscal 2005 is quite positive. Further sales successes in Austria and abroad, the positive development of the European wholesale prices and the strong cost awareness of the group guarantee a positive earnings trend. We expect that the operating result will increase to in excess of € 420 million and also anticipate that the group result will be in excess of € 259 million (target result). Net gearing will be lowered from 134 % to ca. 100 % and the value creation within the group, based on Economic-Value-Added, will improve significantly. As in 2004, a dividend increase is again planned for fiscal 2005 so that our shareholders, who have supported the group’s debt-clearing policy over many years, can now share in the company’s economic success.