EVN AG

Good morning, ladies and gentlemen, and welcome to the conference call on EVN's results for the first half year, 2019-2020. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to your host, Mr. Stefan Svitkovich.

Good morning, and welcome to the conference. Conference call on EVN's results for the first half of the 2019-2020 financial year. The balance sheet closing date of our first half year was the 31st of March. So please be in mind that today's results only include two weeks of the COVID-19 lockdown in Austria, which started mid-March. Before I will dive a bit more into possible impacts of the COVID-19 pandemic on the four years, Let me first talk about our operational performance during the reporting period, which was little affected by the coronavirus. All in all, operational performance was sound. Every day, EBIT and group net results were above the previous year. It is very important to note that all the key developments correspond to our expectations and previous communication. Most importantly, we delivered the envisioned formalization of our supply business. Last year, our supply company, EVNKG, stopped but from higher wholesale prices both in terms of reduced margins as well as the valuation of hedges. After implementing two price increases in 2018-19 and a change in methodology for accounting of hedges, we managed to bring the operational results of the equity consultative company EVNKG tax to a normalized level. But our communication has also been very clear at results in the generation and network segments who declined this year. This is also visible in today's results. and I will elaborate in more detail later in the call. On the positive side, I am very pleased that the progress continues on the reduction of our CO2 footprint. The share of the group's renewable generation was 54%, as compared to 40% a year ago. Broadly, this rise in renewable generation is a result of last year's expansion of our wind power capacities. In addition, the termination of the coal-fired generation in Juneau last summer constitutes a result of substantially less CO2-intensive production needs. As strategic analysts and investors are, of course, aware of our 49% investment in the Walsum power plants in Germany. To make sure that market participants make the correct assumption on the share of our remaining activity in car hardcore, please be informed that Walsum will account for less than 3% of our group revenue. We are highly committed to further extend our renewable generation fleet over the coming years. We are currently working on the construction of a new wind park with an installed capacity of 8.4 MW. Commissioning is scheduled for the end of this calendar year. Further wind projects in Lower Austria are in the pipeline. In April, we issued our first full-screen promissory note loan. The transaction had a volume of 100 million euros with a general of 10 years, and this fund will be used for the financing of our wind park project. We also access possibilities for large-scale photovoltaic projects within the group, and we will install photovoltaic equipment on our own buildings to produce solar energy for our own energy and electricity needs, for example, on biomass heating plants or pumping stations for drinking water. Finally, distribution grids are the backbone of the transformation of the energy system. Therefore, the major proportion of our investment program is dedicated towards upgrading the network infrastructure for the generation of growing volatile and decentralized electricity generation from wind and sun. Next, I would like to provide a brief overview on impacts the COVID-19 pandemic has or may have on India. To start with, on the 29th of April, we published an ad hoc announcement informing the market that we had to lower our four-year guidance for the group net result to range between 180 and 200 million euros. The previous range had been 200 to 130 million euros. Such change in outlook became necessary in view of impairment losses, which were triggered by an increase in country risk for south-eastern European countries due to the COVID-19. These impairment losses had a total negative non-cash effect of about 50 million euros after tax. In addition, the lockdown in Kuwait had been delaying the start of the wastewater project. Such delay reduced expected earnings contribution previously expected for this year and the next two years. I would like to mention that we were asked to take over the operation of an existing wastewater treatment plant in Kuwait in April 2019, which generated ongoing income in Kuwait for a year already. As you can imagine, it's difficult to access this to long-term consequences of the Corona crisis on our business and framework conditions at this stage. What I can say is that we noted weaker demand from industrial and commercial customers during the lockdown. When you think about possible negative volume effects in the network business, please bear in mind that there are also regulations provided for adjustments of such negative volume effects through future tariffs. I can also inform you that the lockdown has occasionally been delaying investment projects, but our investment focus remain unchanged. We continue to focus on networks, renewables, biomass heating and drinking water in rural Austria. Finally, let me assure you that our financial flexibility remains solid. We benefit from the debt and sufficient committed unformed credit facilities in the amount of 557 million euros. Let me now continue with the key financials for the reporting period. The group revenue declined by 4.2% year on year. The main reasons for this The balance of the decline in thermal generation as well as volume and price effects in the network segment. In contrast, energy revenue in Bulgaria and in the international project business showed a positive development. The recovery of EVNKG supported the improvement of the share of results from equity-accounted investees. This profit and loss item, however, also includes an impairment loss of 4.9 million euros based on our investment in the Astra Hedro PowerSmart venture in Albania. EBITDA was up by 17.7% at 388.8 million euros. Catered depreciation went up due to investments and the re-evaluation we had to do after impairment testing at the end of the last year. In turn, higher country risk premiums for Southeast and Europe countries due to the COVID-19 triggered to the following impairment loss. 9.9 million euros on the district heating company Destropi and 1.3 million euros on the Kamahana Windpark. both in Bulgaria as well as 3.2 million euros on customer stock in northern Macedonia. The group's EBIT increased by 16.5% to 230.7 million euros. In total, we generated a group net result of 152.7 million euros during the first half year of this financial year, which corresponds to an increase by 18.4% year-on-year. Now I would like to move to the next slide, which provides some information regarding the good-selling cheese structure. As of the end of March 2020, a NETVAP stood at 1.2 billion euros. Please note that the increase of NETVAP was also due to the recognition of the non-current lease abilities in connection with the initial application of ESIS-16. This had an effect of about 17 million euros. Here it was up from 22% to 29.8% in the first half of this national year. Our strong balance sheet structure forms the basis of pursuing organic growth opportunities in our regulated and stable Austrian activities. In good tradition, half year is the first time to inform you about the annual updates of our credit ratings which were published by the rating agencies here in May. Moody's confirmed the AN's rating and the stable outlook. S&P originally also confirmed the A rating in stable outlook, however, they had to revise the outlook to negative according to their rating methodology and the outlook of the rating of the province of Lower Austria was changed to negative in view of COVID-19. Before I go through each of the segments in detail, I would like to give you a general overview on the APTA development of our business segments. The overview of the ABDA development per segment illustrates the key drivers of our performance during the reporting period, which are well in line with our segment forecast. On the positive side, you can see improvements in the energy in the south-east Europe segment. In contrast to the performance of the generation, the network segment remained below the previous year. This is a very general overview. Let's move on now to the next slide, which covers the generation segment in more detail. Energy generation volumes in this segment were down by 31.4% year-on-year. Renewable generation volumes were slightly below the previous year, whereas last year's commissioning of new wind trucks reported an increase in wind production, water flow declined. Thermal generation dropped. This was due to the closure of our coal-fired plant in June of last year and lower use of our gas-fired plant in Taiwan Network Service Stabilization. The usage of the Evolfram power plant was below prior year's level 2. Segment revenue declined in line with these developments. The generation segment includes two impairment losses, which I mentioned earlier. One of the Astra Hydro plant, which is at equity consolidated, and the other for the Carvana wind park in Bulgaria. Scheduled depreciation went up due to the investments and re-relations. In total, the generation segment generated a lower EBIT of 32.1 billion euros. In view of COVID-19, I would like to provide an update on the segment's outlook for this financial year, which we published in December in our last full report. For the generation segment, I confirmed the original outlook, which predicts a decline of the full-year segment result, which is mainly due to lower thermal generation. On the next slide, I will continue with the energy segment. Revenue in the segment was by 28.1% below the previous year, This was primarily due to a decline in the marketing of our own electricity generation and a reduction in natural gas trading. The lower usage of primary energy carriers were driving operation expenses down by 35.3%. The energy sales volume showed constant development. Volumes in electricity were up 7.9%, following higher supplies to larger customers in Austria and Germany. Natural gas sales volumes were down by 2.7%. Our electricity and natural gas supply business, which is handled by Yvain Carlier, recovered and returned to a normalized earnings level. Yvain Carlier's contribution created an equity result of about 20.3 million euros in the first half year, after a loss of 44.3 million euros largely, which was caused by higher procurement costs, and negative effects of devaluation of hedges at that time. Based on these developments, the energy segment reported an EBITDA of 60.5.2 million euros and an EBIT of 55 million euros. I confirmed the full year outlook for this segment, which was predicted for this earnings. However, we believe that COVID-19 will cost lower than expected sales to industrial and commercial customers. In the next slide, I will present the developments in our network segment. That's the network. sales volumes were at a previous year's level, the natural gas distribution volumes declined in view of the reduced use of the thermal power plants in lower outfields. I would also like to remind you that the lower VAC for electricity distribution networks, which was implemented on the 1st of January 2019, is for the first time applied for the full financial year. Based on volumes and price effects, revenues went down by 2%. As expected, the network segment generated lower EBITDA and EBIT. This brings me to confirm the segment outlook. We expect full-year results to be below the previous year. On the next slide, I will continue with the Southeast Europe segment. Energy scales and network distribution volumes suffered in division from mild temperatures, still avoiding performance or sound during the first half year of the financial year. One supportive factor were lower procurement costs for network losses in Bulgaria. This segment includes the The other two impairment losses which are triggered by higher country risk deeming premium suits to COVID-19. The one for our Bulgarian district heating company that's blocked it, and the other for the customer base in northern Macedonia. In total, segment aged good at 31.6 million euros. I also can confirm the segment outlook for the south of Europe, assuming stable regulatory and energy sector framework conditions for the remaining six months of the financial year. I would like to conclude my presentation of the segment. In the international project business, we are currently working on nine projects in Croatia, Lithuania, Poland, Romania, Bahrain and Kuwait. As already mentioned, the lockdown in Kuwait has been delaying the start of the wastewater project. Once we officially kick off the project, we will also include it in our order book. So excluding the Kuvert contract, the order book was about $255 million at the end of March. In our last full year report, we informed you that we started to develop solutions in an exciting and interesting new area of business, thermal sludge utilization. Based on our experience in both wastewater treatment and thermal waste generation, we It was the next logical step to take, especially in view of growing demand in Germany and elsewhere. According to German law, it will in the future no longer be possible to use sewage sludge as a fertilizer. This is to avoid pollution through harmful substances such as microplastic or hormones. In addition, treatment of sludge can lead to the recovery of fossils, which is known as a pinnacle material. Therefore, I am very pleased that I can inform you today that we want two contracts in Germany. In February, our 50% joint venture, Slush2Energy, our partner is the German company Huber, was awarded a contract for construction of a thermal slush incineration plant for the German city of Hannover. This project has a contract volume of about 40 million euros. And just last Tuesday, we were awarded a contract in Berlin We can be very proud that WTV Wasser Technik acts as a general contractor for the planning and turnkey construction of a new thermal sludge utilization plant in German capital. Our customer is the Berliner Wasserbetriebe, which is the company in charge of drinking water supply and wastewater disposal for the city of Brunnen in parts of Brandenburg. This project has a contract value of about 190 million euros. Therefore, our share is about 50%. Construction will start in autumn 2021, giving further potential for lease projects in Germany, therefore the Hannover and Berlin contract will add well to our track records in this area. The development in the intentional project recently resulted in the corresponding rise of both revenue and operating expenses in the segment. The share of results from equity accounted in the SEIF with operation in nature was below the previous year. that the last year the earnings from the wastewater project in Prague were included. In total, this development led to a decline in EBITDA to 9.2 million euros and an increase to 3.3 million euros. Finally, I also want to confirm the outlook on the environment segment. The delay in the start of the Kuvert project and resulting impact on our four-year guidance, we still expect that the contractual realization of the project will be initiated in the course of this financial year. Therefore, we expect the segment results to exceed prior year's level. With this, I conclude the presentation of the segments. On the next slide, I will continue with the development of our group cash flows. Cross-cash flow fell by 17.5% to 321.1 million euros in the first half of this next year. This was caused by lower dividend payments from equity accounted indices. Due to the seasonal development of working capital at the end of March, cash flow activities amounted to 31.2 million euros. Cash reform investing activities reflected net investments and the first equity tranche for the Kuwait project. This was contrasted by disinvestment of cash funds and the guaranteed payment from the Republic of Montenegro for the wastewater projects in Butwa. The cash reform financing activities reflected the scattered repayment of loans and the dividend paid for the last financial year. The net cash The net change in cash and cash equivalents amounted to minus 62.4 million euros. I would like to conclude with an update on the insurance shareholder structure. On the 5th of March, Minas Schradtwerk informed the public that he has signed a share purchase agreement to acquire 51 million EVM shares currently held by UNPW Trust. This corresponds to a stake of 28.4% in the end. The transaction is still subject to the approval from the Antitrust Authority. The participants of these transactions will, of course, have been from the market once the transaction will have been closed. Finally, I would like to confirm our outlook for the financial year. We expect to reach a group net profit in the range between 108 and 200 million euros, assuming average conditions in the emerging market during the remaining six months of the current financial year. I can also confirm our dividend policy. We aim to hold the absolute amount of the ordinary dividend at least constant at the level of 47 cents per share. I have now reached the end of my presentation of the results for the first half of the 2019-2020 financial year. I am now looking forward to answering your questions.

Ladies and gentlemen, if you would like to ask a question, please press 9 on your telephone keypad. Good morning and hope all is well.