EVN AG

Good morning, ladies and gentlemen, and welcome to the E4M's conference call on the results of the fiscal year 2019-20. 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, Stefan Siskowicz.

Good morning, and welcome to the conference call on E4M's results for the 2019-20 financial year. We are reporting sound results today. The group net results for the financial year amounting to 199.8 billion euros. This means that we reached the upper end of our full year forecast. To start with, I would like to provide an overview of the most important effects of the COVID-19 pandemic on our business development. As an operator of critical infrastructure, we are very well prepared to deal with the pandemic. Since 2009, we have a group guideline on how to deal with COVID-19. In addition, we have emergency plans for various crisis situations and we regularly hold training exercises for crisis scenarios. Therefore, I can say that our crisis plans work very well and supply security was guaranteed at all times. We also paid particular attention to protecting the health and safety of our customers and their employees. selected negative impacts on our operating results, but remained relatively moderate overall because our integrated business model and a widely diversified customer base worked well as stabilizing factors. Nevertheless, I would like to be transparent on those corona-related effects which had an impact on all your results. Energy shared volumes to industrial and commercial customers declined during the lockdown in spring 2020. This also had a negative effect on results contribution from energy variance. Lower energy demand also led to lower network distribution volumes. However, this volume effect will be corrected in future terms according to the Austin Regulatory Methodology. According to EFS, we determine impairment losses for trade receivables based on historic regionally differentiated default incidents. due to COVID-19 calculated impairment losses to trade receivers were increased by 4.7 million euros. The market value of securities in the R138 fund also suffered from development of stock exchanges. The impact on our financial results was 5.6 million euros. Finally, progress on projects was delayed due to Corona. In particular, this was an issue for our Kuwait project as the closing only occurred at the end of July. and the earnings contribution in the financial year was consequently lower. Investments were over the date, but we are committed to realize them and catch up in the coming months. When you compare this year's results with last year, please bear in mind that the previous year included positive one-off effects of approximately 110 million euros after tax. This year also condemned the effects from impairment testing, which I will elaborate on in a minute. For last year, it was our goal to evaluate our strategy, which has existed since 2010, and to update it for the next 10 years. We achieved this goal despite the friction caused by COVID-19, and in October, both the Executive Board and the Supervisor Board approved the strategy in 2013. The main driver for the strategy update was to reflect the changes in our operating environment, especially the climate and energy policies which aim to slow and reduce global warming. Within frameworks such as the Paris Climate Agreement, the European Union's Clean Energy Package, and the energy and climate goals incurred in the programme of the Austrian government, we want to play an active role in this realisation. We aim for a substantial increase in our renewable generation capacity from wind, power and photovoltaics. This will allow us to reduce the specific CO2 emissions from our electricity generation by half by 2030, compared to South 2005. Another future-oriented project by the European Union concerns the circular economy. In this area, we also plan to make a contribution in the coming years as an environmental service provider with innovative solutions. The third key goal of our strategy is to more effectively utilize the opportunities created by digitalization. We want to make an all-customer-related process easier. faster and more efficient. In doing so, we plan to remain an attractive partner for our customers. To summarize these key points, the motto of our strategy 2030 is to make EVN more sustainable, more digital, more efficient. We are already actively working on specific implementation measures, but will also develop broader, complete measures during this financial year. Now for the dividend proposal. The Executive Board will propose to the Annual General Meeting a higher, ordinary dividend of 49 cents per share. In comparison with last year, this represents an increase of 2 cents per share in the ordinary dividend. With this dividend proposal, we want to confirm that the EVN share remains a reliable and stable investment, despite the challenges created by the COVID-19 pandemic. In line with our dividend policy, this proposal also signals that we want to hold the ordinary dividend at least stable at such a new level of 49 cents in the coming year. Let me now continue with the key financials for the financial year. The gross revenue declined for 4.4% year-on-year. The main reasons for this development are the decline in thermal generation, as well as volume and price effects, in the networks segment. In contrast, energy revenue in Bulgaria and in the international project business shows a positive development. Other operating interim declines to 45.4% due to the changes in inventory caused by the invoicing of customer projects. The cost of electricity purchases from third parties in primary energy expenses reflected the development of energy revenue with a decline of 70.9%. This reduction was based, in Barbaro, on the lower use of primary energy carriers due to the reduction of thermal generation, a decline in wholesale prices, and lower electricity purchases. The share of results from equity-accounted MSDs was influenced by contract development and fell by 27.8% year-on-year. On the positive side, the earnings contribution from EVNKT normalized and amounted to 39.5 mmHg, following a loss of 36.2 mmHg the year before. This recovery resulted from the reduction of effects from the valuation of hedges and price increases, which had been implemented in the previous year. In addition, there were positive one-term effects in RAC and energy rudiments. In contrast, however, impairment testing caused a strong deep-line at FABONT Interstate. A re-evaluation of 92.2 million euros in the previous year was contrasted by an impairment loss of 20.7 million euros. This was mainly caused by an increase in the interest rate used for discounting. In addition, there were negative earning contributions from energy arrivals as well as an impairment loss of 4.9 million euros in our investment in the Ashtar Hydropower plant in Albania in the second quarter due to the COVID-19-related increase and the country risk premium. Based on these developments, DBA declined from 6.5% to 590.4 million euros. Scheduled depreciation went up. This was due to investment, the evaluations we had to do after impairment testing at the end of last financial year, and the initial application of UBI 16 for a leasing contract. Impairment testing as of the 30th September of 2020 resulted in an impairment loss of 22.1 million euros. The main effect of 16.8 million euros was related to the Balsam 10 power plant. And comparing the effects of impairment testing, please bear in mind that we had a positive effect of it in total 41.6 million euros in the previous year. This has resulted from the evaluation of generation and heating assets, electricity procurement rights, and customer base in Bulgaria and Northern Macedonia. I would also like to inform you that the impairment losses which you recognize to assets in Bulgaria and North Macedonia in the second quarter of 2020 have not to be included in the full financial year anymore. The reason is that the country's premiums, which have increased in spring due to COVID-19, have declined in recent months and the framework conditions have improved. The group's EBIT amounted to 273.1 million euros, which corresponds to a decline by 32.3% year-on-year. Financial results were up by 47.3%, in particular due to the higher dividend paid by Verbund. In total, we generated a group net result of 199.8 million euros. As already mentioned, Please keep in mind that it previously included a positive run-off effect of approximately 110 billion euros after tax. Now I would like to move to the next slide, which provides some information regarding the group's balance sheet structure. E-gains net debt has remained constant at approximately 1 billion euros for three years with fluctuations as of the respective balance sheet date. that the net debt included roughly 73 million euros additional receabilities due to the initial application of the FIS-16. Dealing ratio was slightly up to 22.8%. Our financial package's flexibility is solid. We benefit from low net debt and proficient, committed, undrawn credit facilities, which amounted to 605 million euros as of the end of September 2020. Our strong balance sheet structure forms the basis for pursuing organic growth opportunities in our regulated and stable option activities. Before I will go through each of the segments in detail, I would like to give you a general overview on the day-to-day development of our business segments. The overview of the day-to-day development per segment illustrates the key drivers of our performance during the reporting period. On the positive side, you can see improvements in the energy in the South-East European segment. In contrast, performance of generation, environment, and network segments remain below the prior year. As this general overview, let's move on to the next slide, which covers the generation segments in more detail. Electricity generation volumes in this segment were down by 36.4% year-on-year. Renewable generation volumes are slightly below the previous year. As last year's commissioning of new wind parks supported an increase in wind production, water flows 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 ties for network stabilization. The usage of the Evalsum power plant was below prior year's level 2. Segment revenue, but also operating expenses, declined in line with these developments. The share of results from equity accounted in the CIS fell to minus 22.3 million euros due to the impairment loss recognized at the investment in Sabunt Interflating. In addition, there was an impairment loss of 4.9 million euros on our investment in the Ashtar hydropower plant in Albania in the second quarter due to the COVID-19 related increase in country risk premiums. Based on these developments, EBTA in the generation segment declined by 55.7%. Depreciation and amortization, including effects of impairment tests, went up. The main reasons were investments and previous years' revaluations. In total, the generation segment generated a lower EBIT of 42.9 million euros. Today, I would like to provide an outlook for each of the segments. In 1920, results in the generation segment were negatively influenced by the impairment loss recorded to support interest estimates. Assuming that wind and water flows reflect the long-term average and excluding the impairment loss, we expect earnings of this segment to exceed the private year. The COVID-19 pandemic is not expected to have an influence on our electricity production. However, the Corona crisis could influence the development of energy prices in the short term. On the next slide, I will continue with the energy segment. The development of revenue in the energy segment depends primarily on the marketing of the electricity generated in EVN power plants that is reported in this segment. Therefore, due to the before-mentioned decline in electricity generation as well as lower revenue from natural gas trading in heat supplies, revenue was down by 33.1%. The reduced usage of primary energy carriers and lower procurement prices led to rising operating expenses down by 45.8%. Another reason for the reduction was the partial release of a previously created provision of an oil contract from the marketing of EVN's electricity production. The energy sales volume showed contrasting developments. Electricity sales volumes were up by 6.6%. The overall positive development of sales comes from an expansion of the customer base. The increase was slowed by a corona-related decline in sales to industrial customers. Natural gas gas volumes are down by 2.8% due to warm, bitter and increased competition. The share of results from equity accounted in the seas with operation in nature improved substantially to 39.4 million euros. This increase was supported by the return of EV and KG to positive earnings contributions. Based on these developments, the energy segment reported an EBITDA of 83.8 million euros and EBIT of Our outlook for this segment anticipates results for 2021 to be lower than the previous year. The reason is that these results positively influenced above all by more favorable procurement prices for our heating business and the release of the previously created provision of an oil contract on the marketing of EVN's electricity production. Please note that the further course of the Corona crisis could have a negative effect on energy sales. On the next slide, I will present the developments in our network segment. As already mentioned at the beginning of today's call, electricity consumption declined to COVID-19, especially in the segment of industrial customers. Consequently, network jail volumes were down, too. However, this volume effect of fuel offset in future charges in accordance with the Austrian regulatory method. The natural gas distribution volume declined too. The main reason for this was the reduced use of the thermal power plants in Lower Austria and the mild temperatures during the last winter. I would also like to remind you that the Lower Wachs by electricity distribution network, which was implemented on the 1st of January 2019, was for the first time applied for the full financial year. Based on this volume and price effect, revenue went down by 3%. Based on a stable development of operating standards, it is a day in the network segment declined by 4% and abided by 16.1%. The development of earnings in the network segment is determined by the Austrian Regulatory Micrology. Earnings in this segment are therefore expected to remain stable at their prior year level. However, network sales volumes and in turn earnings could be influenced by various factors such as temperature-related demands, of the gas-fired power plant ties or the future development of the corona crisis. The next slide, I will continue with the Southeast Europe statement. In Croatia, we were able to expand our activities. As you know, we already own three concessions to build and operate gas distribution networks in the counties of Sada, Sivili Knin, and Svistar Masin. And of Aga Aukas, we signed another concession agreement for the Likja Senja County, which is the neighboring county next to Zadar. We plan to construct a gas distribution network for the cities of Dorbzic and Opoch. Based on this agreement, we will invest roughly 3.2 million over the coming years. Energy demand in Southeast Europe suffered from mild temperatures and the corona crisis. Consequently, energy flows and network distribution volumes declined year on year. However, the financial performance in the segment was sound during the reporting period One supportive sector were lower procurement costs of network losses in Bulgaria and North Macedonia. Segment EBITDA amounted to 136.7 million euros, which was up by 4.3% year-on-year. Depreciation and amortization, including effects of impairment tests, went up. The main reasons were investments in previous year's evaluations, as already mentioned earlier. In total, segment A stood at 66.1 million euros, which corresponds to a decline by 31.1%. Regarding segment output, we expect that ABER will be in the range between 40 to 60 million euros, subject to stable regulatory and energy sector framework conditions. I would like to conclude my presentation of this segment with the environment segment. Let me start with the developments in our international project business. I am pleased that I can inform you about achievements in that area. We were awarded the contract of the Ullern-Heimann wastewater project in January. End of July, the closing for this project took place. With this, all requirements were met that we were able to start the sterilization of the project. Due to the percentage of completion methods, we are now able to report results according to the project's progress. In Germany, we were successful in the acquisition of the Ullern-Heimann contractor and finance a thermoslush sterilization project. WZTE Watertechnik was awarded a contract in Berlin. The contract volume is about 190 million euros. EV and share will be roughly 50% of the contract value. Please note that the realization of the Berlin project will only start in autumn 2021. The thermal sludge utilization, we are also active through our joint venture Sludge2Energy. Plastro Energy receives a contract of two new projects, one in Hannover with a contract value of about 40 million euros and one in Straubing with a contract value of about 15 million euros. EC is proud of the potential for this project in Germany, therefore the projects in Hannover, Straubing and Berlin will add to our track record in this area. In the international project business, WTE Auto Technik is currently working on 10 projects in Germany, Croatia, Lithuania, Poland, Romania, Bahrain and Kuwait. The order book was about 1.6 billion US at the end of September. This number includes our share in the Kuwait project. The financial performance of the segment is in line with the development in the international project business. There was a corresponding rise of both revenue and operating expenses in the segment. The share of results from our equity-accounted investments with operation in nature was below the previous year. Please remember 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 17.3 million euros and an EBIT to 0.6 million euros. Our outlook for the environment segment is always subject to the further realization of assignments in the international project business. Assuming progress as scheduled, on our current projects, above all the large-scale projects in Cuba, we expect an increase in segment earnings in 2020-21. An intensification of the corona crisis can influence the international project business through the economic development in these countries where we are currently active, and through negative effects on international suppliers. An estimate of the potential impact is not possible at the present time. With this, I conclude the presentation of this segment. On the next slide, I will continue with the development of our group cash flow. Cross-cash was down by 9.7% to 497.1 million euros during the financial year. The main factors for the decline included a reduction in the results before income tax and a higher non-cash earnings contribution from equity accounted in the fee. The increase in depreciation and amortization was only able to partly offset these effects. due to the development of working capital as at the end of December cash flow from operating activities amounted to 412 million euros. Cash flow from investing activities reflected investments in property, plants and equipment, disinvestment of securities in one of our funds, and guaranteed payments from the Republic of Montenegro for their wastewater power ship in Tiguan. This was contrasted by the equity contributions for the Kuwait project and increased investments in cash funds. The cash flow from transit and its dividends reflected the scheduled repayment of loans and the dividend paid for the previous financial year, a counter-effector was the issue of agreeing promissory note loans. The net change in cash and cash agreement amounted to minus 105.4 million euros. I would now like to conclude my presentation with the outlook for the group. Plans call for a continued increase in annual investment cover the coming years to average up to 450 million years, depending on the projects in progress. Perhaps the P4s of this investment volume will be directed to projects in Lower Austria, in regulative and stable business areas of network infrastructure, renewable generation and drinking water supply. This will protect our solid operating base and will drive continued growth. In line with our updated strategy, we aim to contribute actively to Austrian and European targets to expand renewable generation. Therefore, we will continue to build wind farms in Austria, but, and this is new, we also start to develop wind and photovoltaic projects in our core markets outside of Austria. As for the outlook, assuming average conditions in the energy business environment, we expect that the group net results in 2021 will be in a range of approximately 200 to 230 million euros. However, the broader cause of the corona crisis and the resulting macroeconomic effects would have a negative influence on individual business areas at EAN and in turn on the development of earnings for the entire group. I am now looking forward to answering your questions.

Ladies and gentlemen, if you would like to ask a question now, please press 9 followed by the star key on your telephone keypad. If you wish to cancel your question, please press 9 followed by the star key again. And the first question comes from Peter Crampton. Please go ahead. Mr. Crampton, your line is open.