EVN AG

Good morning, ladies and gentlemen, and welcome to the conference call on EVN's results for the first quarter of the 2020-2021 financial year. 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 Ciszkowicz.

Good morning and welcome to the conference call on EVN's results for the first quarter of the 2020-21 financial year. We started this financial year with a sound performance. EVDA, EBIT and Group Net Results were high above the previous year. The main drivers for this development were the earnings contribution of the Texas Deco-Accounted Industries, in particular our supply company, EVN Calculate. and developments in our environment segment, in particular the start of the Kuwait project. The COVID-19 pandemic remains a permanent factor in our daily working environment. We need to constantly ensure the protection of our employees, customers, and business partners. Especially activities and projects which require personal interaction, traveling, and international supply chains remain challenging. However, from a financial point of view, the Corona crisis only has a selective negative impact on our operating results. Our integrated business model and a widely diversified customer base continue to be stabilizing factors. As communicated last year, the Corona crisis shall not impact our investment programs. On the contrary, we are committed to further increase capex. Our plan is to invest on average up to 450 million euros during the next couple of years. Therefore, up to three-fourths will be directed towards regulated and stable activities in Lower Austria. During Q1, we were able to increase investments by 13.9% to 86.8 million euros. The key investment focus, now and in future, is on network infrastructure. These investments fulfill three strategic objectives. They secure supply security, enable a carbon-free energy future, and provide for further growth to our regulated business. Investment areas are renewable generation, biomass and drinking water. Would now like to explain our recent progress in these areas. End of December, we started operations of a new thin wind farm with an installed capacity of 8.4 MW. This increased our installed wind capacity to 376 MW. In Gens, which is the fifth largest town in Lower Austria, we will construct a new biomass cogeneration plant. The investment volume is about 30 million euros. Upon commissioning, which is planned for early 2023, this plant will supply renewable electricity to approximately 15,000 households and natural heat to 30,000 households. In the international project business, we were awarded a new contract in Poland. As general contractor, we will be responsible for the modernization of a wastewater treatment plant. The contract value is 11.4 million euros. Let me now continue with the key financials for the first quarter. The group's revenue was up by 4.8% year-on-year. The main reason for this development is the start of the wastewater project in Kuwait. In addition, temperatures were colder than last year, which led to slightly higher network sales in all three core markets. Contrary factors were lower effects from devaluation of hedges for electricity generation and a decline in revenue from natural gas creating. I would like to inform you that our Q1 results include certain one-off effects. These result from the effect that we took over an additional electricity procurement right from the W10 power plan in December 2020 in order to simplify the current contractual relationships which this power plant is against the backdrop of the German law, which requires the determination of coal-fired generation. Our quarterly report contains a detailed description of the accounting effects. In a nutshell, I can say that it infuses a positive one-off effect in APTR, which is contrasted by an impairment loss. The transaction had a total and negative CML effect of 2 million euros on the group. The other main reasons for the rise in EBITDA were higher earnings contributions from ad equity accounted indices. Based on these developments, the group's EBIT was up 14.4% and amounted to 135.9 million euros. Financial results were up by 25.9%. In total, we generated a good natural result of 93.5 million euros, which represents an increase by 12.7% over this previous year. Now I would like to move to the next slide, which provides some information regarding the group's financial structure. EDM's net debt has remained constant at approximately 1 billion euros. Dealing ratio was down and amounted to 19.3%. Our financial flexibility is solid. We benefit from lower net debt and sufficient committed undrawn credit facilities which amount to 571 million euros as of the end of December 2020. Our strong balance sheet structure forms the basis for pursuing organic growth opportunities in our regulated and stable auction activities. Before I will go through each of these segments in detail, I would like to give you a general overview on the ABDA development of our business segments. The overview of the ABDA development test segment illustrates the key drivers of our performance during the reporting period. Whereas the networks in the Southeast Europe segment are slightly above the previous year, The three other segments show more substantial improvements. These are due to the sound performance of our supplier company, Eva & KG, the non-recurring effects related to the takeover of the additional procurement drives from Weiss & Penn, and the developments in the environment segment. With this general overview, let's move on now to the next slide, which covers the generation segment in more detail. Electricity generation volumes in this segment are down by 4.8% year-on-year. Renewable generation volumes were slightly above the previous year. Above average, good water flows offset the decline in wind flows. Thermal generation declined due to reduced use of the balsam power plant. ABDA was up at 56.8 million euros. This increase was mainly due to a positive runoff effect related to the balsam transaction which I mentioned earlier. Scattered repriciation and amortization increased as a result of higher investment. In total, the generation segment generated a higher EBIT of 35.7 million euros. 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 generation in EVN's power plants. Therefore, due to a lower generation of devices and power plants and a year-on-year decline in valuation effects from hedges, revenue was down by 28.3%. The Weissmann transaction also had a positive runoff effect on the APTA in the energy segment. These effects are contrasted by the impairment loss on the group level, which I mentioned before. The energy sales volume showed positive developments. Electricity, natural gas, and heat sales volumes were above the prior year level. The increase in demand for natural gas and heat resulted from colder temperatures, and the increase in electricity sales came from an expansion of the customer base. The COVID-19 pandemic did not have any mature negative effects on energy demand. A share of results from F&D companies and VCs, which operate on nature, improved to 37.7 million euros. This increase was supported by a sound operating performance of F&KG and positive effects from devaluation of hedges. Based on this development, the energy segment reported an everyday of 53.6 million euros and a bid of 38.3 million euros. On the next slide, I will present the developments in our network software. Network sales volumes increased supported by a value-related increase in demand for electricity and natural gas in the household customer segment. This was contrasted by a slight decline in electricity consumption by commercial customers. There were no material effects on network sales volumes of the COVID-19 pandemic. Based on these volume developments and the tariff decision as of January 2020, which provided for reduction of network tariffs on natural gas by an average of 8.1% for household customers, segment revenues were slightly above prior year level, with the day in the network segment was upped by 3.6% and aided by 1.7%. With the beginning of the new The Austrian regulator determined new network tariffs. Tariffs for electricity were increased by 66.3% on average, and those for natural gas were increased by 6.4% on average as of 1 January 2021. On the next slide, I will continue with the Southeast Europe segment. Temperatures in Southeast Europe were lower than usual mild private year, but still higher than the long-term average. In Bulgaria, we are facing stronger competition following the market liberalization for commercial customers as of October 2020. Based on these developments, we are reporting today an increase in network sales volume, contrasted by decline in electricity sales volume. Segment A and A that remain stable at prior year level. They amounted to 33.6 million euros, respectively 15.5 million euros. I would like to conclude my presentation of this segment with the environment. In our international project business, we were awarded a new contract in Poland regarding the modernization of the wastewater treatment plant. The project has a contract volume of about 11 million euros. In total, WTE Ratschert Technik is currently working on nine projects in Germany, Croatia, Lithuania, Poland, Romania, Bahrain and Kuwait. The order book was about 1.5 billion euros as of the end of December. In addition, our joint venture company, Flush2Energy, is currently working on three sewage flush treatment projects in Germany. The financial performance of this segment is in line with the development in the international project business. There was a corresponding rise of both revenue and operating expenses in this segment. In all, this segment benefited from the start of the Kuwait-based water project, which is accounted for according to the percentage of completion method. In addition, there was a positive one-off effect at our lower Austrian water supply company. In total, this development had an increase in EBITDA to 17.9 million euros and an increase to 8.4 million euros. With this, I conclude the presentation of this segment. On the next slide, I will continue with the development of our group cash flows. Cross-cash flow was substantially up to 407.8 million euros. This was mainly due to the compensation payments for a takeover of the electricity procurement right. A further factor was the higher balance of dividends from equity accounted indices. The increase in cash flow from operating activities was lower in comparison. One reason were the higher income tax payments. Cash flow for investing activities was influenced deeply by a year-on-year increase in investments in property, plant and equipment and higher investment in cash funds. The cash flow for investing activities reflected the scheduled repayment of loans. The counter-sector was the issuance of a green private placement. The net change in cash and cash equivalents amounted to a minus 43.8 million euros. I would like to conclude my presentation with the confirmation of the outlook for the group. Assuming average conditions in the energy business environment, we expect that the group net result in 2021 will be in a range of approximately 200 to 230 million euros. However, the further course of the corona crisis and the resulting macroeconomic effects could have a negative influence on individual business areas at the end. and in turn on the development of earnings for the entire group. I confirm our dividend policy is directed to holding the absolute amount of the ordinary dividend at least constant at Euro 49 per share. I am now looking forward to answering your questions.

Ladies and gentlemen, if you would like to ask a question, please press 9 and the star key on your telephone keypad. In case you wish to withdraw your question, please press 9 followed by star again. Please press 9 and star to register for a question. And the first question comes from Ludger Schumacher from Societe Generale. Over to you.

Good morning. A number of questions on my side. The first few questions are on the transaction on the 150 megawatts of electricity procurement drive from 2010. It seems to me that everybody else is trying to get out of coal exposure and you are adding to it. I was wondering what the thoughts behind it were and how exactly EVN will benefit from that transaction. You mentioned simplify the current contractual relationship in the tax. I still want to know how adding to cold exposure will benefit EVN. The second one also relates to 2010 is, apparently there's going to be a second compensation payment. When will this be paid, and when it will be paid, or how big is it, and will it also be immediately impaired, as it appears to be what happened with the first compensation payment? And then just for clarity, you mentioned there was an impact from this transaction in the generation segment and the energy segment? Could you tell us exactly how much it is in each segment so we can strip it out for the underlying trend? And the same also goes for the environment section. That's another question. If you could quantify the impact from Q-wide and also the positive one-off on EV and butter.

Okay, thanks a lot. I can confirm we try to look on the Balsam Power brand also under the changed conditions of the stepping out of Germany out of thermal production based on lignite and coal. Therefore, as a minority stakeholder in the company, we are on the other hand also having this power supply contract and the Viennese Municipality was a contextual partner in this. Therefore, we tried to consolidate our position regarding the future of the Walsum power plant, and we expect things over the next few years to see a clear guidance also from the market and the valuation of the power plant. The new law has been issued in August. The first options have taken place. This is what we are looking very closely at, but I'm not able to give you more information on that on this basis due to contractual obligations we are having there. You can completely write that the transaction itself is issuing a cost question. The second payment is already done. So we are expecting not from this payment any further impairments. What we are, of course, facing is that the total volume itself in the future has always to be priced at the balance sheet base. So there's no further impairment coming out of this deal. Everything has been already recognized in the figures. You have this also in our notes. and I would recommend if you have a telephone call also with our investment relations guys to walk you through the different lines. I think it's much easier than to do this here in a bigger group. Regarding the Kuwait questions which are also giving a contribution to the ABIT. It's a single digit contribution. We are at the beginning of this big project. Luckily, all the issues in preparation could be solved in Kuvert already in advance. We used the period of the pandemic for this. Therefore, the ships with the pipes are already underway. The third ship is loaded in the harbor. So I think, yeah, With all the delays, we are still in the original timeframe and also the customer is supporting us. So I think despite all the pandemic issues, we think we will manage this project quite well and this will lead also to step-by-step higher EBIT contribution from this project in the next couple of years.

Okay, thank you. Just one follow-up question on your first answer. Is the idea that 2010 will initially participate in one of the German co-closure attempts?

Honestly, everything has to be evaluated. But we are in a minority stakeholder there. So the need is not with us. But all of us know the sensitivity of this issue. We have done our impairments with the year 2033 regarding this contract. On this basis, it's between today and 2033 when decisions have to be made. We will see from the environment how the stacking out of the nuclear production in Germany with at the same time higher installed renewable energy capacities will lead to questions regarding the power of supply in 2020-2023. I think this will be the crossroads when the real decisions will have to be taken.

Very clear.

Thank you.

The next question comes from Theresa Schienwald from Ralf Eisen Bank International. The floor is yours.

Thank you. Good morning. I also have a follow-up on the Balsam issue. You mentioned the threatened swing capacity on the balance sheet from the procurement right. We have seen a significant reduction in output from Balsam 10. Obviously, given its qualified production. So, I wonder if this procurement price valuation is already based on this lower output level we have seen at Bison in the past two years. This would be my first question. And the second one is on the state of the game of the Renewables Expansion Act in Austria as the likelihood of a vote on it is now

rather low in the first quarter could you tell us a bit more about that what's still open in negotiations and what could be a new timeline thank you okay to the first question of course from now on we have to put the whole volume of this power supply contract up to the valuations of course power prices are the basis of everything also of the production of the power plant But we try to put everything what we gained now on the same level. So we have a consistent position since the end of December regarding our total procurement rights. The second thing is, of course, everyone is expecting that this new act for the further support of renewable energy production is being sent to the parliament, voted on, and put into the law. The interesting thing is, and this seems to be the complicated thing, is they need a two-third majority, so the government needs also the position in the parliament, and it has to be accepted by the European Commission. Therefore, there are two obstacles to put all the policy initiatives into a framework which is then accepted not only by the parliament with this majority, but also by the European Commission. Therefore, I think the negotiations and documentation in advance are taking more time than they would have expected because it would be very embarrassing if they vote on a law and then the Commission is not accepting this. On the other hand, it's getting step by step a higher attention also in Austria, so I still would confirm that I I would think that before this summer the law should be voted and then after the approval by the Commission the formal approval by the Commission should be effective so I would expect that this is the new basis for us for the further development in this year 21 Thank you very much For the moment there are no further questions

So if you have any additional questions, please press 9 and the star key on your telephone keypad. Thank you. 9 and star. And we have a follow-up question from Ludo Schumacher from Societe Generale. The floor is yours again.

Sorry, just one follow-up question. You mentioned a good hydro flow. Can you quantify that? how much, how good was the hydro flow in Q1 compared to normal.

Let me give you a second, we are just looking at the comparison. Okay, you know regarding the KPIs we are using for that is around 110. in comparison to the average production. So this was quite nice. We had a lot of snow also. But it was interesting that the wind was so weak. So let's see how this is on the mid-term and long-term influencing also the energy production balance of our activities and even of the state itself. This kind of climate effects is still something which is not having too much empirical data for the task to compare them in relation. Also photovoltaic will be the third input, which will be interesting then for us. On volumes, but also regarding on the timing during the day and the seasons.

Okay, that's great. Thank you.

At the moment, there are no further questions. So any additional questions, please press 9 and the star key on your telephone keypad. There are no further questions. And with this, I hand back to Mr. Siskowitz.

Well, thank you for joining today's conference call. We will publish the results for the first half of our 2021 financial year on Thursday, 27th of May. Please join us then again. Stay healthy and goodbye.