EVN AG

Good morning, ladies and gentlemen, and welcome to the conference call on India-Ensk Q1 to Q3 2020-2021 results. 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. Stepan Shishkovic.

Good morning and welcome to the conference call on EVN's results for the first three quarters of the 2020-21 financial year. EVN showed its sound performance in the reporting period. ABTA, ABIS and KUVNet results are above the previous year. The main drivers for these improvements were the earnings contributions from its equity-accounted indices, in particular our supply company EVN TAGE, and development in our environment segment, in particular the start of the KUVET project. The network segment also reported higher results. This was due to the positive volume and price effect. The corona crisis only had selective negative impacts on our operating results. Our integrated business model and a widely diversified customer base continue to be the stabilizing factors. Our investment level was high. We were able to increase investments by 27.5% to 256.3 mm. This is in line with our commitment to further increase CapEx. Our plan is to invest on average up to 450 million euros per year in the future. Thereof, up to 3-4 will be directed towards regulated and stable activities in Lower Austria. The key investment focus, now and in the future, is on network infrastructure. These investments will build these strategic objectives. They secure supply security, enable a carbon-free energy future, and provide for further growth of our regulated business. Further investment areas are renewable generation, biomass, and drinking water. In wind generation, we make further progress to grow our installed capacity, which is almost 400 MW by now. I would like to remind you that EVN is Austria's second-largest wind power producer. A recent increase was made to the acquisition of an existing wind part in Lower Austria with an installed capacity of 18.5 MW. The closing of this acquisition took place at the end of June. To be precise, the group's installed wind capacity is now 394 MW. When we announced our strategies 2030 in last December, We always stated very clearly that it is our will and ambition to make a substantial contribution to limit the consequences of climate change. It is therefore our plan to further reduce the specific CO2 emissions from electricity production. As part of this spreadsheet, I would like to inform you that we are currently negotiating with our joint venture partner STEAG and the consortium of banks to prematurely exit from the Hardcore Tire Power Plant project for 2010 in Germany. Subject to the necessary approvals, we aim for stepping out of the project in the course of this financial year without incurring any negative financial effect. Let me now continue with the key financials of the reporting period. The gross revenue was up by 12% year on year. The main reason for this development is the start of the construction of the wastewater project in Kuwait. Other positive factors included an increase in energy sales in Bulgaria, and higher network sales due to the cooler weather in all three core markets, as well as the higher network curve set by the e-control in Austria as of 1st of January 2021. Contrary factors were lower effects from devaluation of hedges for electricity generation and a decline in revenue from natural gas trading. The main reason for the rise in EBITDA was higher earnings contributions from equity accounted indices. Higher investments led to a rise of scheduled depreciation and amortization. In connection with the takeover of an additional electricity procurement act, an impairment loss of €130 million was recognized on the Waltham Power Plant already in the third quarter. For a year-on-year comparison of effects from impairment testing, please bear in mind that higher country risk premiums for south-eastern European countries due to the COVID-19 had triggered impairment losses of 14.5 million euros in the previous year. Based on these developments, the goods EBIT was up 2.6% and amounted to 291.9 million euros. Financial results increased 2.8 million euros, supported by, among others, the higher dividend from Verbund for the 2020 financial year. In total, it generated a group net result of 224.6 million euros, which represents an increase by 6.6% over the previous year. I would like to move to the next slide, which provides some information regarding the group's balance sheet structure. EVN's net bet amounted to 770.9 million euros. Clearing ratio was down and amounted to 13.1%. Our financial flexibility is solid. We benefit from the lower net debt in sufficient committed uncrowned credit facilities, which amounted to 531 million euros as of the end of June 2021. Our strong balance sheet structure forms the basis of pursuing organic growth opportunities in our regulated and stable autumn activities. Before I will go through each of these segments in details, I would like to give you a general overview on the ABDA development of our business segments. ABDA's development per segment illustrates the key drivers of our performance during the reporting period. With the extension of energy in Southeast segment Europe, all other segments showed improvement in comparison with the previous year. Let's move now to the next slide, which covers this generation segment in more detail. Electricity generation volumes in this segment were up by 3.1% year-on-year. Renewable generation benefited from good water flows and thermal generation exceeded the lower prior year level. Good water flows and higher market prices for electricity led to an increase in revenue from renewable generation despite a decline in wind power. EBITDA was up at 148.8 billion euros. This increase was mainly due to a positive one-off effect related to the takeover of an electricity procurement drive, which took place in the first quarter. In addition, there was a re-evaluation of our equity-consolidated investment in the Ashtar hydropower plant in the amount of 9.6 million euros. In the previous half year, we had to record an impairment loss of 4.9 million euros due to higher country risk movements at that field time. Both effects were driven by country risk premiums at the discount rate. In the previous year it increased and this year it went down again. Scattered depreciation and amortization increased as a result of higher investments. In total the generation segment generated a higher EBIT of 88.3 billion euros. On the next slide I will continue with the energy segment. I would like to remind you that the development of revenue in the energy segment depends primarily on the marketing of electricity generated in EVN's power plants. Besides, it includes the revenue from our domestic heating business. In the first three quarters, higher revenue from the marketing of our own thermal electricity production and from our district heating company only partially offset the year-on-year decline in the valuation effects from hedges in natural gas trading. Therefore, revenue was down by 21.2%. Operating expenses were nearly at prior year level, but these were influenced by various contrary effects. Firstly, the takeover on additional electricity procurement rights led to a positive one-off effect, which worked during the year followed by provisions of on-earth contracts. Secondly, there was an increase in procurement costs for our heating business. Finally, there was a reduction in the procurement costs in line with the decline in revenue from natural gas trading. The energy sales volume showed positive development. Electricity, natural gas, and heat sales volumes were above the prior year level. The increase in demand for natural gas and heat resulted from colds or temperatures. Please bear in mind that there was a temporary decline in sales to industrial customers due to COVID-19 in the previous year. In this year, corona did not have any material negative effects on energy demand. The share of results from equity-accounted investees with operational nature improved by 44.7 million euros. This increase was supported by a sound operating performance of EVNKG and positive effects from valuation of hedges. Based on these developments, the energy segment reported EBITDA of 50.7 million euros and EBIT of 34.7 million euros. On the next slide, I will present the developments in our network assessments. Network sales volumes increased supported by stronger demand for electricity and natural gas in the household customer segment due to lower temperatures in Lower Austria. Another reason was that the demand for electricity was negatively influenced by COVID-19 in the previous year. This year, there was no material negative effects on the network sales volume from the COVID-19 pandemic. With the beginning of the new calendar year, the Austrian regulator determined new network terms. charge for electricity were increased by 6.3% on average and those for natural gas were increased by 6.4% on average. Based on these volumes and price developments, segment revenue increased by 6.4%. EBITDA in the network segment was up 16.8% and EBITDA 28%. On the next slide I will continue with the South East Europe segment. Temperatures in Southeast Europe were below both previous year and long-term average, which has positive volume effects. 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 an increase in network sales volume, whereas energy sales volume nearly matched the previous year. Segment A to A was below the prior year level. Higher revenues was contrasted rising energy procurement costs and lower sales margins in the regular supply business in North Macedonia. In contrast, segment EBIT was slightly up. As already mentioned, higher country risk between the South-Eastern European countries due to COVID-19 had triggered impairment losses of 14.5 million euros in the previous year. I would like to conclude my presentation with the segment with the environment segment. In our international project business, we can rely on a solid order book of about 1.8 billion euros as at the end of June. In total, WTE Wassertechnik is currently working on nine projects in Germany, Lithuania, Poland, Romania, Bahrain, and Kuwait. In addition to our joint venture company, Sludge2Energy, is currently working on three sewage sludge 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 the segment. However, I would also like to note that national lockdowns, travel restrictions and interruptions in international supply chains caused delays in the international project business. All in all, the segment benefited from the start of the construction of the Kuvert wastewater project, which is accounted for according to the percentage of completion methods. In addition, there was a positive one-off effect at our lower Austrian water supply company. In total, this development led to an increase in EBITDA to 52.8 million euros and an EBITDA to 23.5 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. Our cash flow was substantially up at 700.9 million euros. This was mainly due to a receipt of a compensation payment for the takeover of an electricity procurement right. A further factor was the higher balance of dividends from equity accountants in the seas. For a year-on-year comparison, please also be in mind that last year, the dividend from Vapunt AG was only received in the fourth quarter. The increase in cash flow from operating activities was even higher in comparison due to the developments in the working capitals. Cash flow from investing activities was influenced deeply by a year-on-year increase in investment in property, plant and equipment and a change in investment in cash funds. The cash flow from financing activities reflected a scattered repayment of loans and dividend payments to our shareholders' non-controlling interests. A contrary factor was the issuance of a green private placement. The net cash The net change in cash and cash equivalents amounted to 63.8 million euros. I would like to conclude my presentation with the confirmation of the outlook of the group. The human average conditions in the energy business environment we expect a group net result in 2021 will be in the 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 EVN and in turn on the development of earnings for the entire group. I can also confirm our dividend policy. It is directed to holding the absolute amount of the dividend at least concept at 49 cents per share. I'm now looking forward to answering your questions.

Ladies and gentlemen, if you would like to ask a question, please press 9 star button. on your telephone keypad. If you would like to withdraw your questions, press nine star again. And so we already have one question that comes from Mr. Peter Crampton of Barclays. Please go ahead.

Good morning. It's Peter Crampton here from Barclays. Two questions. First one's short. If you exit Valzum, that should essentially mean that EVN is code free, correct? And then the second question relates to the renewable kind of energy kind of plans of Austria. They're quite aggressive, talking about CO2 neutrality by 2030. And I was just wondering kind of, you know, Evian's expectation of whether that should mean a more interesting kind of investment project and whether you believe there could be kind of more government support to get there. Thank you.

Thanks, Peter. First of all, this is correct. If we exit Balkan, there is no production of coal in the Scope 1 area of Evian anymore. And the second thing is, as you know, the ambitions are quite high for Europe and the global perspective. Of course, we need all those framework decisions, which are enabling us, a group like ours, to really have projects and to realize the project. As we tried to to develop a vision in our strategy 2030. We have a clear target here regarding renewable, the further development of renewable capacity in our home province in Lower Austria and the other markets of Bulgaria and North Macedonia and we are working on this. What you also have seen and heard is that finally the Parliament has voted on our Renewable Energy Act but as we have looked through the legal framework. There are around 70 directives which have to be now developed and put in force by the government. So there's a lot of things to do which also then define the conditions of doing our investment strategy. And as I've mentioned before, we see good opportunities. We have this kind of average 450 million euros investment program for the upcoming years. And if there's the framework decisions and the guidance which is giving us is more clear on that. I also confident that the EU can increase this kind of investment cap rates and still have a very stable balance sheet and financial policy.

Thank you for your answers.

The next questioner is Mr. Patrick Schreiner of Kepler Herald. Your line is open.

Good morning. Just a quick question from my side. You reported the plan commission section of the cross-regional drinking water transport pipeline from 2021. When do you expect the pipeline to be finished completely and what are the expected implications on the drinking water business is fundamental once it is finished?

Okay, Peter, that's a very specific question. I can confirm that it's done in two steps. The first part of it, we hope that we can conclude even this autumn. And the second one, which will then enable that we will use this kind of high-pressure water pipe in the year 2024-2025, always depending on construction permits and so on. What our vision is here is we want to consolidate the regional water market on the mid-term by building up not just this kind of connections between existing grids of water, this is a kind of high-pressure water pipes, but also on the quality side, yeah, we are constructing this facility to purify the water and have this kind of high quality water for the lower Austin population. So I think this business will grow on the long term because it's a long term investment and we see around 160 million euros of investment in the upcoming years part of the overall group's investment.

Okay, thanks very much.

Next we have Theresa Schindler of Raiffeisen Bank International. Your line is open.

Good morning. A follow-up to the Renewable Dispension Act. You mentioned the around 70 directives that need to be changed. Do you have already an estimate, a guesstimate on the timeline here? The first one. The second one is on renewables in Southeast Europe, where we are seeing first auctions or auctions in Northern Macedonia. If you could tell us a bit more on what's going on there and Evian's role on that. And the third one is, and maybe I've missed it, if you could give us an order. a number for the order intake at the moment in the environment business.

Okay. Yes, so these kind of directives which have to be put in place will be a hell of a work because a lot of the issues where the coalition partners were not able to find them and contend with now. They put into this kind of directive further decision by the government's ministry. This is one part. The second is part of this Renewal Act has to be also modified to Brussels because it has to do with subsidization. Therefore, they need this kind of approval of Brussels for that. I'm sure this will take quite a while. This will go into 2022. So I would expect that this autumn will be used for the further work on this kind of guidelines. So I think more clearness about really the basis for decision-making will be in 2022. This sounds quite a while, but please keep in mind this is a real quality of work which has to be done also and we will try together with the associations of our industry also to support this because as we all know there is a big expectation by public stakeholders about the further pursuing of this kind of renewable energy and on the other hand we have more and more problems in the legal and locally administrative acts so there is kind of a counter development so this kind of public target. Nevertheless, EVN has around 100 megawatt concrete projects in the pipeline, which are on different levels of the administrative procedures. This will help us to come from this 400 to this kind of 500 megawatt midterm, 23, 24, 24, 25, depending on this decision making of the administrative course. And parallel, we're going to develop photovoltaic. We started this small plant in North Macedonia to get this kind of concrete experience. We participated in a tender there at the end of this business year. We hope we will have three megawatts installed in North Macedonia. But we are ready to scale this and therefore we also are developing a strategy what kind of independence from state subsidization, photovoltaic, is it in the market or not, how is it fitting into our own needs of energy consumption as we also have big street operators there. So we are looking for an optimum on the level of investment and risk which we can take and this should add up to around 750 MW wind on the mid-term on the group level 2030 and of course 200-300 MW of photovoltaic in the region because the sun hours are better than here and what we see and this is maybe the thing which is really very mix of optimistic the region and the energy market the market coupling so the the regional energy market in Southeast Asia is becoming more transparent. The wholesale prices are much more under pressure of cohesion now. And this is the basis also for long-term investment in the region. And the third question you mentioned, the order book is around 1.3 billion at the end of June.

Thank you very much. And no further questions so far. Therefore, I will repeat the key combinations. Ladies and gentlemen, if you still have a question to stage, please press 9 star on your keypad. There seems to be no further questions in the queue.

Thank you for joining today's conference call. We will publish the results for our 2021 financial year on Thursday, the 16th of December. Please join us then again and stay healthy and goodbye.