EVN AG

Good morning, ladies and gentlemen, and welcome to the conference call on EVN's regard for the first quarter of 2021-22 financial year. At this time, our participant has been placed on 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 Ciskowicz.

Good morning and welcome to the conference call on event results for the first quarter of the 2021-22 financial year. The development in the energy market during the past month took many energy experts by surprise. Within an unbelievable short period of time, market prices for natural gas, CO2 emission certificates and electricity reached historic highs. Due to our diversified business model, this market distortion had different effects on our various activities. whereas renewable generation benefited from higher prices, there were negative impacts on the procurement side. E-Bank AG, an Austrian supply company, already reacted to higher procurement costs and passed them on to customers. For electricity, higher end customer prices became effective as of January, as for natural gas, as of February. In Southeast Europe, the high electricity prices are a challenge for the whole energy sector there. Our activities are especially impacted by rising costs for network losses. Together with other utilities in Bulgaria and North Macedonia, we initiated a close dialogue with regulators and governments to discuss possible measures to keep the system stable. In both countries, extraordinary government, respectively regulatory measures, were introduced as partial compensation for the significant rights in energy procurement costs. The remaining additional costs should be reflected in future tariff decisions. Before I will guide you through our numbers of the quarter we resolved, I would like to reiterate our key messages. In line with our strategy 2030, we decided to further increase investments. This is already visible in the first quarter, which shows a rising cap at 26.8%. Over the coming years, annual investments will reach levels of around 500 million euros. Thereof, three-fourths will be dedicated to lower options, mainly networks, renewable energy and drinking water investments. It is our ambition to increase EVN's attractiveness for ASG investors. That's why we stepped up. But there is more than that. We agreed on CO2 emission reduction targets until 2034 with the international renowned science-based targets initiative. One measure is that we will further grow our renewable generation portfolio. to grow our wind capacity by another 350 MW to 750 MW by 2030. And we will build up a photovoltaic portfolio of about 300 MW within this decade. As you know, it has become increasingly difficult to realize new wind projects if it is already approved by authorities. Therefore, I am glad that we got green light for two new projects in Lower Austria. The projects have an installed capacity of 12.6 MW each. One is a repowering project. Let me now continue with the key financials of the reporting period. The group's revenue was up by 49.1% year-on-year. The main reason for this development was the sharp rise in electricity prices. It had a strong impact on revenue in Southeast Europe as well as from renewable generation. Other positive factors included higher network sales volume due to the cooler weather in all three core markets as well as the higher network sales set by eControl in Austria as of the 1st of January 2021. The more frequent use of the TICE power plants by the Austrian transmission network operator for network stabilization offset the lost revenue due to the base investment from the Balsam 10 power plant. I would like to remind you that last year, during the first quarter, we had a run-off from the takeover of an additional electricity procurement right of the Basel 10 power plant. Other operating income included a positive run-off, which depreciation was increased by a required impairment. The cost of electricity purchases from third parties and primary energy expenses were substantially up at 552.8 million euros. The main driver were higher energy procurement costs in Southeast Europe. Other factors include the more frequent use of the Thais power plant and higher procurement costs for our heating business. The share of results from Adacpity accounted in the SEAS was down from 60.2 million euros to 52 million euros. Declines were recorded, among others, by Energy Burgenland and our other supply business in Austria and Germany. Based on this development, EBITDA was down by 39.5% at €201.9 million. In the first quarter, we had to record re-evaluation of €6.4 million to the Carbana wind park in Bulgaria. The previous year, as already mentioned, was affected by impairment losses totaling €113.3 million to the Valsuntem power plant. In total, the Group's AUD declined by 4.7% to 129.5 million euros. The Dow dropped to minus 16.4 million euros due to foreign exchange developments. In total, we generated a Group Net result of 81.5 million euros, which represents a decline by 12.7% over the previous year. Now I would like to move to the next slide, which provides some information. regarding the group's balance sheet structure. EVN's net debt amounted to 905.9 million euros. DIN ratio was down and amounted to 0.8%. Our financial flexibility is solid. It benefited from low net debt and sufficient committed undrawn credit facilities, which amounted to 552 million euros as of the end of December 2021. In April, our corporate bond with a nominal amount of 300 million euros will become due for repayment. As a preliminary refinancing measure and to a temporary increase in financial flexibility, we concluded short-term loans totaling 150 million euros and two end-term loans with tariffs until February, November and December 2023, totaling 250 million euros. and further findings that will be evaluated. Let's move now to the next slide, which covers the generation segment in more detail. Electricity generation volumes in this segment were down by 11.4% on a year-on-year basis. The reduction in generation came from the absence of Balsam 10, following the investment of our state last year. On the other hand, power plant increased generation due to more frequent calls by the Austin Transmission Network operator for network stabilization. The share of renewable generation increased to 54.4% compared to last year's 51.9%. Higher reflows were partly able to compensate the decline in hydro power. Revenue nearly matched the previous year. Higher electricity prices offset the decline in electricity generation. EBITDA was down at 50.3 million euros. Again, please bear in mind previous year's positive one-off related to the takeover of an electricity procurement project. Also true to the revaluation of the Kavanaugh wind trucking, luxurious segment EBIT increased to 46.3 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 generated in event power plants. Besides, it includes the revenue from our domestic heating business. The strong increase in wholesale prices resulted in higher revenue from the marketing of our own electricity production. Higher sales volumes supported revenue growth of our heating business. Therefore, revenue was up by 90.4%. Operating expenses reflected higher procurement costs for the heating business as well as the absence of a positive one-off related to the takeover of an electricity procurement right. According to our contracts in the heating business, higher energy costs will be passed on to customers once a year based on price index mechanisms. So it's a certain time like here. And energy sales volumes were above the prior year levels due to colder temperatures and the return of demand to pre-COVID levels. The earnings contribution from that equity consolidated company EVNKG declined due to higher procurement costs. As already mentioned in the beginning of the call, EVNKG lead by increased prices for household customers for electricity and natural gas. Based on these developments, the segment reported an EBITDA of 35 million euros and EBIT of 29.8 million euros. On the next slide, I will present the developments in our network segment. Network sales volumes increased reported by stronger demand for electricity and natural gas in the household customer segment due to lower temperatures and higher gas flow related to increased use of gas-fired generation for network stabilization. In the beginning of 2021, the Austrian regulatory increased tariffs of both electricity and natural gas. Based on these volumes and price developments, segment revenue increased by 7%. EBITDA in the network segment was up by 11.1% and EBIT by 16.3%. The Austrian regulatory determined new tariffs, which became effective with the start of the new calendar year. Based on such decisions, The net repair for electricity will increase by 8.4% on average and for natural gas by 4.7% on average. On the next slide, I will continue with the Southeast Europe segment. Temperatures from Southeast Europe were above the previous year and a long-term average which had positive volume effects. In combination with higher prices, this resulted in a sharp rise in revenue. As already mentioned in the beginning of this call, our Southeast Europe segment suffered from rising costs for network losses due to higher market prices. In both countries, extraordinary government respectively regulatory measures provide for at least partial compensation for the significant rise in energy procurement costs. In Bulgaria, our distribution network operator received a compensation from the government covering network losses which resulted from higher wholesale prices. The compensation in the amount of 31.6 million euros covered the period from July until December 21. The payment was made under a state aid program for the EU. This sector, with the Bulgarian government, has agreed with the European Union to be in line with EU laws. We are in constant discussion with the government regarding measures to cover higher costs, which have been in period since January 22. In North Macedonia, the regulatory announced an extraordinary increase in electricity prices for household customers of EV and home DEO and the network tariffs as of the 1st of January 2022, as part of compensation for the significant rise in energy procurement costs. The remaining additional costs should be reflected in future tariff decisions. Segment EBITDA was down at 7 million euros and segment EBIT amounted to minus 12 million euros. I would like to conclude my presentation of this segment with the environment segment. In our international project business, we can rely on a solid order book of about 1.2 billion euros at the end of December. In total, WTE Wasser Technik is currently working on 14 projects in Germany, Lithuania, Poland, Romania, Bahrain and Kuwait. Included are two slush treatment projects in Germany, which are done by our joint venture company, Slush Energy. The financial performance of this segment is in line with the development in the international project business. Due to a slight reduction in construction activities as compared to last year, there was a corresponding decline of both revenue and operating expenses in the segment. In total, this development led to a lower APTA of 17.1 million euros, and slightly higher EBIT of 8.9 billion euros. In view of the current political crisis, I would also like to inform you about EVM's remaining activities in Russia. As you will remember, we realized a couple of projects, including drinking water plants and thermal waste utilization plants for the city of Moscow. These projects were also on a basis of PPA basis. For all of these projects and contracts, the operating plant already ended, the last one in June 2020. with this, our last BPA project ended in Russia. However, we still own and operate two slush-fired combined heat power plants in Moscow. The total book value of these plants' single-digit contribution to the event's revenues and results are not material. Apart from that, we don't pursue any environmental projects in Russia or Ukraine. With this, I conclude the presentation of the segments. On the last slide, I will continue with the development of our group cash flow. Cross-cash flow was substantially lower at 204.4 million euros. Please remember that it was an unusually high in the previous year due to the receipt of a compensation payment for the takeover of the electricity procurement rights. The decline was reduced slightly by higher dividends from equity accounted in the season. The decline in cash flow from operating activities was lower in comparison. The sharp rise in energy prices was responsible for working capital effects. In the previous year, the not collected part as the reporting gave of the compensation payment for the takeover of an electricity procurement drive increased working capital even higher and tax payments were above PCS level. Cash flow from investing activities was influenced cheaply by a year-on-year increase in investments in property, grants, equipment and higher investments in cash funds. The increase in cash flow from financing activities is due to pre-tax loans totaling 250 million euros. The net change in cash and cash equivalents amounts to minus 182.5 million euros. As mentioned before, our financial flexibility is solid, secure, with committed, undrawn credit facility of 552 being with us at the end of December 2021. I would like to conclude my presentation with the outlook for the group. Having just finished the first quarter, I would like to summarize our view on the current financial year as follows. We are going through an extraordinary year with substantial distortions. When looking at our main activities, we need to differentiate. For generation, higher prices are a clear positive and a certain upside. However, please bear in mind that generation has been hedged at pre-running average levels rather than peak levels. For our energy supply business, higher prices are a burden. We will be able to overcome good price increases. However, there is a certain timing effect. For Southeast Europe, we are facing a financial year of transition. Management puts all effort on finding substantial solutions with the government and regulatory authorities, but segment results will show the effect of this distortion, this is obvious, as we will miss our usual 40 to 60 million EBIT targets for the segment, which we managed to outperform in the past couple of years. On group level, we are confident that our diversification management measures will provide a balance to our financial performance. Hence, I confirm our guidance for this financial year. We expect a group net result in 2021-2022 to be in a range of approximately 200 to 240 million euros. With this, I have reached the end of my presentation. I am now looking forward to answering your questions.

Yes, ladies and gentlemen, if you'd like to ask a question, please press 9 and star on the telephone keypad. Please press my and star on your telephone keypad if you'd like to ask a question. And the first question comes from Luda Schumacher. Your dial is open.

Good morning. Three questions from my side. The first one is on Southeast Europe that some decline in EBITDA you have seen there. Do you expect a full recovery here? Can you maybe run us through the process of recovering these extra costs, and are there any risks associated with maybe not recovering all of it? That's certainly what some other companies have experienced in Eastern Europe, that the recovery of these very high procurement costs can be quite tricky. The second one is on EVN KG. You said that EBITDA was down due to higher procurement costs. Is that mainly a Q1 effect, i.e. you just had to wait for tariffs increases to go through and now you're passing on higher procurement costs? And the last one is on generation. And just to get an idea of the underlying EBITDA there with all these one-offs, can you maybe give us the total contribution of volume 10? in Q1 last year, i.e. the normal EBITDA as well as the one from the pyramid.

Okay, thanks for the question. First of all, Southeast, there is a regulatory regime and more or less there is no liberalized market. So it's a question mark when regulatory authorities do their normal decisions on future tariffs. In our case, this will be the first of July for Bulgaria and North Macedonia. Nevertheless, due to this extraordinary situation, the North Macedonian regulatory affairs made already a decision for the first of January, partially compensating us for the burden we are carrying there. The issue is the energy we have to buy on a forward market for the grid losses. It is too early to say how the year will develop. As you have seen, and I mentioned it before, in Bulgaria we have been covered for these grid losses from July to the end of December. Therefore I would expect that they will have the resources due to their production in Cosmo 3 and they are making there an extraordinary profit and they will use this to compensate down the line the energy value chain to ensure that the end customer price decision will be not too harsh and then not an extraordinary will be necessary. But of course These are all about the discussions we are having. The situation in North Macedonia is more tense because there we don't have own state productions which is relevant in the country itself. But we are following here the regulatory system and of course our prices will be defined there. So there might be a timing effect there. Therefore, we expect that we will have a weak year there and that the making of these differences will come in the next regulatory period. And to the EVN KG, yes, of course, if you carry higher procurement prices, but don't underestimate we are also buying on a rolling basis, so it is not just that we are buying energy for our customers on a short-term spot basis. Therefore, it's a rolling effect, and this is over all these years always taking place, that you have a certain delay in both sides. But with this price decision for the 1st of January for electricity and the 1st of February for gas, and also the tariff setting for the grid under the bottom line, I think we will be quite stable on a normalized basis. If you compare EVN, KG's performance this year in our expectation to last year, there's of course a big difference due to the change of the environment. And don't forget, there are also the question mark of the on the balance state evaluation of the rewards. So therefore there is a certain volatility due to the business itself. And regarding the effect of Wilesome, if you compare the first quarter to the first quarter, the group was carrying a burden of two million coming as an EBIT result coming from the effect of this procurement right and all the results coming out of the the first part of the exit of Weizsum, as we discussed and then made transparent. The overall result on a P&L basis has been around a positive effect of 11 million at the end of September 21.

Just two follow-up questions there. One is on Weizsum. I would love to be up here for the EBITDA. You did say in Q1 last year that net of the impairment charges was only minus 2 million, but I'm specifically after the EBITDA. If you could give us the number for one of the...

The impairment has been 113 million.

Yeah, and the EBITDA contribution was about 56, 57 million.

No, it has been 115, yeah, and then the impairment 113.

Okay. And so last follow-up on Macedonia, you mentioned partial compensation. Just how partial? Are we talking half, 70, 80, 90%?

No, see, this is very hard to judge what we are talking about. Are we talking on the yearly level or are we talking on the monthly one? The increase of end customer prices has been 9.5%, and they were also taking off under the week as a certain tariff privilege, which brings another So the total effect over the next coming months and weeks will be around an increase of around 14.5%. Of course, it's pretty much depending how the weather is developing, how much energy we have to buy on this kind of short-term energy prices. I have no further information on that, more than I hope that the backlash in North Macedonia will be compensated by the Bulgarian instability and therefore under the bottom line we will not have a result there, but hopefully we will also not have a big loss there. And on the group level, this will be compensated for a higher result on the renewable division. Therefore, we can confirm our outlook for the year at the same level as we have already given the signal in December. Okay, thanks.

And the next question comes from your line is open.

Yeah, good morning, and thanks for taking my questions. It's kind of two and a half from my side. So first, could you give an update on the progress of the Renewables Expansion Act amendments? Also, as you have mentioned, some administrative issues in... project approval, and secondly, in light of current events, could you also give us an update on the gas storage activities, especially with the partners in the Haida storage facility?

Yes, thanks a lot. As you can imagine, these kinds of developments are really now bringing new questions also to the whole European energy supply system and also the security of supply. What we have seen On the gas side, over the last couple of weeks and months, a higher volatility and, of course, the decrease of the levels of the gas storage facilities, which are very transparent, by the way, also on their home pages. of these institutions and therefore we are down to a level like we have seen it in 2013 and 14 if you compare this over the last six years. Fortunately, the temperatures have been not so deep over the last couple of weeks, so therefore the official information by the institutions is that for this winter the gas supply is secured by the stored volumes. Of course, if there would be a change in weather in the upcoming weeks, March and April, it could be more tense again, but there was a certain additional flow of gas also by LNG to Europe, and this was also partly hooked into existing gas storage facilities. So it is tense, but it's not critical from today's point of view. What we have seen yesterday and also today that the flows from Ukraine, Russia and Baumgarten has not changed. So they are at a normal level so far. But please keep in mind the developments are very dynamic. But there is no sign that... the normal natural supply is in any way influenced as by the way more or less in 68 this was always secured. What we see is that Brussels is discussing how we can secure our gas needs more for the future and more for the next winter and therefore we are following the other debate very closely. This is regarding the gas and regarding Renewable Ag. As we have discussed in the past, fortunately Brussels was now giving the green light to the latest version of the new Renewable Ag in the parliament therefore now the ministry and the different ministries because they are pretty much in the same boat have to issue the directives to get this new law really working and as you can imagine we are expecting some guidance here also regarding how the new market premium will work and how the tender will function and how we can use all this new framework also for our activities because as I mentioned before we would be ready and willing to further invest in renewable What we have also seen is that in comparison to three years ago, five years ago, every wind park and even every photovoltaic activity is facing question marks on a local level. and therefore it takes a longer time between making the decision to invest until the possibility to start this construction. Fortunately, we have now two smaller wind activities which we are ready to build now and we got the legal permits to do so. So we will start with the construction in the year 2022 and we are very hopeful that a bigger park also will be ready that we can start on the construction in the upcoming month. There is a delay, but I would say on the general perspective I think the support for renewable production will even now get a boost coming out of the situation so maybe there will be a change on attitude also and a stronger consensus in society that we want to secure our energy needs as much as possible renewable energy always knowing that renewable energy in this kind of wind and photovoltaic has one disadvantage, the question of how you can plan it. Just to let you know, if there is a lot of wind, this does not mean that there is not a need for ties to produce electricity. So the volumes alone, the planability is one issue which you cannot cross easily just by wind and photovoltaic production. Therefore, we will need a diversified energy industry also in the near future, mid-term future, maybe longer than we expect today.

Thank you very much. And maybe a follow-up also on distribution, Staris. I've read that the regulator accounted for a 37% increase in the lost energy coverage, accounting for higher prices. Do you already have an indication if this would be enough for this year? Because, of course, next year the coverage will be renegotiated.

Yes, no ongoing debates also. The uncertainty in the system has increased in the past couple of weeks a lot. So I would not feel well yet to comment on too short-term assumptions in the moment.

Understood.

Thank you very much. There are no more questions. Ladies and gentlemen, if you'd like to ask a question, please press 9 star on the telephone keypad. Please press 9 star if you'd like to ask a question. There are no more questions.

Okay, thank you for joining us for today's conference call. We will publish this out for the first half of 21-22 financially on Wednesday, 25th of May. Please join us then again and stay healthy and all the best.