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.