EVN AG

Hello, ladies and gentlemen, and welcome to the conference call on EVM's results for the first three quarters of the 2021-2022 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 Hyshkov.

Good morning and welcome to the conference call on EVN results for the first three quarters of the 21-22 financial year. We are operating in an energy environment which is characterized by historic distortions. Last summer, we started to witness post-COVID price hikes. Since then, energy market prices continuously reached new record highs. The war in Ukraine and the growing inflation make things worse, and there are still no signs of a turnaround and a normalization. The impacts of these developments on EVN and our integrated business model are varying. For generation, higher prices are positive and provide for a certain upside. For our energy supply business, however, higher prices turn into a burden. In Southeast Europe, the higher electricity prices are a challenge for the whole energy sector there. Our activities are especially impacted by rising costs for network losses. In both countries, extraordinary government due to recent deterioration of the geopolitical and economic environment. Above all, for global supply chains, we had to reassess the risk and earnings expectations for EVM Group of the international project business of WTE. This resulted, already during the second quarter, in impairment losses to goodwill in the international project business and to the residual carrying amount of the two combined sludge-fired heat and power plants in Moscow. Our investment level in the reporting field was high. We were able to increase investments by 26.5% to 324.3 million euros. This is in line with our commitment to further increase CapEx. The focus of our investment remains on networks, renewable energy, and drinking water in rural Austria. With this, we clearly contribute to our climate strategy, our science-based targets, and energy future in general. We are also actively working on our target to further increase renewable generation capacities. We are currently working on four wind power projects and one large scale photovoltaic project, which will add a total of 90 megawatts to our generation portfolio. Let me now continue with these key financials of the reporting period. The group revenue was up by 64.6% year-on-year. The main reason for this development was the sharp rise in electricity prices, which had a strong impact on revenue in Southeast Europe as well as from renewable generation. In Austria, the higher network tariffs set by E-Control in Austria as of the 1st of January 2021 had a positive influence on network revenue. The more frequent use of the Thais power plant by the Austin Transmission Network operator for network stabilization offset the lost revenue to the disinvestment from the Balsam 10 power plant. Both were also recorded in the international project business. I would like to remind you that last year in Q1, we had a one-off from the takeover of an additional electricity procurement right from the Balsam 10 power plant. Other operating income included a positive one-off This depreciation was increased by a required impairment. The cost of the electricity purchases from third parties and primary energy expenses were substantially up at 1.7 billion euros. The main driver were higher energy procurement costs in Southeast Europe corresponding to the revenue growth. Other factors include the more frequent use of this type power plant and higher procurement costs for our heating business. The share of results from an equity-accounted investor was down by 35.1% at 100.7 million euros. Most of this decline was due to the performance of our supply company EVN KG. Based on these developments, EBITDA was down by 11.8% at 578.1 million euros. As already mentioned, We had to record impairment losses in the second quarter on the Kutbel in the international project business and two combined heat and power plants in Moscow. These impairment losses were contrasted by a revaluation of 6.4 million euros to the Kavana wind park in Bulgaria, which we recorded in the first quarter. The previous year was affected by impairment losses totaling 113.3 million euros to the Weissum tank power plant as already mentioned. In total, the Group Savings Daily declined by 0.6% to 290.2 million euros. Financial result was up by 2 million euros at 4.8 million euros, an increase in the dividend from ProBund from the 2021 financial year and a decline in interest expenses following the scheduled redemption of the bond in April 2022, were contrasted by weaker performance of the R138 fund and negative foreign exchange development. In total, we generated a group net result of 228.4 million euros, which represents a slightly year-on-year increase by 1.7%. Now I would like to move to the next slide, which provides some information regarding the group's balance sheet structure. BDN's net debt amounted to 1.1 billion euros. BDN ratio amounted to 14.4%. Our financial flexibility is solid. We benefited from lower net debt and sufficient committed uncloned credit facilities, which amounted to 622 million euros as of the end of June 2022. In April, we exempted our corporate bond with a nominal amount of 300 million euros. As refinancing measures, we issued a registered bond with a nominal value of 155 million euros in April and an approximate loan with a nominal value of 157 million euros in July. Let's move on now to the next slide, which covers the generation segment in Morty Cell. Electricity generation volumes in this segment were down by 8.3% year-on-year. The reason was the absence of Volsum 10 following the disinvestment of our state last year. On the other hand, our tight power plant was called more frequently by the Austin Transmission Network Operator for network stabilization. The share of renewable generation increased to roughly 64% compared to last year's 60%. Above average wind flows partly observed a decline in hydropower. Revenue was up year on year. Higher electricity prices compensated the decline in electricity generation. EBITDA amounted to 204.1 million euros. Also due to the revaluation of the Kamana wind park in Bulgaria, segment EBIT increased to 179.2 million euros. On the next slide I will continue with the energy segment. Revenue was up to to volume and price effects from the marketing of our own electricity production. In addition, higher sales volumes and price adjustments supported revenue growth of our heating business. Therefore, segment revenue rose sharply and stood at 571.6 million euros. Operating expenses reflected costs for primary energy carriers for the increased use of detailed power plants, as well as higher procurement costs for the heating business. According to our contracts in the heating business, higher energy costs will be passed on to customers once or twice a year based on price index mechanisms. So there's a certain time lag. The sales volume showed different developments. Whereas electricity sales remained stable, natural gas sales declined due to milder temperatures and saving effects by customers. The earnings contribution from an equity-controlling data company in the NKG declined due to higher procurement costs. Based on these developments, the energy segment reported an EBITDA of 7.7 million euros and an EBIT of minus 8 million euros. I would like to explain now how we deal with the current price pressure on our supply business. Roughly half of the natural gas customers and about 40% of the electricity customers have chosen a supply contract with a floating tariff. The price is automatically adjusted on a monthly basis to reflect the development of wholesale prices. The remaining customers have selected a supply contract with prices that are fixed for a certain period. Here, the prices are based on the Australian Electricity Price Index and the Australian Gas Price Index, and they are already increased for electricity as of January and for natural gas as of February. In August, we amended the General Delivery Terms for the fixed-price supply contract. In future, these prices may be adjusted twice each year based on the mentioned price indexes. The first adjustment will already take place in September 2022. With these measures, we aim for a balanced result for EVM TAGE. On the next slide, I will present the developments in our network segment. Network self-volume showed a slight decline in electricity, whereas natural gas volume rose due to the increased use of gas-fired generation for network stabilization. In the beginning of 2021 and 2022, there were also regulatory interest tariffs for both electricity and natural gas. Based on this volume and price developments, segment revenues were up by 5.8%. EBITDA in the network segment increased by 2.9% and EBIT by 3.2%. On the next slide, I will conclude with the South East Europe segment. Temperatures in Southeast Europe were below the previous year and long-term average, which had positive volume effects. In addition, customer change from the liberalized market supported growth in sales volumes. In combination with higher prices, these developments resulted in 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 price. 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 and our heating company received compensation payments in total amounts of 86.3 million euros to cover higher costs at the end of June 22. Regular tariff decision as of the 1st of July resulted in an average price increase of 3.6% for household customers in EDN's supply area. In North Macedonia, Dario Tura announced extraordinary increases in electricity prices for household customers of EDN Home and in the network tariff as the 1st of January 2022 as a partial compensation for the significant rise in energy procurement costs. This was followed by a further increase of 21.8% for household customers of EV and home as of the 1st July 2022 and the electricity purchase price was set up 48% EUR per MWh. Network curves were also increased a second time as of the 3rd of July. The remaining additional costs shall be reflected in future chart decisions. Segment EWT was down at 66.3 million euros and segment EBIT amounted to 8.4 million euros. I would like to conclude my presentation of this segment with the environment segment. The geopolitical development During the war on inflation, pessimistic economic outlooks and global supply chain issues have already changed the group's risk and earnings expectations for the Internet project business of WTE. Therefore, already in the second quarter, we had to record impairment losses to Goodwill in the international project business in the amount of €52.9 million and to the residual carrying amount of the two sludge-fired controlled COVID generation plants in Moscow which was 4.4 million euros at the end of March. Apart from these two plans, we don't pursue any environmental projects in Russia or Ukraine. The financial performance of the segment is in line with the development in the international project business, in line with the progress on the Kuvek project, there was a corresponding rise in both revenue and operating expenses in the segment. Every day amounted to 42 million euros, even declined due to the beforementioned impairment losses and amounted to minus 40.5 million euros. With this, I conclude the presentation of this segment. From the next slide, I will continue with the development of our group cash flows. World cash flow was substantially lower at 589.1 million euros. Please remember that it was an unusual high in the previous year due to the receipt of a compensation payment for the takeover of an electricity procurement right. The decline was reduced slightly by higher dividends from the equity-accounted investees. The decline in cash flow from operating activities by even higher income bearers. The sharp rise in energy prices and lower investment by EVKG and the group's cash flow were responsible for working cash flow effects. The cash flow from investing activities was influenced chiefly by a year-on-year increase in investment in property, land, and equipment, and a change in investment in cash funds. The cash flow fund financing activities included three new bank loans for a total of 250 million euros and the issue of a registered bond with a nominal value of 155 million euros. The repayment of a bond with a nominal value of 300 million euros and the dividend payment for our shareholders and non-controlling interest represented a control factor. The net change in cash and cash equivalents amounted to minus 110.8 million euros. As mentioned before, our financial flexibility is solid, secured with committed arm-to-arm credit facilities of 622 million euros at the end of June 2022. I would like to conclude my presentation with the outlook for the group. We are going through an extraordinary year with substantial distortions, which were not predictable at the beginning of this financial year. This led to unexpected deviations in some of our activities. On a group level, however, we are confident that our diversification and management measures will provide a balance to our financial performance. Hence, I confirm our guidance for this financial year. We expect the group net result in 21-22 to be in range of approximately 200-240 million euros. With this, I have reached the end of my presentation. I am now looking forward to answering your questions.

Ladies and gentlemen, if you would like to ask a question, please press 9 star on your telephone keypad. If you would like to withdraw your question, press 9 and star again. I will repeat the combination.

It's nine and star on your telephone keypad.

And the first question comes from Ms. Teresa Shingard of Drive Engine Bank International. Please go ahead.

Hi, good morning. First question is on the special dividend of Forbund Is there already a plan how to use the proceeds of the dividend? Which has been my first question.

Okay, first of all, the special dividend is just announced by Forbund for the end for the financial year 22. So it will be, if the AGM is voting on that, we will receive it in May 23, and our financial year in this year will close on the 3rd of September 23. So it will be in the next business year of financial year of UDN.

Okay.

So I read that as a wait-and-see position for now.

First you have to close the financial years, and then you can have a proposal to your shareholders. This is what you have to follow the proper governance very correctly.

Yes, sir, sir. and my second question is thank you for presenting us or giving us the information on the contract structure or the share of the contract structure. Has this changed since the beginning of the the five energy price increases, so the 40-60 share, for example, with electricity. Can you tell us a bit more about how the retail customers, the household customers reacted to the price environment?

No, this process, this development of changing and shifting of the tariff structure from our end customers is underway since the last two and a half years, yeah. Fortunately, this was started much earlier than this actual crisis was taking place. Therefore, our supply company has decreased the risk of the delay of the possibility to adjust prices for end customers and at the same time already being obliged to buy to higher wholesale prices. We are expecting now with our package of kind of reductions and benefits that there will be even a higher share of customers take the opportunity to lock in actual prices and therefore take a stability of 12 months over the year. Therefore, I would expect that the share of customers who having a special product or not the general terms anymore will further increase. So I would not be surprised when we reach a kind of percentage also on electricity that the old general terms will be only the basis for below 50%. of the end customers. Therefore, this development, which we are seeing over the last period, will be further accelerated. And therefore, people will take the opportunity to lock their current prices, at least for the next 12 months.

Understood. And sorry if I... Didn't get it, but could you mention the order backlog in environmental project business?

So it's around one billion.

Okay, thank you very much. That's all from us.

At the moment, there are no further questions. I will be once again. Ladies and gentlemen, you can still state your question. Please press nine star on your telephone keypad.

There seem to be no further questions in the queue.

I hand over to Mr. Schilkowitz.

Thank you for joining today's conference call. We will publish the results of our 21-22 financial year on Thursday, the 15th of December. Please join us then again and stay healthy and goodbye.