EVN AG

Good morning, ladies and gentlemen, and welcome to the conference call on EVN's results 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 Spisovic.

Good morning, and welcome to the conference call on EVN results for the 2021-2022 financial year. The European energy sector experiences a crisis of historic dimensions. The extraordinary situation started in summer 2021, already with post-COVID demands and price hikes. Then, volatility increased due to the war in Ukraine, and growing inflation made things further worse. The impacts on these developments on EVN and our integrated business model have been varying. For our supply business in Austria and our activities in Southeast Europe, the market environment has been extremely challenging. In Bulgaria and North Macedonia, our activities were especially impacted by rising costs for network losses. Both countries' external governments' respective regulatory measures were introduced as partial compensation for the significant rise in energy procurement costs. The remaining additional costs should be reflected in future chair positions by the regulatory authorities. Due to the recent deterioration of the geopolitical and economic environment, above all for global supply chains, we had to reassess the risk and earnings expectations for EVN 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. In the fourth quarter, Impairment tests resulted in impairment losses, too, among others, and so gas net lag in Lower Austria to reflect the lower VAT in the new regular trust year, as well as for the district heating assets in Lower Austria and Bulgaria. All in all, we are reporting today group net results of 209.6 million euros, which are well in line with the range which we have predicted for this financial year. Our investment level reached historic highs. capex were up by 35.9% at 564 million euros. To put this into perspective, until two years ago, our annual investments were below 400 million euros. This is a strong increase in line with our strategy to invest heavily in networks and renewable generation in Lower Austria, both of which are key building blocks for a green and secure energy future. This rationale is underscored by the EU taxonomy For the first time, we were required to report information on our taxonomy and eligibility of our business activities. In addition, we decided voluntarily to report, one year earlier than legally required, the KPI for our taxonomy-aligned activities. The share of taxonomy-aligned capex was 85%. which means that such high share of our investments are directed to electrically sustainable activities as defined by the taxonomy regulation. For the sake of completeness, the two other taxonomy KPIs are 27% for turnover and 75% for open. At the first sight, the turnover of K-Pain may seem low, but please note that a large part of the non-taxonomy eligible revenue of about 2.3 billion euros is attributable to the trading and supply which is allocated to other economic activities in accordance with the EU taxonomy regulation. Our ambition in contribution to climate protection was just the other day confirmed by one of the leading international AAC rating institutions, UCEDD, GDP, published its 2022 ratings, and EVM received an upgrade to A-. This means that we have reached a leadership level. The CTP ratings consist of eight rating levels, and A- represents the second-best grade. We believe that our recent commitment to the science-based target initiative and last year's final exit from Horizon 10 plans and therefore from coal-fired electricity production are the main drivers for rating improvements. Our investment focus for the future remains unchanged. Therefore, our investments will remain high. This means that the level of even above 500 million euros per annum. Climate change and the current crisis in our sector are the two reasons why we remain committed to contribute actively to the transformation towards a CO2-neutral energy system. Based on our high capex level in the base group natural sales, we will recommend to the 94th annual general meeting the payment of a stable dividend of 52 cents per share. I confirm that 52 cents per share represents the minimum level of future distribution in line with our dividend policy. And I would also like to confirm our commitment to appropriate participation of our shareholders in future earnings growth. Let me now continue with the key financials of the reporting period. The group's revenue was up by 69.6% year-on-year. The main reason for this development was the sharp rise in electricity prices, which had a strong impact on revenue in South East Europe, as well as on renewable generation. In Austria, the higher net worth, assessed by e-Control in Austria as the first of January 2021, and 2022 had a positive influence on network revenue. The more frequent use of the tight power plants by the oxygen transmission network operators for network stabilization offset the reduced revenue due to this disinvestment from the Weissl-Them power plant. Growth was also recorded in the international project business. I would like to remind you that last year we had one off from the takeover of an additional electricity procurement right from the Weissl-Them power plant. and the subsequent sale of our share in the power plant company. Other operating income included a positive one-off, while depreciation was increased by a required impairment. The cost of electricity purchased from third parties and primary energy expenses was substantially up at 2.3 billion euros, the main driver of a higher energy procurement cost in southern Europe, corresponding to the revenue growth. Other factors include the more frequent use of the type power plant and higher procurement costs for our heating business. The cost of materials and services rose by 38.9% to 707.1 million in line with revenue growth in the international project business. The share of results from an equity-accounted industry was down by 58.7% at 98.9 million euros. Most of this decline was due to the pressure on our supply company, EVNKG. In addition, in the previous year, this item included re-evaluations to the efficacy of consolidated hydropower gas assets in Germany and Albania. Based on this development, EVDA was down by 9.8% at 754.8 million euros. As already mentioned, we had to record impairment losses in the second quarter on the goodwill in the international project business and to combine heat and power plants in Moscow. At financial year end, impairment testing resulted in recognition of additional impairment losses, among others in the amount of 32.9 million euros to our natural gas network in Lower Austria in view of lower regulatory VAC in the next regulatory period. In addition, there were impairment losses and re-evaluations on the Bulgarian cogeneration plant and on heating plants in Austria, such that the total effect from impairment tests was 105.2 million euros. The previous year was expected by impairment losses totalling 113.3 million euros to the Walsum Power Plant as already mentioned. In total, the group's EVD declined by 14.2% to 331.6 million euros. Financial results declined to minus 13.5 million euros. An increase in the dividend from Pabun for the 2021 financial year and the heat line and interest expenses following the scheduled reduction of a bond in April 2022 were contrasted by weaker performance of the R138 funds, negative foreign exchange developments and a value adjustment to a loan to an equity-accounted company. In total, it generated a group net result of 209.6 million euros, which represents the expected decline in conversion to the previous year. I would like to move to the next slide, which provides some information regarding the group's balance sheet structure. EVM's net debt remains constant and fluctuates at approximately 1 billion euros. As of the 30th of September, we stand at 1.2 billion euros. The green ratio increased from 12.4% to 17%. Our financial flexibility is solid. In addition to low net debt, we have committed undrawn credit services using the amount of more than 600 billion U.S. as of the next year end. Let's move on now to the next slide which covers the generation segment in more detail. Electricity generation volumes in this segment were down by 19.7% year-on-year. The reason was the absence of the Vulcan 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 67% compared to last year's 57%. Renewal generation declined due to lower water flows. Revenue was up from year on year. Higher electricity prices compensated the decline in volume of electricity generation. The increase in operating expenses reflects the absence of the previous year's positive one-off effect from the takeover of an additional electricity procurement rate. As already mentioned, the share of results from equity-accounted investees was lower. The reason for the decline was that in the previous year, this item included variable to add equity conservative hydropower assets in Germany and Albania. EBITDA increased by 11.6% to 292.9 million euros. Also due to the re-evaluation of the Carvana wind park in Bulgaria, segment EBIT increased to 260.3 million euros. Today, I can also give a positive outlook on the further expansion of our renewable generation capacities in Lower Ulster, which will grow by roughly 90 megawatts over the coming month. At the moment, its whole wind capacity stands at 207 megawatts. We are now working on the construction of three new wind parks with a total capacity of 67 megawatts. Therefore, one project with 13 MW is repowering. Our aim is to expand our installed wind capacity to 750 MW until 2030. In lower offshore, construction started on the first two large-scale photovoltaic plants. One project is special, as it will be a floating photovoltaic plant. This means that the MPV equipment will be floating on the water surface of a pump. The installed capacity will be 24.5 MB, and our share on this project will be 50%. The segment also contains uncertainties due to debates in the European and national levels over the reform of energy markets and the introduction of a revenue cap for electricity production. Given a price gap on the market revenues from renewable generation as well as average energy sector conditions, we expect a stable development of earnings in the generation segment. Revenue was up due to volume and price effects from the marketing of our own electricity production. In addition, price adjustments supported revenue growth of our heating business. Therefore, segment revenues rose substantially and stood at 764.1 million euros. Operating expenses reflected costs for primary energy carriers for the increased use of the pet power plant as well as higher for human costs for the heating business. The sales volume declined in all people to food, electricity, natural gas and food. Reasons for this development included milder temperatures and saving effects by customers. The earnings contribution from ad equity consolidated company EVNKG declined due to higher procurement costs. Based on this development, the energy segment reported EBITDA of minus 26.7 million euros and EBIT of minus 54.7 million euros. Now for the segment outlook for this financial year. We expect that earnings shall return to a normalized level. as we are gradually passing on higher procurement costs for electricity, natural gas, and heat customers. EVNKG's general delivery terms were amended as of September 22 and now include the streaming annual adjustment of supply contracts with fixed consumer prices based on the auction pricing that is for electricity and gas. The next slide will present the development in our networks segment. Network sales volumes in both electricity and natural gas volumes declined due to the milder temperatures. In the beginning of 2021 and 2022, the North America increased sales of both electricity and natural gas. Based on these volumes and by its development, segment revenues were up by 4.9%. Operating expenses rose by 8.7%, following an increase in upstream network costs, which led to a slight decline in EBITDA. Impairment testing resulted in the recognition of an impairment loss in the amount of 32.9 million euros to our natural gas network in our offer in view of a lower regulated VAC in the next regulatory period. APT, therefore, declines year on year by 38% to 58.8 million euros. In the current financial year, we believe that customers' efforts to reduce energy consumption will continue, thereby lowering network volumes. Therefore, we believe that the results of the network segment will be lower in 2022-2023. On the next slide, I will continue with the Southeast Europe segment. Customer movement from the leverless market back to the regulated and subsidized market supported growth in energy volumes in our Southeast Europe segment. In combination with higher prices, this development resulted in sharp rise in revenues. As already mentioned in the beginning of this call, our Southeast Europe segment suffers from rising costs of natural losses due to the higher market prices. In both countries, extraordinary government respectively regulatory measures provide quite least partial compensation for the significant rise in energy procurement costs. In Bulgaria, our distribution network operator and our heating company receives compensation and payments in the total amount 2.7 million euros to cover higher costs during the financial year. The irregular third decision of the 1st of July resulted in an average pricing risk of 3.6% for household customers in the UN supply area. In North Macedonia, the regulatory announced extraordinary increases in electricity prices for household customers of UN homes and in the network tariffs of 1st of January 2022, 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 of July 2022. And the electricity purchase crisis was a wide customer quantity as well for covering network losses where some network chairs were also increased the second time of the 1st of July 2022. There are many additional costs that will be reflected in future chair positions. Segment A was slightly up by 2.3%. Due to the recognition of an impairment loss of 16.7 million euros, segment A bids amounted to 48 million euros. As you know, we always aim for a segment A bid in the range of 40 to 60 million euros. In the recent financial year, we could only meet such range because of the compensation for additional costs. Unfortunately, we don't have visibility yet on future compensation measures in Bulgaria and North Macedonia, Any delay in compensation will have immediate negative effects on the results in the Southeast Europe segment. I would like to conclude my presentation for the segment with the environment segment. The geopolitical developments being the war in Ukraine, inflation, pessimistic economic outlooks, and global supply chain issues have changed the running expectation for the international fortune business of WTO. Therefore, right in the second quarter, we had to record impairment losses to Goodwill in the international project business in the amount of 52.9 million euros and to the residual carrying amount of 50.5 million euros of the two sludge-fired climate cogeneration plants in Moscow. The financial performance of this segment is in line with the development in the international project business, in line with the progress on the Kuwait project, and there was a corresponding rise in both revenue and operating expenses in the segment. EBITDA amounted to 56.5 million euros. EBC claimed due to the aforementioned impairment losses, among others, amounted to minus 35.9 million euros. The future development of earnings in the environment segment is always subject to the progress on international projects. About all the large field projects in Kuwait, However, given that segment results in 2021-22 are influenced by negative run-offs, an improvement in earnings is expected in the current financial year. With this, I conclude the presentation of this segment. On the next slide, I will continue with the development of the group cash flows. The gross cash flow was lower at 434.3 million euros. Please remember, it was unusually high in the previous year due to the receipt of a compensation payment for the takeover of an electricity group of human rights. The decline was diminished slightly by higher dividends from equity accounted embassies. The decline in cash flow from operating activities was even higher in comparison a sharp rise in energy prices and lower investment by ING and KG, and the group's cash flow were responsible for working capital effects. Cash flow from investing activities was influenced chiefly by year-on-year increase in investments in property, plants, and equipment, and a change in investment in cash funds. In the previous years, it also included a compensation payment for the equity from the Balsam 10 power plant. The cash flow from financing activities included new bank loans and debt instruments totaling 562 million euros. The repayment of a bond with a nominal value of 300 million euros and the dividend payments to our shareholders and non-controlling interests represented a contrary spectrum. An exchange in cash and cash equivalents amounted to 36.9 million euros. I would like to conclude my presentation with the outlook for the group. We are still going through a period with substantial distortion to non-person parameters, which had a significant impact on our performance. However, under the assumption of a stable regulatory environment and predictable energy sector tax framework, we expect group net results to be in line with the previous year and within a range of roughly 190 to 250 million euros. The earnings contribution from Verbund for the 2022 financial year is not included in this estimate. I confirm that our future dividend from opening activities shall at least equal the dividend proposal of 21-22, which is 52 cents per share. I also confirm that we are committed to let our shareholders appropriately participate in any additional earnings growth. At least I have reached the end of my presentation. I'm now looking forward to answering your questions.

Ladies and gentlemen, If you would like to ask a question, please press 9 and star on your telephone keypad. In case you wish to cancel your question, press 9 star again. Please press 9 star now to save your question. And the first question comes from Theresa from Right Bank International.

Yeah, good morning. Thanks for taking my question. It's about the upcoming regulation of the revenue cap. Can you tell us a bit about the timeline you're expecting for the decision-making?

Well, it has been approved, but often Parliament has now to go into the second chamber, and then it has to be signed by the President and published. Everyone is expecting that this will take place even before the end of the year, because it should be going to effect the 1st of December this year, as this was also a given date by the Union kind of directives. What we know so far is that the Austrian Parliament used the revenue cap, but also was giving an incentive to investors who are investing in renewable energy. So the cap of 180, which is the limit given by the European Union, they went below this 140, but they have this incentive going up another 36 euro barriers. megawatt hour for investment and this will be further specified by a directive by two ministries of the Austrian government and therefore it will be quite decisive how the definitions of this incentives are really defined therefore we tried to have a rough estimate there will be an obligation for the totally the end group which will be in range of something of 190 to 240 euros, but this is a rough estimate and we try to reflect this already in our operating expectation for the ongoing year, so for the next year. Therefore, the range, which I was giving before, between $119,000 to $150,000, is more or less including already an estimation of how this taxation issue will affect the group.

Okay, so just two follow-up questions on that. The directives are probably not expected for the same time as the law is signed by the president.

I think it will be not ready, but all the utilities who have the business year, the calendar year, will need it also to make their financial results with the end of December. So I would expect that there will be a fast-forward approach on that. But some of the

definitions are not in the law and therefore it needs this further directive by the ministry how they should be implied for producing companies and the renewables investments you mentioned of plus minus 200 million euros they would reduce the revenue cap how should we understand this yes

It would bring the revenue graph up from the 100.4 euros to 176. So this is the range where the definition will be effective and therefore I have to be very careful. But this is our first estimation. It's pretty close to all decisions we have to make and going public. And therefore I have to understand that it's not...

I perfectly understand that but I think this is actually in line with market expectations anyway second question about your renewable investments continuing what would be needed to step up the process to exceed the 90 million, to significantly grow domestically in Austria, in your view?

Well, first of all, the best what you can get and what is helping the most is a local acceptance of a project. In a lot of cases, it is one thing to find a landowner. The second thing is that you get the approval by the city communities. In all the projects which we are pursuing, we do this quite early, and therefore after one year when there were delays in all the kinds of project permits, now we're really trying to bring this 19 megawatts during the next year, financial year, calendar year, to the grid, which would be then, especially in this environment of high prices, a very interesting situation. We think that a further understanding also by the government regarding resources, regarding our evaluations, because in a lot of the cases the permits are just delayed because the process of decision making is under threat due to a lack of specialized evaluations. This could really help us. This is a general topic for project from Austria but in this sense there is another sense of urgency now in this crisis which we are seeing now so I think we will profit from this new backing and we see first signs in that.

Okay and my last question is regarding the outlook and the verbund contribution which as I read is not contributing included in the outlook at all. So with Verbund deciding on the dividend probably in March we could reckon with an updated guidance after the dividend decision which given the current guidance and excluding Any special dividend would mean almost double the contribution that EVN received last year from Verbund. Am I right?

Well, this is your evaluation due to the reasoning of our lawyers. We made the decision not to comment on the dividend policy of another company, especially in these high times of volatility. So we have taxation issues, we have the operative management, and let's see what the results of 22 proposals will be and what kind of dividend will be proposed to the AGM. And you are right, then we'll have a clear picture on all the different developments which are then influencing the EVN groups' total results for the ongoing year. Okay. Thank you.

At the moment, there seem to be no further questions. Ladies and gentlemen, if you would like to ask a question, please press 9 and star now. And the next question comes from Richard Alderman from BTID. Please go ahead with your question.

Good morning. Can you just talk about how you see the evolution of net debt in the coming financial year? Obviously, it's gone up quite a lot in the last 12 months. What are the drivers in terms of where you think that outturns in 12 months' time? Richard, this is a very good question because this is really... an enormous increase. The reasons for that are mainly resulting from the energy market's turbulences, so the working capital between higher procurement costs, expenses, and then the delays passed through to the customers lead to a higher working capital from the customer side and also on the energy side. So we see on different days 200, 300 millions coming and going quite easily. This is an add-on to the normal direct income capital management and direct income administration. The second thing is that we have, with 100.25 million euros, a higher investment program realized in this year, which is also deflecting in this, and then is also the Kuwait project is in the strongest phase of realization, and therefore more working capital is needed there in this phase of the process. Altogether, we are leading to this change in the working capital situation. On a midterm expectation, our cash flow on operating activities is more or less 500 million, and this is then also what we are aiming for regarding investment, dividends, and question mark is how the next year will develop. It's too early to have an estimation there, but we do see nice development, and especially if the winter is over, let's see if there is not an improvement on working cattle.

Thank you.

Mr. Schiffruditz, there are no further questions left.

Thank you for joining today's conference call. We will publish the results for the first quarter of our 22-23 financial year on Tuesday, the 23rd of February. Please join us again. And we all here wish you a Merry Christmas, good health in the coming year, and goodbye.