EVN AG

Good morning, ladies and gentlemen, and welcome to the conference call on EVN's results of the first quarter of the 2022-2023 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 Szydkowicz.

Good morning and welcome to the conference call on NJN's results for the first quarter of his current financial year. In the first quarter of his financial year, he achieved a solid financial performance, despite some unfavorable frame of conditions. The fear still was remarked by distortions in the energy markets with historically high prices and volatility. In addition, the very mild weather in all of our three markets affected the energy demand. This development mainly influenced our, at equity, consolidated company, E&M & Petri. The earnings contribution declined in the reporting field, which is expected to remain negative in the current financial year. In line with our strategy 2030, our ambitious investment program for the expansion of renewables is proceeding according to plan. Over the coming years, annual investments will reach levels of 500 million euros, thereof Three forks will be dedicated to lower outflow, mainly networks, renewable energy, and drinking water. Currently, three wind parks and four large-scale photovoltaic projects with a total capacity of 120 megawatts are under construction. It is our ambition to increase EDN's applicability for AFC investors. We agreed on CO2 emissions reduction targets until 2034. We intend internationally to own science-based targets initiative. One measure is that we will further grow our renewable generation portfolio. Our goal is to grow our wind capacity by another 350 MW to 750 MW by 2030. Additionally, we will build up a photovoltaic portfolio of about 300 MW within this decade. We also made efforts in the area of EU mobility. We have proudly announced that we have reached an agreement with the Austrian retail chain SPA on the installation of e-charging stations in supermarket parking lots. In the end, we will be also in charge for the supply of renewable energy for these charging points. Our ambitions and initiatives are beginning to be a force. We achieved ASG rating improvements in the CTG score as well as the ASG rating from ISS research. EVN is rated among best-in-class companies in both ratings. Let me now continue with the key financials of this reporting period. In the first quarter, the group's revenue was upped by 13.3% year-on-year to 1.2 billion euros. The main reasons for this development were price effects in renewable generation, variation effects of hedges, and price adjustments at EVN-Wermers. In Southeast Europe, revenue increased due to the higher net return and the increase of electricity prices in the regulated household customer segment in North Macedonia. Progress on the major project in Kuwait also positively influenced revenue. The cost of electricity purchases from third parties and primary energy expenses remained nearly unchanged year on year. The weather-related decline in volumes was offset by higher energy procurement costs. Please be also aware that in our previous years, expenses were reduced by compensation payments of the Bulgarian government for the network losses. The share of results for much equity-accounted investees declined significantly to minus 43.2 million euros. The earnings contribution from Iran-Qadir sharply dropped due to the rise in procurement costs and valuation effects of hedges. Please keep in mind that higher costs can only be passed on to customers with a burden delay. Operating expenses increased due to general price movements due to inflation and the winter profit tax for renewable production became effective as of 12 December last year. Group EVDA amounted to 281.7 million euros. Scheduled depreciation and automatization increased due to The first quarter last year was affected by a re-evaluation of 6.4 million euros to the Carvana Wind Park in Bulgaria. In total, Group's EBIT rose to 201.1 million euros. Financial results improved to minus 10.2 million euros, while foreign exchange effects had negatively influenced the previous year. In total, it generated a group net result of 149.4 million euros. Now I would like to move to the next slide, which provides some information regarding the group's balance sheet structure. Balance sheet sum decreased due to a substantial decline in declaring amounts of equity accounted in receipts, which resulted primarily from the negative valuation of hedges held by EVN KG and Anna Hyerjans at the end of the reporting period. As of the end of December, EVN net debt increased to 1.6 billion euros, mainly related to the working capital primarily from the liquidity settlement for EDEN KG. Clearing ratio amounted to 24.7% correspondingly. Nevertheless, our financial flexibility remains solid. EDEN has committed and drawn credit facilities in the amount of 636 million euros at the end of December last year. Let's move now to our segments in more detail. First of all, the generation segment. Electricity generation volumes were down by 23.9%. The main trigger for such a decline was the decrease in the use of the Thai power plant by the ASEAN network transmission operators for network stabilization. Moreover, significantly lower wind flows couldn't be observed by higher water flows. The share of renewable generation increased year-on-year by 11.2% to 65.6%. Revenue reached under 12.5 million euros. High electricity prices were able to offset the decline in electricity generation. EBITDA increased to 66.4 million euros despite higher operating expenses due to the windfall profit tax on renewable production. Growth and law became effective on the 1st of December last year and will apply for a limited period until the end of the year 2023. In Austria, the price cap for the tax is 140 euros per meter of power. However, the cap can increase up to 176 euros per megawatt hour, subject to investment into renewable generation assets and energy efficiency measures. Segment 8 is also interested on years of 65.7 million euros. Please bear in mind that higher depreciation and amortization in the first quarter due to last year's real valuation of the Carvana Dienstag in Bulgaria. Let's continue with the energy segment. Our first quarter was characterized by extremely mild temperature, both year-on-year and compared with the long-term average. Hence, energy sales volumes to end customers decreased compared to the previous year. Additionally, we have seen energy savings by customers. The development of revenue in the energy segment depends primarily on the marketing of electricity generated in event power plants. Besides, it includes revenue from our domestic heating business. Avenue raised to 356.6 million euros. The strong increases started priming from the positive price effect and the marketing of our own electricity production. Valuation effects of hedges also drove the revenue growth. In addition, price adjustment supported the revenue contribution of our heating business. The increase in operating expenses reflected higher procurement costs for the heating business and for natural gas. The earning contribution from an equity-convalidated company, EVNKG, declined year on year due to the rise in procurement costs and negative devaluation effects of hedges. Please keep in mind that higher costs can only be passed on to customers with a certain time lag. This means that the earnings at EVNKG are expected to remain negative in the current financial year. Based on these developments, segment EBITDA increased to 67.7 million euros and EBIT increased to 62.4 million euros, which is mainly the result of devaluation of hedges. On the next slide, I will present the development of our network segment. The maltemperature developing consumer's energy saving efforts negatively affected our network segment. Because of this development and the lower use of our tight power and for network stabilization, network distribution volumes decreased year-on-year. Segment revenue went down correspondingly to 151.5 million euros. The volume decline couldn't be offset by the preferred increases for electricity and natural gas. A positive revenue contribution was recognized by HeroCV, Internet, and telecommunications. In total, EBITDA amounted 68.6 million euros and EBIT decreased to 31.8 million euros. As of the beginning of this year, the new regulatory peers for the natural gas distribution network became effective. Due to the development of interest rates, the RAC was reduced. Similar to the regulatory system for the electricity distribution network, new investments for the RAC are incentivized. In the appendix of this presentation, you will find an overview of the current regulation system for both the electricity and the natural gas distribution networks. E-Control increased system charges for household customers, which became effective with the beginning of the new calendar year. Based on those decisions, the network charge of natural gas increased by 17.2% and for electricity by 40%. The latest name is written by cost of the network losses and will be partly compensated by the state later on this year. Now let's turn to the Southeast Europe segment. Temperatures in Southeast Europe were above the previous year and the long-term average which led to a declining network and energy sales volume. In contrast, electricity generation volumes could be raised in the first quarter especially due to the higher water flow in northern Macedonia. Additionally, a new photovoltaic plant was commissioned in North Macedonia in October 2022. Revenue of this segment increased to €480.9 million due to higher network fees and an increase in electricity prices for the regulative household customer segment in North Macedonia. Operating expenses decreased in the reporting period due to the weather-related decline of costs for electricity purchases from third parties and primary energy. In North Macedonia, costs for network access coverage decreased year-on-year due to the government's subsidized purchases. Segment EBIT amounted to 46.8 million euros and segment EBIT rose up to 26.8 million euros. I go on with the next slide presenting the last segment, the environment segment. In our international project business, we can rely on a solid order book of nearly 700 million euros at the end of December. are currently under construction. In this reporting period, we made great progress on the Kuwait project. This was a main driver for an improvement in revenue, which rose to 158.1 million euros. On the other hand, there was a corresponding increase in operating expenses. The progress made at the Kuwait project also positively affected earnings contributions from equity-accounted industries. In total, this development led to an increased EBITDA of 20.5%. The next slide shows the development of our group cash flows. Brought cash flow was higher year on year at 309.4 million euros. The main drivers for this development were higher earnings recorded in the reporting period and the consideration of earnings and dividends from activities accounted in the ZIN, mainly from EVN KG. Cash flow from operating activities decreased to minus 255.9 million euros. Triggers for this development were the liquidity settlement for EVN KG and the related capital commitments for working capital. A negative effect was also the year-on-year increase in income tax payments. The positive cash flow from investing activities 74.3 million euros resulted mainly from the sale of the short-term cash flows, which are recognized in this cash flow position. Investments in property, plant and equipment remained at a high level. Cash flow from financing activities amounted to 87.3 million euros. It reflects the conclusion of two long-term bank loans totaling 100 million euros as well as settled repayments. The net change in cash and cash agreements amounted to minus 94.3 million euros. I would like to conclude my presentation with the output for the group. The conditions in the energy business remain rough and are characterized by distortion from the wholesale market. This may have a significant impact on our performance. For instance, higher energy prices bring on one hand an upside in potential generation. On the other hand, for our energy supply business especially for our at equity consolidated company EVNKG higher energy prices are a heavy burden which we need to overcome so price increases which can mainly only be passed on in an observed time lag according to price indices as already mentioned before earnings from our supply company in Ulster EVNKG are expected to remain negative in the current financial year therefore Having only finished the first work of our financial year, I confirm today the guidance we gave in December. Under the assumption of a stable regulatory environment and breaks the fixable energy to sector and tax frameworks, we expect good net results to be in line with the previous year and within a range of roughly 190 to 250 million euros. Please keep in mind, as already mentioned at our previous presentation, for the 2022 financial year is not included in this estimate. Our ambitious investment program for the expansion of removal is proceeding according to plan. Over the coming years, annual investment will reach levels of around 500 million euros. Regarding our dividend policy, I confirm that future dividends from operating activities shall at least equal the dividend for the previous financial year, which is 52 cents per share. Thank you.

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 star again. I will repeat one more time. Please press 9 followed by a star key in order to place your question. And we have received already the first question. The first questioner is Mr. Patrick Steiner of Chapter of the Rule. Please go ahead.

Good morning and congratulations on the strong results. Firstly, could you give us a better understanding of the price effects in the marketing of your own electricity production and how you expect this to develop over the next couple of quarters? And secondly, how big is the impact from the valuation effects from hedging? Thank you very much. Okay, second question is around 50 million. Yeah. And the first question, of course, this is the best question you can take because no one knows how prices will develop. It pretty much depends on the geopolitical situation regarding Ukraine and, of course, the question mark how the European economy is developing and if Asia is even taking more energy and LNG than it did in the last year. This effect will pretty much define also the spot prices over the next period. We are expecting over the next 24 months that the prices are under the condition that we're not having an additional external factor. They'll come down slowly, but we'll never go back to the level we had before the pandemic crisis changed the landscape. And you can see this also in the pricing of the CO2 emissions. So the CO2 emissions are now on a level between 80 and 90 euros per ton, and this goes into the pricing of gas-fired plants, and this goes into the merit order system, and therefore we have a strong indication that the price of wholesale markets over the next 24 months will be on a certain level.

Yes, perfect. Thank you very much.

Hi, good morning.

I have a follow-up question on the hedge valuation effect. As far as I understand, there are two different effects, and I'm wondering if the 50 million euro figure is the net figure of these two, because you're Power generation is...

I can confirm this. I can confirm this. It's the next figure.

Okay. Can you also give us a flavor of the two individual effects at EVN KT and in the marketing of your own production, as well as for the heating business positive effects on the energy segment?

Yes. Well, you know, this is in a competition field of our business, but to give you an understanding, it's dominated by the KG kind of hedges, and this is a high double-digit number.

Okay, thank you very much. Then I want to follow up on the revenue cap effects that were only recorded in December. according to Austrian law. Can you give us a statement how much it is and how it is actually recorded? So on the top line or somewhere else?

Okay, it's around 7 million for December and it's recorded in the other operating incomes.

Great. Awesome. Thank you.

And last question is... Other operating expenses. Yeah.

And my last question is on the... I know it's a tricky field, but it's the regulation and the upcoming... new changes in the gas distribution regulation as well as the upcoming changes in the electricity regulation. The Australian regulator now has this potential to change the return for new investments pretty quickly and not rely on the five-year backdated average. This would at the moment look point-powered, more than 50 basis points increase in your investments. What's your overall expectations? Because we're now having many factors coming together. We have lower volumes. We have probably also a change in the productivity factor, and we have lower returns for the existing asset base, but potentially higher returns for new investments. Would you expect this to be a net neutral path forward from a current perspective or what's your take on that?

Well, I think that the offshore regulatory system is quite mature. And it has, over all these 20 years, been quite reliable. And on this basis, short-time effects have always been more or less average on certain periods. Of course, in the situation which we are now, with this strong increase on interest rates, the system also has to be more flexible. They did this kind of change when they were developing the strategy for the new gas period by acknowledging that interest rates during the period are much more changing. I would expect that the same thinking, the principle behind it, will also be applied for the electricity new regulatory period. Look how the interest rates have changed over the last calendar year 2022. It's pretty hard to judge now what will be then on the 1st of January 2024. So I confirm that the principles from the gas adoption will influence also the electricity. I cannot confirm these basis points on the structure yet. It would not be a reliable expectation. What I really think is that there is no energy transition without strong grids. Therefore, there has to be an incentive on new investments, because in part of our territory, we need an additional grid, which is not just reflected by the end customers, but more by the producers. And therefore, the speed to realize this will also be included in the regulatory framework because this is a state affair.

Thank you. Thank you very much. At the moment, there are no further questions. I will repeat once again. Ladies and gentlemen, if you still have a question to stage, please press 9 followed by a start key.

There seem to be no further questions in the queue. So thank you for joining today's conference call.

We will publish the results for the first half of this financial year on Thursday, the 25th of May. Please join us then again and have a nice day and stay healthy. Goodbye.