EVN AG

Good morning, ladies and gentlemen, and welcome to the conference call on EVN's results for the first half of the 2022-23 financial year. At this time, all participants have been placed on a listen-only mode. The floor will be open for your questions following the presentation. Let me now turn the floor over to your host, Mr. Stefan Piszkowicz.

Welcome, everybody, to EVN's conference call on our first half year results. You have certainly taken note of our announcement of the special dividend last week. As we have communicated to you in the past, we are committed to ensuring you that our shareholders participate appropriately in any additional earnings growth. As a result of this profound dividend, that has now been approved and while preparing our half-year report, we now have more forecast clarity. Hence, we announced on Monday last week to propose to the 95th Annual General Meeting a special dividend in the amount of 62 cents per share in addition to the ordinary dividend for the financial year 2022-2023. The ordinary dividend will amount to at least 52 cents per share. Additionally, we specified our guidance for this financial year. Based on the currently available information for the first half year and expected business development, we expect GroupNet results to be at the upper end of the previously communicated range of around 250 million euros. Now let's come to EVNFAST's first half-year results. In the reporting period, EVN achieved a sound financial performance, despite some still unfavorable framework conditions. This period was marked by very mild weather conditions. in all our three markets that affected the energy demand. A still volatile business environment affected our segment results to different degrees. Overall, we can report a positive development in our group net results in the first half of this year, thanks in particular to the generation, the Southeast Europe and the environment segment. Unfortunately, results from our equity-accounted energy distribution company, EVNKG, still remain under massive pressure. Our ambitious investment program for the expansion of renewables is progressing faster than considered in the budget. Over the coming years, annual investment will be increased to over 600 million euros, with three-fourths going to lower Austria, mainly in the field of network infrastructure, renewable generation, and drinking water supplies. In the second quarter, we commissioned the wind park Japons as part of a repowering in a photovoltaic plant in Gasgassenwörth. Currently, three broader wind parks and three large-scale photovoltaic projects with a total capacity of roughly 110 MW are under construction. In line with our CO2 emission reduction targets set under the science-based targets initiative, our goal is to further grow our renewable generation portfolio. Wind capacities will be expanded by another 350 MW to 750 MW by 2030. Additionally, we will build up a photovoltaic portfolio of about 300 MW within this decade. Let me now continue with the key financials of this reporting period. In the first half year, the group's revenue was upped by 3.1% year-on-year to 2.2 billion euros. The main triggers for this development were price effects in renewable generation, valuation effects of hedges and higher prices at EDN Werme. In Southeast Europe, revenue decreased due to lower network and energy sales volumes and declined electricity prices. The decline could partly be offset by higher network tiles and the unscheduled increase of electricity prices for the regulated household customers segment in North Macedonia. Focus on the nature project in Cuba had also positively influenced tool revenue. The cost of electricity purchases from third parties and primary energy expenses dropped year on year by 22.1% to 1 billion euros. This development reflects the decline in volumes in Southeast Europe. In contrast, higher costs for network losses and upstream network costs for net CEDAW as well as higher energy procurement costs for EV and Wärme were recorded. Please be aware that in the previous year expenses were reduced by compensation payments of the Bulgarian government for the network losses. Operating expenses increased mainly due to the levy on the surplus proceeds earned from electricity generation which has been stable in Austria since December last year. The share results from ad-equity-accounted-investees declined significantly to minus 143.3 million euros. The earnings contribution from FIM-KG 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 delay. Additionally, the provisions for impending losses from contractual delivery obligations were increased. Negative effects also resulted from devaluation in the previous year at significantly higher wholesale prices to protect supply security and reduce the threatening stock and gas delivery. In total, group EBITDA amounted to 466.4 million euros. Scheduled depreciation and amortization increased slightly according to our investments. Please beware that prior year figures reflect 15.9 million euros from impairment testing. Groups EBIT rose to 303.8 million euros and financial results improved to minus 27.5 million euros, despite increased interest expenses and foreign exchange valuation effects. In total, group net results amounted to 270.4 million euros. Now let's move on to the next slide, which provides some information regarding the group selling sheet structure. Balance sheet sum decreased due to the substantial decline in the current amount of equity accounted indices which resulted primarily from the operating loss of EVN KG and negative valuation of hedges held by EVN KG and EGY at the end of the reporting period. As of the end of March, EVN's net debt increased to 1.7 million euros. Besides the high investment program, this is mainly related to the working capital, primarily from the liquidity settlement for EWN KG. Correspondingly, clearing ratio amounted to 27.4%. Nevertheless, our financial flexibility remains solid. EWN AG has committed undrawn credit facilities in the amount of 666 million euros at the end of March. Both rating agencies confirmed their fuel in the end credit performance just recently. Moody's is a 1 rating with stable outlook and Scope again awards a rating of A plus stable outlook. Let me now present our segments in more detail. First the energy segment. The first half year of this financial year was characterized by mild temperatures, both evenly as well as compared to long-term average. Hence, energy sales volumes to end customers declined compared to the previous year. Energy savings by customers additionally decreased volumes. The development of revenue in the energy segment depends mainly on energy trading, the marketing of electricity generated by EM, but that includes the revenue from our domestic heating business. The revenue of this segment increased significantly to 660 million euros. This development was primarily due to the devaluation effects of hedges as of the balance sheet date, as well as price effects in the marketing of our own electricity production and in our heating business. The increase in operating expenses reflected higher procurement costs for the heating and business and for natural gas. Unfortunately, as already mentioned before, results from our equity account at energy distribution company EVN KG remains under massive pressure. The earnings distribution contribution declined and the half of the loss amounted to minus 223.1 million euros. Higher procurement costs can only be passed on to customers with delay in a changed competitive environment. Additionally, negative effects have to be recorded due to the following points. Firstly, lower valuation of hedges as of the balance sheet day. This has an amount of 83.2 million euros. Secondly, provisions for impending losses from contractual obligations were increased. This is an amount of around 43 million euros. And thirdly, the lower valuation of strategic natural gas inventories had a negative effect. To protect supply security of our customers in view of the threatening stop in gas deliveries, we were forced in the previous year to purchase natural gas at significantly higher wholesale prices, and this has a negative amount of around 51 euros. All in all, this means that earnings at ABNKG are expected to remain negative in the current financial year. Based on these developments, segment EBITDA amounted to minus 46.4 million euros and EBIT decreased to minus 57.1 million euros. Today I will also provide an update to our segment outlooks, which we published last December. You may also find an overview of all segments in the appendix of this presentation. For the energy segment, we have to adjust our guidance as the ongoing difficult market environment for distribution will still have a negative effect on the development of earnings in this segment throughout the entire financial year. Therefore, segment earnings are expected to be negative and will generally reflect the previous year. However, effects from the valuation of hedges as of the respective reporting dates could lead to deviations. On the next slide, I will present the developments of our generation segment. Electricity generation volumes were down by 25% compared to last year. The main trigger for this decline was a decrease in the use of the resistized power plant by the Austrian network transmission operator for network stabilization. Moreover, significantly lower wind flows couldn't be offset by higher electricity production from hydropower. The share of renewable generation increased year-on-year by up to 72%. With revenue increased to 253.6 million euros, higher electricity prices were able to offset the declining electricity production. Operating expenses increased by 71.5% due to the energy crisis contribution for electricity. The Austin law became effective at the 1st of December last year and will apply for a limited period until the end of the year 23. The price cap for the tax is 140 EUR per MWh and can be increased up to 176 EUR per MWh subject to investments into renewable generation assets and energy efficiency measures. However, as of the beginning of May last year, the threshold was reduced by a federal government resolution to 120 EUR per MWh respectively 156 EUR per MWh beginning in June 2023. The effect of this third half year amounted to 18.5 million euros and is expected to increase to about 50 million euros in the full financial year. This is, of course, based on resolutions currently in force. However, the directives by the ministry regarding the concrete calculation pieces are still pending. In the day of the generation segment, increase to 154.7 million euros. Segment EBIT also increased year-on-year to 132.7 million euros. But please be in mind, last year's re-evaluation of the Carolina Wind Park in Bulgaria that amounted 64 million euros as of the end of March. The decline in generation volumes and the current decline in electricity prices have required an adjustment of the outlook of the segment. Earnings for this financial year are expected to remain at high levels, but will be lower than previous years. The mild temperatures in the first half year of this business segment also influenced our network segment. Network distribution volumes decreased year-on-year for both the industrial as well as the household customers. Additionally, customers' energy-saving efforts negatively affected the volumes. The main trigger for the decline in volumes was related to the lower use of our tight power plant for network stabilization by the transmission grid operator APK. Segment revenues in the reporting period was up to 356.9 mmHg. Positive price effects for electricity could offset the volume-related decline in revenue from natural gas. A positive revenue contribution was also recognized by our subsidiary, Kabel Plus. Operating expenses increased year-on-year because of the prevailing high inflation. This led to significantly increased costs for network losses and uptree network costs. In total EBIT A slightly increased to 156.3 million euros and EBIT increased to 82.8 million euros. I confirm the guidance for the network segment. for natural gas distribution. Additional factors include customer savings in electricity and natural gas consumption and inflation-related increase in operating costs. Let's move on to the Southeast Europe segment. Temperatures in Southeast Europe in the reporting period were significantly below the previous year and the long-term average, which led to a decline in network and energy sales volumes. In contrast, electricity generation volumes could be raised in the first half year, especially due to higher water flows in North Macedonia, as well as the newly commissioned photovoltaic plant in North Macedonia in October last year. Segment revenues fell by 12.5% to €901.4 million. Higher net worth tariffs in Bulgaria and in unscattered couldn't offset lower sales volume and the decline in electricity prices. Operating expenses were reduced by 22.3% because of the following facts. Firstly, cost for the third part electricity purchases and energy carriers grew up, correspondingly to the development of revenue. Secondly, cost of network loss coverage in North Macedonia was reduced due to government subsidized purchases. Thirdly, in the previous year, Bulgaria benefited from government compensation payments In total, segment EVD amounted to 117.7 million euros, and segment EVD was up to 77.9 million euros. Thanks to the positive development of business and regulatory measures that we are taking to offset the additional costs of network losses, we have a positive outlook for the Southeast Europe sector. In our international project business, we currently work on 14 projects in the field of wastewater treatment, drinking water treatment, and thermal sludge. In April, we received the order for the construction of a wastewater treatment plant and a sewage sludge utilization plant in Skopje as part of a general contractor assignment. The contract value is around The total order book, as of the end of March, amounted to roughly 600 million euros. end of March, completion has reached roughly 85% of the wastewater treatment plant and nearly 60% of the wastewater infrastructure. This development point to the upcoming peak of the project. Revenue of this segment increased to 267.7 million euros, mainly as a result of good progress made at the Kuwait project. Correspondingly, operating expenses raised. The Kuwait project also positively affected earnings contribution from equity-accounted investees. In total, EBITDA amounted to 35.4 million euros and EBIT increased to 18.4 million euros. It should be noted that the previous year was affected by an impairment loss at the amount of 57.3 million euros. Financial assault and reporting fear declined due to increased interest expenses and negative foreign exchange effects. Hence, we saw before income banks also 4.7 million euros. Based on the developments during the first half year, we confirmed this segment's guidance. Earnings are expected to improve in this financial year. Please note that in the previous year, non-recurring effects from impairment losses were included. The next slide shows the development of our group cash flow in the reporting period. Cross-cash flow in the reporting period was higher compared to previous year at 634.3 million euros. The main drivers for this development were higher earnings recorded in the reporting period and the correction of the negative earnings at the equity-accounted AFA and KG. This development was weakened by lower dividend distributions from other equity-accounted investors. Cash flow from operating activities decreased to minus 94.4 million euros, triggered for this development by the higher liquidity settlement for AFA and KG and the related capital commitment for working capital. A negative effect was also the year-to-year increase in income tax payments. The cash flow from investing activities increased to minus 126.5 million euros compared to the previous year, The position includes high investments, which were contrasted by year-on-year reduction in investments in cash funds. Additionally, a capital contribution to EFN KG at the amount of 128.4 million euros was made. Cash for home financing activities amounted minus 70%. The net change in cash and cash equivalents amounted to minus 293.7 I would like to conclude my presentation with the output for this financial year. As already mentioned at the beginning of today's presentation, we announced the proposal for a special dividend together with the specification of our full year guidance on 15th of May. To wrap up again, based on the currently available information for the first half year results and expected business development, our group net results in this current financial year is expected to be at the upper end of the previously communicated range at around 250 million euros. In addition, this year's earnings contribution from Verbund amounts 158 million euros and will additionally contribute to the group's net results. It had always been our aim to ensure that our shareholders will participate appropriately in any additional earnings growth. Hence, we will propose to the next ordinary AGM in February 2024 a special dividend of 62 cents per share in addition to the ordinary dividend as is expected to amount to at least 52 cents per share. The dividend proposal already considers our ambitious investment Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press 9 and star on your telephone keypad.

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