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.

In case you wish to withdraw your question, please press 9 and star again.

Please press 9 and star to register for a question. And first up is Peter Crampton from Barclays.

Over to you.

Good morning. Peter Crampton here from Barclays. Two questions, if I may. The first one relates to the Austrian government. recently coming out with comments that they would want lower energy retail bills, and just your thoughts, you know, on this, what the government could, you know, really do. And then the second question relates to your guidance for this year, which looking at 10-and-a-half-year performance and the end of the bond dividend, looks very conservative and maybe talking a little bit how this guidance was set and what are kind of negative factors here for the remaining six months that made you set the guidance where it is. Thank you.

Thanks, Peter. First of all, coming out of this crisis from last year, you know that also the European Union has given additional directives and opportunities to national governments how to handle the situation. After a long debate, they concluded that they're not going to try to change the American order as a pricing mechanism in this common market, but they also said there can be subsidized as well to different customer groups, and there can be also a price regulation, a temporary one, and end consumer prices. So if we're discussing what proposals and possibilities the government could try to use, there's always the question mark how they want to target and how to focus. What they did is that they really had a quite big program by helping to subsidize business and their energy costs on the base of last year. And they also did something for private households that in the range between 10 and 40 cent is compensated 90% of an average household. It's therefore more or less subsidized in the kilowatt-hour price which the customer has to pay. If we take this to our customer base in Lower Austria, We see that around 80% of our household customers who use electricity for electricity purpose and not for heating, 80% of them are more or less therefore compensated with a kilowatt hour price of around 16 something euros on a cross level. Therefore, on this customer base, the state has already taken measures, and therefore it is more, I think, the vision, the expectation, how the inflation can be handled on a national level and what are the best mix of measures they can take. The debate is ongoing. I'm not quite sure where they are heading, but I just can report on the facts on the on the facts which are available so far. And regarding the second question, the guidance, you know that the winter half is the important half of our business. And due to this extraordinary situation, we made a decision in December to split between the operative business, which of course is depending on a lot of different factors, and verbund. So verbund is excluded out of the guidance of the 250. So if you put the two things together, you know the kind of dimension which we are having, which is out of every guidance we ever have given in the last 30 years of the stock listing of Invenco.

Okay, thank you very much for your answers. Very useful.

The next questioner is Richard Alderman from BTIG. Over to you.

Good morning. Just following up from that last question or last answer to Peter, the consensus I think before you upgraded your outlook including the Vubunt contribution was $337 million for group net result and it's moved post your guidance uplift to $351 million. Can you say whether you're comfortable with that move and can you think of reasons why the streets could be wrong in that assumption based on your second half performance? I know you tend to be conservative at this stage of the year, so I appreciate that for the situation, but what things could go wrong that might pull you back towards or below the top end of guidance that you move to on May the 16th? That's the first question. And then secondly, could you just give us some thoughts around the board discussion on the special dividend? It doesn't look like you've passed through 100% of the Vermont contribution. It's closer to 70%, despite the fact, obviously, you've had a very strong first half of the year and guided up a couple of weeks ago. So how do you think about that in terms of what the board might be wanting to do at the end of the year? Could it increase the special dividends slightly as one way of rewarding a strong full year in total? Could the ordinary dividend be meaningfully above the 52 cent base that you gave us on May 16th? Thank you.

First of all, let's do the math again. So, the consensus you mentioned were 351 together. If we do now the guidance and put the two factors together, the operative target of 250 and the proponent of 158 and we are above 400. This is what we see if we reflect on the different factors and we have seen also this special increase in taxation for generations. So, there's a lot of things going on. I think this 400, beyond the 400, is a guidance which we feel fine with. And regarding Forbund, it has been debated last year quite extensively when the crisis hit, also the end customers, that the state said it is not possible for Forbund to do a special dividend. And then, of course, it was debated if they are doing a special dividend, How is EVN then able to pass it through? And he said, you know, first of all, this is a different body, a different company. They have to do their decisions in the HVM first, and then we can decide what to do. It has always been debated with all different kinds of investors also, because it's an obvious question. And when we then saw that we have the possibility to further speed up investments in especially renewable energy generation, because the delay in permitting after the pandemic was over, then we said, okay, it might be a good trade-off. that we stick to our public references that we will pass through, two-thirds around, and that we one-third invest in the further growth of the generation capacity because this is also something which on the mid- and long-term will be decisive for EVM's group stability that we are able to increase our own generation. And we have these targets with 2030. With these steps, we hope that we will accelerate our delivery on generation capacity. And therefore, these 110, 120 megawatts under construction will also, in this pricing environment, immediately bring us also return. So I think it's quite a fair reasoning what to part two and what to invest in the further development of the group.

Can I ask one further question then? In terms of the way that your gearing and NetJet is developing, it's still obviously extremely low compared to peers. So are you saying that you don't think there will be excess cash flow being generated by the business through the full year and into next year because it's with the benefit of your heading, even on lower prices, you should keep quite low gearing compared to your peers.

Well, you know, the first half of our financial year is always, of course, heavily influenced by the winter and therefore also the pre-financing of The energy which we bought to deliver to our customers, of course, is draining more working capital for even KG than we ever had. Hopefully, this is a short mid-term perspective when markets are more balanced and this kind of delay between procurement and passing to the end customers. is not having this kind of dynamic as we have seen. The second thing is that due to the delivery of the Kuwait project, we are peaking in this project and therefore we are also expecting in the next few years then that the cash which is there partly bound as a working capital is coming back. So these are two individual factors which additionally influence the normal winter energy cash needs. So on this level I think we have seen extraordinary effects which then come back to a mid-term perspective. But nevertheless, this project of Europe to have the energy transition made in a very short period, we need a lot of investments and therefore Whatever we can do, we have to take the opportunities and the chances, but also ensure the stability of the group is, of course, maybe a different story than we had the last three, five, or ten years. And just to find the right balance is what we're discussing, of course, with the board also to make sure that the group is developing well.

Thank you. The next question comes from Theresa Schoenblatt from Rice Eisenbank International. Over to you.

Thank you. Hello. Thanks for taking the question. There are four of them today. So I'll make it quick. Could you please repeat the revenue cap impact? I might not have gotten the right numbers, what you're expecting from the old numbers. threshold and also the new one. Then the next one is on the valuation effects and this implied impact on the earnings of EVN KT. They applied for the first part, if I'm right, which would add up to an operating loss of 55 to 60 million in the second quarter of EVN KT. to get a feeling where this is heading. And I guess it's also less because it's summer and volumes are lower. But in what dimension can we think of when looking at the continued losses at EDN and KT for the remainder of the current business year? And also one question on this contractual obligations. Could you also please tell us a bit more about which contract we're talking about? And the last one is on this classic end customer price issue. So the customers have until the end of June to change the contract. What take-up are you expecting, and what's the impact you're reckoning with on revenue and earnings, if you already got a feeling? Thank you.

Thanks Theresa. First of all, we are now expecting, under the assumption that these objectives by the Ministry are issued as they have been discussed, on the assumption that the initiative legal proposal is now voted for in June, we expect around, for the total year, around 50 million euros. Please keep in mind, the whole project of taking this levy is something which is having envisioned higher energy prices last autumn as they are now. They have envisioned high volumes of production, which are lower, as we discussed before, than we thought and planned. And therefore, putting together this $50 million, I think, is quite a stable expectation on the basis of the currently available information. The second of the evaluation effects is And if I go back to this kind of reference I gave, the negative effect, the lower valuation of hedges in the balance sheet is around 83.2. The provision for expanding losses on contractual obligations ranges to 43, and the inventory of gas is around 51. Regarding the contractual obligations, You know, we are selling customer groups products and these products are of course calculated in the period when there are issues and over the different development of wholesale prices development. Some of them especially in the change of the term in the last 18 months came under pressure and therefore this is reflected here. And regarding the classic campaign, this is the last step of the transformation since the liberalization of the markets. Additionally, there has been a pricing commission in the economy ministry, and after the liberalization and of course the separation of the quid, so the energy prices, there was still a very high number of customers in this old, not bilateral contractual system, but more or less in one group, which has been in a Geschäftsbedingung. And due to this high volatility of energy markets, this became to a big problem because there every clause in this Algemeine Geschäftsbedingungen is something which can be taken to cause quite easily and this has happened with our prices increase in September 22. And to make sure that we are not just heading on the same problem, but just belonging the index in this customer group, we made the decision to stop this projects group and offer the customers a step over to a guarantee for gas and electricity for one year, priced with them in March, April bought energy on already lower levels. So the average pricing of this has been done and we are now with 180,000 of customers who have so far taken this opportunity. What we see is that of course a very traditional customer base, a lot of the data has to be updated. They have around 10% where there's no consumption, no relevant consumption on the electrometer. So I'm also expecting the biggest clearance of customer data since the realization. I would be fine if we achieve around 2 thirds and 80% there because then this big step of tariff reform is done. I'm not sure if for this 12 part year of 23 but it's done forever because then we have only customer base on bilateral contractual basis.

Awesome. Thank you. Very helpful.

At the moment there are no further questions so if you have any additional questions please press 9 and start now. Please press 9 and star if you would like to ask another question.

Thank you for joining.

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Thank you for joining today's conference call. We will publish the results for the first three quarters of this financial year on Thursday, the 24th of August. Have a nice day and enjoy the upcoming summer. Goodbye.