EVN AG

Good morning ladies and gentlemen and welcome to EVN's conference call for the results of the 2022-23 financial year. At this time all participants have been traced on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to Stefan Šeškovic. Please go ahead.

Welcome everybody to EVN's conference call on the results for the financial year of 2022-23. The financial year 2022-2023 was remarked by very mild weather conditions in all our three core markets. We also observed a change in customer behavior towards a reduction in energy consumption through energy saving measures or even by generating their own energy from photovoltaics. These developments once again underpin the transition of the energy system. Let's come now to the eventful year's result of 2022-2023. In the reporting period, we achieved a strong financial performance. This comes as no surprise that we already communicated a new outlook at the beginning of November. Group Net Result amounted to 529.7 million euros, mainly due to earnings improvement at the Southeast European segment. Besides, that the significantly higher per-point dividend for their last financial year contributed 158 million euros to the Group Net Result. And in the previous year, negative effects from impairment tests were included in results. Unfortunately, our supply business was under pressure and showed a negative result of 240.3 million euros. However, we expect a recovery for the 2023-2024 financial year. We are proud that roughly 88% of all our investments in this reporting period are officially classified as green under the new taxonomy. And we are also in line with the target production path of CO2 emissions set in accordance with the science-based targets initiative. Based on these strong results, we will propose the payment of a dividend of 52 cents per share plus a special dividend of 62 cents per share to the next annual general meeting in February 24. It is our declared aim to give our shareholders an appropriate share in profit growth. In this reporting year, we also have reached the new record levels of investment. Total investments in the reporting period increased by 23.1% to 694.1 million euros. Over the coming years, annual investment will remain with this very high level of 700 million euros to 900 million euros. Around 75% of the investment will go to the lower offshore and almost half is budgeted for the network infrastructure. In 2022-23, we have already made considerable progress in expanding our renewable energy capacities. As at the end of September, we have an installed wind power capacity of 247 MW, and we will commission two further projects and add a total output of roughly 30 MW to the grid by the end of the calendar year. We also made great efforts to expand our photovoltaic capacities. Here we had a roughly 42 MW peak at the end of this past September, and this volume will double by the end of 2023 with the commissioning of large scale plants in Villanova and North Macedonia. Let me now continue with the key financials of this year. Group's revenue in the reporting period decreased to 3.8 billion euros. This development is mainly due to lower revenues in Southeastern Europe due to decreased energy market prices and the international broadsheet business that the Kuwait broadsheet has already reached its peak. In contrast, revenue was positively affected by price and volume effects in renewable general electricity generation, valuation effects from hedges, higher revenue from natural gas trading, increased oil prices at EV and Wärme, and higher network tariffs. The cost of electricity purchases from third parties and primary energy expenses dropped compared to the prior year. This nearly reflects declining wholesale prices in Southeast Europe, which relates to the regulatory compensation for additional costs for covering network losses. Please be aware that such surplus in the compensation will be offset in the following years. This decline was contrasted by higher costs for network losses and upstream network costs in lower auspair, as well as higher electricity procurement costs from verbund Inkraftwerke and higher energy procurement costs for Epoch and Werne. The share of results from an equity-accounted-investees decreased to minus 67.6 million euros. As already said, the sales company IWNKG recognized a significant total loss in the reporting field of 240.3 million euros. In contrast, higher earnings contributions were received from RAC, Verbund Inkraftwerke and Burgenland Energien. And for the Ashtar Power Plant in Albania, we had to consider a re-evaluation of €11.1 million based on impairment testing. All in all, Group EWDR amounted to €869 million. The high level of investments led to an increase in scheduled depreciation and unmonetization. Please consider the significant reduction of impairment losses, which amounted to €114.8 million in 2021-22. In total, group's EBIT rose to 528.5 million euros and financial results increased to 127.6 million euros, mainly reflecting the dividend payment from FABUM at the amount of 158 million euros. All this development resulted in an increase in group net results to 529.7 million euros. Now, let's move on to the next slide, which provides information regarding group's financial structure. Their balance sheet sum decreased due to the substantial decline in the current amount of equity-accounted investees, which resulted primarily from the operating loss of EVNKG and negative valuation of hedges held by EVNKG and Energy Alliance. Furthermore, the price development of a bond share on year-to-year led to a decline in other investments. As of the end of September, EVN's net debt increased year-on-year only by 120 million euros at 2.1 billion euros despite our high investment level and due to our strong operating cash flow. Correspondingly, QE ratio increased to 21.1%. Nevertheless, our financial inflexibility remains solid. Even AG has committed undrawn credit facilities in the amount of 686 million euros as of the end of September. Moreover, our declared goal is to maintain solid A category ratings in the future. To achieve such ratings, we are strictly monitoring the adjusted target ratios of both of our rating agencies. This in line with the net debt FFO range which was communicated in October. Let me now present our segments in more detail. First, the energy segments. The past financial year was characterized by extremely mild temperatures in all of our core markets, not only compared to the cooperative period, but also compared to the long-term average. Hence, energy sales volumes to end customers dropped. Additionally, energy savings by customers and an increase in customers' own energy generation from portable diodes decreased volumes. On top, we had to face an increased competition within the electricity and natural gas customer segment. REVENUE IN THE ENERGY SEGMENT IS MAINLY INFLUENCED BY THE ENERGY TRADING, AUTO TRUECOM OPTIMIZATION OF THE EVM GAS GROCE FACILITIES AND THE MARKETING OF ELECTRICITY GENERATED BY EVM. BESIDES IT INCLUDES REVENUE FROM OUR DOMESTIC HEATING BUSINESS. IN THIS PERIOD Revenue increased to 1 billion euros. This positive development was primarily due to valuation effects of hedges as of the balance sheet date, higher revenue from natural gas trading, price effects in the marketing of our own renewable energy electricity production, and higher sales prices at our heating business. Operating expenses were higher year-on-year and reflected increased costs of energy purchases from third parties. Furthermore, rising procurement costs for biomass and the prevailing inflation negatively affected operating expenses. This development was contrasted by valuation effects from hedges. As already mentioned in the past financial year, earnings contribution from our equity-accounted energy distribution company, EFINKG, was under massive pressure. As a result, Sharpe declined an important payment amounting to minus 240.3 million euros. Based on lease development, segment EBITDA amounted to minus 63.6 million euros, and EBIT decreased to minus 90.1 million euros. The outlook of our energy segment for this financial year is mainly determined by the marketing of our own electricity production, by the heat sales from our subsidiary, and by the equity account and energy supply business of FNKG. We expect segment A based on 2023-24 to be at the lower end of the range of 45 million to 70 million euros as we could have seen as a gradual decline in sports and forest prices during recent months. Hence, the energy supply company E-Line KG is expected to again generate positive earnings. I will present the development of our generation segment. Electricity generation volumes declined year-on-year by 14.4%. The main trigger for the decline was a drop in the use of the attached power plant by the Austin Network Transmission Operator for network stabilization. Production from renewable sources were slightly above throughout the year's level because of higher volumes from hydropower. Positive volume effects were also related to the fabled infrastructure because of the recommissioning of the plant. At the same time, wind flows were unfortunately clearly below average. The share of renewable generation increased year on year to around 77%. Revenue increased to 481.9 million euros, mainly due to higher electricity prices, which could offset the decline in electricity production. Operating expenses also increased because of higher costs for electricity purchases that also relate to the volume increase of a boomed income bracket. It is important to note that this development also has a corresponding impact on revenue. Besides inflationary effects, the often low on energy crisis contribution that had already become effective for a year now also negatively impacted operating results and amounted to 25.1 billion euros in the reporting period. All in all, EBITDA of the generation segment increased to 300.4 million euros. The result was, in addition, positively affected by a higher earnings contribution from the Equity Accounted Verbund Inkraftwerke. Our investment in this segment reached a new historical high. Hence, depreciation and amortization increased in the reporting period. But please still be in mind the absence of last year's evaluation of the Carvana Windpark in Bulgaria that amounted to 9.6 million euros. Segment EBIT amounted to 255 million euros. Segment outlook for generation segment is based on wind and water flows, reflecting the long-term average. Therefore, we expect segment EBIT to be slightly below the prior year level in 2023-2024 due to the declining electricity prices.

Let's continue with the network segment.

Our network segment also impacted by the mild temperatures within this financial year. As a result, network distribution volumes fell compared to last year. Additionally, consumers' energy savings efforts also negatively affected volumes. The decline in gas distribution volumes was caused by the reduced use of our tight power plants for network stabilization. Segment revenue increased compared to last year to 637.9 million euros. This development is mainly driven by higher network terms and a positive revenue contribution by our subsidiary, Kabel Plus. This was partly offset by the substantial reduction in natural gas network sales volumes. Operating expenses of the network segment also raised year-on-year due to the still high inflation, an increased cost for network losses and upstream network costs due to higher energy market prices. In total, EBITDA slightly decreased to 235.4 million euros. The high investment level in this segment led to an increase in scheduled depreciation amortization. Investments in the segment will remain high. Electricity network capacity is expected to double from the current level of approximately 3,000 MW to 6,000 MW by 2030. Last year, an extraordinary effect in the form of an impairment loss of 32.9 million euros was recognized at NET's detail store. Segment EBIT amounted to 78.6 million euros. Regarding the segment outlook, for electricity networks, A new regulatory period begins on the 1st of January 2024, during which we expect it to lower the VAC. Combined with end-customer ongoing efforts to reduce energy consumption, which we are currently observing, the negative macroeconomic effect segment EBIT in this financial year is expected to be lower than in the previous year. Let's move on to the Southeast Europe segment. As already mentioned before, temperatures also in Southeast Europe were significantly below the previous year and also the long-term average. This led to a decline in network distribution and energy sales volumes. Additionally, we had to face an increased competition in liberalized markets. In contrast, electricity generation volumes increased due to a higher water flow, as well as newly commissioned photovoltaic plants in North Macedonia. Segment revenue declined to 1.5 billion euros because of lower network and energy sales volumes as well as lower wholesale prices. This development couldn't be offset by higher network tariffs in Bulgaria and higher regulated household electricity prices in North Macedonia. Operating expenses in this segment dropped in the reporting period mainly due to declining wholesale prices in Southeast Europe. This related to the regulatory compensation for additional costs for covering the network losses. However, please note that this role-playing compensation will be offset in the following years. In total, segment EBITDA amounted to 239.4 million euros. Please consider, the absence of last year's impairments lost a tax profit of 16.7 million euros. EBIT amounted to 159.5 million euros. For this financial year, segment outlook is expected to decrease compared to the 2022-2023 financial year. Segment EBIT will reflect a normalized range of 70 million to 90 million euros. The forecast decline will reflect the compensation of the positive pull-forward effect in the following year in line with the regulatory mechanism. This relates to the compensation of additional costs for covering network losses which contributed to the unusually high segment results in 22-23. And finally, the environment segment. In our international project business, we currently work on 12 projects in the field of wastewater treatment, drinking water treatment, and thermosludge treatment. We are also making great progress with our project in Kuwait. At the end of September, the wastewater treatment plant was almost complete, and two-thirds of the wastewater infrastructure had already been finished. In total, order book as on the end of September amounted to 873 million euros. In September, we announced In an ad hoc release, the intention to de-invest WTE, a structured bidder process was started to WTE, which is responsible for our international project business. Our revenue decreased compared to last year to 532.3 million euros. This development reflects the progress made in the Kuwait project, where the peak has already been reached. Correspondingly, operating expenses declined. The Kuwait project via the project holding company also had a positive effect on the earnings contribution of equity-accounted investors. In total, every day increased to 62.2 million euros, taking into account impairment losses in the international project business last year at the amount of 58.4 million euros, segment EBIT in 2022-2023 amounted to 29.5 million euros. Financial results increase year-on-year due to the negative foreign exchange effects in the comparative reporting period. Hence, results before income tax increase to 8.6 million euros. The development of earnings in the environment segment is significantly influenced by the progress of the international projects. Segment also for this financial year is expected to reflect the prior thesis level. The next slide shows the development of our group cash flow. Gross cash flow in the reporting period was higher compared to the period at 1.1 billion euros. This is due to the higher results before taxes. Cash flow from operating activities amounted to 942.4 million euros, triggered for this development by the liquidity segment of EVNKG and the related capital commitment for working capital. Negative effects were higher receivable from taxes and from hedges. The cash flow from investing activities significantly increased to 2223 to minus 929 million euros. This position reflects the higher investment level and the capital contributions to EY and KG. In part, this was contrasted by the increase in network subsidies that accompanies the higher volumes of network investments. Cash flow from financing activities amounted to 1.6 million euros. EUR includes the dividend payments to our shareholders for the 2021-22 financial year. This position also contains capital repayment of financial liabilities in the arrangement of our four long-term bank loans. The net change in cash and cash equivalents amounted to 14.9 million euros. Additionally, EVN has committed unpawned credit facilities of 686 million euros as of the end of September. Let's come to the outlook for the next financial year. As already communicated and mentioned before, we will propose for the next ordinary general meeting in February 2024 an ordinary dividend of 52 cents per share and in addition a special dividend of 62 cents per share for the financial year 2022-2023. Under the assumption of a stable agricultural and energy policy environment, we expect a group net result for the financial year 2023-2024 to be within a range of 420 million to 460 million euros. You may also find an overview of the outlook of all segments in the appendix of this presentation. In view of our investment and growth perspectives up to 2030 and beyond, he specifies our dividend policy. Future dividends will equal at least 82 cents per share, and we are committed to let our shareholders appropriately participate in an additional earnings growth. In the midterm, we are aiming for a payout ratio of 40% of group net results. The dividend proposal, as well as our future dividend policy, consider our ambitious investment program. As already mentioned at the beginning of today's presentation, total annual investment will be in the range of 700 to 900 million euros. The core areas are investment in network infrastructure, besides that, renewable generation and drinking water supply. We are committed to invest up to 450 million euros per year for the further development of lower ocean network infrastructure. Approximately 100 million euros will go into new renewable energy capacity this year. These investments by Iran are crucial for a successful transition of the energy system. Iran understands itself as an enabler for an emission-free energy future. The following are the cornerstones we have based our strategy 2030 on. Our high level of annual investments, especially for the expansion of wind and photovoltaic capacities, will make a measurable contribution to containing climate change. We will increase output for renewable generation from currently 1 TWh to 2.5 TWh by 2030. However, energy transition can only be successful if the network infrastructure is expanded accordingly. The necessary integration of volatile renewable generation from many decentralized sources above all photovoltaics and in combination with completely new consumption patterns like immobility, for instance, make network expansion crucial. 3 billion US capex will be invested in the electricity network infrastructure in Lower Austria in the next years. This will increase our aggregate asset base in Lower Austria by 75% by 2030. In the field of e-mobility, they have been active since 2010. They have already gradually built up comprehensive networks throughout Lower Austria in recent years. Today, they are the largest charging station operator in Austria with over 2,500 charging points, and our customers can use more than 7,500 charging points throughout Austria annually. with the UDN charging card. In course of last year, we received contracts on construction and operating of charging infrastructure for two large supermarket chains by 2026, and we see further growth potential in this business area. We are also working on innovative solutions for flexible management of energy requirements, especially for higher demand during winter months. The core sector use of energy is a key factor here. We are therefore working on several projects which concept to integrate electricity in heat generation to warm water storage or heating pumps. We are also partnering a joint venture project with our subsidiary AG in the operation of electrolysis plants for the conversion of solar energy into green hydrogen, which can be changed back into electricity as needed. We call them green molecules. On the top of these points, and as part of our strategy 2030, we are committed to the same space production goals for our greenhouse gas emissions. Starting from a well below 2 degrees goal, we are now in the process of evaluating a more ambitious 1.5 degree reduction target. Greenhouse gas emission reduction is a key aspect in our climate initiative and emphasizes the importance of climate protection in all our activities. This is what we stand for. I have now reached the end of this presentation, and I'm looking forward to answering the questions.

Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press 9 and the star key on your telephone keypad. In case you wish to cancel your question, press 9 and the star key again. Please press 9 and the star key now to take your question. And the first question comes from Richard Alderman. Please go ahead. Hi, can you hear me?

Yes, excellent.

Good morning. to ask you about the wording of your guidance on the dividend policy as the first question. Just to understand your thinking around the base of at least 82 cents and then the comments around appropriate shareholder participation in additional earnings growth. Does that suggest that you would reconsider further special dividends on top of that base in the next two years. I ask as obviously your 82 cents comes in below current consensus of around 93 and would imply quite low growth from 24 into 25 on current consensus. So just interested in your thinking on that. Obviously, from the commentary you had around the capital markets, Dave, we're aware that the board doesn't expect the extraordinary levels of the dividends to continue. But given the low-risk nature of your capex, there could be scope, obviously, for higher dividends.

Thanks, Richard. Yes, I can confirm that the new dividend policy is really the base dividend of this 82 cents. This includes all the results from all our activities, from our holdings. And as I mentioned before, this enormous CapEx program, which also leads them to a higher net debt, we have to balance this in a way. And this is the guidance there for this 82 cents. And then let's see how the real results year-on-year basis will show us. The lead term perspective is this. 40% of groups' net results adjusted for extraordinary effects.

Thank you. And the next question comes from Thibaud. Thibaud, can you hear me?

Yes, excellent.

Yes, may I ask you regarding the South-East Europe, concerning the offset of the exceptional results this year, may I ask how long it would last, over how many years, and the impact on more specifically by subdivision, if possible?

Yes, as I tried to mention, we had Extraordinary effects from the last year and from the next year, all coming together in this year for the results of the Southeast Dimension. In the outlook, on a general level, as we have done in the past, we raised the outlook for the Southeast segment to 70 to 90 million euros. This is the new expectation which we published for this segment.

Okay, thank you very much.

It's on an EBIT level, just to be clear about that.

But the year set will last only for next year, or what should we expect in the near term?

Yeah, this expectation I was now confirming is around $70 to $90 million for the next coming years, and offsetting by the regulatory framework will be done until July 24, so this is included in this outlook already.

Thank you very much. Maybe a follow-up question regarding the division of WTE. If you have any update, any time, calendar time?

Yes, as we mentioned this on our Capital Markets Day, we hope that we can close the deal in the year 2024. Thank you.

Okay, in the meantime, we didn't receive any further questions. So if you would like to state another question, please press 9 and the star key on your telephone keypad. And the next question comes from Theresa Schimba. Please go ahead.

Hi, good morning. I've got two questions where I would like to talk a bit more about the topic. First about this customer behavior and the expected decline in demand. How much of that is temperature related from what you can see already in the first winter quarter? How much is real savings? Maybe also split by what's the difference between residential behavior and commercial and industrial customers? So this would be my first question.

Thanks, Teresa. Well, it's very hard, yeah, because it's a few projections. If you have mild winter and you have customer behavior, how to split it. We try to do this by normalizing the consumption and on this basis, on a household level, The gas reduction coming obviously from customer savings behavior has been around 16%. And regarding on the electricity sales, five to six percentage points were coming from the behavior of savings. The overall reduction has been, of course, quite higher because also industry is obviously needing less energy either by further reduction pursuing energy savings measures or by less production. And there's a certain indication if I compare November 22 to 23, it's around 8% less energy consumption. So on this level, we have a further enhanced trend to less energy consumption by industrial production, which I think is in line also from data which we're seeing in Germany.

Great, thank you. The second one is about RAG. We've also posted a question on life equity contribution. Maybe you can give us a bit more clarity about the outlook, the expectations also for this year with storage levels again being very high. What you're expecting here?

Yes, as you know, RAC is mainly active on the basis as a storage facility operator. Therefore, of course, temperature effects and also industrial consumption is pretty much influencing if they have to use the pumps to get the natural gas out of the storage facilities. And, of course, this is a kind of OPEX, which is fluctuating depending how much of the gas is used. The segment itself and RAC is having around 40 to 50 million euros EBIT on a more normal basis. Therefore, what you have seen this year was pretty much influenced that the storage gas facilities have not been used as much as original. They have been calculated on. So they had a one-time effect maybe also, pretty much depending now. on how the winter will develop further, how long it will go, the winter, because in the last years we have seen that the winter started later, but then this has been to March, April. Therefore, it's too early to call.

Okay, great. Thank you.

We didn't receive any further questions in the meantime. I will leave the line open for a couple more seconds. If you have a question, please press 9 star on your telephone keypad.

Therefore, thank you for joining today's conference call. We will publish the results for the first quarter, 23, 24, and 30, 29 of February. I wish you a nice day. Joyful upcoming holiday season with your families and very best for the coming years. Goodbye from the team of EVN.