EVN AG

Good morning, ladies and gentlemen, and welcome to EVM's results for the first quarter of the 2023-24 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 Stefan Siskubic. Please go ahead.

Welcome, everybody. Good evening. Conference call on the results for the first quarter of this current financial year. The first three months of this financial year were again marked by very mild weather conditions in all our three core markets, especially compared to the long-term average. We are also observing changes in consumer behavior towards a reduction in energy consumption through energy saving measures and increasing own generation volumes from customer-operated photovoltaic equipment as well. In addition to the weather and consumer-related effects, wholesale market prices are declining after the historical distortions in high volatility of the last few years. Despite these unfavorable conditions, we can report stable business development for this reporting period. Our 30-20-30 and our diversified business model are once again proving to be stabilizing factors. Our ambitious investment program in renewals but also favorable water flows and better wind conditions were responsible for increasing renewable generation volumes by more than 30%. As of the end of December 23, we had an installed wind power capacity of 478 MW. Two further wind parks, one of which is being repowered, are currently under construction. We also made great efforts to extend our photovoltaic capacities. we will double our current capacity to roughly 80 MW peak in the second quarter of this financial year. Up to 2030, our total annual investments will remain within the level of 70 to 900 million euros. Around three-fourths of that are dedicated to lower off-their, and almost half is budgeted for the network infrastructure. Let me now continue with the key financials of this reporting period. In the first quarter, groups' revenues were down by 22.6% year-on-year. The main reasons for this development were lower valuation effects of hashes due to the downward trend in wholesale prices. Additionally, the reduced use of our tight power plants for network stability negatively affected revenue. In South-East Europe, revenue decreased due to a drop in electricity prices in lower energy series volumes in Bulgaria. Our international budget business also recognized the revenue decline in year-on-year because of the already largely completed wastewater treatment plant in Coubet. The cost of electricity purchases from third-party and primary energy expenses were down year-on-year, mainly due to the decline in wholesale prices and lower procurement volumes for electricity in Southeast Europe and lower primary energy costs for electricity and heat generation. Personal expenses increased by 16.8% compared to prior year, which reflects the necessary increase in workforce and adjustments according to the collective bargaining agreements as well. Other operating expenses went up 56.9%, containing the energy crisis contribution and an impairment loss recognized to receivables. The share of results from ad equity accounted indices raised to 47.4 million euros in the reporting period, after minus 43.2 billion euros in the prior year. The comparatively spare period was massively influenced by the negative developments at our supply company, EVN KG. In total, group evidences in the reporting period amounted to 285.7 million euros. Scattered depreciation and amortization increased by 55.2% year-on-year, reflecting our higher investment program. Hence, group EBIT amounted to 200.5 million euros. Financial results decreased to minus 11.9 million euros, mainly due to increased interest expenses. In total, we generated a group net result of 143.8 million euros in the third quarter of this financial year. Now let's move on to the next slide which provides information regarding the group's balance sheet structure. Balance sheet total increased by 2.3% compared to financial year end 22-23. The main factors for this development are the increase in plant and equipment resulting from our investments, the declining negative effects from the valuation of hedges at the end of the reporting period, The higher balance of equity accounted in the C3s was supported by the improvement in earnings at our supply company, Evian KG, and the increase in other investments that resulted from the positive development of the bond share as of the last December 23, which in the meantime reversed. As of the end of December, Evian's net debt slightly increased to 1.4 billion euros, correspondingly, during ratios stood at 20%. Nevertheless, our financial flexibility remains solid. We have contractually committed unborn credit lines in the amount of 786 million euros as at the end of December last year. Moreover, our declared goal is to maintain solid A category ratings in the future. To achieve such ratings, we are strictly monitoring the adjusted at target ratios of both of our rating agencies. Let me now present our segments in more detail. First, the energy segment. The first part of this reporting period was characterized by very mild temperatures in Austria, both year-on-year and compared to the long-term average. Hence, energy sales volumes to the end customers dropped year-on-year. This negative development was intensified by energy saving efforts from our customers. the increase owned generation by customers from their photovoltaic equipment and the growing competition we are facing. The revenue in the energy segment depends primarily on the marketing of the electricity generated in the energy power plants. Besides, it includes the revenue from our domestic heating business. In the reporting period, revenue dropped to 265.2 million euros. The main factors for this development are on one hand lower wholesale prices and to resulting lower valuation in effects of hedges. On the other hand, the reduced use of our power plant types. Value in this segment was positively reflected by the increased renewable generation volume and positive contribution from the natural gas trading. Operating expenses decreased year on year by 7.7%, which mainly reflects lower primary energy costs by electricity and heat generation. The earnings contribution from equity accounts at industries turned positive in the reporting period after massive loss in the comparative period. Earnings contribution at our supply company EVNKG amounted to 8 million euros in the first three months of this financial year. Last year, we were facing a loss of 70.5 million euros. Based on this development, segment every day amounted 66.3 million euros and aided to 60 million euros. On the next slide I will present the development of our generation segment. An increase in regeneration volumes in this segment increased by 7.3% year-on-year due to a rise in renewable generation volumes. The main reasons for this positive development are in the year-on-year increase in wind and water flows and the expansion of renewable generation capacity. The use of our PICE power plant by the Austrian network transmission operator for network stabilization was below the already lower levels of the previous year. The share of renewable generation increased in the reporting period to 81.8%. Revenue increased by 12.6% to 126.7 million euros due to the higher production volume from renewables and despite the decline in market prices. Opening expenses were up which is related to the capacity expansion and the energy crisis contribution on electricity. The contribution in the reporting period amounted to 10.6 million euros. The Austrian law became effective as of the 1st December 22 and would have expired at the end of last year. This January the Austrian government announced to extend the law by further 12 months. We do not expect this to result in any further financial obligation as the threshold, which includes eligible investments, was raised to €200 per mWh. The earnings contribution from the equity account at Verbund Inkraftwerke also increased year-on-year. All in all, EBITDA increased to €69.5 million. Taking into account higher schedule, depreciation, amortization, segment EBIT was up year-on-year to €57.7 million. Let's continue with the network segment. As already mentioned at the beginning, the winter started very mildly compared to last year and the long-term average is low. The warmer temperatures together with the ongoing consumer energy-saving efforts and the rapid expansion of customer-operated photovoltaic systems negatively affected distribution volumes in our network segment. Because of this development and the lower use of power types power plants and network stabilization, also natural gas network distribution volumes decreased year on year. Despite the lower distribution volumes, segment revenue increased to 174.4 million euros due to the higher system network health, electricity and natural gas for the last calendar year. A positive revenue contribution was also by Hero TV, Internet and Telegram communication services. Operating expenses in the network segments likely increased related to the higher inflation. In total, EBITDA amounted to 89.3 million euros and EBIT increased to 48 million euros. As of the beginning of this year, a new regulatory period for electricity distribution network became effective. In the appendix of this presentation, you will find an overview of the current regulatory parameters for both electricity and the natural gas distribution networks. At the beginning of this calendar year, e-Control adjusted system network curves for household customers. Network curves for natural gas decreased by 15.2% and for electricity increased by 12.7%. The latest may be driven by cost of network losses. Let's move on to the Southeast Europe segment. Temperatures in Southeast Europe were also well above the long-term average reporting period, while in North Macedonia they were slightly below last year's temperature. Overall, this led to a decline in energy sales volumes. Electricity generation volumes in this segment decreased in the first quarter compared to the previous year, mainly due to lower water flows in northern Macedonia. Additionally, volumes declined because of a maintenance-related downtime in the cogeneration plant in Bulgaria. In contrast, network sales volumes and heat sales volumes were higher and positively affected by their Southeast Europe segment. Revenue of this segment decreased to €355.2 million due to the lower energy sales volumes in Bulgaria and the downward trend in electricity prices. Operating expenses decreased in the reporting period And finally, the environment segment. In our international project business, we are currently working on nine projects in the field of wastewater treatment, drinking water treatment, and thermal sludge utilization. We reached the peak of our Kuwait project in the summer of the previous year. a wastewater treatment plant was completed at the end of December and the first test run was successfully finalized. The second part of the project, which relates to the infrastructure of the pipe system, is also two-thirds complete. Three projects for wastewater treatment plants in Poland and Romania were successfully handed over to the customers in the reporting period. Regarding the intention to de-invest WTE, the structured bitter process is ongoing, therefore I am not allowed to report more details. Revenue in this segment fell in year-on-year to 109.3 million euros, which is a result of that month's project status in Kuwait. Correspondingly, operating expenses declined. In general this year, the Geneva Court of Arbitration issued a judgment regarding the arbitration proceedings initiated against the municipality of Budva. This included the non-fulfillment of payment obligations from the investment contract for the planning, construction, financing and operating of a wastewater treatment plant. The court confirmed the amounts already received for WTE but did not recognize any further demands. Consequently, we had to impair the outstanding receivables from this project which amounted to 22.5 million euros. In total, segment EBITDA decreased to minus 1.4 million euros and EBIT amounted to minus 7.3 million euros. Financial results declined on year-on-year due to higher interest expenses. Hence, results before incoming tax dropped to minus 12.9 million euros. The next slide shows the development of our group cash flow. Cross-cash flow was lower year-on-year at 216.8 million euros. The main drivers for this development were lower earnings recorded in the reporting period, non-cash earnings components and lower dividends from equity-accounted indices. Cash flow from operating activities amounted to 87.2 million euros, reflecting the development of working capital and the year-on-year decline in income tax payments. Please also consider last year's negative effect caused by the liquidity settlement for EWNKG and a related higher capital commitment for working capital. Cash flow from investing activities decreased to 34.8 million euros. The increasing investment level was compensated by the sale of cash funds. The higher investment also contrasted the higher construction and network subsidies in the network and heating business. The position cash flow from financing activities amounted to minus 155.3 million euros and included scheduled repayments. The net change in cash and cash equivalents amounted to minus 33.3 million euros. As already mentioned, Elan has committed on bond credit lines of 786 million euros as of the end of December last year. Let's come to the outlook for this current financial year. We confirm the outlook for this financial year given in December. Under the assumption of a stable regulatory and energy policy environment, They expect a group net result for 2023-24 to be within a range of 426 million to 460 million euros. You may also find an overview of the outlook of all segments in the appendix of this presentation. In December last year, we also specified our dividend policy. Future dividend will equal at least 82 cents per share and we are committed to let our shareholders We are aiming for a payout ratio of 40% of group net result. As already mentioned at the beginning of today's presentation, total annual investment will be at the range of 700 to 900 million euros. The core areas are investment in network infrastructure and beside that, renewable generation and drinking water supplies. This investment will be crucial for a successful transition of the energy system. I have now reached the end of my presentation. I look forward to answering your 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 state your question. And the first question comes from Thibault Doujardin. Please go ahead. I think you are on mute.

You can speak now.

Hello, can you hear me?

Hello, can you hear me? Yes, of course.

Thank you very much for taking my question. My first question will be regarding the Vermont Special Dividends. Do you have any views on how you will pass through it? Will it be in terms of percentage? Do you have a view on it?

As of today, I am able to confirm our full year guidance, which we gave in mid-December. So as I stated before, we expect the group to start in the range of 420 to 460 million. As always, this outlook is based on average energy sector conditions. So today, we only have a full visibility for the first three months of the group. We still have nine months to go, and as you know, Our outlook is subject to many external parameters which we can predict, such as water and wind conditions, temperature related demand and further development of energy prices, which has dropped substantially recently. So on this basis, we are not able to confirm any change of these expectations for this year's results and therefore no change on the dividend expectations so far.

Thank you very much. May I ask you a follow-up question regarding the WTE disinvestment? Do you have any updates?

Yes, I mentioned before there is a structured legal process and on this basis we have a very tight legal framework and therefore I ask for understanding from today's point of view I cannot comment on the further development of the disinvestment project.

Thank you very much.

And the next question comes from Theresa Schindler. Please go ahead.

Hello. Good morning, everyone. I have a few questions, so I may ask them one by one. You mentioned the increased competition in the energy business in the presentation. Could you shed additional light on the development? with customers, price groups, if it's more in the fixed areas, the flexible areas, and also your expectations going forward, especially also with the own production of electricity and the impact on that business.

Okay, thanks a lot. First of all, as you know, we have a very tight legal framework regarding calculation of end customer prices which is also challenged in the courts and there has been special laws in June last year and then again in November 23. On this basis, tariff policy for all sales companies is not so easy to do because we have a special customer protection law. On this basis, as we see it today, there are only two possibilities. you have a fixed service for 12 months or you have a product which is flexible following the monthly changes and wholesale prices but then the customer is also not locked in on a longer period than one month. This also leads to the special calculation regarding the procurement and the pricing and as we did last year we changed our tariff structures to these two products and therefore during this year we have to update prices for the 12-month products. On average in the last year before the Corona crisis we had a churn rate of around 4-6% for electricity and 6-8% on the gas level. We see now in this last couple of weeks and months that the churn rate was slowing down again to a level which is comparable to the pre-crisis environment. But of course, if you have a 100-year event like we have seen in the last 24 months with these hiking wholesale prices, the period of wholesale prices were coming down now. is a special period also on adoption also on the end customer side and I think this will be one of the topics regarding the performance in the current year how the sales companies will develop in this environment so in a way the legal situation is a bit thickness and we have to adopt the legal framework also to the whole cycle of planning procurement and pricing And the second thing is which is really interesting is how the strong installation of photovoltaic especially on the private customer side has changed also the demand and supply of household customers regarding the structure of sales in lower Austria. So we have more and more photovoltaic production in the field of private households and therefore the consumption of this consumed energy is also increasing and we see also a stronger, so to think, inflow of electricity which we estimate, it's an assumption, which we estimate in this period of around 200 gigawatt hours. But they hold capacities around 1000 megawatt already. So there's a dramatic shift. It's taking place over the last 24 months. And this will also change pricing of household customers, special products. We have also now installed is more than 99% of the smart meter already the basis also to give tariffs which are much more structured on the consumption and production of individual customers.

Awesome. Thank you. A follow-up or an additional question on the energy segment. What was about the swing effect of the hedge valuation versus last year?

okay so this is as you know okay um you know the effect is coming from the power price development yeah and um if you have a look on the power prices you can do the calculation because of course this is over competitive information okay yeah of course um then um

Can I also ask for the order backlog in the environment business? Or maybe I have missed it.

Well, we have a look here. No, it is developed comparatively. So it's 798, let's say, 800 million.

Okay, great. And the last question is on the tax effect. If I got it right, you said you don't expect a negative impact from the prolongation that the Austrian government is discussing. Yes.

We have around 10 million in the first quarter, but no additional coming from this law for the remaining three quarters.

Okay. Thank you. That's clear. That's all from myself. Thank you very much.

Thanks, bye.

Okay, so we didn't receive any further questions, so I will leave the line open for a couple more seconds. If you want to ask a question, please press 9 star now.

Okay, and we have another question. It comes from Roland Fetter.

Please go ahead.

Good morning, gentlemen. I would like to ask about the impact that your business has from the low wholesale prices that we've seen throughout the years out. Would you expect that the overall impact, like the 27, 28 low prices, is negative for your business because of your low generation income? Would you expect a positive impact because you might have higher margins on the customer side?

I think about this question because it's also going beyond the actual development. What we see is a transformation in the production portfolio in Europe and also especially in Austria. Therefore, we will expect that there will be more volatile prices coming up in comparison between the summer season and the winter season. And this will also affect how electricity will be used and consumed if it's subsidizing other forms of energy. Think about heating pumps and e-mobility. And that the pricing and the products we can offer to level out these differences between the seasons will be a new possibility to develop our business. At the end, we will see different kind of effects because certain customers will take advantage of using energy on different time periods, different season periods. So there will be a change also in the usage of energy as a result of this stronger fluctuation of prices over the seasons. And on the other hand, the whole storage system will get a strong push on the industrial customer side but also on the utility side so this might also lead in a certain strong boost for hydrogen stronger than we have thought on the timeline so we will have a certain stronger depreciation in products and of course we try to hedge our energy procurement and demand 12 months ahead and therefore the effects can fluctuate quite strongly. So the whole energy industry will get more volatile but big groups, big players like EVN will take advantage of it because they can better charge the risk over different parts of their business.

Can you tell us how much are you selling in terms of generation volumes? How much are you producing in total? How many terawatt hour effectively including your participation?

Do you mean now or in 27-28? 27-28.

Okay, it's depending pretty much what we will be able to build up our capacity then. If we now look on the existing data for 2022, 2023, it has been two terawatt hours of renewable energy coming from especially wind and of course water. and it will go up in our exhumation in direction 2030 it will go to a retail otherwise which means about 10 euros of change in the wholesale price which is up to the wholesale price is about 20 million monthly on the existing assets correct I think this is too simple I think this is a too simple judgment then if you want to develop a model on this basis, I think we should discuss this with our colleagues also, that we give you some insight how markets can do the calculation.

Okay, happy to do that offline then, thanks.

Yes, please.

Ladies and gentlemen, since we didn't receive any further questions, let me hand back over for some closing remarks to Mr. Zizkiewicz.

Thank you all for joining today's conference call. We will publish the results for the first half year on Wednesday, the 29th of May. Have a nice day and good night.