EVN AG

Good morning, ladies and gentlemen, and welcome to EVN's results for the first three quarters of 2023-2024 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 Jean-Ancien Spovitz.

Welcome, everybody, to EVN's conference call on the results for the first three quarters of this current financial year. The first nine months of our financial year were influenced by mild temperatures in all three markets and therefore low energy demand. We are also still observing changes in customer behavior towards a reduction in energy consumption through energy saving measures and increasing own generation volume from customer-operated photovoltaic equipment as well. Also, prices for electricity and energy carriers stabilized again at substantially lower levels as compared to the historic peaks we have seen in the previous year. Chamber conditions for renewable generation were favorable. Wind conditions improved year on year, but were slightly below average. Water flows were above the long-term average. The expansion of our renewable generation capacities is well on track. We completed the repowering of an 8 MW wind park. The construction of a new 22 MW wind park in Pastorf is still progressing as planned and will be completed by the end of this calendar year. And we started a large repowering project in Vellenkirchen, which will increase its capacity from 14 to 48 MW once commissioned in the second half of next year. I confirm our 2030 expansion target for wind, which is 770 MW. Currently, we stand at 478 MW. By the end of this calendar year, we will reach the historic 500 MW milestone. With this, we will reach a scheduled average annual wind generation of 1.3 TWh. The additional renewable capacities have a positive impact on our share of renewable generation, which was up from 76% to 84% during this reporting period. I also confirm our total annual investment, which will remain within the level of 700 to 900 million euros. Lower Austria will account for around three quarters of this, which is almost half earmarked for the network infrastructure. Let me now continue with the key financials on the first three quarters. Group's revenue was down by 13.9% in a year-on-year to 2.5 billion euros. The main reasons were the decline in wholesale prices, which reduced revenue from electricity generation in the Southeast Europe segment. Other reasons include price and volume effects in the gas network, as well as a reduction in grid network tariffs in Bulgaria, which reflects a regulatory adjustment of the overcompensation for additional costs of covering network losses in the prior year. at the international project business also declined year on year because they already largely completed waste water treatment plant in Kuwait. In line with the development of project prices, the cost of electricity purchases from third parties and primary energy expenses were down only year on year. The cost of materials and service also decreased and reflected development of revenue in the international project business. Personal expenses increased by 16.8% compared to prior year, which reflects the necessary increase in workforce and adjustments according to the collective bargaining agreement as well. Other operating expenses went up due to the impairment loss on the outstanding receivables for a wastewater project in Montenegro. This impairment loss was already recognized in the first quarter, following the arbitration judgment. The share of the cloud format equity accounted indices improved to 4.2 million euros after minus 157.7 million euros in the previous year. Despite an overall year-on-year improvement in E-frame KG, our energy supply business is still under pressure and EV and KG is reporting a loss. This was partly due to an impairment of natural gas inventories, which were produced in the past as a strategic attempt to ensure supply and security of our customers. Other challenging factors include strong competition, energy savings, and increasing electricity generation from customers' own photovoltaic systems. All of these developments made the planning of sales volumes more difficult. In total, group every day amounted to 657.9 million euros. Schedule of depreciation and amortization increased by 5.4% year-on-year, deflecting our higher investment programs. 399.9 million euros, which means an improvement by 11.3%. Financial results improved to 162.3 million euros, mainly due to the higher dividend from Fortunes and the better performance of our fund for pension obligations. In addition, last year was negatively affected by foreign exchange effects. In total, it generated a solid group net result of 479.6 million euros in the first nine months 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 totally decreased by 2.7% compared to the financial end 2022-2023, whereas non-current assets were relatively stable in total, The decline in current assets were caused by a reduction in freight receivables, receivables from EVN KG, from liquidity settlement by EVN Group and receivables from Hatches. Declines were also recorded in cash fund investments and in cash-in-cash agreements. As of the end of June, EVN's net debt amounted to 1.1 billion euros and was below the level as of the end of September 23. Our financial flexibility remains solid, as at the end of June, EVN has contractually committed undrawn credit limits in the amount of €835 million. Our declared goal is to maintain a solid A category of ratings in the future. To achieve such things, we are strictly monitoring the adjusted target ratios of both of our rating agencies. Therefore, we use the net debt to FFO ratio as a KPI to manage our financial performance, investments, and capital structure. Currently, the ratio is about 1.4. With growth in investments over the coming years, the ratio will increase. However, our aim is to keep the net debt to FFO within the range of 1.5 to 2.0. On the next slide, I will present the developments of our segments in more detail, plus the energy segments. Energy demand in this segment was negatively influenced by the mild temperatures. Hence, energy sales volume to end customers dropped year on year. This development was intensified by the challenging framework conditions they are currently facing in our supply companies EVENKAG, increasing competition as well as energy saving efforts of our customers and their growing own generation from their photovoltaic systems have further intensified the decline in energy sales. Hence volume forecasts are becoming more and more difficult. Revenue dropped to 626.7 million euros. The main factors of this development are on one hand lower wholesale prices and the resulting lower variation effects from hedges. On the other hand, the reduced use of the power plant has. Operating expenses decreased year-on-year by 16.9%, which mainly reflects lower primary energy cost by electricity and heat generation. The earnings contribution from the equity accounted in the season amounted to minus 107.4 million euros after a block of minus 264 million euros in the previous year. This is the main result from the supply business in INKG. The loss recorded by INKG was partly due to an impairment loss of natural gas inventories purchased in the past as a strategic reserve to protect supply security. The impairment equaled 37.3 million euros at the end of the third quarter. EVEN is Austria's leading provider for e-charging infrastructure. We currently operate about 2,900 charging points. Based on these charging points and running agreements with other operators of e-charging stations, we have issued 19,500 e-charging cards. In total, segment EVDA amounted to minus 19.1 million euros and EV total to minus 39 million euros. Data has now turned to our generation segment, which has shifted almost entirely to renewable energy over the years. Electricity generation volumes in this segment increased by 14.3% year to year due to the rise in renewable generation volumes. The main reasons for this positive development are the year-on-year increase in wind and water flows and the expansion of renewable energy capacity. Volumes from thermal energy sources further declined year-on-year due to a further reduced use of our site's power plant by the Austrian network transmission operator for network stabilization. Revenue decreased despite higher production goals by 9.1% to 334.5 million euros. The main reasons for this development were the declining market prices. Operating expenses were year-on-year lower due to the decline in the energy crisis contribution for electricity. This Austrian windfall levy was 10.6 million euros in the first quarter of our financial year. Thereafter, in line with the new legal resolution which became effective in January, no further payments were required. The earnings contribution from the ad equity account at the Verbund in Germany had also declined year-on-year due to lower market prices. All in all, EBITDA amounted to 193.6 million euros based on higher scale of depreciation and amortization because of our Investment Procurement Statement EBIT stood at 159.3 million euros.

Let's continue with the network segment.

The varying mild weather conditions and the change in consumer behavior in terms of energy savings on one hand and the increased proportion of both units on the other also impacted our network segment. Because of these developments and the lower use of our size power plant for network stabilization network distribution volumes were decreased and natural gas decreased year on year. Despite the lower distribution volumes, segment revenues increased to 508.5 million euros due to the higher system network tariff electricity which compensated lower revenue for natural gas. A positive revenue contribution was also recognized by our internet and telecommunication service company. Operating expenses decreased due to lower upstream network costs because of decreased tariffs. In total EBITDA was up to 226.86 million euros. Taking into account higher depreciation and amortization due to a high investment level, EV totals 102 million euros. Let's move on to the Southeast Europe segment. The network sales and energy sales volumes were influenced by contrasting factors. Higher electricity network sales volumes by household and industrial customers were able to offset effects from the warmer winter temperature. whereas energy sales volume showed a stable development in North Macedonia, with declines in local air due to mild temperatures. Every decrease to 1 billion euros due to the downward trend in electricity prices in lower network charts in Bulgaria, the latter used to offset the overcompensation of costs from network loss coverage since prior year in accordance with the regulatory methodology. Corresponding to the development of revenue, operating expenses are lower due to a decrease in costs for third-party electricity purchases and energy carriers. All in all, EVTA amounted to 162.5 million euros and segment EV totalled 100.1 million euros. As a general comment, please note that the benefits in Bulgaria are also in the current financial year from low procurement costs for network losses due to the decline in market prices as compared to levels reflected in the regulation. In line with Ergator's methodology, these high results will be adjusted by lower tariffs in the next financial year. This means that we will have an extraordinary high result in Southeast segment this year, which will be reversed next year. And finally, the environment segment. In our international project business, we are currently working on nine projects. At our project in Kuwait, we reached a peak in the summer of the previous year. The wastewater treatment plant was completed at the end of December, and the test ground was successfully finalized. The second part of the project, which relates to the infrastructure of the pipe system, is also about three-fourths complete. I would also like to comment on the status quo of our intention to de-invest WTE. The focus of EVN Group remains on the core energy business. Therefore, we are continuing to evaluate additional strategic options for WTE in line with the investor feedback received from the structured sales process for the complete sale of WTE that was terminated on the 4th of April 2024. Against the backdrop of all this development, revenue in the segment decreased year-on-year to 296.7 million euros. This is a result of that lunch-watching status in Kuwait. Correspondingly, operating expenses declined. In addition, an impairment loss of 22.5 million euros was recognized on the outstanding resigning receivers for a wastewater project in Montenegro. This impairment loss was already recognized in the first quarter following the arbitration judgment. In total, segment A bid rate dropped to 222.2 million euros and A bid amounted to 4.6 million euros. The natural result, nearly matched last year's level, stood at minus 18.4 million euros. All in all, reports before income tax amounted to minus 13.8 million euros. The next slide shows the development of our group cash flows. Group cash flow was lower year-on-year at 890 million euros tax as well as higher dividends from equity-accounted investees and verbunds. The main driver for this development was the correction in the previous year to the higher negative results from the equity-accounted EV and KG. Cash flow from operating activities totaled €829.1 million, reflecting the development of working capital. We also consider Latvia's negative respect caused by the liquidity settlement for EVN KG and the related higher capital commitment for working capital. Cash flow from investing activities amounted to minus 312.8 million euros. The increasing investment level was compensated by the sale of cash funds. The higher investments were also contracted by higher construction and network subsidies in the network and heating business. that was the capital contribution provided by EWM to EWM target in the previous year. The position cash home financing activities amounted to minus 486.4 million euros and can include its capital repayments and the dividend payments for the previous financial year. The net change in cash and cash agreements amounts to a million euros. Let's come now to the outlook for this current financial year. After the first nine months of this financial year, I can specify our output for this financial year. We expect growth net results to be at the upper part of the previously communicated range of 420 to 460 million euros based on the development of the operating business and under the assumption of a stable regulatory and energy policy environment. The dividend is expected to equal at least 82 cents per share for the current financial year. As already mentioned at the beginning of this presentation, total annual investment will be in the range of 700 million euros to 900 million euros. The core areas are investment in network infrastructure, renewable generation, and drinking water supplies. Finally, I would like to invite you to join us on the 2nd of October for our investor webcast, which is entitled EVN, the future of energy transition, innovation, midterm targets. We expect a one-hour webcast followed by Q&A. We will formally introduce our new CFO and CTO to you. Together with my two new colleagues, we will focus on selected innovation projects, which will demonstrate how EVN successfully is positioning itself in the new business areas we see involving through the transition of our industry. Furthermore, based on the public feedback we have received from analysts and investors, to our long-term financial perspective, we appreciate that Dunn Market participants have been asking us for further transparency regarding the mid-term financial view. Therefore, we would like to use the opportunity to accommodate such requests a bit further. At the end of my presentation, I look forward to answering your questions.

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, press 9 and start back at time. In fact, the first question is from Patrick Steiner. Please go ahead with your question.

Good morning. Good morning. It's Patrick speaking. Thank you very much for taking my question. Two from my side. Firstly, if we look at investment in the first three quarters, $345 million, what's a realistic number for this full year in your view? first one and the second one. If I'm not mistaken, EVN KGN's contribution turned positive in Q3. Could you explain what were the main drivers behind it and should we expect this positive development to continue? Thanks.

Yeah, thanks a lot. First of all, we expect around 900 million. You always know it's depending how the investment project can be finished at the end of September. so around 900 million is a realistic outlook for this year and this will be also the level of investment for the upcoming years and the second is of course you might know we have this kind of development that the third quarter is better than the fourth quarter of our business development because energy sales in the summer are always lower than of course in the winter period therefore more or less we are peaking after the of the third quarter and therefore the outlook we gave today is a realistic outlook.

Alright, thank you very much.

And specifically about EVN KG, do you expect the positive earnings contribution to continue generally over the next quarters?

EVNKG is of course facing the last year of this energy market also market turbulences and of course especially for the security and supply of gas as we mentioned in the presentation and also in the document I would expect for this year something like around 100 million euro loss for EVNKG depending pretty much at the end then of course what is at the balance state the value of the area, therefore it's just an estimation.

Okay, very helpful.

Thank you very much.

And the next question comes from the Recession Road by Weissenbank International. Please start with your question.

Hi, good morning everyone. Thanks for taking my questions. They are a bit valuation related, so First one is on the impact of the derivatives valuation in the third quarter, the results of EVNKG. Can you give us a hint of how much it was, and in particular the gas valuation? Here I would also like to ask for a bit of an outlook, because gas prices increased by 5 euros or something since the end of June. So if we can expect a more positive impact here in the fourth quarter. The second question is more on the segment outlook. So if you provided a range before for the energy segment, the lower end, and now it's looking a bit more negative, what can we look for, for a supposed number and all that? And the same is actually on the other segment, if you could shed a bit more detail on that. And the third one is the usual, what's the order backlog for the energy people. Thank you.

Okay, thanks very much. I take the first one.

The first one is 666, which is a simple number, and therefore I start with this. Regarding EV in KG, as I mentioned before, I would expect around 100 million euros at the end of September, more or less a realistic loss, which is more or less 50-50 regarding operative losses in the river, and of course we will know at the end of September what the hallmark prices will be. What was a problem this year, of course, that it was the second very warm winter, therefore volumes, sales volumes were down, and the need to impair the security of supply gas stored volumes, which we received in the summer of 22 when the crisis was peaking regarding security in the winter. This went down from around $61.1 million at the end of March to $37.3 million. And gas prices, if they go up a bit, this might be also then reduced a little bit further. But we're talking about a couple of millions up and down, so I'm not expecting here from today's point of view a big change. As we have seen, we have a strong result in renewable generation despite the decrease of wholesale prices because we could compensate with new capacities and new production, more or less the price reduction, but of course it is a lower result and we have seen the heydays of last year and of course this will also in the future come down a further step because hallmark prices are different to what we have seen the general outlook of the segments if you put it in a simple line is that the energy segment is negative in comparison generation lower prices in the network we have positive tariffs but less volumes and in southeast we will have an extraordinary good result due to this kind of regulatory situation in Bulgaria which was very favorable and this will be adjusted of course in the next year so next year will be a correction year in Bulgaria but we will confirm also on our investor that we expect is 70-90 million on the mid-term in Southeast as a more or less planable result which we are targeting. And of course the outlook for the environmental segment is driven by the impairment of the arbitrage core position regarding Butwa.

So this is an extraordinary effect. Okay. Thank you very much. Thank you.

At the moment, there seem to be no further questions. If you would like to ask a question, please press 9 and star on your telephone keypad.

And we have one more question coming from Siebold.

Please go ahead with your question.

Hello, can you hear me?

Yes, excellent.

Yes, thank you. Just one question regarding the guidance. Apparently, in the 3.2, in nine months, you already almost, well, you de-risked the guidance. May I ask why you are keeping the upper range of the guidance at this level?

Yes, a good point there. But in the energy business and in the summer quarter, the sales are traditionally lowest. Therefore, the fourth quarter of our financial year is the weakest. And therefore, the expectation and the outlook we confirmed today is a realistic one. Also, if you look on the third quarter results of the last year, so we see this pattern that the that the summer quarter is the weakest in our financial business year.

Thank you. For any further questions, please press nine star on your telephone keypad.

Mr. Siskowitz, there are no further questions from the audience.

So thanks for joining today's conference call. We will publish the results for the full financial year on Thursday, the 17th of December. Have a nice day and goodbye.