EVN : Business development in the first quarter of 2019/20

Highlights

• Solid business development in the first quarter of 2019/20; 40.3% increase in Group net result due to lower effects from the valuation of hedges
• Share of renewable electricity generation rose to 49.7%
• Earnings development in Networks Segment negatively affected by lower tariffs as expected
• Medium-term investment programme (approximately EUR 400m per year) in progress as planned with focus on network infrastructure, renewable generation, natural heat and drinking water supplies in Lower Austria
• Order received for a wastewater treatment project (wastewater treatment plant and sewage network infrastructure including pumping stations) in Kuwait in January 2020

Key results

• Revenue: -3.3% to EUR 576.2m
• EBITDA: +16.8% to EUR 190.6m
• EBIT: +21.9% to EUR 118.8m
• Group net result: +40.3% to EUR 82.9m
• Net debt: EUR 1,127.4m (30 September 2019: EUR 999.5m)

Energy sector environment
The temperature-related energy demand in EVN's three core markets was below the long-term average during the first quarter of 2019/20. However, the temperatures in Lower Austria were slightly lower than the very mild first quarter of the previous year. The market prices for electricity, natural gas and coal declined during the reporting period, but were accompanied by an increase in the prices for CO2 emission certificates.

EBITDA, EBIT and Group net result above previous year
Revenue recorded by the EVN Group declined by 3.3% year-on-year to EUR 576.2m in the first quarter of 2019/20. This development resulted, above all, from a reduction in thermal generation and in the Networks Segment. Contrasting factors included the increase in energy revenue in Bulgaria and higher revenue from the international project business.

The reduction in thermal generation was also reflected in lower primary energy expenses. Consequently, the cost of electricity purchases from third parties and primary energy expenses fell by 12.9% to EUR 263.1m - whereby the prior year increase was influenced by the valuation of hedges. A positive effect was also provided by the decline in natural gas procurement costs, which resulted chiefly from lower wholesale prices and purchased volumes.

The cost of materials and services rose by 6.9% to EUR 65.8m in line with developments in the international project business.

The share of results from equity accounted investees with operational nature rose to EUR 29.1m in the first quarter of 2019/20 (previous year: EUR 6.5m). This increase resulted primarily from a positive non-recurring effect at RAG and a substantial improvement in earnings at EVN KG. However, it should be noted that the previous year was adversely affected by higher wholesale procurement prices and negative valuation effects from hedges.

These developments were responsible for an increase of 16.8% in EBITDA to EUR 190.6m. Scheduled depreciation and amortisation rose by 9.2% to EUR 71.6m due to higher investments, the capitalisation of rights of use following the initial application of IFRS 16 and an increase in the carrying amount of property, plant and equipment based on revaluations as of 30 September 2019. EBIT amounted to EUR 118.8m in the first quarter of 2019/20 (previous year: EUR 97.4m).

Financial results improved to EUR -10.7m (previous year: EUR -15.5m). Group net result for the period totalled EUR 82.9m, which represents a year-on-year increase of 40.3%.

Solid balance sheet structure
EVN has a solid and stable capital structure which will support the realisation of its planned investments in Lower Austria over the coming years. Net debt has been reduced continuously in recent years and - including fluctuations as of the individual balance sheet dates - currently amounts to approximately EUR 1bn.

Medium-term investment plan
EVN is continuing to implement its investment strategy, which calls for annual investments of approximately EUR 400m. Of this total, roughly EUR 300m each year will be directed to network infrastructure, renewable generation, natural heat and drinking water supplies in Lower Austria. Activities in the area of renewable generation include the further expansion of wind power towards the targeted 500 MW (30 September 2019: 367 MW of installed wind power capacity). If framework conditions are favourable, it should be possible to reach this goal by the end of 2023. EVN is also evaluating the feasibility of large-scale photovoltaic projects in its supply areas. Investments in the electricity networks make an important contribution to supply security and quality. The current roll-out of smart meters in Lower Austria marks the start of an additional investment cycle.

Developments in the energy and environmental services business
Energy business
Electricity generation from renewable energy rose by 4.6% year-on-year to 544 GWh during the first quarter of 2019/20. The commissioning of new wind power plants during the past year supported an increase in wind power generation despite a decline in wind flows. Water flows were higher than the previous year, but below the long-term average.

Electricity generation from thermal power plants was cut by nearly half following the termination of electricity generation from hard coal in Dürnrohr at the beginning of August 2019. In addition, the use of the Theiss thermal power plant for network stabilisation was lower than the previous year.

Environmental and water business
The protection and expansion of safe, high-quality drinking water supplies for Lower Austria represent a strategic focal point of EVN's activities. In line with this objective, EVN plans to invest approximately EUR 165m in drinking water supplies for Lower Austria by 2030. EVN also recently started construction on its fifth natural filter plant. It will be located in Petronell and provide roughly 50,000 residents in ten communities to the east of Vienna International Airport with soft drinking water beginning at the end of 2021.

WTE Wassertechnik, the subsidiary responsible for the international project business, was working on eight general contractor assignments as of 31 December 2019: in Lithuania, Poland, Romania, Croatia and Bahrain.

In January 2020 the consortium comprising WTE Wassertechnik and a Kuwaiti financial investor (each with a stake of 50%) were awarded the contract for construction of the Umm Al Hayman wastewater treatment project in Kuwait. WTE Wassertechnik will serve as the general contractor, above all, for the planning and construction of a wastewater treatment plant (contract value (converted): approximately EUR 600m) and - together with partners - for a sewage network with pumping stations (contract value (converted): approximately EUR 950m).

Confirmation of outlook for the 2019/20 financial year
Assuming average conditions in the energy business environment, Group net result is expected to range from EUR 200m to EUR 230m in 2019/20. The year-on-year decline is attributable to positive valuation effects of approximately EUR 110m after tax in 2018/19. The result from operating activities is therefore expected to remain constant.