DGAP-News: EVN AG (Energie-Versorgung Niederösterreich AG)

Highlights

- Higher temperature-related demand for energy

- Unusual weather conditions in all three supply areas -both in winter and summer

- Increased demand for cross-regional exchange of services to stabilise the networks; contracts also signed for the winter half-year 2017/18

- Positive non-recurring effect from settlement with the state-owned Bulgarian electricity company NEK

- Further expansion of wind power

- Medium-term goal to raise installed capacity to approximately 500 MW (subject to appropriate framework conditions)

- Planned commissioning in 2017/18: Oberwaltersdorf (10 MW; in operation since October 2017 as scheduled) and Sommerein (33 MW; scheduled for spring 2018)

- Battery storage project at the Prottes wind park

- Dividend recommendation to the 89th Annual General Meeting: EUR 0.44 per share plus a one-off bonus dividend of EUR 0.03 per share

Key results

- Revenue: +8.3% to EUR 2,215.6m

- EBITDA: +19.4% to EUR 721.6m

- EBIT: +33.2% to EUR 346.9m

- Group net result: +60.4% to EUR 251.0m

- Net debt: -20.4% to EUR 1,213.2m

Energy sector environment

The temperatures in EVN's relevant markets were significantly colder during the winter half-year 2016/17, in both annual comparison and in relation to the long-term average. In Austria, the heating degree total - which defines the temperature-related demand for energy - was 18.7 percentage points higher than the previous year. The weather in Bulgaria and Macedonia was also much colder during the reporting period, with a heating degree total that was 26.6 and 16.7 percentage points, respectively, higher than in 2015/16. The summer months also brought unusual temperatures which were much warmer than the previous year, especially in South Eastern Europe.

The prices for primary energy carriers (average exchange prices for Natural Gas and hard coal) were higher than the previous year. In contrast, the average price for CO₂ emission certificates continued to decline. The forward and spot market prices for base load and peak load electricity followed contrary trends in 2017/18. Forward price fell by 7.2% to EUR 28.2 per MWh for base load electricity and by 8.2% to EUR 35.0 per MWh for peak load electricity. However, the spot market price rose by an average of 26.9% year-on-year to EUR 35.3 per MWh for base load electricity and by 25.7% year-on-year to EUR 43.0 per MWh for peak load electricity.

Revenue and earnings growth supported by unusually positive environment

Revenue recorded by the EVN Group rose by EUR 169.1m, or 8.3%, to EUR 2,215.6m in 2016/17. The main factors underlying this growth were the unusual weather conditions - during winter and summer - in all three supply areas, which led to a substantial increase in energy and network distribution volumes, as well as the marketing of the thermal power plants to stabilise the networks in Austria and southern Germany. Positive impulses were also provided by the international project business and renewable generation.

EBITDA rose by EUR 117.2m, or 19.4%, to EUR 721.6m in 2016/17 despite a higher level of operating expenses, above all due to the unusually high temperature-related demand for energy, the increased use of the thermal power plants to stabilise the networks and a valuation allowance recognised to inventories in the international project business during the second quarter of 2016/17. This improvement was supported primarily by higher results in the energy business and by a positive non-recurring effect from the settlement with the state-owned Bulgarian electricity company NEK.

Depreciation and amortisation declined slightly to EUR 262.3m (previous year: EUR 266.1m), while the effects of impairment testing rose by EUR 34.6m, or 44.5%, to EUR 112.5m. The results from operating activities (EBIT) totalled EUR 346.9m and represent an increase of EUR 86.4m, or 33.2%, over the prior year value of EUR 260.4m. Financial results amounted to EUR -21.4m (previous year: EUR -61.6m) and were significantly influenced by positive valuation effects. Group net result increased by EUR 94.5m, or 60.4%, to EUR 251.0m.

Solid balance sheet structure; decline in net debt

EVN's positive operating results form the basis for a solid balance sheet structure. The equity ratio equalled 48.8% as of 30 September 2017 (30 September 2016: 42.3%). Net debt declined by EUR 310.1m, or 20.4%, to EUR 1,213.2m and led to a reduction in the gearing ratio from 55.0% to EUR 38.5%.

Developments in the energy and environmental services business

Energy business

Electricity generation rose by 3.3% year-on-year to 6,059 GWh in 2016/17. The production from renewable energy increased by 3.3% to 2,093 GWh, supported by higher wind flows as well as the first full-year of operation by the Paasdorf-Lanzendorf windpark. An increase of 3.3% to 3,966 GWh was also recorded in the electricity generation from the thermal power plants. EVN's thermal power plants were increasingly used to stabilise the networks in Austria and Germany, but there was a decline in electricity generation by the Walsum 10 power plant. EVN's thermal power plants are also under contract to stabilise the networks in southern Germany during the winter half-year 2017/18.

Investments in the Lower Austrian network infrastructure to support and continuously improve supply security and quality also formed the focus of EVN's activities in 2016/17. The new construction or expansion of transformer stations safeguards the transport of wind energy from the decentralised production locations to the high demand central areas in Lower Austria. The further expansion of energy generation from renewable sources - especially wind power - continues to have high priority for EVN. Subject to appropriate framework conditions, wind power capacity in the home market of Lower Austria will be increased from the current level of approximately 269 MW to approximately 500 MW over the medium-term. Plans for 2017/18 include the commissioning of Oberwaltersdorf (10 MW) - where operations started as scheduled in October 2017 - and Sommerein (33 MW) - which is scheduled to start operations in spring 2018.

The steady increase in electricity generation from renewable energy sources has created substantial challenges for the electricity networks and their interaction with the existing generation infrastructure. The main problem is the strong fluctuation in production that results from the natural volatility in wind, sunshine and water flows. Since these fluctuations must be equalised in the interest of network stability, storage technologies are becoming increasingly important. EVN is therefore pursuing various innovation initiatives in this area and hopes to gain important insight, above all, from a research project on large storage batteries that is currently in progress together with the Technical University in Vienna and AIT Austrian Institute of Technology. The focal point of this project is a lithium-ion large storage battery operated by Netz NÖ with a performance of approximately 2.5 MW and a capacity of 2.2 MWh, which was commissioned at EVN's Prottes windpark in November 2017.

Environmental services business

Investments in 2017/18 continued to focus on the further improvement of drinking water supply security and quality in Lower Austria. Specific projects involved the expansion of pumping station capacity and the development of the cross-regional pipeline networks. At the Wienerherberg well field in Ebergassing, construction started on another natural filter plant - the fourth of its kind in EVN's supply area. EVN also took over the management of the local drinking water networks in three additional Lower Austrian communities during October 2016 and April and July 2017.

As of 30 September 2017, EVN was working on the realisation of seven general contractor assignments for the construction of wastewater treatment projects in Croatia, the Czech Republic, Macedonia and Poland. The tender process for a wastewater treatment project in Kuwait, in which a bidder consortium formed by WTE Wassertechnik and a Kuwaiti financial investor submitted the best offer, is still in progress. The tendering authorities are expected to formally award the contract in 2018.

Outlook

The past financial year was influenced by a number of exceptional circumstances which had a positive effect on Group net result for 2016/17. Assuming average conditions in the energy business environment, Group net result for 2017/18 should return to a normal level that reflects the average of the 2015/16 and 2016/17 financial years. However, Group net result could be significantly influenced by the regulatory background, the proceedings currently in progress in Bulgaria and the remaining proceedings over the Walsum 10 power plant project as well as the progress on activities in Moscow.

For the complete Full Report of the 2016/17 financial year see www.investor.evn.at.