DGAP-News: EVN AG: Results for the 2017/18 financial year

Highlights

- Group net result for 2017/18 influenced by positive non-cash earnings effects from the
  valuation of hedges as of the balance sheet date

- Consistent implementation of the corporate strategy

- Wind power capacity increased to 318 MW in 2017/18

- Investments in the network infrastructure in Lower Austria

- Expansion of cross-regional drinking water supplies in Lower Austria and
  construction of a further natural filter plant

- Commissioning of wastewater treatment plant projects (Prague and Macedonia) and
  order received for a project in Bahrain

- Dividend proposal to the 90^th Annual General Meeting: EUR 0.44 per share plus a bonus
  dividend of EUR 0.03 per share
 

Key results

- Revenue: -6.5% to EUR 2,072.6m

- EBITDA: -6.9% to EUR 671.8m

- EBIT: +13.3% to EUR 392.9m

- Group net result: +1.4% to EUR 254.6m

- Net debt: -20.6% to EUR 963.7m
 

Energy sector environment
The temperatures in EVN's relevant markets during 2017/18 were significantly warmer than the previous year with its unusually cold winter.

The average price for Natural Gas was clearly higher year-on-year in 2017/18, above all due to the increase in crude oil prices which followed the positive development of the economy and production cutbacks. The prices for CO₂ emission certificates were also significantly higher as a result of the stronger economic growth and further adjustments to the supply of certificates which will take effect beginning in 2021 within the framework of the EU emission trading system. Correspondingly, the forward and spot market prices for base load and peak load electricity increased substantially in 2017/18.
 

Improvement in EBIT and Group net result; decline in EBITDA
Revenue recorded by the EVN Group declined by 6.5% to EUR 2,072.6m in 2017/18. The main reasons for this development were a decrease in sales of electricity from thermal production, valuation effects from hedges, a reduction in natural gas trading and temperature-related volume effects, above all in South Eastern Europe. Revenue was also lower in the international project business. In contrast, higher revenues were recorded from renewable electricity generation, the supply of reserve capacity to support network stability and heat sales.

The cost of electricity purchases from third parties and primary energy expenses amounted to EUR 961.3m in 2017/18 and was 2.8% lower than the previous year, which was influenced by the settlement with the state-owned Bulgarian electricity company NEK. The reduction in 2017/18 resulted chiefly from a decline in thermal electricity generation, lower natural gas trading activities, the valuation of hedges as of 30 September 2018 and a weather-related decrease in energy sales volumes in South Eastern Europe. Higher upstream network costs represented a contrary factor.

The cost of materials and services was 12.3% lower at EUR 275.1m as a result of developments in the international project business. On the one hand, expenses were lower due to the reduced order volume. On the other hand, the comparable prior year value was influenced by a valuation allowance recognised to inventories in the international project business.

The share of results from equity accounted investees with operational nature rose by 15.7% to EUR 188.0m. The increase resulted primarily from the valuation of hedges held by EVN Energievertrieb GmbH & Co KG as of the balance sheet date. In addition, this position included an impairment loss recognised to the investment in Verbund Innkraftwerke GmbH in the previous year. Based on these developments, EBIDTA declined by 6.9% year-on-year to EUR 671.8m in 2017/18.

Scheduled depreciation and amortisation were 1.5% lower than the previous year at EUR 258.3m. The effects of impairment testing fell to EUR 20.6m, whereby the previous year was characterised by higher impairment losses, especially in the generation business. In total, EBIT rose by 13.3% to EUR 392.9m.

Financial results fell by 73.9% to EUR -37.2m, primarily due to positive valuation effects from the previous year. These valuation effects resulted from the transfer of Verbund shares by the equity-accounted WEEV Beteiligungs GmbH to EVN AG within the scope of structural simplifications. Consequently, Group net result for the 2017/18 financial year equalled EUR 254.6m. This represents an increase of 1.4% over the previous year.
 

Solid balance sheet structure; reduction of net debt
EVN's positive operating results form the basis for a solid balance sheet structure. Net debt declined by EUR 249.5m to EUR 963.7m. Gearing improved from 38.5% (30 September 2017) to 23.5% as of 30 September 2018.
 

Developments in the energy and environmental services business

Energy business

The thermal power plants reported a 16.5% drop in electricity production to 3,313 GWh in 2017/18, which was also reflected in a year-on-year decrease of 8.8% to 5,526 GWh in the total volume of electricity generated by this segment. It reflects the higher comparative value, which was influenced by the strong demand for electricity throughout Europe during the cold winter in the previous year. A year-on-year increase in water flows - in particular during the winter half-year - and the continuing expansion of EVN's wind parks supported an increase of 5.7% in electricity generation from renewable energy to 2,213 GWh.

EVN is currently the leading wind power producer in Lower Austria and intends to maintain its clear focus on this area in the future. The target calls for expansion to roughly 500 MW over the coming years, largely through the realisation of projects already approved by the authorities. The corporate strategy thereby coincides in one very major point completely with #mission2030, the climate and energy strategy announced by the Austrian federal government. The further transformation of the energy system, which reflects the goals of #mission2030, requires investments in the networks to integrate the steadily growing volume of decentralised generation as well as increased efforts to protect supply security. With its network investments, EVN is setting appropriate accents to support the realisation of these goals.

The energy future is also changing customers' product and service requirements: EVN therefore launched an innovative new photovoltaic offering for private households in 2018, which extends the existing product line towards intelligent, digitally supported individual energy solutions. www.joulie.at contains various building blocks related to decentralised energy supply - from a demand analysis and advising in the form of a web-based configurator to the installation of photovoltaic equipment and individual energy management and monitoring. The customer has full control over his system at all times via smartphone, tablet or PC.
 

Environmental and water business

Investments in the Environment Segment rose by 78.8% year-on-year to EUR 20.7m in 2017/18. This increase reflects EVN's strategic approach to continue its investments in the security and quality of drinking water supplies for Lower Austria. The focal points of these activities include the expansion and new construction of cross-regional pipeline networks to further strengthen supply security. Among others, a 20 km connecting pipeline for drinking water is under construction from Wienerherberg to the Mödling region. EVN is currently constructing the fourth natural filter plant in Lower Austria on the Wienerherberg well field. EVN also expanded in the area of local drinking water supplies during 2017/18 by taking over the management of four additional local drinking water networks.

In the international project business, three wastewater treatment projects in Macedonia and the new central wastewater treatment plant in Prague were commissioned and transferred to the customers on schedule in 2017/18. A contract was also signed for the Tubli project in Bahrain at the beginning of September 2018. This general contractor assignment involves a twofold increase in the capacity of an existing wastewater treatment plant. The contract also includes the construction of a sludge drying and sludge incineration plant at the same location. It will be realised together with local partners, with financing provided by the customer.
 

Outlook for the 2018/19 financial year
The 2017/18 financial year was positively influenced by the strong rise in energy prices, which was reflected, above all, in the valuation of hedges as of the balance sheet date. Assuming average conditions in the energy business environment, Group net result for 2018/19 is expected to range from EUR 160m to EUR 180m. However, Group net result could be significantly influenced by the regulatory background, the legal proceedings currently in progress in Bulgaria and the remaining legal proceeding related to the Walsum 10 power plant project as well as the progress on activities in Moscow.

For the complete Full Report on the 2017/18 financial year see www.investor.evn.at.