DGAP-News: EVN AG: Business development in the first half of 2018/19

Highlights

- Decline in Group net result in line with expectations; outlook confirmed

- Higher wholesale prices lead to decline in results from sales activities; lower Natural Gas network distribution volumes due to milder weather

- Increase in renewable electricity generation supported by good wind conditions and expansion of wind power generation capacity to 336 MW; construction of three further wind parks with a total capacity of 31 MW proceeding on schedule

- EVN will terminate coal-fired electricity generation in its Dürnrohr power plant in autumn 2019

- Commissioning of natural filter plant Wienerherberg to supply roughly 60,000 residents in 18 municipalities with high-quality drinking water

- Extension of concession for natural gas activities to 50 years in the Split-Dalmatia and Šibenik-Knin counties

- Orders received for four new wastewater treatment plant projects in Poland and Lithuania

- Rating upgrades: Standard & Poor's from A- to A, Moody's from A2 to A1; both with stable outlook

Key results

- Revenue: -0.2% to EUR 1,246.1m

- EBITDA: -29.9% to EUR 330.3m

- EBIT: -41.8% to EUR 198.1m

- Group net result: -43.8% to EUR 129.0m

- Net debt: EUR 1,041.3m (30.09.2018: EUR 963.7m)

Energy sector environment
Temperatures in each of EVN's three core markets exceeded the long-term average during the first half of 2018/19. The reduction in the temperature-related demand for energy in Lower Austria was particularly strong with a year-on-year decline of 14.2 percentage points.

The market prices for electricity and primary energy carriers increased during the reporting period and led to a particularly significant rise in the prices for base load and peak load electricity and for CO₂ emission certificates.

EBITDA, EBIT and Group net result below previous year
Revenue recorded by the EVN Group remained nearly stable in year-on-year comparison at EUR 1,246.1m in the first six months of 2018/19 (previous year: EUR 1,249.0m). This development was based on contrary factors: Positive impulses were provided, for example, by increases in renewable generation and heat supplies. These impulses were contrasted by lower revenue from thermal generation, a price- and volume-related decline in the Networks Segment and a change in the calculation method for the so-called "green electricity mark-up" in Bulgaria which, however, has no effect on profit or loss.

The cost of electricity purchases from third parties and primary energy expenses were also influenced by contrary effects in the first half of 2018/19. Upstream network costs were responsible for an increase, while the above-mentioned change in the calculation method for the green electricity mark-up in Bulgaria and the lower use of the thermal power plants led to a reduction. In total, this position was 7.8% higher than the comparable prior year period at EUR 637.0m.

The share of results from equity accounted investees with operational nature fell to EUR 4.6m in the first half of 2018/19 (previous year: EUR 111.0m). This decline reflected the development of business in EVN KG during the first half of 2018/19, which was influenced by higher procurement costs and negative effects from the valuation of hedges as of 31 March 2019, in combination with a lower earnings contribution from RAG. EBITDA declined to EUR 330.3m in the first half of 2018/19 (previous year: EUR 470.8m).

Depreciation and amortisation, including the effects from impairment testing, increased slightly as the result of investments, and EBIT equalled EUR 198.1m (previous year: EUR 340.3m).

Financial results improved from EUR -25.1m to EUR -23.1m. Group net result for the period amounted to EUR 129.0m (previous year: EUR 229.4m).

Sound balance sheet structure
EVN has a solid and stable capital structure which will support the implementation of its planned investments in Lower Austria over the coming years. Net debt rose by 8.0% over the level on 30 September 2018 to EUR 1,041.3m as of 31 March 2019 and gearing consequently increased from 23.5% to EUR 25.0%

Developments in the energy and environmental services business

Energy business

EVN's electricity generation from renewable energy rose by 1.5% to 1,184 GWh in the first half of 2018/19. This development was supported by better wind conditions compared to the previous year and, above all, by the expansion of EVN's wind power capacity. In the last few months alone, new wind parks were commissioned in Gänserndorf West (6 MW, repowering, December 2018), Au am Leithaberge (18 MW, December 2018) and Sommerein (33 MW, July 2018). EVN currently has an installed wind power capacity of 336 MW, but is also working on the construction of three further wind parks in Obersiebenbrunn, Markgrafneusiedl and Glinzendorf with a combined capacity of 31 MW. The expansion of wind power capacity towards the medium-term target of 500 MW is therefore on schedule. Water flows again exceeded the long-term average during the reporting period, but were unable to match the very good prior year level.

Electricity generation from the thermal power plants declined by 16.7% to 1,792 GWh following a reduction in the reserve capacity under contract to prevent shortages. Since 1 October 2018, 430 MW from the natural gas plant in Theiss have served as reserve capacity for the Austrian transmission network (previous year: 1,090 MW of capacity reserved for southern Germany). The underlying contract initially covers three years. Those thermal capacities of the Theiss and Korneuburg power plants, which are currently not under contract to prevent shortages, have been inactive and conserved due to the present market environment. At the Dürnrohr power plant, EVN will terminate the coal-fired electricity generation in autumn 2019. In total, EVN's electricity generation was 10.3% lower year-on-year at 2,976 GWh in the first half of 2018/19.

In line with EVN's corporate strategy, investments in the network infrastructure in Lower Austria represent a key focal point and thereby make an important contribution to reliable supply security and quality. Investments in the Networks Segment reflected this strategy with a further increase during the reporting period. The many projects currently in progress include, among others, the extension of the 110-kV power lines and the expansion of transformer stations.

Following an out-of-court settlement which EVN had already reached in 2016/17 for part of the claims filed against the Republic of Bulgaria, the arbitration proceedings against Bulgaria ended in April 2019 without further compensation for claims. In North Macedonia, EVN received a license as the "supplier of universal service" for an initial period of five years. This forms the basis to supply energy to all households and smaller companies beginning on 1 July 2019. In Croatia, the early extension of the concession for the operation of natural gas networks in the Split-Dalmatia und Šibenik-Knin counties from 30 to 50 years, i.e. to 2060, led to an improvement in the economic
environment.

Environmental and water business

EVN set another milestone to improve the water quality for its customers in the south of Vienna with the commissioning of its fourth natural filter plant. This new plant on the Wienerherberg well field now supplies roughly 60,000 residents in 18 municipalities with high-quality drinking water which is softened mechanically and without the use of chemicals. Another focal point of investments in drinking water supplies involves the expansion and new construction of the cross-regional pipeline networks. Projects which currently include the construction of a 20 km connecting pipeline from Wienerherberg to the Mödling region strengthen supply security, especially in a region that is characterised by strong population growth and a related increase in water consumption. These developments are reflected in EVN's plans to invest approximately EUR 165m in drinking water supplies in Lower Austria by 2030.

In the international project business, which is managed by the German subsidiary WTE Wassertechnik, EVN received four new general constructor assignments from Poland and Lithuania with a total value of approximately EUR 65m by mid-April 2019. EVN is currently working on seven general contractor assignments in the field of wastewater treatment in Lithuania, Poland, North Macedonia and Bahrain (as of April 2019).

Confirmation of Outlook
The 2017/18 financial year was positively influenced by a strong rise in energy prices, in particular during the second half-year. This led to an exceptional non-cash effect on earnings from the valuation of hedges as of the reporting date. Against this background and 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 future regulatory environment in South East Europe and the progress of activities in Moscow.

The complete Letter to Shareholders for the first half of 2018/19 is available under www.investor.evn.at.