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

Highlights

- Development in line with expectations - after two financial years which were influenced by non-recurring effects - return in Group net result for 2018/19 to the long-term level as forecasted

- Temperature-related demand for energy in Lower Austria substantially lower than the previous year due to the unusually warm weather up to the beginning of November

- Results from sales activities negatively affected by higher wholesale prices

- Wind power generation capacity rises from 318 MW to 336 MW

- General contractor assignment for a wastewater treatment plant project in Poland received

- Natural filter plant on the Wienerherberg well field completed on schedule; test operations begin in March 2019 to supply roughly 60,000 residents with high-quality drinking water

- Continuation of investment strategy with focus on networks, renewable generation and drinking water supplies in Lower Austria

Key results

- Revenue: +0.6% to EUR 596.0m

- EBITDA: -29.5% to EUR 163.2m

- EBIT: -41.3% to EUR 97.4m

- Group net result: -47.3% to EUR 59.1m

- Net debt: EUR 1,033.2m (30.09.2018: EUR 963.7m)

Energy sector environment

In year-on-year comparison, the first quarter of 2018/19 was characterised by inconsistent energy sector framework conditions in EVN's core markets of Austria, Bulgaria and Macedonia. The temperature-related demand for energy in Lower Austria was much lower than in the previous year due to the unusually warm weather up to the beginning of November, while the heating degree total in Bulgaria improved considerably during the reporting period. Macedonia was slightly below the long-term average.

Substantial increases were recorded during the reporting period in the applicable forward and spot market prices for base load and peak load electricity as well as the prices for CO₂ emission certificates, coal and natural gas.

Year-on-year decrease in EBITDA, EBIT and Group net result despite increase in revenue

Revenue recorded by the EVN Group rose by 0.6% year-on-year to EUR 596.0m in the first quarter of 2018/19. This development was supported primarily by valuation effects from hedges in the Generation Segment and by an increase in renewable generation and heat sales. Contrasting factors were a price- and volume-related decline in the Networks Segment and a change in the invoicing method for the so-called "green electricity mark-up" in Bulgaria.

The cost of electricity purchases from third parties and primary energy expenses were also influenced by contrary effects in the first quarter of 2018/19. Upstream network costs and the valuation of hedges were responsible for an increase, while the above-mentioned change in the invoicing method for the green electricity mark-up in Bulgaria led to a reduction. In total, this position was 13.1% higher than the comparable prior year period at EUR 302.2m.

The share of results from equity accounted investees with operational nature fell to EUR 6.5m in the first quarter of 2018/19 (previous year: EUR 57.6m). This decline reflected, in particular, the lower earnings contribution from EVN KG which resulted from higher wholesale prices and negative effects from the valuation of hedges. EBITDA recorded by the EVN Group therefore declined by 29.5% to EUR 163.2m.

Depreciation and amortisation, including the effects of impairment testing, remained nearly stable year-on-year. EVN generated EBIT of EUR 97.4m in the first quarter of 2018/19, which represents a decrease of 41.3% compared with the first quarter of the previous year.

Financial results declined by 31.9% to EUR -15.5m. Group net result for the period amounted to EUR 59.1m and was 47.3% lower than the first quarter of the previous year.

Sound balance sheet structure; increase in net debt

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 7.2% over the level on 30 September 2017 to EUR 1,033.2m as of 31 December 2018 and gearing consequently increased from 23.5% to 25.9%.

Developments in the energy and environmental services business
Energy business

Electricity generation was 8.1% lower than the previous year at 1,549 GWh in the first quarter of 2018/19 due to a decline in renewable energy and in the thermal power plants. In the area of renewable energy generation, the increase in wind power - which resulted from the commissioning of the Sommerein wind park at the beginning of July 2018 and higher wind flows than the previous year - was unable to offset the substantial year-on-year decrease in water flows. The lower volume of electricity generated in the thermal power plants reflected, above all, a reduction in the reserve capacity under contract for network stabilisation to 430 MW (previous year: 1,090 MW). The separation of the German-Austrian electricity price zone as of 1 October 2018 also marked the end of the contractual supply of EVN's thermal power plants to support network stability in southern Germany. However, a new contract was concluded for the natural gas-fired power plant in Theiss to serve as reserve capacity for the Austrian transmission network.

EVN's programme to expand wind power generation capacity towards the medium-term target of 500 MW is proceeding as planned. The realisation of projects already approved by the authorities will raise this generation capacity to roughly 370 MW by the end of the 2019/20 financial year. The recent commissioning of the Au am Leithaberge wind park (18 MW) increased EVN's wind generation capacity to 336 MW and moved the Group a step closer to reaching its expansion goals. EVN also improved the efficiency of its first wind park, Gänserndorf West, which was completely renovated through repowering and upgraded to meet the latest technological standards. Investments in the energy business again focused on network expansion to protect supply security. Activities in the first quarter of 2018/19 included the renovation of the transformer stations in Gerstl and Wilhelmsburg as well as the expansion of the transformer station in Bockfliess. A project to renew the nearly 50 km 110-kV power line between Gresten and Pottenbrunn was also completed. Further projects are currently in progress to expand the equipment and networks.

Environmental and water business

Investments in the environmental business continue to concentrate on the improvement of the supply security and quality of drinking water in Lower Austria. On the Wienerherberg well field, the construction of the natural filter plant was completed. This facility - which already represents the fourth of its kind in EVN's supply area - will begin test operations in March 2019 and, in the future, will supply roughly 60,000 residents in the south of Vienna with high-quality drinking water which is softened mechanically and without the use of chemicals. EVN is also continuing to invest in the expansion and new construction of cross-regional pipeline networks. Among others, a 20 km connecting pipeline for drinking water is currently under construction from Wienerherberg to the Mödling region. The project will provide long-term protection for supply security in the area south of Vienna - a region which is characterised by strong population growth and a corresponding rise in water consumption.

In the international project business, a new major project in Poland with a general contractor assignment for the expansion of sludge treatment in the Gdynia wastewater treatment plant was acquired during November 2018. The planning and construction of the entire project will take 36 months, and the investment volume totals approximately EUR 16m. EVN was working on five general contractor assignments in the international project business as of 31 December 2018. These projects involve the construction of wastewater treatment plants in Macedonia, Poland, Croatia and Bahrain.

Confirmation of Outlook

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 proceeding related to the Walsum 10 power plant project as well as the progress on activities in Moscow.

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