8/27/2015

Business development in the first three quarters of 2014/15

(1 October 2014 – 30 June 2015)
Highlights
  • Reduction in end customer prices for electricity and natural gas by 5% on average as of 1 October 2015; start of the EVN Bonus World on 1 April 2015
  • Increase in electricity production:
− Expansion of renewable energy production: Completed commissioning of the 37 MW Prottes-Ollersdorf windpark in May 2015
− Increase in use of natural gas power plants to ensure network stability in Austria and Germany
− Full operations at the Duisburg-Walsum power plant
  • Sale of the sodium hypochlorite plant to the water supply and waste water disposal company of the city of Moscow
  • Operating result as well as Group net result above prior year
  • EUR 1 billion investment plan to support supply security in Lower Austria and the expansion of renewable energies over four years already in the implementation phase
  • Outlook 2014/15: Group net result expected to exceed the 2012/13 level

Key figures
• Revenue: +11.3% to EUR 1,664.1m
• EBITDA: +38.8 % to EUR 497.2m
• EBIT: EUR +328.4m to EUR 286.5m
• Financial result: EUR–31.2m to EUR –41.2m
• Group net result: EUR +246.1m to EUR 187.1m
• Net debt: EUR 1,293.6m (30.09.2014: EUR 1,622.4m)

Energy sector environment
The average temperatures in Austria during the first three quarters of 2014/15 were nearly identical to the previous year and, therefore, continued to exceed the long-term average. The heating degree total conse-quently remained unchanged at a low level. In contrast, lower temperatures in South Eastern Europe led to a 14.8% increase in the heating degree total in Bulgaria and 10.8% in Macedonia. The continuing expansion of renewable energy generation capacity in Austria and Germany as well as the low price of coal and – despite the recent increase – the still low price for CO2 emission certificates led to a further drop in the forward and spot market prices for base load and peak load electricity during the first nine months of 2014/15. The forward prices applicable to the reporting period fell by 4.3% to EUR 35.7 per MWh for base load electricity and by 5.8% to EUR 45.3 per MWh for peak load electricity. In comparison with the first nine months of 2013/14, the spot market prices declined 6.7% to EUR 31.8 per MWh for base load electricity and by 8.3% to EUR 40.1 per MWh for peak load electricity.

Increase in EBIT and Group net result
Revenue generated by the EVN Group rose by 11.3% to EUR 1,664,1m in the first three quarters of 2014/15. This increase was supported, above all, by full operations at the Duisburg- Walsum power plant throughout the entire reporting period and the related sale of electricity as well as the Group‘s natural gas sales activities, the results of recent price decisions in Bulgaria and Macedonia and the absence of negative non-recurring effects from regulatory decisions in South Eastern Europe during the previous year. In addition, the Theiss and Korneuburg power plants were called on more frequently by the Austrian and German transmission system operators to ensure network stability.

Other operating income rose by EUR 21.6m to EUR 90.3m. This improvement is attributable primarily to the sale of the sodium hypochlorite plant project. The cost of electricity purchases from third parties and primary energy expenses amounted to EUR 841.2m for the reporting period and was 6.5%, higher in year-on-year comparison. This development resulted primarily from the start of full operations at the Duisburg-Walsum power plant, the use of natural gas volumes for trading purposes and increased energy purchase prices in Bulgaria. The cost of materials and services rose by 9.8%, to EUR 186.3m. This amount includes a valuation allowance of EUR 11.0m recognised in the second quarter to the remaining components of the former project thermal waste utilisation plant no. 1 in Moscow. Higher costs were also recorded due to the above-mentioned full operations at the Duisburg-Walsum power plant, a turbine damage at the co-generation plant in Bulgaria and weather-related damages to the distribution networks in Bulgaria and Macedonia during the winter 2014/15.

An increase in personnel expenses due to wage and salary adjustments required by collective bargaining agreements, lower operating expenses as well as an improved result from equity accounted investees with operational nature led to an increase of 38.8% in EBITDA to EUR 497.2m.

Scheduled depreciation was increased chiefly by full operations at the Duisburg-Walsum power plant and ongoing investments, while impairment losses were substantially lower. Impairment losses in the previous year were influenced by negative valuation effects from Bulgaria and Macedonia. Based on these developments, the results from operating activities (EBIT) totalled EUR 286.5m, which represents a year-on year increase of EUR 328.4m.

Financial results amounted to EUR –41.2m and were EUR 31.2m lower than in the previous year. This change resulted, on the one hand, from a reduced dividend from Verbund AG for the 2014 financial year and, on the other hand, from the termination of the hedge for the financing of the sold sodium hypochlorite plant in Moscow and the costs for the related investment guarantee from the Federal Republic of Germany. Group net result equalled EUR 187.1m. This represents an increase of EUR 246.1m over the first nine months of the previous year.


Improved gross cash flow; reduced net debt
Gross cash flow rose by EUR 57.4m to EUR 387.6m in the first three quarters of 2014/15 based on the im-proved operational development. The EUR 51.2m decline in cash flow from operating activities to EUR 316.1m resulted from changes in working capital, which were influenced by non-recurring effects in the previous year. Cash flow from investing activities was positive at EUR 45.4m. Cash outflows for the current investment programme were contrasted by cash inflows from the sale of the sodium hypochlorite plant in Moscow. Cash flow from financing activities equalled EUR –340.6m for the reporting period and reflected the repayment of the financing for the sodium hypochlorite plant, the scheduled repayment of financial liabilities and the payment of the dividend in January 2015 for the 2013/14 financial year.

Net debt declined EUR 328.8m below the level on 30 September 2014 to EUR 1,293.6m as of 30 June 2015, and gearing fell to 49.1% (30 September 2014: 61.6%). The equity ratio equalled 40.4% as of 30 June 2015 (30 September 2014: 38.5%).

Developments in the energy and project business

Energy business

Within the current four-year investment period, EVN will be investing approx. EUR 1bn in networks, renewable energy and water supplies – and in this way, will further improve supply security and service quality for the customers in its home market.

The investments made in the Generation business segment during the reporting period were concentrated almost exclusively on renewable energy generation projects. The focus was on the completion of the Prottes-Ollersdorf windpark with twelve wind turbines and a generation capacity of 37 MW which was commissioned in May 2015. That gives EVN 250 MW of windpower generation capacity to supply 150,000 households with environmentally friendly electricity. In hydropower generation, the completion of revitalisation work on the Mühlhof hydropower plant in March 2015 showed the focus in this field of operation.

The investment strategy for the Network Infrastructure Austria Segment is focused on the protection of supply security in Lower Austria. EVN invests, above all, in network expansion to accommodate the growing generation from renewable energy sources and in the upgrading of its distribution networks. Projects during the reporting period continued to concentrate on the strengthening of the 110 kV network to transport the steadily rising feed-in of electricity from windpower and on the expansion and new construction of transformer stations. Two 110 kV lines with a total length of 20 kilometres were completed during the third quarter of 2014/15. The sale of the subsidiary V&C Kathodischer Korrosionsschutz GmbH to TÜV AUSTRIA in June 2015 marked a further strategic step toward consolidation and concentration on the core business.

In the energy trade and supply business EVN’s sales company will pass on the benefits from lower energy procurement costs in the form of a price reduction for private customers by EnergieAllianz Austria. The end customer prices for electricity and natural gas will be reduced by 5% on average as of 1 October 2015. In South Eastern Europe the regulatory authorities in Bulgaria and Macedonia have announced their price decisions for the coming 12 months. End customer prices in Macedonia were reduced by 0.3% as of 1 July 2015. The regulatory decision in Bulgaria was initially postponed by one month to 1 August 2015, and the new tariffs call for a reduction of 0.4% in end customer prices.

Environmental business

In the international project business, EVN is currently working on the realisation of eight projects. In the Kujawy wastewater purification plant in the Polish city of Krakow three of the four wastewater lines were successfully commissioned during the first three quarters of 2014/15, and the commissioning process for the fourth line was started. This plant will have a capacity to service 370,000 residents.

EVN is also currently realising two projects in Romania. In Zalau, the expansion of the local wastewater purification plant and the construction of a sludge treatment plant with biogas utilisation for 85,000 residents started during February 2015. The wastewater treatment plant built by EVN in Silvaniei, which has a capacity to service roughly 30,000 residents, entered the commissioning phase in April 2015. The commissioning process has been nearly finalised for the waste water purification plant in Larnaca, Cyprus, that was completed during the previous financial year.

In the area of drinking water supplies for Lower Austria, EVN – which currently supplies drinking water for more than 500,000 residents in Lower Austria – continued work on numerous projects to supply new com-munities with drinking water and to further improve the quality of drinking water for existing customers. EVN took over the management and operation of the water supply network for the community of Paudorf, including drinking water supplies for the roughly 2,500 local residents, as of 1 January 2015. In addition, EVN continued to pursue projects for the construction of natural filter plants to reduce the hardness of the water by natural means. The commissioning of a natural filter plant in Drösing during December 2014 was followed in the third quarter of 2014/15 by the commissioning of a natural filter plant in Obersiebenbrunn and the start of construction on a similar plant in Zwentendorf an der Zaya. The completion of these three plants will improve the water quality for nearly 200,000 residents in the involved regions.

Outlook
The positive first three quarters lead us to confirm our outlook for the 2014/15 financial year, with Group net result that is expected to exceed 2012/13. The assumptions for energy sector developments during the financial year are based on long-term averages, and short-term developments cannot be predicted with certainty. The Group net result could be significantly influenced by regulatory conditions, developments in the proceedings related to claims from the tariff decisions in Bulgaria and in connection with the Duisburg-Walsum power plant as well as by the progress of the activities in Moscow.

For the complete Letter to Shareholders for the first three quarters of 2014/15 see www.investor.evn.at.
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