Highlights

- Positive business development:

- Temperature-related rise in network distribution volumes

- Increase of 22.5% in electricity production

- Further expansion of windpower generation capacity from the current level of 269 MW to over 300 MW with the Oberwaltersdorf (10 MW) and Sommerein (33 MW) windparks; commissioning planned for the 2017/18 financial year

- Continued high level of investment; focal points: networks, renewable generation and drinking water
supplies in Lower Austria

- Arbitration decision on the Walsum 10 power plant project issued in November 2016 in favour of the project company

- Settlement with the state-owned Bulgarian electricity company NEK in February 2017

- Rating upgrades in April 2017:

- Moody's: from A3 to A2 (stable outlook)

- Standard & Poor's: from BBB+ to A- (stable outlook)

Key results

- Revenue: +9.4% to EUR 1,309.8m

- EBITDA: +13.9% to EUR 481.1m

- EBIT: +10.0% to EUR 319.6m

- Group net result: +23.1% to EUR 233.8m

- Net debt: -21.3% to EUR 904.1m

Energy sector environment

The first quarter of 2016/17 brought considerably colder temperatures in EVN's relevant markets. The heating degree total in Austria even exceeded the long-term average by a significant margin. The forward and spot market prices for base load and peak load electricity followed contrary trends during the reporting period: the forward prices for base load and peak load electricity declined, but spot market prices increased due to a temporary standstill of production capacities in France and the cold weather. The prices for primary energy carriers were consistently higher than the first half of the previous year. In contrast, the downward trend in the price of CO₂ emission certificates continued during the reporting period.

EBITDA, EBIT and Group net result above prior year

Revenue recorded by the EVN Group rose by EUR 113.0m, or 9.4%, to EUR 1,309.8m in the first half of 2016/17. This development was supported, above all, by the increased use of the thermal power plants to stabilise the networks in Austria and southern Germany, temperature-related higher electricity and natural gas network distribution volumes in Lower Austria and a temperature-related rise in revenue in South Eastern Europe. Further positive impulses were provided by renewable generation as well as the international project business in the Environmental Services Segment.

The cost of electricity purchases from third parties and primary energy expenses rose by EUR 16.0m, or 2.8%, to EUR 597.2m in the first half of 2016/17. The increase resulting from the weather-related higher demand for energy and the additional use of the thermal power plants for network stabilisation was offset in part by the settlement reached in Bulgaria. The cost of materials and services was EUR 56.5m, or 50.7%, higher at EUR 167.9m. It resulted primarily from a valuation allowance recognised to the remaining aggregate components from the former thermal waste utilisation plant no. 1 project in Moscow, which are reported under inventories, and to the positive development of revenue in the international project business. In contrast, EBITDA was positively influenced by an improvement in the share of results from equity accounted investees with operational nature. EBITDA rose by a total of EUR 58.8m, or 13.9%, to EUR 481.1m.

Scheduled depreciation and amortisation remained nearly unchanged. The effects of impairment testing totalled EUR 30.1m and were related primarily to an impairment loss recognised to the Gorna Arda hydropower plant project in Bulgaria during the first quarter of 2016/17. The results from operating activities (EBIT) rose by EUR 29.0m, or 10.0%, to EUR 319.6m in the first half of 2016/17.

Financial results improved by EUR 14.2m, or 35.9%, year-on-year to EUR -25.4m due to positive non-recurring effects in the current financial year as well as the absence of the negative earnings contribution from WEEV Beteiligungs GmbH in the previous year. Group net result equalled EUR 233.8m in the first half of 2016/17. This represents an increase of EUR 43.9m, or 23.1%, over the first quarter of the previous year.

Sound balance sheet structure; reduction of net debt

EVN's positive operating results create the foundation for a solid balance sheet structure. The equity ratio rose to 45.6% as of 31 March 2017 (30 September 2016: 42.3%). Net debt declined by EUR 217.3m below the level on 30 September 2016 to EUR 904.1m, and gearing fell to 30.3% (30 September 2016: 40.5%).

The rating agency Moody's raised EVN's rating from A3 to A2 (stable outlook) in April 2017, while Standard & Poor's increased its rating from BBB+ to A- (stable outlook).

Developments in the energy and project business

Energy business

EVN's electricity generation rose by 22.5% to 4,119 GWh in the first half of 2016/17 and reflected the increased use of the Group's thermal power plants to support network stability in Austria and Germany during the winter 2016/17. Energy generation from renewable sources was 65 GWh, or 6.7%, higher year-on-year at 1,031 GWh due to an increase in water and wind flows and the commissioning of the Paasdorf-Lanzendorf windpark in July 2016. At the same time, the further expansion of windpower generation capacity remains a focal point of activities. The commissioning of the Oberwaltersdorf (10 MW) and Sommerein (33 MW) windpark projects is planned for the 2017/18 financial year and will raise EVN's windpower generation capacity from the current level of 269 MW to over 300 MW.

The investment programme launched by EVN in 2013/14, which calls for capital expenditure of EUR 1bn in Lower Austria, is focused on the further strengthening of stable and regulated activities. Nearly 70% of this amount will flow into the new construction or expansion of the network infrastructure in Lower Austria. The primary goal of these measures is to safeguard the transport of the rising volumes of electricity from renewable production. In this way, EVN makes an important contribution to the continuous improvement of the network infrastructure and to maintaining the high level of supply security in Lower Austria.

Environmental and water business

In the water business EVN continues to focus on drinking water supplies in Lower Austria and invests further in the expansion of cross-regional pipeline networks, the increase in pumping station capacity and the upgrading of local water networks. In addition to safeguarding reliable supplies, especially in view of the increase in water consumption, EVN also places great importance on improving the quality of drinking water. Preparations have already started for the construction of a natural filter plant on the Wienerherberg well field, which will reduce the hardness of the water by natural means.

In the international project business, the city of Moscow acquired the local property company for the South-West Moscow drinking water supply plant, as planned, with the payment of the final instalment at the end of December 2016. This plant was constructed and operated for ten years by EVN. EVN received a contract in January 2017 for the construction of a new wastewater treatment plant in Kočani, Macedonia. This general contractor project with a value of approximately EUR 15.0m is designed for a capacity of roughly 65,000 residents. Financing will be provided by subsidies from Switzerland, which will be granted to the customer to improve the environmental situation in Kočani. EVN was working on the realisation of seven wastewater projects in Croatia, Macedonia, Montenegro and the Czech Republic as of 31 March 2017. On 16 March 2017 EVN announced that a bidder consortium formed by its German subsidiary WTE Wassertechnik and a Kuwaiti financial investor had submitted the best offer for a wastewater treatment project in Kuwait which covers the planning and construction of a sewage treatment plant as well as a sewage network and pumping stations. The contract has not yet been formally awarded by the tendering authorities.

Outlook

The Group net result is expected to increase over the previous year on the order of the non-recurring effect from the settlement in Bulgaria. In this connection, the reversal of valuation allowances to receivables recorded in previous years and default interest totalling approximately EUR 38m after tax were recognised. This outlook is based on the assumption of average conditions in the energy business environment. Other factors that could influence the Group net result include the regulatory environment, developments in the proceedings in Bulgaria, the remaining proceedings related to the Walsum 10 power plant project and the progress of activities in Moscow.

The complete Letter to Shareholders for the first half of 2016/17 is available under: www.investor.evn.at.