Highlights

• Positive non-cash earnings effect as of the balance sheet date due to valuation of hedges leads to increased guidance for the 2017/18 financial year
• Increase of 11.5% in renewable generation based on above-average water flows
• Expansion of wind power proceeding on schedule:
  • ­Acquisition of an existing windpark and commissioning of Sommerein windpark increase installed capacity to 318 MW
  • ­Preparations for construction and further expansion to approximately 370 MW by the end of 2019/20
• Stable earning power and a solid capital structure continue to form the basis for extensive investments in Lower Austria - in the network infrastructure, windpower, heat generation from biomass and drinking water supplies (expansion and new construction of cross-regional pipeline networks and natural filter plants)

Key results

• Revenue: -6.5% to EUR 1,650.3m
• EBITDA: -3.0% to EUR 585.0m
• EBIT: +28.6% to EUR 387.2m
• Group net result: +12.9% to EUR 273.2m

Energy sector environment
The first three quarters of 2017/18 were characterised by milder temperatures in EVN's three core markets - Austria, Bulgaria and Macedonia - compared to the first three quarters of the previous year.

Crude oil and natural gas prices were substantially higher year-on-year during the reporting period due to production cuts and an improvement in economic indicators. In addition, the quotations for CO₂ emission certificates increased significantly as a result of the positive development of the economy and the increased reduction in emission certificates beginning in 2021 which was approved by the European Parliament in February.

The forward prices for base load and peak load electricity reflects the trend in primary energy carriers with a considerable increase in recent months. In contrast, spot market prices were lower on average than in the previous year - chiefly due to the milder weather.
 

Improvement in EBIT and Group net result; moderate decline in EBITDA
Revenue recorded by the EVN Group declined by 6.5% to EUR 1,650.3m in the first three quarters of 2017/18. The main reasons for this development were a decrease in sales of electricity from thermal production below the high prior year level, valuation effects from hedges, a reduction in natural gas trading and temperature-related volume effects. The decline in the international project business also had a negative effect on revenue. Contrary positive factors - for example, from renewable electricity generation, the supply of reserve capacity to support network stability and heat sales - were unable to fully offset the revenue decline.

The cost of electricity purchases from third parties and for primary energy expenses fell by 3.8% year-on-year to EUR 763.6m in the reporting period. The main factors for this development were the reduction in thermal electricity generation, a decline in natural gas trading activities and weather-related lower energy sales volumes in South Eastern Europe. In addition, the amount of prior year was reduced by a positive effect from the agreement with the state-owned Bulgarian electricity company NEK.

The cost of materials and services were 17.3% lower than the previous year at EUR 192.4m and were influenced by developments in the international project business. On the one hand, the lower volume of orders during the reporting period was connected with a reduction in expenses. On the other hand, the comparable prior year value was unusually high due to the EUR 45.5m valuation allowance recognised to inventories in the international project business.

The share of results from equity accounted investees with operational nature rose by 29.5% to EUR 160.7m in the first nine months of 2017/18. This increase was attributable, above all, to valuation gains on hedges held by EVN KG as of 30 June 2018. Another factor involved the recognition of an impairment loss to the investment in Verbund Innkraftwerke GmbH during 2016/17. EBITDA recorded by the EVN Group fell by 3.0% to EUR 585.0m in the first three quarters of 2017/18.

Scheduled depreciation and amortisation declined by 1.7% to EUR 192.8m. The effects of impairment testing amounted to EUR 5.1m in 2017/18 and were substantially lower than the prior year value of EUR 105.8m, which was primarily related to impairments to assets in the Generation Segment. EVN generated EBIT of EUR 387.2m, which represents an increase of 28.6%.

Financial results amounted to EUR -14.7m (previous year: EUR -7.8m). The decline was attributable, above all, to the absence of positive non-recurring effect. Group net result rose by 12.9% year-on-year to EUR 273.2m in the first three quarters of 2017/18.
 

Sound balance sheet structure; reduction of net debt
EVN's positive operating results create the foundation for a solid balance sheet structure. EVN's net debt fell by EUR 192.4m below the level on 30 September 2017 to EUR 1,020.8m. Gearing improved from 38.5% (30 September 2017) to 28.4% as of 30 June 2018.
 

Developments in the energy and project business

Energy business

A 24.6% drop in electricity generation by the thermal power plants to 2,538 GWh led to a 13.1% year-on-year decline in EVN's electricity generation to 4,293 GWh in the first three quarters of 2017/18. This development was primarily attributable to the high comparable prior year volume, which was influenced by the strong demand for electricity throughout Europe during the cold winter 2016/17. Electricity generation from renewable energy increased by 11.5% to 1,755 GWh, supported by better wind and water flows as well as additional windpower capacities.

EVN's windpower generation capacity rose to 318 MW following the commissioning of the Sommerein windpark and the acquisition of the existing Ebenfurth windpark in July 2018. Plans call for a further gradual increase to roughly 370 MW by the end of the 2019/20 financial year through the realisation of projects already approved by the authorities. EVN is using a special quota of subsidies for the construction of windpower plants, which was approved by the Austrian Parliament in 2017 within the framework of an amendment to the Austrian Green Electricity Act ("Kleine Ökostromnovelle"). EVN's goal is to expand windpower capacity to 500 MW over the medium term through the realisation of projects, most of which have already been approved by the authorities. However, this will depend on appropriate framework conditions. Investments in the energy business will also continue to focus unchanged on network expansion to protect supply security.

For the first time, all EVN thermal power plants in Lower Austria, which have a combined generation capacity of 1,090 MW, were under contract to serve as reserve capacity for southern Germany during the winter half-year 2017/18. Their actual use for network stabilisation within the framework of these contracts remained at a high level. For the period from May to September 2018, EVN's thermal power plants are under contract with a capacity of 430 MW to stabilise the networks in Austria.
 

Environmental and water business

Investments in the Environment Segment rose by 7.5% to EUR 8.1m in the first three quarters of 2017/18. This increase reflects EVN's strategic approach to continue its massive efforts to improve the security and the quality of drinking water supplies in Lower Austria. The focal points of these activities include the expansion of and additional construction on the cross-regional pipeline networks as well as the construction of natural filter plants to reduce the hardness of the water by natural means. EVN is currently constructing the fourth plant of this type in its supply area southeast of Vienna, and further projects are in the planning phase. EVN also expanded its activities in the area of local drinking water supplies during the reporting period by taking over the management of four additional local drinking water networks (two each as of 1 January and 1 July 2018).

The transfer of the first of four wastewater treatment plants in Macedonia during the first quarter of 2017/18 was followed by the commissioning and transfer to the customer of two further projects in June and July 2018. In the international project business, as of 30 June 2018, WTE Wassertechnik was working on five general contractor assignments in the wastewater sector in Croatia, Macedonia, Poland and the Czech Republic.
 

Increased guidance for the 2017/18 financial year
Including the positive non-cash earnings effect of EUR 38m as of the balance sheet due to the increase in energy market prices and the resulting valuation of hedges concluded for risk management as of 30 June 2018, Group net result for 2017/18 is expected to be at a level comparable to last year's Group net result. The exact amount of the valuation effects at the end of the financial year will depend on energy market prices as of 30 September 2018.

However, Group net result could be significantly influenced by the regulatory background, the proceedings currently in progress in Bulgaria and the remaining proceeding over the Walsum 10 power plant project as well as the progress on activities in Moscow.

The complete Letter to Shareholders for the first three quarters of 2017/18 is available under: www.investor.evn.at.