EVN AG: Business development in the first three quarters of 2016/17

Highlights

- Positive business development:

- Significantly cooler temperatures in the core markets of Austria, Bulgaria and Macedonia

- Stronger demand for supra-regional services and the management of shortages led to increased use of EVN's thermal power plants

- Further expansion of windpower business

- Expansion of wind generation capacity from present level of 269 MW to over 300 MW in 2017/18 through windparks in Oberwaltersdorf (10 MW) and Sommerein (33 MW), which are currently under construction

- Medium-term expansion goal for approximately 500 MW of installed capacity (based on appropriate legal framework)

- Focused continuation of investment activities on networks, renewable generation and drinking water

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

- Positive one-off effect from agreement with state-owned Bulgarian electricity company NEK in February 2017

Key figures

- Revenue: +9.2% to EUR 1,765.5m

- EBITDA: +14.8% to EUR 603.0m

- EBIT: +0.6% to EUR 301.2m

- Group net result: +21.7% to EUR 242.0m

Energy sector environment

The first three quarters of 2016/17 brought considerably colder temperatures in EVN's relevant markets compared with both the previous year and the long-term average. The forward prices for base load and peak load electricity were lower during the reporting period than the first three quarters of the previous year; but spot market prices increased due to the cold weather and a temporary standstill of production capacities in France. The prices for primary energy carriers were consistently higher year-on-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 148.9m, or 9.2%, to EUR 1,765.5m in the first nine months of 2016/17. This growth was supported, above all, by the increased use of the thermal power plants to stabilise the networks in Austria and southern Germany, by temperature-related higher electricity and natural gas network distribution volumes in Lower Austria and by an increase in the international project business. Further positive impulses were provided by renewable generation and the energy business in South Eastern Europe, which also benefited from temperature-related volume effects.

The cost of electricity purchases from third parties and primary energy expenses rose by EUR 28.2m, or 3.7%, to EUR 793.5m in the first three quarters 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 with the Bulgarian state-owned electricity company NEK. The cost of materials and services was EUR 55.5m, or 31.4%, higher at EUR 232.6m. This increase resulted primarily from a valuation allowance on inventories recognised in the second quarter of 2016/17 and the positive development of revenue in the international project business.

Scheduled depreciation and amortisation were EUR 3.2m, or 1.6%, lower than the previous year at EUR 196.1m. The effects of impairment testing amounted to EUR 105.8m in the first three quarters of 2016/17 (previous year: EUR 26.8m). The increase is attributable to an impairment loss of EUR 28.9m recognised to the Gorna Arda hydropower plant project in Bulgaria during the first quarter of 2016/17 and to other impairment losses which included EVN's investment in the Walsum 10 power plant (EUR 19.1m), electricity procurement rights and renewable as well as thermal generation assets (EUR 19.9m) and the Bulgarian district heating company TEZ Plovdiv (EUR 26.6m). EBIT totalled EUR 301.2m for the first three quarters of 2016/17 (previous year: EUR 299.3m).

Financial results improved to EUR -7.8m due to positive non-recurring effects, higher interest income and a decline in interest expense (previous year: EUR -39.5m). Group net result increased in the first half of 2016/17 by EUR 43.2m, or 21.7%, to EUR 242.0m.

Sound balance sheet structure; reduction of financial net debt

EVN's positive operating results create the foundation for a solid balance sheet structure. The equity ratio rose to 47.5% as of 30 June 2017 (30 September 2016: 42.3%). Financial net debt declined by EUR 221.9m below the level on 30 September 2016 to EUR 899.6m.

Developments in the energy and environmental business

Energy business

EVN's electricity generation rose by 6.0% to 4,940 GWh in the first three quarters of 2016/17. EVN's thermal power plants were frequently used to stabilise the networks in Austria and Germany during the first three quarters of 2016/17. Despite lower production volumes in the Walsum 10 power plant, thermal generation was higher than the previous year. Energy generation from renewable sources was higher year-on-year due to an increase in 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 medium-term expansion goal in the windpower business - based on appropriate legal framework - is approximately 500 MW of installed capacity.

Besides the expansion of renewable energy capacities, the steady expansion of the network infrastructure in Lower Austria remains a central strategic goal for EVN in order to protect supply security and quality over the long term.

Environmental- and water business

The focus for drinking water supplies included an increase in pumping station capacity and the expansion of the cross-regional pipeline networks - a strategy whose effectiveness is visible particularly in low-precipitation months. In addition to safeguarding reliable supplies for the population of Lower Austria, EVN also places great importance on improving the quality of drinking water. To this effect preparations recently started for the construction of a natural filter plant on the Wienerherberg well field in Ebergassing, which will reduce the hardness of the drinking water by natural means for roughly 100,000 residents. EVN also took over the management of the local drinking water networks in two additional Lower Austrian communities during April and July 2017.

Activities in EVN's international project business included work on seven wastewater projects in Croatia, Macedonia, Montenegro and the Czech Republic as of 30 June 2017. The projects currently under construction are proceeding as planned. In Russia, the local property company for the South-West Moscow drinking water supply plant was transferred to the city of Moscow, as previously reported, at the end of December 2016 after receipt of the final instalment. This plant was constructed, financed and operated for ten years by EVN. In March 2017 a bidder consortium formed by WTE Wassertechnik GmbH and a Kuwaiti financial investor submitted the best offer in the tender for a wastewater treatment project in Kuwait. The contract has not yet been formally awarded by the tendering authorities, but is expected to take place during the current calendar year.

Outlook

The Group net result is expected to increase over the previous year on the order of the non-recurring effect from the settlement with NEK 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. The 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 three quarters of 2016/17 is available under: www.investor.evn.at.