Good morning, ladies and gentlemen, and welcome to EVN's results for the first quarter of the 2023/24 financial year. At this time, all participants have been placed on a listen-only mode. The floor will be open for questions following the presentation. Let me now turn the floor over to Stefan Szyszkowitz. Please go ahead.
Welcome, everybody, to the EVN's conference call on the results for the first quarter of this current financial year. The first three months of this financial year were again marked by very mild weather conditions in all our three core markets, especially compared to the long-term average. We are also observing changes in consumer behavior towards a reduction in energy consumption through energy-saving measures and increasing own generation volumes from customer-operated photovoltaic equipment as well. In addition to the weather and consumer-related effects, wholesale market prices are declining after the historical distortions in high volatility of the last few years. Despite these unfavorable conditions, we can report stable business development for this reporting period. Our Strategy 2030 and our diversified business model are once again proving to be stabilizing factors.
Our ambitious investment program in renewables, but also favorable water flows and better wind conditions, were responsible for increasing renewable generation volumes by more than 30%. As of the end of December 2023, we had an installed wind power capacity of 478 MW. Two further wind parks, one of which is being repowered, are currently under construction. We also made great efforts to expand our photovoltaic capacities. Here, we will double our current capacity to roughly 80 MWp in the second quarter of this financial year. Up to 2030, our total annual investments will remain within the level of EUR 70 million-EUR 900 million. Around 3/4 of that are dedicated to Lower Austria, and almost half is budgeted for the network infrastructure. Let me now continue with the key financials of this reporting period. In the first quarter, Group revenues were down by 22.6% year-on-year.
The main reasons for this development were lower valuation effects of hedges due to the downward trend in wholesale prices. Additionally, the reduced use of our Theiss power plant for network stability negatively affected revenue. In Southeast Europe, revenue decreased due to a drop in electricity prices and lower energy sales volumes in Bulgaria. Our international project business also recognized a revenue decline year-on-year because of the already largely completed wastewater treatment plant in Kuwait. The cost of electricity purchases from third-party and primary energy expenses were down year-on-year, mainly due to the decline in wholesale prices and lower procurement volumes for electricity in Southeast Europe and lower primary energy costs for electricity and heat generation. Personnel expenses increased by 16.8% compared to prior year, which reflects the necessary increase in workforce and adjustments according to the collective bargaining agreements as well.
Other operating expenses went up 56.9%, containing the energy crisis contribution and an impairment loss recognized to receivables. The share of results from equity accounted investees raised to EUR 47.4 million in the reporting period, after -EUR 43.2 million in the prior year. The comparative period was massively influenced by the negative development at our supply company EVN KG. In total, EBITDA in the reporting period amounted to EUR 285.7 million. Scheduled depreciation and amortization increased by 55.2% year-on-year, reflecting our higher investment program. Hence, EBIT amounted to EUR 200.5 million. Financial results decreased to -EUR 11.9 million, mainly due to increased interest expenses. In total, we generated a group net result of EUR 143.8 million in the first quarter of this financial year. Now let's move on to the next slide, which provides information regarding the group's balance sheet structure.
Balance sheet total increased by 2.3% compared to financial year-end 2022/2023. The main factors for this development are: the increase in plant and equipment resulting from our investments, the decline in negative effects from the valuation of hedges at the end of the reporting period, the higher balance of equity accounted investees, which was supported by the improvement in earnings at our supply company EVN KG, and the increase in other investments that resulted from the positive development of Verbund share as of last December 2023, which in the meantime reversed. As of the end of December, EVN's net debt slightly increased to EUR 1.4 billion. Correspondingly, Gearing ratios stood at 20%. Nevertheless, our financial flexibility remained solid. We have contractually committed undrawn credit lines in the amount of EUR 786 million as at the end of December last year.
Moreover, our declared goal is to maintain solid A category ratings in the future. To achieve such ratings, we are strictly monitoring the adjusted at-target ratios of both of our rating agencies. Let me now present our segments in more detail. First, the energy segment. The first quarter of this reporting period was characterized by very mild temperatures in Austria, both year-on-year and compared to the long-term average. Hence, energy sales volumes to the end customers dropped year-on-year. This negative development was intensified by energy-saving efforts by our customers, the increased own generation by customers from their photovoltaic equipment, and the growing competition we are facing. Revenue in the energy segment depends primarily on the marketing of the electricity generated in EVN's power plant. Besides, it includes the revenue from our domestic heating business. In the reporting period, revenue dropped to EUR 265.2 million.
The main effectors for this development are, on one hand, lower wholesale prices and the resulting lower valuation effects of hedges. On the other hand, the reduced use of our power plant Theiss. Revenue in this segment was positively affected by the increased renewable generation volumes and positive contribution from the natural gas trading. Operating expenses decreased year-on-year by 7.7%, which mainly reflects lower primary energy costs for electricity and heat generation. The earnings contribution from equity accounted investees turned positive in the reporting period after massive loss in the comparative period. Earnings contribution at our supply company EVN KG amounted to EUR 8 million in the first three months of this financial year. Last year, we were facing a loss of EUR 70.5 million. Based on this development, segment EBITDA amounted to EUR 66.3 million and EBIT to EUR 60 million.
On the next slide, I will present the development of our generation segment. Electricity generation volumes in this segment increased by 7.3% year-on-year due to a rise in renewable generation volumes. The main reasons for this positive development are in the year-on-year increase in wind and water flows and the expansion of renewable generation capacity. The use of our Theiss power plant by the Austrian network transmission operator for network stabilization was below the already lower levels of the previous year. The share of renewable generation increased in the reporting period to 81.8%. Revenue increased by 12.6% to EUR 126.7 million due to the higher production volumes from renewables and despite the decline in market prices. Operating expenses were up year-on-year because of the inflation effects, the higher workforce, which is related to the capacity expansion, and the Energy crisis contribution on electricity.
The contribution in the reporting period amounted to EUR 10.6 million. The Austrian law became effective as of the first December 2022 and would have expired at the end of last year. This January, the Austrian government announced to extend the law by further 12 months. We do not expect this to result in any further financial obligation, as the threshold, which includes eligible investments, was raised to EUR 200 per megawatt-hour. The earnings contribution from the equity accounted Verbund in kraftwerke also increased year-on-year. All in all, EBITDA increased to EUR 69.5 million. Taking into account higher scheduled depreciation amortization, segment EBIT was up year-on-year to EUR 57.7 million. Let's continue with the network segment. As already mentioned at the beginning, the winter started very mildly compared to last year and the long-term average as well.
The warmer temperatures together with the ongoing consumer energy-saving efforts and the rapid expansion of customer-operated photovoltaic equipment negatively affected distribution volumes in our network segment. Because of these developments and the lower use of our Theiss power plant for network stabilization, also natural gas network distribution volumes decreased year-on-year. Despite the lower distribution volumes, segment revenue increased to EUR 174.4 million due to the higher system network tariffs for electricity and natural gas for the last calendar year. A positive revenue contribution was also recognized by cable TV, internet, and telecommunication services. Operating expenses in the network segment slightly increased related to the higher inflation. In total, EBITDA amounted to EUR 89.3 million and EBIT increased to EUR 48 million. As of the beginning of this year, a new regulatory period for electricity distribution network became effective.
In the appendix of this presentation, you will find an overview of the current regulatory parameters for both the electricity and the natural gas distribution networks. At the beginning of this calendar year, E-Control adjusted system network tariffs for household customers. Network tariffs for natural gas decreased by 15.2% and for electricity increased by 12.7%. The latter is mainly driven by cost of network losses. Let's move on to the Southeast Europe segment. Temperatures in Southeast Europe were also well above the long-term average in the reporting period, while in North Macedonia, they were slightly below last year's temperatures. Overall, this led to a decline in energy sales volumes. Electricity generation volumes in this segment decreased in the first quarter compared to the previous year, mainly due to lower water flows in North Macedonia. Additionally, volumes declined because of a maintenance-related downtime in the co-generation plant in Bulgaria.
In contrast, network sales volumes and heat sales volumes were higher and positively affected by their Southeast Europe segment. Revenue of this segment decreased to EUR 355.2 million due to the lower energy sales volumes in Bulgaria and the downward trend in electricity prices. Operating expenses decreased in the reporting period due to lower energy procurement volumes and costs. In total, segment EBITDA amounted to EUR 37.3 million and segment EBIT to EUR 17.1 million. And finally, the environment segment. In our international project business, we are currently working on nine projects in the field of wastewater treatment, drinking water treatment, and thermal sludge utilization. We reached the peak of our Kumet project in the summer of the previous year. The wastewater treatment plant was completed at the end of December, and the first test run was successfully finalized.
The second part of the project, which relates to the infrastructure of the pipe system, is also two-thirds complete. Three projects for wastewater treatment plants in Poland and Romania were successfully handed over to the customers in the reporting period. Regarding the intention to deinvest WTE, the structured bidding process is ongoing. Therefore, I'm not allowed to report more details. Revenue in this segment fell year-over-year to EUR 109.3 million, which is a result of the advanced project status in Kuwait. Correspondingly, operating expenses declined. In January this year, the Geneva Court of Arbitration issued a judgment regarding the arbitration proceedings initiated against the municipality of Budva. This included the non-fulfillment of payment obligations from the investment contract for the planning, construction, financing, and operating of a wastewater treatment plant. The court confirmed the amounts already received for WTE but did not recognize any further demands.
Consequently, we had to impair the outstanding receivables from this project, which amounted to EUR 22.5 million. In total, segment EBITDA decreased to -EUR 1.4 million, and EBIT amounted to - EUR 7.3 million. Financial results declined year-on-year due to higher interest expenses. Hence, result before income direct tax dropped to -EUR 12.9 million. The next slide shows the development of our group cash flows. Gross cash flow was lower year-on-year at EUR 216.8 million. The main drivers for this development were lower earnings recorded in the reporting period, non-cash earnings components, and lower dividends from equity accounted investees. Cash flow from operating activities amounted to EUR 87.2 million, reflecting the development of working capital and the year-on-year decline in income tax payments.
Please also consider last year's negative effect caused by the liquidity settlement for EVN KG and the related higher capital commitment for working capital. Cash flow from investing activities decreased to EUR 34.8 million. The increasing investment level was compensated by the sale of cash funds. The higher investment also contrasted by higher construction and network subsidies in the network and heating business. The cash flow from financing activities amounted to - EUR 155.3 million and included scheduled repayments. The net change in cash and cash equivalents amounted to - EUR 33.3 million. As already mentioned, EVN has committed undrawn credit lines of EUR 786 million as of the end of December last year. Let's come to the outlook for this current financial year. We confirm the outlook for this financial year given in December.
Under the assumption of a stable regulatory and energy policy environment, we expect the group net result for 2023/2024 to be within a range of EUR 420 million-EUR 460 million. You may also find an overview of the outlook of all segments in the appendix of this presentation. In December last year, we also specified our dividend policy. Future dividend will equal at least EUR 0.82 per share, and we are committed to let our shareholders proportionally participate in any additional earnings growth. In the midterm, we are aiming for a payout ratio of 40% of group net result. As already mentioned at the beginning of today's presentation, total annual investment will be at the range of EUR 700 million-EUR 900 million. The core areas are investments in network infrastructure and besides that renewable generation and drinking water supplies.
This investment will be crucial for a successful transition of the energy system. I have now reached the end of my presentation. I look forward to answering your questions.
Thank you very much. Ladies and gentlemen, if you would like to ask a question, please press nine and the star key on your telephone keypad. In case you wish to cancel your question, press nine and the star key again. Please press nine and the star key now to state your question. The first question comes from Thibault Dujardin. Please go ahead. I think you are on mute. You can speak now.
Hello? Can you hear me? Hello? Can you hear me?
Yes, of course.
Yeah. Sorry.
Yes, sure.
Yes, ma'am. Thank you. Thank you very much for taking my question. My first question will be regarding the Verbund special dividend. How do you have any views on how you will pass through it? Will it be in terms of percentage? Do you have a view on it?
Okay. As of today, I'm able to confirm our full-year guidance, which we gave in mid-December. So, as I stated before, we expect the group result in the range of EUR 420 million-EUR 460 million. As always, this outlook is based on average energy sector conditions. So, today, we only have a full visibility for the first three months of the group. We still have nine months to go. And as you know, our outlook is subject to many external parameters, which we can't predict, such as water and wind condition, temperature-related demand, and further development of energy prices, which have dropped substantially recently. So, on this basis, we are not able to confirm any change of this expectation for this year's result and therefore no change on the dividend expectation so far.
Thank you very much. May I ask you a follow-up question regarding the WTE disinvestment, if you have any updates?
Yes. I mentioned it before. We have a structured bidder process. On this basis, we're in a very tight legal framework. Therefore, I ask for understanding this. From today's point of view, I cannot comment on the further development of this investment project.
Thank you very much.
The next question comes from Teresa Schinwald. Please go ahead.
Hello. Good morning, everyone. I have a few questions, so I may ask them one by one. You mentioned the increased competition in the energy business in the presentation. Could you shed additional light on the development? So, which customers, price groups? So, if it's more in the fixed tariffs and flexible tariffs? And also, your expectations going forward, especially also with the own production of electricity and the impact on that business.
Okay. Thanks a lot. Yeah. First of all, as you know, we have a very tight legal framework regarding calculation of end-customer prices, which is also challenged in the courts. There have been special laws in June last year and then again in November 2023. On this basis, tariff policy for all sales companies is not so easy to do because we have a special customer protection law. On this basis, as we see it today, there are only two possibilities. One, you have a fixed tariff for 12 months, or you have a product which is flexible following the monthly changes in wholesale prices, but then the customer is also not locked in on a longer period than one month. This also leads to the special calculation regarding the procurement and the pricing. As we did last year, we changed our tariff structures to these two products.
Therefore, during this year, we have to update prices for the 12-month product. On average, in the last years before the corona crisis, we had a churn rate of around 4%-6% for electricity and 6%-8% on the gas levels. We see now in these last couple of weeks and months that the churn rate was slowing down again to a level which is comparable to the pre-crisis environment. Of course, if you have a 100-year event like we have seen in the last 24 months with these hiking wholesale prices, the period of wholesale prices who are coming down now is a special period also on adoption, also on the end-customer side. I think this will be one of the topics regarding the performance in the current year, how the sales company will work in this environment.
In a way, the legal situation is a bit a big mess, and we have to adopt the legal framework also to the whole cycle of planning, procurement, and pricing. This was regarding the end-customer business. Please, Theresa.
Yes. Go ahead. No, no.
And the second thing which is really interesting is how the strong installation of photovoltaic, especially on the private customer side, has changed also the demand and supply of household customers regarding the structure of sales in Lower Austria. So, we have more and more photovoltaic production in the field of private households. And therefore, the consumption of this prosumer's consumed energy is also increasing. And we see also a stronger, so to say, inflow of electricity, which we estimate it's an assumption, which we estimate in this period of around 200 GWh. But the installed capacity is around 1,000 MW already. So, there's a dramatic shift that's taking place over the last 24 months. And this will also change pricing of household customers, special products.
We have also now installed with more than 99% of the smart meter already the basis also to give tariffs which are much more structured on the consumption and production of individual customers.
Awesome. Thank you. A follow-up or an additional question on the energy segment. What was about the swing effect of the hedge valuation versus last year?
Okay. So, this is.
In EUR billion terms.
As you know, yeah. Okay. The effect is coming from the power price development. If you have a look on the power price, you can do the calculation because, of course, this is also competitive information.
Okay. Yeah. Of course. Then, can I also ask for the order backlog in the environment business? Maybe I have missed it.
Well, we have a look here. Well, it has developed comparatively. So, it's EUR 798 million, let's say, EUR 800 million.
Okay. Great. The last question is on the tax effect. If I got it right, you said you don't expect a negative impact from the prolongation that the Austrian government is discussing.
Yes. So, we have around EUR 10 million.
So, you mean?
10 million in the first quarter, but not an additional coming from this law for the remaining three quarters.
Okay. Thank you. That's clear. That's all from my side. Thank you very much.
Thanks. Bye.
Okay. So, we didn't receive any further questions, so I will leave the line open for a couple more seconds. If you want to ask a question, please press nine star now. Okay. And we have another question. It comes from Roland Vetter. Please go ahead.
Good morning, gentlemen. I would like to ask about the impact that your business has from the lower wholesale prices that we see in further years out. Would you expect that the overall impact, like in 2027, 2028 low prices, negative for your business because of your lower generation income? Would you expect a positive impact because you might have higher margins on the customer side?
I think a very good question because it's also going beyond the actual development. What we see is a transformation in the production portfolio in Europe and also, especially, in Austria. Therefore, we will expect that there will be more volatile prices coming up in comparison between the summer season and the winter season. And this will also affect how electricity will be used and consumed, if it's subsidizing other forms of energy. Think about heating pumps and e-mobility. And that the pricing and the products we can offer to level out these differences between the seasons will be a new possibility to develop our business. At the end, we will see different kind of effects because certain customers will take advantage of using energy on different time periods, different season periods.
So, there will be a change also in the usage of energy as a result of this stronger fluctuation of prices over the seasons. And on the other hand, the whole storage system will get a strong push on the industrial customer side but also on the utility side. So, this might also lead in a certain strong boost for hydrogen, stronger than we have thought on the timeline. So, we will have a certain stronger depreciation in products. And, of course, we try to hedge our energy procurement and demand 12 months ahead. And therefore, the effects can fluctuate quite strongly. So, the whole energy industry will get more volatile. But big groups, big players like EVN will take advantage of it because they can better judge the risk over different parts of their business.
Can you tell us how much are you selling in terms of generation volumes? How much are you producing in total? How many terawatt-hour effectively, including your participations?
Do you mean now or in 2027, 2028?
2027, 2028.
Okay. It's depending pretty much what we will be able to build up our capacity then. If we now look on the existing data for 2022, 2023, it has been 2 TWh of renewable energy coming from especially wind and, of course, water. It will go up in our estimation. In direction 2020, 2030, it will go to 3 TWh.
Which means about EUR 10 of change in the wholesale price. If you sell to the wholesale price, it's about EUR 20 million roughly on the existing assets. Correct?
I think it's just too simple. I think this is a too simple judgment then. If you want to develop a model on this basis, I think we should discuss this with our colleagues also that we give you some insight how markets can do the calculation.
Okay. No. Happy to do that offline then. Thanks.
Yes, please.
Ladies and gentlemen, since we didn't receive any further questions, let me hand back over for some closing remarks to Mr. Szyszkowitz.
Yeah. Thank you all for joining today's conference call. We will publish the results for the first half year on Wednesday, the 29th of May. Have a nice day and goodbye.