Earnings call transcript: EVN Q1 2025 sees revenue dip, stock slides

In the first quarter of 2025, Eaton (NYSE:ETN) Vance Municipal Income (EVN), a profitable company with a market capitalization of $425.63 million, reported a slight decline in revenue, with significant impacts on its net results. According to InvestingPro data, the company maintains a P/E ratio of 11.57 and has demonstrated consistent profitability over the last twelve months. The company’s stock reacted negatively in premarket trading, reflecting investor concerns over its financial performance and increased debt levels.

Key Takeaways

• Revenue decreased by 1.3% year-on-year.
• Group EBITDA fell by 6% to €253.1 million.
• Net result dropped 19.7% from the previous year.
• Investments rose by 30% to €170 million.
• Premarket stock price fell by 2.51%.

Company Performance

Eaton Vance Municipal Income faced a challenging first quarter, with revenue slightly declining by 1.3% year-on-year. The company’s EBITDA fell to €253.1 million, marking a 6% decrease from the previous year. The net result was also down by 19.7%, reflecting the broader pressures within the energy sector. Despite these challenges, the company increased its investments by 30%, focusing on renewable energy and e-mobility infrastructure.

Financial Highlights

• Revenue: Slightly down 1.3% year-on-year
• Group EBITDA: €253.1 million, down 6% YoY
• Group Net Result: €115.5 million, down 19.7% YoY
• Net Debt: Increased, with a gearing ratio of 19.3%
• Investments: Increased by 30% to €170 million

Market Reaction

In premarket trading, EVN’s stock fell by 2.51%, reflecting investor concerns over the company’s declining revenue and net results. The stock’s last price was recorded at $10.48, down from the previous close of $10.75. InvestingPro analysis reveals that EVN generally trades with low price volatility, with a beta of 0.52, making it a relatively stable investment. This movement places the stock closer to its 52-week low of $9.79, highlighting the market’s cautious sentiment. Want deeper insights? InvestingPro offers comprehensive analysis with 12+ additional exclusive tips for EVN.

Outlook & Guidance

EVN has set ambitious targets for its renewable energy portfolio, aiming to expand wind power capacity to 770 megawatts and photovoltaic capacity to 300 megawatts by 2030. The company plans to invest up to €900 million annually until 2030, focusing on network infrastructure, renewable generation, and e-charging infrastructure. InvestingPro data shows the company has maintained dividend payments for 27 consecutive years, with a current attractive yield of 5.73%. The dividend policy aims for a minimum of €0.82 per share, with a long-term payout ratio target of 40%. Access the complete EVN Pro Research Report for comprehensive analysis of the company’s growth strategy and financial health.

Executive Commentary

Alexandra Bittmann, CFO, emphasized the company’s strategic focus on renewable energy, stating, "We strongly believe in the growing importance of sector coupling for renewable energy." She also reassured investors of the company’s financial stability, noting, "Our financial flexibility remains secured and solid."

Risks and Challenges

• Declining electricity sales could further pressure revenue.
• Increasing net debt may affect financial flexibility.
• Competitive pressures in the energy market could impact profitability.
• Regulatory changes in energy policy could pose risks.
• Customer shift towards self-generation through photovoltaic systems.

Q&A

During the earnings call, analysts inquired about the outlook for EVN’s supply business, which maintains a positive full-year forecast. However, questions regarding potential government energy policies and taxes remained unanswered. The anticipated WTE transaction is expected to be signed soon, indicating potential strategic moves in the near future.

Full transcript - Eaton Vance Municipal Income (EVN) Q1 2025:

Conference Moderator: Good morning, ladies and gentlemen, and welcome to the EVN’s Conference Call for the First Quarter of twenty twenty four-twenty twenty five 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 Alexandra Bittmann.

Alexandra Bittmann, CFO/Spokesperson, EVN: Good morning, everybody, to EVN’s conference call on the results for the first quarter of our current financial year. Today’s results define EVN’s new normal level of results together with our full year guidance, which we confirm today. I would like to remind you that two years ago, a normal level for EVN’s group net results were between million and million. We now see such normal level between million and million, which is our outlook for this financial year, which means a substantial step up in the group’s earnings level. The past two financial years were extraordinary due to the unusually high electricity prices, which pushed results from generation to levels which are not sustainable at current much lower electricity prices.

We are well on track to reach our renewable expansion targets by 02/1930. In December, our installed wind capacity reached a historic milestone of 500 megawatts, which corresponds to an average annual wind generation of 1.3 terawatt hours. We are currently working on further new wind and photovoltaic projects. I can, therefore, confirm our targets. We aim to expand wind power capacity from 500 to seven seventy megawatts and PV from about 100 to 300 megawatts peak till 02/1930.

The ongoing evolvement of a renewable energy system offers new business opportunities for EVN. We strongly believe in the growing importance of sector coupling for renewable energy, especially in the transportation sector. Therefore, we will invest up to million into e charging infrastructure until 02/1930. With over 3,200 charging points, we are currently the market leader in Austria. Our strategy is to establish e charging stations, which can easily be incorporated into daily routines.

For example, we are building e charging stations on the parking lots of two large supermarket chains in Austria as well as in Bulgaria. Last week, we published a new cooperation. Over the next four years, EVN will install 600 fast charging points at 92 locations for Austria’s leading furniture chain, Xxx Lutz. E Mobility and the expansion of Renewable Generation Forum, together with our network infrastructure and the Austrian drinking water business, our key investment areas. As already announced last autumn, our annual investments will amount to €900,000,000 until 02/1930.

This is already visible in Q1. Year on year, our investments are up by more than 30% and amounted to €170,000,000 in the reporting period. We are still in negotiations with Straubach regarding the sale of the international project business as agreed in a term sheet in December. All available for sale parts of the business are now being reported according to IFRS five. Therefore, in today’s financials, all P and L items for the previous Q1 had to be restated to already reflect the IFRS five disclosure.

So whenever talking about P and L effects today, please be in mind that they refer to restated comparative Q1 figures. Today, in about an hour, the annual general meeting for the previous financial year will take place. As you know, we will propose to the AGM the payment of a dividend of per share. Such dividend is almost 10% higher than the minimum dividend of per share according to our dividend policy. Now on the next slide, I will take you through the main financial developments in the reporting period.

Revenue was slightly down by 1.3% year on year to billion. The main reasons were a price related decline in revenues from the marketing of EVN’s own renewable generation and declining effects from the valuation of hedges. In contrast, revenue in all three network companies benefited from positive volume and price effects. And the supply companies in Bulgaria and North Macedonia also recorded a volume and price based increase in revenue. The increase in other operating income was due to insurance compensation for damages, which resulted from the floodings in Lower Austria during September 2024.

The cost of electricity purchases from third parties and primary energy expenses increased due to higher procurement costs in the regulated energy supply business in Southeast Europe. This increase was contrasted by lower procurement costs for natural gas due to lower gas volumes traded and at EVN BERMS. The cost of materials and services were up due to the repair costs for the flood damages, which, as already mentioned, are largely covered by insurance. The rise in personnel expenses reflects the increase in workforce and adjustments according to the collective bargaining agreements as well. Other operating expenses declined.

In the previous year, we had two one offs, being the impairment loss on receivables in the international project business and the energy crisis contribution for electricity, which was still due in the previous year’s Q1. The share of results from equity accounted investees slightly improved to million. Higher earnings contributions from RAG and Energia Alliance were contrasted by a price related decline of results at the Verbund (VIE:VERB) Inkaftverke power plants. In total, group EBITDA amounted €253,100,000 which is 6% decline year on year. Scheduled depreciation and amortization increased by 7%, reflecting our high investment program.

Hence, group’s EBIT totaled million, which means a decline by 11.4. Financial results amounted to minus million. In total, we generated a group net result of €115,500,000 in the first three months, which is 19.7% below the previous year’s period. Now let’s move on to the next slide, which provides information regarding the group’s balance sheet structure. As of the December, EVN’s net debt amounted to billion and was above the level as of September ’24.

Correspondingly, gearing ratio stood at 19.3%. Our indebtedness is increasing in line with our higher investment program. Our financial flexibility remains secured and solid. EVN holds contractually committed undrawn credit lines in the amount of million. On the next slide, I will present the developments of our segments in more detail.

First, the Energy segment. Energy demand for natural gas and heat increased due to colder temperatures, whereas electricity sales volumes declined year on year. The drivers for this development include strong competition and increasing electricity generation from customers’ own photovoltaic systems. Our equity consolidated supply company, EVN Kage, is in charge of the electricity and natural gas sales, whereas the heating business is fully consolidated. Therefore, heating is one of the main drivers for the revenue of the energy segment.

The other main factor for the development of revenue is the marketing of the electricity generated in our mainly renewable power plants. In the first three months, revenue fell year on year to million due to lower realizable prices in the marketing of our own generation, volume and price effects in natural gas trading as well as reduced earnings effects from the valuation of hedges. In line with the declining market prices, operating expenses also decreased. The earnings contribution from equity accounted investees amounted to million. Both supply companies, EVN KG and Engenagie Allianz (ETR:ALVG) contributed positively.

In total, segment EBITDA amounted to million and EBIT totaled million. Let us now turn to our Generation segment. Electricity generation volumes in the segment increased by 5% year on year. Water flows equaled the above average high prior year level. The ongoing expansion of our wind generation fleet compensated for weaker wind conditions.

Our Taiz power plant was called more frequently by the Austrian network transmission operator for network stabilization. Revenue decreased due to declining market prices and despite higher generation volumes. The generation segment also contains the effect from lost revenue and repair cost at our thermal waste incineration plant due to the floodings in September ’4. Operating expenses were year on year lower due to the absence of the energy crisis contribution for electricity. At the level of the equity accounted industries, we had lower earnings contributions from Verbund in Grafjearket due to lower market prices.

All in all, EBITDA amounted to million Based on higher scheduled depreciation and amortization because of our investment program, segment EBIT stood at million. Let’s continue with the Network segment. The colder weather and the increased use of our Teys power plant for network stabilization led to an increase in network distribution volumes for electricity and natural gas. In view of the positive volume effects and higher network tariffs for electricity, revenue in the segment increased. Operating expenses also increased due to higher costs for materials as well as personal expenses.

In total, EBITDA declined to million. Taking into account higher depreciation and amortization due to the high investment level, EBIT totaled million. Let’s move on to the Southeast Europe segment. In Bulgaria and North Macedonia, we are reporting today higher electricity network and energy sales volumes. The volume growth was, among others, driven by low temperatures in both area.

Revenue increased to million due to positive volume and price effects. This was contrasted by the offset of positive earnings effects from recent years in Southeast Europe in accordance with the regulatory methodology. Operating expenses increased in line with higher procurement costs in the regulated energy supply business in Southeast Europe. All in all, EBITDA amounted to million, and segment EBIT totaled million. The decline is in line with our segment guidance and the expected regulatory adjustments of past positive effects.

And finally, the Environment segment. Due to the IFRS five disclosure of the continued operations representing those parts of the international project business, which we plan to sell to Straubach, the financials of the environment segment look different. In other words, the P and L of the segment only covers the following activities, which are excluded from the planned sale: Firstly, our drinking water business in Lower Austria secondly, the equity accounted companies for the projects in Saagreb and Prague thirdly, the deconsolidated company for the wastewater treatment plant project in Budva, Montenegro and finally, the deconsolidation effects from the sludge fired combined heat and power plant in Moscow, whose sale was closed on thirty one October twenty four. For the activities to be sold, IFRS five’s disclosure requires us to report results from discontinued operations. These amount to million in Q1.

In comparison, the restated prior year value is million. The reduction reflects the progress on the international projects, especially in Kuwait. I kindly ask for your understanding that I can’t disclose any further details of the divestment other than those already public. The time line for the transaction is unchanged. We expect that the signing of the agreements will take place soon.

Next (LON:NXT) slide shows the development of our group cash flows. Gross cash flow was lower year on year at million. The main drivers were the lower results before income tax and the correction of noncash earnings components. Cash flow from operating activities totaled minus EUR32 million. The increase in trade receivables was contrasted by a lower capital commitment for our supply company, EVN KG.

Cash flow from investing activities amounted to million. Despite a substantial increase in investment, the sale of cash funds led to a positive value. Deposition cash flow from financing activities amounted to minus million and included scheduled repayments. The net change in cash and cash equivalents amounted to minus million. Let’s come now to the outlook for this current financial year.

I confirm our guidance for this financial year. We expect group net results to be within a range of million to million. This is under the assumption of a stable regulatory and energy policy environment. We don’t expect a significant impact from the possible WTE transaction on the results. Our dividend policy remains unchanged.

The dividend will equal at least $0.82 per share. As demonstrated with today’s dividend proposal to the AGM, we want our shareholders to appropriately participate in any additional earnings growth. In the medium term, a payout ratio equaling 40% of group net results adjusted for extraordinary effects is targeted. Our annual investments will amount to €900,000,000 until 02/1930. The core areas are investments in network infrastructure, renewable generation, e charging infrastructure and drinking water supplies.

That’s the end of our presentation, and we look forward to answering your questions.

Conference Moderator: And the first question is from Dujardin de Voldt. The floor is yours.

Tibeux Jardin, Analyst: Hello. Tibeux Jardin speaking. Can you hear

Alexandra Bittmann, CFO/Spokesperson, EVN: me? Hello? Yes.

Tibeux Jardin, Analyst: Yes. Thank you very much. First question regarding the supply activity. I see that EVM KK was roughly stable at million contribution in Q1. May I ask if you have a view on Q2?

I see that last year, it was where the contribution was most negative. If you have any view on the full year and on the evolution of the supply activity, it will be helpful.

Alexandra Bittmann, CFO/Spokesperson, EVN: Yes. I can confirm the outlook for KG will be positive for the full year 2024, ’20 ’20 ’5.

Tibeux Jardin, Analyst: Okay. And if you’re under Q2, if it will be also positive in Q2?

Alexandra Bittmann, CFO/Spokesperson, EVN: Full year. I want to confirm the full year guidance.

Tibeux Jardin, Analyst: Understood. Very clear. And second question regarding the disposal of WTE. I see in the report that you are referring to a signing in Q2. Do you have any and initially, the press release was mentioning a deal by February.

May I ask if you have any additional information?

Alexandra Bittmann, CFO/Spokesperson, EVN: I just can confirm that we foresee the signing soon.

Conference Moderator: And I have one more question from Richard Adaman. The floor is yours.

Richard Adaman, Analyst: Hello. Can you hear me?

Alexandra Bittmann, CFO/Spokesperson, EVN: Yes. Loud and clear.

Richard Adaman, Analyst: Good morning. Thanks for the presentation. I was going to also ask about the supply business. You mentioned then you’re talking about full year as a really positive turnaround. But in the conversation on the slide, obviously, you’re still talking about a quite demanding strong competitive environment.

What’s driving your thoughts, therefore, around that comment about really positive full year? Is it just the hedging effect rolling into that process? Or are you winning customers? What’s driving that thought process around the full year thoughts? And is that potentially the largest driver if you were to upgrade full year guidance later in the year?

Would that be probably where we’re getting the turnaround and the growth?

Alexandra Bittmann, CFO/Spokesperson, EVN: Let me answer that multifold. We expect EVN KG will generate positive earnings as we also don’t expect additional negative on one offs as we had them in the past. Evian KG basically offers two contract types with two different procurement and hedging strategies. Number one, floating prices with monthly index price amendments, back to back hedgings and contracts with fixed prices for twelve months. So that’s a pre rolling portfolio hedging strategy.

Conference Moderator: And

Alexandra Bittmann, CFO/Spokesperson, EVN: yes, we still confirm that this will guarantee a positive outlook. And with the new price strategy, this is also a backup strategy to this

Tibeux Jardin, Analyst: outlook.

Conference Moderator: And we have one more question from Peter Krampton. The floor is yours.

Peter Krampton, Analyst, Barclays (LON:BARC): Yes, Peter Krampton here from Barclays. And two questions, kind of all relating to the ongoing, Oxtrin kind of government, kind of talks. We, since the election in September, obviously, haven’t had that new government. I was just wondering, firstly, what you kind of hope this new government delivers on energy policy and anything that maybe allows you to invest in? And then secondly, there’s been some press speculation of additional taxes for the energy sector and whether you see a risk here, 4x or taxation, something that might hurt EVN.

Alexandra Bittmann, CFO/Spokesperson, EVN: Thanks, Peter. First of all, I’ll pick up on your special windfall tax or special dividend question or similar. Unfortunately, at the moment, we don’t have visibility on possible new laws or measures which the government may plan. Therefore, I really can’t be more specific on this question. And on the energy policy, we also have no information yet.

So I think we still have to give it some time, but I think not very long anymore.

Conference Moderator: So at the moment, there are no further questions. Okay. There are no further questions.

Alexandra Bittmann, CFO/Spokesperson, EVN: Thanks for joining today’s conference call. We will publish the results for the first half of the twenty twenty four-twenty twenty five financial year on Monday, May 26. Thanks again, and goodbye.

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