Outlook

Due to the separation of what was previously known as the common electricity price zone between Austria and Germany on 1 October 2018, price developments on the Austrian electricity market will be influenced by a further variable in the future. The additional costs on the futures market for the 2019 base year in the Austrian price zone were anticipated by the market in recent months at around EUR 2.50 per MWh. With the first results of the separate spot markets in October 2018 (the average additional costs for delivery in Austria compared to Germany in October 2018 were EUR 8.55/MWh), expectations were revised upwards; the additional costs for the 2019 base year in the Austrian electricity price zone are now around EUR 4.50/MWh. In principle, high price differences are expected with high wind volumes in Germany and low water flows in Austria – typically in the winter half-year. Due to European market coupling, however, there are partly also major influences from other countries, which make forecasts considerably more difficult. Despite the wholesale prices rising in the year under review, Energie AG will keep electricity retail prices for private and commercial customers constant in the 2018/2019 fiscal year. In view of the significant rise in gas prices on the commodities markets during the summer, sustained consolidation – analogous to a number of competitors – may also necessitate price adjustments on the part of Energie AG.

Within the scope of the “#mission2030” programme developed by the government, special emphasis is being placed on the expansion of renewable energies such as wind and photovoltaics. In addition, the topic of mobility is also strongly shifting into the focus. For the 2018/2019 fiscal year, the Energie AG Group is therefore looking to actively address these issues and participate in the E-Control Austria stakeholder process in order to optimise the Austrian gas market model.

Energie AG Oberösterreich and Linz AG intend to terminate their electricity sales cooperation in the joint subsidiary ENAMO GmbH. This step is necessary because the legal and market conditions have changed considerably and the organisational structure of ENAMO GmbH offers only a limited possibility to meet these challenges. In the first half of the 2018/2019 fiscal year, negotiations on the restructuring of the electricity sales business with partner Linz AG are to be finalised. This strategic and organisational realignment is to take effect as from the second half of the 2018/2019 fiscal year, subject to agreement between the partners and approval by the antitrust authorities.

For the 2018/2019 fiscal year, the Energie AG Group plans to merge the generation units and heat networks of Energie AG Oberösterreich Kraftwerke GmbH, Energie AG Oberösterreich Wärme GmbH and Energie AG Oberösterreich Power Solutions GmbH in order to combine operations at the respective locations and be able to exploit the corresponding synergies, among other things. In addition, the heating and water activities of the Energie AG Group in the Czech Republic will be bundled in the 2018/2019 fiscal year. Under the umbrella of Energie AG Bohemia s.r.o., 15 Group companies with regional activities (8 water companies, 7 heating companies) with around 1,600 employees are to be merged, thus further strengthening the market position in the Czech Republic. In the new fiscal year, activities in the district heating sector will also concentrate on the implementation of the district heating project in Gmunden.

Energie AG's electricity production capacities from Group-owned thermal power stations continue to be highly significant for providing grid reserve management. The CCGT power plants of Energie AG will again be available for national grid support for the transmission system operators in the remainder of the 2018/2019 fiscal year.

Business activities in the Grid Segment in the coming fiscal year will again also be characterised by the advancement of major projects, in particular those of the “Electricity Grid Master Plan Upper Austria 2026 (Stromnetz-Masterplan Oberösterreich 2026)”, and the consistent continuation of priority programmes in the natural gas and electricity grid. General Conditions of the IVth  Electricity Regulatory Period (from 1 January 2019) have, to the largest extent, been clarified. The targets stipulated in the assessment notice are slightly higher than expected on the basis of the results in the natural gas segment. With the beginning of the new regulation, the regulator also changed the rules pertaining to the cost base. This means that the grid tariffs for electricity will be lower in the next fiscal year. Despite pending appeals against decisions in the field of natural gas, a stable regulatory system in Austria is still expected. The smart meter roll-out will continue according to plan in order to achieve full roll-out as planned with a quota of over 99.5% by the end of 2019.

In response to growing customer demand, broadband expansion will continue to be driven forward in the coming fiscal year. In addition, Energie AG is expected to receive further funding commitments as part of “Broadband Austria 2020”.

For the coming fiscal year, the Waste Management Segment anticipates good capacity utilisation at its thermal plants due to the high volumes available on the recycling market. The protection of the plants against contaminant input and the search for new, innovative disposal solutions for these contaminants remain central topics. Price developments on the waste disposal market continue to be viewed positively. The new waste wood recycling regulation comes into force on 1 January 2019. In addition to the resulting increase in separation costs, it is difficult at this stage to assess the impact of the new regulation.

In the water segment, the 2018/2019 fiscal year will focus on smaller operator and concession tenders as well as technical optimisation in the areas of water treatment, wastewater treatment and unaccounted for water. Beyond this, the focus will be on digital customer solutions for smart water meters and online services.

In the 2018/2019 fiscal year, Energie AG's strategic focus will be on a further increase in customer orientation and the progressive implementation of the digitalisation strategy. In particular, the planned exit from ENAMO – subject to agreement between the partners and antitrust approval – will provide opportunities for an even better focus on specific customer needs, for example with bundled products. This development is supported by consistent cost management in all areas of the Group and by on-going structural optimisations to leverage synergies. Due to the many challenges, in particular from the energy policy environment, the competitive market situation in the Energy Segment and regulatory conditions, a decline in earnings is expected for the 2018/2019 fiscal year.

Linz, 30 November 2018

The Board of Management of Energie AG Oberösterreich