7.1.Risk management process
The objective of the risk management system employed by Energie AG is to collect information about future developments as early as possible, identify the resultant risks and opportunities and actively control them. As an established part of the management and controlling system, risk management plays a role in strategic management, investment/project management and the operational activities.
Based on the operational risk management in the decentral business units, the risk management process is controlled by the central risk management unit. Risks, opportunities and measures are updated on a quarterly basis and recorded in a group-wide implemented software tool. The identified opportunities and risks are analysed on group level and aggregated to form the Group's total risk position. Reporting to the Group's Management Board is done on a quarterly basis and ad hoc if required.
Risk management is an integral part of the reporting to the Supervisory Board and, as required under the Austrian Company Law Amendment Act (URÄG), is also reported to the audit committee with respect to the efficiency and validity of the risk management process.
Proper documentation and verifiability are also guaranteed by historicisation of the data as at the measurement dates.
7.2.Risk profile and development trends
In addition to the risks that are customary for the industry sector, the risk and opportunities position of Energie AG is first and foremost characterised by an intensifying petition as well as regulatory and energy policy challenges.
7.3.Risks from operational activities
The operating efficiency and intrinsic value of assets, procurement rights and participating interests held by Energie AG Group are significantly influenced by market price risks (prices for electricity, gas, biomass, and certificates). The expertise in the management of commodity price risks bundled in Energie AG Oberösterreich Trading GmbH makes it possible to utilise intra-Group synergies by employing risk strategies that are geared to the market environment.
In light of increasingly volatile markets, the stabilisation of the electricity grid is a challenge for transmission system operators. The earnings volatility is increased by the use of CCGT power plants in the area of network services and stabilisation.
Weather conditions are another important parameter affecting the earnings development of Energie AG. Varying water levels of rivers result in fluctuating electricity generation from hydraulic power plants, while temperatures have a significant effect on the demand for district heating, gas and electricity during the heating season. Water levels were 12.9% higher than the long-term average in the first half year of 2018/2019, but still 9.5% below the previous year's level. In the first half of the 2018/2019 fiscal year, the total number of heating degree days was 9% lower than the 10-year average and 5% lower than in the previous year.
The competitive situation on the end-user market is having an impact on the number of active customers, sales volumes and price levels. Competitors are in particular focusing their efforts on the private customer segment. Numerous measures, such as price guarantees, service offers and incentive programmes, as well as the focus on digitalisation in product development have started to show positive effects, which will be amplified by the planned consolidation of the sales channels.
In the Waste Management Segment, the positive trend from the previous year continues. Due to the large volumes available on the recycling market, we expect sustained high demand for thermal power plants. Because we also expect continued positive price developments on the waste management markets, it will be important to follow the market developments and respond in an appropriate manner.
The Water Segment continues to enjoy a steady development of sales revenues and earnings. The restructuring of the Water Segment included the start of a synergy project. This project and the ongoing participation in (concession) tenders are the most important measures aimed at securing and increasing our market share.
Thanks to the rapidly progressing digitalisation of Upper Austria as a business location in combination with the positive economic development, the expansion of Fibre To The Home (FTTH) and the fitting of smart meters is gaining importance. Energie AG intends to actively pursue the opportunities resulting from the planned Federal Broadband Strategy 2030.
The Group's comparably high proportion of smart meters allows for the use of various smart grid functions. These expansions to the business model also offer new opportunities and risks, particularly in terms of IT protection regulations for end customers.
The various business units of Energie AG use systems that at times involve highly complex technologies. These systems are exposed to risks from technical failures or other damage events (natural disasters, sabotage, etc.), which may also affect their availability.
Energie AG Oberösterreich controls these asset risks by maintenance and quality inspections, as well as implementing an optimised maintenance strategy. We continue to proactively continue the strategic programmes to replace overhead low-voltage lines and overhead medium-voltage lines that are particularly susceptible to disruption with underground cable as planned. Energie AG operates an adequate incident management system to handle any damages incurred despite these measures and also insures these risks to the extent commercially viable at economically acceptable insurance excesses.
The business processes of Energie AG are supported by information and communication systems, which depend on a secure and reliable information technology. Energie AG addresses the increasing risks associated with information security as well as cyber space risks by employing a comprehensive information security management system at Group level.
7.4.Political, regulatory and legal risks
The business model of Energie AG takes a long-term approach, which renders it highly dependent on the prevailing political, regulatory and legal framework conditions. Efforts are made to counter these risks by engaging in an intensive and constructive dialogue with government agencies and political stakeholders.
The general regulatory conditions for grid operators continue to be regarded as stable. The economic environment for the natural gas grid have been defined for the 3rd regulatory period since 1 January 2018, but the Austrian Federal Economic Chamber and the Federal Chamber of Labour have objected against the stipulations made by the regulatory authority. A decision on how to respond to these objections is still outstanding. The details pertaining to the 4th regulatory period for the electricity grid were finalised in the current year without objections, the parameters will become effective for a period of five years on 1/1/2019, which means that we can continue to operate on the assumption of stable economic framework conditions for grid operators.
7.5.Investment project risks
The implementation of investment projects is characterised by high complexity, the interplay of numerous input factors and a low degree of planning certainty. Risk management is integrated in the entire project cycle, evaluating the potential financial risks and measures aimed at controlling them during the course of the project.
Financial risks, such as the interest rate risk, currency and liquidity risks as well as the market price risk from financial investments, are managed and monitored centrally by the holding-unit Group Treasury of Energie AG Oberösterreich. The management of risks concerning the most important counterparties of Energie AG is carried out in close consultation with Group Treasury at holding level.