35.1. Risks and opportunities

Fiscal year 2019/2020 presents great challenges to Energie AG and many other companies. The high competitive pressure and changes to the regulatory framework and energy policy have affected the risks and opportunities of Energie AG.
The COVID-19 crisis has resulted in a high degree of uncertainty, in particular, with respect to the pandemic's consequences for the macroeconomic development, the prices for primary energy as well as potential bad debt and credit losses. From today's perspective, it is not possible to reliably appraise the extent and duration of the crisis' economic ramifications. Energie AG is monitoring the developments and continuously reevaluating their potential implications for the Group's business. New markets, business models and technologies on the other hand are opening up new opportunities for Energie AG.<

The Group's risk management system is tasked with identifying these developments at an early stage, ascertaining the resulting risks and opportunities and actively managing them. As an integral part of the management and control system, risk assessments form part of the strategic and operational decision-making process and support our management team.

35.2. Risk management process

The risk management of Energie AG follows the internationally established COSO-II framework as the risk management standard across the Group. The responsible business units follow a structured quarterly process to identify and evaluate risks, opportunities and measures and record them in a central software tool. The data collected is then analysed on Group-level and incorporated into the Group's overall risk position.

Reporting to the Group's Management Board is done on a quarterly basis and ad hoc as required. The risk management report is an integral part of reporting to the Supervisory Board and is, in accordance with the requirements of the Austrian Company Law Amendment Act (URÄG), also submitted to the audit committee with respect to the efficiency and validity of the processes.

Proper documentation and verifiability are also guaranteed by historicisation of the data as at the measurement dates.

35.3. Significant opportunities (+) | risks (-) 1)Risk|opportunities, definition: A risk is the possibility of an event occurring which has a negative impact on targets (EBT, cash flow) An opportunity is the possibility of an event occurring which has a positive impact on targets (EBT, cash flow) With regard to the risks|opportunities which may have an impact on the concerns of the Sustainability and Diversity Act (NaDiVeG) as a result of Energie AG's business activities, see Sustainability Opportunities and Risks and measures

STRATEGIC OPPORTUNITIES | RISKS

+ |− Strategic opportunities | risks due to

  • Changes in general climatic conditions
    • Extreme events and their consequences (periods of heat | drought, flooding, storms, hail, forest fires, avalanches)
    • Long-term changes in climatic and ecological conditions (precipitation frequency/volume, increase in average temperatures)
  • Changes in the general energy policy and energy market environ­ment
  • Changes in technological developments, in the market environment, in customer needs …

Measures:

  • Continuous intensive monitoring of markets, competitors, customers, the climate and technologies
  • Participation in research projects, …
  • Early and intensive monitoring of strategic opportunities|risks

PROJECT OPPORTUNITIES | RISKS

+|− Project opportunities | risks

High, long-term investment costs, projects with a high level of complexity

  • Underruns and overshooting of the planned values in terms of timing schedule, project costs and quality
  • (Energy) policy uncertainty

Measures:

  • Project management
  • Risk management methods in the entire project cycle
  • Optimised contract arrangements

SUSTAINABILITY OPPORTUNITIES | RISKS

In the medium term – in our 5-year planning horizon – we assume that climate-related opportunities|risks will remain within the statistical range of the past few years, and these have been taken into account in our (opportunities|risks) scenarios.

Potential long-term climate-related risks and opportunities beyond this have been taken into account in strategic decision-making.

For more information on opportunities|risks that may affect questions of sustainability as a result of Energie AG's business activities, see Sustainability Opportunities and Risks.

MARKET AND COMPETITION RISKS

+|− Market price changes (electricity, gas, biomass and emission allowance prices)

Measures:

  • Bundled management of commodity price risks by Energie AG Trading
  • Risk strategies geared for the market environment
  • Leveraging of internal synergies within the Group

+|− Electricity generated from

Hydroelectric power influenced by development of weather/climate

Measures:

  • Optimised management of generation portfolio

+|− Electricity production from thermal power plants

Measures:

  • Bundled management of commodity price risks by Energie AG Trading
  • Long-term contracts
  • Leveraging of internal synergies within the Group
  • Risk strategies geared for the market environment

+|− Electricity, gas, heat and telecommunications services sales volumes

influenced by development of weather/climate, competition, economy, policy, …

Measures:

  • Bundling of sales organisations
  • Price guarantee
  • Service and subsidy offerings
  • Focus on digitalisation
  • Positioning as an energy service provider

+|− Market price and volume changes in waste management

Recycling materials, industrial waste, domestic waste, delivery prices, thermal, …

  • Increased competition from pretreatment plants and industrial co-incinerators
  • Increased re-municipalisation efforts of municipal waste management associations

Measures:

  • Long-term indexed contracts with defined delivery volumes and prices
  • Focused market activities
  • Intensification of cooperation with the public sector
  • Further development of the digitalisation projects

+|− Contractual losses|gains and contract changes in the water|wastewater sector

Measures:

  • Synergy projects
  • Ongoing participation in (concession) tenders

OPPORTUNITIES | RISKS FROM BUSINESS OPERATIONS

− Facility risks

Impairment of the availability of facilities due to

  • Technical malfunctions, sabotage, …
  • Natural disasters such as storms, flooding, …

Measures:

  • Maintenance and quality controls
  • Optimised maintenance strategy
  • Structural (flood) protection measures
  • Strategy programmes “Replacing overhead medium-voltage lines that are particularly susceptible to disruption with underground cable”, “Replacing low-voltage lines”, consistent expansion of grid automation
  • Crisis and contingency management
  • Insurance

+|− Physical weather-related risks

such as periods of heat | drought, flooding, storms, hail, forest fires, avalanches and their impact on third parties

Measures:

  • Structural (flood) protection measures
  • Strategy programmes “Replacing overhead medium-voltage lines that are particularly susceptible to disruption with underground cable”, “Replacing low-voltage lines”, consistent expansion of grid automation
  • Crisis and contingency management
  • Insurance

− Risks from information security, cyber-security and data protection

Measures:

  • Optimised insurance strategy
  • Comprehensive technical measures
  • Management systems for information security and data protection

− Personnel risks

  • Health and safety risks for company staff and temporary employees
  • Loss of expertise and practical knowledge

Measures:

  • Safety training courses for employees
  • In-house health management project energy@work
  • Apprentice|trainee education
  • “Human Resource Management”, “Management by Objectives” and “Management Academy” Group policies

POLITICAL, REGULATORY AND STATUTORY OPPORTUNITIES | RISKS

+|− Changes in the statutory environment

for the electricity and gas grids

Measures:

  • Intensive and constructive dialog with the regulatory authorities
  • Cooperation with interest groups

+|− Legal risks

from pending legal disputes

Measures:

  • Legal support
  • Provisions in the balance sheet
  • Out-of-court settlements

+|− Political and statutory environment

  • EU climate policy provisions and their implementation in Austria
  • Statutory environment for project development and implementation
  • Changes to subsidy regime

Measures:

  • Intensive and constructive dialog with authorities and politicians
  • Cooperation with interest groups

COMPLIANCE RISKS AND DATA PROTECTION INFRINGEMENTS

− Compliance risks

  • Antitrust and corruption risks
  • Financial market compliance

Measures:

  • Group policies “Compliance Management System” and “Anti-Corruption”, “Handling on Insider Information”, “ICT Information Security Management”
  • In-person training and e-learning courses

− Data protection infringements

  • Accidental or unlawful destruction, loss, alteration or disclosure of data
  • Hacker attacks

Measures:

  • Group policies “Data Protection Management System” and “Data Protection Compliance Policy”
  • In-person training and e-learning courses

FINANCIAL RISKS

+|− Recoverability

  • Impairment reversals and impairment of assets, procurement rights, investments
  • Impairment of receivables
  • Creation of provisions for impending losses

Measures:

  • Ongoing monitoring, sensitivity analyses
  • Long-term contracts
  • Counterparty risk management

+|− Changes in interest rates

Measures:

  • Long-term fixed interest agreements

+|− Foreign exchange risk

Primarily from the transaction and translation risks of the Czech Group companies

Measures:

  • Ongoing monitoring
  • Currency hedging, where necessary

+|− Price changes in financial assets (securities, funds)

resulting from fluctuations in market value on the capital markets

Measures:

  • Conservative investment policy
  • Consistent monitoring
  • On-going quantification of share price risks

+|− Rating change

means lower| higher refinancing costs

Measures:

  • The management of Energie AG continues to seek to maintain Energie AG's Single A credit rating in the long term
  • Ensuring compliance with the required key financial performance indicators

+|− Opportunities|Risks from investments

  • Fluctuations in the returns on investments
  • Fluctuations in dividends received
  • Changes in the impairment of participating interests

Measures:

  • Ongoing monitoring

+|− Changes in the discount rate for provisions

The present value of provisions decreases at a higher discount rate and increases at a lower discount rate

Measures:

  • Ongoing monitoring

− Counterparty risks

Complete or partial failure of counterparties

Measures:

  • Ongoing monitoring
  • Credit limit systems
  • Hedging instruments
  • Targeted strategy of diversification of business partners
  • COVID-19 counterparty task force

− Liquidity risk

Measures:

  • Centralised, forward-looking liquidity planning
  • Sufficient liquidity reserves
  • Open, partially committed credit lines

+|− Rating change

means lower| higher refinancing costs

Measures:

  • The management of Energie AG continues to seek to maintain Energie AG's Single A credit rating in the long term
  • Ensuring compliance with the required key financial performance indicators

1) Risk|opportunities, definition: A risk is the possibility of an event occurring which has a negative impact on targets (EBT, cash flow) An opportunity is the possibility of an event occurring which has a positive impact on targets (EBT, cash flow) For more information on the risks|opportunities which may have an impact on the concerns of the Sustainability and Diversity Act (NaDiVeG) as a result of Energie AG's business activities, see Sustainability Opportunities and Risks