Good morning, ladies and gentlemen, and welcome to the EVN's conference call for the Q1 to Q3 2018/2019 results. 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 your host, Mr. Stefan Szyszkowitz.
Good morning, welcome to the conference call on EVN's results for the first three quarters of the 2018/19 financial year. Our performance during the first nine months is pretty much in line with the development during the first half year, it corresponds well with the outlook which we gave in December, all for this financial year. Actually, on the positive side, I can today confirm and even specify our full-year guidance. We expect group net results for 2018/19 to reflect the upper end of the assumed range of EUR 160 million-EUR 180 million. For a year-on-year comparison of today's results, please bear in mind that in the last quarter, our third quarter results had already been influenced by a positive one-off effect in the amount of EUR 38 million, which resulted from the valuation of hedges.
The main drivers for our performance during the reporting period were the same which we had already seen during the first two quarters. Rising wholesale prices led to a decline in the results of our supply company, EVN KG. In addition, the absence of network stabilization contracts for Southern Germany show an impact on the performance of the generation segment, whereas our network segment suffered from volume and price effects. On the positive side, third-quarter earnings were supported by sound contributions from wind power and cooler temperatures in May 2019. Actually, due to the weather in May, the temperature-related energy demand in Austria returns to an average level after the mild winter half year. As already mentioned in our last call, we took the decision to exit from coal-fired generation in Lower Austria. Earlier this August, electricity generation from hard coal finally ended in our Dürnrohr power plant.
Our focus is now on the future development of Dürnrohr as an energy location. The installation of an additional gas boiler to generate steam for industrial customers is already in progress. In addition, we have specific plans for the construction of a sewage sludge incineration plant and a large-scale photovoltaic plant at our site in Dürnrohr. The termination of coal-fired generation in Dürnrohr is only one bit in how EVN contributes to the transition of the energy system. This year, we have been pushing hard on the expansion of our wind portfolio. At the beginning of the financial year, we stood at installed capacity of 318 megawatts. By the end of September, we will stand at approximately 370 megawatts. You may remember that we always defined 370 megawatts as a midterm target on our growth path towards 500-megawatt wind capacity.
Our plan was to reach 370 megawatts by the end of 2020, so we will outperform this target and reach these milestones already one year earlier. Our plan is to reach 500 megawatts by the end of 2023, which is, however, subject to appropriate framework conditions. We have a sound project pipeline of developed and approved wind projects in Lower Austria, but the Austrian system of feed-in tariffs for new wind parks currently has to deal with a waiting list of already approved projects. The next Austrian government, to be formed after the general election in September, will need to implement a new legal framework for renewals. I know that in the international projects business, everybody's waiting for news on the Kuwait project. Progress has been made on the founding of project companies, which is complex as it involves state-owned Kuwait institutions as majority shareholders.
In addition, negotiations continued on the envisioned project financing during the past month. The final awarding of the contract is outstanding. Apart from Kuwait, our colleagues are very active in other international projects. In this financial year only, our German subsidiary, WTE, acquired five new general contract assignments so far. Let me now continue with the key financials of the reporting period. The group's revenue was slightly above the level of last year and stood at EUR 1.7 billion. Positive valuation effects from hedges for the marketing of electricity generation, as well as an increase in renewable generation and heating business were contrasted by, among others, a price-volume related decline in the network segment. The negative earnings contribution from EVN KG was the main reason for the decline in EBITDA. It fell by 25.5% to EUR 435.7 million.
Depreciation and amortization, including effects from impairment testing, was slightly up due to ongoing investments. The group's EBIT fell by 39% to EUR 236.4 million. Financial results remained nearly stable at minus EUR 14.4 million. We generated a group net result of EUR 168.2 million during the first three quarters of this financial year, which corresponds to a decline by 38.4% year-on-year. I would like to move to the next slide, which provides some information regarding the group's balance sheet structure. As you know, we managed to bring down our financial indebtedness over the past couple of years. At the end of last financial year, we stood at a net debt level of about EUR 1 billion. By some seasonal fluctuations, we believe that the net debt will remain at this level for the time being.
Gearing as of the 30th of June was 23.4%. Our strong balance sheet structure forms the basis for pursuing organic growth opportunities in our regulated and stable Austrian activities. We plan to invest up to EUR 400 million per annum over the coming years. Thereof, roughly EUR 300 million annually are dedicated towards networks, renewables, and drinking water in Lower Austria. Before I will go through each of the segments in detail, I would like to give you a general overview on the EBITDA development of our business segments. The overview of the EBITDA development work per segment illustrates the key drivers of our performance during the reporting period. It may be interesting for you to compare this chart with the ones we had in Q1 and Q2. You will see that after three quarters, EBITDA of the generation and the environment segment now show a positive trend.
The energy and the networks segment clearly suffer from the already mentioned negative impacts this year. EBITDA in Southeast Europe segment continues to show a positive development. With this very general overview, let's move on now to the next slide, which covers the generation segment in more detail. Wind generation was very strong. We benefited from the operation of our additional wind capacities and favorable wind conditions. Hydrology exceeded the long-term average but was unable to match the very good prior year level. Thermal generation volumes declined year-on-year, given the decline in contractual reserve capacity. I would like to remind you that last year, we provided 1,090 MW as contractual reserve capacity for the transmission grids in South Germany.
Now, following the split of the German Austrian electricity price zone, we only have 430 megawatts for parts of our natural gas power plants in Theiß under contract with APG. Due to the lack of reserve capacity contract, our remaining natural gas-fired facilities in Dürnrohr, Korneuburg, and Theiß are inactive and conserved in the current market environment. In total, electricity generation volumes in the segments were up by 1% year-over-year. Segment revenue benefited substantially from the increase in renewable electricity generation. When comparing the profit and loss statement, please bear in mind that the generation segment now includes our thermal waste incineration plant in Zwentendorf, Dürnrohr, which resulted in a respective increase in revenue as well as operating expenses and depreciation. In total, this development resulted in an increase in EBITDA by 9.7% to EUR 137 million and in EBIT by 5.3% to EUR 89.8 million.
On the next slide, I will continue with the energy segment. Our energy sales were influenced by different factors. Demand was lower due to the mild winter half year, which was partly offset by the very cool temperatures in May. Whereas natural gas and heat sales volumes were below the previous year due to these weather effects, electricity sales volumes rose based on growth in the industrial customer segment, which helped to offset contrasting temperature-related developments. Both revenue and operating expenses in this segment increased based on the valuation of hedges related to the marketing of own generation, respectively, procurement of primary energy carriers and emission certificates. The increase in operating expenses was additionally driven by the development of market prices. The deterioration in the energy segment is, however, mainly due to the performance of EVN KG, which is at the equity consolidated with operational nature.
As in Q1 and Q2, EVN KG suffered from the valuation of hedges that the company did as part of its pre-running procurement strategy. The resulting negative impact as of the 30th of June 2019 was about EUR 100 million. In addition, higher procurement costs negatively affected the supply margins of EVN KG, which resulted in an additional negative effect in the amount of EUR 40 million during the first nine months. As you know, we did another price increase on electricity and natural gas for our household customers as of the 1st of June. This is the second price increase in our current financial year. The first price increase was done last October. Both increases were about 13% each on the electricity working price and about 5% each on the natural gas working price.
Based on these developments, the energy segment reported EBITDA of minus EUR 23.7 million and EBIT of minus EUR 37.9 million. The next slide, I will present the developments in our network segment. Higher temperatures during winter also slowed the development of the network volumes. The natural gas distribution volumes were additionally affected from the reduced use of the thermal power plants in Lower Austria. Apart from this volume effect, the decline in revenue also reflect the reduction in network tariffs for both electricity and natural gas, which became effective as of 1st of January 2019. These tariffs reflect the lower weighted average cost of capital which applies for the new five-year general regulatory periods. For electricity distribution, the new regulatory period started this year, for natural gas distribution, already a year ago. Operating expenses were up due to higher operating costs and expenses for third-party services.
In total, EBITDA was down by 16.2% at EUR 187 million, and EBIT was down by 29.8% at EUR 94.9 million. On the next slide, I will continue with the Southeast Europe segment. To start with, the regulatory authorities made the following tariff decision, which affected the 1st of July 2019. In Bulgaria, the end customer price for electricity for household customers in EVN supply area was increased by an average of 3.5%, following an increase by 1.4% in July of 2018. In North Macedonia, the latest tariff decision did not result in any changes to the electricity prices for end customers following an average reduction by 0.2% last year. In North Macedonia, we started to act as a supplier of universal service as of the beginning of July, based on a license which we received earlier this year.
Based on this license, we exclusively supply households and small companies, which should add stability to our results in North Macedonia. The license has an initial term of five years. Now for some volume development in this segment. Temperature-related energy demand was slightly higher than previous year, but below long-term average. In Bulgaria, we benefited from growth in the liberalized market. Based on these developments, we saw an increase in network and especially energy sales volumes. In Bulgaria, the invoicing method for the so-called green electricity markup was changed last July. In total, the change is neutral in results because revenue and procurement costs are reduced by the same amount. However, the change is responsible for a 3.9% decline in revenue in spite of positive energy sector developments.
Lower write-offs of receivables and the change in the invoicing method for the green electricity markup are reflected in a decrease of 6.4% in operating expenses to EUR 597.1 million. Based on these developments, EBITDA was up EUR 83 million and EBIT at EUR 37.5 million. I would like to conclude my presentation of the segment with the environment segment. As already mentioned at the beginning of the call, we were successful in the acquisition of five new projects in the current calendar year only. During Q3, we completed our fourth project in North Macedonia. This means that as of July, we are working on seven general contractor assignments in four countries, Lithuania, Poland, Romania, and Bahrain. The order book was about EUR 252 million as of July. Now I would like to move on the financial performance of the environment segment during the reporting period.
For a comparison of this segment, please bear in mind that our thermal waste incineration plant in Lower Austria was reassigned to the generation segment, and therefore no longer included. This clearly has an impact of Q3 numbers in comparison to the previous period. We are reporting both a decline in revenue as well as operating expenses. The share of results from equity accounted investments with operational nature increased. In total, this development led to an increase in EBITDA to EUR 22.2 million. EBIT was up EUR 13.5 million. With this, I conclude the presentation of this segment. On the next slide, I will continue with the development of our group cash flows. Gross cash flow fell by 6.5% to EUR 474.1 million in the first nine months of this financial year, which reflects the decline in the result before income tax, though partly offset by some contrasting developments.
Due to the negative development of working capital as of the balance sheet date, cash flow from operating activities amounted to EUR 238.8 million, which corresponds to a decline compared to last year. Cash flow from investing activities reflect a reduction of investments in cash funds and in securities in the R138 fund. Net investments slightly increased year-over-year. The focus remain on CapEx and wind parks, networks, and drinking water supplies. The cash flow from financing activities mainly reflect the dividend payment to the shareholders of EVN AG and minority shareholders, as well as scheduled repayment of loans. The net change in cash and cash equivalents amounts to minus EUR 3.2 million. I would like to conclude today's call with the outlook of the group. As already mentioned at the beginning of this call, we confirm and specify our full year guidance.
We expect group net results 2018, 2019 to reflect the upper end of the assumed range of EUR 160 million-EUR 180 million. Finally, I would like to inform you that based on the information provided by EnBW Trust of the 30th of June 2019, we note that their stake has decreased further from previously 29.7%-29.4%. Taking into consideration that we transferred 73,528 treasury shares to employees on the 9th of August, our free float is now 18.6%. I have now reached the end of my presentation of EVN results for the first three quarters of the 2018-2019 financial year. I'm now looking forward to answering your questions.
Ladies and gentlemen, if you would like to ask a question, please press nine and star on your telephone keypad. In case you wish to cancel your question, press nine, star again. Please press nine, star now to state your questions. The first question comes from Peter Crampton from Barclays. Please go ahead with your question.
Good morning, Peter Crampton from Barclays here. Two questions, if I may. In your guidance for this year, what kind of impact of one-off charges are you reflecting, particularly relating to this valuation of hedges? The second question is on your energy division. What would be a stable state EBITDA without one-off charges that one could assume from next financial year and beyond? Thank you.
Well, regarding the valuation of hedges, it's always defined by the balance sheet dates. I cannot comment on this. We will follow the development very closely. What I can confirm is that on the third quarter, it's around EUR 100 million, the difference between last year's third quarter results. We also changed the policy of accounting of these hedges. Over a period from April 2019 over the next 18 months, this exposure to balance sheet dates, evaluations will decrease step by step, corresponding to the reduced volumes, which then have to be shown on this old accounting policy.
Perfect. Thank you. At the moment, there seem to be no further questions, ladies and gentlemen. If you would like to ask a question, please press nine and star. Next question comes from Teresa Schinwald from Raiffeisen Centrobank. Please go ahead with your question.
Hi. Good morning. My question is revolving around the reduction of the CO2 exposure after the closing of Dürnrohr. Do you already have figures for us on that?
Yes. As you know, over the last 33 years, the power plant was a backbone of production of electricity in Lower Austria and the east of Austria. Of course, over the last years, it was only as a reserved capacity and, therefore, used only on certain days. On average, over the last couple of years, it was around 600,000 tons CO2 emissions a year. For the Austrian balance of the CO2 emission regarding the target, this earlier exit from the production of thermal coal production, electricity production, will be an amount of 3.2, 3.3 million tons of CO2 emission, which have to be not booked on the national balance and therefore will help to reach goals in the future.
Thank you.
Please press nine, star for further questions. The next question comes from Martin Brock from Macquarie. Please go ahead with your question.
Hello?
We can hear you.
Okay. Thank you. You've obviously done very well in rolling out the wind developments so far and met your interim target early, and I appreciate that we're now waiting for the results of the Austrian election at the end of next month to see what the underlying government framework might be going forward. Is there any additional work you can do in the meantime to prepare a pipeline of projects to put you in the best position should a future government put in place opportunities to actually bring more projects to financial close?
We are working on additional projects. I think you're completely right. There is nothing to wait for. Of course, we need the approvals by the authorities, and you need this guidance of the framework. We all expect that the government will take efforts to further change the production profile of Austria on a very high level. Please don't forget that Austria is one of the European Union countries with the highest percentage of electricity production coming out of renewable energy, if you count also hydropower into this kind of field.
We focus on our own home territory of Lower Austria, so we think it makes a lot of sense that as much as possible, wind power capacity should be installed in Lower Austria, where the wind gains are good, and we are also the grid operator, and therefore, this 500 MW, with the end of 2023, will be not the end of wind power development in Lower Austria.
Okay. Thank you.
There are no further questions.
Thank you for joining today's conference call. We will publish our full year results for 2018/2019 on Thursday, the 12th of December. Please join us then again. Goodbye.