Morning, ladies and gentlemen, and welcome to the conference call on EVN's results for the Q1 twenty eighteen-nineteen. At this time, all participants have been placed on a listen only mode and the floor will be open for questions following the presentation.
2018 2019 financial year. The development of our activities during the Q1 of the current financial was pretty much in line with our expectations. After 2 financial years, which were influenced by positive nonrecurring effects, we forecasted that this year's group net result would return to levels we had seen 2015, 'sixteen and before. Our cautious outlook was driven by a few key factors, which meanwhile became obvious during Q1. As of the 1st October 2018, the separation of the German Austrian electricity price soon became effective, which changed the market design for reverse capacity quite a bit.
Whereas in the previous winter, we provided a contractual reserve capacity of 10.90 megawatt to Tynet, the transition grid operator in the south of Germany, such cross border contracts are not possible anymore. We again have a reserve capacity contract, but it's for the capacity of 430 megawatts for the Austrian transition grid only, so the capacity under contract is lower. The other impact from the separation of the electricity price soon is that the wholesale prices in Austria are now higher than once in Germany. From today's perspective, we expect the price differential to be approximately EUR 4 per megawatt hour on average over the year. Therefore, on top of the already increased wholesale prices, this additional markup results in higher procurement costs for our sales company, Evenkaki.
These higher procurement costs were only in part covered by a price increase in electricity and natural gas working prices for household customers as of the 1st October 2018. As of 31st December 2018, the development of the wholesale prices led to a negative effect from valuation of hedges held by AVN Kake. I would like to remind you that at the end of the last financial year, the valuation of hedges has resulted in a positive nonrecurring valuation effect of about EUR 40,000,000 Finally, energy demand in Lower Austria proved to be lower than in the previous year as summer temperature basically extended until early November 2018, which marked an unusually late start of the heating season. This, among others, had impact on natural gas sales and net worth volumes. This brings me to the confirmation, the outlook for this financial year, which we already gave in December.
Assuming average conditions and the Energy Business Environment Group net result for 20 eighteentwenty 19 is expected to range from EUR 160,000,000 to EUR 180,000,000 I can also confirm our investment strategy, which continues to focus on regulated and stable activities. We plan to invest up to EUR 400,000,000 per annum over the coming years. Therefore, roughly EUR 300,000,000 annually are dedicated towards networks, renewables and drinking water in Lower Varuschoye. The expansion of our wind portfolio is well on track. We completed the repowering of our first wind park and commissioned a new wind park in our Amleiter, Kiberg with an installed capacity of 18 megawatt.
In total, the group now has a total installed wind capacity of 3 36 megawatt. We are moving closer to the 3 70 megawatt milestone, which we aim to reach by the end of 2019 2020 financial year. Our midterm target for wind is 500 megawatt. In the International Project business, we received the contracts by new general contractor assignment in Poland. The contract volume is approximately €60,000,000 Let me now continue with the key financials for the Q1 of our financial year.
The group's revenue was 0.6% higher year on year at €596,000,000 Reason for this development, there are positive valuation effects from hedges in the generation segment as well as an increase in renewable generation and heat sales. This was contrasted by, among others, a price and volume related decline in the network segment. The decline in EBITDA by 29.5 percent to EUR 163,200,000 was mainly driven by the development of our sales company, EFI Incake, which suffered from higher procurement costs and negative effects from the valuation of hedges as of the 31 December 2018. Based on the stable development of depreciation and amortization, including effects from impairment testing, the group EBIT was shown by 41.3 percent at €97,400,000 Financial results declined by 31.9 percent to minus €15,500,000 due to a weaker performance of the R138 fund. In total, we generated a group net result of EUR 59,100,000 during the Q1 of this financial year, which corresponds to a decline of 40 7.3% year on year.
Now I would like to move to the next slide, which provides some information regarding the group's balance sheet structure. Our strong balance sheet structure forms the basis of pursuing organic growth opportunities in our regulated and stable Austin activities. Net debt, including non current personal provisions, rose by 7.2% over the level on the 30th December 2018 to about EUR 1,000,000,000 Gearing increased from 23.5 percent to 25.9% during the reporting period. 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. Overview of the EBITDA development per segment illustrates the key drivers of our performance during the 1st quarters.
The already mentioned impacts on our sales company, Efemcakie, which is supported in the Energy segment, become clearly visible as well as the effects which dampen the performance in the Generation and Network segments. On the positive side, there's a slight improvement development of EBITDA in Southeast Europe segment and the Environment segment. With this very general overview, let's move on now to the next slide, which covers the Generation segment in more detail. I already mentioned that in comparison to the previous year, the reserve capacity under contract declined from 10.90 megawatt to 4.30 megawatt. Therefore, the volume of electricity produced was lower even though our thermal power plants were called on 26 days in the Q1 2018 2019, which is the same number of days as the year before.
A sound performance in wind generation was unable to offset the substantially year on year decrease in water flows. Based on these developments, electricity generation volumes in this segment in total declined by 9.6%. When comparing to profit and loss statement, please be in mind that the Generation segment now includes our thermal waste incineration plant in Santander, which resulted in a respective increase in revenue, operating expenses and depreciation. Apart from this, a positive factor was the revenue from renewable electricity generation, which was higher than the previous year due to the general upward trend in electricity pricing. Operating expenses in turn were also up due to a year on year increase in primary energy expenses.
In total, this development resulted in a decline in EBITDA by 5.8 percent to EUR 45.2 1,000,000 and EBIT by 16 percent to EUR 30,000,000 On the next slide, I will continue with the Energy segment. The Energy sales volume showed contrasting developments, whereas the substantially milder temperature in the first quarter led to a decline in natural gas and heating sales volumes, electricity sales rose during the reporting period. Revenue in the segment increased based on the valuation of hedges. The valuation of hedges also caused an increase in operating expenses, which was additionally driven by the development of market prices. The results from our sales activities were negatively affected by higher wholesale prices.
Our sales company, Efa Enkake, which is at equity consolidated with the operational nature, suffered from devaluation of hedges and higher procurement costs, which were only partly covered by an increase of end customer prices. Based on these developments, the Energy segment reported an EBITDA of minus €6,000,000 and EBIT of minus €10,800,000 On the next slide, I will present the developments in our Networks segment. Western Networks volumes and electricity distribution remained almost stable, both for natural gas decline due to the reduced use of thermal power plants and lower Austria and higher temperatures. The compensation during the Q1 of this financial year was still based on metric tariffs, which applied since the beginning of 2018. These tariffs had then been raised by an average of 2.4 percent for electricity and reduced by an average of 16.2% for natural gas for household customers.
Based on these price and volumes effects, revenue in this segment was down by 4.5%, whereas operating expenses increased due to higher upstream network costs. In total, EBITDA declined by 18.3% to EUR 80,300,000 and EBIT was down by 27.4 percent at €49,900,000 The 1st January 2019 marked the beginning of a new regulatory period for the electricity distribution networks. Similar to what we have seen last year for the new regulatory regulation of gas distribution networks, the weighted average cost of capital was reduced to reflect the general decline in interest rate levels. However, the VAT reflects the efficiency of a distribution system operator For distribution companies with an average efficiency, the new WACC is 4.88%, whereas companies with above average efficiency benefit from a higher VLCC, which is the case for EVANS Grid Company. Furthermore, the VLCC of the new investments in RAB is set by 5.2%.
In turn, regulatory offered the general productivity factor of 1.25% to 0.95% per annum. At the beginning of the new calendar year, the Austrian aggregator also determined new tariff network tariffs and reduced them by an average of 5.7% for electricity and an average of 9.3% for natural gas. These reductions are based on the application of the lower weighted average cost of capital and they also represent an offset of positive volume effect resulted from the cold winter previous periods. On the next slide, I will continue with the Southeast Europe segment. In comparison to the previous year, favorable development of temperature related energy demand in Bulgaria and the growth of liberalized market there led to an increase in network and energy sales volumes in the Southeast Europe segment.
In Bulgaria, the invoicing method for the so called green electricity markup was changed last July. In total, the change is neutral on the income line because revenue and procurement costs are reduced by the same amount. However, the change is responsible for a 3.7% 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 were reflected in a decrease of 7.3% in operating expenses to EUR 27,900,000 Based on these developments, operating results improved by EBITDA of €23,100,000 and EBITDA of €7,600,000 I would like to conclude my presentation of the segments with the Environment segment. 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 is therefore no longer included.
Apart from the resulting impact on revenue, the international project business was less dynamic during the reporting period. Therefore, in total, we are reporting a decline in revenue by 51.8 percent to EUR 20,200,000 The operating expenses also went down in line with these developments and the share of results from equity accounted investees with operational nature increased. In total, this development supported an increase of 19.4 percent in segment EBITDA to €8,400,000 EBIT total was €5,500,000 In the International Project Business, our order book was about €230,000,000 at the end of December 2018. It consists of 5 general contract assignments for the construction of wastewater treatment plants in Croatia, Macedonia, Poland and Bahrain. The order book included a new assignment in Poland, our German subsidiary, WTE, Wassertechnik, will be the general contractor for the expansion of sludge treatment in the Ksteiner wastewater treatment plant in Poland.
The planning and construction of the entire project will take 36 months and the investment volume totals approximately €60,000,000 In parallel, our efforts remain on the acquisition of the new project in Kuwait. We expect that the final awarding of the contract will be given by the local authorities during the current financial year. With this, I conclude the presentation of the segments. On the next slide, I will continue with the development of group cash flows. Gross cash flow was down by 13.9 percent to EUR 200,700,000 in the Q1 of this financial year, which reflects a decline in the result before income tax, though partly offset by some contrasting developments due to the seasonal negative impact from lower balances of inventories, receivables and liabilities as of the balance sheet date, cash flow from operating activities amounted to minus €7,600,000 Cash flow from investing activities reflects the ongoing investment, which focus on wind parks, networks and drinking water supplies.
The development was contrasted by payments received for network subsidiaries and inflows from the sale of securities in NR138 funding cash funds. The cash flow from financing activities mainly reflects an increase in the scheduled repayment of loans. The net change in cash and cash equivalents amounted to minus €72,100,000 I would like to conclude today's call with the outlook for the group. As already mentioned earlier in the call, we confirm today our outlook for the current financial year. Assuming average conditions in the Energy business environment, group net result for 20 eighteentwenty 19 is expected to range from EUR 160,000,000 to EUR 118,000,000 There are factors that can influence the group net result, including regulatory framework, the legal proceedings currently in progress in Bulgaria, the remaining proceeding related to the Valsam 10 power plant project as well as the progress on activities in Moscow.
I have now reached the end of my presentation of event results for the Q1 of the 20 eighteen-nineteen financial year. I'm now looking forward to answering your questions.
And the first question comes from Duncan Scott calling from Deutsche Bank. Over to you.
Hi, good morning. Thanks for taking my question. I just wanted to ask a little bit about the Energy segment. Can you maybe just give us an idea of the scale of the impact from the hedging valuations? So the result from EV and KJ obviously came down quite a lot year on year in Q1.
And so how much of that is driven by the hedge valuations? And how much of that is driven by the higher procurement costs? Thank you.
Yes. It's around €40,000,000 in this quarter.
That's the year on year change or is it
No, this is the quarter to quarter change.
And that's driven mostly by the hedges or that's driven mostly by
the hedges? This $40,000,000 reflects the value the difference in the value of the hedges.
Okay. I see. Thank you.
Thank you. The next question comes from Lueder Schumacher from Societe Generale. Over to you.
Good morning. Quite a challenging quarter for you, this one. My questions are really more for the outlook for the full year. Operating cash flow was down and you mentioned working capital as the main reason. Could you tell us why working capital deteriorated?
And do you expect this to normalize over the course of the year? And pretty much the same networks, I mean it's down 18% EBITDA. It's quite a move for what should be a stable regulated activity. What's the outlook
for the full year there? Okay. Regarding the cash flow, I think cash flows on quarterly basis are always a certain bid also, yes, because it's reflecting the relationships with the associated companies and also the outside contacts. So I would not take this if you do your prognosis regarding the year. We are not expecting a change on the cash flow, which is really on a different level than we have seen in the last years, yes?
Still knowing that the weather will influence a lot on this. But so we are not so much concerned about this changed strong drop in the Q1 if we look for the outlook for this year. This is on the one side. And on the second side, there are two factors which are reflecting the grid business. First of all, we are at the beginning in electricity on a 4 or 5 years regulatory period, a new period.
At the beginning of this period, the parameters are fixed by the regulatory authority. Now we have 5 years to outperform these parameters. And the second and for gas, we are in the 2nd year. So for the gas, regulatory period started at the 1st January 2018, yes? So in both fields, yes, we are at the beginning of more or less 5 year regulatory periods.
And the second thing is the winter was very cold, not the last year, the year before. And this is influencing the adjustment by the regulatory authorities regarding the volumes. So we see now two changes affecting the grid business, but we are confident that we will outperform the guidance of the regulatory authority, which will then reflect also in higher and more normalized, more historic levels of our grid business over the next years.
Okay. Thank you. Actually just one follow-up question, if I may. You mentioned on the generation segment the impact of higher procurement costs. That should also surely be a pass through over time, isn't it?
So that should normalize should be able to pass the additional costs from the higher Austrian electricity prices and general higher wholesale prices on? Should this normalize?
Yes. As you know, this is part of our philosophy of being integrated group and being active on all parts of the energy value chain that over a period, you are passing through the higher cost. Of course, we are not able to do this on this one step for all, yes? So it takes a little bit more time than just one fixing of the end customer prices. On the other hand, we also had more time when prices went down.
It should be over time be in a balance, and this is also part of the relationship with our customers, which we are pursuing that they can trust in our judgment regarding wholesale prices going down and wholesale prices going up.
Very clear. Thank you.
Thank you. Next up, we have Theresa Shinval. Over to you. Hi, good morning. Thanks for taking my question.
I have one on Southeast Europe operations, especially if you could provide us with an outlook for the full year EBITDA in this area?
On the EBIT level, we are pursuing, so on the midterm, on average, around €40,000,000 to €60,000,000 coming from the Southeast segment. You have seen changes over the years, but I think the track record here is quite clear, and we are confident also this year that we achieved this.
Thank you very much. Thank Okay. It looks like we have no more questions for today. So I'll hand it back over to you, Mr. Syskovitz.
Thank you for joining today's conference call. I kindly invite you to dial in again on Wednesday, 29th May, when we are presenting our half year results. Goodbye.