Good morning, ladies and gentlemen, and welcome to the conference call on EVM's results for the 2017 2018 financial year. 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 Trishkowitz.
Good morning, and welcome to the conference call on EVA and results for the 20 17, 'eighteen financial year. Juan Diego, I started my presentation by saying that the financial year 'sixteen, 'seventeen had been out of the ordinary in many respects and that last year's results must not be seen as a benchmark for future performance. In 20 seventeen-eighteen financial year, extraordinary effects were again responsible for exceptional results, whereas the previous year had been positively supported by favorable weather conditions and one IOP effect from the agreement with MEC. In this financial year, higher energy market prices led to a positive noncash earnings effect from the valuation of hedges. The by far largest portion of this effect was realized by our sales company, EVN KK, which hedges energy procurement as part of its risk management.
I would like to remind you that EVN Kake is an equity accounted industry with operational nature, and its earnings contribution is included in group EBITDA. The improvement in EBIT was due to the fact that negative effects from impairment testing were lower compared to last year. Apart from these extraordinary factors, the following developments had a material impact on our business development. Warmer temperatures had a negative impact on energy sales and network volumes, especially in Southeast Europe. In Generation, we are fully in line with our strategy to further grow our wind capacity.
As of July, our installed capacity amounted to 3 18 megawatt in comparison with 2 69 megawatt at the end of last financial year. By end of 20 nineteen-twenty twenty financial year, we plan to reach 3 70 megawatts, which is our next milestone. Subject to appropriate conditions, our strategy aims to reach 500 megawatts in the mid term. Due to the expansion of our wind portfolio as well as to the favorable waterflowers, the group's renewable generation increased by 5 0.7% during the reporting period. Our anti air thermal capacity in Lower Austria, which is about 1.1 gigawatt, was under contract to Southern Germany during the past winter.
And for May until September 2018, we provided 4 30 megawatt of reserve capacity to stabilize the Austrian transmission networks. Our regulated gas distribution business in Austria was influenced by the new regulatory period, which started in January 2018 and provides for a lower allowed return on invested capital. Therefore, but also given that network sales volumes in the previous year higher than the reference period, natural gas network tariffs were cut by 16.2% on average this year. In the international project business, we were able to complete construction on 4 wastewater treatment plants and to hand them over to our customers. 3 of these projects were in Macedonia, and the 4th one was the project in Prague, which we realized together with partners.
In September 2018, the contract venue project in Bahrain was signed. I will talk about this project in more detail a bit later. We continue to base a high portion of our business on regulated and stable activities. In 20 17, 2018 financial year, these activities had a share of SEK 73,000,000 of our EBITDA, thereby SEK 56,000,000 come from Lower Austria. Based on this year's extraordinary results, we will propose to the Annual General Meeting to be held on the 17th June January 2019 to pay out a dividend consisting of an ordinary dividend of $0.44 per share plus a onetime bonus dividend of $0.03 per share.
In repeating last year's approach of paying a bonus dividend of $0.03 per share, we would like to let our shareholders benefit from a performance which was exceptional and secured recently above normalized levels. We take the opportunity to specify our dividend policy for the future. We aim for holding the absolute amount of the ordinary dividend, which is €0.44 at a constant level. This clarification comes on top of the target payout ratio averaging approximately 40% of group net result over the long term. Let me continue with the key financials of our 'seventeen-'eighteen financial year.
In 'seventeen-'eighteen, the group's revenue was 6.5% lower year on year at €2,100,000,000 Reasons for the decline include a decrease in thermal electricity generation below the higher prior year level, lower revenue from natural gas trading as well as a weather related volume effect in Southeast Europe. Lower revenue was also recorded in the International Project Business. Positive factors, such as the increase in renewable electricity generation and higher heating sales, were unable to fully offset the revenue decline. In 'seventeen-'eighteen, lower revenue, as described before, led to a decline in the cost of electricity purchases from third parties and primary energy expenses. Higher upstream network costs represented a contrary factor.
Results from equity accounted in the thesis operational nature increased due to the valuation of hedges held by IWINK NKG as of the balance sheet. In addition, the earnings contribution of Verbund in Graf were engaged as it contained an impairment loss in the previous year. Based on these developments, we are reporting today a decline in EBITDA by 6.9% to €671,800,000 In comparison with the previous year, the effects from impairment testing were significantly down by EUR 81.7 to €20,600,000 Therefore, the group EBIT improved by 13.3% year on year to €392,900,000 Financial results fell by 73 point 9% to minus €37,200,000 This decline reflects, among other developments, the absence of positive valuation effects from Farbun shares, which resulted from the transfer of these shares from WEEV, the Pedigos, King Pirat to Eviniti in the previous year. And total group net result was by 1.4% higher at €254,600,000 Now I would like to move to the next slide, which provides some information regarding the group's balance sheet structure. Based on our strong operating performance, our balance sheet structure remains strong.
However, please note that the further increase in equity was mainly due to the higher price of FFOBrun shares. Net debt, including noncurrent personnel provisions, was reduced by €249,500,000 to €963,700,000 as compared to the 30th September 2017. Gearing decreased from 38.5% to 23.5% during the reporting period. Before I will go through each of these segments in detail, I would like to give you a general overview on the EBITDA development of our business segments. The direct comparison of the EBITDA development per segment illustrates some key drivers of our performance in 20 seventeentwenty eighteen.
The Generation segment recorded sound operating results, whereas the decline in the Energy segment reflects, among others, the absence of prior year's favorable weather effects. EBITDA in the Networks segment reflects negative volume and price effects. Negative temperature effects are also visible in the Southeast Europe segment. In the Environment segment, lower EBITDA results from a less dynamic development in the International Project Business in this year. Please note that for purposes of illustration, we have adjusted the graph showing last year's EBITDA in Southeast Europe and the Enviro segment for last year's one off FX, the positive one off related to NEG and the negative one off related to the valuation allowance to inventories.
With this general overview, let me now move on to the next slide, which covers the electric generation segment in more detail. In this segment, our Renewable Generation was up by 4.5%. This increase was supported by additional wind capacity and good water flows, especially during the first half of the financial year. Wind condition itself were below the previous year and long term average. In contrast, thermal generation volumes declined by 15.7%.
This was partly due to scheduled and unscheduled downtime at the Wasson 10 power plant. And I would also like to remind you that in the winter 'sixteen, 'seventeen, there was a strong demand for electricity in Europe due to the unusually cold weather. Before I will talk about how the market is saying for reserve capacity contract has changed recently, I would like to highlight that in the past winter half year, our entire thermal capacity in Lower Oster, which is 10.90 Megawatts, was under contract with Tienet. In addition, we had the contract with Optum Power Kit for 430 Megawatts of our natural gas fired power plant in Thijs during the summer. The demand to supply reserve capacity to stabilize the networks in Southern Germany and Austria was again high.
Our plans were called on 100 and 57 days during the 'seventeen, 'eighteen financial year. In my opinion, this is a clear message and underlines how much our energy system needs conventional generation as long as we can't rely on marketable storage technologies for excess renewable production as it occurs on every windy or sunny days, but doesn't and there's no wind or sunshine. Based on this development, revenue of the segment was up by 12.8%. Please note that the Generation segment also includes the revenue from the thermal waste utilization plant in Sventeen Trust, which has been included in this segment since the Q4 of 'seventeen, 'eighteen. Operating expenses increased by 22.7%, which was also partly due to the reallocation of the thermal waste utilization plan to this segment in the Q4.
The results from equity accounted in Westies improved due to a higher earnings contribution from Verbund in Grafmerke, which had suffered last year from impairment loss. This development resulted in a rise of EBITDA up 19.2% to EUR 123,700,000. Appearment losses to renewable and thermal generation plants had been higher in the previous year. Therefore, EBIT in this segment now improved to €78,400,000 And talking about an outlook for the Generation segment, we need to differentiate between renewables and thermal. Capacity wise, we will definitely benefit from the 1st full year operation of the additional 49 Megawatt wind capacity, which we installed during 'seventeen, 'eighteen as well as from the commissioning of a new 18 Megawatt wind park in January 2019.
But earnings contribution from renewables also depend on electricity prices for all plants without subsidies tariffs as well as wind and water flows. As you know, water flows are poor at the moment. The earnings contribution from the supply for served capacity will definitely decrease in 'eighteen, 'nineteen Due to the split of the German austeniticity price soon, which became effective as the 1st October, it is no longer possible for us to directly provide contractual reserve capacity to Teinet. However, 43 megawatts of our gas fired plant in Paris are now under contract with Austrian Power Grid for a period of at least 3 years. In view of the above expects, we expect earnings in this segment to be lower in 'eighteen, 'nineteen.
On the next slide, I will continue with the Energy segment. The Energy sales volume showed positive developments, Whereas warmer weather conditions led to a decline in natural gas and heat sales volumes, electricity sales rose during the to customers. The main driver of revenue development in the Energy segment is the marketing of electricity produced in our thermal power plants. Our production there but also reduced natural gas trading activities as well as devaluation of hedges that are due to a decline in revenue. In total, revenue was down by 8% year on year.
Operating expenses decreased due to lower expenses from Biomer Energy Carriers and natural gas trading as well as due to the devaluation of hedges. The creation of a provision of a Norris contract related to the marketing of our own electricity production had a contrary effect. The share of results from equity accounted industries, which operationally increased by 17.7%. This reflects the positive noncash effective valuation of hedges recorded by our electricity and natural gas sales company, Ive Incagie. In total, EBITDA amounted to €80,800,000 This corresponds to a decline by 20.6 percent and EBIT decreased by 22.3 percent to €57,400,000 Our outlook for the segment needs to be seen in close connection with the valuation of effects from hedges, which had an extraordinary positive effect on the Energy segment, Whereas higher electricity prices had positive but non cash effects in 'seventeen, 'eighteen, the rising prices on the wholesale market will create challenging framework conditions for our sales activities in the future.
The reason is that higher procurement costs in the Energy business can only be passed on gradually to customers. To summarize, we expect earnings to be positive in 'eighteen, 'nineteen but markedly lower than the previous year. On the next slide, I will present developments in our Network segment. In our Austria Regulatory business, the whole year was in line with our expectation, respectively, the development which we had already observed during the 1st 3 quarters. The performance slowed due to the lower tariffs for the natural gas distribution and due to a decline in natural gas distribution volumes.
These volumes effects resulted from the warmer winter and reduced use of the thermal power plants in Lower Austria. Based on these price and volume effects, revenue in this segment was down by 2.2%, whereas operating expenses increased to a higher upstream cost on network stabilization and increased cost for a third party services. In total, segment EBITDA declined by 13.5 percent to EUR 253,400,000 and EBIT was down by €19,700,000 at €142,600,000 For 'eighteen 'nineteen, we expect segment results to be lower than the previous year. This outlook is based on the fact that a new 5 year ago term period will start for electricity distribution networks in January 2019, falling natural gas distribution networks in January 2018. In addition, tariffs will adjust downwards for higher electricity and natural gas volumes occurred during the extremely cold period 'sixteen, 'seventeen.
On the next slide, I will continue with the Southeast Europe segment. The development of our activities in Southeast Europe was influenced by the substantially warmer winter, which has material negative impact on network and energy sales volumes. In combination with continuing liberalization, this development led to a decline in revenue by 5.8 percent to €902,800,000 In the previous year, the premium business state owned Bulgarian Agnesite company, NEG, had a substantial positive effect of €42,000,000 on operating expenses. Based on these developments, EBITDA was substantially lower this year at EUR 104,600,000 EBIT amounted to EUR 40,200,000 We are still waiting for a decision in the arbitration proceedings with the Republic of Bulgaria. I would like to remind you that the hearings took place in November 2016, which means more than 2 years ago.
Subject to stable regulatory and energy sector framework conditions, we expect earnings in the coming financial year to reflect 'seventeen, 'eighteen level. I will conclude my presentation of the segments with the Environment segment. I would like to start with an update on developments in our International Project business. During 'seventeen, 'eighteen, we successfully commissioned 4 general contractor assignments, the wastewater treatment project in Prague, which we realized together with partners as well as 3 wastewater projects in Macedonia. Apart from that, we are still working on another 3 general contractor assignments in the wastewater sector in Macedonia, Poland and Croatia.
In 'seventeen, 'eighteen, our German subsidiary, WTE Watarte, Wettertehnik, concentrated not only on existing project but also on the acquisition of 2 new projects in Kuwait and Bahrain. And we are pleased to inform you that in September, the contract was signed for a project in Bahrain. It is also general contractor assignment, so no financing is required from our side. The project involves the expansion of the capacity of an existing wastewater treatment plant in Dupe, which in future will be able to service 1,600,000 residents. In addition, the contract includes the construction of a sludge drying and utilization plant at the same location.
The project is scheduled for completion within 36 months and represents a total contract value of approximately EUR 180,000,000 This will be realized together with local partners through our share and the project will be around 50%. In COVID, some more patients is required, but we are in an exclusive negotiation stage and are in a constant dialogue with the tendering authorities regarding details of the project contracts. To conclude, our order book in the International Project Business as of the 30th September was €203,500,000 Based on the before mentioned developments in the international project and despite the progress on general contractor assignments currently in realization, international project business was less dynamic in comparison to the previous year. The weather related increase in Crinking Water sales volumes in Lower Austria was unable to offset the development in the International Project business. Besides and as already mentioned earlier in the call, revenue for the Q4 of the thermal waste utilization plant in Swedenborg was assigned to the Generation segment.
Therefore, in total, we are reporting a decline in revenue by 24 percent to EUR 150,000,000 The operating expenses also went down in line with the development of the international project business. In addition, the comparable prior year value was unusually high due to a necessary valuation allowance to inventories. In total, EBITDA amounted to 30 €100,000 and EBIT amounted to €9,300,000 Financial results amounted to minus €10,400,000 Our outlook in the environment segment is always subject to the further acquisition and realization of assignments in the international project business Based on the positive development of the newly acquired project in Bahrain, earnings are expected to exceed the previous year in 'eighteen 'nineteen. With this, I conclude the presentation of the segments. On the next slide, I will continue with the development of our group cash flow.
Group cash flow declined by 2.1 percent to EUR 560,300,000 due to the improvement in the results before income tax and certain contrasting developments such as the decline in impairment. Cash flow from operating activities rose by 18.6 percent to €603,500,000 This increase reflected contrary nonrecurring effects from the previous year, the valuation allowance inventories and the reduction in liabilities resulting from the arbitration decision of the Weissm 10 power plant. A positive effect in the reporting period resulted from changes in other working capital. Previously as well, some tender reduction, this segment is similar corresponding positive one off effect to the reduction of the investment This is also this also impacts the comparability of cash flow from investing activities, which now amounted to minus €457,100,000 The main focus on investment was on electricity and gas network as well as wind parks. Part of the group liquidity was invested in mainly cash funds, which is also shown in cash flow from investing activities.
The cash flow from financing activities mainly reflected the dividend payments to the shareholders of Evinacci minority shareholders as well as the scheduled repayment of loans. The net change in cash and cash equivalents amounted to minus €7,100,000 Please note that net debt was reduced by €249,500,000 I would like to conclude my presentation with the outlook for the group. I would like to remind you that back in the financial year 4th in 'fifteen and 'fifteen, 'sixteen, we were reporting net result of €148,100,000 and €156,400,000 respectively. These more normal levels have now been outperformed twice to extraordinary nonrecurring effect. Keeping this in mind as well as certain changes in framework condition, which I when talking about the segment outlook, such as the new regulation out there, the new framework for reserve capacity contracts and higher procurement costs, our expectation is to return to normalized historic level assuming average conditions and obviously lack of one offs.
To be specific, group net result 'eighteen, 'nineteen is expected to range from €160,000,000 to €180,000,000 However, group net result could be significantly influenced by our current background, the legal proceedings currently in progress in Bulgaria and the remaining legal proceedings related to the Wilsum 10 power plant project as well as the progress on activities in Moscow. Our investment strategy remains unchanged and then our focus continues to be on network infrastructure, renewable generation and the drinking water business. Thereby, we will further strengthen our stable and regulated activities in Lower Austria, which remain the basis for sustainable and stable earnings. All in all, we plan to invest yearly approximately around €400,000,000 where approximately €300,000,000 will be directed to our lower AUSTIN activities. I have now reached the end of my presentation of event results for the 20 seventeen-eighteen financial year.
I'm now looking forward to answering your questions.
The first question comes from Duncan Scott, Deutsche Bank. Please go ahead with your question.
Hi, good morning. Thanks for taking my questions. I had a couple of questions on the outlook for 20 eighteen-nineteen. I know you only give guidance generally at the net income level. But looking at your qualitative guidance for each of the individual business segments, there's nothing in the outlook that really comes as such a surprise.
So I was wondering if there's something going on in the financial results about the minorities line that also contributes to your guidance for step down in earnings for next year? And then in the Energy segment, you said the earnings will be markedly lower next year. I think you said in your report. Should we think of this as being markedly lower than the results, including the €38,000,000 one off positive effects? Or even if we strip out that positive effects, will Nexers results still be markedly lower than that?
And then finally, just in the generation segment, can you give us any more details about the reserve contracts you signed in Austria? Is that just fixed price per kilowatts? Or how does that work there?
Okay. Thanks for the couple of questions here. You're right. We are not giving any surprises in the expectations for this segment in the ongoing year because this is where we are and what we see. Everything else will come where we are at the beginning of the winter.
The winter has been quite warm in October and business until mid November. Therefore, it's a little bit an up road regarding the winter and the winter volumes. The question regarding the generation, regarding the reserve capacity, there's actually really changed in the past years. This has been on a tender basis from Tenet. Now regarding the law in Austria, it's regarding cost reflecting basis.
Therefore, it is not about running in the generation field and regarding reserve capacity as we did in the past, where we were able to have earnings contribution from a low double digit base regarding the reserve
capacity. Again, then just on the Energy segment, talking about the guidance being markedly lower. Is that including or excluding the SEK 38,000,000 non cash effect?
No, this is excluding the one off effect. We are on the normal planning basis with average heating decreased days and expected volume. As you have seen, the change in the wholesale market started in 2017, but there was a strong increase in this year. Therefore, it takes some time here to pass this higher procurement cost to the customers. We started in October 2018, and then we are now observing the wholesale prices for the near future.
The next question comes from Theresa Schindler. Please go ahead with your question.
Hi, good morning. I would also have a follow-up to the Energy segment. You helped us with gauging actually the effect. So what was the hedging valuation effect? How much did the Onerous contract provision counteract?
Just to give you a give us a feeling of how much was one off in this segment this year?
Yes. There is a regarding the valuation of the hedges, it's around €40,000,000 at the end of September. And regarding owners contract, it's around €40,000,000 in this segment.
Sorry, four-zero or one-four?
Four-zero for ViSum in the segment of the energy and procurement of the Sonora's contract. And for the hedges coming from the sales company, it's around €40,000,000 at the end of September.
The next question comes from Richard Allemand, Macquarie.
Can I just clarify couple of points? Firstly, could you just go over the point you made about the change in the basis for the tenant structure just in terms of the impact of that in your business going forward? And then secondly, could you just clarify how much of the guidance is relating to the cost pass through of higher sales costs through the year. So will you be able to pass this through at some point through higher price rises in terms of the higher generation costs that you're seeing at this point in time in the cycle?
Okay. I think the most important thing is, and thank you for posing this question once again. It is actually true that after the border between Germany and Austria is not open anymore as it has been since 2002. The new regulation foresees that RPK, the Austrian transmission grid operator is now in charge to secure the operability of the border. Therefore, on the basis of the existing law, they are calling capacity on the basis of costs.
This is not the old tender procedure as we have seen in the past. Therefore, also in comparison to last year, the expectation on this year and the generation is completely different. Regarding the thermal capacity, We have been called for 4 30 megawatts ties for the whole year, not only winter but also summer for the whole year and this for the next 3 years. So in this way, there is a bit of more planability, but it's a lack of market pricing for capacity as we have seen in the past. And regarding the prices, we did the price increase reflecting the higher wholesale prices and the change on the border with the 1st October, increasing the energy price for electricity by around 13.2% and for gas from 4.8%.
These increases have been done. They are put in our planning. They are put in our segment expectation. So there
is is there any scope for a further price increase through the rest of the financial year coming?
Well, we are observing the development of the wholesale price and our opportunities emphasis the most, I can say, in this moment.
The next question comes from Lueder Schumacher from Societe Generale. Please go ahead with your question.
Good morning. Just two questions from my side. The first one is on the cash flow. You mentioned that there was quite a significant working capital improvement. Could you give us a number for that?
And also tell us what you expect to happen with that for 20 eighteen-nineteen? Should this reverse, just be the same? Or could we expect further improvements? And the second one, I'm not quite sure if you will have more visibility there, but of course your 2nd biggest shareholder has reduced their stake went to just below 30%. Do you have any idea if that was it?
Was it a one off or could there be more stake sales? I guess, there will be some kind of discussions. Are they happy with just below 30%. Just any kind of further light you could shed on that would be useful.
I think a lot. Ownership questions, the only what I see are the facts that over the years, they have decreased their stake in EVM gradually, obviously, using their stock exchange. They have now given guidance that they went below 30%. The next line where they would have to go public would be 20 5%. Let's see if you follow the volumes of the EVN share, you see a certain amount of liquidity there, but more I'm not able to comment on that.
This is the first one. The second one, you're right, we had cash flow improvement on the working capital. As you know, the working capital issue is 1 related to the balance sheet date, yes? So it's a bit hard to really give a clear expectation there. The volume, which we have seen, has been around €40,000,000 here.
And in the year before, we had an extraordinary effect regarding an impairment we had to do on the boilers of the Moscow plant. Maybe you can also take this into account if you compare the figures.
At the moment, there seem to be no further questions. There are no further questions.
So thank you for joining today's conference call. Please join us again next year on the 28th February 2019. We will publish the results for the Q1 of 2018 2019 financial year. Season greetings to you all and a successful year 2019. Goodbye.