Good morning, ladies and gentlemen, and welcome to the conference call on EVN's results for the 1st 3 quarters of 20 seventeentwenty 18. At this time, all participants have been placed on a listen only mode and the floor will be open for questions following the presentation. Let me now turn the floor over to your host, Mr. Stefaan Syskowitz.
Good morning, and welcome to the conference call on EVM results for the 1st 3 quarters of the 2017 2018 financial year. On the 2nd August, we published ad hoc announcement in which we already communicated to the market that our results for the 1st 3 quarters of this financial year would benefit from a positive noncash effect in the amount of about €38,000,000 This effect resulted from the valuation gains on hedges as of the reporting date. The, by far, largest portion of this effect was realized by our distribution company, EVMKG, which hedges energy procurement as part of its risk management. I would like to remind you that Eveenkagee is an equity accounted industry with operational nature and its earnings contribution is included in group's EBITDA. The impact of the valuation of the hedges on our full year result will depend on the energy prices as of the 30th September 2018.
The main other factors which influenced our business during the reporting period were the following. In comparison with the previous year, the last winter was much warmer, especially in Bulgaria and Macedonia. In particular, this had a negative impact on energy sales and network volumes in our Southeast Europe segment. In Austria, temperature related energy demand was below the previous year. However, it was still colder than the long term average.
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 megawatts in comparison with 269 at the end of the last financial year. Subject to appropriate conditions, our strategy aims to reach 500 megawatts in the midterm. By the end of 20 nineteen-twenty financial year, we plan to reach 3 17 megawatts, which is our next milestone. Due to the expansion of our wind portfolio as well as due to favorable waterfalls, the group's renewable generation increased by 11.5% during the reporting period.
Our entire 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 430 megawatt of reserve capacity to stabilize the Austrian transmission networks. Our regulated gas distribution business in Oslo is influenced by the new regulatory period, which started in January 2018 and provides for a lower weighted average cost of capital. Therefore, but also given that the network sales volumes in the previous year were higher than the previous period, natural gas network drivers were cut by 16.2% on average this year. I will provide more details on our international project business later during this call.
But as a highlight, I would like to mention that we were able to finish and hand over 3 out of 4 wastewater projects in Macedonia until July. Let me now continue with the key financials of the 1st 9 months of our financial year. The group's revenue was 6.5% lower year on year at €1,700,000,000 Reason for the decline included decrease in thermal electricity generation below the higher prior year level, lower revenue from natural gas trading as well as weather related volume effects in Southeast Europe. The revenue was also recorded in the international project business. Positive factors, such as an increase in renewable electricity generation and higher heating sales, were unable to fully offset revenue decline.
When looking at expenses, please consider the 2 material one off effects, which we reported last year. Firstly, we had a positive pretax effect of EUR 42,000,000 due to the agreement reached with NEG. And secondly, there was a valuation allowance on inventories of 40 €5,500,000 in the international project business. From balance, both effects are nearly neutral at the level of group EBITDA, but it's important to bear them in mind in comparing segment results. As already mentioned, results from equity accounted in the Steel's operation in nature increased due to the positive noncash effective revaluation of hedges as of 30th June 2018 in Evank AG.
We are reporting today a moderate decline in EBITDA by 3% to EUR585,000,000 Due to the absence of impairments, which became necessary in the previous year, the group's EBIT improved by 28.6 percent to €387,200,000 Financial results amounted to minus €14,700,000 compared to last year. The decline in financial results reflects the absence of positive valuation effect of our own shares, which resulted from the transfer of these shares from WEEV Telecom scheme behalf to EVM AG. In total, group net result was by 12.9% higher at €273,200,000 Now I would like to move to the next slide, which provides some information regarding the group's balance sheet structure. Our strong operating performance continues to support our strong balance sheet structure, which formed the basis of pursuing organic growth opportunities in our regulated and stable AUSTEN activities. Net debt, including non current personnel provisions, was reduced by €192,400,000 to about €1,000,000,000 as compared to the 30th September 2017.
Gearing decreased from 38.5 percent to 28.4% 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 EBITDA development per segment illustrates some key drivers of our performance during the Q3 of 2017, 2018. The Generation segment records sound operating results and the increase in the Energy segment reflects the valuation gains on hedges at the 30th June 2018. EBITDA in the network segment reflects the negative volume and price effects, negative temperature effect as visible in the Southeast Europe segment.
In the environment segment, EBITDA reflects a less dynamic development in the international project business. Please note that for purposes of this illustration, we have adjusted the cash during the last year's EBITDA in Southeast Europe and the environment segment for the one offs, which I already mentioned. The postpaid one off related to NEC and the negative one off related to the valuation allowance to inventories. To say in a very general overview, let's move on to the next slide, which covers this generation segment in more detail. The renewable generation in the segment was up by 10.2%.
This increase was supported by stronger water flows and additional wind capacity. In contrast, thermal generation volumes declined by 24.7%. This was partly due to scheduled and unscheduled downtime at the Valzon 10 power plant. And I would also like to remind you that in the last week that there was a strong demand for electricity in Europe due to the unusually cold weather. Based on our reserve capacity contracts with T and D, DNet and RPG, we received power request in 110 days to stabilize the network in Southern Germany and Austria.
This is still a high level. Although the amount was even higher in the year before with 147 days during the 1st 3 quarters. In view of the negative one off effect in the segment last year, but also due to the developments, which I just described, revenues were up by 11.9%. Operating expenses declined due to the lower use of primary energy carriers in line with the reduced thermal production. The results from equity accounted industries improved due to a higher earnings contribution from Savoone Incap Therapy, which had suffered last year from an impairment.
These developments resulted in a rise in EBITDA by 48% to €124,900,000 Due to the absence of prior serious impairment loss with Kildenai's to the Corona Adah project, EBIT improved to €85,300,000 On the next slide, I will continue with the Energy segment. Energy sales volume showed contrasting developments, Whereas warmer weather conditions led to decline in natural gas and heat sales volumes, electricity sales rose during the reporting period supported by higher sales to industrial customers. The main driver of revenue development in the Energy segment is the marketing of electricity procured in our own thermal power plants. Lower production there, but also reduced natural gas trading activities as well as devaluation of the hedges led to a decline in revenue. In total, revenue was down by 12.2% year on year.
Operating expenses decreased due to lower expenses for Paima Energy Carriers and natural gas trading as well as due to the devaluation of hedges. The share of results from equity accounted indices with operational nature increased by 30.4%. This was due to the positive noncash effect valuation of hedges recorded by our electricity and natural gas sales company, IBN KKR, on the reporting date. In total, this development led to an increase in EBITDA by 17.4 percent to €111,400,000 and in EBITDA 26.5 percent to €96,700,000 On the next slide, I will present the developments in our network segment. The developments of our Austin regulated business slowed as expected based on lower tariffs for the natural gas distribution.
In addition, network volumes and natural gas distribution deeply included a 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 1.9%, whereas operating expenses increased due to higher upstream costs and network stabilization. In total segment, EBITDA declined by 11.6% to EUR 223,100,000 and EBIT was down by 18.8 percent at EUR 135,200,000 On the next slide, I will continue with the Southeast U. S. Segment.
To start with, the regulatory authorities made the following tariffs decision with the effect of the 1st July 2018. In Bulgaria, the end customer price for electricity for household customers in the N. Supply area were increased by an average of 1.4%, following an increase by 1.7% in July 2017. The Macedonian tariff decision reduced the end customer price for electricity by an average of 0.2%, following a reduction by 0.3% last year. Let me now continue with the performance it is reaching during the reporting period.
As already mentioned, the substantially warmer winter had material negative impacts on network and energy sales volumes. In combination with continuing utilization, these developments led to €707,400,000 In the previous year, the agreement with the state owned Bulgarian electricity company, MEC, had a substantial positive effect of EUR 42,000,000 on operating expenses. Based on these developments, EBITDA was substantially lower this year at €69,300,000 EBIT amounted to €22,500,000 I would like to conclude my presentation of this segment with the Environment segment. International project business was less dynamic in comparison to previous years. Still, progress on projects were as planned.
For example, we were able to finish and hand over 3 wastewater projects in Macedonia. However, despite revenue growth in the domestic water and waste generation business, the international projects remain the key driver in this segment. Therefore, in total, we are reporting a decline in revenue by 17.5 percent to €125,000,000 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 the reporting period, EBITDA amounted to €90,800,000 and EBIT amounted to €2,700,000 Financial results amounted to minus €200,000 In the International Project Business, we continue working on our current order book, which was about €29,000,000 at the end of June 2018.
It consisted of 5 general contract assignments for the construction of wastewater treatment plant in Croatia, Macedonia, Poland and the Czech Republic. In parallel, our report, our efforts remained on the acquisition of the 2 new projects in Bahrain and Kuwait. We expect the final awarding of the contracts will be given by the local authorities still this year. I already informed you in our last conference call in May that we prematurely canceled a contract where we sold the project in Buta and Montenegro. End of May, we already received a 1st installment of the amounts due.
There are regular meetings with the municipality of FIFA and the Republic of Montenegro regarding the details of the termination of the contract. Finally, I would like to inform you about the change in segment, which will become effective in the 4th quarter of the current financial year. We decided to transfer our 3 thermal power plant in Lower Austria from EVN AG to EVN Apfelchwertenliedelskirche in behalf, which is the company in charge of the thermal waste incineration plant in Durnell. The company was renamed in EV in Bermeck after Kekke in behalf and became part of the generation segment. All these changes took place with effect of the 1st July 2018.
The main change is that we're starting with the 4th quarter, the thermal waste incineration business in raw Austria will be reported in our Generation segment. With this, I conclude the presentation of the segments. On the next slide, I will continue with the development of our group cash flows. Gross cash flow remained nearly stable at €507,200,000 due to an improvement in the result before income tax and third, in contrasting development such as the strong decline in impairments. Cash flow from operating activities remained strong, and amounted to €351,900,000 which, however, meant a decline of 7.5%.
The development of working capital in the previous year was influenced by 2 contrasting one off effects, the valuation allowance to inventories and the reduction in liabilities resulting from the arbitration decision of the WassaM-ten power plant. In addition, the reporting period is influenced by the reclassification of long term receivables related to the wastewater project in Bupa to create receivables. Previous year's depreciation decision had a similar corresponding positive one off effect to the investment for the Wassa project. This also impacts the comparability of cash flows from investing activities, which are now amounted to minus €239,400,000 The main focus of investment was on electricity and gas networks as well as in parks. Part of the group's liquidity was invested in mainly short term financial assets, which is also now shown in the cash flow from investing activities.
The cash flow from financing activities mainly reflects the dividend payment for the shareholders of Reeve Energy and minority shareholders as well as the scheduled repayment of loans. The net change in cash and cash equivalents amounted to minus €17,300,000 Please note again that the net debt was reduced to 190 €2,400,000 during the 1st 3 quarters of the financial year. I would like to conclude today's call with the outlook for the group. In our Atok announcement, which we published on the 2nd August, we changed our outlook by saying that we expect the group net result for the financial year ending on the 30th September 2018 to be at levels comparable to last year's group net result. The effects of valuation of hedges on the full year group net result will depend on energy prices of the valuation date of the 30th September 2018.
These are factors that could influence the group net result, regulatory framework, the proceedings currently in progress in Bulgaria, the remaining proceedings on the Wasson 10 power plant project as well as the progress on activities in Moscow. Our investment strategy remains unchanged, and our focus continues to be on network infrastructure, renewable generation and the drinking water business, whereby we will further strengthen our stable and regulated activities in La Rolster, which remain the basis for sustainable and stable earnings. All in all, we plan to invest nearly approximately EUR 400,000,000 thereof, approximately EUR 300,000,000 will be directed to lower Austrian activities. I have now reached the end of my presentation of revenue results for the 1st 3 quarters of 'seventeen, 'eighteen financial year. I'm now looking forward to answering your questions.
And we have our first question for today from Lueder Schumacher, who's calling from Societe Generale.
Good morning. Yes, a couple of questions for me. The first one is on your guidance. Yes, you have lifted it, but 9 months results are already above last year. So guidance saying your results will be round about the same level isn't really displaying an awful lot of confidence for the last quarter.
Where why are you so cautious on the overall guidance? Also, your previous guidance before you lifted it was somewhere in the region of €200,000,000 You now come in for the 9 months at 273 percent. There's only about half of that that's accounted for by the hedge position. Where does the rest come from? And lastly, also maybe on the accounting changes, can you just maybe give us a few numbers of what will move from where to where just to help with modeling of that?
Yes.
First of all, as you know, 3 quarters are 3 quarters. And to discuss the overall yearly results, we will do after the books have been closed, yes? As you know, the Q4 is always weak in our kind of business. We are expecting some upside potential regarding from the reserve capacity production, but we will see how this will be communicated from other factors also. This is a tradition that we would not change our out view except we are having extraordinary things really locked in.
And the guidance we are giving now is based on the higher wholesale prices and therefore on the valuation of the hedges as I tried to describe. So this is where we stick to. And regarding the rest of the increase, it is mainly the hedges and the absence of impairments last year. This is compensating the less scaled volumes due to the weather effect because the last year has been extraordinary regarding the situation in all 3 main markets. The change in the segment, is more or less if you move the result of the waste generation company Afram into the generation segment.
So this is quite clear, and Codex can give you later on the correct numbers for that. This is just a clear cut by shifting the entity to the generation segment.
Okay. Thank you.
Next up, we have Theresa Shinwout, who's calling from Raiffeisen Bank. Hello, good morning. I have three questions. First, more of a clarification one, where if the €38,000,000 valuation effect was booked only in the 3rd quarter or cancel the 9 months or even fiscal year until the end of July?
It's simple. It is the 30th June, the valuation on this date. So we will see the real value of the hedges on the 30th September, which is in the future. Okay.
So this is a year to date effect then? Year 2, end of June effect?
End of June, 30th June, the value of the hedges on this day.
Okay, cool. And the other ones are more strategy and market separation related. 1st, could you please give us an update on the strategic reserve options schedule? When we will can expect a decision given that the market separation is already in 5 to 6 weeks? And the second one
As you mentioned, as the separation is effective from the 1st October, we are already approaching this date very fast. And as I've heard from my colleagues, the ongoing tender procedure is very tough, and we're expecting a decision in time. So expect it in the upcoming weeks, yes, because we also have to be ready with the power plants till then and start if there are no revision now.
Okay. Thank you. And the last one is more a general one regarding the Mission 2,030. If there are if you or the industry has already identified areas to focus on in the near to mid term when it comes to investments and focus areas as presented in the government strategy?
Well, you know that the Mission 2,030 is a vision in a sense that it gives guidance where the government thinks the country should head to. They are now also challenged to develop a legal framework for that. And this legal framework will be the framework for our investment decisions of the future. But we think with the strategy, which we were following last years, that we are quite in line of this development in the sense of decentralization of production, renewable energy and also strengthening of the grid to make all these things happen. And therefore, I think an integrated energy group like EVN with the broad infrastructure and a broad scope of energy activities is perfect to deliver results in this sense.
At the end, we need a consensus also in the broader society how to fund all this strategic development. And this is something which also the government and civil society has deliver on because at the end, yes, this is also shifting in public money into this kind of investment.
And we have here a follow-up question from Lueder Schumacher from Societe Generale.
Yes.
Just a quick question on the network costs. Is this just delayed pass through? In other words, you did have higher costs to get the results down, but you will get them back in future years. And maybe also given that the carbon prices are going through the roof, what does it mean for your Waltham plant?
Yes. The first question, as you know, the regulation is exactly working on this year that you have kind of a framework for 5 years period. And then the actual volumes were also reflected in the updating of the prices, yes? So this is a delay, as you mentioned, yes, before. So we're fine with this.
And as you might also add on, we are now discussing with the regulatory authorities regarding the updating for the electricity next regulatory period. So this should be also a decision upcoming in autumn 2018. And regarding the CO2 emissions, yes, they are going up, yes? And the question is if this is affecting also the spreads or if home market prices are also going up, yes, in this kind of sensitivity, this is what the whole market is observing very closely. And you're right, in Germany, there is the implication of the energy policy and of the whole price market is quite volatile these days, and we will have to see how the mid- and long term trend will be consolidated here.
It looks like we have no further questions at this time. Back to you, Mr. Sjeskowitz.
So thank you all. And next call is regarding the full year's results.