Good morning, ladies and gentlemen, welcome to the conference call on EVN's results for the 2016/17 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 Szyszkowitz.
Good morning, welcome to the conference call of EVN's results for the 2016/17 financial year. The financial year 16/17 was out of the ordinary in many respects. We are, of course, very pleased by the sound results which we are reporting today. However, I would like to stress right at the start that the 16/17 results must not be seen as a benchmark for future performance. To start with, the following external factors were unusually positive for our business. The weather was extremely favorable, both during winter and summer. It resulted in higher energy, network, and also water distribution volumes. Another positive factor related to the higher use of our thermal power plants to ensure network stability in Austria and Southern Germany. In the past business year, our thermal power plants were called on 163 days as compared to 130 days the year before.
Also, on the positive one-off side, I would like to remind you that we were able to solve an important issue in course of 16/17. In February 2017, our Bulgarian supply company achieved a settlement with the state-owned Bulgarian electricity provider, NEK. The agreement involved the offset of outstanding receivables for the additional cost of renewable electricity, which were financed in advance by our Bulgarian supply company. The reversal of valuation allowances to these receivables, together with default interest, resulted in a positive non-recurring effect of approximately EUR 38 million on group net result. Further positive one-off effects came from the valuation of hedging transactions, provisions and liabilities in the energy business on the balance sheet date, and operative cost savings. Also worth to mention is that in November 2016, we received the arbitration decision on the Walsum Power Plant project, which was taken in favor of the project company.
The arbitration court awarded the project company compensation of approximately EUR 200 million. This compensation primarily led to reduction of the construction costs. This was counterbalanced by a corresponding reduction of current liabilities against the general contractor, Hitachi. Therefore, the arbitration decision did neither have a material effect on liquidity or on results. In Lower Austria, we continue to invest into the expansion of our wind power activities. Just recently, commissioning of a new 10-megawatt wind park took place in Oberwaltersdorf. Next spring, we plan to start operations of another project in Sommerein with 33 megawatts installed capacity. In total, these two projects will increase our installed wind generation capacity to over 300 megawatts. Our midterm target is to expand our installed wind generation capacity to 500 megawatts over the next couple of years, of course, subject to an appropriate framework in Austria.
Our dividend policy continues to be based on stability and predictability. After having maintained a stable dividend since the financial year 2011/2012, we would like to send a positive signal to our shareholders. Therefore, we will distribute a higher dividend of EUR 0.44 per share, plus a one-time bonus dividend of EUR 0.03 per share, which is intended to reflect that the improvement in group net results were also based on exceptional factors. Let me now continue with key financials of our 2016/2017 financial year. The group's total revenue rose by 8.3% to EUR 2.2 billion. This growth was driven by weather-related volume effects. The cold winter in Austria, Bulgaria, and Macedonia resulted in a higher network distribution energy sales volumes in all of these markets.
In addition, also this summer was significantly warmer, especially in Southeastern Europe, and this had positive effects on energy and network distribution volumes due to the increased use of air conditioning. In addition, the revenue growth was supported by the increased use of the thermal power plants for network stabilization, as well as the international project business. The group's EBITDA increased by 19.4% to EUR 721.6 million. This increase reflects improvements in the energy business results, as well as the positive one-off effect from the agreement with NEK Bulgaria. Operating expenses increased in line with the weather-related higher demand for energy and the increased use of energy carriers for thermal electricity generation to stabilize networks. Operating expenses, however, also included a negative one-off non-cash effect.
In the second quarter of our financial year, we had to report a valuation allowance on inventories in the international project business in the amount of EUR 45.5 million. Based on these operating results, we are reporting today an increase in EBIT by 33.2% to EUR 346.9 million. Whereas depreciation and amortization declined slightly by 1.5%, the effects from impairment testing were up and amounted to EUR 112.5 million. Out of these, the main impairment losses were EUR 19.1 million on our investment in the Walsum 10 Power Plant. EUR 40.5 million on generation and heating equipment and electricity procurement rights. EUR 24 million on the Bulgarian heating company, Toplofikatsia Plovdiv, and EUR 28.9 million on the Bulgarian hydropower plant project, Gorna Arda, which was also already reported in the first quarter 2016/2017. The development of financial results was significantly influenced by positive valuation effects from Verbund shares.
In June 2017, we decided together with Wiener Stadtwerke Holding AG to dissolve our joint venture company, WEEV, for simplification reasons. Both companies took over their part of the shares previously held by WEEV. Due to the net positive valuation effect resulting from such transfer and other positive non-recurring effects, the financial results improved by 65.2% year-on-year to minus EUR 21.4 million. In total, group net results increased by 60.4% and amounted to EUR 251 million. 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 supported further improvement of our key balance sheet indicators. In comparison with the 30th of September 2016, the equity ratio increased to 48.8%. Please note that besides net financial debt, we also report net debt now, which also contains non-current personnel provisions.
Net debt was reduced by 20.4% to EUR 1.2 billion. Based on that reduction and the increase of equity, gearing came down from 55%-38.5% during the reporting period. Before I will go through each of the segments in detail, I would like to give you an overview on the EBITDA development of our business segments. The overall picture of our good operational performance, as well the impacts from certain one-off effects, is also reflected in the EBITDA development of the segments. The charts also visualize the exceptional circumstances and the one-offs of the past financial year. In generation, the strong demand of balancing power becomes obvious. In the energy segment, the positive operating performance, as well as the positive effects from the valuation of hedges as of the balance sheet date are visible.
Please note that the previous year was significantly influenced by provisions for onerous contracts related to the marketing of our own electricity production. In networks, the weather-related volume effects, as well as additional volume effects in natural gas due to the increased use of the thermal power plants to stabilize the networks, had a positive income on EBITDA. In Southeast Europe, the temperature-related increase in volumes, both during winter and summer, as well as the positive one-off effects from the agreement with NEK, are reflected in the chart. In the environmental segment, for the sake of better comparability of the operating performance, we have adjusted EBITDA. On this slide, by the valuation allowance of EUR 45.5 million on inventories, which had to be recognized in the second quarter already, which are a non-recurring non-cash effect.
On an adjusted basis, however, EBITDA in the environment segment is EUR 3.7 million only. Let's move on now to the next slide, which covers the generation segment in more detail. In the generation segment, the development of revenue was influenced by an increase of both renewable and thermal generation. Our thermal power plants in Lower Austria were again more frequently used to stabilize the networks in Austria and southern Germany, and the renewable generation benefited from higher wind flows in the first full year operation of the 19-megawatt Park of Lanzenkirchen wind park. On segment level, electricity production volumes therefore increased by 3.4%. Based on these developments, revenue was up by 8.3%. The higher use of primary energy carriers for thermal generation, as well as expenses for power plant inspections, led to higher operating expenses.
Due to the reduced effects from impairment testing, the result from equity accounted investees improved. Therefore, EBITDA increased by 40.1% to EUR 103.7 million. EBIT, however, does not reflect this improvement given the impairment losses, which I mentioned earlier, which are largely included in the generation segment. In total, segment EBIT therefore amounted to minus EUR 7 million. Today, I would also like to provide you with a brief outlook for all our segments. More comprehensive statement outlooks are available in our full report, so please double-check there as well. In the generation segment, all three of our thermal power plants in Lower Austria are again under contract for the winter half 2017/2018 to stabilize the network in southern Germany. We also expect positive effects from the commissioning of additional wind power capacity in the course of this financial year.
However, wind and water flows, as well as the development of electricity pricing, are unpredictable. In total, an improvement in earnings is expected for 2017/2018, also due to the absence of effects from impairment testing 2016/2017. On the next slide, I will continue with the development in the energy segment. Energy sales to end customers are substantially higher due to the weather conditions, resulting in an increase in revenue by 12.3%. Despite the increase, operating expenses declined due to the absence of provision created in the previous year for onerous contracts. In addition, operating expenses were also reduced by the valuation of hedges as of the balance sheet closing date. The share of results from equity account investees with operational nature increased by 60.1%, reflecting a higher earnings contribution from the electricity and natural gas sales of EVN KG, which was also partly due to the valuation of hedges.
In total, these developments led to an improvement of EBITDA to EUR 101.8 million and an EBIT of EUR 73.9 million. As for the outlook of the energy segment, we expect earnings to be positive, but lower than in the previous year. This expectation is, among others, based on our assumption that the procurement costs indicate an increased tendency, as well as the assumption of growing competition. On the next slide, I will present the developments in our network segment. The network distribution volumes were higher due to stronger demand during both winter and summer. Additional positive volume effects in natural gas distribution were due to the increased use of the thermal power plants in Lower Austria. In combination with price effects due to the tariff increases approved by E-Control commission, in the beginning of the calendar year, revenue was up by 15%.
Based on a fairly stable development of the operating expenses, the EBITDA increased by 32.7% to EUR 292.9 million. After deduction of an investment-related rise in depreciation, EBIT amounted to EUR 177.6 million, which corresponds to an increase of 61.1%. For 2017-2018, we expect that the segment results will be below the levels we achieved in the past financial year. This expectation is based on the following factors. The applicable network charges for electricity in 2017 and 2018 will increase as of the 1st of January 2018, and those for natural gas will decline. In addition, the start of the new regulatory period for the natural gas distribution network of the 1st of January 2018 will include the application of a lower weighted average cost of capital. Which has already been taken into consideration by the E-Control commission upon determination of the network tariff.
Scheduled depreciation and amortization in this segment will increase further as a result of our ongoing and intensive network investments. Finally, I would also like to point out that the volume effects of 2016-2017 will be offset in the coming year by the reference period comparison that is part of the regulatory calculation. On the next slide, I will continue with the Southeast Europe segment. Southeast Europe. The business development in Southeast Europe was influenced by lower temperature during winters, but also the warm summer, which increased the demand for air conditioning. The resulting increase in network and energy sales volumes was, however, contrasted by a decline in sales to business customer as a result of the continuing liberalization of energy markets. Based on these developments, revenue increased by 0.9% to EUR 957.5 million. The improvement of operating expenses reflected the positive one-off effect from the settlement with NEK.
Therefore, EBITDA was up 29.2% to EUR 167.3 million. A further adverse price decision by the regulatory authority during the reporting year led to an impairment loss of EUR 24 million for the Bulgarian heating company Toplofikatsia Plovdiv. In total, EBIT was EUR 45.6 million higher than the previous year and amounted to EUR 81 million. In 2017-2018, segment result will reflect the absence of the positive non-recurring effects in connection with the NEK settlement. In addition, we believe that temperature and hence energy sales, network distribution, and volumes will approach the lower long-term average again. Therefore, we expect positive results in the Southeast Europe segment, but below the prior year level. We also expect a decision by the World Bank's International Center for the Settlement of Investment Disputes in the arbitration proceedings against the Republic of Bulgaria in the course of the current financial year.
I would like to conclude my presentation of the segments by talking about the environment segment. Revenue increased by 11.7% to EUR 197.5 million due to the positive performance of the international project business. The increase was also supported by higher revenue from water supplies in Lower Austria during the dry summer. The operating expenses increased in line with the development of the international project business. In addition, the operating expenses included the negative non-recurring non-cash effect from a valuation allowance on inventories, which was recognized during the second quarter. Based on this negative one-off, EBITDA amounted to EUR 3.7 million and EBIT was negative at minus EUR 21.2 million. Financial results improved by 35.7% to minus EUR 1.6 million. In the international project business, we are working currently on the realization of seven general contract assignments for the construction of wastewater treatment projects in Croatia, Macedonia, Poland, and the Czech Republic.
Four out of these projects have reached an advanced stage and should be commissioned during the first half of 2017-2018. The order book was about EUR 48 million at the end of the 30th of September 2017. The tender process for a wastewater treatment project in Kuwait, in which a bidder consortium formed by WTE Wassertechnik and a Kuwaiti financial investor submitted the best offer, is still in progress. The tendering authorities are expected to formally award the contract in the course of 2018. The outlook in this segment is always subject to further progress of the activities in the international project business. Earnings, however, are expected to be positive again due to the absence of the valuation allowance recorded on inventories this year. With this, I conclude the presentation of all segments. On the next slide, I will continue with the development of our group cash flows.
Due to the sound operating performance, the gross cash flow improved by 6.4% to EUR 572.3 million. Cash flow from operating activities was strong, too, and improved by 9.9% to EUR 508.9 million, despite the reduction of liabilities following the [Walsum] arbitration decision. The [Walsum] decision had, in terms of amount, a similar positive effect on cash flow from investing activities. The cash flow from financing activities included dividend payment to shareholders of EVN AG and to non-controlling interest, as well as carryover payments of loans and other bond. The net cash in cash and cash equivalents amounted to minus EUR 1.6 billion. I would like to conclude today's call with a brief update on the outlook of the group. The past financial year was influenced by a number of exceptional circumstances, which had a positive effect on group net results for 2016/2017.
As human average conditions in the energy business environment, group net result for 17/18 should return to a normal level that reflects the average of 15/16 and 16/17 financial years. These are factors that could influence the group net result including, the regulatory background, especially in Southeast Europe, the proceedings currently progress in Bulgaria, the remaining proceedings over the Walsum 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. 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 approximately EUR 400 million in each of these coming financial years. Thereof, roughly three-fourths will be directed to our Lower Austrian activities.
In line with such investment strategy, we remain committed to our integrated business model along the value chain of the energy business. We believe that our integrated business model proves to be particularly resilient in the current uncertain and challenging market environment. I have now reached the end of my presentation of EVN's results for 2016/17 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 followed by the star key on your telephone keypad. If you wish to withdraw your question, please press nine followed by the star key again. Please press nine, star now to state your question. Our first question comes from Peter Crampton, calling from Macquarie.
Good morning. Two questions, if I may. Firstly, looking at the dissolution of WEEV, does it have any further kind of implications on your 12.6% shareholding in Verbund, or is that syndication agreement with Wiener Stadtwerke still in place? The second question is on impairments. We saw EUR 112.5 million of impairments kind of last financial year. Have we now come to an end of impairments in kind of all your assets where they need to be in terms of valuation? Thank you.
These are very elegant questions. First of all, the syndicate agreement with the Vienna Municipality Stadtwerke is still in place. The second, on the balance sheet date, you have to update your impairments there and what the future will bring regarding interest rates and energy prices, wholesale prices, electricity prices, is still not foreseeable. Therefore, we kindly ask you to accept this answer.
Okay. Thank you for your answers.
Our next question comes from Lueder Schumacher, calling from Société Générale.
Yes, good morning. A number of questions from me. The first one is again on the Verbund shareholding. You said you took the decision because it simplifies things. I'm not quite sure what it simplifies. If you could explain that would be helpful. The second one is on the impact of balancing power stock and services on the network and the generation divisions, if you could quantify what the impact was. Also, on the networks, you also said the tougher regulation, the lower WACC. Can you tell us the impact that results from the lower WACC from 2019? Also, in the environment division, the valuation allowance, if you could just give us a number. Apologies if it's somewhere in the annual report, but I haven't quite got through all of it yet.
Okay, thanks a lot. First of all, we had this special entity regarding the Verbund shares since 2010. We combined our efforts then to participate in a capital increase together. Over time, the administration of the special entity is in no value to the results we are having there. Therefore, we agreed to simplify this, and everyone was taking over the shares in relation to the shareholding of this special entity, and it's gone, and these administrative costs will not be spent in the future. Regarding the impact of the balancing energy, the contract regarding TenneT and APG, which we were fulfilling during the last financial year, brought us a low double-digit result regarding the capacity availability. Of course, we also produced, the capacity reserve itself is only a low double-digit result which we could achieve here.
Regarding the network and the network regulation, this is ongoing. There are drafts regarding the future period on gas. There is some information on E-Control's homepage about this. The whole debate started with the gas transmission operator, Gas Connect Austria. There they had a new WACC, which is 4.88. This is the basis for the debates in the whole industry regarding long-term investment. There will be also a slight uplift regarding investments to further encourage also investments in this. Honestly, I would like to comment on this in our conference call on the first result when things are more transparent on this. Regarding the provision on the environmental business, there was EUR 45.5 there, which we had to take there. This was the boiler, the last part of the failed project regarding the second waste incineration plant, which we originally wanted to build also.
Okay, thank you very much. That was very clear. Just one follow-up question on balancing power. You said low double-digit million for the TenneT APG part. What about the actual generation division? What was the impact from balancing power in there, or what's the number you gave as a total?
Well, you see the generation result in the documents itself. It is very sensitive in a way regarding this kind of capacity pricing because there is a tender regarding next summer underway. Therefore, I kindly ask not to make this more transparent as I did before. This is a competitive market there. We will see tenders coming up. Let's then talk when we have achieved something.
Okay. Thank you.
Ladies and gentlemen, if you have any additional questions, please press 9 followed by the star key now. Okay, Mr. Szyszkowitz. It seems that there are no further questions at this time. Actually, we've just received a question from Ms. Teresa Schinwald.
Hi. Good morning. Sorry, new mobile. Could you give us an update on the CapEx plan for next year? Would it be comparable or?
We are still in this cycle of investment on a quite high level because our opportunities, mainly in Lower Austria, so three quarter, like in the past, will go to Lower Austria, especially in the upgrade of the network and renewable energy and in the water business. The total amount we expect on average over the years, because it's always how you can realize the investments on time, is around EUR 400 million brutto.
Thank you very much.
There are no further questions at this time.
Thank you again for joining today's conference. Please join us again next year on Wednesday the 28th of February 2018. We will publish the results for the first quarter of our 2017-2018 financial year. I wish you everybody Merry Christmas from Vienna, success and good luck for 2018. Goodbye.
This concludes EVN's conference call for the 2016-2017 financial year. Thank you for your participation.