Good morning, ladies and gentlemen, and welcome to the conference call on EVN's results for the first three quarters of the 2016/2017 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 and welcome to the conference call on EVN's results for the first three quarters of the 2016/2017 financial year. I would like to start today's conference call by informing you, as we have announced ad hoc on the 7th of June, that my valued colleague, Peter Layr, Spokesman of the Executive Board, asked the personnel committee of the supervisory board to earlier terminate his appointment as member of the Executive Board with the effect from the 30th of September 2017, as he has reached the legal retirement age. Let me turn to the contents of the presentation of this conference call. Having finished the first three quarters 2016/2017 financial year, we note that our financial performance so far has been influenced by certain positive framework conditions, as well as some one-off effects which occurred in the course of the reporting period.
In the energy business, our operating performance was influenced by two main factors. Firstly, the temperatures were substantially colder in our core markets, Austria, Bulgaria, and Macedonia, compared with both the previous year and the long-term average. This had particularly positive impacts on network distribution and energy sales volumes. Secondly, the demand for super regional services related to the management of shortages in the delivery of balancing energy has increased again and has reached new record levels. Our thermal power plants were called on 142 days as compared to 89 days during last year to supply balancing energy, thereby ensuring network stability in Austria and Southern Germany. When talking about reserve capacity, I also would like to inform you that we just received additional contracts for the supply of reserve capacity for the next winter period.
The supply reserve capacity for the winter 2017/2018 increased from 450 megawatts to 1,090 megawatts. For the first time, all of our thermal generation assets in Lower Austria are under contract. Our main one-off effects were announced ad hoc, and we have also discussed them in course of our recent quarterly results presentations. I would like to briefly summarize them again in chronological order. 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 a reduction of the construction costs. This was counterbalanced by a corresponding reduction of current liabilities against the general contractor, Hitachi. The arbitration decision did not have a material liquidity effect.
In February of 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. In this connection, the Bulgarian regulator took the decision on the 4th of August 2017 to formally terminate the legal proceedings against our Bulgarian supply company, which was intended to withdraw its license. Irrespective of these developments, the international arbitration proceedings initiated by EVN against the Republic of Bulgaria at the World Bank's International Centre for Settlement of Investment Disputes are still active.
The reason is that some of other important issues are still unsolved in Bulgaria, such as past negative regulatory decisions. We expect that an arbitration decision may still be made in the course of the 2017 calendar year, but we do not have any certain clarity about that accurate timeline regarding such decision. In Lower Austria, we focus on the further expansion of our wind power activities. Currently, two projects are under construction, one in Oberwaltersdorf with 10 MW and one in Semmering with 33 MW installed capacity. Commissioning of both wind parks is scheduled for the next financial year, which will increase our installed wind generation capacity from the present level of 269 MW to over 300 MW. Subject to a continued appropriate legal framework, we have defined a medium-term goal of expanding our wind generation capacity to approximately 500 MW over the next few years in Lower Austria.
Let me now continue with the key financials for the reporting period. Supported by the already mentioned temperature-related volume effects in network distribution and energy sales volumes, the group total revenue increased by 9.2% to EUR 1.8 billion. A positive contribution to development of revenue was also provided by the increased use of the thermal power plants for network stabilization, as well as the international project business. On EBITDA level, we are reporting today an improvement by 14.8% to EUR 603 million. This increase is reflected improvements in the energy business results as well as the positive one-off effect from the agreement with NEK in Bulgaria. Please note that operating expenses increased in line with the weather-related higher demand for energy and the increased use of energy carriers for the thermal electricity generation to stabilize networks.
There was a negative one-off non-cash effect on operating results from a valuation allowance on inventories in the international project business, which we already reported in our half-year results. The improvement in operating results is, however, not fully reflected in the EBIT. This is due to an increase in impairment losses, which had to be recognized during the reporting period. In addition to an impairment loss of EUR 28.9 million, which was recognized through the Gorna Arda hydro project in Bulgaria during the first quarter already, further impairment losses became necessary in the third quarter due to the less favorable estimates for the long-term development of electricity prices and higher discount rates, therefore. EUR 19.1 million on our investment in Walsum 10 power plant, EUR 19.9 million on electricity procurement rights, as well as renewable and thermal generation assets, and EUR 26.6 million on the Bulgarian district heating company, Toplofikacia.
In total, EBIT was still up 0.6% and amounted to EUR 301.2 million. The development of financial results was influenced by the restructuring of WEEV Beteiligungsinvest GmbH and its investment in Verbund shares. WEEV was founded in 2010 together with Wiener Stadtwerke Holding AG in order to hold shares which were issued by Verbund in course of its capital increase at that point of time. In order to simplify such structure, we decided together with Wiener Stadtwerke Holding AG to transfer the Verbund shares previously held by WEEV and Wiener Stadtwerke Holding. Due to the positive valuation effect resulting from such a transfer and other positive non-recurring effects, the financial results improved by 80.3% year-over-year to minus EUR 78.8 million. The group net result increased by 21.7% and amounted to EUR 242 million.
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 improvements of our key balance sheet indicators, each in comparison with the 30th of September 2016. Equity ratio increased to 47.5%, and financial net debt was reduced by EUR 221.9 million to EUR 899.6 million. Our strong balance sheet is also positively reflected in recent assessments of the rating agencies. In last April, we received upgrades from both rating agencies. Moody's raised our rating from A3 to A2, which is stable outlook, and Standard & Poor's increased the rating from BBB+ to A- also with a stable outlook. Before I report on each of these segments in detail, I would like to note that we have renamed several of these segments, however, without any changes in their content.
The new designations of our segments are also stated in our letter to shareholders. The name of the generation segment remains unchanged. The former energy trade and supply segment is now called Energy. The new name of our former network infrastructure Austria segment is Networks. The segment formerly called Energy Supply Southeast Europe has been renamed to Southeast Europe, and the Environmental Service segment is now called Environment. Finally, Strategic Investments and Other Business will now bear the name Hold Other Segment, which is an IFRS standard denomination. I would like to provide an overview on the EBITDA developments of our business segments. The overall picture of our good operational performance as well as impact from certain one-off effects is also reflected in the EBITDA development per segment.
In the energy business, only generation is below the previous year due to higher expenses for energy carriers and inspections at power plants, both linked to the more frequent use of our thermal power plants for network stabilization. Furthermore, the illustration on slide five shows the impact from the temperature-related volume effects and the positive one-off effects in Southeast European business. In the environment segment, we would like to make the point that from a purely operational point of view, the segment EBITDA improved due to a sound performance of the international project business. In order to evident this development, we have adjusted the EBITDA on this slide by the valuation allowance of EUR 45.5 million on inventories, which had to been recognized in the second quarter already and which is a non-recurring non-cash effect. On an adjusted basis, however, EBITDA in the environment segment is negative at EUR 6.9 million.
Let's move on now on 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, whereas the latter was due to the already mentioned frequent use of our thermal plants to stabilize the networks in Austria and Southern Germany. The renewable generation benefited from better wind flows and the commissioning of the 90-megawatt Pottendorf-Lanzenkirchen wind park last summer. Based on this development, revenue was up by 11%. The higher use of primary energy carriers for thermal generation, as well as expenses for power plant inspections led to higher operating expenses, resulting in a decline of EBITDA by 4.5% to EUR 84.4 million. The negative effects from impairment testing are largely included in the generation segment, resulting in segment EBIT of minus EUR 8.4 million.
On the next slide, I will continue with the development in the segment, which we've also renamed into Energy. Energy sales to end customers were substantially higher due to the cold winter temperatures, resulting in an increase in revenue by 13.4%. The operating expenses increased primarily from higher energy purchases from third parties due to the greater use of the thermal power plants to protect network stability and intensive natural gas trading. The share of results from equity accounted investees, which are operational in nature, increased by 16.3%, reflecting a higher earnings contribution from the electricity and natural gas sales of EVN AG. In total, these developments led to a raise in EBITDA by 3.1% to EUR 94.8 million, whereas EBIT was down by 3.3% to EUR 76.4 million due to negative impact from impairment testing.
On the next slide, I will present the developments in our Austrian grid business, the segment which is now called Networks. The cold winter resulted in higher network distribution volumes. 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 positive price effects due to tariff increases approved by E-Control at the beginning of the calendar year, revenue was up by 16%. Please note that the annual tariff changes correspond to the investment carried out in recent years and to the comparison of network distribution volumes with the respective reference periods. Whereas we have been benefiting from lower volumes in the past, I would like to highlight the fact that this year's positive volume effect will negatively impact the tariffs in two years' time.
The operating expenses increased in comparison to the previous year, primarily due to the high expenses for our upstream network. Segment EBITDA was up by 31.4% at EUR 252.4 million. After deduction of investment-related rise in depreciation, EBIT amounted to EUR 166.5 million, which corresponds to an increase by 51.2%. On the next slide, I will continue with the Southeast Europe segment. To start with, the regulatory authorities made the following tariff decisions with effect of the first of July 2017. In Bulgaria, the end customer price for electricity for household customers in EVN supply area were increased by an average of 1.7%. In Macedonia, the tariff decision reduced the end customer price for electricity by an average of 0.3%. I would like to talk about the business development in Southeast Europe. Low temperatures during the past winter led to a raise in network and energy sales volumes.
This development was, however, comforted by a decline in sales to business customers as a result of the continuing liberalization. Based on this development, revenues increased by 0.8% to EUR 741.8 million. The improvement of operating expenses reflects the positive one-off effect from the settlement with NEK. Therefore, EBITDA was up by 53.9% to EUR 133.2 million. In the third quarter, impairment testing triggered an impairment loss of EUR 26.6 million with respect to the Bulgarian district heating company, Toplofikacia. Still, EBIT was EUR 48.3 million higher than the previous year and amounted to EUR 59.6 million. Let's move on to the last slide on our segment, which this is the segment now called Environment. Segment revenues was 14.4% up, EUR 151.4 million due to a positive performance of the international project business. 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 already. Based on this negative one-off, EBITDA amounted to minus EUR 6.9 million, and EBIT stood at minus EUR 25.9 million. Financial results improved by 13.1% to minus EUR 1.4 million. In the international project business, we are still expecting that the tender of the large wastewater project in Kuwait will be concluded during the current calendar year. As a result, I talk in March, a bidder consortium formed by our German subsidiary, WTE Wassertechnik, and Kuwait, the financial investor, emerged as best bidder, and the tendering authorities in Kuwait opened the bids. However, the contract for this project had not been formally awarded yet.
As of the end of June 2017, our international activities include the realization of seven wastewater projects as one in Prague and projects in Southeast Europe. The order book was about EUR 65 million at the end of June 2017. With this, I conclude the presentation of the segments. On the next slide, I will continue with the development of our group cash flow. Due to the sound operating performance, the gross cash flow improved by 12.8% to EUR 508.4 million. Cash flow from operating activities was 4.4% lower than the previous year at EUR 380.6 million. This was due to, above all, 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 includes the dividend payment to shareholders of EVN AG and minority shareholders as well, as with scheduled repayments of loans. The net change in cash and cash equivalents amounted to EUR 66.1 million. I would like to conclude today's call with a brief update on the outlook and the investment strategy. The group net result is expected to increase over the previous year on the order of the non-recurring effect from the settlement in Bulgaria. In this connection, the reversal of valuation allowances to receivables recorded in previous years and default interest totally approximately EUR 38 million after tax were recognized. This statement is made under the assumption of average conditions in the energy business environment.
There are factors that could still influence the group net results, including regulatory background, especially in Southeast Europe, developments in the proceedings in Bulgaria, the remaining proceedings related to Walsum 10 Power Plant project, as well as the progress on activities in Moscow. Our investment strategy remains unchanged, and our focus remains 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 of sustainability and stable earnings. 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 the first three quarters of the 2016/2017 financial year.
I am now looking forward to answering your questions.
Ladies and gentlemen, if you would like to ask a question, please press nine star on your telephone keypad. In case you wish to cancel a question, press nine and star again. The first question comes from Peter Crampton, Macquarie. Please go ahead with your question.
Good morning. Two questions, if I may. Firstly, you did around EUR 100 million of impairments in the first nine months. What's the view going forward? Can we expect more impairments, or have they come to an end? The second question relates to your dividend, which hasn't been raised in quite some time, and looking at a strong balance sheet, good outlook for EBITDA. Can we expect growth in the dividend at one point in the future? Thank you very much.
Thanks, Peter, for the question. First of all, as you know, regarding the impairments, we are currently monitoring all parameters which can influence the value of our assets. From this point of time, I cannot give you another answer to your question as we did when we were doing our impairments in the third quarter. I think this is reflecting our permanent reviewing on the energy prices also on the long term, and as we know, we are working there with studies from very well-known international institutions regarding market price development over the next years. The second thing is also regarding the dividend policy. As you know, we have two parameters which we monitor. One is the accurate amount of past dividends, so the EUR 0.42 per share, and of course the midterm, which we are having on this regarding the 40% on the group's results.
Both are the things which we always communicated to the investment community, and which we will also regard highly when we are finalizing our accounts for this year.
Okay. Thank you for your answers.
At the moment, there seem to be no further questions. If you would like to ask a question, please press 9 and * on your telephone keypad. The next question comes from Teresa Schinwald, Erste Group Bank. Please go ahead with your question.
Thank you very much. I have one clarification question. The procurement rights impairments, do they concern the Freudenau power plant and what else? Second one is, if you could provide us with a rough timeline for the new gas distribution regulation, when we can expect a final wording? My usual, what's the order backlog for the environment segment?
Okay. To your first question, it is mostly Freudenau. Regarding your second question, we are in the process of the regulatory operators for now, really fixing the framework for the 1st of January 2018. We are quite confident so far with the results of this reviewing, but we will make them officially finalize this process on the authority finally closed and the result is announced. Regarding the order book, it's EUR 65 million, as I stated before in the presentation.
Oh, sorry, my bad. Thank you very much.
For any further questions, please press nine and star on your telephone keypad. Mr. Szyszkowitz, there are no further questions from the audience.
Okay. Thank you for your interest in today's conference call. I hope that you will join us again on Thursday, 14th of December 2017, when we will publish the results of the '16/17 financial year. Goodbye.