AB Ignitis grupe (IGN1L.VS) Earnings Call Transcript & Summary

Good day, and thank you for standing by. Welcome to the Ignitis Group Six Months Results 2025 Conference Call and Webcast. [Operator Instructions] Please be advised that today's conference is being recorded. I would now like to hand the conference over to your speakers today. Speakers, you may begin.

Good afternoon, ladies and gentlemen. Welcome to Ignitis Group's earnings call for the first six months of 2025. During today's session, we will present an overview of our recent strategic and financial performance. Following the presentation, we will address any questions you may have. Please note that this presentation contains forward-looking statements, which are subject to risks and uncertainties. These statements reflect the current views, expectations, and assumptions of the management team. Actual results may differ materially. With that, I would like now to invite the management team to begin the presentation.

Good afternoon, everyone. We delivered solid performance in the first half of 2025, marked by consistent execution of our strategic priorities. First, our adjusted EBITDA reached EUR 300.8 million, making a 3.8% year-over-year increase. Second, we continued our strategy delivery, which was marked by installed capacity increased by 0.3 gigawatts to 1.8 gigawatts. Third, we preserved a robust balance sheet with the net debt to adjusted EBITDA ratio standing strongly at 2.99x despite our continued investment program. Lastly, in line with our dividend policy for the first half of this year, we intend to distribute a dividend of EUR 0.683. The decision is subject to our general meeting to be held on the 10th of September 2025. Now, let me walk you through the key milestones achieved by each business segment. First, the progress of our largest business segment, Green Capacities. We increased our secured capacity portfolio by 0.3 gigawatts to 3.4 gigawatts. This growth is attributed to three final investment decisions made for battery energy storage system projects in Lithuania with a total capacity of 291 megawatts. It includes projects in Kelme, Kruonis, and Mazeikiai. With a combined investment of around EUR 130 million, these projects are expected to reach COD in 2027. We also increased our installed capacity by 0.3 gigawatts to 1.8 gigawatts following the commercial operation date of the 313.7 megawatt Kelme Wind Farm in Lithuania, which is the largest in the Baltics. Total investments in the Kelme Wind Farm, including the acquisition price and construction costs, are expected to amount to around EUR 550 million. In addition, after the reporting period, we further increased our installed capacity by 0.1 gigawatts to 1.9 gigawatts following the commercial operation date of two solar farms in Latvia, 94 megawatts capacity in the Varme solar farm, and 72.5 megawatts capacity first Stelpe solar farm. Total investments in the Varme solar farm, including acquisition and construction, are expected to amount to around EUR 66 million, and in the first Stelpe solar farm up to EUR 50 million. In the Networks business segment, we continue to make strong progress in our smart meter rollout program, which aims to install over 1.2 million smart meters by 2026. To date, the number of installed smart meters has reached 1.18 million. And in the Customers & Solutions business segment, we further expanded our EV charging network across the Baltics. Since the end of 2024, we have installed 289 new charging points, bringing the total to 1,380 across Lithuania, Latvia, and Estonia. Also, we signed a EUR 60 million financing agreement with ARD to install up to 600 fast charging stations in the Baltics by the end of 2027. And a grant agreement of up to EUR 3.8 million under the Connecting Europe facility funding to develop EV charging infrastructure in the Baltic. The actual funding amount will depend on the project scope and the eligibility assessment. Lastly, we signed a seven-year PPA with Litgrid, the Lithuanian transmission system operator, under which Litgrid will purchase up to 160 gigawatt hours of renewable electricity annually at a fixed price of EUR 74.5 per megawatt hour starting from January 2026. With the first half business segment achievements outlined, I would now like to turn to the key developments in our sustainability efforts. During the reporting period, our net electricity generated increased by 71.7% to 2.3 terawatt hours. The increased generation from Green Capacities assets, driven by new assets launched by Kelme Wind Farms, Silesia II Wind Farms, and Vilnius CHP biomass unit. However, our green share of generation decreased by 21 percentage points to 63.8% due to proportionally higher electricity generation at the Elektrenai complex. Turning to our greenhouse gas emissions, our total greenhouse gas emissions amounted to 2.61 million tons of carbon dioxide equivalent, representing a 26% year-over-year increase. The increase was primarily driven by a 116.6% increase in Scope 1 emissions, largely due to the new services provided by the Elektrenai complex. Scope 2 emissions increased by 10% due to a lower share of losses covered by green certificates, and Scope 3 emissions increased by 15.8%, reflecting higher electricity sales in Poland and overall higher natural gas sales. Lastly, on our safety, we recorded no fatal accidents with the employee and contractor total recordable injury rate standing at 0.72 and 0.43, respectively. That concludes a review of our strategic performance. I will now hand over to Jonas to present the financial results.

Thank you, Darius. Let me start with the financial highlights of the first six months of 2025. Our adjusted EBITDA grew by 3.8% year-over-year and reached EUR 300.8 million, driven by strong results in green capacities and networks. Adjusted net profit decreased by 11.2% and amounted to EUR 146.2 million, mainly due to higher depreciation and amortization expenses as well as lower financial activity results. Our investments amounted to EUR 343.2 million, with 48.1% allocated to networks and 45.6% directed to Green Capacities. However, with several projects reaching COD or nearing completion, total investments decreased compared to the first six months of 2024. Return on capital employed decreased by 1.8 percentage points to 8.6 percentage points, mainly due to the lower result of the Customers & Solutions segment. Our leverage metrics remain strong with an FFO to net debt ratio at 29.8% and net debt to adjusted EBITDA at 2.99x. Finally, in line with our dividend policy for the first six months of 2025, we intend to distribute a dividend of EUR 0.683 per share, which is 3% higher than last year. Now let's take a closer look at each of our key performance indicators, starting with adjusted EBITDA. Firstly, Green Capacities EBITDA grew by 23.9% to EUR 166.6 million, driven by new assets launched and new services provided. Secondly, Networks EBITDA grew by 14.6% and reached EUR 132.6 million, mainly due to higher RAB as a result of continued investments in our electricity network and higher WACC set by the regulator. Third, reserve capacity EBITDA grew by 15.5% and reached EUR 29.1 million, mainly due to new services provided and higher volumes generated. Finally, on our Customers & Solutions segment, its EBITDA amounted to negative EUR 27.7 million, and the year-over-year decrease was driven by lower natural gas B2B supply results and adverse effects from prosumers under the current net metering scheme. Next, let's take a look at the EBITDA results of each segment in more detail. Starting with green capacities. It remains the largest contributor to our group's adjusted EBITDA, contributing to 55.4% of the total. The main drivers behind the 23.9% year-over-year increase were, firstly, the launch of new assets, including the Silesia II wind farm in Poland and the Kelm? wind farm in Lithuania. Secondly, stronger performance of our flexible assets; and lastly, newly introduced balancing capacity services. Turning to the Networks segment. The growth in Networks' adjusted EBITDA was supported by a higher regulated asset base, which grew by 13% from EUR 1.6 billion to EUR 1.8 billion, driven by continued investments in the electricity network and an increase in WACC set by the regulator, which increased from 5.1% in 2024 to 5.8% in 2025. Next, the reserve capacity segment. The main drivers behind the 15.5% year-over-year increase were new services provided and higher volumes generated. The growth was partly offset by lower captured gross profit margin in relation to lower captured electricity prices and higher natural gas prices. Finally, Customers & Solutions adjusted EBITDA was lower by EUR 29.5 million year-over-year and amounted to negative EUR 27.7 million. The decrease was driven by 2 factors: First, lower natural gas B2B supply results, mainly because of more favorable margins secured in 2024, and secondly, lower electricity supply results driven by prosumers under the current net metering scheme. Having reviewed the key factors behind our business segment EBITDA development, let's turn to investments. In H1 2025, our investments amounted to EUR 343.2 million. 48% of investments were made in networks and 45.6% in the Green Capacity segment. Year-over-year, investments declined by 18.7%, driven by lower investments in green capacity as several projects reached COD or are nearing completion. Green capacity investments decreased by 42% to EUR 156.4 million. The main investment areas in 2025 H1 were in solar, onshore wind, and hydro pump storage projects. In the Network segment, we invested EUR 165.2 million, which is 21.6% more than last year. This was driven by higher investments in electricity grid expansion through new connection points and upgrades. Next, our free cash flow. We have managed to have a positive free cash flow of EUR 64 million, as EBITDA and change in net working capital offset the investments made. Turning to the leverage metrics. Our net debt decreased by 0.1% and stood at EUR 1.6 billion at the end of Q2 2025. Looking at our main credit rating metrics, FFO to net debt, it has slightly improved to 29.8% and is well above the 23% threshold required to maintain a BBB+ credit rating. Net debt to adjusted EBITDA has slightly decreased from 3.1 to 3.0x. And finally, our guidance for 2025. Following our Q2 performance, which was in line with our expectations, we reiterate our full-year 2025 adjusted EBITDA guidance of EUR 500 million to EUR 540 million and investment guidance of EUR 700 million to EUR 900 million. There have been no changes in the directional guidance for adjusted EBITDA by segment, nor in the main drivers behind it. With that, I will hand over to Darius to summarize our presentation.

Thank you, Jonas. For the first half of 2025, we delivered a solid performance marked by the consistent execution of our strategic priorities. First, our adjusted EBITDA reached EUR 300.8 million, marking a 3.8% year-over-year increase. Second, we continued our strategy delivery, which was marked by installed capacity increase by 0.3 gigawatts to 1.8 gigawatts. Third, we preserved a robust balance sheet with the net debt to adjusted EBITDA ratio standing strongly at 2.99x despite our continued investment program. Fourth, in line with our dividend policy for the first 6 months of 2025, we intend to distribute a dividend of EUR 0.683 per share. And lastly, we reiterate our guidance for 2025 with adjusted EBITDA between EUR 500 million and EUR 540 million and investments between EUR 700 million and EUR 900 million. With that, I would like to thank you for listening to us today.

Thank you to our speakers. We will now proceed with the Q&A session. Our first inquiry is, has Ignitis Group officially decided to participate in the second offshore wind farm tender? Has an application been submitted for the tender? Could you confirm that Ignitis Group intends to participate in the second tender without a partner? If so, why was the decision made? And why was it not possible to find a partner?

We don't have updates on this matter. The partner selection process is ongoing. No decisions on participating in the second onshore tender have been made yet. We will announce all relevant information in accordance with legal requirements.

Thank you. Our next question is, on the recently announced 7-year supply agreement with Litgrid, can you confirm whether the price is fixed at 74.5 megawatts per hour for the entire term without indexation? And what is the rationale behind that structure?

So in terms of the price and it's not being indexed, that we can confirm. In terms of rationale, it was a public tender organized by Litgrid, where they defined the conditions, and we have submitted the offer based on what we see as a fair market price for such an instrument at the moment.

Our next question: electricity supply volumes in Q2 were up 9.2% year-over-year, driven mainly by the Polish market. Was this growth fully backed by our own generation capacity through PPAs?

So, in terms of the Polish market, the majority of our Polish assets are either with CFDs for the majority of the volume or with external PPAs, which means that this growth was done mainly through external purchases. That being said, these external purchases are properly hedged, and we are not taking the price exposure.

Another question. At Tume Park, should we expect the first power deliveries already this year?

In terms of Tume, both first power and COD are expected to take place next year.

Next question. On the debt side, regarding bond refinancing or potentially new issuance, when should we expect initial actions here, given that the Euro bond is currently at relatively comfortable levels?

So our earliest bond maturity is in 2027. So we are likely to start preparatory works for refinancing next year, with the transaction taking place when the market conditions are right. We continue to monitor the situation on the capital markets. And when the timing is right, we will proceed with the transaction.

Another question. Working capital was negative at the end of Q2. Is this normal? And how should we think about working capital movements going forward?

So we like our negative working capital very much. But to be fair, I think it's not the base case scenario where we expect our working capital to be. Probably the base case level is somewhere closer to EUR 100 million in the positive territory with some seasonal fluctuations here and there. For this particular quarter, we did have an upside for our net working capital from the collected balancing services fees, which we will be returning in the second half of the year to the consumers, which means that end of June, working capital is lower than normal at least by EUR 66 million of the amount, which will have to be returned to the consumers due to regulation.

Another question. On the Kruonis Unit 5 expansion project, what stage is the project currently at? And have there been any unforeseen challenges?

Kruonis is in the construction phase, progressing as planned. No major unforeseen challenges, just day-to-day challenges usual for such infrastructure projects.

Additional question. Recently, regulators stated that their services provided by Ignitis Gamyba will result in around EUR 87 million in consumer savings, whereas you had earlier communicated about EUR 50 million in returns. What explains this gap? And could it mean that after refunds, your earnings from balancing capacities this year might be lower than last year, despite the current unusual market conditions?

So starting from the last bit, no, we actually expect balancing services to generate more than last year in any case. As previously mentioned during the last earnings call, what we are doing we are returning not the full profits, but we are sharing the unplanned upside with the regulator and, in the end, consumers. So we do expect this to have a positive impact on our full-year results. In terms of the amounts, so EUR 87 million in consumer savings stated by Dar, this also includes the expected second half sharing, the second half of the year sharing, because the actual amount for the first half is slightly above EUR 60 million, EUR 66 million to be precise.

Another question. For a renewable plant that has started generating but is not yet at COD, is the output sold entirely on the day-ahead market, or is part of it already under PPAs? Day-ahead market prices have been trending lower recently. Is this also being reflected in the forward and PPA markets?

So for all our assets, the base case is to enter into PPAs post expected COD and actually to even have a buffer in case CODs are delayed. So, PPAs usually start several months post COD. So those assets that have started generating but are not COD yet, we are selling the output on the day-ahead market. In terms of the trends, I think yes, short-term trends are impacting long-term trends, but we need to be conscious that in the current energy mix, with more solar on the grid, what we are seeing, we are seeing lower power prices during the summer period and part of sunny months of spring and autumn, but we are seeing higher prices during winter and less sunny months, which essentially means that the downward trend, which we've seen in Q2 compared to Q1, for example, this is the seasonality trend, which does not necessarily indicate the lower average pricing levels.

Next question. [Indiscernible] the regulator announced yesterday the start of an investigation into possible manipulation in the balancing services market in which Ignitis is the largest provider. How do you assess the situation internally? And what potential risks do you see?

So we don't see the risks on our side because all our bids are well calculated and reasonable. And the investigation, as we understand, is due to some of the market participants providing very high bids. And we can clearly state that these bids were not provided by us.

The following question. Could you expect a more narrow guidance for adjusted EBITDA anytime soon, given that you are on track to deliver comfortably above the lower end of the guidance?

Currently, there is no such plan. We have confirmed the existing guidance, and no narrowing is foreseen for now.

Next question. What are the Network segment WACC and RAB expectations for 2026?