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

Good afternoon, and welcome to Ignitis Group's earnings call for the first nine months of 2025. Today, we will provide an overview of our operational and financial performance for the reporting period. Following the presentation, we will open the floor for a question-and-answer session. Before we begin, please note that today's presentation contains forward-looking statements. These statements reflect current assumptions and expectations of our management team and are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied. I will now hand over to the management team to start the presentation.

Good afternoon, everyone, and thank you for joining us today. In the first 9 months of 2025, we delivered strong financial and operational results with key highlights as follows, first, our adjusted EBITDA reached EUR 405.1 million, representing a 2% year-over-year increase. Second, our installed capacity increased by 0.7 gigawatts to 2.1 gigawatts, reflecting our focus on driving strategic growth. Third, we maintained a robust balance sheet with the net debt to adjusted EBITDA ratio standing at 3.33x. Our strong financial position also confirmed by S&P Global Ratings, which reaffirmed our BBB+ credit rating with a stable outlook. Lastly, in line with our dividend policy for the first half of this year, we paid a dividend of EUR 0.683 per share, corresponding to EUR 49.4 million. We will now take a closer look at the progress made in each business segment. First, the progress of our largest business segment, Green Capacities portfolio development. We increased our installed capacity by 0.7 gigawatts to 2.1 gigawatts. This growth is attributed to 6 projects reaching commercial operation dates. By technology, we added 450.5 megawatts of onshore wind and 263 megawatts of solar. By country, 313.7 megawatts of the new capacity was installed in Lithuania, 239 megawatts in Latvia, and 160.8 megawatts in Poland. Completed projects include Kelmė wind farm, the largest onshore wind farm in Baltics, the Silesia II wind farm, one of the largest onshore wind farms in Poland, and the largest solar farm cluster in Latvia, comprising Varme I, and Stelpe II solar farms. We also increased our secured capacity by 0.3 gigawatts to 3.4 gigawatts following 3 final investment decisions made for battery energy storage system projects in Lithuania, with total capacity of 291 megawatts. It includes projects in Kelmė, Kruonis, and Mažeikiai. With a combined investment of around EUR 130 million. These projects are expected to reach COD in 2027. Further on, in Q3 of 2025, we secured EUR 318 million long-term financing for the 314-megawatt Kelmė wind farm from European Investment Bank, Swedbank, European Bank of Reconstruction and Development, and Nordic Investment Bank. This is the largest debt financing transaction ever concluded by us, marking an important milestone. We also submitted a bid for the 700-megawatt Lithuanian offshore wind project with the state support. However, as the tender required at least 2 participants and only 1 bid was submitted, the tender did not take place. Additionally, we took over full control of Curonian Nord offshore wind project in Lithuania after acquiring 49% stake from Ocean Winds. We continue developing the project independently to obtain a construction permit in 2027. Finally, our Kelmė and Kruonis battery energy storage system projects were awarded state aid of EUR 12.6 million. In the Networks business segment, we achieved our goal of installing over 1.2 million smart meters by 2026. Also, the regulator has adopted the resolution setting. RAB at EUR 1.9 billion, weighted average cost of capital at 5.74% and additional tariff component at EUR 51.8 million for 2026. In the Reserve Capacities business segment, a capital overhaul of Unit 7 and Elektrenai Complex was commenced, with the completion scheduled by mid-2026. And in our Customers & Solutions business segment, in the last quarter, we added 178 of new EV charging points, bringing the total to 1,558 across the Baltics. Also, we submitted comments to the public consultation initiated by the Lithuanian Ministry of Energy regarding prosumer model update. This change is aimed to improve loss-making prosumer supply activities with implementation targeted from 1st of April 2026. However, the timeline is subject to European Commission approval. Now I would like to highlight the key developments in our sustainability performance. During the reporting period, our net electricity generated increased by 60.9% to 3 terawatt hours. We increased generation from green capacities assets driven by new assets launched Kelmė wind farm, the Silesia II wind farm, and Vilnius CHP biomass unit. However, our green share of generation decreased by 17.6 percentage points to 66.0% due to the proportionately higher electricity generation at Elektrėnai Complex. Looking at our greenhouse gas emissions, it amounted to 3.48 million tons of carbon dioxide equivalent, representing 22.5% year-over-year increase. This increase was primarily driven by a 92.1% increase in Scope 1 emissions, largely due to the new services provided by Elektrėnai Complex. Scope 2 emissions stayed at relatively similar level with 0.9% decrease, and Scope 3 emissions increased by 14.4%, reflecting higher electricity sales, especially in Poland. Finally, on our safety. We recorded no fatal accidents. Our total recordable injury rate stands at 0.97 for employees and 0.71 for contractors. The strategic performance overview concluded, I will now hand over to Jonas for the financial results.

Thank you, Darius. Let me start with the financial highlights of the first 9 months of 2025. Adjusted EBITDA grew by 2% year-over-year and reached EUR 405.1 million, driven by strong results in green capacities and networks. Adjusted net profit decreased by 17% and amounted to EUR 177.6 million, mainly due to higher depreciation and amortization expenses as well as lower financial activity results. Our investments amounted to EUR 529.9 million, with 51% allocated to the networks and 41% directed to green capacities. However, as 6 projects reached COD, total investments decreased compared to the first 9 months of 2024. Return on capital employed decreased by 2.2 percentage points to 8.1 percentage, mainly due to the lower result of Customers & Solutions segment. Despite 11% increase in our net debt, our leverage metrics remain strong with FFO to net debt ratio at 23.4% and net debt to adjusted EBITDA at 3.3x. Our robust balance sheet was also reaffirmed by S&P with BBB+ credit rating and a stable outlook. Finally, in line with our dividend policy, we distributed a dividend of EUR 0.683 per share for the first half of 2025 in October, marking a 3% increase compared to the previous year, in line with the dividend policy. We will now take a closer look at each of our key performance indicators, starting with adjusted EBITDA. Firstly, green capacity's EBITDA grew by 19% to EUR 215.4 million, driven by new assets launched and new services provided. Secondly, networks EBITDA grew by 16% and reached EUR 192.8 million, mainly due to higher RAB as a result of continued investments into our electricity network and a higher WACC set by the regulator. Thirdly, reserve capacities EBITDA decreased by 5% to EUR 34.7 million, mainly due to lower captured gross profit margin. Finally, our customers & solutions EBITDA was negative EUR 43 million. The year-over-year decrease was driven by lower natural gas B2B supply results and adverse effect of prosumers under the current net metering scheme. Next, let's take a look at the EBITDA results of each segment in more detail. Beginning with green capacities, it remains the largest contributor to the group's adjusted EBITDA, contributing for 53% of the total. The main drivers behind 19% year-over-year increase were, firstly, the launch of new assets, including Silesia II wind farm in Poland, KelmÄ— wind farm in Lithuania, Stelpe and Varme solar farms in Latvia. And secondly, stronger performance from flexible assets and 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 into electricity network and an increase in WACC set by the regulator, which increased from 5.1% in 2024 to 5.8% in 2025. For 2026, the regulator has already set RAB at EUR 1.9 billion, representing a 6% increase and WACC at 5.74%, which is at a similar level as in 2025. Moving on to Reserve Capacities segment. EBITDA of the segment decreased by 5% year-over-year, driven by regulatory activities. And finally, customers & solutions adjusted EBITDA amounted to negative EUR 43 million. Both electricity and natural gas supply results have declined year-over-year. On electricity side, the decrease was mainly due to prosumers under the current net metering scheme and negative effect from increased imbalance prices. And on the natural gas side, B2B supply result was lower, mainly because of more favorable margins secured in 2024. After reviewing the key factors behind our business segment EBITDA, let's move on to discuss our investment activities. In the first 9 months of 2025, our investments amounted to EUR 529.9 million. 51% of investments were made in the networks and 41% in the green capacities segment. Year-over-year, investments declined by 9%, driven by lower investments in green capacities as 6 projects reached COD. Green capacities investments decreased by 35% to EUR 219 million. In the first 9 months of 2025, our main investments took place in solar, onshore wind and hydro pump storage projects. In the Networks segment, we invested EUR 271.6 million, which is 25% more than last year. The growth was primarily driven by higher investments in electricity grid expansion through new connection points and upgrades as well as higher cost to connect new customers as they are located more remotely. Next, our free cash flow. It stood at negative EUR 122.6 million, relatively flat year-over-year. Turning to the leverage metrics. Our net debt increased by 11% and amounted to EUR 1.8 billion at the end of Q3 of 2025. Our key rating metric, FFO to net debt decreased to 23.4%, but remains above the threshold required to maintain a BBB+ credit rating. And net debt to adjusted EBITDA rose slightly from 3.1x to 3.3x. Finally, our guidance for 2025. Following our performance in the first 9 months of the year, we narrow our full year 2025 adjusted EBITDA guidance to between EUR 510 million to EUR 540 million and update our investment guidance to between EUR 700 million and EUR 800 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. To sum up, over the first 9 months of 2025, we delivered strong financial and operational results with key highlights as follows: First, our adjusted EBITDA reached EUR 405.1 million, representing a 2% year-over-year increase. Second, our installed capacity increased by 0.7 gigawatts to 2.1 gigawatts, reflecting our focus on driving strategic growth. Third, we maintained a robust balance sheet with the net debt to adjusted EBITDA ratio standing at 3.33x. Our strong financial position also confirmed by S&P Global Ratings which reaffirmed our BBB+ credit rating with a stable outlook. Lastly, in line with our dividend policy for the first half of this year, we paid a dividend of EUR 0.683 per share, corresponding to EUR 49.4 million. And lastly, for 2025, we expect adjusted EBITDA to be in the range of EUR 510 million and EUR 540 million and investments in the range of EUR 700 million and EUR 800 million. With that, I would like to thank you for your attention and joining us today.

[Operator Instructions] Our first question is, how do you see the public debate surrounding the Curonian Nord projects development?