AB KN Energies (KNE1L) Earnings Call Transcript & Summary

Slight delay, but we are happy to welcome you to KN Energies' Investor Conference on the company's financial results for the 12 months of 2025. I'm Olga from Nasdaq Vilnius, and I will be moderating today's event. We will begin with the company's presentation, which will be followed by a live Q&A session. I encourage everyone to submit questions throughout the presentation. [Operator Instructions] For your convenience, this session is being recorded, and replay will be available shortly after the call. That being said, I am pleased to introduce you our today's speaker, Tomas Tumenas, the Chief Financial Officer of KN Energies. Please, Tomas, the stage is yours.

Thank you. So welcome all of the participants in Friday this morning, while I am presenting KN Energies' financial results for the last year, those are nonaudited group consolidated results. And I would like to point out the major things that happened during the last year with KN and KN Energies Group. And also, we are right now in the process of analyzing our financials -- audited financials figures. And we hope while we are presenting those results, that the differences between the figures that you will see today would not be any different when we release audited financial results. So let's start. So let's start from our major achievements, major points, as I call it. So actually, the last year really for the KN Energies Group was really, really a very good year, a very successful year in actually all areas. And accordingly, basically and accordingly, our results, financial results, achievements regarding the revenues, regarding the profitability, the market reacted, and we are very happy that the market reacted positively to all our news that we released the last year, what reflected into our share price increase, as you see, 71%. So this is actually the highest share price increase among the Baltic Nasdaq whole listed index companies. And really, we are very, very happy of that. Definitely, it puts additional or even more pressure on the team to repeat the results, which would be very, very difficult. But nevertheless, we will try to do that during this year. So the price really skyrocketed last year. And that reflects our strong performance. Also worth to be mentioned that the company has been rediscovered regarding our recent commercial activities among the various stakeholders in the business community, which also elected the KN Energies in Lithuania as a top company, top 10 company into the transport and logistics sector. Also, we have been ranked #5 among the Lithuanian business leaders. So actually making one of the biggest impacts for Lithuanian economy. KN Energies is one of the largest taxpayers in Lithuania. And that is supported definitely by our strong performance and activities. So basically, we would like to point that we had very good income and revenues in our liquid energy business segment, which we loaded the record high trucks during the last year, and it was increased by almost since 2017. So this is a very huge achievement. And very important to note that the major business segments activity, LNG business activity, our regulated business activity, the terminals utilization, which imports the gas and makes regasification, the gas to the full Baltic region was utilized almost up to 70%. Also, we have been awarded various certificates. I will not point them out, but would like maybe to stress a point out the major ones as the company managed to be ranked among the CDP climate rating agency, and we have been ranked by number B, which is really move forward versus that we had in 2024. And that shows our strength and efforts towards neutral CO2 emissions and all green deal that company carries every year and invest into that fields of activity. And also, we have been ranked and got many rewards in transparency and in sustainability. That also shows a right path, and we are happy about that. But then come to the major things, major our achievements. So our financial results. As I said, the share price increased by 71%. Accordingly, the capitalization over the last year increased by EUR 63 million. The company having very solid revenues and the revenues over the last year, total revenues of the group increased by 12%. And actually, in all business segments, the growth in revenues has been recorded. So in our major business segment, LNGT, the business grew by almost 14%. Liquid Energy business segment increased by 7% and commercial LNG business revenues increased by 16%. So all actually all 3 out of 4 business segments has been growing. That was the major impact on our total financial performance and financial KPIs. Accordingly, our return on equity increased, ROCE increased. Price earnings, as we said as well increase and earnings per share accordingly went up. Important to note that the share of regulated business activity, as we see slightly declined because of a growth of commercial activities, and this is the very good signal for the market and for us because our aim, as I previously mentioned during the previous sessions, is within next 2, 3 years, to make commercial activities share in total revenues from 40% to 60%. So actually, as we see right now, we have 60% revenue came from regulated business activities and 40% from commercial activities. And if we take the client base, Interesting to note that already 50% of all revenues that we are getting are from abroad and only 50% from Lithuania from local clients. I would like also to put some information on what is going on, what was going on during the last year in LNG business market worldwide. And actually, we are showing a couple 3, let's say, basic, let's say, instruments that we are following very much while we are making our commercial solutions, decisions and also looking and take care of our CapEx as well as OpEx. So as we see, nothing new. The market has been very fluctuating both in oil with oil prices, both in gas prices and also in carbon emission allowances because all these, let's say, 3 big things has very direct impact on our performance and our market share. So meaning that if the markets for the, let's say, crude oil are okay for oil refineries, basically, for example, for major oil players in the world markets, as you know, and also for ORLEN definitely. So it's okay for us as we have our business segment, our liquid energy terminal sales for oil refining mainly for ORLEN and the good margins in oil refineries, which has been recorded in the last fourth quarter worldwide has very positive impact on overall volume flows via our terminal. Gas prices, as we see, fluctuated quite much as well. And if we take the last development, so starting in the first fourth Q, it went down, and that reflects, let's say, the total supply, which was in the last calendar year, on a good level, meaning that no big noise or tensions happened. And definitely, the -- I would say, the lower gas prices worldwide is more positive sign than the vice versa because -- and wholesale and commercial companies enjoying the less prices, let's say, as it used to be 1 year ago. Regarding the carbon emission, as our LNG terminal vessels is amateur, we need to acquire quite big amounts of AU certificates, carbon emission certificates. And we are watching very, let's say, carefully on the prices, and we are trying to catch -- to take the best price as we think and to make transactions while acquiring those certificates. The total volume, how much we're spending per annum for the certificates is almost fluctuates from EUR 6 million to EUR 6.5 million. And that directly impacts our variable cost as well as total costs. So what the company has introduced during last year, the company has a long-term agreement with SEB treasury, and we are hedging our certificates and during the last year, we managed to hedge at a good price what's reflected into our profit loss statement and we actually end up to EUR 150,000 of additional profit from the hedges. If we are just also very briefly about the overall market. So as we see in the in particular, the biggest exporter or importer, we're importing the gas right now up by our FSU vessel from United States. It's almost 70%. If we take EU average level gas import from United States accounts for almost 55%. Here, we have Norway and Lithuania 69%, United States, 25%, Trinidad Tobago and also we have a new destinations, which imported more Italy and Senegal in 2024. So as I mentioned, our terminal operated at the full -- at a very high level of the, let's say, capacity, 68%. So we see the average of all terminals in Europe is 52%. But if we take, let's say, our not technical characteristics, but let's say, business characteristics, so our utilization ratio is even more higher counting to almost 75%. So this is a very huge utilization ratio and very efficient. I would say that FSRU is one of the most efficient in terms of the capacity utilization among all Europe terminals. And that really, really helps us in definitely increasing the revenues for the company. And of course, trying to lower our costs to the clients and the consumers because our clients are Baltic country companies and households. So this is really, really important and very, very, very high achievement. So we're really proud of that. If we take from another angle, actually the gas storage capacity in Europe and by the end of the last year reached almost 60%, which is slightly less than it was a year ago. And currently, because already, as you know, we had harsh weather conditions. As an example, currently on February the data -- recent data, the storage capacity accounts only to 20%. So by the end of the last day it reached 60%. And I would say this is quite -- slightly less than used to be the average level of gas capacity -- of gas storage capacity in Baltic states. If we take annual figures, so LNG accounts EU for almost 55% of imports if we take all gas import in EU countries. Just for comparison, if we take 2022, that ratio was 20%. So the increase for LNG demand because of the war, very obvious reason increased almost 2.5x. So we expect that ratio will prevail in 2026 and 2027 and maybe even beyond. That helps us a lot because we can utilize our LNG FSRU business and actually, it allows us to use our capacities to book our capacities and to be more safe regarding the constant inflow in revenues from that activity. So we reached a milestone during the last year, 500 ship to ship LNG tanker vessels has been loaded since inception of the terminal. Utilization I already mentioned and gasification and reloading reached almost 33 terawatt hours. So basically, during the last year, we serve almost 38 cargoes. And also, I would like to mention a couple of things in our regulated activities, very important ones that, as you know, our terminal is booked till 2032, but sometimes clients due to many market conditions, they are revoking some cargoes and then it gives us an opportunity to our commercial department an opportunity to go into the spot and to acquire additional cargoes. And during the last year, we managed to place 2 cargoes that -- sorry, 3 cargoes and that also has a very positive impact in our revenues. Also worth to mention that the last year, we launched virtual biomethane liquefaction service. And we expect the growth in that, let's say, small business line within LNG business segment further on.in this year. So actually, as we see the revenues from that business segment increased by 14% and EBITDA by 11%, reaching EUR 37 million. Look going forward to the second business segment, the Liquid Energy business segment. So some information what is happening here. During the last year, the total unloading and loading oil products via Baltic terminals increased versus the last year by approximately 15%, and the majority of that increase came from Latvian terminals and Estonian. In Lithuania, increase was quite flat, almost 2%, but from another hand, it shows that Lithuania, if we take '24, '23 was more or less stable while Latvia and Estonia has been experiencing quite big declines. But right now, the terminals, as you see, they are recovering. For us, it's very important to note that our company serves almost 28%, 30% of the market. of all, let's say, in all throughput Baltic ports in various oil products. So we are maintaining the market share. We are the leaders in the market, and that also allows us to give the better product, the better service, better prices to our clients, our customers. Important thing. What happened in that business segment is we managed in the last year to prolong a contract, long-term contract of oil loading and unloading with ORLEN for another 2 years as ORLEN is the biggest client logically for us, and this accounts to almost 75% of outflow. So it gives us a stability in terms of the revenues, predictability in terms of the revenues and also good predictability in terms of our CapEx because we are launching and preparing our terminal for the new products. like biomethane, like sustainable aviation fuel and because those products are in demand from the market and ORLEN is also heavily investing and expanding their product portfolio, so-called light oil products or biofuel products. Therefore, the share of biofuel products increased and reached 12% as a total oil products that we unloaded during the last year. So revenues wise, we increased 7%, reaching almost EUR 29 million and EBITDA grew almost 32% from that business segment reaching EUR 11 million. If we talk and the third business segment is our commercial LNG activities. So we are accounting that, we are controlling, let's say, from 6.3% to 7% of global terminal operations market share. And that segment, again, revenue-wise, performed very well, growing 16%, reaching EUR 13 million in revenues. EBITDA was EUR 5.6 million and it recorded a slight drop, but basically, that drop explained by our provisions that we made for the technical accident that happened in Brazil, and that provisions accounts to approximately EUR 800,000. So basically, if we exclude that, so we are on the same level compared in terms of EBITDA to 2024. But if you look on the revenue size, so it was increased. And basically, it came again from our Brazil activities as those grew almost by 30% year-on-year basis because our client has launched the GNA II electricity power plant, second power plant, which uses additional gas and therefore, we are able to increase our revenues. If we take some look on our operations in Germany, so we are performing very smoothly. The first cargoes has been launched in Wilhelmshaven-2 terminal in August of the last year. So from a technical point of view, safety point of view it was very successful without any problematic issues or topics has not been recorded no. So actually, the terminals in Germany operates very efficiency, quickly. And actually, we also -- we are very happy with our inputs in that very important revenue stream for Germany market because Germany is very also keen on importing a lot of gas, LNG gas in order to be not dependent on the gas supply on Russia. So our share, our participation is also some kind of symbolic then we are happy to share our experience with German partners, German colleagues in operating the terminals. Some highlights on our smallest business segment, New Energies. Those -- that business segment is pretty new for us, launched actually basically during the last year. We do not have a revenue so far here. We have the costs, and this is very logical because we are investing into various projects. And what has been mentioned is our CSS project, which is designed. I would like to remind you to capture carbon emission from big emitters. As you know, we have a consortium with many cementers and would likely be their partners, cement factory. And what happened here during the last year, we have launched our feasibility studies. We got PCI status for that project. And also we got the grant from euro commission amounted to EUR 3 million. The total value of that feasibility studies that right now, taking a path and it should be accomplished during this year amounts to EUR 6 million, actually EUR 3 million is covered by the grant. Meaning only 50% is let's say, on our shoulders. So this activity was very active in CCS project. And we hope that in 2026, we will announce news regarding how we're succeeding and informing the market because we believe in that project. This is a very important project than, I would say, a top priority and regional one. So financial results, I already commented. Here, I would like to wrap up and summarize. So as you see, if we take the last 3 years, the company and the group has been growing. On the revenue side, 8% annually, EBITDA 14% annually and net profit 11%. Also, always when I'm talking with the investors. And here again, I would like to point out and to see some differences because while here, we have visual our results, which is very important. Here, we have our normalized results, when normalizing to EBITDA and net profit level and normalized different versus the IFRS is that we are taking out all inflows and outflows, what relates and correlates to our regulated activities, meaning we are trying with those figures to show, managerial figures to show how our performance would look like if we take -- exclude those impacts that we need or to return back to regulator or to get back from the regulator. So actually, therefore, it's also definitely corresponds to the official results, but they are different. So if you are analyzing our company, always pay attention on our normalized results. So here, as we see also the growth both in revenues wise and net profit. And we increased at the top level, if we take simply 2025 reaching net profit around EUR 13 million, and this is really we are happy about that, definitely. Profitability ratios also grew up because of our revenue growth and profitability growth. So nothing much to comment here. And coming to the end of my presentation, if we take our balance sheet. So I truly believe that our balance sheet despite the quite big amount of the long-term loan for the terminal in FSRU EUR 311 million. I would like to remind that loan is guaranteed by the Lithuanian government and KN is the only one company in Lithuania having such a guarantee. So the balance sheet is very strong. We are carrying around EUR 61 million in deposits, which we will use for our investment activities. If we take our cash flow, so as you see, the cash from operating activities are very healthy, very strong. We managed to receive of almost EUR 52 million in cash flow from operating activities, almost EUR 30 million goes to the various investments and the biggest amount of the investments goes into our terminal, as I mentioned, in order to prepare the terminal, the infrastructure for biofuel products, which are supplied basically from ORLEN. Also, we invest in our FSRU vessel because it was during the last year under our full ownership. And important to note that we have investment program in various IT solutions or digital solutions because those solutions are very important for our business. For our business continuity. Worth to mention that the biggest investments only started during the last year and will go up each year. So we are directing basically to replace our oil accounting management program to introduce a new one, updated one, which is used by major European terminals. That program will help us in cost saving and also in the data, let's say, readiness, in the quickness of the data, in the analyzing of the data and providing the best estimate support to our clients. So this is one field investing into the oil management program. Another is that we are heavily considering and in the process of investing into gas accounting and management program. which we would like to launch in terms of successfulness in the 2027 and we already had a partnership with one of the European providers in that area, and we cooperate with them and meaning that for them, our knowledge, our know how. How we are accounting, how we're calculating, how we are making our managerial decisions in gas accounting will serve as a basis of fundamental for making some adoptions in the gas accounting system and actually they can and will save their money and having that partnership with one of the biggest, let's say E&P companies in the world, which specializes in gas accounting programs. So basically, this is our -- my presentation. Again, thank you for being with us. Thank you, current shareholders being with us and definitely looking forward for the new shareholders and also happy to answer the questions.

Thank you, Tomas. Indeed, now we are proceeding to the questions. [Operator Instructions] But we will start first with the questions received in advance of the call. So the first question that we have received. Following the CCS project's PCI status update, do you plan to allocate more to dividends?

Yes, it's -- okay, I will answer in that way that yes and no regarding the effect on the probable dividends because, as I said, this is our investment, so meaning that we are spending money, and as I said, the plan for the almost 2.5 years amounts to EUR 6 million in those visibility status. So it definitely takes some money. But half of it, as I said, is covered by grant and majority, let's say, of those spendings are CapEx oriented. So meaning that it would have an impact, but very minor one regarding our net profit line. So meaning if net profit line is okay, you pay more dividends from the bigger net profit line. So yes, the effect will be because obviously, everybody when spending. So this is the spending. But it's not like let's say you're spending EUR 0.5 million and everything will diminish by EUR 0.5 million, not in our case. I don't want to make predictions, but from that, maybe CapEx could go only out theoretically out from the dividends maximum 25%.

And let's move to the next question. Are pipeline gas, gas products and oil products supplied to Ukraine through KN Energies terminals?

Yes, we do. We have a business activity with the Ukraine, both on, let's say, maybe not state owned but state owned companies and private companies. And particularly, we had also products, ethanol, which has been transported by our Ukrainian partners via railways and via trucks. So it was in 2025. And also on LNG, we served 4 cargoes for Ukrainian counterparts.

All right. And we have received one question our Q&A window. So do you have any plans regarding shares buyback?

So that question should be maybe more addressed to our shareholder who is right now the biggest our -- the major shareholders is Ministry of Energy of Lithuania controlling 72%. But so far, while we're having the discussions our presentations and of course, looking forward for the strategy, things, there is no any, let's say, signs for that. and so far. So difficult to say it's a good or bad news. For me, personally, it's a good news, let's say, and we are working as a normal, let's say, way nothing happening here.

All right. Thank you, Tomas. I don't see any additional questions. We can wait a minute to be sure that no additional questions come in. So if anyone has any questions that they haven't asked yet, please do so now. So it looks like we have covered all the question so far. So on behalf of KN Energies and Nasdaq Vilnius I would like to thank everyone for participating in this call. It was a pleasure being with you today. As I have already mentioned, the recording of this session will be available on the Nasdaq Baltic YouTube channel shortly after the call. Thank you once again. Goodbye.

Thank you to everyone. Wish you a good weekend. And in case always contact us, and information by e-mail, happy answer and all the best. Thank you.