AB KN Energies (KNE1L) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to KN Energies Investor Conference on the company's unaudited financial results for the 6 months of the year 2026. My name is Olga, and I will be moderating today's event. As usual, we will start our conference with the company's presentation, which will be followed by a live Q&A session. [Operator Instructions] Please be informed that this session is being recorded, and replay will be available soon after the call. And without further delay, I would like to give the floor to our today's host, Tomas Tumenas, Chief Financial Officer of KN Energies. Please, Tomas, the stage is yours.

Thank you, Olga. Hello to everyone in this quite rainy afternoon in Vilnius. So I would like to share them and describe our situation during the first half, what we did, what happens within the company, within the group, and I'm really happy to share all financial information and major events. So let's start. And as usually, I would like to give some information about overall market situation worldwide in oil industry and in gas industry, also in our region. Then we will touch completely market and business situation of the KN Group, and then we will touch at the end financial results, which actually have been released or was released in the stock exchange. So let's start. Major highlights, we pointed out here, but I would like maybe to emphasize on the especially more commercial or business-oriented KPIs like methanol cargo for us, it's a really important milestone because we handled almost 5,000 cubic meters. And also, we managed to make the first commercial methanol cargo within our port ever in history and ever in our infrastructure. It required additional investments preparation, and we look forward to increase that loading of such kinds of products in the future because they are really demand in the market. KN allocated almost 70% -- 71% of future gas the commissioning regasification or, let's say, all our capacities during period for the future period as of 2033 until 2044. Also, our key project in new energy business segment, CO2 emission CCS project got a project of national importance. And as a result of the very active activity in our LNG business unit, the FSRU average utilization so far during the first 6 months was 86%. So it was really huge. So let's go on -- and also some major KPIs regarding our revenues. As you see, our revenues on the top line, we managed to increase our revenues per group by 14% versus the first half of the last year, reaching EUR 58 million. EBITDA increased by almost 15%, reaching EUR 31 million. And net profit -- official net profit, we increased almost 60% and reaching almost EUR 14 million. So I would say as an overall really good results, really strong results despite the total overall vulnerability in the energy market, let's put in this way. So really, I think we are performing pretty well and basically all our business segments are doing better versus the last year. And also in our daily life, we are monitoring regarding the budget. So also we're performing -- over-performing the budget. And as we see, accordingly, the market definitely reacted to the some information we released during the 6 months, also including first quarter results. And by that, our capitalization grew by almost EUR 29 million and share price since the beginning of this year increased 13.6% and outperforming overall stock exchanges in Baltic countries. So market and business overview. As you know, and also, I guess, you are watching the energy business and situation in the energy markets. And if we take as a start, the beginning of this year and especially at the end of the March when the, let's say, campaign United States started campaign against Iran and Hormuz, the prices for all energy products, meaning oil products, petrol and gas increased a lot. So the fluctuation in the market is very high. The prices went up since the Hormuz, let's say, case surged by almost 50%. And currently, if we take the gas prices, they are trading at around EUR 61, EUR 63 per megawatt hour and crude oil, as you see also fluctuates around $80, $90 sorry, meaning that all these high prices from one hand, puts quite good -- in a good situation, oil refineries, meaning that the cracking margins are quite high for the first half of this year worldwide. And definitely, the performance of the oil refineries are very good as well, and they are announcing very good results. What it means for us, it means that one of our major clients, ORLEN, also enjoying quite high margins and the volumes and the production capacity utilization at all oil refineries are quite high. So this is like secure supply, and we are happy to provide as much service as we can to all our oil partners, meaning our clients. But from an other hand, the fluctuations definitely put some certain uncertainty and additional pressure on the cost side on the OpEx. And also, I'm not showing the fluctuation of our emission carbon emission prices. They also fluctuated a lot. And for us, for KN Group emission prices impacts a lot on overall OpEx because the prices, how much we're spending for emission certificates is quite high, amounted to almost EUR 6 million. So meaning that also from a risk perspective, from the pressure on OpEx, it's a negative impact. And okay. So if we just go more deeply in LNG market, what happens in the 2026 in the first half. So as you see, is via our terminal have been imported basically only from 2 regions, from 2 countries, the LNG. So it came from -- primarily from Norway, 58% and then the rest from the United States. If we look on the Europe level, so the distribution supply is slightly different. And depending on each country, they have slightly different situation. But in overall, the major sources of LNG import came from Norway and United States, followed by Trinidad and Tobago and also from Qatar. Also some quantities still are imported -- unfortunately, still are imported from Russia. And one of the biggest countries importing from Russia oil -- sorry, LNG is Belgium. As I mentioned, the Klaipeda, our FSRU Independence utilization rate is very high, as you see reaching 86%. So it's higher than we had last year in the same period of the last year and also definitely much more higher compared with the European average, which is 53%. So actually, I would say that this is very, very good utilization ratio. And of course, it's very important for us, meaning that we get -- we have quite steady, stable LNG import flow and our FSRU works as a factory manufacturing facility and works at almost 100% of the capacity. And we're enjoying that utilization and also our commercial people are doing everything in order to sell our capacity to the -- to our clients. What is the situation with, let's say, gas storage because it's very important also indicator. So if we are discussing at the end of June, taking the end of the June, the reporting period, so storage in Europe was approximately 48% of, let's say, total needed capacity, and it's almost 10% below historical levels. And I have looked in the morning what is the situation, taking into account the most recent data. So taking into account the beginning of August. So the storage level increased to almost 58%. But still, again, this is below the normal level below by almost the same 10% of the normal level. And also as we see last year, meaning that this year, Baltics are storing the LNG also is quite below the historical level. And that definitely puts, I would say, some risk, some additional pressure in the future, depending on the situation of the Hormuz, if they will open or not and what will be the case because Europe, as I said, primarily imports gas from not only Norway and United States, but also from, let's say, the same Qatar or Hormuz countries. And maybe majority of that gas goes into the South European countries like Italy, Spain, maybe less than in northern part. But nevertheless, taking into account all situations. So I would say, difficult to predict, but meaning that it could be some problems or some challenges in having sufficient gas before the winter if the Hormuz Strait will not be opened. And accordingly, that impacts directly the prices for the gas, which during the past 2 weeks went up again by 15%. So the traders and investors are taking into account that risk. And of course, nobody knows what will be the winter, cold or mild one. So we have some uncertainties in the future regarding the, let's say, our demand for gas in Europe. And then I would like just to go through our business segments. And the biggest one in terms of the revenues, in terms of the profitability is regulated activity. And as I already mentioned, we are really enjoying the very high performance indicators. Utilization ratio, as I said, it's very high. Very important thing that we managed to do during the past, I guess, in the past 2 months was that we opened a tender auction for our future capacities. And for the period of 2033 till 2044. As you know, currently, we have everything booked till 2033. So we managed and we plan to make additional -- a new one tender, a new one auction for the future, for the next 10 years. And I would say our auction was really successful, very, very successful actually, and we sold almost 70%, concretely 71% of our future utilization of the capacity of the FSRU, meaning that it gives us a lot of stability, predictability in the future cash flows, in future inflows. And also it shows that the importance of the Klaipeda terminal is very, very, let's say, demand in the market. Even taking into account that our neighbors, especially in Poland, they are building the second one FSRU vessel in order to supply and fulfill their demand for the gas because the Poland is one of the biggest gas importers and consumers in the Europe. So actually, we're really happy and proud, I would say, regarding those results and a lot of efforts has been made by commercial people. And even it is important that we managed to put in our list as a new client, a Ukraine company, Naftogaz and Gasum from Finland. So actually, this is also very important. Even taking into account that still we have not bidded some capacity from our existing clients because for one or another reason, maybe for them, it's too early to make, let's say, obligations to write regarding the obligations for the future, let's say, bookings of our capacity. I hope that time will come. And I'm pretty sure that we will sell the rest of, let's say, 20% easily, meaning that our utilization ratio starting from 2033 and beyond will be not 71%, but almost close to the current levels. Just wanted to remind you that full terminal according to the, let's say, accounting rules and depreciation, it is operated till 2044. So basically, it means like the value on 2044 will be balance sheet value 0, which is actually, of course, not will be the true, but this is it showing that we're really in a good position in a very strong position in our, let's say, regulated activity. Also some information, financial information because every year and regulator recalculates the WACC, in other words, our return on the assets, which is allowed to keep it within the company. And as you see, we've got for the next year, slightly less amount of the WACC versus current one, and it means it's almost EUR 0.2 million less revenues we will get in the next year versus the current one. So this is really, really profound and very strong results for the regulated activity. And accordingly, in the figures, it reflected, as you see, revenues increased and EBITDA increased and also important to note that within our revenues, we have also some commercial revenues as we calling, which is within our terminal and extra activities. So beyond our obligations that we have from the clients, we managed also to sell several cargoes during the first half of this year and get extra revenues for the company and also for the consumers. If we go into the second, in terms of the volumes and size of our business segment, liquid energy. So in the liquid energy, if we take the overall market and we take our performance, this is slightly different, meaning that the company is going above if we take the overall market growth because it's not even in the full Baltic region, where Klaipeda is performing quite okay. As you see in our figures and presentation, Klaipeda port handled almost 2.3 million tonnes of oil products, and this is a 12% increase, while Latvia and Estonian ports declined accordingly if we compare with the period a year ago. So our share in oil market remains almost the same, I mean, stable, and we are serving around 30% of all Baltic oil terminal liquid energy -- I'm sorry, liquid energy markets throughput with the Baltic ports and of course, almost up to 100% of via Klaipeda port. If we take some highlights and financial figures on liquid energy, so we transshipped 2 million tonnes of various oil products, 9% growth. I already mentioned, we managed to sell 4,000 cubic meters methanol cargo -- transship, sorry, methanol cargo and revenues increased by 7% to EUR 16 million and EBITDA remained almost the same. And very -- we are very happy, of course, with the good relations with ORLEN as I discussed one of our biggest clients and the throughput of their products especially diesel increased a lot. And thanks to the diesel, thanks to the blended gasoline and methanol, we managed to grow by 7% in revenues, while if we take the total consumption, for example, of gasoline in Lithuania, it increased only 1.4% and diesel increased only by 0.8%. So meaning we are like kind of outperforming the markets in our terminal utilization. And that's good also puts quite stable cash flow in our second in terms of the revenues and size business segment. Already, I mentioned the liquid oil products, then we're going to the commercial LNG. And commercial LNG also growing a lot. So meaning -- basically, this just means that we are importing LNG various cargoes and then we are loading into the trucks. And we, in the first half of the year, reloaded up to almost 1,300 trucks, and this is -- that represents 40% increase versus the last year. And that also supported our growth of whole liquid product market. And if we're separating it separately into commercial LNG, so it contributed almost EUR 2.7 million in EBITDA to the total performance of the company. And also very important to note, I'm just almost forgot that our team managed to sign an O&M contract for some services to the Gaz-System, the monopoly operate in the Poland. As I mentioned, they are building the second terminal. And also, we are trying to sell our services of managing those FSRU vessels and onshore terminals. So actually, we signed that contract. So far, it's like one of the steps, we believe, for the future goal and future cooperation with the Polish LNG business and terminal operators. If we are talking about new energy, new energy, basically, this is the future of our business, so-called new energy businesses. And here, it's a really important milestone was achieved regarding the status of CCS project. We got national important status, and that allows us to move much more smoother and much more quicker with all decisions in order to implement to start construction, let's say, after feasibility studies to got all permissions needed from various government institutions and that is really lengthy process. And of course, it costs the time, cost the money. And therefore, we really managed together with all support from the state authorities, especially from the Ministry of Energy. They supported the company a lot in that movement, and we are thanks to them, meaning that we are putting more solid playground, more solid ground actually for CCS project to be valid. Currently, we are very heavily involved in launching front-end engineering design study and also into the process of getting the grant. We're applying for the grant from European Commission regarding building that terminal. So we are in the process of submitting the documents, and we will inform about the results of that process in the forthcoming months. So summarizing, wrapping up everything, as you see that taking into account what I already mentioned in different business segments. So we really enjoyed growth in the revenues. And since revenues are growing, so definitely, our other financial KPIs, EBITDA, net profit is growing as well despite that also our OpEx is not staying at the same level that it used to be last year. And of course, I would like to see it stable, but definitely taking into account energy prices, taking still account the pressure on the salaries and other OpEx lines, we need to cover those by revenues, by growth in the revenue size. Always I'm presenting and explaining the normalized financial results, meaning those results that are excluding impact of various regulated differences or inputs or impacts or inflows or outflows regarding regulated activity. So here, you see we have our -- if we take official, let's say, business performance of LNG business segment, regulated business segment and, let's say, performance of normalized activities. So the figures are slightly less versus the official because all extra income that we're managing to get, we are in the future, we will need to return to the regulator, and that will have an impact on our official results in the forthcoming years. But despite of that, so as you see, our the first half of this year was really good, very strong and net profit even taking out all that impact, we managed to receive almost EUR 9.5 million. So it's really good growth, especially comparing to the last year and looking forward to see the same results almost, let's say, or close to them in the first half of this year. And I will not touch maybe the profitability market value figures. And closing my presentation, always I wanted to show you our financial situation and cash flow situation and financial, let's say, strength. So net debt, as you see, is EUR 239 million. It amortizes the loans. I just wanted to remind that we are the only one company in Lithuania having the government guarantee, the state guarantee. So it's like secured loan from company's perspective. And looking from net debt to EBITDA level and the DSCR level, we are really okay. And also taking our free cash flow situation. So as you see, we are in the first half of the year, we are in a good position having almost EUR 25 million of free cash flow, taking into account quite big amount of dividends, which we have paid for the 2025 year results. And our cash flow from operating activities is usually are very strong. Regarding investment activity, CapEx looking forward, taking into account our future investment plans. So we will have additional spendings in that cash flow line. And financing activity, of course, it's a negative because every year, we are repaying the loans for our FSRU. I will not see any dramatic changes here. But from an operational cash flow perspective, the company and the group is really a very good and strong position. So thank you for your attention, and happy to answer questions if those audience we have.

Thank you, Tomas, for the presentation. And yes, indeed, we are now moving to the questions. [Operator Instructions] So first, let's start with the question that we have received in advance of the call, which is the following: allocate next year's gasification capacity. Will the capacity be expanded because there are free spaces?

The capacity, unfortunately, we can't expand of our FSRU because it's like, as I said, manufacturing -- big manufacturing facility and the expansion only could take place if we will acquire additional FSRU vessels. So basically, our, let's say, as we're calling real capacity amounts to almost 34.8 terawatt hours. And as already we have mentioned, everything is booked. And specifically, if we're talking about the next year 2027, also, we managed to sell 3 out of 5 cargoes for the 2027. And for the 2027, if we're looking from, let's say, how much is booked out of the capacity. So already booked 36 terawatt hours. So meaning even more than our, let's say, this sort of like a limit, but this is really a good sign, meaning that definitely during the year, many things could happen and it happens and the clients sometimes cancel -- not sometimes, but yes, they cancel the cargo depending on the situation of the prices and import possibilities. But of course, as you know, again, that we have all our capacity, all the cargoes are take-or-pay in nature, meaning that for the company, for the group, this is no harm if there are certain cargoes, which are booked are canceled. So we already booked 36 terawatt hours despite that our capacity is around 35 terawatt hours.

Thank you. And we have received one more question. What would be your predictions for this whole year?

I think that I would say, if we take the growth -- if we take like the growth -- total growth or the growth per business segment and comparing the first half versus the same period in the last year. So I would say that in the second half, the growth will be versus the last year, but slightly less than we had in the first half because of the various reasons. And for example, one of those in August, we have reconstruction, let's say, works in the pipelines, gas pipelines, meaning that because of -- even because of this, we can't send the gas. And of course, we will need to stop for a while for the couple of weeks our FSRU regarding this. So as an example, this is like a technical reasons, which is actually happening during the summer. This is nothing wrong about that, but this is like, I would say, normal business activities. But then again, what it will be the situation in, for example, November, December and what it will be the weather conditions also is a question mark, nobody knows. So -- but answering to the question, I would say, I would predict slightly less growth in the second half versus the second half of the 2025 than we had in the first half of this year.

Moving to the next question. Is the EU Methane Regulation a risk factor for 2027? How is KN planning to comply?

Regarding methanol, I'm sorry.

Yes, it's written methane regulation, methane regulation.

No, basically, if we -- I would not like to separately exclude or take it out methane regulation versus other, let's say, CO2 regulation requirements. We have our activity plan regarding firstly, diminishing CO2 and methanol also taking into account all the events that according to these regulations could change. And of course, one thing is regarding our own situation, our own terminal. And the second is regarding our clients, which also they are following those regulations. But so far, what I'm trying to say, we are just following our action plan. And here, I would not predict so far anything wrong or negative in the future, negative impacts in the future regarding the businesses and regulations if nothing extraordinary out of the blue would happen.