AS Virsi-A (VIRSI) Earnings Call Transcript & Summary

Good morning. Welcome to Virsi Investor Webinar. We will start with the presentation after which we will be addressing your questions. [Operator Instructions]. In case you'd like to watch this session, the recording will be available shortly after the call. Let me now introduce you to our host, leadership Chair, Management Board and the CEO, Janis Viba; and member of the management Board and CFO Vita Cirjevska. Please, the floor is yours.

Thank you, Iva, and good morning and our partners, investors, employees also -- we are happy to greet you in the sedan I guess it's not secret that 6 months were very intensive. -- in our company. And we will together with Vitol obviously can tell you much more about what has happened. But before we jump into our companies events, let's look at the broader picture on energy markets. So as usual, we are looking at fuel, natural gas and electricity segment. And in terms of what is happening in the world, obviously, it's not even, but the name which is Strait of Hormuz, I guess a name, which is very often now spoken each, I guess, day or week among many people. And of course, with regards to fuel segment this partial blockade of at of Hormuz has led to huge fluctuations in oil prices, mainly because roughly 20% of world's fuel flow was going through Strait of Hormuz. And as a result, we see that these prices for oil, they were fluctuating very aggressively starting from $60 per barrel in January up to more than 100 in March. But actually, most of the economists mentioned that this expected price increase would be even higher. But I guess the factors which actually softened this price shock was namely lower consumption of oil in China and also quite extensive use of global strategic oil possessed in the U.S.A., also China and other countries. And of course, also the creation of some alternative oil logistics was in the region. So that is on fuel or natural gas situation is very similar because roughly 20% LNG volumes are coming through Strait of Hormuz. And then the, of course, Europe, together with Asia is, let's say, fighting for this volume, which is in driving enterprise -- and we see that this price increase is more than 2x in, let's say, last couple of days. We are now closing DTF index of roughly EUR 60 per megawatt hour, which is obviously a very high number. And I get things is that currently, storage levels of natural gas in Europe is actually around 50%, 60%, which is actually significantly lower than usually, such storage levels should be in August. So let's see how it develops. And the final segment is a segment were in later we saw that in the first half of 26, the price of electricity was close to 20% higher than a year ago. And this was mainly influenced by very cold winter January and February months, which obviously increased the service consumption. At the same time, I mean, more specifically, months that, that is quite active development of battery energy storage systems -- and we see that this has also helped to reduce this, let's say, balancing costs in energy markets and probably this trend will continue in the future. So that was a quick run to the energy market. And now let's go to our company more specific items. So just to remind you, we have 7 main, let's say, strategic goals, which we want to achieve. And we will, today, together with Vita walk you through each of those goals and try to explain where we are standing in terms of progress against each of those goals. And I guess some good thing is that some of those goals are already achieved almost or even we can say that they are achieved. So probably it means that in next webinar, we will come up maybe with even, let's say, more ambitious goals for future. But that's what we will discuss, I guess, in the next webinar. And in terms of strategic goals, one other goal is sustainability, which is currently not in this slide, but which is obviously quite important for us. So Vita will walk you through the sustainability.

Well, sustainability actually has become a big part of our daily routine and also through the budgeting process. management team-wise, we have split the 17 goals we have appointed for the 2026 between the management team and everyone is responsible for his own area. And in this year, in first 6 months, actually, the biggest significant changes or the biggest significant impact has been on environment or environment sustainability in the future. And we will discuss it also through on later slides, but the main goals that we have reached is that from the January 1, actually, all CNG stations in Wiri are now giving the CBG product, which is biomethane. And if there were some questions about the greenness of CNG, CBG is no longer question, yes, because this is the best alternative for the trucks and best alternative for the green energy in the fuel market. And the second topic we have been talking about also past 2 years. And last year, we discussed a lot of transduction of the biomethane plant in Auchan in last year. So this year, we have always started biometal production in the best mode. And we see that this project is in running that place. And will soon give the results in the future. So biometal production also -- and the third topic is rate management, which is very crucial actually for our fuel station network because the fuel station network is growing. The waste is growing and as the client base is growing. So it's ready to issue to understand the waste growth was state and give them to the recycling very correctly. This is also a big cost topic and the cost for the right management are going over the past year. So we've seen that all the made on the waste management also gives positive results in the cost side. And the fourth topic, which is about the client and the customer and the employee is customer value creation over our new 17 fuel stations. This is a big topic and we'll discuss it more in the later slides from different perspectives, but actually, it's racial to give the clients' experience from this also in a new field with the new employees, buy new employees and buy our products. And this has been a lot of time-consuming effort consuming work over this first half of the year. We'll see how we end up this year.

So let's -- let's go to the strategic goal section. So as I mentioned, so the first 1 was the development of station network. So a very intensive first 6 months of the year and we are very proud of our team because during these first 6 months, we actually have started trading in those 17 acquired after service stations. I just remind you as that the deal was the 1 which we got approval from Competition Council by end of May. And we have this long-term lease contract about renting these stations. And in 6 weeks' time, actually, we were able to kind of take over those patients will start paying, which is super, let's say, great speed and thanks a lot to the team for doing that. And what is happening next on us that station sees that we are not currently in quite a big CapEx in terms of making these stations very to this usual network in terms of look externally and also internally. And we see that by the end of the year, all those patients will be completely the same as our existing station and nobody probably will even be able to say who was say, previous after the session and who was not. And also quite interesting news is that on Wednesday we submitted a new request to Competition Council, where we want to extend this lease to 4 new aspect stations. This is that existing '17, the deal was quite good and already showing nice results. So we want to expand this traditional -- and probably, it will take several months before we get some, let's say, decision on this offer. And we also have 1 station, which we are building from -- it's greenfield in Riga in a very beautiful, let's say, traffic-wise place. And we think that this station will start operations by late September. So which will obviously also have a good impact on our market share growth. So the sensation that go to employers so.

So about the employees, as I mentioned, the team is growing rapidly. And what's interesting about this particular half of the year is that team has been increasing over 2 months, 2 months that we have been engaging new fuel stations. In our network, so we took the employees from the existing stations, also engage new employees. And also, we gave the opportunity or we gave the trust in our own fueling station managers to mentor the new fuel station managers. This is big impact, and this is a very important impact as they're saying that strategy in the Brexit, whatever numbers we want, but in the people will do different ways expect them or give a different kind of level of service to our clients. We will not be able to reach the results we plan. So this is very important topic, and this will be also ongoing topic for the next few months, how we engage and how we build as one. So that's on the team growth. But for the existing employees over the past year, over the last past years. And when we went to the IPO, we said actually the benchmark we send the model we want to be a top an employer in Latvia. And at that time, it seems unrealistic -- but if we look at the results from 2025 that have been announced over these past 6 months from CV market ranking, we are the best employer in Lativia. And in CV Online, which is also a big significant for us in the top 5 mark. So I think this statical is in a good shape, and we just need to continue doing our best -- and the third topic that actually purchased a lot of employees in our -- and actually, all employees in our organization is the system reorganization where we have been changing the ERP system and also changing the roles of the various IT systems in our company. The change is still in progress. It's still happening, and there is a lot of things to do, but we see that more efficient processes and more efficient systems, we can -- we are -- we will be able to onboard new employees take on new responsibilities and new businesses in the future.

Next goal is where we want to be a leader in alternative fuel offering in the market. And clear, I guess, Vita already mentioned is that milestones starting from January, we are already able to offer CVG product out to lean our stations -- and this is very important because we are also using the CBG products to fulfill our green obligations for diesel product which is required by law so very spec products for us, and we are happy that it is growing. It is growing around in first half of the year. And this is exactly what is our plan for heavy trucks segment for biomethane is the 1 product which we want to see the heavy trucks, and we see good development. On the light transport segment, obviously, this alive fuel we see electricity and the electricity currently, our market share is only around 2% in rate. So it's still quite early developing, but at the same time, we see that at least in our stations, these city charging points, which we have around 30 in our network. We see that this actually giving good, let's say, profitability overall simply because those customers are not only charging their cars, but they're also going into the shop and using our shop products where we have good margins. So -- so then, we are quite happy also about this, let's say, development of charging network. And the final point, which is probably from, let's say, investment side, is the important 1 is that we have completed the construction of Biometanplant in Nanshan. And good thing is that we are already producing Biometanplant in test phase we are making some technological, I would say, fine tunings and most probably somewhere in September, we will reach a point where this project is completely up and running. -- then starting from '27, most probably, we should be able to see quite a good financial return on this investment going further. So next 1 is on business diversification. So I guess here, it's quite an interesting topic simple because last several years, we constantly saw that gross profit coming from our convenience stores was increasing and let's say, fuel gross profit was already below 50% in the last couple of years. Now the situation has changed somewhat in the first half of '26 we see that we had a very good growth in fuel weakers sold. We see that also there is -- despite a segment of convenience stores still growing above market out. We still see that this, let's say, geopolitical tensions have influenced purchasing power of our private individuals in shop segment. And therefore, let's say, fuel has been able to again move into the #1 position in terms of gross profit. But again, I guess, here, it's important to stretch that they are only 6 months yet. We don't now the second half will bring, but it's very, very possible that shop our convenience store segment we will fight back and we will see again in future. So next 1 is on numbers.

Yes. So EBITDA dynamics presents actually, there is a huge growth in gross profit and the gross profit dynamics are mainly in this period on fuel. I'd say all of the business segments, actually, in this particular period periods were like 5 between external factors and internal factors. And in fuel, there has been a good drive and also for the convenience stores from the projects we had in year 2024. We opened up 9 fuel stations and compared to the first half of the 2025 where the stations were still then in brand new locations and there are still trying to find their own clients, but they already have the cost in place. At this particular period, these stations most of them have already found the very good profit levels and these impacts are there. Also, in this period, we mentioned 17 new stations for the convenience certain fuel of patient fuel, it's a quite different story because you can take fuel from the first minute, you overtake the station, and we also have our mobile working, but in case of convenience, stores. This overtake of the stores is quite gradual, depending on the store, I'd say, level interior at that particular time of overtake. So we see that there is a growth, and that has been the first month on the performance in the stores, but the growth is still in the future because some of them we are rebuilding from scratch. Some of them we are upgrading, and this is happening in the second part of the 2026. Well, in the B market, we must say that externally, that is also factors from the fuel prices, the high fuel prices affect the private segment consumption. At the same time, it also affects the store sales because the prices have increased and there is not that much money to spend on the stores. So that is quite a hit also we see internally, but the fuel is the base and the core for the fuel stations now. And also from a fuel perspective that is between competitors in the market and likely because there is quite an intense sale activities during the past months for the clients. So but we have been up in this part right now with the results with the new projects, with the new stations, and we see that the result is positive. In the Energy segment, the study is quite independent of what's happening in the fuel patients because we are trading LNG to our customers also outside the few of stations, and that has been a quite different story to 2025 when we hand this normalization from -- in balancing market, which happened in February, then we had the high cost for the balancing over the next year and we finished the first half of the year with a minus -- that was just the beginning of this, let's say, Maxar the energy because the losses continued in the second part of the year. And we decided to change our client portfolio or the suppliers portfolio and that happened in the second part of 2025, but we get into 2026 in a very good shape. So we have finished this period with the profit with a good plus and stable results, and we see that that is perspective also for the next period to come. So that has brought us the gross profit increase, which has also actually been like triple or even 4x bigger than the past year, you saw also in the previous slide, which is 23.2% bigger than the last year. On the other hand, we also have this selling expense administration cost increase is mainly related to the employees in the stores and also supervising the business processes, and we must understand also from the 2024 study that this employee cost and also maintenance costs in the pure stores may come even before opening the start because we need to train the employees then when the store is opened, it should find their own clients, but the employees are there and the costs are there already from the minute one. So that has been increased in the cost, we see that there has been a big increase in the gross profit from the business segments. And we see that this gross profit base is good for -- also for the next half of the year. And when we can -- where we can bear the cost increase for this year as well. And that results in a very significant price in EBITDA. We have a growth by EUR 3.8 million in this 6-month period compared to 2025. And it's actually 60.6% which is super high increase compared to year-on-year basis. and that drove us to the net profit, which is on next section. And in the net profit side, you see 2 quite different profit levels, 2025 1.5 million and 2026 when we see EUR 4.2 million, which is almost 200% increase or rise by EUR 2.7 million. This rise has been driven by EBITDA, and we must understand and at least that in 2025, 1st half, and we presented -- we had this new for patients from 2024, which were still in the run-up phase -- they had their costs. They have their EBITDA just tuning up. Depreciation is quite high. But these revenues growth or revenues reach have been good in 2026. And actually, that the switch from Level 1 to turn to the next level in this year. We have depreciation in this year already by now because also in 2025, we have evaluated our few outstation portfolio according to our accounting proceeds. So this rising value of the few patients give us higher depreciation -- we see that also in the next half of the year, there will be depreciation and amortization from the new stations, but we see also that is variable from the EBITDA side. In the income and expense side, we have 2 effects. One is the interest expense from the financing side from the funding institutions. This interest have been quite at the same level as we have not increased this loan base significantly to last year. And the other expense side is coming from the investment in the associated party, which results from the energy market fluctuations haven't been that well over the past years, and we have accrued this provision on the investment on this period. So I think this has been an excellent half of the year. And let's hope for the best for the next half.

Yes. Now we are looking -- we have to look at each of those segments -- business segments separately. -- start with fuel. In fuel segment to better intensive 6 months, obviously, because there is big competition within the market because obviously, the fuel consumption is not increasing but costs for fuel traders are increasing. So there is a quite aggressive fight for each of the fuel liter sold. But still, we see that margins are more or less staying at, let's say, statistically well -- in terms of reaching market share, we are happy that we are growing faster, much faster than the market. We are growing around 6% in terms of fuel sold. And it's important to note that those 17 stations only appeared -- started appearing in June. So the impact on market shares from stations will only start fully, let's say, happening in December next quarter and also with all that we were going quite good. And another quite an innovative thing in the market, which we already started discussing is that because we are able to sell Biometal customers. We are also able, according to the new legislation to fulfill our bio requirements for diesel Betaland Therefore, we are able to sell completely let's call it clean diesel without any diesel in the market, and we see that actually or B2B sector is actually loving this product and which obviously is also helping for us to gain additional market share. And then there is quite what we would call a holistic discussion in the media over the last couple of months about putting some price cash for fuel. But at the same time, we see that actually our Competition Council has done quite extensive research, which is actually proving that the margins which fuels were charging before, Middle East conflict after Middle East conflict are actually not moving significantly. So therefore, we are still communicating with politicians that this initiative is really bad idea because it will simply not solve anything but at the same time is giving very negative sema to international investors about putting money in late because obviously, if you put the money, you kind of things that you are clear on also the game, but you don't have to change the rules of the game and the game has been started. So let's see how it rolls. And that's pretty much on fuel.

And the convenience stores, a short note on the external effects as already discussed, there has been effect on the consumption from the private sector, but compared to 2025. And we also -- Jans mentioned the depression in the fuel side, which was still parting against, then in 2025, -- these restrictions are actually implied in tobacco segment and in alcohol segment in fuel cars and fewer station stores. And this effect or this particular type of customer group and products have been decreased significantly in 2026. So we are still fighting and changing this, let's say, product portfolio to give the best and still continue rising our sales. We see the dynamics are good compared to the market, and they are also quite quite high, 10.1% for is, whilst the market together with which is only 5.3% -- but the main focus actually for the convenience store over this past 6 months, and specifically with the focus on the past 3 months is preparing and onboarding and changing the new stores, which will be One of the key drivers also in the profit increase and the turnover increase in the next period. So this has remained quite tricky projects from the technical side, IT side design projects Also, if we look at the store assortment, there are different phases how we take over the stores, it's like a basic plan score that we take over only from the IT side and technical side, and then we start rebuilding our upgrading store set of the new assortment and training the people to be able to create the products in place and the same quality and the same level as it is in the existing fuel stations yet. And this is also markets and new adoption of the new customers as we see from the example when you enter a new city, you need to attract new customers and introduce them to the rig. So that's the price in front of us, and that's also the solid base for the future growth in the convenience stores.

And yes, we call business segments, Energy segment. So here, I guess, some good thing is that we are continuing increasing our number of customers in B2C segment. And there is a healthy growth over the 6 months of 17%. And also, we see actually an increase quite healthy in terms of attracting new B2B customers. What is interesting is probably this graph, which you can see that we have been selling less energy in the first half of the year and market -- and the simple explanation for that is not because our B2C segment will be lower opposite, we are actually selling much more to B2C. But we had a couple very big B2B customers where the margins were super low, which, after the end of the contract, we kind of exited and therefore, there is a drop in this, let's say, is sold -- but I would think that, let's say, rationale approach simply because we are really willing to get more profitability of this segment rather than simply to is at breakeven and another very industry interesting and an important is that last year, we had some difficulties in managing electricity portfolio in terms of balancing costs, we saw that the solar part with whom we have a cooperation that we actually was making in our portfolio. So we have almost completely exited the solar park segment from our Energy segment. And we currently see that this profitability of the segment is becoming much, let's say, predictable and also more profitable than before about which we are quite happy about.