ESO 2019 Results: Refinement of Activities and Concentration on Functions of Distribution Network Infrastructure Operator

“Energijos Skirstymo Operatorius”, AB (hereinafter – ESO and the Company), code 304151376, registered office address Aguonų str. 24, Vilnius. The total number of ordinary registered shares issued by “Energijos Skirstymo Operatorius”, AB is 894,630,333; the ISIN code is LT0000130023.The ESO, a company controlled by “Ignitis Grupė”, the largest energy group in the country, completed the refinement of its operation in 2019 and made significant progress towards the smart grid. In January 2019 the strategy of the Company until 2030 was approved: In July the 10-year investment plan of the Company was updated and publicly announced; in September the ESO customer self-service system was updated, and the Company became ready for the transition to remote customer service by the end of the year. The Company discontinued the provision of separate commercial services, concentrating its activities on the functions of the distribution network – infrastructure operator, and implemented measures for a more efficient connection of both new and existing customers to the distribution network. In the area of smart grid, investments in the smart meter installation program in Lithuania were coordinated, acquisition procedures were launched, and the first Data Hub functionality was implemented.During 2019, the ESO earned EUR 180.5 million of adjusted profit before interest, taxes, depreciation, and amortization (adjusted EBITDA) – 11.9% higher than a year ago, when the ratio was EUR 161.3 million. This change in the ratio was determined by increasing efficiency of the Company and the growing regulatory asset base.Negative and severe phenomena of climate have resulted in a significant amount of force majeure, with a corresponding negative effect on the reliability level of the electricity distribution network. During the 12-month period in 2019, the disconnections caused by force majeure amounted to 18.06 min. SAIDI, when in 2018 it was 7.75 min in the same period. The main effect on the deterioration of the indicator was the unfavourable weather conditions during the first months of 2019. However, during 2019, the average troubleshooting duration was shortened by 10 min. – up to 1 hour 26 min. compared to the 2018 indicator – 1 hour 36 min.“In 2019, the focus of the Company was directed towards the key aspects of ESO operations such as distribution activities, smart grid and reliability thereof. Following the update of the strategy for 2030, we have undertaken a point-by-point work: we perform investments in network reliability and smart grid based on a defined plan, i.e. implementation of the program of smart meter deployment in the country, creation of the Data Hub, update of the ESO customer self-service, improvement of remote customer service, purposeful operation related to the implementation of the actions that enables us to connect production users quicker and easier. We are delighted with the transparency of ESO’s operations evaluated by the “Transparency International” Lithuania branch and the improvement of the indicator of the connectivity to the electricity networks assessed in the World Bank’s “Doing Business 2020” study, which has raised the assessment of the whole country in the eyes of the global business community,” says Mindaugas Keizeris.Following the extensive review of relevant industry practice and in order to be better comparable to the Company’s peers on international level, the Company’s accounting policies were changed. Changes in accounting policies are related to the application of IFRS 15 (International Financial Reporting Standard): (1) offsetting the revenue from public service obligations (PSO) with the corresponding costs (previously PSO revenue and costs were accounted for separately) and (2) distributing the recognition of the revenue for the connectivity of new customers over the useful service life of the infrastructure created (previously, in the natural gas segment and in the electricity segment, as of 1 October 2018, the revenue was recognized after fulfilment of the service obligation). For comparability purposes, the changes in accounting policies have been implemented retrospectively, i.e. by adjusting financial information for 2018. The changes implemented in accounting policies had no impact on the cash flows of the Company, however the revenue and net profit of 2018 decreased by EUR 140.6 million and EUR 10.4 million respectively. Detailed information about the changes implemented in the accounting policies and their effect on the separate articles in the statement of financial position and profit and loss and comprehensive income is presented in Note 3 to the Interim Financial Statements of the Company.Key financial and operational indicators:ESO revenue in 2019 amounted to EUR 418.9 million or by 13.4% less than in 2018 when they amounted to EUR 483.4 million. With the elimination of the impact of discontinued public supply activities from October 2018, the revenue in 2019 is by 2.3% higher than the revenue in 2018, when they would amount to EUR 409.6 million. The main source of revenue of the ESO is the transmission of electricity. In 2019, the revenue from electricity transmission amounted to 78% of the Company revenue. The revenue from gas distribution accounted for 8% of total revenue.Expenses of purchasing electricity, natural gas, and related services over 12 months of 2019 amounted to EUR 186.1 million and were by 34.1% lower than at the corresponding time in 2018. This has been most influenced by sale of public electricity supply activities from 1 October 2018. The operating expenses of the Company increased by 9.4%, mainly due to repair and maintenance costs, the growth of which was driven by the need to offset reduced investments in the renewal and modernization of the electricity distribution network.In 2019, the net profit of the ESO was EUR 34.3 million when during the same period in 2018 it was EUR 5.3 million. The increase in net profit was driven by lower costs for the purchase of electricity and natural gas and related services due to discontinued public electricity supply activities from 1 October 2018.In 2019, the ESO earned EUR 180.5 million of adjusted profit before interest, taxes, depreciation, and amortization (adjusted EBITDA*) – by 11.9% more than at the same period in 2018 when the indicator was EUR 161.3 million.During 2019, the ESO investments in electricity and natural gas distribution networks amounted to EUR 181.2 million and corresponded to the planned investment volume for 2019 projected in ESO 10-year investment plan (a projected investment volume therein amounts to EUR 1.83 billion over 10 years).The ESO invested EUR 79.1 million in the development of the electricity distribution network in 2019, by 5.5 percent less than in 2018. In order to maintain a stable level of the debt of the Company while maintaining the high demand for connection of new users, the Company invested in network renovation projects to a lesser extent than in previous periods, as planned in a 10-year investment plan approved in July 2019.In 2019, the average duration of unplanned electricity transmission outages (SAIDI) per user was 91.8 minutes and compared to 2018 increased by 10.4 minutes (SAIDI totalled 81.4 minutes in 2018). An average number of unplanned long outages per user (SAIFI) with the impact of natural phenomena (force majeure) in 2019 reached 1.31 times, i.e. by 0.17 times more than in 2018, when the indicator was 1.14 times. Particularly unfavourable weather conditions during the first months of 2019 had a major impact on reliable electricity supply, the changes in weather affected by climate change in the following months of the year.
_{* The preliminary EBITDA result of the Company is presented after adjustments made by management, eliminating the difference between actual and adjusted revenue and the impact of one-off factors. The purpose of these adjustments is to disclose the results of the ordinary activities of the Company, without the atypical, one-off or the factors not directly associated with the current period of activities. All adjustments made by management are revealed in the interim and annual reports of the Company.Representative for Public Relations Tomas Kavaliauskas, tomas.kavaliauskas@eso.lt, tel. +370 617 51616.}Attachments2019 Interim reportESO results 2019 12 31