Interim report for the first nine months of 2022: strong Green Generation performance but ongoing challenges on net working capital

AB “Ignitis grupė” (hereinafter – the Group) publishes its Interim report for the first nine months of 2022, which is attached to this notice, and announces that the Group’s Adjusted EBITDA amounted to EUR 357.2 million. This was mainly driven by the Green Generation segment due to the launch of Pomerania wind farm in Poland and better performance of the operating assets. Green Generation Adjusted EBITDA accounted for more than a half of the Group’s total result in 9M 2022, and green share of electricity generated increased by a third to 89.5% compared to 9M 2021.

However, due to the extreme situation in energy markets, the Group’s net working capital significantly increased by EUR 582.3 million compared to 31 December 2021 and reached EUR 1,068.7 million. It was mainly caused by lower energy prices included in regulated customer tariffs compared to actual market prices (regulatory difference), the suspension of natural gas purchases from Gazprom and its replacement with LNG cargoes since the beginning of April 2022 (causing increase in inventory).

Net working capital increase led to a significantly negative free cash flow of minus EUR 626.6 million. Only small part of additional net working capital was financed by the increased Adjusted EBITDA, with majority of it being covered through additional borrowing by securing credit line agreements of around EUR 719 million in total (EUR 599 million as of 30 September 2022). This resulted in net debt increase to EUR 1.5 billion.

In 9M 2022, the Group made record high Investments which increased almost threefold and reached EUR 367.8 million, out of which 78.0% were directed to Lithuania. Overall growth was mainly driven by the Investments made in Green Generation projects.

We have also made a decision to reinvest all additional profit earned this year from Green Generation into building new energy infrastructure in Lithuania. This means that 2022 additional profit from Green Generation will not be directed to increase the dividends for 2022 (it will grow in line with our Dividend Policy) but will be reinvested to contribute to ensuring Lithuania’s energy security and green transition.

Business development

Since the end of 2021, we expanded our Green Generation pipeline by around 1.9 GW to 3.3 GW. This was mainly driven by the accelerated greenfield portfolio development which increased by around 1.6 GW to 1.8 GW (as of results announcement date).

Implementation of project portfolio is progressing as planned with a minor delay in Mažeikiai wind farm (COD postponed to Q2 2023 from Q1 2023) and a more significant delay in Polish solar portfolio II (COD postponed to 2023 – Q1 2024 from 2022–2023). Additionally, due to grid availability issues in Poland, the expected portfolio capacity and accordingly CAPEX of Polish solar portfolio II are adjusted to around 40 MW (from up to 80 MW) and to around EUR 30 million (from around EUR 50 million) accordingly. In terms of other projects’ CAPEX, all projects are in line with budget, except Vilnius CHP biomass unit, which budget, as a result of disruptions in supply chain and construction markets, was revised to around EUR 270.0 million (from EUR 232.0 million). Important to notice, that based on arbitration court ruling in court case between Vilnius CHP and Rafako S.A., where our claim was fully satisfied, currently there are ongoing settlement negotiations, and we expect the significant amount of CAPEX increase to be covered by the compensation received from former contractor. Since H1 2022, there were no changes in implementation of other projects.

On the Networks side, despite the supply chain disruptions, we have successfully continued maintenance and expansion works, including smart meter roll-out. After the first batch of smart meters was received and tested in Q1 2022, we installed them in Q2 2022, and the mass roll-out kicked off shortly afterwards. In Q3 2022, in total 70,075 of smart meters were installed which number reached 100,000 at the end of October 2022. By the end of 2022 we expect it to accelerate to 192,000.

Sustainability

In addition to MSCI (‘AA’, on a scale of ‘CCC to ‘AAA’) and Sustainalytics (a score of 20.4, on a scale of 100-0, from the highest to lowest risk) ESG ratings, the Group was rated by the ESG corporate rating agency ISS and received a rating of ‘C’ (on a scale of ‘D-’ to ‘A+’). It places the Group in the 6^th decile rank among utility peers in managing the most significant ESG risks.

Furthermore, we continue to focus on occupational health and safety (OHS). To prevent from accidents and to increase employees’ awareness we started the OHS programme ‘Is it safe’ which includes trainings, management improvement, procedures, and communication within the Group on this topic.

Shareholder returns and 2022 outlook

In line with the Dividend Policy, for H1 2022 we paid a dividend of EUR 0.624 per share, corresponding to EUR 45.2 million.  

Following the strong performance of the Green Generation segment in 9M 2022, we expect 2022 Adjusted EBITDA guidance to be in a range of EUR 420–460 million.

Key financial indicators (APM) for 9M 2022¹

¹ Due to Networks Methodology update, change in accounting policy and reclassifications as well as reduction of management adjustments, all financial indicators were recalculated retrospectively for all quarters of the year 2021 (for more information, see Annual report 2021 section ‘Annual results’ part ‘Significant changes in reporting period of 2021’).
^.2 Other – other activities and eliminations (consolidation adjustments and related party transactions), including financial results of the parent company. More information about it is disclosed in the First half year 2022 interim report, section ‘6.2 Parent company’s financial statements’.
³ The Investments formula has been adjusted retrospectively from the beginning of 2022 by including prepayments for non-current assets. Such presentation more accurately shows the amount of Investments made during the year since the amount of advance payments grew significantly with the increase of renewable energy projects pipeline. For updated formula, see definitions of ‘Alternative performance measures’ used by the Group.

Earnings call

In relation to the announcement of the interim report for the first nine months of 2022, an earnings call will be held on Tuesday, 22 November 2022, at 1:00 pm Vilnius / 11:00 am London time.

To join the earnings call, please register at: https://edge.media-server.com/mmc/p/7neq6z8e

It is also possible to join the earning call by phone. To access the dial-in details, please register here. After completing the registration, you will receive dial-in details on screen and via email. You will be able to dial in using the provided numbers and the unique pin or select ‘Call me’ option and provide your phone details for the system to connect you automatically as the earnings call starts.

All questions can be directed in advance to the Group’s IR team, after registering for the earnings call or live during the call.

Presentation slides will be available prior to the conference call:
https://ignitisgrupe.lt/en/reports-and-presentations

The interim report, including fact sheet (in Excel), will be available for download at:
https://ignitisgrupe.lt/en/reports-and-presentations

For additional information, please contact:

Communications

Artūras Ketlerius
+370 620 76076
arturas.ketlerius@ignitis.lt

Investor Relations

Ainė Riffel-Grinkevičienė
+370 643 14925
aine.riffel-grinkeviciene@ignitis.lt

Attachment

• First nine months 2022 Interim report