Ladies and gentlemen, good morning. We're delighted to welcome you to Virši Investor webinar. We will start with company's presentation and continue with a live Q&A session. To join the discussion, please submit your questions through the Q&A window below the presentation. This session is being recorded and will be available for rewatch shortly after the call. Let me now introduce you with our hosts. Virši's Chairman of the Management Board and the CEO, Jānis Vība, and Member of the Management Board and CFO, Vita Čirjevska. Now let me hand over to Jānis and Vita.
Yeah, thank you, Ieva . Good morning, everybody. Today we have a plan. We have a plan to take a look back at 2023 results and key events in our company, and also to maybe give you some insights in what are our future plans with regards to overall strategy. As usual, I would suggest that we start with an overall overview of what's happening in the energy market. Obviously, we are dividing the energy market in three segments: fuel, natural gas, and then electricity. With regards to fuel, the year 2023 was somewhat a bit more relaxing if compared to 2022. We saw that there are some price fluctuations in the market as fuel price, oil price was actually fluctuating somewhere between $70 up to $95 per barrel.
But if you look at the start of the year of 2023, so we might remember that there was an embargo pushed for Russian oil and oil products in February to European markets. So what happened later is that basically Russian oil searched for alternative markets, and they actually managed to find such markets in Europe, sorry, in China, and also in India and other markets.
Obviously, these new markets currently and also in 2023 are purchasing Russian oil with some discounts, but still the fact is that this is the market which is still giving some notable revenue for Russian products. Then closer to mid-year, we saw that the oil price is starting to drop a bit, and the countries exporting oil, primarily Saudi Arabia and Russia, agreed that they will be cutting their production in order to stabilize this price and maybe even to try to push it up.
In a way, they succeeded, but maybe not so much as they wanted. Then obviously, the year-end came and a lot of geopolitical tensions in the Middle East. There is this Red Sea, as you may know. Red Sea is one of the, let's say, most important logistical routes for oil products. And because of these tensions, this road was becoming riskier. And obviously, because of that, then in turn, the price for oil products was slightly increasing. So that was overall 2023, but again, it was maybe not so, so, so drastic in a way in terms of pricing as 2022. With regards to natural gas, so what we are currently seeing is that the drop in the price of natural gas is still happening.
Actually, currently, the price for natural gas is already below EUR 30 per MW, which means that we are already back to pre-COVID pricing levels. The reasons for this drop are mostly two. So the first is that entering the winter season, there were huge already storage capacity reserves for natural gas, and everybody was basically ready for this coming heating season. That's one. The second one is that we had also quite mild winter in Europe, which obviously had some impact on lower demand for natural gas, which in turn, of course, also had lower impact on this pricing increase. One regional thing which we would like to remind is that there is this pipeline connecting Finland and Estonia. So there was what officially is called incident a few months ago, and we know that this pipeline is currently not working.
Recent estimates are showing that it could start to work by the end of April. But this is just to illustrate that basically this LNG flow from Finland currently is not able to make it to other Baltic countries, and this is somewhat a strategical risk with regards to this critical infrastructure which we have in this region. So that's natural gas.
And then electricity, I guess what we can say is that again, quite, quite stable and decreasing transport pricing. Price is currently around EUR 100 per MW. And again, this is mostly in line with a drop also in natural gas because a big share of electricity, as we know, is being produced from natural gas. But on top of that, we also see that, for example, in Latvia and also other Baltic countries, there is a significant increase in renewable energy production.
For example, in Latvia, we have these solar power plants reservations in terms of power already some 5 times higher than in 2022, which means that basically the overall importance of this renewable energy is actually becoming more and more significant, and therefore is also helping to stabilize these prices, especially if there is sun and wind at the same time in a particular day.
So this is a very, very quick, quick run through the energy, and we can maybe now go next to already our company-specific events. So let us start by reminding what are our strategic goals. So we see that our strategic goals are basically mentioning the number of stations. We also are willing to become one of the top employers in Latvia, also to be a leader in alternative fuels, to also diversify our business model.
Then we have specific targets on EBITDA and also net profit. What we will do today with Vita is that we will go through each of these goals and try to illustrate how have we succeeded in the reaching of these goals in this year and also what is outlook for next year. Let's maybe start then with the station network. Obviously, a very big portion of CapEx is allocated into this segment.
In 2023, we opened three new stations. Two of them are in smaller towns in Latvia, in Preiļi and Krāslava, and another one is in Olaine. Two of these which are in Preiļi and Krāslava are actually franchise stations, which is a good step for us because in this region we were not yet present. On top of that, we also made quite significant investment in the reconstruction of three stations of our existing network.
Two of them are in Riga, one is in a smaller town in Zīlāni. Those which are in Riga are important because in one of them we constructed a shop before there was not a shop, but only fuel products available. Another one is also important because this is like a new road being built and now is finished, which is going beside this station, and the transport flow has increased a lot. We wanted to rebuild this station to meet customer demands. Also important to note that at the end of last year, we had three stations in the development phase. One in Riga, one in Sigulda City, one in Salaspils City. One which is in Riga is actually already good news. We already launched this week the operations of this station.
In Sigulda-Salaspils, the remaining two are expected to be opened by the end of the first half of this year. This is only a beginning because based on our strategic goals, we need to reach 80 stations by the end of 2024 and 90 by the end of 2026. There is a lot of projects currently either already approved or being approved so that we can start expanding the network even more over the next few months. Then also a very important point is that, as you may have heard, is that we have launched a plan to launch a station in Lithuania, which is a strategic project for us because a lot of our customers, especially obviously the B2B customers, are going through Lithuania to Europe. We need one point where we can serve the demand for fuel for these customers.
We plan that this will be launched again in May, June. The project is quite complex because it's not only about building the station, which we all understand, but it involves a lot of other activities like how to develop an appropriate accounting system, IT system. There are a lot of legal items which we need to address. We will all obviously do this because that's the first step in Lithuanian market. We need to make it properly, and then we can already start doing something on top of this one point in future months. Yep, Vita.
Yeah. So the second target relates to our employees, and we are finishing 2023 with employees in Latvia just below 800. With the existing situation in the labor market and with the inflation and the labor costs and accessibility of the labor, we understand that this is a focus for us, and we want to create value for our customers through our employees. And we want to become the best employer, obviously, choice number one. But in this 2026 target, we have set up the aim to become top 10 employer in Latvia according to CV-Online survey for the employers. And this is obviously a short haul or sprint run in the first quarter of each year. But we want to create also value for our employees in the long term.
We see that we can work on this employer value through the base or the core of it. In 2023, actually, this has been running financially intensive because we have increased this payroll for the fuel station employees compared to 2022 two times. Actually, we also have reorganized the model for the compensation as such. Currently, we believe that we have the best offer in the market. We also work more in engaging our employees and engaging with the market to understand what is the best offer, physical, environment-based, and also through the teamwork with our teams.
We have revised our values of the company in smaller teams, and that helps us shape our culture of the company and also work towards our target in the long term with each and every employee in the company. Also, we have the surveys for the employees two times a year and for the external, let's say, employer score assessment once a year to have really understanding on what exactly is required to our employees to let them feel better and let us become the best choice for our employees' market. That's on the employees.
Yes. Then let's move to the next target, which we have. So we want to be a leading player in terms of alternative fuel as an alternative fuel provider. So there is this complex world of decarbonization of transport. So we feel that we have this role in the local transport segment to offer customers with more sustainable types of fuel, not only the existing ones. And which is good is that we see that the demand for alternative fuels in Latvia is continuing to grow. Currently, we are already a leader in terms of providing several options. So the first option is actually for the heavy trucks, which we are offering compressed natural gas. Currently, we are actually the only fuel trader in Latvia who is able to do that.
We see that this product is valued by logistics companies, also by bus companies, waste management companies, and others. We see that demand for this product was actually increasing by more than 30%. The future perspective is quite good for this product because we see that natural gas price has been stabilized or even still going down. So economically, it makes sense.
From an environmental perspective, it makes sense because it provides less CO2 emissions if you compare with diesel or other products. In terms of other segment, which is electric cars, this is still in early development in Latvia because only less than 1% of the market is consisting currently of electric cars. But we are still providing future strategy for these segments. Already in 2023, we have opened 14 charging points, high-power charging points, offering at least 160 kW for customers.
We also plan to continue expansion of these points at least until 20 stations until the end of 2024. We are obviously doing this because we see high potential in the future for this segment and also the ability to cross-sell these customers with products from our shops. Then the important project, which is still under kind of R&D stage, there is no, let's say, specific investment made, but we are reaching a point which hopefully will allow us to start already building biomethane production sites in Latvia with the aim to produce biomethane by year 2025. Let's see how it goes. Currently, at least the plan is that we should sort out all finance and legal items to be able to build this production site and start producing biomethane already in 2025.
Yeah.
Yeah. And then about diversification of the business. So again, we see where we were in 2021 and where we are now. And we see that, for example, in 2021, the huge share of gross profit was coming from fuel. And the shop products and other segments were lower than fuel. Now, when we look at 2023, we see that there has been some shift.
Not only the overall gross profit has increased quite significantly, but also the share of fuel products is actually decreasing. And this is mostly because other segments are growing faster than the fuel segment. And we have a new leader in terms of gross profit, which is our shop or convenience store segment, which is already being the highest segment in terms of gross profit. Another thing which is important to note is that we have the energy segment also doing very well. Over three years, the energy segment has managed to become a very critical and important business segment, already providing us with very tangible, let's say, financial numbers in our overall business model. Business diversification, in a way, you can see it is already happening.
Well, and to ensure that the company continues to grow, we have to ensure that there are stable cash flows. Actually, this has been a great year also for the EBITDA increase. We have grown by 11.7% from year 2023 to 2022. The strong base for this increase has been the growth for all business segments. As Jānis mentioned, already the strongest amongst them has been the retail, the retail shops or convenience stores.
That has grown by EUR 4.3 million or 33% in the gross margin, in the gross profit, and also in the margins as such. Also, a very strong position has been for the energy segment that has grown actually just below 6x . This is sort of for us still a young brother, and it's running like a startup. We are happy about the results presented. In respect to the fuel segment, Jānis will present news a bit later how the dynamics have led to us to the result. But we must admit that this has been planned actually already in the budget.
These results compared to 2022 are a lot of effects from 2022 dynamics in the fuel market. In 2023, we have been continuing to grow and increase our market share as such still. But this growth on the gross profit of 15% or almost EUR 5 million is amortized by the cost increase. The main thing that has increased from year to year and is there to stay is the labor cost. I have mentioned it already that in 2023, we were actually sort of pushed by the market and pushed by the labor to overview our compensation model in the fuel stations twice.
One was on the 1st of January, second one on the J uly 1st. For the last part of the half of the year, we have a feeling that the offer is right now really focused and strong for our employees. The net effect of this increase has given us EUR 2.1 million in the sales costs, and that's there to stay. We have also been able to decrease our maintenance and maintenance costs. In respect to energy and electricity in our stations, we have contracted, let's say, a profitable or a good-price contract that has led us to decrease in the costs of EUR 700,000 in 2023 compared to 2022. In respect to other income and expenses, where we see also an increase of almost EUR 1.3 million, there are two main effects.
One lies within 2022 where we had to cancel a couple of energy segment agreements, and we received the compensation on the agreement cancellation of almost EUR 1 million or EUR 900,000. In 2023, we had a write-off of some costs or investments in the fuel stations that have been renewed or the old station that has been removed and replaced with the new ones during the year according to our CapEx plan.
We see that this has been like a one-timer cost, but this investment and the transformation of the stations will give us profits in the longer term in other levels. To the net profits, we have finished 2023 with a net profit of EUR 5.1 million. Compared to the net profits in 2022, if the financial instruments value would be canceled, it would be in the same level, so EUR 7.2 million.
The main effect or change compared to 2022 is the financial instruments value. This is the electricity instrument that we own in our balance sheet that has a positive value in the balance sheet of EUR 2.1 million and should be amortized over the next four years until the end of 2027. Currently, we see this change in the pricing and the effect to the profit and loss statement, which relates to the change in the electricity price in the market. The first price up or the income in 2022 was EUR 3.1 million, and it related to the cost of electricity at the end of 2022. As Jānis presented in the beginning, during 2023, the electricity price has decreased and stabilized over the year. Right now, it's just around EUR 100.
This value change in the price year to year gives us an effect of 5.2 or almost EUR 3 million and is the main effect for the changes in the net profits year by year. We also experience the cost increase and the depreciation that is mainly related on the asset base, where we have more valuable properties and also we are opening up new stations.
This increase relates to our expansion. But we also experience an increase due to Euribor increase during 2023 when, until the beginning of the year, we were living on the fixed margins for the loans. During 2023, we needed to experience this increase in Euribor. We see that the future perspective for the Euribor is to go down. We have also been able to change the financials or the banks in the end of the year. One bank and contract our existing bank, SEB, with better rates than before. So we see that our position is strong and that the base is good for the future investments and the growth.
Yep. So let's go next in each of the segments a bit more in detail. So let's start with fuel sales. Here, you can see one of the projects which we worked on in 2023, so an application which you can use in your mobile, and you can pay by not entering the shop. So this is one of the products which we worked on. And the result is quite good because we already see that around 60,000 of our customers have been downloaded this application, and many of them are also using it. So yeah, let's maybe go next in a couple of, let's say, market-specific things which are happening. So one thing is obviously that we see that the economy in Latvia and also in other Baltic countries and overall in the region is struggling.
We see that we closed 2023 in terms of GDP with -0.3% growth. Also in the consumption segment, the overall country was experiencing -2.5% growth, which obviously leads that if these macro conditions are not very excellent, it also means that there is some impact on the fuel market. We see that starting from September, actually, the year-on-year retail market fuel sales are actually decreasing in 2023 versus 2022, but not for us. For us, it's actually increasing in 2023 versus 2022 by 10%, while the overall market was actually increasing by more than 1% only, which means that we have gained more of the market share. But because overall growth in the market is quite low, it means that the competition among fuel players is very, very aggressive.
We see a lot of marketing activities, including discounts and many promotions, which obviously are giving some negative impact on the margins for this segment. This is a quite challenging environment we have to work at currently. Still, what we can also mention very country-specific is that in 2023, we had the year where fuel traders were allowed not to use a biofuel mixture. Mostly fuel players did it because, obviously, biofuel is costing more. But it has ended in 2024. From January, you already have to use this bio for petrol. From April, you will also have to use it for diesel, which obviously will give some push to the prices. We also see that in, let's say, some specific local regulations and also international regulations, we see that there could be some additional pressure on fossil fuel prices in the coming years.
As an example, in 2027, we will, as a transport segment, not only transport segment, but also the fuel traders, we will need to enter this ETS, which is an Emission Trading System. So it means that each fuel trader will have to buy quotas for providing the market with specific CO2 amounts, which obviously means that these quotas are costing something, which might also make the fossil products more expensive. So this is also one of the arguments why we already have been talking to B2B customers and trying to tell them that maybe it's time to switch to some alternative fuels rather than diesel because the coming years might actually experience quite a big price increase. So that's pretty much it.
Now about our winner of 2023, our convenience store. The convenience store has been under three main flags over 2023. This has been ESG, labor costs, and technology change. In the bottom of it all, we still keep our strategy to grow our sales and to provide the client the best product we can. During 2023, our shop has also transformed a bit or, let's say, added up some direction besides the regular one next to the fuel stations or the fuel products. We have opened our first shop in Tērbatas iela in the center of Riga. We have created our own robot. That's a robot barista that sells coffee in a retail center in Spice. And we also provide our Virši coffee in the top! shops in the top! shop chain in Latvia.
This has been sort of diversification, but obviously, all three of these projects are quite new to the market, and they still have their sort of testing phase or finding their best fit in the market. Let's go to the core operations. In respect to the core operations of the shop, this has been another successful year for Virši shops. Our Virši shops have grown in the turnover by 22.2% year-over-year, while the market, including Virši, has grown only by 13.4%. This has been a good year in respect to the margins of the products and the supply chain as such.
Our store products in 2022 faced quite big challenges in finding the best solution that should fit our customer, that should fit the ESG requirements, and also would be available in, let's say, a plannable manner in respect to the pricing and the supplies provided. So in 2023, the base established in 2022 created a strong offer, and we continued to bring gross profits that are an increase of 33%. In respect to the workforce and the labor costs, we have a feel that each hour of the labor becomes less accessible because there are fewer labor hours in the market, and it becomes more and more costly. And the unemployment rate in Latvia is still quite low. It's 6.5% in 2023. Thus, we need to make technology work for us.
Thus, we need to revise our business processes, and we need to make it lean to be able to deliver the best quality in the shortest possible way and give you the best value for what we can. This has been challenging, but I must admit that the base is strong, and the team is working very strong. We're really thankful for that. In the next slide, I would say introduce you to our new offer: our new croissants filled with cream.
I would also like to invite you to our new Tērbatas shop, a coffee shop that we already presented in the previous slide, and enjoy our new products. We are giving you this offer during the next week. On the 8th of March, it's International Women's Day. So basically, you can please your women that you like over the next week and provide them with our croissants. We invite you to copy this code. We will also provide you the code in the chat section and send you over the email after the presentation. You can activate it in Tērbatas shop in Riga. So welcome.
Yep. And then the final segment, which is obviously the energy segment. So it's important to note that this picture is coming also from our launch of electricity products to households, which we did back in September, and which is actually also a quite unique product because you can combine this electricity together with discounts in the fuel segment and also discounts in our convenience stores.
So with regards to what has happened over the last year in the electricity segment, so what we see is that we have been able to continue a very aggressive, positively aggressive growth. Obviously, this segment is very new, but over around three years, it has shown very, let's say, healthy and strong results. And the growth rate is very significant in terms also of electricity sold to customers. So it's more than three times higher than last year.
We have also purchased more than 50% of electricity from by 50% more electricity from our local partners in 2023 versus 2022. This cooperation with local electricity partners, which are producing the electricity from water, solar, biomass, or biogas, this is currently being very productive. We are utilizing this cooperation to achieve our goals. Also important that this cooperation is providing our partners with certificates of origin, which is basically those green papers for electricity, which in turn also have value. We are purchasing those papers from our partners and then realizing them further in the wholesale market. Also important to note that we are continuing to increase our base of B2B customers.
And which is a very, very nice thing is that in already a few months of launching this offer to households, we can already see that there are several thousand households which have conducted agreements with us and are already our electricity customers. So this is quite an important also achievement for us. And we see that this trend will continue to increase in the coming years and months, of course, as well.
Now about the key financial indicators and about the general financial position we are having at the end of 2023, we must say that this has been another strong growth year. Obviously, net profits have been affected by the financial instrument revaluation or electricity prices in the market. Still, this has been a strong year. Excluding financial instruments, our net profits for the year have been EUR 7.2 million, the same as for 2022. The actual data affects the return on equity ratio. As for the current position, we see that we have established a strong base for the next period to come to succeed and reach our goals set for 2026. We see that we have reached a net debt EBITDA ratio at 1.5. That is increased from year 2022.
This is mainly affected from the cash accumulated by the end of 2022 to be able to develop ourselves during 2023. Our new loans over 2023 have been at very low levels. Actually, we have borrowed first EUR 4 million in the last days of the year. That has been related to our expansion projects that are still in construction, in progress in the end of the year and during this first quarter of the year. We kept the loan levels low as we still had our resources. We still had our big projects to invest. The interest rates were high. During this year, it has been a top year for the investments.
Our investments in total in respect to the cash flow have exceeded EUR 17 million. That has been an absolute boom if we analyze it back to the previous years. As you see, the ambition in our long-term strategy, we still have a lot of work to do. But we feel that the balance sheet, the current position we own, and the current relationship with the banks is strong enough to be able to succeed and develop over the next years. Okay.
Yeah. So this is it from our side. We once again want to thank each single employee, each of our partners and shareholders for, in our mind, a very strong 2023. And we are also looking further to next achievements in future years. So I guess now it's time for questions.
Thank you. Let's continue with those we have received prior to the call and then the questions that we have received online. A reminder to all the participants to join the discussion, please use the Q&A section that you see on the bottom of your screen. Questions can be submitted either anonymously or with your name. First question: How do you see the future of gasoline cars versus electric cars in your business? Is the change to electric cars a threat or an opportunity?
It definitely is an opportunity, the short answer. But with regards to the first part of the question, so let's say most optimistic estimates are showing that by 2030, in Latvia market, there should be around 10% of the transport of light cars using electricity. So currently, this ratio is only 0.8%. So it's, in a way, an optimistic approach. But even if it happens, we already are working, as we mentioned, in quite a big and strong and powerful charging point network.
And we see that already these customers, which are already owning an electric car, they are coming into stations, also buying some food and coffee and other products. That's one thing. So it's a good cross-sale opportunity. Another one is that the margins which we have in electric charging are actually somewhat higher than in fuel. In a way, we don't see it as a threat, but more as an opportunity.
Thank you. Virši operates very low debt to equity. Is it because of lack of growth or plans to finance expansion with debt or equity, if any?
Yeah. Well, I'd say these past years have been sort of transition. We had the IPO in 2021. That increased the equity side. And we have been also under quite turbulent obstacles over the past years. Our CapEx plans have been quite higher than they actually were in the past years because we needed to analyze month by month where to invest, where not to invest, and how fast to proceed, knowing that nothing is known. Yeah. And right now, we are in a quite strong position as we have still quite big projects ahead of us. And we have still capacity to be able to have more lending in the banks. And right now, the current strategy is to take on more loans and have quite high CapExes over the next years. Yeah.
Where are the costs of the hedge that you had? The participant thinks they've had a big gain in 2022 and then loss in 2023. Is this excluded from your EBITDA growth analysis?
Yeah. In the EBITDA, we exclude the financial costs and the income and depreciation amortization. The changes in the value of the financial instruments are financial income or costs for the year 2022, 2023. The effect is in net profit.
As we already mentioned, the effect is +EUR 3 million roughly in 2022 and -EUR 2 million in 2023. Plus EUR 1 million over a two-year period. Also what Vita mentioned, it's important to understand that the remaining value of this instrument is still positive. It's around EUR 2 million in our balance sheet. So overall, let's say, the exercise with this instrument is still very positive. It's just that it is fluctuating among the years. And if you are not excluding it from core results, you might have a bit tricky picture. But if you exclude it, then everything, I guess what we also try to show is that everything is quite logical.
A follow-up question on the same topic: Is the company still entering into similar financial instruments? What has been learned from this experience with the benefit of 2020 insight reports?
I guess the amount in which we are entering, it is a much, let's say, smaller one because what we wanted to do is we wanted to hedge over future next years of electricity volume purchases. This price, which we fixed, is still much, much better than currently in the market. What are the learnings? It's that that was a very good step to do back in 2021 because then electricity pricing was much lower.
That's definitely a plus. The only minus is that, as we already discussed, that you have these fluctuations, which if you are not, let's say, looking into details in the balance sheet, then you might get a bit confused. Overall, there is no, let's say, plan that we will be entering some huge amounts in the following years. But again, disclaimer is that you never know if there is a super attractive deal, but in the doing.
There is a question regarding shareholder loyalty. Will shareholder loyalty offer continue this year to test new products?
Yes. The plan is to continue. We actually have a bit of a focus this year on the data analysis and the customer, let's say, behavior in our shops and what is the demand not only in the convenience side but actually on the actual purchases. We will provide the offers based on the data. The last offer for the shareholders was in November of the last year. You will continue receiving new products over the next period as well. Of course, check the code in this presentation.
What are the company's strategic goals related to station development in the Baltic States?
Yeah, very concrete, as we already illustrated. So first step is with the Estonian market, which we plan to open the first station in May, June. And potentially, next steps will also follow after opening this first station. But again, we will probably not go into details. There are several scenarios. But Lithuanian market is currently for us a bit more important than Estonian simply because bigger customer flow is going through Lithuania rather than Estonia because then they are entering Europe and so on. And also, Lithuanian market pricing for fuel is usually lower than the one in Latvia and Estonia. So the short answer is that Lithuania is, let's say, under development. Estonia is currently not in plans.
What dividend amounts do you expect this year?
Dividend policy remains as in the past year. So it's 20% of consolidated net profits. The information and, let's say, the offer from the board side is provided in the annual reports. But it's up to shareholders to decide it in May of this year. And the payout is expected in June.
Thank you. This was also our last question today. The recording of the webinar will soon be available online. Please follow Virši announcements to stay up to date. On behalf of Virši, thank you, everybody. It was a pleasure to be with you today.
Thank you.
Thank you.