Good morning. It's my pleasure to welcome you all to the Ignitus Group Earnings Call for the Q1 of 2021. Today, we are joined by the company's CEO, Daros Mokhtianas CFO, Daros Kasauskas Infrastructure and Development Director, Dominika Stuchkus and Head of Corporate Finance, Yonas Ramavichus. At first, management will run through the Q1 2021 highlights, results and outlook for 2021 and then open up for your questions. Let me kindly remind and encourage you to send through your questions during the presentation.
So with that, Darrus Mokhtiannis, the floor is yours.
Good morning. Q1 of 2021 for Ignitus Group was really successful Despite challenging environment related to COVID-nineteen, we showcased resilient performance for our Q1. Adjusted EBITDA grew by 18.6 percent to €91,900,000 compared to Q1 of 2020. Solid growth was supported by installed capacity expansion in Green Generation Business segment, high distributed volumes in network segment and better results of commercial activities in flexible generation. We paid dividends in line with the dividend policy, consistent with our strategy.
We showcased tangible progress on green generation installed capacity expansion. We also selected smart meter infrastructure supplier with expected mass rollout of smart meters across the households by 2023. Also we continue to increase our sustainability reporting as per GRI requirements. In our Networks business segment, we delivered 13.6 percent adjusted EBITDA growth, which was supported by higher distributed volumes as the result of colder weather also wrap value growth. We also started to participate in consultations with regulator on parameters of new regulatory model for upcoming electricity part regulatory period, which is starting in 2022.
In Q1, investments in network segment decreased due to the unfavorable weather conditions and ground forced. Investment are not expected to affect overall plant annual investment level. Electricity distribution quality indicators deteriorated a bit compared to the plant level due to extreme snow conditions in January. While higher distributed volume affect the level of over the course of the year, we maintain positive growth outlook of the segment's performance over the course of this year. Turning to Green Generation segment.
We continue to work diligently on expanding the installed capacity and added another 43 megawatts as the result of commissioning of Kona's and Venus HP based to energy units. Worth noting that 19 out of 43 megawatts of installed capacity were added since the end of 2020. This has translated to the robust adjusted EBITDA growth of 34.7 percent, also supported by better results of Kona's HPP due to the higher captured electricity prices. Green electricity generated also marginally generation also marginally increased as the result of commercial operation of Kona CHP and Vilnius CHP test runs as the plant was commenced in the end of March. In terms of pipeline, we are excited to share that we approved expansion of plan of Cronus BSHP expansion for additional unit of 110 Megawatts.
Construction works of Vilnius HP Biomass Unit is in line with the schedule with expected COD around Q4 of 2022. Mazzei Kievan Farm construction works are in line with the schedule. As planned, we completed construction works in Pomerania wind farm in Q1 and started commercial operations this week. While investments in Q1 were significantly lower comparing to the Q1 of 2020, This was largely driven by launch of Kona's CHP and Vilnius HP Waste to Energy Projects and Pomerania wind farm construction completion in March. Overall, investment level still in line with our guidance.
Turning to flexible generation, we have strong performance also recorded in the segment. Segment adjusted EBITDA grew by 80% to 8,100,000 as the result of most 5 time increased electricity generation generated, which was driven by positive spark spread of CCGT gas commercial activities. Finally, as expected, underperformance in customers and solution business segments compared to 1st quarter was recorded of 2020 was recorded. Compared to 1st quarter in 2020, adjusted EBITDA was 43.8% lower as the result of negative one offs due to the B2C electricity supply, the regulation related costs and lower regulated profitability. As well, negative hedging results, mainly due to unusual spreads in proxy hedging in March 2021.
On the regulation of B2C Energy Supply, it is ongoing and expected to be finished in 2023. That being said, during the 1st stage of choosing electricity providers, 60 6 percent of customers were retained. NPS scores were somewhat lower as the result of all the changes which were happening in the market. With that, I pass the floor to Darius Kasauskas.
Thank you, Darius, and good morning from everyone. It's a pleasure to present interim results for Q1, another successful quarter for us. As mentioned in Q1 2021, we delivered solid performance and further demonstrated resilience of our business. That translated into a substantial adjusted EBITDA and net profit growth compared to the Q1 of 2020. In terms of adjusted EBITDA, the 18.6% increase to almost €92,000,000 was mostly driven by launch of Kona CHP and Vilnu CHP waste to energy unit better results of commercial activities of CCGT unit and higher distributed volumes effect in Networks segment.
However, Customers and Solutions segment decreased as the segment's electricity business underperformed compared to Q1 2020. In terms of adjusted net profit, we saw a healthy increase of 7.3 percent year over year due to higher adjusted EBITDA, which was partly offset by higher income tax expenses. Adjusted EBITDA bridge illustrates development of each core business in Q1 2021. While growth was captured across most business segments. In absolute terms, the network business was the largest driver of adjusted EBITDA growth, contributing €7,100,000 to the overall growth.
Green Generation contributed €5,000,000 to the overall adjusted EBITDA for the Q1 of 2021, while flexible generation added another 3.6 €1,000,000 However, Customers and Solutions segment reduced adjusted EBITDA level by €3,200,000 And consolidation adjustments also increased adjusted EBITDA by almost €2,000,000 As a result of better performance, the return indicators were improved a bit. Looking at the return profile in Q1 2021, we grew our adjusted return on capital employed to 7.7%. It is an increase of 1.3 percentage points compared to Q1 2020. Growth was largely the effect of increased adjusted EBIT. Our adjusted ROE has marginally decreased by 0.6 percentage point to 8.1% driven by the increase of capital during the IPO in Q3 of 2020.
Turning to our investments in Q1 2021. Overall investment level halved to €28,000,000 compared to Q1 2020 as major projects were near completion or already completed, including Vilnius CHP, the waste to energy unit COD in March, Kona CHP launched in August 2020 and Pomeranian Wind Farm construction completed in March this year. Additionally, lower investments in network expansion, we are driven by colder winter, ground frost and heavy snowfall. As for our free cash flow and net debt metrics, we have further improved our results compared to Q1 2020. Specifically, our free cash flow increased by 78% as a result of higher EBITDA and lower investments, while net debt decreased by 3.5% due to higher EBITDA.
Looking at the net debt more closely, higher funds from operations led to a decrease in net debt and overall improvement in leverage metrics. Our net debt to adjusted EBITDA has decreased from 2.1x to 1.9x, while FFO to net debt was increased from 52% to 58%. This allows us to better position ourselves to maintain a healthy balance sheet, support growth and ensure a credit rating of BBB or above. Finally, revisiting our outlook for 2021. Q1 2021 results put us on a solid footing and reaffirming our expectations of €300,000,000 to €310,000,000 adjusted EBITDA for the full year of 2021.
On the back of a strong Q1 2021, Further growth is expected to be driven by launch of Wyluschp waste to energy unit, COD of Pomoranea Wind Farm in Poland, then full year result of Kona CHP, which was launched in August 2020 and growing value of RAP. And with this, I hand back to Darius Mokhtianas to sum up our achievements for Q1.
Thank you, Darius. So summarizing very strong first quarter for Ignatius Group. We showcased resilient performance for Q1 and progressed well in line with our strategic priorities. We also followed through of the dividend policy. Operationally, we have successfully expanded our green generation installed capacity and made progress on remaining pipeline.
Additionally, we improved our sustainability reporting by incorporating GRI requirements. That said, we maintain our full year guidance reinforced by green generation and networks growth. Thank you.
This concludes the presentation. And now we open up for your questions. So we will begin from the questions received in advance. The first question was, do you comply with Ignite's long term strategic goals looking from today's perspective?
Thank you for the question. Answering it's too soon to comment on progress of 4 year targets raised through 2024. However, we progressed well on both operational and financial goals. For example, in line with our schedule, we launched Vilnius HP Waste to Energy Unit, selected smart meter infrastructure supplier. On financial target side, we also delivered robust growth reflected in our KPI, key KPI adjusted EBITDA.
Additionally, we paid out dividends of €85,000,000 for 2020 as per our dividend policy and kept credit rating of BBB plus with a stable outlook. That being said, we believe being well on track to reach long term goals set out in strategic plan for 2021, 2024.
Thank you, Lardis. The next question is, does the company have leverage management or decrease of its strategy?
Thank you for question. We aim to have optimal capital structure and debt to equity level. However, to manage leverage risk, we are committed to BBB plus credit rating for the period of 2021, 2024 and to solid investment grade rating of BBB or above in the long run. In addition, we target to lower than 4 times net debt to EBITDA ratio. Thank you.
Thank you, Darrus. The next question, what is the current split of GDRs versus shares? How it has changed since IPO? Jonas?
So at IPO, the proportion of GDRs was around 68% while the shares accounted for 32%. There was some conversion of GDRs to shares caused by the price gap between the Vilnius and London. However, significant majority is still in the HDRs.
Thank you, Jonas. Our next question. What are the reasons behind share price being stuck at the €20 level?
There are plenty of factors involved in share trading that affect share price in short term. We think that our share price has plenty room to grow, and we believe that fair value is higher than current price level. We expect over the time when we deliver our strategy, including track record of green generation assets, the market will realize that.
Thank you, Larris. Our next question is: What are the future plans of Ignatius Renewables? Are there any plans to Birlnu CHP, Kona CHP and hydro plants? Afterwards, it might be worth to do this segment IPO as renewables only companies trading at higher multiples compared to integrated utilities, thus creating value both for the group as a whole and its shareholders.
You're right that green generation multiples are higher than the ones for the whole group. However, we do not plan renewable energy arm IPO. We think that the better way to maximize value is through asset rotation strategy, which means that we will be selling up to 49 percent stake in each individual green generation asset except hydro in order to both earn additional premium and recycle capital for further growth.
Thank you, Daerus. The next question. In relation to the strong company's results, could we expect to see higher than minimum level of dividend growth stated in the dividend policy?
Based on our dividend policy, 3% is a minimum level of annual dividend growth. However, we have flexibility to distribute excess cash, if available, based on growth group and investment opportunities available. All the decisions on the dividend amounts are and will be made on the yearly basis.
Thank you, Dyrus. The next question. How the company is planning to implement the acquisition of its own shares, making a tender offer at a fixed price through auctions or by purchasing shares directly in the market? Or maybe it will be solely bought from the stabilization manager?
Stabilization Stabilization ended on 6 October, resulting in 10% of office shares to be bought by stabilization manager. There are few possible alternatives how stabilization shares could be treated. One option is we will buy back these shares and cancel them. Another is stabilization manager would sell shares to the market. No decisions have been made yet with the regards of treatment of stabilization shares.
If any, it will be announced to all investors at once through the NASDAQ and London Stock Exchange news platforms.
Thank you, Thares for answering. Our next question. Does the company has any liabilities to IPO Stabilization Manager, for example, to cover their potential losses in case selling their holdings at a lower price compared to the purchase price?
Yeah. So the stabilization agreement is structured in a way that the stabilization manager does not make a gain or loss on stabilized shares. So in case where stabilized shares are sold at loss, stabilization manager is compensated. If stabilized shares are sold with a gain, stabilization manager returns it to the company. The gain or loss is measured against the average stabilization price of 21 €500,000 per share.
And just to illustrate, assuming that the current market price of €20 is used for realization of the shares, Swedbank would be compensated €1.5 per share, which is the difference between €21.520, while the company will keep a profit of €1 per share, which reflects the difference between the IPO price of €22,500,000 per share and stabilization price of €21,500,000
Thank you, Jonas, for answering questions. Our next question is, what is the situation with the Pomerania wind farm? Has it started generating electricity and revenue? Are all turbines operational? If not, why?
And what is the expected commercial operations date?
Yes. So the construction of Pomerania wind farm has been completed in March this year. All 29 turbines are erected and the wind farm is expected to start full commercial operations this June. With the first electricity actually already generated yesterday. And also worth noting that we are well ahead of the schedule given the allowed delays by Polish authorities in the context of COVID restrictions.
Thank you, Dominikos. The next question. How does the CFD tariff subsidy scheme work? Does it work both ways? For example, if the electricity is generated when market price is higher than indexed CFD tariff, does the difference have to be returned by the company to subsidy scheme operator?
Yes, you are right. In Polish case, it works both ways. So it's a 2 sided CFD. The tariff the CFD tariff has been awarded for 15 years and is adjusted for inflation annually. And in the case the market price exceeds indexed CFD tariff level, the difference will have to be returned to the subsidy scheme operator, but that will happen at the end of the support period, which is, in this case, as mentioned, 15 years.
Thank you, Janus. Our next question. Can Ignitus Group anchor material losses due to the decision by the European General Court to overrule the European Commission's decision to calibrate subsidy scheme for renewable projects? That is, will the company have to return the already granted subsidy for electricity generation?
Yes. So currently, the support mechanism under decision is received by 3 wind farms owned by the group, so Via Avatas, Via Augustas and Auracas. And for 2 of them, the support is due to expire in 2023 2024, while for our Akras in 2027. So our exposure is quite limited. Worth noting also that Tignitus Group is not a party to the legal case.
It's the Ministry of Energy, and we will not be in the position to further speculate on its potential outcome. Generally, such processes take several years to resolve.
Thank you, Dominikos. The next question is as following. What will happen to wind farms after the subsidy scheme ends? Are they going to be beneficial financially? Do you expect additional maintenance costs after a considerable period of time since their operational start date?
Well, these wind farms will be selling electricity to the market and potentially will be matched with our supply portfolio of customers and solutions segment. Since we see useful life of our wind farms at around 30 years, we naturally expect them to be profitable throughout this period. No material costs are expected after the end of subsidy scheme. The wind farms undergo maintenance every year.
Thank you, Janus, for answering. Our next question. Loans versus bonds, what is the cheaper method of finance? If loans are cheaper, why does the company issue bonds?
The company's choice between different financing methods is driven by solely by associated costs, which are driven by the market dynamics. If at a moment of consideration issuing bonds is cheaper than loans, we will use bonds as a method of finance.
Thank you, Dares for answering. Our next question. Do you intend to abandon internal purchasing between group companies to avoid conflicts of interests?
Currently, we do not have such plans, but it's important to understand that for related party transactions, we apply high transparency and disclosure standards. For example, high value contracts are reviewed and confirmed by the audit committee and supervisory board. Also, all of them, including the opinion of Audit Committee on the transactions are published on our website.
Thank you, Darice. There is one more question. Green capacity additions, new deals seem to be running dry a bit since the IPO. Could you please provide some flavor on how your pipeline in green generation is developing? Thank you.
We are yes, so we are currently working on a number of deals and a number of projects. However, you are right, we have not yet announced anything. We will be announcing the transactions or projects when they reach the binding stages. So the only thing which we can comment at this stage is that we feel are comfortable with the targets we have disclosed at the IPO and in our strategic plans and continue working on that.
Thank you, Anders, for answering. Currently, we have no questions. There is one more new question. Thank you for your presentation. I have a few questions.
A few questions. So the first one is why wind generation adjusted EBITDA in Q1 2021 was EUR 2,900,000 in comparison to EUR 4,900,000 in Q1 2020. What happened there, the weather? The second question is, could you elaborate on the information in public space about the share remuneration plan that was announced in this year earlier and then canceled? What happened then?
Are you intent to implement this practice in the future?
So I will answer the first part of the question. In terms of wind generation adjusted EBITDA in Q1, so you are right. The main factor affecting the EBITDA was the weather, which is natural to fluctuate from quarter to quarter and year from year.
And for the second question, as it is the first time that SOE started to apply such an incentive scheme, It takes time for understanding of the scheme and the benefits of it. The grounds and benefits of share option schemes have been challenged. But the company, we are confident where the program complies with both the law and the best practices.
Thank you, Janas Beyers. We have one more new question. Orsted and End of the Green formed partnership to deliver large scale offshore wind in the Baltics, April 2021. Does it create any positive vibes for Ignitus?
As for this alliance, we really think that it's good development for entire region, but strong alliances dedicated to invest heavily in offshore development are forming, which means that this region is seen as with very high potential and also fair competition between such kind of players will result as to the good conditions for the end users.
We have no further questions. This concludes the presentation apologies. This now concludes our presentation and earnings call. So, dear all, thank you for joining us today at the Q1 of 2021 earnings call. Should you have any further questions, please do not hesitate