Good morning, dear listeners. Welcome to Klaipėdos Nafta Meeting with Investors. I'm Emilija from Nasdaq Vilnius, and I'm delighted to be the moderator for today's event. We will start with a presentation from the management, which will be followed by the Q&A session. As always, I encourage every one of you to ask questions during or after the presentation in the question box of your screen. With that said, I'm pleased to introduce today's presenters, the Chief Executive Officer, Darius Šilenskis, and the Chief Financial Officer, Mindaugas Kvekšas. Dear guests, please, the floor is yours, and good luck.
Thank you, Emilija. Good morning to everybody. After each quarter, we would like to present today briefly our results and the key highlights of KN Group. I will start from usual slide about our mission and vision. Here it's worth to underline that our company is in process of revising its strategy to reflect recent, I would say, significant changes in especially the oil segment. Nevertheless, our mission and vision remains the same. And we would like to become a top LNG terminals operator worldwide and the most competitive oil and refined products handling hub in the Baltic region. Talking about the main announcements which have been published during Q3.
Here, I won't read all of them, but one of the key one was announcement of the public procurement of FSRU, floating storage and regasification unit. We had some changes in our management board and one of the board members has been replaced by a foreign board member. Also, we had a significant achievement in our global development business by becoming an operator of two fully operational LNG terminals worldwide. As well, there was some changes in National Energy Regulatory Council, which approved and adopted decisions on the fixed and variable components of liquefied natural gas regasification and reloading services.
It's also worth to mention that on first of October, new gas year has started and we began it with six terminal users, both from Lithuania and foreign countries who already booked LNG terminal capacities, total of 8 TWh, which is approximately eight conventional big cargos. Probably that's all from the key highlights. It's also worth to mention that we've been in the latest index of good governance. Lithuanian Governance Coordination Centre rated KN with one of the highest scores, A. The maximum is A+ , so we are doing well and in the field of good governance, KN maintains this high rating for already several years. I think we can move with the results.
I will pass Mindaugas microphone to you. Please.
Thank you, Darius. Now, I shall proceed with the overview of the financial results for the Q3 of 2021. The single most significant event in Q3 was the recognition of the impairment loss for our oil terminal segment, our oil terminal business segment. This is actually not the event by itself, but rather the indication of events and conditions that existed at the end of the reporting date, namely at the 13th of September 2021. As it is the requirement of the International Financial Reporting Standards, we are reviewing for indications of the impairment at each reporting date, and if any indications are present, we are performing an impairment test.
We recognize the two main indications for the impairment, and one of them being a long-term decline as we recognize now a long-term decline in revenue resulting from sanctions imposed on the Belarusian clients. The last cargos we had from Belarusian clients were in January 2021. Another condition or another indicator for the impairment is anticipated lower transshipment of heavy fuel oil products in the future due to the fact that plans by our key customer in Lithuania were announced on future investments that will result in, as we anticipate, in lower transshipment volumes.
Consequently, according to the requirements of the IFRS, we performed the test by assessing the recoverable amount of the cash generating unit, which is our Klaipėda oil terminal. We determined the recoverable amount as the higher of two, namely the fair value less costs of disposal and its value in use. Based on the results of the impairment testing, we identified that the value in use actually was the higher figure. The impairment loss was estimated with reference to the value in use amount.
As a result, in Q3 , on 31st of August 2021, we recognized the total impairment loss of EUR 51 million, which net of deferred income tax effect and also taking into account the lower depreciation costs for September resulting from the recognition of impairment one month prior. The total net effect was EUR 43.1 million. Here in the table we are providing, sorry, the impact on the indicators in the financial statements. Had no impairment loss been recognized in that quarter, the profit or loss for the period we estimate would have been the loss of EUR 11.7 million.
We had the practice of calculating the adjusted net result, which reflects the adjustments that are also recognized in our dividend policy. The adjusted profit or loss or actually the loss for the period would have been around EUR 1.1 million. This impairment had no effect on the EBITDA. Full information about the impairment test has been disclosed in the interim financial statements which we published today. Now I shall proceed with the next slide, which shows the trends in revenue, net loss, net profit loss, and the EBITDA. Revenue in comparison to the first nine months of 2020 declined by EUR 14.5 million.
This is split among two of our main segments as follows. The oil terminal segment revenue declined by EUR 8.3 million, and this is mostly due to Belarusian cargoes, which stopped from February 2021. We also had a EUR 6.1 million decrease in revenue from our regulated business segment, the LNG terminal segment. This is mostly explained by the fact that in 2020 we earned the excess income which we are supposed to pay back already in 2022. Now, concerning the EBITDA, also the change in EBITDA or decline in EBITDA, which amounts to EUR 17.7 million, is split roughly equally between the oil terminal segment and the regulated LNG terminal segment.
While the effect for the oil terminal segment comes mostly from the decline in revenue, as mentioned previously. The change in EBITDA for LNGT is mostly affected by the mentioned temporary effect of the excess income, the temporary regulatory differences as we call them. Also a significant increase in the prices of emission allowances, which we also treat as a temporary regulatory difference, because according to the effective regulation, these costs, this increase in cost, shall be compensated in future periods. Now concerning the net result, our net profit loss is volatile. There are two reasons for that. One is the effect of the impairment loss recognized in Q3 2021, as I mentioned.
Another reason is fluctuations caused by the unrealized gains or losses from the currency exchange fluctuations, or currency exchange rate fluctuations, which is the effect of introduction of IFRS 16 requirements. Therefore, to eliminate the latter fact, the unrealized foreign exchange gains or losses, we adjusted our dividend policy. Also, the resolution of the government was adjusted and we are calculating now and presenting here the adjusted net result, which eliminates the impact of these unrealized gains or losses, also the related deferred tax effect. Next, we have a slide on the quarterly performance. While revenue and EBITDA was quite stable, the small decline in Q3 is related or comes from the oil business segment.
Because in Q1 , we still had in January some revenue coming from our Belarusian clients, which ceased, as I mentioned, from February 2021. In oil segment in Q2 , we had some one-off sales. Therefore, I would say that the situation in the oil segment has been quite stable throughout the three quarters of 2021. The revenue from LNG terminal business segment was also relatively stable throughout the year. Now, the next slide just presents what I have also thoroughly already explained. The IFRS based and the adjusted figures, and the adjustment comes in the LNG regulated LNG activities. The adjusted net result for LNG activities would be a profit of EUR 23 thousand.
This adjusted result does not take into account what we call the temporary regulatory differences. The actual regulated return would be based on the regulatory asset base and the regulated rate of return on that asset base. Due to the fact that in 2021, we are repaying back the excess income that was earned in prior periods. Due to that reason, the adjusted net result in 2021 is around zero. Next, we shall proceed with the overview of the business segments, and I pass the word to Darius again.
Yeah. Thank you, Mindaugas. First bullet point in this slide is about the topic which was extensively described by Mindaugas, so I will not talk about impairment numbers. But main still reasons of our performance Oil segment during first nine months of the year was impacted due to the same well-known reasons where COVID affected negative refining margins and respectively let's say less transshipment volume from our main customer has been seen during this period. Also of course we are living the entire year without let's say any deliveries from CIS destinations so we have less transshipment.
Nevertheless, it's worth to say that we managed to react properly, and we had many other revenue streams and flows appearing from other services and other customers. We managed to replace, I would say, pretty substantial part of the losses by mainly providing long-term storage services to the, let's say major regions or even world players, traders. Also, we were seeing further increase on the biofuels transshipment, which growth actually again increased by a really significant number, by 38% comparing to the same period last year. We opened a new page, I would say, in our oil segment. We started the so-called testing, but actually transshipment of bitumen, which is a very important, let's say, new direction of our oil segment.
Those are the main messages from the oil segment. I will switch to the key factors of our regulated LNG activities in Klaipėda. As you can see here, we had slightly less revenues. We had slightly less EBITDA. A part of the reasons have been explained already by Mindaugas. Looking into the capacity utilization, we remained on the same average level of other European LNG terminals. Our rate was about 40%, while average utilization rate in other European terminals was about 38%. Of course, the reasons were the same.
Very strong demand in Asian and Latin American markets caused the increase of the price indexes and respectively, let's say even a competition between those continents. Less LNG was coming to Europe this year. Talking about the cargoes, we had 30 large-scale conventional cargoes and 37 small-scale cargoes during this period. It's worth to mention how the market in Lithuania looks like. It is increasing. Natural gas consumption in Lithuania increased by 5% year-over-year. Imports via our operated LNG terminal accounted about 2/3 of this consumed gas amount. It's also worth to mention that during Q3 those record LNG prices was only start and started to rise.
The average was EUR 36 per megawatt hour versus EUR 6.2 per megawatt hour in the same period year ago. Of course, probably many of you know and are aware about the price records which hit the market in Q4 of 2021. We are talking here about Q3. Talking about our commercial LNG activities, which consists of our small scale LNG terminal or reloading station operations in Klaipėda, operations of LNG terminal in Açu Port, Brazil, and other projects or consultancy services which we are providing worldwide. Financial result was much profitable, I would say, where revenues remained almost the same, but we had significantly better, let's say, EBITDA during the same period comparing with 2020.
We had as well, let's say about 100% of adjusted net profit generated. Talking about the statistics, we have received five cargos, so-called small scale cargos in our Klaipėda small scale LNG reloading station, talking about our other terminals where we are providing services. W e always trying to indicate the regions where we are active, those regions remains the same. We are looking for opportunities and participating in tenders in Europe, Southeast Asia, Middle East, and of course, South America, where we are already established. Mindaugas, I will pass again to you microphone to talk about profitability and return ratios.
Thank you. I'll just briefly comment on the profitability ratios. Of course, talking about the last nine months of 2021. The profitability ratios were significantly affected by the single most significant event, the impairment loss. The profitability ratios of return on equity, return on assets, price earnings and also the earnings per share are all calculated based on the non-adjusted net result. Taking the adjusted net result for the last 12 months, while the earnings per share is calculated with the result of the nine months of the respective year.
Concerning the developments in the balance sheet, the change in property, plant, and equipment carrying value is mostly explained by the already discussed impairment loss in the Q3 of 2021. The same also affected, to a lesser extent, the change in the carrying amount of right-of-use assets. Also, the second factor was the depreciation of the right-of-use assets. The cash and cash equivalents balance mostly increased due to the fact that due to expiring of short-term deposits. This also had the opposite effect on the decline in the amount of the other current assets, which previously included these term deposits.
Concerning the balance of loans, they increased due to the so-called restructuring mechanism for a security supplement, as we are taking the loan to finance this mechanism. I think this is it for the review of the balance sheet.
We can switch to questions and answers part, yeah.
Thank you very much for the presentation. As now we proceed with the Q&A, I would like to remind all attendees that you can submit your questions in the question box of your screen, and I will read them out loud for you. The first question that we received is as following: After the purchase of FSRU, will the NERC's return on profit increase, decrease, or remain the same? Thank you.
Thank you for the question. We are in the process of approving the investment into FSRU, and the regulatory body has already been reviewing the documents provided by us for some time. After the approval of the investment, based on the currently effective regulation, the investment into FSRU should increase the regulatory asset base. Of course, the actual impact on the return and on the revenue side will depend on the regulation that will be effective at the point in time in the future.
Thank you very much. Does NERC affect international projects, namely regulation of profits?
Yeah. I will take this question. National Energy Regulatory Council by its name means that it regulates regulated activities. Since our international projects are not regulated activity and we are competing with other market players worldwide, it's not a subject of our National Energy Regulatory Council's responsibility.
Thank you very much. Is Klaipėdos Nafta planning to adapt its infrastructure for hydrogen in the future? Thank you.
Thank you for the question. I think it comes second time in a row. I remember last webinar we received the same. The answer is that liquefied natural gas infrastructure is not suitable for handling and storage of liquefied hydrogen due to significant differences on temperatures and on molecule sizes. Nevertheless, the grid which KN also operates and which connects our FSRU unit in Klaipėda. You can use it by adding some part of the hydrogen into it. But as I said, not liquid one. I think that answers. Other infrastructure like our oil terminals, they are not suitable due to completely different nature of the p hysical, let's say, savybės, yeah, capabilities of the product. Yeah. Thanks.
Thank you very much. Could you please comment on what are the directions of extension in OT and LNGT segments for the period of one to three years?
Yeah. Thank you for the question. I think I already mentioned at the very beginning of today's session that the company is now in process of revising its strategy in order to react properly to ongoing changes and challenges both in energy market and changes in the cargo flow directions. What I'm trying to say, it's maybe too early to go into the details with our, let's say, strategic shifts. But we also mentioned today, we are looking to replace and I think we are quite successfully replacing the losses of the transshipment activities by the smaller cargos, by petrochemical cargos, by bitumen. We are actively seeking for any opportunity in the long storage market.
I think this will remain a trend for the midterm, up to three years period. On LNGT, it's obvious that the key goal for the mentioned period is to acquire FSRU properly, to take it over and to gain capability to operate it. Those are the main goals for the one to three years period for our team. Thanks.
Mm-hmm. Thank you for your answer. From which segment higher return is expected in the future, from LNGT or OT, please? Thank you.
LNGT segment is regulated segment. As it was mentioned already, the returns are defined by National Energy Regulatory Council. We are let's say reflecting also the benchmarks of the respective industry, meaning regulated industry. While oil segment or OT like we are let's say abbreviating it is a competitive business and it's always, you know, you cannot benchmark it or regulate it. You should strive for the best result. The general answer is it's completely different segments. One is regulated, other is competitive, and business segments.
Thank you very much.
Of course if not regulated, yeah, it's worth to. Sorry, Emilija. I would like to summarize. Of course, business segment, we are always looking for better returns from the business segment.
Thank you very much. How close is Klaipėdos Nafta cooperating with the Amber Grid and entire EPSO-G group, and what is the commercial relationship? Could you please comment on this?
We have many angles with mentioned EPSO-G. First of all, the major shareholder of both KN and EPSO-G group is the same, Ministry of Energy. Of course, by nature we are different. Amber Grid is a TSO. We are operator of a marine or let's say floating infrastructure in Klaipėda. Of course we have many crossing points or common points with mentioned group because attractiveness of our infrastructure in Klaipėda for customers very much depends not only on our rates and tarification, but as well on the grid operators policies and pricing. We are coping or cooperating with them, by trying to be competitive and by trying to maximize our, let's say, LNG terminal, capacity utilization in Klaipėda. This is the answer.
Thank you very much. Does the CFO of Klaipėdos Nafta plan for the company's shares to be in the portfolios of pension funds, thus increasing the liquidity of Klaipėdos Nafta? Thank you.
Thank you for the question. The brief response would be that, for the moment, there are no active plans to increase the amount of shares in the portfolios of the pension funds.
I will add something on top, Mindaugas. Because I think this question is repeated again. Last time it was a question about do we have some pension funds in the list of our shareholders. Our answer was, yes, we have some. Yeah.
Thank you very much. So we are still receiving quite a few questions now live. So please, just as a reminder to all attendees, please do not hesitate to send in your questions too. The next question would be as follows: Do you forecast a growth in revenue for 2022? Thank you.
I may take this question. Thank you for it. As has been the practice in the past, we were not providing or issuing any guidance on the future financial performance of the company. We are not changing this practice for the moment. Thank you for the question.
Thank you. Another one is asking for: How far will Klaipėdos Nafta fall in terms of financial performance? Could you please comment on that?
Yeah. Very straightforward question. Thank you for that. You know, as we are presenting, we have few business arms or legs, how you name it. It's not exactly, you know, the true saying that we are falling in all the directions. As I presented, our global LNG and commercial activities in LNG segment, we are growing, we are performing, we are already bringing bottom line or net profits to the consolidated result. Nevertheless, yeah, the question is really understandable. The hit which we took in our, let's say, previously most profitable segment, we are still, let's say, recognizing it. We are seeing the result of loss of a significant amount of revenues from previous directions.
As already said and explained, a lot of actions has been taken, and significant, let's say, amount of revenues has been replaced by alternative flows and services. Talking about the regulated activity, I would like to remind the purpose of our, let's say, LNG terminal in Klaipėda. It's of course very important to have commercial activity which allows to minimize all the security supplement costs. Nevertheless, this asset has a purpose of assuring competitive price for all gas consumers in the region and to assure security of the supply. For example, now all the world is facing crisis, and in case if we won't have such infrastructure in Klaipėda, we cannot even forecast how high the price can be. Nevertheless, the segment is regulated.
We are getting improvement from regulated activities as well. I wouldn't call that it is a fall trend. It's opposite. It's an upwards trend. This can be supported by the fact that the weighted average cost of capital or WACC has been increased from 3.46% to 4.14% from regulatory asset base. It's also improving. Yeah. I hope I answered this question.
Thank you very much. Indeed, the next question is asking about, do you have a serious action plan to improve your performance? Would you like to add anything on that, what you already said?
Yeah, good question indeed. I have something to add on top. Actually, we are on this improvement or efficiency or productivity plan from the moment when we recognized the loss of Belarusian and Russian volumes. It's what? Already more than a year. We have many actions on the list which are already implemented. We have many efficiency improvements which are not visible, like we've commented earlier. Why? Because we had a so-called perfect storm on a cost basis as well. We had almost double natural gas prices which we are consuming in our processes. We had about 50% higher prices for electricity during 2021 comparing to the previous period.
Of course, we had very significant growth on emission allowance costs. All those increases which were not possible to be forecasted we affected the final result. Probably is not allowing us to show efficiency improvement actions. But nevertheless, we just finalized our benchmarking study with a world-known company, and we've been benchmarked with more than 60 terminals, terminal operators in Europe. Yes, we have some, you know, good insights, and we will be continuing focus on productivity and efficiency by understanding more well what can be improved further.
Thank you very much. Another question. What is the reason why there are no LNG vessels scheduled for January to March of 2022? Could you please comment on that?
Yeah. The main reason is the record high LNG indexes. Yes, we see plans from our customers to bring some small cargos, but there is no certainty about the large scale and the, as we explained, pricing of LNG.
Thank you very much. It seems that we will have the last question now. In case you do have a question which was not asked during the session, please do not hesitate to write it in the question box. The question would be as following: When can we expect to hear more about the new strategic direction, and how about the sustainability agenda? Are you moving to become more sustainable? Thank you.
Yeah, very good question. Actually, it's a topic where myself and most of my team is spending a lot of resources recently. I briefly mentioned that we are in the process of a revision of our strategy, which will include not only shifts in our conventional, let's say, business arms or legs, but also will add on top new directions in a more sustainable energy mix. It's also to mention that you know why we are not providing yet is because Lithuania is now drafting its own strategy on hydrogen and renewable, and the plan is to finalize that within H1 of 2022.
Our ambition and our target is to be in alignment with this strategy and to be a part of Lithuanian more sustainable energy, let's say, both infrastructure and you know, the business in the future. Yes, shortly we have a plan, and it's been announced actually publicly. We are looking not only on hydrogen, we are looking to find our place as well in carbon capture and storage activities. And we have as well even memorandums of understanding, and we are cooperating with the well-known foreign partners on identifying let's say ourselves in a CCS supply chain. A lot is done, but unfortunately, we are not ready to revert to you or to investors with the full scope strategy yet. Yeah. Timing is H1 of 2022, then we will come back with it.
Thank you very much. As all the questions are answered, then on behalf of Klaipėdos Nafta and Nasdaq Vilnius, thank you, everyone. It was our pleasure being with you today. Recording of the presentation will be available in the Nasdaq Baltic YouTube channel. Dear management, thank you very much for the presentation and the Q&A session. Have a good day, everyone, and goodbye.
Yeah. Thank you, Emilija, for smooth as always moderation of the event. Thank you for everybody who was participating. Have a nice day.