Signify Health, Inc. Class A

Good afternoon, everyone, and welcome to Ignitus Group's full-year 2024 earnings call. Thank you for joining us today. I'm Ainari Pilgrim-Kavicina, Head of Investor Relations, and I will be moderating today's presentation. Our CEO and CFO will present the strategic and financial performance for 2024, followed by a question-and-answer session. Before we begin, please note that today's presentation contains forward-looking statements subject to risks and uncertainties. These statements reflect management current beliefs, expectations, and assumptions, and actual results may differ materially. With that, I would like to hand over to Darius to start with the strategic highlights.

Good afternoon, all. Welcome to our full year 2024 results call. In 2024, we once again delivered strong underlying results. Our adjusted EBITDA reached a record high of 527.9 million euros, representing 8.9% year-over-year increase and exceeding the top of the guidance range communicated to the market. Second, we have continued strategy delivery. Our green capacities portfolio increased by 0.8 gigawatts, reaching 8 gigawatts. Despite implementing a heavy investment program, we maintained our balance sheet strength with a net debt to adjusted EBITDA ratio of 3.05 times. And in turn, we continue our dividend commitment for 2024. We intend to pay 1.33 euros per share, representing 3.1% increase over the previous year. Now, let me take you through the development of each business segment over 2024. First, the progress of our largest business segment, green capacities. As already mentioned, our total portfolio increased to eight gigawatts in 2024. This growth is attributed to greenfield capacity additions of around 0.5 gigawatts and green connection capacity secured for our first best projects with a capacity of 290 megawatts in Lithuania. Next, we expanded our secured capacity by around 200 megawatts, reaching a total of 3.1 gigawatts. This includes Tume solar farm in Latvia, which has now reached the construction phase. Also, as we completed three projects, our installed capacity increased by around 100 megawatts to 1.4 gigawatts, as Silesia-1 wind farm in Poland, Vilnius HP biomass unit, and Taurage solar farm, both in Lithuania, has reached commercial operation date. Regarding the composition of our portfolio, it remains dominated by wind projects with a share of 5 gigawatts. most of the projects are being developed in Lithuania accounting for 4.5 gigawatts and flexibility parts the part remains a sizable part of our portfolio with a capacity of 1.4 gigawatts next an update on our project execution since the earnings call of our nine months results we have successfully completed the construction works at our 137 MW Silesia II wind farm in Poland, both on time and within the budget, with all turbines erected, installed, and operational. As planned, the project supplied first power to the grid, reached partial operation with an operational cap of 70 MW in Q4 2024, and has been generating revenue since then, limiting the financial impact. However, due to delays in reinforcing the grid, which are beyond our control, we now expect the wind farm to reach full operational and capacity COD in H2 2025. Previously, it was expected to have in the first quarter 2025. Next, at our 300 megawatt Kermie wind farm under construction in Lithuania, which is also the largest wind farm in Baltics, we have supplied first power to the grid. By now, all 44 turbines have been successfully erected. Finally, let me provide an update on offshore wind development. First, regarding Lithuania's second 700 megawatts offshore wind project CFD tender. In October 2024, we took decisions to participate in Lithuania's second 700 megawatt offshore wind tender and seek partners. In January 2025, the tender has been temporarily suspended with the tender expected to be relaunched in due course and the winner awarded in second half of 2025. We will make the decision whether to participate in the relaunched tender when we will know the conditions of it. Second, on 700 megawatt Koronia Nord project in Lithuania, the project has been developing according to the plan until now. We expect to make a final investment decision after completion of the development and obtaining construction permit in 2027. However, as a result of large-scale electrolysis projects being delayed across Europe, including Baltics, possibilities to secure a long-term power offtake have reduced. Combined with challenges in the current offshore wind supply chain environment, financing of that project may become challenging as we approach FAD in 2027. As a result, there might be a need to delay the project COD until there is more visibility on the electrolysis demand and or the interconnector with Germany. We will continue to monitor the market developments and will update our plans accordingly. And lastly, on one gigawatt Libby project in Estonia, we are exploring opportunities to participate in potential CFD tender. Let me now move to our second largest business segment, networks. There are three major updates. To begin, the regulator has approved our 3.5 billion euros 10-year investment plan for distribution networks, extending up to 2033. This marks a 40% increase in investments compared to the previous submitted plan. Next, the regulator has also set the 2025 tariffs, including the regulated asset base at 1.8 billion euros. The weighted average cost of capital at 5.79% and the additional tariff component at 37.5 million euros. Finally, we are successfully continuing rollout of smart meters. The total number of installed smart meters has exceeded 1 million and we remain on track to complete the mass rollout by 2026. To that, let me now turn to our customers and solutions business segment. Over 2024, we focused on building a leading fast charging EV network in Baltics, successfully tripling the number of installed charging points to a total of 1,091 units. Also, after the reporting period, the European Climate Infrastructure and Environment Executive Agency announced the funding results of the first cutoff date for the alternative fuels infrastructure facility call for proposals. Over 297 million will be allocated to major charge point operations across Europe. We are among top six players for potentially funding with the receipt of 16 million euros. Now, let me cover the last business segment, reserve capacity. The key highlight of the segment is our successful contribution to regional energy security by participating in synchronization of Baltic electricity grid with continental Europe on 9th February. With our progress on business segments in 2024 covered, I would like now to highlight the progress we made in driving our decarbonization initiatives. In 2024, we increased our net green electricity generated by 30.9% year-over-year to 2.3 terawatt-hours, driven by new green capacity assets such as Mazeike and the first Silesia wind farms, as well as Vilnius HP biomass unit. On the other hand, our green share of generation decreased by 3.5 percentage points to 81.5%. due to the proportionally higher electricity generation of our reserve capacity assets, electricity complex. Looking into our greenhouse gas emissions, our total greenhouse gas emissions based on the updated accounting methodology amounted to 4.05 million tons of CO2 equivalent, marking a 7.2% decrease year over year. Notably, we achieved a significant 35.6% reduction in Scope 2 emissions and 8.3% decrease in Scope 3 emissions. However, our Scope 1 emissions rose by 14.8% due to increased energy production. Next on the safety. In 2024, no fatal incidents were recorded. Employee and contractor total recordable injury rates stood at 1.12 and 0.84 respectively, both below the targeted level. That concludes the strategic performance review. I will now pass it over to Jonas for financial update.

Thank you, Darys. Let me start with 2024 guidance achievement update. We have again delivered strong results. Our adjusted EBITDA in 2024 reached 527.9 million euros and exceeded the top range of our guidance. To remind you, our latest guidance was between 480 and 500 million euros, and we published it in November last year. Guidance output performance was driven by two segments, green capacities and reserve capacities. In green capacity segment, we saw higher than expected volumes generated in our onshore wind farms. And in reserve capacity segment, we managed to capture higher than expected electricity prices. Regarding 2024 investments, the amount is to 812 million euros, and we're in line with our guidance. Investments remained at historically high level, as we invested 42% more than the average investments of the last five years. Now let's turn to the further financial highlights of the year. Adjusted EBITDA grew by 8.9% year-over-year and reached 527.9 million, driven by better results in green capacities and network segments. Adjusted net profit decreased by 3.2% 277.5 million euros, mainly due to higher interest expenses. Investments remain at historically high levels, while the return on capital employed decreased by 0.8 percentage points to 9%, driven by the lag between the deployment of capital in investments and the subsequent realization of returns. Our leverage metrics remain strong with FFO to Net Depth at 29.7% and Net Depth to Adjusted EBITDA at 3.1 times. Additionally, S&P has reaffirmed the group's BBB Plus credit rating with a stable outlook, which is in line with our commitment to maintain a solid investment grade credit rating of BBB or above over a four-year strategic period. Finally, following our dividend commitment for 2024, we intend to distribute a dividend of 1.33 euros per share, which is 3% higher than last year and indicates a dividend yield of above 6%. Let us now take a deeper dive into each of our main KPIs. Starting with adjusted EBITDA. Firstly, green capacities EBITDA grew by 17.9%. to 262.4 million euros as a result of new asset launches and higher captured electricity prices due to flexibility of our assets. Secondly, network EBITDA grew as well by 22.2% and reached 219.9 million euros, mainly due to higher RAB as a result of continued investments into our electricity network. and higher regulatory WAC, which reflects higher interest rate environment. Thirdly, the reserve capacity is generated 32 million euros of EBITDA, which is lower by 7.9 million euros compared to the last year. And the decrease is related to extraordinary conditions during Q1 and Q4 of 2023. Finally, our customers and solutions segment Its EBITDA was lowered by 23.3 million euros and fell to 7.1 million euros. The decrease was driven by lower B2B natural gas supply results, which was partly offset by lower losses from B2C electricity supply activities and better B2B electricity results in Poland. Next, let's take a closer look at the EBITDA performance of each segment. Starting from green capacities, It remains the largest contributor to the group suggested EBITDA contributing for almost 50% of the total. The main drivers behind 17.9% growth year-over-year were these. Firstly, the launch of new assets. We have launched three new assets in 2024. Telesia-1 wind farm, Tauragea solar farm, and Vilnius CHP biomass unit. On top of that, Kelma Wind Farm and Silesia II Wind Farm supplied first power to the grid. Second main reason for growth was higher captured electricity prices, mainly due to flexibility of our assets. Next, let's move to the network segment. The key drivers behind the growth in networks adjusted EBITDA were higher regulated asset base, which grew by 10.8% from 1.4 to 1.6 billion euros due to continued investment in electricity network and an increase in WAC set by regulator rising from 4.1% in 2023 to 5.1% in 2024 driven by higher interest rate environment. It's important to note that the tariffs for 2025 are already set and include a 13.3% increase in RAB reaching 1.8 billion euros and a WAC increase to 5.8%. Next, reserve capacity segment. We achieved strong performance in both 2024 and 2023. However, the results fell by 15.8% totaling 42 million euros. This decline was due to lower market premium earned which is related to extraordinary market conditions in Q1 and Q4 of 2023. Lastly, customers and solutions adjusted EBITDA was lowered by 23.3 million euros year-over-year and amounted to 7.1 million euros. The decrease was driven by lower B2B natural gas supply results, mainly due to inventory write-down reversal in 2023. However, it was partly upset by lower loss from B2C electricity supply activities and better B2B electricity supply results in Poland. Next, let's take a look at our investments. Our investments amounted to 812 million euros, maintaining historically high levels, which are 42% higher than the average over the last five years. even despite a year-over-year decrease of 13.3%. 53.5% of our investments were made in the green capacity segment and 41.5% in the network segment. Green capacities investments reached $434.5 million, reflecting a 19.9% decrease. This decline is mainly due to the successful completion of several major projects Silesia 1 and 2 wind farms, and Vilnius CHP biomass unit. In 2024, the major parts of investments were dedicated to Kelme wind farm in Lithuania and solar farms in Latvia. In the network segment, we invested 337 million euros, primarily focused on the expansion and maintenance of the electricity network. Year-on-year investments declined by 2.8%, mainly due to smart meter installation project approaching completion. Moving on to our net working capital numbers, it has decreased by 41.4% since December of 2023 and by 11.7% since September 2024 and reached 102.6 million euros by the end of the year. The main drivers behind the lower net working capital were higher trade receivables, mainly due to increased balance of trade financing facilities used for purchasing natural gas, and lower inventories due to lower volume of natural gas stored. However, it was partly upset by higher trade receivables. Adding it all together, our free cash flow metric amounted to minus 193.9 million euros, mainly as a result of investments exceeding EBITDA. Regarding the leverage metrics, our net debt increased by 22.4% year over year and reached 1.6 billion euros at the end of 2024. Our main credit metric SFO to net debt improved to 29.7%, significantly above 23% threshold required by S&P for a BBB plus credit rating. Net debt adjusted EBITDA increased from 2.7 times to 3.1 times. And finally, our guidance for this year. We expect our 2025 adjusted EBITDA to be in the range of 500 and 540 million euros. We anticipate growth in three of our four segments, green capacities, networks, and reserve capacities. In the green capacity segment, growth is expected to be driven by new projects with more than 700 megawatts reaching COD in 2025. These projects include Kelma Wind Farm, Silesia Wind Farm 2, Stelpe Solar Farm, Barme Solar Farm, and the Polish Solar Portfolio. In the network segment, we anticipate an increase in results due to higher RAP driven by continued investments and approved higher WAC reflecting higher market interest rates. In the reserve capacity segment, we expect higher results due to anticipated increases in electricity generation volumes from new services provided. And finally, we expect lower results in customers and solutions segment, driven by further negative results in B2C electricity supply, including adverse prosumer effects under the current net metering scheme. In terms of investment guidance for 2025, We expect investments to be in the range of 700 to 900 million euros. In green capacity segment, the main investments will be made in Kelme wind farm and Kronisk pump storage expansion projects in Lithuania, as well as Varme and Tume solar farms in Latvia. In the network segment, investments will be focused on electricity network, both maintenance and expansion. With that, I will hand over to Darius to conclude our presentation.

Thank you, Jonas. Let me summarize Signitus Group's performance for the full year of 2024. In 2024, we once again delivered strong underlying results. Our adjusted EBITDA reached a record high of 527.9 million euros, representing 8.9% year-over-year increase and exceeding the top of our guidance range communicated to the market. Second, we have continued strategy delivery. Our green capacities portfolio increased by 0.8 gigawatts, reaching 8 gigawatts. Despite implementing a heavy investment program, we maintained our balance sheet strength with a net depth to adjusted EBITDA ratio of 3.05 times. In turn, we are continuing dividend commitment for 2024. We intend to pay 1.3 euros per share, representing 3.1% increase over the previous year. And for 2025, we expect adjusted EBITDA of 500 to 540 million euros and investments of 700 to 900 million euros. With that, I would like to thank you for your time and attention today.

Thank you to our speakers. We will now open the floor for questions. The first question is, can you enlighten more about customers and solutions significantly worse result? Should this continue in 2025?

Yes, so year on year decline in customers and solutions is driven by by multiple factors. Firstly, natural gas results have normalized from above usual levels, which we earned over the last few years. And secondly, B2C electricity remained loss-making, in part due to prosumer's negative effect under the current net metering scheme. In terms of 2025, as provided in the guidance, we expect customers and solutions EBITDA to be lower than in 2024. And that is again mainly due to a prosumer's impact and a higher price purchase contract, which will expire in 2025. Next question.

Do you see Baltic States synchronization project as positive or negative indicator for Ignitus future financial result?

So from our perspective and in general from the market's perspective, synchronization brings additional ancillary services to the market, which means that it is a positive development for flexibility investments such as batteries.

Following question, Silesia-1 of 50 megawatt capacity project produced only 30 gigawatt hours in Q4, while Pomerania with 94 megawatt capacity produced 95 gigawatt hours. Is Silesia-1 producing at full scale? Why there is such a difference in production from one megawatt installed?

So Pomerania and Silesia, these two projects have have different capacity factors. So Pomerania has a substantially higher capacity factor due to its geographic location. Silesia, which is more in the southern part of Poland, has lower capacity factor. So that is one effect. And the second reason is that Silesia 1 is still in the first year of operations, and naturally availability factor is slightly lower than of the wind farms which operate for multiple years. So these two factors, you know, capacity factors and availability, and availability due to the first year of operations explain the difference.

One more question. KELMA-1 and KELMA-2 projects are already 100% built. Are all turbines already producing?

Not yet. Not all the turbines are producing at the same time. So it is still a testing period in both Kelme 1 and Kelme 2 wind farms. COD hasn't been reached for neither of them. So it's a testing period. So it's not yet the full generation period for these two wind farms.

Let us address the following question. Can you specify the challenges and financial difficulties which may delay the Coronia Nord project COD? Is it only delays in electrolysis projects or also difficulties in obtaining bank loans?

So I can just confirm that it's both. It's both the delay in electrolysis projects and the interrelated outcome of that is is difficulties on financing side.

The following question. When should we expect the first electricity produced in Latvia solar parks?

So in terms of solar parks in Latvia, so our Stelpe and Varma projects are expected to be completed this year, so to reach COD this year. So depending on the amount of sun which we will have towards the end of the year, we will see how much we generate this year. But the majority of solar generation will come already in 2026, not 2025.

Following question. Do you anticipate to get state support subsidy for BEST project or will you run it on market terms?

So we will be looking into the Lithuanian tenders which have been announced for BESS, and we are also exploring BESS support schemes in other markets as well.

The next question. What are some of the key risks you see this year that could possibly delay your adjusted EBITDA guidance and in which business division are these risks present?

Yeah, so in terms of EBITDA guidance, the main sensitivity factors which we have are the same as usual. So these are captured power prices, and generation volumes across our green capacities and reserve capacity segments. These two are the main ones. We think we are controlling them quite well with high hedging levels and proper maintenance in place for our operational project. I mean, yes, these are the two risks which could deliver guidance, but we are quite confident in the guidance range which we have provided.

Next question. What is the key features you will increase to increase the overall performance?

In terms of our overall performance, the key things for us are in our two main segments. It's on the network side and on the green capacity side. On the network side, we will continue with our investment program as planned. On the green capacity side, Uh, as well, the main drivers will be the new asset launches, uh, which we will have this year. And, uh, in this case scenario, we foresee 700 megawatts of new, uh, projects, uh, reaching COD, uh, this year. So that will be the, those two segments will be the key drivers, uh, for our results, uh, this year.

Here is another question. In your strategic plan, investment into green capacities were planned in the range of 1.8 to 2.4 billion euros in 2024-2027. Do you plan lower figures now bearing in mind the late electrolysis projects in Europe?

The short answer is no. still are confident in the range we have provided, and the projects which we have already in our pipeline should fall within the range which is communicated in the latest strategic plan.

Next question. When do you plan to sell MORI West offshore wind investment?

Yes. Minority stake is a non-core asset for us. So the most likely scenario is that when the majority shareholder of that project would decide to sell part of its stake or full stake, we would join them in that process.

We have one more question. Could you comment on wind discount in Q4 2024 compared to Q3 2024 and what have you forecasted for this year?

So in terms of wind discounts, the capture rate discounts for wind, we have It depends quite a bit on each individual wind farm and its location. So what we see that in our geographies, the range which we saw last year was between 10 and 20% of the capture rate discount. And we expect similar levels for the next year. And that is what we included in our guidance numbers.

As we have no further questions, this concludes our full year 2024 earnings call. For follow-up questions, please contact our investor relations team. Thank you for joining us today, and we look forward to our next earnings call.