ESO's performance for the first quarter of 2020: business continuity ensured and the most powerful storm in two decades

AB Energijos Skirstymo Operatorius (hereinafter – the Company), code 304151376, registered office address Aguonų g. 24, Vilnius. The total number of ordinary registered shares issued by AB Energijos Skirstymo Operatorius is 894,630,333; ISIN code – LT0000130023.

Electricity and gas distribution company "Energijos Skirstymo Operatorius" (ESO), managed by the country's largest energy company group Ignitis grupė, UAB (Ignitis Group), completed the first quarter of 2020 with full business continuity, despite the quarantine-related challenges having arisen in March. ESO's revenue in the first quarter amounted to EUR 128.7 million, which is 10.3 % more than in the same period of 2019. Compared to the previous reporting period, ESO's revenue was positively impacted by an average 11% increase of the price of the electricity transmission service, which consists of the components of electricity transmission, distribution and public interest services (PIS), as approved by the regulatory authority.

 "The first quarter of 2020 is markedly different from any of the previous ones. The activities of many business sectors and companies operating in them have changed substantially and ESO is no exception. The COVID-19 pandemic affected not one particular sector or several sectors of the economy, but it had a much broader impact: the economy, health system, supply chains, consumption and other areas – essentially a part of the fundamentals that, when interlinked, affect each other as well. In any case, the operations of ESO, as an infrastructure company, must continue and have not stopped. Even during such periods, the distribution of electricity and gas must be secured, and supply interruptions must be restored in the shortest possible time,” says Mindaugas Keizeris, Chairman and CEO of ESO.

In parallel with the announcement of the quarantine, from 12 to 13 March, a storm Laura was raging in Lithuania. A hurricane-type wind reaching record velocity of 28-31 m/s left over 250 thousand residents without electricity, but thanks to mobilization of a record number of crews of ESO and contractors over 90% of the consequences of the storm were eliminated successfully and the electricity supply was restored in record time – mere two to three days. The last time a hurricane of such magnitude, known as Erwin, ravaged Lithuania was back in 2005. It is only that it took almost twice as long to complete the repairs of failures in the electricity distribution network back then. This time, to 42 % of the customers electricity supply was restored within the first 12 hours. After 48 hours, 90 % failures were eliminated meaning that the electricity supply was restored to almost 225 thousand households.

The main source of ESO's revenue continues to be electricity transmission, which accounted for 82.5 % of the Company's revenue. Gas distribution revenue amounted to 9.8 % of the total revenue. During the reporting period, adjusted EBITDA amounted to EUR 59.8 million (an increase of 8.7 % compared to the respective period of 2019); its growth is maintained by the Company's efficient operations and growing base of regulatory assets.

In the months of January through March of 2020, ESO connected more than 8,555 households to the electricity distribution network and remained at the same level as in 2019. The number of new customers connected to the natural gas distribution network decreased: in the first three months of 2020, 1,795 new customers were connected, which is 29,4 % less than in the same period of 2019 (2,543 customers).

Key indicators:

• ESO revenue in January-March of 2020 amounted to EUR 128.7 million, an increase of 10.3% over the same period of 2019. Revenue increased due to a higher level of regulated electricity transmission and distribution prices, compared to the months of January through March of 2019.

• Purchase costs of electricity, natural gas and related services in the three months of this year amounted to LTL 50.2 million and were 6.3 %. lower than at the same time in 2019. This was mainly due to a decrease of 45 % in the average purchase price of electricity. Despite the onset of the COVID-19 pandemic in 2020, the Company transmitted 2.53 TWh of electricity in the first quarter of 2020, which is only 0.39 % less than during the corresponding period in 2019.

• During the reporting period, the purchase costs of electricity, natural gas or related services as well as depreciation and amortization costs amounted to EUR 70.6 million, making up 73.7% of all the costs incurred by ESO. Operating costs in the months of January through March of 2020 amounted to EUR 24.3 million which is 0.9 % less than in the same period of 2019.

• In the months of January through March of 2019, ESO earned EUR 59.78 million in adjusted profit before interest, taxes, depreciation and amortization (adjusted EBITDA*) – an increase of 8.7% compared to the same period in 2019, when the figure was EUR 54.98 million.

• In the three months of this year, ESO's investments in electricity and natural gas distribution networks amounted to EUR 23.5 million which is 49.2 % less than in the corresponding period of 2019. The change in investment was mainly due to decrease in new customers connection fees and postponement of reconstruction works of electricity network objects to later periods.

• ESO owns about 126 thousand km of power lines, of which cable lines accounted for 31.4 % in the first quarter of 2020. It was 30.5 % in the first quarter meaning that the share of overhead lines decreased from 69.5 % in the first quarter of 2019 down to 68.6 % in the first quarter of 2020. In the months of January through March of 2020, the length of the gas pipeline network increased by almost 62 km up to total over 9.5 thousand km of gas distribution pipelines, compared to about 9 thousand km in the first quarter of 2019.

• Reliability indicators of electricity supply deteriorated significantly during the first quarter of the year. As storm LAURA, that raged in March 12-13 of 2020, had a material effect on such a significant deterioration in indicators. The SAIDI of the storm was 127.69 minutes (88 % of the value of the SAIDI indicator for the entire reporting period) and the SAIFI indicator was 0.2 times (42 % of the value of the SAIFI indicator for the entire reporting period). A hurricane of this magnitude, known as Erwin, was last recorded in Lithuania in 2005. Elimination of power outages was then completed only in two weeks' time. This time, more than 90 % of the effects of the storm were eliminated in record time – in mere two to three days.

• After elimination of the impact of the storm LAURA on electrical reliability indicators, in the months of January through March of 2020, a significant improvement in electricity supply reliability indicators compared to the same period of 2019 would be seen: the SAIDI indicator would reach 16.86 minutes and would be lower by 9.35 minutes compared to the same period in 2019 (26.21 minutes), whereas the SAIFI indicator would amount to 0.23 instances and would be lower by 0.12 instances compared to the same period of 2019 (0.35 instances).

• In the months of January through March of 2020, a significant improvement of the quality indicators of natural gas supply was seen compared to the period of January through March of 2019. Average duration of unscheduled gas transmission interruptions (SAIDI), with the impact of force majeure in the period of January – March 2020 accounted for, amounted to 0.05 minutes per customer and was lower by 0.16 minutes compared to the same period of 2019 (SAIDI was 0.21 minutes in January – March 2019). The main reason behind the improvement in these indicators is the supply disruptions to a smaller number of customers (135 customers) due to damage to gas pipelines of third parties than were recorded in the same reporting period of 2019 (484 customers).

Due to the impact of COVID-19

In assessing the potential impact of factors related to the COVID-19 pandemic on the Company's operations and performance, the Company's management assessed potential disruptions to cash flows, providing regulated services, attracting funding sources, potential reductions in electricity and gas consumption due to the economic slowdown, and the risk of COVID-19 infection of critical personnel and the risk of delays in ongoing projects. The assessment used all currently available information on the threats posed by COVID-19. It should be noted that the total impact of the COVID-19 pandemic on the Company's operations cannot yet be assessed, however, the Company's management did not identify any threats to the Company's business continuity when assessing the potential impact of key COVID-19-related factors on the Company's performance. The Company has taken steps to manage the emerging risks. The Company has developed and is implementing employee rotation and business continuity plans, first and foremost, in order to ensure the safety and health of employees and the continuity of electricity and gas distribution activities.

_{* The Company's EBITDA and net profit performance are presented after adjustments made by the management, eliminating the deviation of actual and regulated income and the effect of one-off factors. These adjustments are aimed at disclosing the performance of the Company's ordinary activities, excluding atypical, one-off factors or factors not directly related to the current period of operation. All adjustments made by management are disclosed in the Company's interim and annual reports.}

_{Additional information: Representative for Public Relations Tomas Kavaliauskas, , tel.}

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