Vilnius, Lithuania, 2014-10-09 08:44 CEST (GLOBE NEWSWIRE) -- In response to inquiries of market participants, AB Lietuvos Dujos (hereinafter - the Company) announces that the value of the natural gas supply activity to be transferred to UAB Lietuvos Duju Tiekimas with all the assets, rights and obligations attributed thereto (hereinafter - Part of Enterprise) was set based on forecasted results, market trends affecting this activity and the scope of assets and obligations to be transferred by this transaction rather than on historical indicators, which, upon changed market situation, would lead to inadequate conclusions.
Summary of evaluation assumptions of the Part of Enterprise
Gas volumes
Gas volumes sold are significantly decreasing in non-household customer sector due to the activities of the Liquefied Natural Gas Terminal, development of renewable energy sources and increasing competition in the supply market, which will lead to a respective decrease of revenues from the supply activity.
Retrospective discount
On 7 May 2014 Company entered into an agreement with the supplier of natural gas OAO Gazprom regarding a significant reduction in the price of natural gas imported by AB Lietuvos Dujos for the period from 1 January 2013 till 31 December 2015, according to which the formula of imported natural gas price for the Company was adjusted retrospectively for the period from 1 January 2013 till 31 March 2014.
This effect of the decrease of natural gas price temporarily improved the financial results of Half 1 of 2014. However, the price reduction effect does not essentially increase the value of the supply activity, because it is assumed that decisions on reducing natural gas prices to consumers in the future will be made.
The above mentioned retrospective effect of the reduction of import price in the sense of cash flows will be fully reached by the end of 2014. The assumption was also made, that received cash flows will be used for reducing customer prices during the period till the end of 2016.
Margins
It is estimated that supply activity segment to be sold will remain competitive in 2015 – 2016, applying usual sales margins for both household and non-household customers. However, starting from 2017, upon the end of the planned period for using the effect of the reduction of price, sales margins will decrease in non-household customer segment due to the planned sharp competition. Intense competition in the household customer segment is not planned due to high administrative costs. Therefore, sales margin in household consumer segment is forecasted to decrease only slightly.
Business value
When calculating the supply segment value, two cash flow scenarios were forecasted and two value components were determined: 1) regular supply activity value without a retrospective natural gas import price reduction effect; 2) the value of natural gas price reduction effect and the use thereof.
Having assessed market indicators and added a respective risk premium, the set WACC of the regular supply activity is equal to 11.69%.
The cash flow from the natural gas price reduction effect and the use thereof is discounted at a risk-free short-term rate of return. This cash flow is evaluated separately from regular cash flows, since this is a one-time effect without an element of business risk.
When calculating continuing business value, an assumption was made that in the long term, the supply activity segment and cash flow, normalized given the forecasted relevant market trends, will increase by 2.0%, This long-term growth rate includes both the increase of natural gas consumption with growing Lithuanian economy and a possible slight increase in margin.
Taking into consideration these assumptions, the price for the Part of Enterprise, determined in the draft sale-purchase agreement of the Part of Enterprise approved by the Board of Directors of the Company, is LTL 60 457 000 (sixty million four hundred fifty seven thousand litas) (EUR 17 509 557.46 (seventeen million five hundred and nine thousand five hundred fifty seven euro and forty six euro cents)). The ownership right to the Part of Enterprise shall transfer to UAB Lietuvos Duju Tiekimas on 31 October 2014.
The price for the Part of Enterprise corresponds to the market value of the Part of Enterprise determined by independent property assessors (UAB FMI Orion Securities and UAB APUS TURTAS).
It should be noted that the Part of Enterprise to be sold comprises only the assets and obligations, which will be necessary in the performance of future supply activity, i.e. LTL 338.5 million and LTL 328.5 million, respectively. Balance book value of net assets (the book value of equity) of the Part of Enterprise to be sold was equal to LTL 10 million as at 31 July 2014, meanwhile the balance book value of net assets of the supply activity was LTL 111 million as at 31 December 2013. That way, the majority of value created by the supply activity before the sale of the Part of Enterprise stays with AB Lietuvos Dujos.
The transfer of the Part of Enterprise is performed pursuant to the Action Plan of the Unbundling of the Natural Gas Distribution and Supply Activities of the Company coordinated with the National Control Commission for Prices and Energy.
Authorised person:
Jolita Butkienė
Officer of Strategic Development Division
Tel. +3705 236 01 35