2019

Annual report and social responsibility report

Consolidated annual report, consolidated and the Company's financial statements for the year ended 31 December 2019, Prepared according to International Financial Reporting Standards as adopted by the European Union, presented together with the independent auditor's report

Overview	3
Business model	11
Results	21
Operating segments	40
Corporate governance	50
People and culture	71
Social responsibility	83
Annexes	93
Consolidated and the Company's financial statements	112

Overview

Management's foreword	4
Ignitis Group – creating an Energy Smart world!	5
2019 – year of transformation	6
Performance highlights	7
Targets and results	9
Most significant events	10

➔ Contents

Management's foreword

Dear Customers, Partners, Employees, Shareholders,

2019 was a year of tremendous change and transformation. After brand consolidation, in September we became an international energy company Ignitis Group.

The new name marks the beginning of a new phase in the Group's readiness to meet its 2030 goals and focus on sustainable and environmentally friendly development in the international marketplace, ensuring high quality customer service and operating efficiency.

We feel being responsible in a world facing the challenges of climate change and understand that the energy of the future is inseparable from decarbonisation. We demonstrated this not just by making statements but by taking real actions. 472 million Eur, our of the 600 million Eur raised through the issue of green bonds, were invested to Green Generation projects. These Investments create not only economic value but also environmental benefits for Lithuania. In addition, in December 2019 we became the first company from the Baltic States and Poland to join the "Business Ambition for 1.5°C" initiative of the United Nations and other international organisations. In this way, we committed by 2050 to reduce net carbon dioxide (CO2) emissions to zero.

In the previous year, we continued to set for ourselves ambitious goals to increase our income outside Lithuania and expand our services abroad. The results of 2019 revealed that these goals are gradually becoming a reality: Group's sales from abroad grew more than 25%. This is evidence that the Group became a serious market player on the international scale.

However, further Investments are needed to preserve current and further expansion. With the aim to invest approx. EUR 6bn over the next decade, long-term financing alternatives is being assessed. One of which – Ignitis Group initial public offering (IPO). The first steps towards this ambition have already been taken: delisting process of Ignitis Gamyba and ESO has been initiated, Ministry of Finance assigned the company to be prepared for the IPO by autumn, 2020.

Had it not been for the highest standards of governance and transparency, which are an integral part of the Group's activities, the set goals would not have been achieved. We are excited to have them appraised in 2019 by the Governance Coordination Centre, where Ignitis Group was raked as number one in the Good Corporate Governance Index published by this centre.

The beginning of 2020 started with challenges related to COVID-19 epidemic and quarantine which affected everyone. The Group had to react instantly to make sure that health of the employees and business continuation would be ensured. During this current period, more than half of the Group's employees are working from home whereas other employees' health is ensured at maximum. At the same time, we are already thinking what steps must be taken to cope with the crisis and how we can help to our financially affected customers. The dedicated team is already working on this and I personally believe that the situation will be managed well. The most important thing is to stay healthy and continue to create value for Lithuania.

While focusing on the Energy Smart world, our aim is to create value for Lithuania, we are committed to continuously working towards a more transparent and effective outcome.

Darius Maikštėnas Chairman of the Board and the CEO UAB "Ignitis grupė"

➔ Contents

Ignitis Group – creating an Energy Smart world!

The international energy company Ignitis Group is one of the largest energy groups in the Baltic region.

The Group companies generate, distribute and supply energy, as well as develop new green generation capacities and Energy Smart solutions.

We operate in Lithuania, Latvia, Estonia, Poland and Finland. Group Innovation fund has invested in energy start-ups based in the UK, Israel, Norway and France.

The Ministry of Finance of the Republic of Lithuania is the sole shareholder of the Company.

2019 – year of transformation

After the Group had announced its strategy for 2030 in 2018, former Lietuvos energija outlined clear lines of action plan. 2019 was another year focusing towards sustainable development and global recognition.

In 2019, a team of Group leaders and communication specialists refined and agreed the overall positioning of the Group. The outcome of the in-depth analysis, i.e. strategic positioning of Energy Smart, has become the basis for both a radical change of the Group's name and development of a new brand and its visual identity.

A wording Energy Smart encodes the essence of the Group's Strategy 2030: focus on real energy. The energy as it was seen by the pioneers of Elektra, AB back in the 1940s, who set an ambition to create a value for Lithuania. Energy Smart is about creating value by disposing activities that are not typical for an energy company and focusing on what we do best.

Energy Smart, as the Group's transformation, is a reflection of energy resilience. It encompasses a wide range of energy activities: production, distribution, supply and customer care. Only now is it green, smart and open.

Such is Ignitis Group that creates the Energy Smart world. Ensuring national strategic energy needs while rapidly developing Green Generation. Opening to innovations, competition and changes. Enabling new technologies to become platforms for innovative solutions accessible to everyone. Offering a wide range of energy services and solutions and helping customers become Energy Smart.

"Transformation of energy sector from a monopolistic towards competitive, led by empowerment of consumers choices, is one of the historic changes.

Together with the industry changes, we repositioned ourselves to ensure a successful continuation of our work on sustainable development and global recognition."

Darius Maikštėnas

Performance highlights

Profits and returns*

Adjusted EBITDA APM EURm

300

Adjusted EBITDA increased by 17.3%, mainly as a result of continued Investments in distribution networks, expansion in Green Generation segment, and efficient use of Kruonis PSHP.

Net profit, Adjusted net profit APM

Adjusted net profit increased by 7.1% driven by growth in Adjusted EBITDA.

Adjusted ROE reached 8.0% and exceeded the target of 6.6%.

Cash flow and balance sheet*

EURm 736.0 966.5 200 400 600 800 1000 1200

Net debt APM

FFO/Net debt APM %

ROE, Adjusted ROE APM

-2

Net debt increased by 31.3% driven by Investments. FFO / Net debt improved from 17.8% to 19.3%, as FFO growth outpaced that of Net Debt.

Investments remained stable at relatively high levels, as we continued the construction of two co-generation plants and renewal of electricity distribution network, as well as started building our first wind farm in Poland.

* Because of the restatement of the 2018 Financial Statements, performance indicators presented here (and throughout this report) for 2018 might differ from those presented in the 2018 Annual Report. Changes of the financial statements of 2018 are disclosed in the 2019 Financial Statements Notes 4.26 and 4.27 and changes of operating segments in Note 42. In case of a change of calculation of APM in 2019, measures of 2018 were recalculated as to calculation of 2019. Calculation of Adjusted EBITDA and Adjusted net profit was changed (please find more information in the Adjusted EBITDA and Adjusted net profit sections of the report).

2018 2019

APM Alternative Performance Measure - Adjusted figures used in this report refer to measures used for internal performance management. As such, they are not defined or specified under International Financial Reporting Standards (IFRS), nor do they comply with IFRS requirements. Descriptions of Alternative Performance Measures are presented on page 37.

Sustainable development

Green share of generation

Green share of generation grew by 4.6% due to increase of electricity generated from wind farms and Kruonis PSHP, and decrease from gas

Green electricity generated TWh 0.94 1.04 0 0.2 0.4 0.6 0.8 1 1.2 2018 2019

Green electricity generated increased by 10.6% which was mainly due to the acquisition of two wind farms in Lithuania (total capacity of 34 MW), better wind conditions, and higher generation at Kruonis PSHP.

Our Green Generation portfolio grew by 94MW, or 7.5% as a result of acquisition and beginning of construction of our first wind farm in Poland. Installed capacity remained unchanged.

SOEs Good Corporate Governance Index

Quality and efficiency Social Governance

fired Elektrėnai Complex.

Decrease in electricity and gas quality indicators was mainly caused by external factors resulting in network interruptions and medium voltage grid breakdowns.

From 2019 the Group started to monitor eNPS, which improved from 9% in Q1 to 29% in Q4.

Group is Lithuania's governance index leader since 2017. The monitoring and recognition is assigned by the Governance Coordination Centre.

Targets and results

Group strategy is based on three core priorities: sustainable development, quality and efficiency, and transparency. In 2019, Group focused its efforts towards increasing the Group's value by implementing strategic projects: digitalization of the distribution network, Green Generation expansion, including development of waste-to energy and biomass CHP plants in Vilnius and Kaunas, and wind farms in Lithuania and Poland, consolidation of Customers and Solutions segment, as well as creation of innovative services and products.

0
SUSTAINABLE DEVELOPMENT	Annual targets for 2019	Guidance for 2019	Actual 2019 results
Financial	Group Adjusted EBITDA APM	235–240 million Eur	260 million Eur*
Create value for shareholders	Group Adjusted return on equity APM	> 6.6%	8.0%
Green Generation Increase installed capacity	Implement the Group's strategic projects to build cogeneration plants in Vilnius and Kaunas.	Construction of Vilnius and Kaunas CHPs	Kaunas CHP project implemented as per plan, Vilnius CHP project - with minor delays.
	Develop and acquire new Green Generation capacity	Start the development of > 150 MW Green Generation capacity	Development of 157 MW of Green Generation capacity was started: 94MW onshore wind in Poland and 63 MW onshore wind in Lithuania
Customers and solutions Consolidation and rebranding	Consolidate Group's commercial operations and create a strong Customers and Solutions organization that is ready for international expansion	September 2019	Customers and Solutions integrated (July 2019) and new Ignitis brand introduced as planned (September 2019)
Innovative products and services	Create innovative services and products and thus develop the Group's competitive advantages to enable international expansion	October 2019	Virtual prosumers platform launched successfully and on time (October 2019)
Flexible Generation Stability of the energy system	-	-	-
QUALITY AND EFFICIENCY	Annual targets for 2019	Guidance for 2019	Actual 2019 results
Networks Digitalization of distribution network	Implementation of smart meter program and data exchange project	December 2019	Smart meter program and data exchange project* implemented as planned
People and Culture Employee experience	Improve the experience of Ignitis Group employees	Q4 > Q1 2019	Employee Net Promoter Score (eNPS) improved: Q4 2019 (26%) vs. Q1 2019 (9%)
Quality Customer experience	-	-	-
TRANSPARENCY	Annual targets for 2019	Guidance for 2019	Actual 2019 results
Transparency Compliance to the highest transparency standards (in relation to partners and investors)	-	-	SOEs Good Corporate Governance index****: A+ (the highest rate) 2018 – 2019
Annual targets for 2018 are not disclosed due to lack of comparability.

* Investment rating maintained.

** Implementation of smart metering system in Lithuania;

*** Data collection and exchange platform project;

**** SOE Good Corporate Governance index, which is compiled based on legal acts, recommendations of the OECD, other international organisations, Nasdaq Corporate Governance Code and other relevant documents.

Most significant events

During the reporting period (2019) After the reporting period (2020)

Q1

− ESO updated its business strategy. The main goal of ESO is to ensure reliable, effective and smart grid that enables further market development and the best customer experience.
− Based on the opinion of the Company's Supervisory Board, the Board of the Company nominated Rimgaudas Kalvaitis as the CEO of Ignitis Gamyba.
− Ignitis Renewables CEO has been appointed to be Aleksandr Spiridonov.
− Darius Montvila was elected as the head of the prospective Customers and Solutions segment company Ignitis, which started its activities after the merge of Lietuvos Energijos Tiekimas and Energijos Tiekimas.

Q2

− In May, Ignitis Renewables acquired 100% shares of Pomerania, the company developing 94 megawatt (MW) capacity wind farm project in Poland.
− The test of Lithuanian energy system recovery after the total accident and isolated operation of a part of the system was successfully completed in the power plants managed by Ignitis Gamyba – in Kruonis PSP, Kaunas HPP and in the combined cycle block in Elektrėnai.
− The merger of Lietuvos Energijos Tiekimas and Energijos Tiekimas (now "Ignitis") was finalised.

Q3

− The Supervisory Board of ESO approved the updated ESO 10 year Investment plan. By 2028 ESO will invest EUR 1,83bn in increasing network resilience and security, deploying smart solutions, improving customer experience, and promoting the market of services providing a level playing field for all market participants.

− Ignitis Group Innovation Center has started to publish open datasets. In the first phase, the data sets provided by ESO have been made published.
− Lietuvos energija changed its legal name and brand to Ignitis Group. The legal name of Lietuvos energijos tiekimas was changed to Ignitis, Lietuvos energijos gamyba to Ignitis Gamyba, and Lietuvos energija renewables to Ignitis Renewables. In international markets, the group operates under the Ignitis brand.

Q4

− The world's first nationwide platform Saulės Parkai, available throughout the country, started its activity on 1 October. It is easily accessible to residents willing to use renewable solar energy in their homes. Part of a remote solar power plant can be acquired or leased through this platform.
− The first 50 Ignitis ON charging stations for electric vehicles were launched in Vilnius.
− Management of the Company made a decision to initiate delisting of Ignitis Gamyba and ESO procedures.
− The Ministry of Finance formed a working group to assess Group's the long-term financing alternatives, including the Company's initial public offering (IPO).
− The Company joined the initiative of the United Nations and other international organizations 'Business Ambition for 1.5°C'. The Company is committed to reduce net carbon dioxide (CO2) emissions to zero by 2050.
− Ignitis Gamyba won the auction of the tertiary active power reserve, announced by LITGRID, and will ensure the tertiary active power reserve in the full scope of 475 MW.
− At the beginning of January, Ignitis entered the Finnish market, becoming one of the first independent gas suppliers in the country and concurred a market leader position.
− In January, Group sold the last real estate objects offered in auction.
− In January, Ignitis Gamyba started the installation of the largest 3 MW solar power plant in the Baltic States.
− In February, the first heat produced from waste by Kaunas CHP reached Kaunas households.
− In February, working group formed by Ministry of Finance, provided a recommendation to the Company to prepare for IPO by autumn, 2020.
− In March, European Investment Bank (EIB) allocated 60 million EUR for development of the first Group wind farm in Poland.
− During the extreme situation due to Covid-19, Ignitis do not apply self-service system service fees, customer service centres are temporarily closed, preferential payment terms are applied to the customers affected by the quarantine.
− In March, an agreement between the Company and minority shareholders of ESO and Ignitis Gamyba have been reached on the delisting of shares and the claims have been withdrawn.
− Government of the Republic of Lithuania approved the conversion of Ignitis Grupė from a private limited liability company (UAB) into a public limited liability company (AB) and also agreed that the share capital of the public limited liability company shall be increased by additional contributions by issuing new ordinary registered uncertificated shares.
− The Articles of Association of the Company have been amended – number of Supervisory Board members have been increased from 5 to 7.
− Circulars of ESO and Ignitis Gamyba official tender offers have been approved. End date of official tender offers are 22 April 2020 (inclusive).

Business model

Activities of the Group 12 Strategy 14 Business environment 17 Securities of the Group 20

2019 annual report erview | 11

Activities of the Group

The Group is engaged in the energy generation, distribution and supply, and the development of Energy Smart solutions within Baltic region.

In order to focus on value-creating activities and their sustainable development, the Group aims to reduce non-core activities by divesting or closing them.

Majority of Group's Investments are aimed at the reduction of carbon dioxide emissions. The Group has issued green bonds with a total face value of EUR 600 million. Proceeds of the green bonds are being used for a number of projects which are expected to reduce carbon emissions by 700,000 tons every year.

Approximately 3,800 employees work in the Group.

➔ Contents

* The color structure in the picture reflects companies' assignment to a particular business segment (according to the information on page 13 et seq. in this report).

** This composition of the Supervisory Board is valid from April 8, 2020, when the updated Articles of Association of the Company were registered. In 2019 the Supervisory Board had 5 members: 2 shareholder representatives and 3 independent members..

CEO.

CEO

Strategy

As a basis for activities, Group follows its Strategy 2030 approved in 2018, combining extensive experience, innovations and openness to the world while ensuring national energy independence.

Mission – to create an Energy Smart world.

Vision – a globally competitive energy company creating value for Lithuania.

Values – guidelines in both day-to-day operations and implementation of strategic changes (values detailed on the right).

Strategic priorities and perspectives

The implementation of the Strategy 2030 focuses on sustainable development, quality and efficiency, and transparency. The Group pursues these priorities having in mind the perspectives of People and Organization, and Finance.

Markets

In 2019, the Group was present in the markets of Lithuania, Latvia, Estonia and Poland, and from 2020 - Finland. Both short-term and long-term strategic goals focus on further international development, primarily in the Green Generation segment, but also in Customers and Solutions segment.

Group priorities and prospects for 2030

Corporate values of the Group

2. Quality and efficiency 3. Transparency 1. Sustainable development Improving customer experience, increasing Maintaining the highest standards of Expanding green generation capacity, quality of services, automating/robotising transparency with investors and partners. driving innovations and new energy processes and increasing operational solutions, expanding internationally. efficiency. Ensuring stable Return on	Priorities

		capital.

Perspectives

People and organisation: We are different and therefore strong. We think and act globally. We are proud to be creating future energy ourselves.

Finance: Creation of long-term value for shareholders. Efficient use of Group financial capability for international development through the most competitive capital market instruments. Consistent implementation of dividend policy. Safe credit risk management.

Segments

Networks

The core activities of Networks segment is to operate, maintain, manage and develop electricity and gas distribution networks and to ensure the safe and reliable operation, as well as guaranteed electricity and gas supply.

Strategic goals:

− We continuously invest to modernize our distribution network to ensure its stability, reliability and energy efficiency
− We enable energy transition and evolution:
- − renewable energy expansion (by facilitating grid connections and empowering prosumers and decentralised generation),
- − innovations (through sandboxes for start-ups and ensuring grid capacity for EV networks)
- − energy market efficiency (through smart meter roll out and creation of data hub).

Green Generation

The Green Generation portfolio consists of 1.1 GW of total installed capacity. This includes four operating wind farms in Lithuania and Estonia with a total installed capacity of 76MW, and two hydro powerplants: Kruonis PSHP (900MW) and Kaunas HPP (101MW) in Lithuania.

In addition to operating assets, our Green Generation portfolio contains projects with additional 273 MW of electrical capacity and 299 MW of thermal capacity under construction or under development. These are two wind farms, one in Poland (94 MW) and one in Lithuania (63 MW) and two waste-to-energy/biomass CHP plants in Lithuania: Vilnius (92 MW electric, 229 MW heat) and Kaunas (24 MW electric, 70 MW heat).

Strategic goals:

− We target to reach 3000 MW (excluding hydro assets) of installed Green Generation capacity by 2030.

Customers and Solutions

Activities of Customers and Solutions segment include electricity and gas supply, trading and balancing, energy efficiency projects, construction of solar power plants for businesses and residents, installation and operation of electric vehicle charging stations, energy solutions (gas boilers, heat pumps). Our Customers and Solutions business is active in Latvia, Estonia, Finland and Poland.

Strategic goals:

− We scale our core energy supply & trading business and complement it with innovative new energy solutions and platforms (community solar, EV's, prosumers, etc.)
− We invest and innovate together with our partners to make our solutions more Energy Smart.
− Increasing our brand awareness regionally.

Flexible Generation

Flexible Generation segment operates the largest electricity generation capacity in Lithuania, 1055 MW Elektrėnai Complex. Facilities of Elektrėnai Complex provide system services and ensure stability of Lithuania's electricity system.

Strategic goals:

− We aim to ensure stability, flexibility and high reliability of Lithuania's electricity system.
− We aim to contribute to the synchronization of the Baltic states with Continental Europe networks by maintaining, modernizing and developing local reliable electricity generation facilities.

Group priorities for the period of 2020–2022

− Expansion of Green Generation portfolio:
- − Completion of construction and start of operations of Kaunas and Vilnius waste-to-energy and biomass CHPs, Pomerania wind farm in Poland, and Mažeikiai wind farm in Lithuania.
- − Addition of new projects to the portfolio.
− Increasing quality and efficiency of distribution activities: implementation of digitalization projects, implementation of measures to improve service quality and customer satisfaction, preparation for the new regulatory period of electricity distribution network.
− Growth and development of new energy solutions in the Customers and Solutions segment. Positioning of Ignitis brand in Lithuania and abroad. Preparation for the deregulation of the electricity B2C market in Lithuania.
− Preparation for the capacity auctions in Lithuania.
− Increasing the efficiency of Group support services. Discontinuing non-core activities.

The Group's largest ongoing and planned Investments

Segment	Investments
	− Construction of Vilnius waste-to-energy and biomass CHP (Lithuania)
	− Construction of Kaunas waste-to-energy CHP (Lithuania)
Green Generation	− Construction of Pomerania wind farm (Poland)
	− Development and construction of Mažeikiai wind farm (Lithuania)
	− Development and construction of new wind/solar farms
	− Smart meter roll-out
Networks	− Renewal and maintenance of electricity and natural gas distribution networks
	− Connecting new customers to electricity and gas distribution networks and upgrading the capacity of existing connection points.

Dividend policy

The Company pays dividends in accordance to the valid version of 14 January 1997 Resolutions of the Government of the Republic of Lithuania No 20 "Regarding the Dividends of State-Owned Enterprises" (link).

Dividend pay-out ratio for the financial year or for the period shorter than a financial year depends on Return on equity ratio (ROE) achieved in that period (please see the table on the right). Dividend pay-out ratio is calculated by dividing dividends by the retained earnings of the Company at the end of the period.

The Company can suggest lower pay-out ratio if any of the following is true:

− The Company is implementing a project of national importance
− The Company's Debt to Equity ratio exceeds 1.0
− The Company's Total Equity (after the payment of dividends) becomes lower than the sum of its issued capital, legal reserve, revaluation reserve and reserve for acquisition of own shares

Dividend pay-out matrix

	Pay-out ratio
ROE ≤ 1%	≥ 85%
1% < ROE ≥ 3%	≥ 80%
3% < ROE ≥ 5%	≥ 75%
5% < ROE ≥ 10%	≥ 70%
10% < ROE ≥ 15%	≥ 65%
ROE > 15%	≥ 60%

Dividends paid for the financial year, million Eur

Business environment

The most relevant internal and external factors, which might have significant financial and/or non-financial impact for the Group, are listed below:

Internal environment factors External environment factors

Political − National Energy Independence Strategy. − Energy Security Policy: strategic energy projects. − Environment and climate change policy: EU policies of reducing green-house gas emissions. Economical − COVID-19 outbreak and social and economic restrictions on its management measures. − Before COVID-19 outbreak and quarantine announcement the country's economy grew, electricity consumption in Lithuania was projected to increase, however, local electricity generation covered only a quarter of national consumption. − Impact of economic development cycles on changes in energy demand. − Synchronization of Lithuania's electricity system with the electricity system of Continental Europe has the potential to open up new markets. However, competition might increase as well. − Growing competition in the power generation market. − Increasing competition between system service providers. − Lack of competition in the outsourced market of contracts work results in rising prices for services. − Fluctuation of electricity and gas market prices. − Cost of resources. Social − Rapid growth of purchasing power in Lithuania. However, still lower in absolute terms compared to EU average. − Safety of employees/contractors/residents. − Growing public expectations regarding new technology solutions. Technological − Conventional power generation has to face challenges and opportunities brought by the power generation from renewable energy sources. − Innovation development, new energy services and technologies. − The need for digital technologies and complex modern solutions (e.g. Cloud, IoT, etc.) to increase competitiveness. − Sub-optimal and not fully automated distribution network. − Growing risk of cyber threats. Legal/Regulatory/ Compliance − New regulatory period for electricity distribution network. − Deregulation of the electricity B2C market in Lithuania. − Continuation of designated supply business model. − RES auctions, offshore wind farms' development. − Capacity auctions, system services uncertainty. − Risk of non-compliance: NERC's qualitative distribution indicators (SAIDI, SAIFI, duration of connection of new customers), anti-money laundering and counter-terrorist financing, personal data protection. Environmental − Growing public attention to climate change. − Increasing environmental requirements.
− Occupational health and safety.
− Ensuring IT system development needs and targeted architecture and digitizing business processes.
− Personal data protection and cyber security.
− Staff turnover.
− Prevention of corruption.
− Potential for operational efficiency enhancement.
− Strategic procurement and timely implementation of priority projects.

GDP forecast

Gross domestic product (GDP) has been growing for several years now in the European Union, including Lithuania. According to the EC report published in February 2020¹ , GDP growth in European Union (EU28) amounted to 1.5%, in euro zone – 1.1% in 2019. The EC forecasted Lithuania's GDP growth for 2019 (3,9%) was almost in line with the actual GDP confirmed by the Bank of Lithuania which amounted to 3.8%.

Until the start of COVID-19 pandemic it was forecasted that GDP growth will continue. However, after announcement of quarantine, the situation changed dramatically. Bank of Lithuania in its forecast published in March 2020² , announced the expected GDP decrease of the Lithuanian economy by 11.4% in 2020, and increase by 9.7% in 2021.

COVID-19 factors

On 30 January 2020, the World Health Organization (WHO) declared a global emergency as a result of the COVID-19 outbreak and identified the spread of the disease as a pandemic on 11 March 2020. On 26 February 2020, because of the threat of COVID-19, the Government of the Republic of Lithuania declared an emergency in the country, and on 14 March 2020 quarantine was declared starting from 16 March 2020, and was still in force at the time of publication of this report.

The duration of the quarantine announced in Lithuania and the restrictions imposed by foreign states may affect the targets and financial results of the Group for 2020. The Company performed the assessment of COVID-19 impact on the Group's targets and financial results, based on the information available at the time of the publication of the annual report. The Company found that if the duration of the quarantine in Lithuania and the restrictions imposed by other countries will be longer than 3 months, the Group's financial results for the year 2020 may be affected. However, reasonable estimates for the long-term impact of COVID-19 cannot be provided at the time of publication of this annual report.

Energy markets review

Wholesale electricity market

In 2019, prices fell in all of the bidding areas of the Nord Pool Nordic power exchange. Compared to 2018, the average system price was lower by approx. 11% (2018 – 43.99 Eur/MWh, 2019 – 38.94 Eur/MWh), in the fourth price area of Sweden, with which Lithuania is connected through the NordBalt power link – approx. 14% (2018 – 46.36 Eur/MWh, 2019 – 39.80 Eur/MWh), in Finland – approx. 6% (2018 – 46.80 Eur/MWh, 2019 – 44.04 Eur/MWh), in Lithuania – approx. 8% (2018 – 50.00 Eur/MWh, 2019 – 46.12 Eur/MWh), Latvia and Estonia – approx. 7% (2018 – 49.90 Eur/MWh, 2019 – 46.28 Eur/MWh).

It is noteworthy that unlike in 2018, prices in Finland were more similar to those in the Baltic region and differed from the rest of the Scandinavian region in 2019, while in Lithuania during certain periods prices were lower than in Latvia and Estonia. In 2019, the average price difference between Lithuania and Sweden in the fourth zone was approx. 73% higher than in 2018 and reached approx. 6.30 Eur MWh (2018 – approx. 3.64 Eur/MWh). The highest difference was observed during June and September – approx. 11–17 EUR/MWh.

Electricity prices as per Lithuanian price area, Eur/MWh (source: "Nord Pool")

In 2019, total energy demand in the price areas of Nord Pool power exchange decreased by approx. 1.5%, wind farm increased by approx.17%, total installed wind power capacity increased from 17 GW to almost 20 GW, hydroelectric power plant production decreased by approx. 5%, nuclear power plant changed slightly. Unit 2 of the Ringhals nuclear power plant in Sweden was shut down at the end of last year (852 MW), Ringhals 1 is scheduled to shut down at the in 2020 (881 MW).

Annual electricity demand in Lithuania was similar to that in 2018 – approx. 12 TWh (excl. Kruonis PSHP demand). In Latvia and Estonia demand decreased by approx. 2% and totalled 8 TWh and 7 TWh respectively. In 2019 Lithuania produced about 12% more electricity than in 2018, meanwhile Latvia - approx. 5% less, Estonia - approx. 41% less. Lithuania remains an energy-deficit country, producing around 30% of the country's demand, Latvia – approx. 85%. Estonia has decided to shut down polluting oil shale fired power stations and became an energy-deficit country, producing about 74% of the country's demand.

In 2019, the balance of Lithuanian commercial imports changed. In 2019, import from third countries increased by approx. 35% compared to 2018, from Scandinavia increased approx. 20%. Export to Poland increased several times.

Natural gas market

In 2019, the global liquefied natural gas (LNG) market suffered overcapacity, therefore, buyers held extremely strong bargaining positions in this market.

In 2019, LNG supply worldwide increased by about 12% and totalled 483bn m³ . The largest increase in the liquefaction capacity of natural gas was recorded in the USA. This country liquefied approx. 20bn m³ more gas in 2019 than in 2018.

Since the beginning of last year, European natural gas indices have been reflecting global LNG price trends and have come down. The Dutch TTF (Title Transfer Facility) price index in January 2019 was approx. 24 EUR per MWh, and in December it decreased to approx. 15.89 EUR per MWh.

For most of the year, shipment of LNG cargo from Europe and United States of America to Asia were economically unviable. As a result, Europe has, to some extent, been balancing global LNG flows by accepting additional loads. This was particularly noticeable in October and November, when LNG transportation costs were sharply up.

² Source: Bank of Lithuania. Lietuvos ekonomikos apžvalga: 2020 m. March.

¹ Source: European Commission. European Economic Forecast Winter 2020.

One of the highlights of 2019 for the natural gas market was the US decision to impose sanctions on companies constructing the Nord Stream 2 pipeline. According to market analysts, these sanctions will delay the completion of the gas distribution pipeline construction for an indefinite period.

As at 31 December 2019, European natural gas storage filling rate stood at 88%, which was 18% higher than a year ago.

In 2019, 19.6 TWh or 2.2 times more natural gas was supplied from the Klaipėda LNG terminal to customers of Lithuania than in 2018. According to the data of the Lithuanian transmission system operator, the consumption of natural gas in the country was 5% higher than in 2018 and reached 23.5 TWh.

A look at 2020 in Lithuania's energy sector

Commented by Vytautas Rimas, Head of Market Regulation at Ignitis Group.

In 2018, following the approval of the new Lithuanian National Energy Independence Strategy (NEIS) and the corresponding plan of measures for the implementation of the strategy, actions for a greener and more secure energy sector were initiated.

In 2019, a number of important political decisions were taken which set the scene for certain measures and actions: adoption of a so-called law on synchronisation with EU funding for this project; the announcement of auctions promoting the development of renewable energy, the decision on smart metering deployment, the renewed model for prosumer development, a record high ranking in "Doing Business 2020" which was partially influenced by the shortened connection time to the grid, etc.

And while the country's energy sector seems to be moving forward, we are going to face new challenges in 2020.

Since the Astravyets nuclear power plant (NPP) has been a constant topic of discussion, next year we will probably focus on "catching" electrons potentially trying to get to Lithuania from unsafe third-country nuclear power plants. Following the launch of the Astravyets NPP, we will have to agree with Latvia and Estonia on a trade with third countries and regarding isolated work test of the electrical systems in the Baltic States, which is a prerequisite for synchronization with continental Europe.

While household consumers are waiting for smart electricity meters, we will also have to properly prepare for the planned market liberalisation, because the draft laws provide that the first part of the country's largest household electricity consumers will have to choose their new electricity supplier on 1 January 2021. Accordingly, to make this process for consumers as smooth as possible, awareness raising initiative is expected to start from mid-2020: consumers will learn about the planned stages of liberalization, the benefits and the opportunities they can embrace from this process.

Next year, even bigger breakthrough of prosumers is expected in the area of renewable energy, and a second auction (0.7 TWh) for the allocation of renewable energy promotion allowances is planned in mid-2020. In addition, the development of offshore wind farms in the Baltic Sea will be supported by the conceptual decisions and research in 2020, which should be one of the cornerstones for the successful implementation of the national energy sector goals set by the NENS not only in the short but also in the long term. It is noteworthy that next year not only potential developers, but also municipalities will be engaged in the field of renewable energy. Most of the municipalities (50 out of 60 municipalities) will have to prepare action plans for the use of RES in the period of 2021–2031. Willing to prove that these scenarios do not exist on paper alone, municipalities will also need to recall their Sustainable Urban Mobility Plans prepared some time ago, as some of them will have to stretch to meet the targets for the development of electric vehicle charging stations.

In the field of reliable electricity generation, the year of 2020 will also be exceptional to Lithuania. After a longer break. Vilnius and Kaunas co-generation power plants, which are expected to start the operation in 2020, will bring a new reliably accessible electricity generation capacity in Lithuania to a more significant level (116 MW). It is also expected that, once the necessary legislative changes and the final concept have been decided, auctions of Capacity Mechanisms should take place at the end of next year to ensure the adequacy of the Lithuanian energy system after synchronisation with continental Europe in 2025. For this reason, and the potential impact of these mechanisms on the final consumer electricity bill, this matter will potentially be one of the main topics in the country's energy heaven next year.

In the light of all these pending tasks, it is to be hoped that the potentially changing political winds will not prevent everyone from marching forward and consolidating on what has been achieved so far.

Published on vz.lt as at December 2019

Issuers of shares

The shares of ESO and Ignitis Gamyba are listed on the Nasdaq Vilnius Stock Exchange. The trading in shares of the companies was started on 11 January 2016 and 1 September 2011, respectively. Both companies concluded the securities accounting agreements on the accounting of securities issued and management of personal securities accounts with SEB bankas AB.

Company	Number of ordinary registered shares issued	Nominal value per share	Total nominal value of shares (in EUR)	ISIN code	Securities' abbreviation	Trading list	Full name of the shareholder	Voting rights conferred by shares owned,%
Ignitis Gamyba	648,002,629	0.29	187,920,762.41	LT0000128571	LNR1L	Baltic main list	The Company	96.82%
ESO	894,630,333	0.29	259,442,796.57	LT0000130023	ESO1L	Baltic main list	The Company	94.98%

Structure of the issued capital and shareholders owning more than 5 per cent of the issuer's issued capital as at 31 December 2019

On 4 December 2019, the Extraordinary General Meetings of Ignitis Gamyba and ESO took the decision to delist the shares of these companies from the NASDAQ Vilnius Stock Exchange to approve the Company as the entity who will make a formal offer to buy out the shares of both companies listed on the Nasdaq Vilnius Stock Exchange. At the date of signing this report, the delisting process is not yet completed and the shares of ESO and Ignitis Gamyba are still traded on the Nasdaq Vilnius Stock Exchange.

Debt securities

As at 31 December 2019, the Company had two green bond issues outstanding, both listed on the Luxembourg and NASDAQ Vilnius stock exchanges. Total nominal value of these bonds was EUR 600 million.

Credit rating

In May 2019, credit rating agency S&P Global Ratings affirmed BBB+ credit rating for the Company. However, credit rating outlook was revised from stable to negative. This was mainly impacted by the highest level of Investments in the history of the Group made during 2018-2019 period, which resulted in increase of Net debt and worsened credit metrics.

Debt securities issued by the Company

Company	Total nominal values of the issue, EUR	ISIN code	Buy-out date
Company	300,000,000.00	XS1646530565	2027.07.14
Company	300,000,000.00	XS1853999313	2028.07.10

Material events

There are no agreements concluded between the Issuer and the members of the management bodies or employees that provide for compensation in case of their resignation or dismissal without a reasonable cause or in case of termination of their employment as a result of the change in control of the Issuer.

No significant agreements were concluded to which the Issuer is a party and which would enter into force, change or terminate as a result of the changed control of the Issuer, as well as their effect, except where because of the nature of the agreements their disclosure would cause significant harm to the Issuer.

During the reporting period, the Issuer did not conclude any harmful agreements (which do not correspond to the Company's objectives, current market conditions, violate the interests of shareholders or other groups of persons, etc.) or agreements concluded in the event of a conflict of interests between the issuer's managers, the controlling shareholders or other related parties obligations to the issuer and their private interests and / or other duties.

Results

Results	22
Five-year summary	33
Fourth quarter	35
Quarterly summary, 2018–2019	36
Alternative performance measures	37

Results

Key operating indicators

		2019	2018	∆	∆,%
Electricity
Electricity distributed	TWh	9.55	9.59	-0.04	-0.43%
Electricity generated	TWh	1.06	1.01	0.05	5.26%
Green share of generation	%	97.68%	93.38%	-	4.61%
Green electricity generated	TWh	1.04	0.94	0.10	10.03%
Green Generation capacity	MW	1,350	1,256	94.00	7.48%
Green Generation installed capacity	MW	1,077	1,077	0.00	0.00%
Green Generation projects under construction	MW	210	116	94.00	81.03%
Green Generation projects under development	MW	63	63	0.00	0.00%
Electricity sales in retail market	TWh	5.86	5.91	-0.05	0.84%
Lithuania	TWh	5.03	5.22	-0.19	-3.58%
Latvia	TWh	0.83	0.69	0.14	20.73%
Electricity sales in wholesale market	TWh	4.71	0.70	4.01	574.72%
New connection points and upgrades	units	40,151	30,976	9,175	29.62%
SAIDI	min.	91.79	81.37	10.42	12.81%
SAIFI	units	1.31	1.14	0.17	14.74%
Gas
Gas distributed	TWh	6.97	7.60	-0.64	-8.39%
Gas sales	TWh	9.83	11.33	-1.50	-13.22%
New connection points and upgrades	units	11,793	14,741	-2,948	-20.00%
SAIDI	min.	1.25	0.61	0.64	106.23%
SAIFI	units	0.008	0.006	0.00	35.93%

Analysis of key operating indicators

Electricity

Distributed electricity in 2019 remained at a similar level and amounted to 9.55 TWh. The distribution of electricity to customers of the independent supply slightly increased by 0.9% and amounted to 6.22 TWh. The volumes of public and guaranteed supply slightly decreased by 2.8% and amounted to 3.33 TWh (2018: 3.42 TWh).

Electricity generation at Kaunas HPP decreased by 21.8% in 2019 compared to 2018 due to a lower level of water in the Nemunas river and amounted to 0.27 TWh. Electricity generation volumes at Kruonis PSHP increased by 14.1% due to higher volatility of electricity market prices and amounted to 0.54 TWh. Electricity generation volumes at the Elektrėnai Complex decreased by 63.2% in 2019 and reached 0.02 TWh (2018: 0.07 TWh). Following the acquisition of Vėjo Vatas and Vėjo Gūsis in November 2018, the volume of electricity generated at wind farms operating in Estonia and Lithuania totalled 0.23 TWh, which is 81.4% more compared to the previous year. Therefore, the share of green electricity generated in 2019 increased to 97.7% from 93.4% in 2018.

SAIDI ratio deteriorated and was 91.79 minutes (2018: 81.37 minutes). SAIFI indicator was equal to 1.31 interruptions (2018: 1.14 interruptions) in 2019. Deterioration of quality indicators of continuous electricity supply due to external impact and increased breakdowns in the medium voltage grids, caused by fallen trees.

During 2019, 40,151 new connection points and upgrades were completed in the electricity distribution network. The number of new electricity connection points and upgrades increased by 29.6%compared to the previous year.

Gas

The volume of gas distributed in 2019 decreased by 8.4% and amounted to 6.97 TWh (2018: 7.60 TWh). In 2019, higher average air temperatures were the main contributor to the reduction in gas distribution, especially during February and March. The volume of gas sold in the retail market decreased by 13.2% and amounted to 9.83 TWh in 2019 (2018: 11.33 TWh). This was mainly influenced by changes in the legal framework. The obligation for regulated energy producers to purchase natural gas supplied through the Klaipėda LNG Terminal from a designated supplier was abolished.

Gas distribution SAIDI ratio deteriorated during 2019 and was 1.25 minutes (2018: 0.61 minutes) and SAIFI ratio was approximately equal to 0.008 interruptions (2018: approx. 0.006 interruptions). Deterioration of the quality indicators mainly resulted from third party's interruption to the network, which affected more customers, compared to 2018.

In 2019, 11,793 new connection points and upgrades were completed in the gas distribution network, which is 20.0% less than during 2018.

Electricity generated, TWh

Electricity distributed and sold, gas distributed and sold, TWh

Key financial indicators

		2019	2018*	∆	∆,%
Revenue	EURm	1,090.6	1,070.1	20.6	1.9%
EBITDA APM	EURm	206.8	145.3	61.5	42.3%
EBITDA margin APM	%	19.0%	13.6%	-	-
Adjusted EBITDA APM	EURm	259.6	221.3	38.3	17.3%
Adjusted EBITDA margin APM	%	23.8%	20.7%	-	-
EBIT APM	EURm	82.8	-20.4	103.2	506.0%
Adjusted EBIT APM	EURm	149.7	133.6	16.1	12.1%
Net profit	EURm	59.0	-22.0	80.9	368.4%
Adjusted net profit APM	EURm	106.0	99.0	7.0	7.1%
Investments APM	EURm	455.7	429.3	26.4	6.1%
FFO APM	EURm	187.0	131.4	55.6	42.3%
FOCF APM	EURm	-196.2	-206.9	10.7	5.2%
		2019.12.31	2018.12.31*	∆	∆,%
Total assets	EURm	3,198.1	2,853.9	344.2	12.1%
Equity	EURm	1,348.6	1,302.5	46.1	3.5%
Net debt APM	EURm	966.5	736.0	230.5	31.3%
Net working capital APM	EURm	-1.4	-19.2	17.8	92.9%
ROE APM	%	4.4%	-1.7%	-	-
Adjusted ROE APM	%	8.0%	7.5%	-	-
ROCE APM	%	3.8%	-1.1%	-	-
Adjusted ROCE APM	%	6.9%	7.0%	-	-
Net debt/EBITDA APM	times	4.67	5.07	-	-
Net debt/Adjusted EBITDA APM	times	3.72	3.33	-	-
FFO/Net debt APM	%	19.3%	17.8%	-	-

* In case of a change of calculation of APM in 2019, respective numbers and ratios for 2018 were recalculated based on the same principles as 2019 numbers and ratios. In 2019 we have changed Adjusted EBITDA and Adjusted net profit formulas. Adjusted EBITDA now includes the following new adjustments: i) elimination of the result of disposal of non-current assets, and ii) cash effect of new connection points and upgrades (please find more information in the "Adjusted EBITDA" section of the report). Adjusted Net profit now includes the following new adjustments: i) elimination of the result of disposal of non-current assets; ii) cash effect of new connection points and upgrades; iii) temporary fluctuations in fair value of derivatives; and iv) changes in market value of emission allowances (please find more information in the "Adjusted net profit" section of the report).

Revenue by segment 2019, EURm

Analysis of Key Financial Indicators

Revenue

Revenue of the Group increased by 1.9% (+EUR 20.6 million) in 2019 as compared to 2018 and totalled EUR 1,090.6 million. The main reasons causing Revenue changes were as follows:

1. Higher Revenue of the Networks segment (+EUR 32.6 million). The increase was mainly driven by higher distribution Revenue (EUR 21.1 million) and transmission Revenue (EUR 13.4 million) due to increase of tariffs.
1. Higher Revenue of the Flexible Generation segment (+EUR 11.7 million). The segment's Revenue grew mainly because of EUR 9.3 million compensation from the Ministry of Finance of the Republic of Lithuania for the indemnification of potentially inflicted damage by Alstom Power Ltd during the implementation of the project of Lietuvos Elektrinė in 2005–2009. Sales were also boosted by sales of fuel oil stocks that were no longer in use.
1. Higher Revenue from the Green Generation segment (+EUR 4,9 million). Revenue growth was driven by two major reasons: the increased portfolio of wind farms (+EUR 6.8 million) and favourable wind conditions (+EUR 2.6 million). The above reasons outweighed lower Revenue of Kaunas HPP and Kruonis PSHP. Revenue of Kaunas HPP decreased due lower generation volumes because of the hydrological drought.
1. Lower Revenue from the Customers and Solutions segment (-EUR 22.4 million). The decline was mainly driven by lower gas sales to B2B customers (-EUR 54.3 million) and lower Revenue from derivative instruments (-EUR 36.1 million). Decrease was partly offset by increase of Revenue from public electricity supply activities (+EUR 42.1 million), increase of gas sales to residential customers (+EUR 8.2 million), higher sales of other electricity, gas and related services (+EUR 7.7 million) and increase of retail electricity supply income (+EUR 4.7 million).

In 2019, the Group earned 92.0% of its Revenue in Lithuania (EUR 1,003.7 million). The Group's Revenue from foreign countries (Latvia, Estonia, Poland) increased by 25.4% and reached EUR 87.0 million (2018: EUR 69.3 million).

Revenue by country, EURm

	2019	2018	∆	∆,%
Customers and Solutions	502.9	525.3	(22.4)	-4.3%
Networks	413.8	381.2	32.6	8.5%
Green Generation	83.3	78.3	4.9	6.3%
Flexible Generation	79.7	68.0	11.7	17.1%
Other	10.9	17.1	(6.2)	-36.2%
Revenue	1,090.6	1,070.1	20.6	1.9%

Revenue by segment, EURm

	2019	2018	∆	∆,%	2019,%
Lithuania	1,003.7	1,000.7	2.9	0.3%	92.0%
Other	87.0	69.3	17.6	25.4%	8.0%
Revenue	1,090.6	1,070.1	20.6	1.9%	100.0%

Expenses

Purchases of electricity and gas

The Group's purchases of electricity and gas amounted to EUR 734.7 million in 2019 and decreased by 7.6% compared to 2018. Decrease was mainly caused by lower gas purchases for trade (-EUR 59.0 million) due to lower sales to business clients and change in regulation of the designated supply model.

SG&A expense

In 2019 SG&A expense was equal to EUR 147.9 million and rose by 15.2% (+EUR 19.5 million). This change was mainly driven by:

1. Increase in repair costs of EUR 8.6 million (or +40.6%) which was mainly caused by increased repair and maintenance works required for the electricity distribution network (+EUR 7.8 million) and the provision for the Elektrėnai complex dismantling projects (+EUR 1.4 million).
1. Increase in Salaries and related expenses by EUR 7.2 million (or +9.1%) which increased mainly due to the Group's average salary growth, which was in line with the average salary growth in the country.

Other operating expenses

Depreciation expenses increased by EUR 22.2 million in 2019 because of the following factors:

1. Increase of non-current assets resulting from new Investments;
1. Increase of non-current assets due to revaluation of distribution network assets at the end of 2018;
1. Impact of IFRS 16.

Impairment expenses and write-offs of property, plant and equipment in 2019 decreased by EUR 73.3 million compared to 2018. This decrease was caused by the effect of revaluation of distribution network assets which was recognized in 2018. While independent valuation resulted in increase of the asset value, for accounting reasons the increase of value of certain assets was recognized in equity under revaluation reserve and loss related to revaluation of certain assets was recognized in the income statement.

		Operating expenses, EURm
	2019	2018	∆	∆,%
Purchases of electricity and gas	734.7	795.0	-60.4	-7.6%
Purchases of electricity and related services	493.6	491.3	2.2	0.5%
Purchases of gas for trade and related services	218.1	277.1	-59.0	-21.3%
Purchases of gas for production	23.0	26.5	-3.6	-13.4%
SG&A expense APM	147.9	128.4	19.5	15.2%
Salaries and related expenses	87.0	79.7	7.2	9.1%
Repair and maintenance expenses	29.8	21.2	8.6	40.6%
Other	31.1	27.4	3.7	13.4%
Depreciation charge	109.9	87.7	22.2	25.4%
Impairment expenses and write-offs of property, plant and equipment	13.7	86.9	-73.3	-84.3%
Write-offs and impairments of short term and	1.3	1.4	-0.1	-8.3%
long-term receivables, inventories and other
Revaluation of emission allowances	0.4	-8.9	9.4	104.8%
Total operating expenses	1,007.8	1,090.5	-82.6	-7.6%

Adjusted EBITDA*

Adjusted EBITDA amounted to EUR 259,6 million in 2019 and was 17.3% or EUR 38.4million higher than in 2018. Adjusted EBITDA margin reached 23.8% (2018: 20.7%).

Adjusted EBITDA by segments

Adjusted EBITDA increased across all segments:

1. Networks grew by EUR 11.6 million. The increase was driven by the growing number of new connection points and upgrades in the distribution network, and continued distribution network renewal investments.
1. Green Generation increased by EUR 5.4 million. This was mainly influenced by the increased portfolio of the wind farms at the end of 2018 (+EUR 6.0 million), and better result of Kruonis PSHP (+EUR 4.7 million) which was mainly caused by effective utilisation of fluctuations in electricity prices. The growth was negatively impacted by worsened result of Kaunas HPP (-EUR 4.3 million) due to lower water level in Nemunas and also by the increased OPEX of Vilnius and Kaunas CHP projects, as the launch of plants is approaching (-EUR 1.6 million).
3. Flexible Generation increased by EUR 8.7 million. Increase was caused by better results of 7th unit of Elektrėnai Complex (+EUR 4.6 million) due to testing of isolated network service provided in 2019 (unit was preserved and did not provide any services in 2018). Gain from sale of fuel oil stocks (+EUR 1.8 million) also had a positive impact.
4. Customers and Solutions increased by EUR 4.0 million. The growth was mainly driven by better results of Ignitis Latvija electricity hedging activity (+EUR 3.5 million) and better Ignitis Polska trading activity results (+EUR 1.6 million).
1. Result from other activities grew by EUR 8.6 million mainly due to less negative results of EnePRO, activities of which are being terminated (+EUR 8.2 million).

As of 1 January 2019, change of IFRS 16 resulted in operating lease expenses being shifted from SG&A expense to depreciation. As a result, Adjusted EBITDA increased by EUR 3.5 million compared to 2018. This effect is reflected in each segment's Adjusted EBITDA above..

Adjusted EBITDA by segments, EURm

	2019	2018	∆	∆,%	2019,%
Networks	180.5	168.8	11.6	6.9%	69.5%
Green Generation	43.4	38.1	5.4	14.1%	16.7%
Flexible Generation	22.0	13.3	8.7	65.4%	8.5%
Customers and Solutions	10.7	6.7	4.0	59.8%	4.1%
Other	3.0	-5.6	8.6	153.7%	1.2%
Adjusted EBITDA APM	259.6	221.3	38.3	17.3%	100.0%

2019 annual report Results | 27

*Adjusted EBITDA is based on management adjustments. A more detailed description of the management adjustments is presented in Consolidated and Company Financial statements, Note 42 "Operating segments".

Adjusted EBITDA by types of activities

In 2019 Adjusted EBITDA of regulated and contracted activities amounted to 82.6% of the total Adjusted EBITDA.

Regulated activities include:

1. Electricity and gas distribution;
1. Strategic reserve and system services provided to the transmission system operator;
1. Public and guaranteed supply of electricity, and gas supply to residents of Lithuania.

Contracted activity includes wind farms with fixed long term feed-in or feed-in premium tariffs.

Adjusted EBITDA by types of activities, EURm

	2019	2018	∆	∆,%	2019,%
Regulated	214.5	194.1	20.4	10.5%	82.6%
Contracted	13.8	6.7	7.1	106.1%	5.3%
Other	31.3	20.5	10.8	52.8%	12.1%
Adjusted EBITDA APM	259.6	221.3	38.3	17.3%	100.0%

Adjusted EBITDA by types of activities 2019, EURm

EBITDA adjustments*

EBITDA adjustments, EURm

	2019	2018	∆	∆,%
EBITDA APM	206.8	145.3	61.5	42.3%
Adjustments
Temporary regulatory differences (1)	31.7	81.5	-49.8	-61.1 %
Temporary fluctuations in fair value of derivatives (2)	16.8	-14.9	31.7	213.0%
Cash effect of new connection points and upgrades (3)	16.1	12.5	3.6	29.0%
Other (4)	-11.8	-3.1	-8.7	-281.3%
Total adjustments	52.8	76.0	-23.2	-30.5%
Adjusted EBITDA APM	259.6	221.3	38.3	17.3%
Adjusted EBITDA margin APM	23.8%	20.7%	-	-

(1) Elimination of the difference between the actual profit earned during the reporting period and profit allowed by the regulator.

(2) Elimination of temporary fluctuations in the fair value of derivatives related to other periods (including contracts that are settled in the current period but are related to future periods). The Group uses derivatives for economic hedge of electricity and gas supply contracts, however does not fully apply hedge accounting, therefore the management eliminates them when analysing current period results.

(3) According to updated accounting policy, revenues from new connection points and upgrades are recognized throughout the useful life of the newly created infrastructure, even though the cash is received when the new connection point or upgrade is completed. In order to better reflect the cash flow, and results of connection points and upgrades completed in the current period, Revenues are Adjusted, as if they were booked at the moment of connection or connection upgrade.
(4) Other adjustments mostly contains of received compensations related to the previous periods: i) received compensation of EUR 9.28 million for the indemnification of potentially inflicted damage by Alstom Power Ltd during the implementation of the project of the public limited liability company Lietuvos Elektrinė in 2005–2009; ii) compensation received from Litgrid AB for transmission and system services (for January and February 2016). Other adjustments also include add-backs of inventory and receivables impairments and write-offs, as well as elimination of gains or losses from disposal of non-current assets.

* In 2019 the management decided to perform additional EBITDA adjustments: i) Following the retrospective change in accounting policy, to include adjustment for cash effect of new connection points and upgrades in the distribution network; ii) to eliminate the gains or losses from disposals of non-current assets.

A more detailed description of the management adjustments is presented in Consolidated and Company Financial statements, Note 42 "Operating segments".