- The Ignitis Group Supervisory Board has approved the key performance objectives for 2021-2024 long-term incentive plan for executives – they are determined in accordance with the objectives set out in the Strategic Plan of the Group and the updated Letter of Expectation from the Ministry of Finance.
- The plan stipulates conditions ensuring that the company’s value growth would not be the result of growing tariffs.
- The main focus of the plan’s objectives is on green generation development, increase in shareholders return, increasing efficiency in regulated activities and ensuring sustainable operations.
The Supervisory Board of an international energy company Ignitis Group has approved the objectives for the long-term incentive of executives with share options for 2021-2024. The objectives set for executives were structured based on the objectives set in the Strategic Plan of the Group and the updated Letter of Expectations from the Ministry of Finance. The plan sets out prerequisites for the company’s growth to be related to increasing Green Generation capacity and commercial, rather than regulated activities.
Adjusted EBITDA growth of commercial activities in 2021-2024 must be at least 10 times higher compared to growth from regulated-monopolistic activities, regulated-monopolistic activities in 2024 must account for less than 60% of the Group’s Adjusted EBITDA in case of asset rotations, and Green Generation Adjusted EBITDA in 2024 must at least double compared to 2020.
Alternative prerequisite is that regulated-monopolistic activities1 account for less than 50% of the Group’s Adjusted EBITDA in 2024. If the latter or the aforementioned prerequisites are not fulfilled, it is considered as a failure to achieve the objectives.
The provision that the key executives of Ignitis Group can be granted shares only if the Green Generation results are growing significantly faster than the results of the regulated-monopolistic activities was also included in the Letter of Expectations from the principal shareholder Ministry of Finance received in February.
“2021-2024 objectives set for executives reflect the ambitions set out in the strategic plan of Ignitis Group – to focus on investments into green generation development, network modernisation and digitisation as well as financial return to shareholders. The commitment to sustainability, which is reflected in the objectives is also as important.
Furthermore, an important provision was included into the plan stipulating that the objectives will be achieved only if the green generation capacity will grow significantly faster than the regulated activities. It is a safeguard to ensure that all objectives set out for executives are linked to the sustainable development of commercial activities”, said Ignitis Group Chair of the Supervisory Board Darius Daubaras.
There are five approved objectives of the incentive plan for 2021-2024.
The first objectives is the comparison of Total Shareholder Return (TSR) indicator with the average TSR of Eurostoxx Utilities. The index consists of the biggest energy companies operating in the Euro area, part of them also have regulated-monopolistic activities (e.g. Enel, Engie, etc.). After reaching 70% of Ignitis Group TSR compared to the TSR average of Eurostoxx Utilities, the target would be considered to reach 70% threshold, above which management would not be assigned a bonus of more than 100%.
Executives have also set objectives related to the development of installed green generation capacity. The Group should reach 1.8 GW by 2024. Currently, Ignitis Group manages 1.1 GW of operating green generation capacities, which means that the future projects must increase the installed capacity by 700 MW.
With the aim of increasing efficiency indicators in regulated-monopolistic activities, the objectives include the reduction of electricity supply interruptions per customer (SAIFI) by up to 1.09 times by 2024 as well as reduction of electricity network losses by at least 5% in 2024, compared to 2020, proportional to the distribution volumes.
Among the remaining objectives set out in the plan, there is an objective to ensure the indicator of return on capital employed (ROCE) of 5.8-6.8%. Assurance of ROCE indicator has changed the previous indicator of adjusted earnings before interest, taxes, depreciation and amortisation (EBITDA). This is to ensure the return on capital during the Group’s Strategic Plan for 2021-2024 period by investing and implementing green generation development objectives in parallel. The objective is also set to improve the Group’s position in at least one of the ratings evaluating environmental, social, and corporate governance (ESG) criteria.
Long-term incentive plan applies to nine key executives of Ignitis Group: The Management Board members of the parent company and the CEOs of four companies of the Group (ESO, Ignitis, Ignitis Gamyba and Ignitis Renewables).
The detailed information on the percentage of long-term strategic objectives and their indicators for 2021-2024 is provided at the table below
|
Strategic Priority |
Objective |
Type of target |
|||
|
Weight |
Entry (70%) |
Target (100%) |
|||
|
Performance |
TSR TSR of Ignitis Group vs. average TSR of EURO STOXX® Utilities Index12 |
40% |
≥70%3 |
≥100%3 |
Market |
|
Returns |
Average adjusted ROCE4 over the four years 2021–2024 |
20% |
5.8%3 |
6.8%3 |
Financial |
|
Growing renewables |
Green generation installed capacity, GW |
20% |
- |
1.8 |
ESG |
|
Increasing efficiency in Networks |
Increasing efficiency in regulated-monopolistic activities: • Electricity SAIFI5 in 2024 ≤1.09 times • Reduction of electricity network losses at least by 5% (in 2024 vs. 2020), proportionally to the distribution volumes6 |
10% |
At least one of two indicators achieved |
Both indicators achieved |
Efficiency |
|
ESG-principles-driven |
Sustainability indices MSCI ESG & Sustainalytics ESG risk indices |
10% |
At least one of two indices improved7 |
Both indices improved7 |
ESG |
1. Regulated-monopolistic activities – electricity and gas distribution activities, non-auctioned reserve and ancillary services provided to the transmission system operator, public supply of electricity and gas to the regulated customers in Lithuania and regulated LNG designated supply services.
2. TSR (Total Shareholders Return) is calculated as the ratio of the difference between the average share price at the end of the period and the beginning of the period and adding the amount of dividends per share over performance period to the share price at the beginning of the performance period. The average TSR (Total Shareholders Return) of Ignitis Group and EURO STOXX® Utilities Index is calculated in the two-month period (Nov and Dec accordingly) preceding the beginning and the end of the performance period (1 January 2021–31 December 2024), in order to neutralize any possible volatility on the market. TSR of Ignitis Group is calculated with the assumption that dividends are reinvested as well as EURO STOXX® Utilities Index used for benchmarking (based on gross return index type and EUR currency). Change in the value of the Ignitis Group shares between the beginning and the end of the reference period calculated as a weighted average of the IGN1L (Nasdaq Baltic) and IGN GDR (London Stock Exchange) prices based on volume traded.
3. Target will be measured according to the achievement scale with linear interpolation between the thresholds. In the event of below-minimum achievement, no payment will accrue for this target.
4. ROCE is calculated by dividing Ignitis Group adjusted earnings before interest and tax (adjusted EBIT) by its capital employed (average net debt at the beginning and end of the reporting period + average book value of equity at the beginning and end of the reporting period).
5. Interruptions per customer, excluding exceptional events approved by regulatory authority (NERC) and calculated in accordance with the methodology and principles applied in the period of setting the performance objectives. System Average Interruption Frequency Index (SAIFI) is an indicator that shows the average number of interruptions to a customer during the reporting period. The indicator is calculated excluding interruptions related force major circumstances to natural, catastrophic meteorological and hydrological reasons and approved by the National Energy Regulatory Council according to the regulation of Indicators of service reliability and quality for electricity transmission.
6. Electricity network losses – the average technological losses in the electricity distribution network lines and other network elements as well as the losses resulting from undeclared consumption of consumers and illegal connections to the network. The 2024 target value of the ratio of electricity network losses and the total amount of electricity received in the distribution network (from TSO) is 5.5% (actual electricity network losses in 2020 – 5.8%), based on the strategic 2021-2024 plan and the methodology for determining electricity transmission, distribution and public supply services and the regulated price cap (article No. 9) approved by the National Energy Regulatory Council.
7. Ignitis Group 2020 ratings: MSCI ESG Rating – A, Sustainalytics ESG Risk Rating – “medium” category. 2024 target MSCI ESG Rating – AA and/or Sustainalytics ESG Risk Rating – “low” category.
You can find more detailed information on the 2021-2024 long-term incentive plan objectives for Ignitis Group executives in the notice published via the securities exchange (link).