CEZ, a. s. (CEZ) Earnings Call Transcript

Good afternoon or good morning, everyone, and welcome to our regular quarterly call organized by CEZ. It's my pleasure to welcome Martin Novak, CFO; and Pavel Cyrani, Head of Strategy and -- Sales And strategy. I'm now handing over to Martin to walk you through the presentation.

So good afternoon, good morning. Let's start on Slide 3 with financial results overview. As you can see, our sales -- our operating revenue is 5% lower, mainly due to the main factor. It's actually influencing all this presentation or anti presentation, return on our prices. EBITDA down by 20% to CZK 59 billion, and we will go through a high level of detail on the next slide. Net income up by 10% from CZK 16.5 billion to CZK 18.1 billion, mainly caused by the fact that we are not subject to infotex that actually is not in place. It was -- it ended its existence in on 31st of December 2025. Operating cash flow, CZZ 26 billion higher or 55%, and CapEx 30% higher. Our net debt is about 9% higher. So we are getting close to CZK 200 billion. Slide 4 explains the difference between first half 2025 and first half 2026 EBITDA. As I said, by far, the most significant factor influencing this variance is generation segment and mainly decreased power prices, which actually are -- have a negative effect of CZK 14.4 billion. Also had a lower profit from trading and the revaluation of temporary ratio of derivatives, which in total is lower by CZK 2.7 billion versus first half of 2025. As you will see later, we are actually planning to produce 9% more power from coal compared to 2025, and therefore, despite lower coal prices, the volume is actually making up, and we can see CZK 0.5 billion increase year-on-year. Our Distribution segment, both electricity and gas are actually positive. The variance is CZK 300 million on electricity distribution, which is negatively impacted by correction factors from past years. on normalized EBITDA without creation factors, we are doing much better, as you will see later on. And gas distribution, CZK 1.7 billion accounts positive year-on-year, CZK 0.5 billion of which is actually attributable to acquisition of gas distribution company the discovering south of Bohemia. GasNet which is the company that we own since, I think, September 2024, also has an improvement mainly to higher investments or CapEx and the increase in WACC. Sales segment, down by CZK 2.4, partly due to lower margins, both in retail and wholesale customers or large customers declining power prices. Our margins are getting back to a standard levels. And we also had a few delays on our projects abroad, which causes a variance of about CZK 700 million. So this is how we get to CZK 15 billion. On the next slide, we can actually see the details of net income. Basically, most of the items like depreciation, asset impairments, other income expenses are fairly similar to previous year. And there is an explanation on the slide what is definitely worth mentioning is income tax. Last year, income tax was about the CZK 23.1 billion. Now it is only CZK 5.5 billion and the biggest difference is that not to lower pretax income, but to the fact that we are no more paying windfall full profit tax. So that's why actually despite 20% decline in EBITDA, our net income is 10% higher and thus achieving CZK 18.1 billion. On Slide #6, you can see actually total operating results that I will skip. Those are volumetric numbers. So you are invested in those. And the important on Slide #7, actually taking into consideration a few positive factors, a few negative factors, we decided to shift our guidance on both EBITDA and also adjusted net income upwards. So original guidance from May 14 was CZK 107 million to CZK 112 million. Now actually, we moved this range by CZK 2 billion upwards. So new guidance is actually CZK 109 billion to CZK 114 billion. Adjusted net income, CZK 30 billion to CZK 34 billion was original estimate. Now it is actually CZK 31 million to CZK 35 million. Main positive drivers is higher EBITDA of our dilution segment. continuous crisis in Bergamo, which resulted into higher power prices and allowed us even to produce more power in our coal plants and gas plants and then we have higher generation nuclear plants than originally anticipated. Negative front, we have lower profits from commodity trading and lower EBITDA in Atavium Group due to the fact that I already described mainly moving some projects further. They are important slate assumptions this current forecast in the Czech Republic. So we assume that we will generate 45 to 47 terawatt hours. Average achieved prices will be EUR 106 to EUR 210 per megawatt hour, and average purchase price of carbon credits will be EUR 77 to EUR 79 per ton. When we look at a next slide, I will touch on our newly established subsidiary CEZ, which name is CEZ Energy. This is something we discussed on a previous call and also did a lot of publicity after shareholder meeting. on June 1, actually, the shareholder meeting approved the mandate for the Board of Directors to optimize the ownership structure. We actually were providing mandate to transfer as Group customer segment into CEZ Energy and those companies that are actually considered is actually both power and gas distribution, which is kind of a decided that those will be a cornerstone of CEZ Energy. Then retail business in the Czech Republic, CEZ, just ESCO services in the Czech Republic and Elevion in Germany, also trading both power and natural gas and elcommunication services. Now not necessarily all of those will get transferred, but definitely the largest companies well. And then we got a mandate to actually dispose minority stake up to 49%. actually of CEZ Energy, either through direct sale or through IPO in the future. The time line is such that all the legal work, meaning injecting actually the companies into transferring the ownership from chest to chest Energy should be finished by the end of first quarter 2 many of those transfers, however, will occur in 2026. So that's is actually on the same slide, you actually have Board of Directors, hopeful the company is basically composes of 4 members of current Board of CEZ with Daniel Benes being Chairman, the Board of Directors; Pavel Cyrani, Vice Chairman of the Board of Directors, myself and members of the Board; and actually Pavel Cyrani is CEO of the company as he's heading actually sales segment and distribution segment currently in CEZ these days. Selected events in the past quarter, I think I can I'll skip that. You can go through the testing things, maybe the one that's worth mentioning is actually landed acquired or signed an agreement to acquire 100% stake in Tech Chem Solutions in Germany which is a company that should significantly increase the size of Elevion actually switch it to a company that has more assets, it's more asset heavy than it was by now. is operating almost 2,300 energy facilities around Germany, mainly heating systems and municipalities. So now let's switch to Generation Mining segment. On Slide 11, you can see actually our generation mining in total is down by CZK 14.5 billion or 31% with an effect -- clear effect of bar prices actually influencing all those parts of generation segment. What is worth mentioning despite the fact that we produced a significant amount of power in coal, basically very similar to last year, EBITDA is down by 65% to CZK 1.4 billion only compared to CZK 4 billion for the same period in 2025. So despite the fact that now actually, coal plants are profitable due to events in March with port prices going up and carbon grades a down, it looks like it's a short-term issue that will last through 2027, '28 where we were able to lock the margin. But towards the end of the decade, those units will not be profitable. So this is a generation segment and Mining segment. On the next slide, you can actually see our nuclear new generation in vehicle format. So on our nuclear facilities, we generated 15.3 terawatt hour, which is exactly half of how much it should be for the full year, 30.6%, which is a bit more than we originally anticipated. And renewables, similar amount actually of power generated in first half and actually a bit higher expectation compared to 2025. So we should 6-terawatt hours of renewable power. Next slide, you can see electricity generation from coal and natural gas. As I said, we produced actually 5% more power from coal in the Czech Republic, 7.6 terawatt hours and the generation from natural gas is also up to 1.7%. So in total, fossil fuel generation is up by 6%, again due to very positive situation on the power market. On full year, we will increase our generation in coal by of 9% and natural gas by 87%, so total by 18% to 18.8 terawatt hours. Important slide, hedging the power for 2027, we are hedged at 76%. -- average achieved price 88%. As you know now, actually, the power prices are in Germany are around EUR 106 or above EUR 100, definitely. So selling actually more will mean that our average gas price will grow. We are still keeping some power unsold for the year when it starts. So there is a potential if the power prices stay where they are, that our average achieved price would be higher. However, it will probably not be able to -- be able to achieve 2026 price, which is somewhere between EUR 106 and EUR 110. This is our estimate. Then you can see also following years and the same for carbon credits that in 2029 are actually is clearly prices of carbon grades are higher in prices of power that you are actually generating. So now that's all for this segment, and I will hand over to Pavel to guide you through Distribution and Sales.

Thank you, Martin. I'll start with Distribution. You see that the year-on-year result is a CZK 2 billion or 10% increase. The underlying story is even better. The normalized EBITDA for electricity grew roughly CZK 2 billion or 15%, driven by investment and increased WACC as we switched from one to the other regulatory period between last year and this year. On the gas side, the normalized EBITDA grew 25% or CZK 1.5 billion. If we was partially driven by the acquisition of Gas Distribution, if we exclude that, there will be still an 18% growth for Gasnet alone. So the numbers, we will see them fully in the coming years, which will not be as impacted by correction factors from 2 years ago. In terms of consumption growth, both gas and electricity consumption is growing, 3% for electricity, about 1.6% if you adjust it for weather. On the gas side, it's 8% overall, but also about 3% or 2% is payment adjusted on a comparable basis because part of the growth is driven by the acquisition of gas distribution. But on both sides, 1.6% and 2% weather-adjusted same-base growth shows that there is recovery both in gas and electricity consumption. In terms of the Sales segment, Martin already commented the overall CZK 2.4 billion decrease year-on-year for the first half. And this, to a large degree, driven by the exceptional year of 2025. We've also included the comparison to 2024, and I already mentioned it in the last quarter result discussion that we had together. If you look at the retail purchase per day and compare it to 2024, there is a growth of CZK 2 billion. And similarly, if you look at the commodity sales for the large industrials under escrow companies, the 2026 is roughly at the same level of 2024. So this is where we stand today. I think we see the market overall normalizing and stabilizing, and we expect kind of a steady development on this -- in the commodity business. In terms of the Energy Services, again, a topic that was already mentioned. We see stable development in Energy Solutions for buildings and industry both in Czechia and in a broad. This year is negatively impacted in delay in some of the green energy segment projects, both in U.K. and then in terms of biogas facilities in Italy. But again, something that we see recovering in the coming next year and the coming years. In terms of the volumes of supplied electricity and gas. This is roughly the similar story to what we saw in the distributed volumes, see growth, 5% overall, with gas supply growing by 10%, which is driven by growing portfolio, growing consumption and also colder winter and 2% on the electricity supplies. In terms of the customer portfolio development, we keep it roughly stable given our market size. This is also a market share. This is our overall target to keep our market share roughly stable. Last but not least, revenues from the Energy Services. We see kind of 1% or flat for the first half. We still expect higher growth when you compare year-to-year for the full year, 2026, and most of the effects have been already discussed. So I think this concludes our presentation. And Barbara, back to you.

[Operator Instructions] We have the first question from Anna Webb.

Anna Webb from UBS. A couple of questions from me. Maybe firstly on the trading. Obviously, you reported, I think, a negative number, and there are some potentially one-off or effects in there. But I think -- maybe correct me if I'm wrong, but the kind of base result ex those kind of derivative or other effects was kind of zero. So can you talk a bit about what you're seeing in terms of trading conditions? And is it that you're kind of not putting positions on given the volatility or basically what's driving that result and how you see kind of trading generally -- the opportunity in trading generally? And then a second question for me. Obviously, we've seen power prices going up and gas prices remaining at an elevated level given the conflict in the Middle East. I wondered if you could comment on whether you see any risk to further windfall taxes or if there's a level at which you think infill taxes are a risk or whether you think the current government that's really not on the table? Or do you see any other kind of measures basically whether you see any intervention risk in light of the higher prices if they continue?

In terms of trading, you rightly pointed out that most of the effect is the 1 of the kind try year revaluation of energy contracts. At the same time, we do have a slower year also on the base trading -- we see this as a slower year, and we expect a recovery to the standard levels that we had, for example, last year. So that's on the trading side. And Martin, do you want to...

Yes. Both exist. We don't hear any and there was a single sentence actually around introducing Quin Fotex, I think this is all behind us. On the other hand, profits of energy count Benestar significantly lower than they were actually when infotech was introduced. So taking a base whatever base actually in the past few years, very few will be subject to the stake. And I believe that having introduced or being such a tax introduced, which in our opinion is almost impossible, would definitely impair discussions about our new project and separation of his Energy and things that we would like to do actually. So I didn't hear about it, and I don't think it's on the table.

We can take the next question from Bram Buring.

Just a follow-up on your answer. You said that the yes, the negative impact on revaluation of derivatives. That was a dry annual revaluation. Did I get it right? How often do you revalue these things? Hello?

Sorry, I was turned up. I said in prior year, meaning it clears out or settles typically within the same calendar year. I think...

Intra-year.

Intra year. We evaluate every month depending on market prices.

Okay. And this isn't going to be reoccurring in the second half of the year. I assume.

Well, it can be all different. There can be positive revaluation as it was at the end of first quarter.

But what happens is basically, it cleans out or upon delivery of the electricity. So the volume like over time of the contracts that are being regulated within intra-year like within the year kind of decreases as you approach the end of the year, and it typically clears out, not necessarily every year to 100%, but it typically clears out most of it until the end of the year.

Understood. A technical point, I just wanted to clarify.

Just to say, for the end of first quarter, actually, the valuation was CZK 2.6 billion positive. Now it is CZK 2.6 billion negative. So it's swinging one way to another.

Got you. And then the question I wanted to ask is with regards to the distribution segment. You -- when I go back to -- when I go back to the outlook that you gave in for '26 back in February, you had distribution and correction factors as a negative. And now distribution is becoming more and more positive than you would imagine back in February. So I just want to understand what is behind that?

What is happening that the underlying business is generating more revenues. So the reason being like higher-than-expected consumption. We had, let's say, compared to the average, we had colder winter, so forth, gas and electricity, we see higher consumption. And with that, it comes higher revenues for this year. And we also see some recovery in the kind of industrial and household consumption even on top of weather. So that obviously, at the same time, this clears out, we will return this to the customers 2 years down the road. So that's why we control normalized EBITDA because that basically is the fundamental return that we get on our assets and that we retain. And this one does not necessary -- this one does not fluctuate within the year because this one is basically set with your asset base and WACC at the start of the year.

Okay. So simply, the weather is giving you a win that you couldn't have anticipated back in front.

Exactly. Exactly.

Next question from Farha Malu.

Thanks for the presentation. Just wanted to ask a question on the CEZ Energy split. So I think on the slide, you mentioned that you're looking at what extent financial debt will be transferred from CEZ Energy. So a couple of questions on the back of that. Firstly, can you say how much debt capacity do you think you'll have at CEZ Energy? And then I think you mentioned this before, but I was just wondering, could you -- I think there's 2 options, right? Firstly, you've got the debt transfer and the other 1 is raising CEZ Energy and doing some debt repayments, potentially as -- So just looking at -- could you still be looking at these bond repayments? And do you think there could be a kind of like make whole on the debt rather if you don't go for the consensus solicitation path, path? And then also just the timing of a potential debt transfer. So will this happen after Q1 27 or could it happen before in line with the transfer of the businesses?

So regarding that capacity of CEZ Energy, I think the nearest comparison could be to Elevion, which would be very similar business profile. So whatever they are able to take and whatever their targets are, we would probably be very similar. And second, the debt transfer and the technical way how to do it and the timing is still under discussion. Clearly, there will be the transfer between CEZ and CEZ Energy, for sure, but the technical way how to do that and how fast it will be done, there'll be -- is subject to discussion, which is clearly the capital structure discussion one of the most parts of -- one of the most important parts of the puzzle, and we will communicate it as the time passes closer to the end of conclusion of the transaction.

The next question from Emanuele Oggioni.

The first one is a follow-up on the increase in EBITDA for CZK 1 billion in this Distribution business unit. You mentioned say correction factor, a higher correction factory in electricity. So my question is what is the read across on '27? So there is some effect or impact or reversal and we should expect in H2 in '27 for this moving part happened in H1? This is the first question. The second question is on the drought in Europe, which is causing a stop and cutting production for many nuclear plants, obviously, also lower Hydrolite production in, for example, in some countries in Eastern Europe. I read that Hungary, for example, has increased strip is imported from Czech. So what are the impact on shares in positive, for example, for higher export to Hungary, for example, electricity and -- but also the risk of H2, the drought initiative also for your country? This is the second question. And finally, a question on the decrease the reason or the slight decrease for still CZK 1 billion around in EBITDA for the sales segment compare not year-on-year compared to 25%, but compare to May guidance. So what happened compared to May to cut this EBITDA for sales?

So on the Distribution side, I think the best way to look at are the best place to look at this Page 31 in the backup of the presentation, where you see both the normalized EBITDA, if you look at 2025 and 2026, this is the one-off impact mainly driven by the increase of WACC between the 2 periods. So what you will see is the normalized EBITDA, the WACC being stable for the future years, but typically -- and the wrap growing with our investment, which exceeds depreciation by about 0.6%. So we invest about 1.6x or 1.7x depreciation. So that's kind of the base value. In terms of the correction factors. What we will see in 2027 is the reversal of the positive correction factor from 2020 was, again, a year where positive correction factor was generated. So this will be subtracted in 2027. It's more -- it's higher. It's more visible on the electricity side than it's on the gas side. So that's -- I hope that explains this. And Martin?