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CEZ Third-Quarter Profit Falls 49 Percent on Writedowns

CEZ AS, the largest Czech power producer, cut its full-year income target after third-quarter profit fell 49 percent on an asset depreciation and falling power prices due to weaker demand.

Net income in the three months though September declined to 3.1 billion koruna ($154 million) from 6.1 billion koruna a year earlier, the Prague-based utility said today in a statement on its website. That missed the 6.3 billion koruna average estimate from 10 analysts in a Bloomberg survey.

Profit was cut by 8 billion koruna in writedowns, which offset a 2.9 billion-koruna gain from the sale of the Chvaletice coal-fired plant announced earlier this year. CEZ has struggled with low power prices and weak demand from producers, compounded by lower distribution tariffs in Bulgaria.

“The main negative influences on earnings remain the declining price of electricity on European markets, lower income from carbon-emission allowances and worsening of regulatory conditions in the EU countries we have business in,” Chief Executive Officer Daniel Benes said at a news conference in Prague, singling out Romania and Bulgaria.

The shares rose 0.8 percent to close at 568 koruna in Prague, after falling as much as 4.5 percent earlier in the day.

Ebitda Drop

Third-quarter earnings before interest, tax, depreciation and amortization fell 7 percent to 15 billion koruna. That missed the average analyst estimate of 16.1 billion koruna. Net income attributable to shareholders was 3.8 billion koruna, compared with 6.5 billion koruna a year earlier. Revenue for the period fell 1 percent to 48.8 billion koruna.

The company cut its full-year net income target to 35 billion koruna, from 37.5 billion koruna previously, because of impairments in Bulgaria, Romania and the Czech gas plant Pocerady, Chief Financial Officer Martin Novak said during the news conference. The company maintained its full-year Ebitda target of 81 billion koruna.

The company said Czech electricity consumption from January to September remained unchanged from a year earlier at 43.2 terawatt hours.

It pre-sold 86 percent of its 2014 output at 44.6 euros a megawatt hour, 63 percent of 2015 production at 41.50 euros, and 27 percent of 2016 output at 40 euros, Trading Director Alan Svoboda said during the news conference. Next-year electricity prices in Germany, where CEZ sells part of its output, have dropped 20 percent in the past 12 months.

Impairment Charges

CEZ booked impairment charges of 4.8 billion koruna for the first nine months, related mainly to its operations in Bulgaria and on its 600-megawatt wind park in Romania after that country cut support for renewable energy in July. The wind farm is receiving only one green certificate for every megawatt-hour generated, instead of two previously.

The company estimated full-year impairment charges will reach about 8 billion koruna. The remaining 3.2 billion koruna in the fourth quarter will be related mainly to the lower value of the new Pocerady gas plant, CFO Novak said.

CEO Benes didn’t rule out that the company may sell some assets in Romania or Bulgaria if it receives an offer.

CEZ postponed its deadline for choosing the supplier of two new reactors for the Temelin nuclear station until a new Czech government completes its long-term energy strategy and provides guarantees that the project will be profitable.

The company originally set the deadline for signing the Temelin contract at the end of 2013. Westinghouse Electric Co. and a Russian-Czech group led by Rosatom Corp. are vying for the contract, valued at $10 billion.

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