CEZ Quarterly Profit Drops 16% on Falling Electricity Prices

CEZ AS, the Czech Republic’s largest electricity company, said second-quarter earnings fell 16 percent as power prices dropped and production declined.

Net income slid to 10.8 billion koruna ($556 million) from 12.8 billion koruna a year earlier, the Prague-based company said today in a statement. That matched the average estimate of 13 analysts surveyed by Bloomberg.

The Czech Republic’s longest recession on record has eroded industrial demand for electricity, dragging down power prices. CEZ has also seen its expansion plans set back by the collapse of Prime Minister Petr Necas’s government in June, which prompted the utility to postpone a decision on a reactor supplier for its Temelin nuclear-plant extension.

Next-year electricity prices in Germany, where CEZ sells part of its output, have dropped 17 percent this year and sank to an all-time low of 36.20 euros a megawatt-hour last week.

“Wholesale power prices continue to decline and the political backdrop in the Czech Republic seems to have become less stable,” James Brand, an analyst at Deutsche Bank AG in London, said in a note before the results were published. “We continue to forecast a strong decline in medium-term earnings as lower wholesale prices feed through into reported numbers.”

Earnings before interest, taxes, depreciation and amortization fell 5 percent in the quarter to 20.9 billion koruna, CEZ said. Sales rose 2 percent to 53.1 billion koruna.

Profit Forecast

The utility reiterated its full-year outlook, forecasting net income of 37.5 billion koruna and Ebitda of 81 billion koruna. The company also said today that the European Commission had approved the sale of its Chvaletice coal-fired plant and it expects to close the transaction early next month.

The fact that management hasn’t changed its full-year forecast even though the Chvaletice sale was approved is “a slightly worrisome sign,” Unicredit SpA analyst Flawiusz Pawluk said in a note today. CEZ said in May the Chvaletice sale could add as much as 2 billion koruna to the 2013 profit.

CEZ advanced 0.5 percent to 444 koruna by the close of trading in Prague, paring its slump this year to 35 percent.

The decision on the supplier of two new reactors for the Temelin nuclear station was postponed after the government fell amid a scandal over spying and bribery allegations.

CEZ management won’t make a decision until the new government completes its long-term energy strategy and provides guarantees that the project will be profitable, Chief Executive Officer Daniel Benes told reporters today in Prague.

Rosatom Corp.

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.

CEZ completed a 600-megawatt wind park in Romania in November, boosting first-half Ebitda by about 600 million koruna. Romania’s contribution to profit may fall in the second half after the country cut support for renewable energy last month. CEZ’s wind farms will receive only one green certificate for every megawatt-hour generated instead of two previously.

The company pre-sold 72 percent of its 2014 output at about 46 euros a megawatt hour, 53 percent of the 2015 production at 42.50 euros, and 22 percent of the 2016 output at 41 euros, according to Alan Svoboda, its trading director. Prices may decline further, Chief Financial Officer Martin Novak said.

“Coal is being pushed down by shale gas,” Novak said at the conference. “If the trend continues, then another slight decline in price is possible.”

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