CEZ Profit Falls on Low Power Prices, Decreased Output

CEZ AS, the largest Czech utility, said its first-quarter profit fell 44 percent on low electricity prices, reduced income from its Romanian wind park and an output drop after it disposed of a power plant last year.

Net income dropped to 9.9 billion koruna ($497 million) from 17.9 billion koruna a year earlier, the Prague-based company said today in an e-mailed statement. That missed the average estimate for a profit of 11.3 billion koruna by 12 analysts in a Bloomberg survey.

Like other European utilities, CEZ has been battling weaker demand and falling power prices, which are hovering near a record low. An unusually warm and dry winter and a one-time gain last year from exiting the Albanian operations also caused the first-quarter earnings to plunge.

“The results reflect the deteriorating conditions in the energy sector, falling wholesale power prices and economic stagnation in Europe,” Chief Executive Officer Daniel Benes said in the statement.

CEZ confirmed its forecast for 2014 earnings before interest, tax, depreciation and amortization of 70.5 billion koruna and net income of 27.5 billion koruna. Deterioration in the regulatory environment in Romania and Bulgaria, as well as a several-month long delay in the upgrade of the Prunerov coal-fired plant, may pose risk to the forecast later in the year, the company said.

The shares fell 2.7 percent to 575.2 koruna today in Prague, a third day of decline. The stock is up 11 percent this year.

Forward Contract

Power for next-year delivery in Germany, where CEZ sells part of its output, has tumbled 11 percent in the past year. The forward contract dropped to a record-low of 33.75 euros per megawatt-hour on April 4.

CEZ’s first-quarter Ebitda fell 25 percent to 21.2 billion koruna, less than analysts estimated. Revenue declined 11 percent to 53.2 billion koruna during the three-month period.

Operating profit in Romania, where CEZ runs a 600-megawatt wind farm, dropped by 1.2 billion koruna after the country cut support for renewable energy and power prices plunged. The wind farm is receiving only one green certificate for every megawatt-hour generated, instead of two previously. Earnings in the Czech Republic fell by 4.8 billion koruna.

“The results were a bit disappointing on all levels,” Petr Bartek, an analyst at Erste Group Bank AG in Prague, said in a note today. “Sales in the Czech Republic, which were below our estimate, fell because of low gas prices and warm weather.”

The utility sold its 800-megawatt Chvaletice coal-fired station for 4.1 billion koruna in March 2013.

CEZ has pre-sold 77 percent of its 2015 output at 40.5 euros per megawatt hour, 44 percent of 2016 production at 38 euros per megawatt hour, and 16 percent of 2017 generated power at 40 euros per megawatt hour, the company said.

In April, the utility called off a $15 billion tender for two new reactors at its Temelin nuclear power plant after the Czech government refused to provide guarantees to ensure the project’s profitability.

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