CEZ Predicts Further Drop in Power Prices as Profit Declines

Aug 12, 2014 6:33 am ET

Aug. 12 (Bloomberg) -- CEZ AS, the largest Czech utility, predicted a further drop in European electricity rates after reporting a 32 percent decline in second-quarter profit on lower prices, reduced income from its Romanian wind farm and a cut in output.

“The prices probably won’t rise in the foreseeable future,” Chief Executive Officer Daniel Benes told reporters today in Prague, after releasing earnings. “They are more likely to fall further.”

CEZ, along with its European peers, has been battling waning demand and falling electricity prices, hovering near a record low. Reduction of subsidies for renewable energy in Romania, where CEZ operates a 600-megawatt wind park, also eroded earnings in the quarter.

Net income fell to 7.3 billion koruna ($351 million) in the three months ended June 30 from 10.7 billion koruna a year earlier, the Prague-based company said today in a statement. That missed the 7.5 billion-koruna average of 12 analyst estimates compiled by Bloomberg. Revenue fell 9 percent to 48.5 billion koruna.

“The decline in earnings reflects the ever-worsening conditions in the European energy sector, falling power prices and an exceptionally warm and dry winter,” Benes said in the statement.

CEZ shares gained as much as 0.9 percent to 596.90 koruna and traded at 593.10 koruna as of 12:17 p.m. in Prague. The stock has gained 15 percent this year.

Higher Target

Earnings before interest, taxes, depreciation and amortization fell 10 percent to 18.7 billion koruna. That beat the average analyst estimate of 17.7 billion koruna. The company maintained its full-year Ebitda target of 70.5 billion koruna and slightly raised its target for net income to 29 billion koruna from 27.5 billion koruna previously.

Power for 2015 delivery to Germany, where CEZ sells part of its output, dropped 3.3 percent this year, extending the 16 percent decline in 2013. The forward contract decreased to a record 33.75 euros ($45) per megawatt-hour on April 4.

Ebitda in Romania, where CEZ runs a 600-megawatt wind farm, dropped by 1.1 billion koruna in the first half of the year after the country cut support for renewable energy and power prices plunged. The wind farm is receiving only one green certificate from the government for every megawatt-hour generated, instead of two previously.

First-half Ebitda in the Czech Republic dropped 20 percent to 23.1 billion koruna.

Pre-Sale

CEZ has pre-sold 82 percent of its 2015 output at 39.5 euros per megawatt hour, 54 percent of 2016 production at 36.5 euros per megawatt hour, and 22 percent of 2017 generated power at 36 euros per megawatt hour, the company said.

The company plans to cut operating costs in the next two years by 16 percent, according to the statement. Through an arbitration suit, CEZ reached an agreement with the Albanian government for a 100 million-euro compensation for having its license revoked and assets confiscated last year.

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. The government is drawing up a new national energy strategy to be introduced at the beginning of next year.

CEZ is interested in Enel SpA’s assets in Slovakia, which the Italian company plans to sell to cut debt. The process is “at the very beginning,” Benes said.