Hello everyone, and welcome on the first half 2024 results call of CEZ Group. It's my pleasure to welcome Martin Novák, Chief Financial Officer, who will go through the presentation. I also have Luděk Horn, Head of Trading, with me, who will be also available for the Q&A part. Now, I'm handing over to Martin to go through the presentation.
Good afternoon. Good morning, everybody. So let's start with the financial highlights of, and our full year outlook. As you can see on slide number three, our EBITDA has grown by CZK 6.8 billion to CZK 69.2 billion, for 11%. Net income has reached CZK 21.1 billion, which is 5% below last year's numbers. Operating cash flow is negative by almost 50%. This is due to margin, basically margins that were paid to the market due to higher prices in 2022, and that were actually coming back in 2023.
So that is the main effect, actually, of very high operating cash flow in 2023, where the margins were actually coming back to our accounts. Our CapEx reached CZK 20.5 billion. Our estimated EBITDA for full year is actually being increased. Our original guidance was CZK 115 billion-CZK 120 billion. Now, we are moving to CZK 118 billion-CZK 122 billion, so both increasing our estimate and also narrowing it by CZK 1 billion. Net income or adjusted net income is expected to be CZK 25 billion-CZK 30 billion, so we don't change guidance in this net income. Main differences of year-to-year changes in EBITDA are shown on slide four.
The by far largest positive impact is actually coming from the fact that in 2023, in first half of the year, we paid CZK 11 billion on actually caps on power prices, and this was actually discontinued as of the end of last year. So in 2024, there is no such a charge, and therefore, actually, our result is, or generation margin is actually CZK 11 billion better. Two billion negative impact is coming from our nuclear plants, mainly due to plant outages that were planned for first half of 2024.
In trading, our profit is lower by CZK 3.2 billion, or CZK 1.3 billion is coming from lower income from prop trading, CZK 3.9 billion versus CZK 5.2 billion last year. It's important to say that last year was the second-best year after 2022. Extraordinary good, I would say, due to still relatively high volatility on the market, which is not the case this year, or not in such a such an extent. So even CZK 3.9 billion in the first six months is a big success, because normal trading profit when those prices are stable is between CZK 1 billion and CZK 2 billion annually. And then there is a realization of derivatives of -CZK 1 billion, negative number.
Mining segment is 1% down, CZK 1.5 billion below last year EBITDA. This is mainly due to a fairly warm winter, actually the warmest winter, this year compared to last year. So our sales of coal, both to our own companies or power plants and also to external customers, are lower than in 2023. Distribution has a positive impact of CZK 1.4 billion. In general, distribution segment should be pretty stable. CZK 1.1 billion out of CZK 1.4 billion is due to negative correction factors that actually hit our PNL in distribution in 2023, and those were correction factors related to 2021.
So 2021, we received CZK 1.1 billion more than we should have, as originally planned, from our customers due to COVID, mainly households, and we had to return it back in 2023 after it was audited in 2022. So this puts us together with CZK 600 million positive or increase in sales segment to CZK 69.2 billion EBITDA. When we look at net income for first half of the year, there are a few items, actually, in terms of, you know, net income. Depreciation and amortization is 5% higher. Other income expenses is CZK 4.5 billion, versus CZK 1.2 billion.
One of the variances is definitely lower interest income due to lower amount of cash and lower interest rates. There is also interest from nuclear and other provisions; there is an increase of CZK 400 million. And then there is a few other items that in total actually generate CZK 1.7 billion negative number compared to 2023. Exchange rate effects on Turkish operations, revaluation of financial derivatives, high interest rates from nuclear provisions, and so on. So this brings us to CZK 21.1 billion of net income, and at the same time, adjusted net income, as there is no adjustment so far. On this slide, you can see actually our financial outlook for 2024.
As I said, CZK 118 billion-CZK 122 billion on EBITDA level, and CZK 25 billion-CZK 30 billion on net income. The main reasons for adjusting actually EBITDA is due to higher profits from commodity trading, lower cost on distribution, on actually deviations for our customers. When you have to buy power on the open market, when they consume more than you expected, and, on the other hand, sell when, they consume less. So those are actually, those variations are lower. We have also higher expected deployment of, power plants and lower cost, lower operating cost.
We did not change actually our outlook for net income, as actually the range of CZK 25 billion-CZK 30 billion is wide enough to accommodate all potential movements, actually, in net income area or area after EBITDA, which is much more difficult to predict. And another reason is that we are subject to windfall taxes, so every CZK 1 billion on EBITDA actually is taxed with the marginal tax rate of 81%. So really, the impact on net income is fairly small, only CZK 190 million that actually falls through to net income. We have a few important events in past quarter.
By far, the most important one was that government actually decided to go forward with negotiations on building new two nuclear units at our Dukovany plant station, and awarded or just chosen as the best offer, South Korean company KHNP. And this was announced actually on seventeenth of July. So now we have ahead of us negotiations that will take till spring of next year. The supplier, we also have to resolve financing of the second unit. We have the financing agreed for the first unit and notified at the European Commission. Clearly, it would probably be very similar model, but it all needs to be still. There is still a lot to negotiate.
We are now ranking in terms of ESG among top 10% companies in the world. So, ninetieth percentile to CSRHub, that actually looks at 37,000 companies in their portfolio. Important thing, we are in arbitration with Gazprom in Switzerland. Gazprom tried to take action actually in front of their own court in Russia, but actually they were banned from doing that by International Chamber of Commerce in Geneva. That is the only body that can actually decide on this on our claim against Gazprom for gas they did not supply, and that we had to buy CZK 1 billion more expensive and supply it to our customers.
Those are probably the most important three pieces of information. Now let's go to generation mining segment. Generation and mining segment is improved by 7%, in total, or CZK 3.8 billion. The biggest positive variance is in nuclear, as it is, as I said already earlier, not impacted by charges or caps on power prices, and clearly the nuclear plants were impacted the most. So this is not the case anymore. So out of CZK 12.4 billion, about CZK 11 billion is actually attributable to nuclear assets. So emission generating facilities are somewhat below last year. And there is a price effect, and also increase in purchase prices of carbon credits.
Generation segment in total, 5.3, and the mining segment down 1.5, mainly, as I said, due to lower supplies to our external customers. On next slide, you can see actually, in graphical form our power generation. So it was 4% down compared to 2023, 5% on nuclear and 4% positive on renewables. In nuclear, it was mainly because of plant shutdowns that were in nuclear power plant of Dukovany, and they were not actually planned for first half of 2023. Year-on-year, we plan to be close on nuclear generation, close to 30 TWh. Again, we will have those outages that are kind of part of the plan.
That was not the case last year. We have lower availability of the mine, and we hope to increase capacity of the colliery. Renewables 4% higher, 3.7 TWh that we expect to produce. We are adding actually new photovoltaic power plants in Germany, and we have commissioned actually wind farms or wind parks in France. On electricity generation from coal and natural gas, we had a 4% increase on coal generation in Czech Republic due to shorter outages at Tušimice II power plant. We had lower power generation in Poland, 31% decline, due to market conditions, meaning prices and carbon credits. And we had basically flat generation from natural gas.
We actually expect generate 2.3 TWh from natural gas, which should be about 2% lower than last year. For full year, we expect to provide actually to generate coal in Poland for 15% below last year, and coal generation or coal-fired generation would actually be down by 3% year-on-year. Important slide actually on hedging prices. We are, as you know, selling power 3 years ahead. Our average achieved price for 2024 will be somewhere between EUR 132 and EUR 136per MWh. Now you can see how much actually power is sold for both year and at which prices.
So we are sold 71% for 2025 at EUR 120 per MWh, going down to 72% in 2028. But that amount, the volume is really low, 1.3 TWh. And we also, at the same time, purchase carbon credits that are ranging from EUR 90-EUR 74 in 2027. Current situation in the market is that prices for 2025 are around 100, slightly below, and the prices for the out years are close to EUR 80 or below EUR 80 for 2028. Carbon credits are trading at around EUR 70 these days.
Distribution and sales, distribution segment, we made 16% more or CZK 1.54 billion, but CZK 1 billion out of it is actually attributable to lower revenue in 2023 as a correction of 2021 number. Otherwise, the distribution, as it is to large customers, was basically unchanged. And, residential customers are 5% down, small business is 3%, in total, 2% down, but it's mainly due to warm weather, warm winter. And, if you take actually, climate and calendar-adjusted electricity consumption, it is 1% below 2023, which is definitely attributable to also energy savings.
Sales segment, our retail segment is coming back to normal, so first half 2024 results are significantly above first half of 2023, where we still were caught with high purchase prices and very sharply declining sales prices for retail segment. ESCO companies actually made about CZK 2 billion. It is less than last year, but it's important to know that actually it all basically comes from commodity sales in Czech Republic, where we had a different situation than in retail. We had extraordinary good year in commodity sales to large customers. That is, again, normalizing, coming back to CZK 800 million. CZK 1.5 billion was really significantly higher than normally it, under ordinary times it would be.
The total segment is actually CZK 3.8 billion or 20% higher than last year. Volume of electricity and gas sold is actually down by 15%, electricity 11%, and gas 21%. This is all attributable to very warm winter. Actually, February was 6.6 degrees Celsius above the normal February, which is extraordinary and nothing that we would experience in the past. We have a slight decline in customer base. This is something that could be expected after we got several hundred thousand customers in our portfolio after collapse of a few entities in 2021. The biggest one being Bohemia Energy.
So now, actually, after the market situation has calmed down, some of the customers are seeking better value or better proposition, and they are changing the supplier, so nothing that would not be expected. And I think, our strategy is not necessary to fight for every single customer, but keep the overall margin on an optimal level. Revenues from sales of energy services are up by 20%, so far, and we expect an increase of 6% year-on-year, basically, in all segments or in all countries. Of course, Czech Republic, being the whole market, will be somewhat down, but it's mainly because of lower sales of our revenues related to commodity sales.
And, we expect there be significant growth in Germany, that is, from ESCO activities, our key market, both organic growth and also adding new acquisitions, a few companies actually, that were added in the second half of 2023. So this is the last slide from the presentation. Generally, I will say that we had a very, very good quarter and very good first half of the year, and with no significant surprises, stable results. So I think it's a good news. We have, I think, overachieved almost all analysts actually that cover shares. So I think we can be very happy with our second quarter, and first half of the year.
Okay, this concludes our presentation, and now we are ready to take your questions. If you are connected via Teams, just raise your hands through an icon. If you are connected by phone, press star five on your telephone. I can see that first question comes from Anna Webb. You can unmute yourself and go ahead.
Hi, thank you. Anna Webb from UBS. I've got two questions. Firstly, on new nuclear, as you mentioned, KHNP were announced as the winner to build two units with potential for two more. And I think press reports suggest that the government were looking to have a financing model for these units prepared by the end of the year. So could you talk a bit about what you envisage the structure could be for multiple units? From my understanding, it's the, the sort of size of the CapEx requirement that's the challenge, rather than sort of the risk appetite around the framework. So what kind of framework would you need that, that would facilitate you building multiple units? That's the first question. And then secondly, maybe on the windfall tax.
It was reported earlier this year that the Finance Minister was looking at dropping the Windfall Tax for 2025. Can you let us know if there's been any more discussion on this? And I think at the time, there was also talk about whether you could remove it retroactively for 2024, given you haven't actually made the payment, the cash payment. So is there still a possibility of that, and where's the discussion there? Thank you.
Okay, thank you for the question. So nuclear, actually, we have a notification from European Commission for one unit in Dukovany. And the scheme is such that we would invest up to CZK 4.5 billion into preparation of the project, which is current stage. And then the remaining financing would be provided directly to this SPV. We have an SPV, actually, Special Purpose Vehicle, called Elektrárna Dukovany II. So it's our subsidiary, 100% owned, and the rest of the financing, so basically, more than, you know, 90% or more than 95%, would be actually coming from the government directly, through a loan that is a zero interest loan. Why is it zero interest?
To support actually as low cost as possible for future power deliveries. At the same time, this entity would receive a contract for difference, basically, so it would sell power to the state at a guaranteed price, so that actually there will be an ability to repay the loan back to the government over a few decades, and also, for us actually to receive reasonable profit on our investment. The little part actually, the equity, CZK 4.5 billion. And this is notified with EU for one unit, but not for two. So, discussions are now about, basically how to adopt this plan from one unit to two units. However, it needs to be notified with EU as well, the European Commission.
So again, we would not put more money than that into the project, and we would expect the same scheme, meaning basically state providing zero interest financing and also contract for difference. So we have certainty that the power plant will be able to repay the loan going forward. So that's on nuclear, and we have to resolve this issue by the end of the year. At the same time, there are negotiations with Korea Hydro and Nuclear Power Company about the details of the contract, and of course, financing will be an important part of it as well. Windfall tax from time to time, we hear that there could be potential for-...
change to Windfall Tax for, on the other hand, we have not heard about it for a very long time. We are not aware of any any kind of legislative process that that would actually aim on reducing the tax for 2024, and discontinuing the tax in 2025. Basically, no, no legal initiative is taking place. This would have to be a change to law, and there is nothing like this happening, and Ministry of Finance has not actually initiated any anything like that, you know. So for conservative purposes, I think it's fair to assume that it will be here to, with us for this, definitely 2024, and if nothing happens, also for 2025.
Thank you. Can I just quickly follow up on the nuclear question? Just to confirm that you said that it is possible that you undertake multiple units under the same agreement, the CFD framework, with the 0% financing. Is that correct?
That will be a logical way. We are discussing it. I think there is really not much other solutions, you know? We cannot take the risk of building it, the unit ourselves, and that's why we have actually notified the scheme of support of this project with European Commission, but it has notification only for one unit and not two, you know. So we need to go through the procedure, clearly in probably much faster way, but the details are actually being now discussed, you know. So that would make sense. There are not many other alternatives that we have, actually.
Okay, thank you very much.
We have the second question from Bram Buring. Bram? Bram, are you there? Just unmute yourself, and you can go ahead.
Got it. Hello. Bit of an unmuting problem. I'd like to pick on the financing model for new nuclear just a little bit more. So the framework for the first unit, for a first unit, was based on agreement signed with the previous government. So can I assume that for further units, you would just be signing a carbon copy of that same agreement with the new government for two, three, and four? That's the first question. And then the second question is also about the taxes, but a little more prosaic, just trying to understand the difference in the effective tax rate in the first half this year and last year.
I'm assuming that it's, you know, accruals for the tax are more aggressive than last year, but if you could just clear that up for me. Thank you.
So, we actually, regarding the financing, as I already said, there is a contract actually and terms for one unit only. The second unit was not covered.
Yeah.
So it needs to be all discussed, and clearly, this is almost twice as much money as, of course, one unit. It's a bit less than times more than one unit, but much higher amount than originally anticipated. So we are now discussing actually financing for six unit only, not seventh and eighth, which means-
Mm-hmm
... there is an option for two units in Temelín, but they are way down the road, you know? So basically, there is no point in discussing those Temelín units because it's an only option, and the option window will be open for quite a few years, you know. So I think now everybody is aiming actually at Dukovany, two Dukovany units, you know? And, as it was notified only for one unit, it has to be adjusted. We will see. You know, as I said, there is not much choice than state providing financing and contract for differences, you know. That's what it is, but it needs to be kind of worked out in paper as well.
Okay.
It doesn't really matter which government is in place. I think this is a general understanding that this is the only way to go, actually. The way, the any other way, for example, us building it at, our on our balance sheet and risk is really not, not the way forward. It's just too big for us, you know? We couldn't do that, and that's why there is such a scheme that was notified for unit five already.
Understood. I'm only asking because the old contract with the government is fairly, well understood.
Mm-hmm.
I'm thinking more about the risk that this new government gets new ideas in its head. If it's just a matter of notifying under the same terms as unit one for the second unit, then I'm also wondering why they're taking until the end of the year to make any sort of decision.
You know, I think there is plenty of technicalities that you have to resolve. You know, it's not that easy, and, it's only kind of 4 months till or 5 months, until the December. Really 4, because of summer holidays, you know. So,
Mm-hmm
... it's a kind of, you have some technological, technological deadlines, you know, that you just need to accommodate as well.
Okay, fair enough. The tax question, please?
The tax question is, you know, whatever is actually booked in our books is the best estimate of reality for first 6 months. Our estimate for full year on Windfall Tax is actually CZK 27 billion-CZK 34 billion, depending on EBITDA. We have so far paid CZK 15 billion in cash in first half of 2024. Our tax for last year was CZK 30 billion. So, cash payments, if we don't come to a conclusion that they should be lower, would be, according to the law, actually 2x, CZK 7.5 billion, meaning, a quarterly advances of 7.5 billion, so the cash payment would reach CZK 30 billion.
Of course, then there will be an adjustment after we file a tax return, one way or another. Should there be any change, significant change in the level of tax, for example, or should it be discontinued at all, of course, we would adjust our payments to this new situation. So that's what it is.
Okay. So if we take an optimistic view to EBITDA for the quarter, then and you're paying CZK 7.5 billion quarterly, then in the fourth quarter, as it was last year, we could expect that the tax burden will be, you know, let's say, CZK 4 biilion-CZK 7 billion higher in the fourth quarter than it has been in the previous, just on the windfall tax.
It really depends, it really depends, on our EBITDA, you know. But, generally, what you do, if you see that your tax liability is significantly below the advances, you go to the tax office and ask for reduction of advances.
Mm-hmm.
You see that it is kind of on par or a bit below what you will pay at the end, you don't go to the tax authorities, and you do the settlement, basically settle the rest in the at the end of June of next year, you know. So, so it looks like if nothing changes, we, we have paid CZK 15 billion, we will pay another CZK 15 billion, and then we will pay the rest should it be more. Should it be significantly less, we would go and ask for a reduction, but so far, our estimate is CZK 27 billion-CZK 34 billion. So basically, the middle of this range is around CZK 30 billion.
Yeah. Maybe if I can add one comment, maybe Bram are referring to the fact that we had a very high effective tax rate in the last quarter, last year.
Yes.
But this is not mainly driven by the windfall tax, but by the change in the deferred tax, taxes-
Mm-hmm
connecting the change in the tax rate from 19%- 21%.
Mm-hmm.
Uh, so-
That's it.
So from that perspective, this year, the effective tax rate should be less volatile than last year. And therefore, yeah.
Excellent. Thanks for that. Thank you.
We have next question from Roland Vetter.
Hello, good afternoon. I would like to come back to the nuclear topic. One investor claimed that a minority buyout is necessary to finance more than one nuclear plant. Given what you said today, do you think this still makes sense? And in your view, does the government have any interest buying out the minorities?
I think it's one of the activist investors, and of course, he would love to receive significant premium over the share price, and that's basically it. But it's a question to government, you know. We don't see any signs that they would want to do it, and actually, their point of view so far is that they will basically provide entire financing interest-free. They will provide contract for differences to the project. So in the future, we don't earn much money. We earn what we should be earning based on our investment.
Mm-hmm.
Government paying it all, basically, basically bearing all the risks, will also receive all the benefits of it after it will be up and running, you know. You know, so far, there is no, no discussion, I think, about government buying out minorities.
Okay, perfect. Thank you. A second topic on power prices: when you look at the forward curve, the price is coming down, and for example, 2028 midterm year, roughly at EUR 73. What is your view on the power prices around, let's say, 2028 to 2030? Do you see a reason that power prices should increase above the current forward curve?
Good afternoon. Actually, it's hard to predict. At the moment, we don't see any reason why the prices should change in the upwards direction.
Okay. And then the last one on your balance sheet. When you look at the power prices further out, and you make an estimate about what is your profitability, we think that it could be around CZK 90 billion in 2028. And then when you have lower EBITDA, financial debt to EBITDA goes up. So given these conditions, do you think that you can keep the current payout ratio, dividend payout ratio, and also pay for all the future investments?
Yeah. I think it's too early to ask, you know. I mean, of course, we will try to do our best to stay in the rating range, you know, or net debt to EBITDA of three.... with GasNet, you know, we can be a little bit more. And GasNet is actually a distribution and gas company that we should be taking over by the end of this month, and as they are a regulated business, we could actually have a better position. And we understand dividend is important to our shareholders, but it's really too early to say, you know?
But let's say, what would be your preference if you find out that you have, how can you say, not enough money for paying dividends plus investments? Cut investments or reducing dividend?
It depends, you know, what kind of investments and what would be time horizon. So we really make our dividend decisions based on our dividend policy that we announced well enough. It's usually in place for 2-3 years. Currently, it is 60%-80%, but of course, 2028 is quite far away, so we really cannot say what it will-
Okay. Thank you very much.
We have the next question from Piotr Dzieciołowski from Citi. Piotr?
Unmute.
You can unmute yourself and ask your question. Okay, so I'll give you a second, and in the meantime, Petr Bártek?
Good afternoon. I have actually only one remaining question regarding prices this year. You were or you raised the expected prices for this year by a few EUR, up from EUR 130, which is already quite a high level. So if you can elaborate a little bit about the development in the, you know, near-term markets on the unhedged position, what's actually driving the quite good results in the second half? If you see something similar in... Sorry, in the second quarter, if you see something similar in the third quarter still happening, lignite spreads and so on. If you see any interesting developments in the markets, and maybe more long-term, what you think about CO2 prices going forward into the autumn and for the next two years, let's say.
So I will elaborate on the first part. Actually, moving our price from 132 to 136 is mainly due to taking opportunities on the market. So basically, using situations when the power prices go significantly up during the day, or sometimes being negative, basically reducing our output and purchasing power on the market, or purchasing and being paid actually for it, you know. So this is really about those daily peaks that we are using in our favor. And you know, we will see how successful we would be in the second half of the year. But I wouldn't expect that we could move it any further, any, in any more significant way.
On CO2, I will ask Luděk if he can tell us.
Well, if anything changes in the direction of European Commission after elections to European Parliament, the price will be probably moving in the range we are used to last couple of months. So it's between EUR 50 and EUR 100. It's hard to say. There are no fundamental reason to move it in either direction, so it depends on political decisions.
Thank you.
Okay, so we'll try Piotr once again.
Can you hear me now?
Yes, we can hear you. Thank you.
Sorry, I had a trouble staying on the phone. I wanted to ask a bit of a follow-up question to what Roland was talking about. So, I'm trying to understand your kind of a cash flow towards a later part of a decade. On the EUR 2 billion equity commitment you have to the first reactor, what could the timeline of this commitment look like? At what point you have to provide this money? Is it a lump sum? Is it coming in the installment? And when is the first time when you have to provide full money into this one? And then how would the second reactor, if the terms are similar, affected? Is it like just two years afterwards? So that's the first question.
Okay. So there is actually, as part of the notification, is that we provide those EUR 200 million at first, and only if things go very wrong during the construction, and it's our fault, so it's not fault of, our supplier or change in legislation or whatever, then we are obliged to put up to EUR 1.7 billion into the project, and that's the cap. And only when it is proven that it's, something that is, is actually caused by us, you know. So that's, that's it. And also, of course, if anything happens, we will do anything to make sure that it's not our fault. And, if it ever happens, it will probably be late, in later, phases of construction.
That should start sometime in 2028, I guess, 2029, you know, so we still are quite a few years down the road. All the rest is covered by-
What do you say that if everything goes according to plan, you can build, so you can be responsible for building two reactors and spend only EUR 400 million on it? Is that the right-
It is the right assessment. It can actually be only EUR 200 million, you know, that's what we are discussing, because, that's the overall number for one unit, but it may be the same for two units, you know. So those are the things that are being discussed, you know, whether it should be EUR 200 million or EUR 100 million. Definitely, the cap of EUR 1.7 billion is something that should be applicable for both reactors. So it's not 3.4, it's still 1.7. And those are the discussions that are now being actually held, you know, in the unit number six.
So for 2 reactors, would that also be a maximum CapEx of up to CZK 2 billion?
Yes. Yes, CZK 1.7 billion.
What is the rating agency's approach to this possible liability? I mean, do they assign some probability to this number? Do they think about it as just a CZK 200 million commitment, or they think about it as a CZK 2 billion, and that's what they put in, in calculating your metrics? 'Cause the potential liability.
Actually, agencies are not looking that far so far, because we are, you know, quite a few years from first money to be spent, and they are usually looking three years ahead. But knowing them, I think they are fairly conservative, and that they would assume that those CZK 1.7 billion would actually be spent, you know. But I cannot talk for rating agencies, you know.
And is this also fair on this, that you ... that the possible return on equity will apply to the CZK 200 million that you spent? So in reality, you're not going to earn much out of it, in the context of the whole CEZ Group.
Yes, yes. It will be basically all state by state, right? You know, so they should, they will, should have the benefits as well. We don't want to take, take risk, and if you don't want to take risk, you, you don't get much reward either.
Okay, and my last question is concerning the lignite units. I mean, as you look through the market, the conditions for the thermal fleet and coal and lignite especially, is getting worse every day or this half a year, the volumes are really under pressure. Would you consider early closure, and what is your latest thinking about the future of this assets?
I think, we announced on our shareholder meeting that year 2030 is much more probable than 2033. So, yes, it will be, will be accelerated. Of course, not everything at once, and I think there will be a period when those power plants will be up and running full speed in winter, generating mainly heat. And summer times, they may be out of, you know, operations. We definitely don't invest into it, you know, or we invest enough to keep it running maximum 2030, but not beyond. And our monetary situation. We have a plan actually to replace heat plants with gas plants. We already started in the location of Mělník, which is heating a significant part of Prague.
There is actually a subsidiary program to provide profitability for heat plants, and we are now waiting for the mechanism of capacity payments for the power plants. Without it, of course, it would be too risky to build a gas-fired power plant. But lignite plants and lignite mining activities will probably cease to exist by 2030.
Do you think they can generate some losses beforehand?
I think we'll do our best for this not to happen. And clearly, we would not be excited to run it at a loss. So I don't think it would be anything material.
Okay, understand. Thank you very much, and-
See, money we will put it down, you know?
Okay, thank you.
Okay, we now have a question from a person whose name I don't know. He's dialing from a phone, plus 44 78 26. Yeah, so basically, you can unmute yourself by pressing star six. Go ahead.
Hello, can you hear me?
Yes, we can hear you. Hi, Arthur.
Great. Hello, this is Arthur Sitbon from Morgan Stanley. So yeah, my question was just on your net income guidance. You've achieved significantly more than half of your guidance of net income for 2024 in the first half. I was wondering if there are any material negatives to expect in the second half that would make it difficult for you to deliver more than the CZK 25 billion-CZK 30 billion of net income, or if maybe you've made some conservative assumptions for that guidance? That'd be it for me. Thank you.
Yeah, there's nothing really, nothing really that you know extraordinary that we will plan for. Our business is fairly seasonal, so we basically make most of our net income in first half of the year, very similar to last years. We will expect a bit higher interest expense, meaning lower interest income due to decreasing interest rates. And you know, but that's it, you know, so basically, I wouldn't really expect anything extraordinary.
Okay, thank you very much.
Now we have a follow-up question from Bram Buring.
Yes, hello. Thank you for taking the follow-ups. First one was, does the concept of contract for difference exist yet in Czech legislation, or does it still have to be passed?
No, it doesn't have to be passed. It's a matter of contractual agreement, you know. So basically, you create it through the system of contracts.
Okay. Because at some point, somebody had introduced legislation that would, that would codify contract for difference contracts, but understood. The second question from the Czech Twitterverse, a certain high net worth individual is threatening to take CEZ, and I'm not sure if it's just CEZ or if they're banding together with other minority investors in other countries, but to challenge the legality of the windfall tax altogether in front of the European Commission. And I'm just curious for your off-the-cuff feeling on this. I'm not entirely sure if the EC signed off on windfall taxes, you know, for the nations to impose them, or if they just looked the other way. What kind of chances would you give this sort of case in front of the European courts?
No, I don't think there are much changes. Of course, we had done few legal analysis done on this issue.
Mm-hmm.
The windfall tax is perfectly in line with what the parliament can do. I would also almost call it political risk, you know. So basically, there was no error or no mistake in approving the legislation. EU has absolutely no power over direct taxes.
Mm-hmm.
They are involved in VAT, for example, harmonization, but direct taxes are sole responsibility of individual states, no matter how they are built and how high they are. So far, according to legal opinions of a few legal companies, there is not much ground, if any, to dispute it. On the other hand, we are looking at whoever is taking any action, because technically speaking for us, you know, if we want to do something, we should dispute it at the tax office.
Mm-hmm.
As we did a few times, for example, you may remember, Bram, actually, quite a few years, a decade ago, gift tax on,
Oh, yeah. Mm-hmm.
The way how you can do it is actually to go and ask for a refund from tax office when you find out that you think you have some legal arguments that actually you think will be successful, and it usually goes to court and ends up with some court decision. At that time, actually, the gift tax was against the EU principles because you were supposed to receive carbon credits for free.
Yes.
They should not be taxed, but here this is a different story. This is a direct tax that government can impose, and many governments did it in a various way. And yes, Czech government decided to do it for 3 years versus others for a shorter period of time. Some of them for 2023, retroactively, the Czech government did not, they did not do. They did it for 2024, 2025, 2023, 2024, 2025, so, and not for 2022. So, that's actually, that's, that's the position. So if we want to take it through tax office one day, and we are also looking at the reaction of other companies that pay windfall tax and their position.
So far, we don't have any information that somebody would do that or kind of take it to the court or be against that. Then we can do it. We have more than 3 years, actually, or we have 3 years from this June, end of June, to actually dispute 2023 tax, you know. So the window is still open, and you can get into it should the situation change. But so far, it looks like the legal process was correct, and EU has really not much to say about direct taxes.
Okay, thank you.
We have the next question from Robert Maj.
Yes. Hi, it's Robert Maj, calling from Ipopema Securities. I would start, like, with the new nuclear. So the profit you can make on this investment, EUR 200 million of your equity, would be capped on any, any given level, like of a, let's say, for simplicity, WACC of, let's say, 10% per, per annum, which we would like to recover from that investment. Is that correct way of thinking on this?
I think there will be, in general, you know, this is the correct way of thinking, but we also shouldn't bear any risks, you know, related to the project. There will be some portion of extra profit that we will be able to make, depending on optimization of running the plant, you know. So we have an incentive to run the plant in one of the most and most profitable, or most optimal and most profitable way. You know, so there will be an extra bonus, you know, but it will be definitely not the same as if you take full risk, pay for the plant, and then start it, and then use the benefits for following eighty years from purely commercial market, like we do it, for example, with our two current plants, you know.
That will not be the same scheme.
... This will be completely off balance sheet for you, this investment?
We, yeah, I mean, technically speaking, yes, you know, we would be, we would be receiving some fee for managing the, or for running the plant, for sure, but, that would be prohibited.
Okay. The risk, which you mentioned, the EUR 1.7 billion, if this would be coming on your account, I mean, if the delay in the construction process, is it something that you could be provisioned for with this penalty fee?
You know, it would have to be delay caused by us, you know, so it would have to be delay that is caused by our, our mistake. We, we would not be having the construction site, on time in place, and those things, you know? If it is delayed because of the supplier or delayed because of the legislation changes, for example, then, we would not be liable. So that's really if we do, if we do something wrong.
Okay. In the presentation, you say that one of the main reasons for increasing the EBITDA outlook, compared to last time, is the lower fixed operating expenses. I was just wondering, what could it be? What kind of lower fixed expenses you see now down the road to increase the guidance?
Well, I think it's probably related to, for example, mining activities, where if you sell less coal, you have less operating expenses, but also, you know, various, you know, it's many items, you save here, you save there, and on our relatively large scale business, it provides some more savings, you know. But I would say the biggest part is actually trading activities that are above our original plan. So this will be the biggest portion of the increase in our EBITDA.
Mm-hmm.
Maybe one clarification on that. We are not talking about year-over-year increases, but just lower cost versus previous expectations. Yeah.
Yeah, versus plan. Yeah.
Versus plan.
That's correct. Correct, yes. On the capacity markets for coal units, you mentioned it for your coal or heating units. How quickly you think it could be implemented in Czechia, and what kind of impact on your annual P&L could it be, roughly speaking?
We probably don't think there'll be anything, you know. Coal units are kind of going to be out of market, as we said, by probably 2030, so nobody really plans to support coal. It's more about natural gas units, and discussion is going on these days, you know, so but before, before it is in place, we will not invest into natural gas power plants.
Understood. Last question on the disposal of Polish units. Anything new happening here, and if you struggle to find any buyers, would you just, you know, shut it down or just give it for any kind of symbolic lump sum just to get rid of your balance sheet?
You know what? We actually, we actually received a few binding offers for a few counterparties, by the end of July. So now we are negotiating with a few of them going forward, and, we will see whether there will be a deal by the end of the year, and if not, we would, think of a different way on how to get out of, our Polish assets, because clearly, long term, running two hard coal plants, doesn't make, much sense. So but, but it's too early to say. So now I think, we received- we did receive quality offers, which is different from when we tried, a few, you know, a year ago or two, 1.5 years ago.
Okay, thanks for the answers.
We have the next question from, Andrew Moulder.
Yes, hi, it's Andrew Moulder from CreditSights. Sorry, I just wanted to come back a little bit on the nuclear question. On the financing, I mean, it sounds like you're quite clear now that the model you're now considering is exactly the same model as you already had for the first reactor. And yet, when I remember the previous conference calls you've held, you were... Well, I thought you were quite adamant in saying that you know, you needed a different model if you would be developing more than one reactor. And I just wonder, what's changed your mind to say that the model you had originally is now acceptable if you need to build, I think you've talked about even up to six units.
So could you just clarify what's changed in your thinking to make you now use the old model, which you'd said you couldn't use for more than one reactor? And my second question, sorry, also on the nuclear, is just, I think I remember reading something on Bloomberg, that Westinghouse was actually challenging the decision of using the Korean company to build the reactor, because they said that actually it was a Westinghouse design, and the Koreans didn't have permission to use it. So I'm just wondering if that's likely to delay the whole process, and whether, you know, we might not even see a new nuclear unit yet for the next sort of five or 10 years. So could you just comment on that as well, please? Thank you.
You know, I think, it's more about, adjusting the model, original model to two units, but definitely not three and four. This would have to be a different negotiation. So, adjusting it to two units, and, the, the more... You know, basically, you know, I'm not, I'm not thinking that of... There, there are many of variations of the same, result, but the result should be technically that state should provide full financing at 0% interest. Bear the risk, that is always, kind of connected with the power plant, for all errors other than, or mistakes other than ours, where we would be liable for CZK 1.7 billion for both units, not, not just one. And, and provide contracts for difference, you know. So this model is not changing, you know.
This is the same. Of course, it may have many, many, kind of, you know, sub variants maybe, and, we need to discuss it, you know. So this is what's, what's going on. But, I wouldn't expect that, one unit would be financed like this and the other one in completely different way. Both units would have to be very similar or the same, actually, because this would be technically one project on the one construction site.
Right. Okay.
So, regarding claim of Westinghouse, Koreans are fully expressing their opinion that they have all the rights to build the reactors. They already did it, actually, in a few instances. The last one actually, I think, was in United Arab Emirates. So they declare they absolutely disagree with Westinghouse, and it's kind of their assurance that they are providing whenever we touch this issue. Of course, there was a discussion about it. There's the outcome, so.
Okay, so you don't think that's going to delay the whole process? I mean, you know, ultimately, if they can't reach some sort of agreement here, you could see this whole thing having to be re-tendered.
I think we are far, far from this, you know. It's more a legal issue, you know, other than anything else, you know? But, I'm really not into detail, you know, bit on the, on the discussions between those two parties, you know.
Okay. All right. Thank you very much.
We have a follow-up question from Roland Vetter.
Hello. Yes, one follow-up. Also, nuclear, what construction time do you have in mind? Or in other words, what year do you think you have the first positive P&L contribution from the new nuclear?
I think, our original plans are going for 2036 and 2038, for those units, so that's kind of a timeframe. And again, positive outcome will not be as positive as it was our fully owned plant, you know, where we would receive entire EBITDA. You know, the ... If there is anything above contract for differences, it will be received by the state.
Okay, wonderful. Thank you very much.
Okay, we have no further questions, so we can conclude our call. But, as always, Investor Relations department is at your disposal with any other matters that come to your mind later. Thank you very much, and goodbye.
Goodbye. Bye-bye.