Hello everyone and welcome to CEZ Group conference call on first quarter 2024 results. Martin Novák, Chief Financial Officer, will go through the presentation, and then we will have room to your questions, for which we also have Mr. Luděk Horn, Head of Trading, available for the answers. Now I'm handing over to Martin to go through the presentation.
Thank you. Good afternoon, good morning, everybody. So let's start with a brief presentation. On the first table you can actually see our financial highlights and full-year outlook. Our EBITDA has grown by 24% to CZK 40.3 billion. Our net income and, at the same time, adjusted net income has reached CZK 13.6 billion, or a 25% improvement year-over-year. We confirm our guidance of CZK 115 billion- CZK120 billion for 2024, and on EBITDA and adjusted net income at a level of CZK 25 billion- CZK 30 billion. So there is no change compared to our last presentation that was held on March 21st. On the next slide you can actually see main variances between Q1 2023 and Q1 2024.
As I already said, our EBITDA has grown by 24%, and you can see the main factors actually on slide number four, where the biggest variances are basically two. The first one is in the segment of generation, generation segment. Last year in first quarter, we had an additional cost of CZK 10 billion related to price caps on various power plants, as it was introduced by the government. And actually full-year cost at the same time was as well CZK 10 billion. So basically all those caps, or or draw payments above those caps have materialized in the first quarter. Clearly, this has been, this is not in, this is not valid any any longer after December 2023, and that's why we don't have this extraordinary cost, and therefore we have CZK 10 billion lower cost, meaning CZK 10 billion better result in Q1 2024.
At the same time we also see narrower margins mainly on the lignite plants, so about CZK 5 billion. So this is partially compensating lack of those price caps. In sales segment, we had a negative result of CZK 3 billion in our retail business last year. Now we are kind of back to normal, so CZK 800 million positive result, which makes total difference with other little items of CZK 4.2 billion positive. So these are the two main variances actually in our EBITDA. Going to net income, main changes actually in net income are mainly in interest income and expenses where we have a little bit higher interest expense or the other way revenue on interest received due to declining interest rates.
We have somewhat higher nuclear provisions, and there is also segment other income and expenses, and there is a revaluation of financial derivatives of CZK 2.2 billion negative, which actually are a function of weakening Czech crown. So in total we are going down to CZK 13.6 billion, which is CZK 2.7 billion better than last year, for 25% growth. Next slide you can see total operating results in volumetric units, which we can probably skip and go to slide number seven, where we are actually confirming our guidance from March, CZK 115 billion- CZK120 billion on EBITDA and CZK 25 billion- CZK 30 billion net income. The main year-over-year effects on EBITDA are expected lower trading results. As last year we had actually second largest trading result in our history.
The best result was actually in 2022, due to high volatility of prices. We don't expect such a volatility, and therefore we expect lower trading result. We have also lower sales for ancillary services. We have higher cost due to inflation. And on the other hand, as a positive, we have still power prices that are a little bit higher, that are effect of our hedging in previous years, and we don't pay CZK 10 billion in caps on power prices. There are also selected assumptions listed, and opportunities and risks. So clearly opportunity is a better trading result than anticipated, and negative downside is always availability of generation facilities mainly nuclear. On next slide you can actually see new nuclear events.
In Dukovany II we actually received updated bids for the construction of new nuclear power plants from two bidders, which is French EDF and Korean KHNP. It was submitted on 30th of April, and now we are actually analyzing the bids. We will hand it over to the government who will, based on our recommendation, make a choice of the winner, and the final contract should be signed by March 31, 2025. There is no change in the schedule, so the unit should start operating in 2036. EU has also approved actually state aid for our nuclear unit in Dukovany with the parameters listed. So basically government provides interest-free financing. We get that that should be actually repaid within a few decades.
We will receive CFD basically for 40 years, and, of course, we will be protected against changes in the legislation and regulatory environment in the Czech Republic. So now, let's go to segment of generation mining. On slide 10 you have a lot of detail on this segment. I have covered the most important factors, which is basically no levy on the nuclear plants or on our production production portfolio. Mainly it is actually seen in nuclear. You can see that on the second line item actually nuclear has improved its operations from 10.7 to 19.9, and the main reason is that nuclear was mainly subject to price caps as the price cap on the nuclear units was around 70 EUR versus coal units were around 180 EUR. So that's the main variance.
You can also see emission-generating facilities, as I said, are impacted by higher carbon credits, so CZK 11 billion in 2023 and CZK 5.9 billion EBITDA in 2024, decline of 47%. More details actually in the text. Then when we look at next slide, slide 11, you can see our nuclear and renewable generation, so emission-free generation. We had a slight decline actually in our nuclear facilities, but this is different on scheduling our planned outages. Overall year-on-year it, it the plan is to be 1% below last year, again because of the outages. For renewables, we plan to be about 4% higher due to better than average hydrological conditions in the Czech Republic, and we also have new installed capacity in Germany. On next slide we can see actually electricity generation from coal and natural gas.
There is a quarter-over-quarter decline of 2% in total, 15% on gas, mainly due to market conditions, meaning gas price, electricity price, and carbon credit price. 38% decline in Poland, the same effect, and 5% increase actually in the Czech Republic, mainly due to shorter outages in two of our power plants. Year-over-year we plan decline actually in the Czech Republic, by of 8% on coal, 8% in Poland, and 9% increase in gas. So in total, we plan 6% decline actually in our electricity generation, that is coal and natural gas-based. For price risk hedging, we are basically almost fully sold for this year, only 3% open position for this year, and 0% basically open position in carbon credits. On next slide you can see the level of hedges for 2025 through 2028, and the same on carbon credit side.
So, looking at the prices, we can clearly see that we are above current levels of market prices, forward prices actually, for 2025 through 2028 due to our hedges in the past. The same applies to carbon credits that are somewhat more expensive, but at the same time we were selling electricity at much higher prices, so always kind of locking up our margin when we sell coal-based electricity. Distribution and sales segment is actually on next slide. So on slide number 16 you can see our EBITDA distribution, which is 10% higher, mainly due to higher margin from distribution fees growth. There was a relatively significant growth in the fees. We have lower revenues from connection activities and providing balancing to the grid, and connecting new customers, so there's less demand. We have also somewhat higher expenses due to inflation, wage inflation.
So, electricity distribution is 1% lower. After we actually climate and calendar adjusted it is 1% higher, quarter-on-quarter. Sales segment EBITDA I already commented on the retail segment. We had a negative in 2023 because sales, retail customers are paying the same price per megawatt hour now, whether it's January or July. So we actually entered the year with somewhat open position. So in the first quarter, our sales organization had to pay more for the power, and it made the money back actually, in the out quarters. But compared first quarter to first quarter 2023, 2024 when power prices were much more stable, we actually have a significant difference of CZK 4.2 billion positive, where ČEZ Prodej, which is our retail organization, is returning back to standard operations, I would say, not seeing such swings in profits.
Other companies, basically, having relatively marginal changes in their performance. So overall the segment is, it made profit of CZK 2.6 billion, which is variance of CZK 4.2 billion. Volume of electricity and gas sold. Year-on-year change in electricity and natural gas supplies is 11%. This is mainly due to extremely warm winter, so consumption of both gas and electricity went down. We had a slight change in customer base of 1% negative, as, but this is a reaction to the times when we gained, about 300,000 customers from, collapse of a few operators in, 2021 and 2022. Now actually we have, 1% decline, mainly due to customers, who are always seeking the best, offer, that are always part of our portfolio. So, that's the main reason.
Of course we are always discussing optimization of the number of customers and margin per customer, you know, so it's not necessary to keep all customers, to simply say. Revenue from sales of energy services are growing in all our segments. Germany clearly the large jump due to acquisition of a few companies. Year-on-year we expect mainly organic growth, but nevertheless in Germany you would expect 13% growth. In Czech Republic, we expect decline, but this is due to major contracts, one of contracts that we actually had in our group, and especially decrease in commodity prices, where we had a significant profit on our corporate customers actually in first quarter of 2023 compared to 2024. Overall the segment it will be growing by 4%, full year numbers, estimated full year numbers, sales for this CZK 3.8 billion. And that's basically it.
You have a lot of information in appendices. Now I think we are open to questions and answers.
Yes. So if you have a question just raise your hand. I will call your name and you can ask your question. We have the first question from Anna Webb.
Yes. Hi, Anna Webb from UBS. Thank you for taking my question. Two from me if I can. Firstly, on the nuclear, as you said on the slides you've got the approval for the support framework from the European Commission in the last couple of weeks for the first unit. And one thing I'd like to understand is it mentions measures to protect ČEZ against changes in legislative or regulatory environment. But I wondered if you could help us understand more broadly how much risk ČEZ has to bear for cost and time overruns. We've seen very significant overruns in recent nuclear projects in Europe, for example Hinkley Point in the UK. So just wondering what kind of protection you have from potential additional costs and how they're considered when calculating a fair return under the CFD framework.
Any detail you could provide there would be really helpful. And then secondly, on the Polish assets that you've got up for sale. I think I saw some headlines this morning, saying that you expect to make a decision this year. But can you give us a bit more detail on whether you're seeing good interest in these assets at reasonable valuations, and if you don't receive satisfactory offers, what's the next step for these assets? Would you consider decommissioning those yourself? Thank you very much.
Thank you. So I'll answer the questions. First, nuclear, the structure is that we actually are now financing the first stage, which is up to EUR 180 million, basically getting it to the selection of the winner. Then, after actually we move to another phase and the winner is selected and the work starts, it will be financed directly through the state budget, with interest-free loan. We will get a CFD at the end. And in the middle, of course if things go wrong, we have a maximum we have some exposure but limited, for of about EUR 1.7 billion. This is maximum that that is at risk if things go wrong, on our side be as a our fault. Everything else will be covered by state.
And, this should be reflected in the agreement on a CFD anyway so that the profitability for, for us is there. And, we also have a system of call and put options, so that if things go terribly wrong, you'll be able to put the project on the government or the government will be able to call the project. So that's, that's what it is. Of course the details have to be negotiated and nailed down, but this is how the system should work. As we realize that if there is a huge risk of budget overruns, as, as it can be seen basically on most of the projects. The biggest issue is also financing, where a few more years of construction means added cost on interest. And that's why actually the government support and financing is interest-free until the commissioning of the plant.
When it starts generating cash, only then actually interest kicks in. So that's the model. As the second question was actually Polish, related to Polish assets. We are now going through the stage of collecting non-binding offers. We can see much stronger demand than when we were trying to sell the assets a few years ago. After we actually analyze the non-binding bids, we will proceed with selected bidders to the next stage, to due diligence stage, and actually see what happens and the decision whether we sell or don't sell should definitely be made this year. It will definitely be made this year.
If we don't sell for whatever reasons, we don't agree on price or the bidders will not be able to put together financing, whatever can happen, we would definitely not want to stay and generate power from coal assets in Poland. So we will have to seek a different route of how to divest those assets. And of course decommissioning those assets could be one of the options and maybe selling actually the land as a brownfield for another potential investment could be a choice.
Great. Very helpful. Thank you very much.
We can take the next question from Arthur Sitbon.
Hello. Thank you for taking my question. The, the first one is on the 2024 financial targets, both on EBITDA and on, on net income. I've noticed that the, the divisional breakdown that you provide on EBITDA, is actually slightly better than it was at the full year results. And so I was wondering if basically that means that you are tracking ahead of your initial guidance midpoint, at the moment or if there are any negatives in the in the second part of the year that we should, that we should have in mind that should offset the, the strength of, of your EBITDA in Q1. The second question, is a follow-up on the on the state data approval on the, the new nuclear unit, especially on the on the CFD. So you talked a bit about the, the financing.
I was wondering what would be the potential implications for the current ČEZ Group structure? Does it mean that the current group structure is adequate for to implement this agreement that has been approved or will any change be needed? Thank you very much.
So, first question actually, I think we still, you know, although we are kind of, we could think ahead of our target, our business is very seasonal, you know. When you look actually at past many years, first quarter is by far the strongest. And, this question comes of course every time. Towards the end of the year it is more difficult and we had worries when we were close to zero actually on EBITDA, no, on net income, mainly due to various asset write-offs and so on, which we don't expect. If we expected them we would have done it already. But, we don't know how the situation will develop of course. So now actually we feel very comfortable with the range that we provided that we should be definitely getting there.
But should we be sure that the guidance could be approved, we would have done it, you know. So basically another review will come before 10th of August when we are presenting or 8th of August. I don't remember the date exactly, when we present our numbers for first half of this year. So that's where we are actually on our guidance. And state aid approval and structure. The deal is structured in such a way that actually it is the financing will be provided to our subsidiary, so not to us but subsidiary SPV that is holding actually land and employees who are working on the project. And therefore anytime it can be disposed into state hands if things don't go according to expectation and basically nothing touches our structure.
So we don't accept the debt on the corporate level and push it down to the nuclear unit project, but it is direct financing actually of SPV.
Thank you very much. We can take the next question from Michal Kozak.
Yes. Thank you. I have two questions. The first one on the seasonality on nuclear area in the first quarter. Could you give us more details on the reasons for such a high seasonality? Because I don't think it's only volumes and it appears that we should see strong decline in nuclear EBITDA in the next quarter, regarding your segment guidance. And the second question, can you say something more about your today guidance, or target on net debt EBITDA growth from one to three ? What is the time horizon? What are the largest CapEx positions? You mentioned earlier that you want to focus on distribution, renewables, gas, and nuclear plants. Thank you.
So, thank you for the questions. Nuclear EBITDA, as I commented, CZK 19 billion is actually impacted or more than CZK 19 billion is impacted by the fact that actually last year we had a levy of CZK 10 billion, which mainly related to nuclear assets, you know. There were price gaps on the assets. And of course, coal plants really were not impacted but nuclear plants were impacted in first quarter of 2020s of last year. So we actually had now CZK 10 billion lower cost. And if you actually take the same amount, or if you would actually add those CZK 10 billion you would be basically on the even numbers for first quarter of the 2023 and 2024. Nuclear plants also have outages. Plants usually done during summer months, you know.
So, it's really in accordance with our expectation. So that's the nuclear EBITDA for 3 months. The net debt to EBITDA target or limit I would better call it is 3, net debt to EBITDA whatever EBITDA would be in the future. Our CapEx plans are mainly directed to development of renewables in the Czech Republic, then replacement of coal plants with gas fleet, as profitability of coal plants is declining fairly quickly, and we need something to replace, temporarily replace, those plants until the moment we have enough renewables and nuclear plants. And this is all subject to introduction of capacity payment system, without which it would be difficult to take a risk of building CCGTs that make just electricity and not gas and not heat. And of course we start first; actually plants will be conversions in heat business.
And the third one is actually as I said distribution. We still invest quite a lot of money into our distribution assets, improving our grid, connecting new customers, connecting new renewables. All this requires relatively high CapEx. So, those are the main areas of CapEx. And of course then development in ESCO there it is mainly about financial investments. And of course the largest amount that will increase our debt is affiliation of GasNet. Actually, consolidating GasNet would mean that they will be consolidating their debt and their EBITDA as well. And I think they have net debt to EBITDA something like 5 as they are regulated assets.
In such a case, if we receive all regulatory approvals and we believe we will, we will be able to increase our net debt target ratio to above three, to something like 3.3-3.5, maximum.
Thank you very much.
Just one question. You can find our five-year CapEx outlook in the annual report where you can see the segmental breakdown and the figures for the years of 2023 until 2028. We can take the next question from Piotr Dzieciołowski.
Hi. Good afternoon. It's Piotr Dzieciołowski from Citi. So I have a few questions. Let me start with the first one. So is the current structure for the new nuclear really excluding the option for the breakup of the company and the minority buyout of the minorities? And second, in this context, how much equity you will have to put into the subsidiary?
Okay. So, maximum equity if things go wrong over the 11-year project construction that we would have to put would be something like EUR 1.7 billion, which is so-called contingent equity. And that's it. There's a cap. No more. If things don't go wrong we wouldn't. And they only have to go wrong because of us, not for example because of a supplier of the nuclear unit. The rest is financed by state, whatever it is. Buyout of minorities I think, of course it's a question to Ministry of Finance rather to us, but we don't see any signals on the market that this would be an issue, because they just received actually notification approval from the EU Commission based on this model.
I don't think they really see a need to buy minorities to be able to carry on this project when and for us when we take care of all the risks, budget overruns, and have a put options, to be able to put the project on state, then the risk is fairly minimal for us as well, you know. So that's basically, that's basically the scheme, that is in place today.
Okay. Can I please ask you the next three reactors? How do you see the structure for them? Would that be done in the similar way through you or there would be another, third party involved in it?
This is only structured for one reactor. If it is more than one reactor, it has to be different approach, different structure and new notification, you know.
Okay. But is that possible that let's say for the second reactor you do the same way? So you provide a kind of into SPV another CZK 1.7 billion and you do the same structure and then, you know, if,
I don't think we would be able to afford it actually. So there would have to be a different structure. We I think CZK 1.7 billion is a maximum that we could do, but we couldn't do two times CZK 1.7 billion I think. So we would have to really this is the structure for one reactor. If it's more than one we have to find a different model and probably different, and new notification. But so far we are.
And.
So far we are using one reactor, you know. And we receive no notification for one reactor only. So you cannot really multiply by two, three, or four.
Okay. Can I please ask you last question? How do you think about the dividend policy in the context of your CapEx plans and getting to a three times leverage plus the new nuclear development? What, how do you think, you know, what's the right payout and when this could be really reached?
Well, our officially announced dividend policy when we actually were proposing dividend for 2022 is 60%-80% of adjusted net income. However, shareholders may decide differently as they did last year on shareholder meeting. Their Ministry of Finance filed a proposal that moved dividend higher, but so far we are thinking of 60%-80% as a sufficient range for dividend, which does mean.
I'm asking more not about the 2022 payout because this, but more like 2027-2030 when you start all of the investments and your balance sheet is full. Do you think the company can sustain 60%-80% payout or the long-term ultimate payout needs to be lower?
You know, we are very far from 2027 to 2028. It, it depends on the power prices. Depends on the cost of, investment. Depends on the profitability of the projects. May happen that they will not be in the money and that's why you would not do them. And it makes your, it makes your situation it changes your situation as well. So we understand that, all shareholders are buying our shares because of the dividend. It is a dividend stock, mature company. So we have to balance those, those, things, very well. But, 2027 and 2030 is far, far from now.
Okay. Thank you very much for the answers, Cheers, Martin .
We have a question from Robert Maj.
Yes. Hi. Yes, hi. It's Robert Maj from IPOPEMA Securities. On the CapEx plan I'm trying to get my head around the numbers which you plan for 2024 so this year. Are you on track of reaching the CapEx from your guidance? And on the new nuclear I mean, is this EUR 1.7 billion included in those numbers you mentioned you provided in the last financial 2023 report or is it outside of this? And the second question on the sales segment performance in the first quarter. I mean, the result was quite good and I just wonder if this is something that would be repeatable in the following quarters. So last year we had a loss in the first quarter and in the fourth quarter, and there was like in the middle there was like a positive result.
So how the margin over there would evolve in following quarters in 2024? Thank you.
I think in our CapEx plans, we have only EUR 180 million invested into nuclear project. Nothing else because those EUR 1.7 billion would really be drawn if during the construction phase, which is years from now, if things go wrong, you know, and it's our fault, you know. So we really it is definitely beyond our five-year budget that we do. And remember regarding sales segment sales segment was extremely volatile in 2022 and 2023 as you could see on the results. In the past when the prices were more stable, their result was also more stable, always generating positive EBITDA. And if nothing really significant changes you would expect that they would be back into normal pace of profit generation.
So, what would be the CapEx for 2024 if you can just remind us?
I think it is, Barbara, is it?
Yeah. We announced CZK 57 billion expectation for 2024.
That, that's more than 45 last year, right? So the difference and this is without GasNet, right?
This is without GasNet, yeah.
This is without GasNet, yes.
Yes. Okay. So the majority would go where? In the ESCO business? The difference between this year’s CZK 57 billion in your guidance and last year’s? Where would the money go?
It is across various segments. One is increased spending in nuclear, both into the nuclear fuel and some increased maintenance. We are starting working on the first gas projects and we expect basically ramp up in the CapEx in the renewables.
Okay. And when the GasNet would be consolidated, I reckon it could be the third quarter. So I guess that around the second quarter results publication you would increase your guidance, right? Because simply of adding this CZK 10 billion of EBITDA for GasNet. Am I right?
Yeah. If we consolidate GasNet we would, we would put them into numbers of course. We would add them in.
This, we should think about third quarter as the first time when you will consolidate if you consolidate, right?
Probably. Probably, you know. And if we, you know, it depends really when whether we will be able to acquire it in the second quarter, which we are in the middle of, or probably third quarter depending on regulatory approvals, you know.
Yeah. As we mentioned, we are waiting for the approval from the European Commission and we don't know the timing so we don't know when we will consolidate. We have follow-up question from Arthur Sitbon.
Yes. Thank you very much. Apologies for the third question. It was just, I was just wondering if you could provide an update on the evolution of the windfall tax in the Czech Republic, specifically thinking of 2025. Thank you very much.
Okay. So, you know, we have heard from public resources comments from Ministry of Finance and Ministry of Finance that government is strongly thinking of basically discontinuing this tax for 2025. We also heard that they might be thinking again about 2024 but some political parties in the coalition are against it, some support it so let's see. So hopefully 2025 will be almost certain but on the other hand no legal initiative has been taken. On the other hand it's very simple. It's just changing one sentence in the law. We don't have to do any complicated change to the law. So basically erase 2025 or even 2024 which would be probably too optimistic but let's see. So this is where the public debate is actually heading to today.
Okay. Thank you very much. Andrzej Rembelski.
Hi. Andrzej Rembelski with PKO BP Securities. Thank you for the presentation. Just one question from my side. What's your opinion, from the point of view of key market player? Do you think that four nuclear reactors in the Czech Republic are essential for the system in the upcoming years or do you think that I don't know, maybe one, two more units would be more reasonable? Thank you.
No, I think, from energy point of view or energy need point of view we can clearly see future trend into more and more using electricity versus other kinds of fuel. And our fleet will be discontinued within a few decades. Coal plants fairly quickly. Older Dukovany plant does not have a indefinite lifetime either. So clearly, just replacing current nuclear plant in Dukovany is 2,000 megawatts. Replacing capacity in coal plants is even more. So the and gas plants will be kind of transitional technology which still generates some CO2. And we are not definitely talking about building them all at once, you know. So this is a project for decades. And that's so we can from energy point of view see a need. It depends on what will be the pace of such a construction.
Okay. We have another question from Piotr Dzieciołowski.
Hi. Thank you for letting me ask the follow-up question. So I have a question about the CFD structure for the new nuclear. How should we think about the level of it given that that funding is provided by the government? So what is basically the return you possibly could get on your CZK 1.7 billion equity injection into the company? And second question I wanted to ask you about the, you know, your kind of a higher CapEx for the nuclear reinvestments. What is the CapEx you need to spend to refurbish the existing nuclear plants? How much per plant or for all of the Dukovany and Temelín, how much and when you have to spend to keep them running?
I will answer the equity question. Of course we would expect through CFD to receive return on equity that we will provide, that relates to standard, let's say, generation projects, whatever level of return, I think, equity it is. Standard return on standard generation project, that's what we would expect. This should be actually built into CFD in the future. So that's the answer and the detail on the CapEx, Barbara will provide.
Yeah. Okay. So on the maintenance of the nuclear fleet, historically we were spending typically between CZK 4 billion and CZK 5 billion a year. Now as the plants are getting older and we have inflation going forward in 2024 to 2027 we expect maintenance CapEx at around CZK 8 billion per year for two units together.
Do you have to go into like, for example, you take the other reactors across Europe, they have to go through, I don't know, a 10-year revisions and at that point, you know, EDF had a program whereby they spent like, you know, almost EUR 1 billion per plant in retrofitting them to give them another 10 years. Or you take Fortum Loviisa, they also spend EUR 1 billion for extension. Do you have to do the same because that is quite a that would be quite substantial CapEx in your in your case given your capacity in nuclear?
No, we don't have it this way. We actually used to have 10-year tenors and now it changed to indefinite tenor but you have to fulfill certain criteria. So, that's how the licensing actually is done in past few years, you know. So until you are able to fulfill criteria and it's economic to do that, you can go forward. And actually I think estimated lifetime of Dukovany we are looking at, extending the lifetime up to 60 years if I'm not mistaken. And so that's what we are aiming at. And of course past 10 years would be probably most expensive in terms of CapEx. On the other hand still very profitable. So it's much more.
Thank you very much.
It's much better to maintain current nuclear plant than to build a new one, you know, simply said.
No, no. That's clear. Thank you very much.
Okay. It seems that we do not have any further questions so let's finish this call. As always, Investor Relations Department is available for any follow-ups on a one-on-one basis. Thank you very much and goodbye.
Goodbye.
Bye-bye.