Hello, everyone, and welcome to September 2023 Results Conference Call. It's my pleasure to welcome here Martin Novák, Chief Financial Officer, and Pavel Cyrani, Chief Sales and Strategy Officer. The call will have two parts. First, gentlemen will go through the presentation, and then you will have an opportunity to ask questions. Now I'm handing over to Martin to start the presentation part.
Good afternoon. Good morning, everybody. So I'll start with first with the financial highlights and our selected events. So when you look at slide number three, actually, that is now on the screen, you can see that our operating revenue has grown by 17%. Our EBITDA, probably the most important number, by 6% to CZK 95 billion. Net income to almost CZK 30 billion, adjusted net income 31.4 billion. Operating cash flow, significant growth, mainly due to margin requirements that were coming back to CZK 133 billion. Capital expenditure 31% growth to CZK 27.9 billion.
We actually are increasing our financial outlook, as you will see later on, our guidance on EBITDA from 215 to 220 billion Czech crowns. We maintain an estimate of net income of 33 to 37 billion Czech crowns. On next slide, you can first see main year-on-year changes between 2022 first three quarters and 2023. Generation income or income from our power generation operations is actually 6.7 billion Czech crowns better, with two significant items actually embedded in this number. And it is power prices that are still growing compared to last year. Average actually achieved prices growing, and it helped us about 16 billion Czech crowns.
On the other hand, we are paying, actually, we are subject to caps on power prices, and this cost us CZK 8.7 billion. So in total, CZK 6.7 billion positive. Our trading activities are this year well above budget, but on the other hand, below 2022, which was exceptional year that will probably never repeat itself, unless we have another year with EUR 500 daily volatility on power prices, which I hope we don't. And we made actually CZK 6.8 billion this year, which is 6.9 billion lower than last year. There are also a few other items, actually, that were included in last year and not in this year. So CZK 6.9 billion worse income.
Mining operations, 3.9 billion better, although we mined less tons of coal, significantly less. Coal price is a function of power prices, so, and actually, there are formulas, like, in the sales contracts for coal. So, power, so coal prices are higher and therefore helped us with CZK 3.9 billion. Distribution, little variance. Sales business, plus CZK 3.9 billion, and it's mainly coming from just winning actually a court case against state-owned railway authority that was a central purchasing power for railways, central purchasing actually a place for railway operators. In 2010, 2011, they actually ordered electricity, but then they didn't buy it.
We had to sell it on the market at a lower price. At that time, it was lower price than when they contracted it, and the damage was CZK 1.2 billion. So we got it actually back, physically paid from them, as a result of 10 years or 12 years of court discussions. We also have a positive impact on purchases and sales of renewable electricity in the Czech Republic. ESCO, CZK 700 million, better margin on power prices and increase in energy services of CZK 600 million. So in total, after intra-group eliminations, we get actually to CZK 95 billion. On the next slide, you can see actually line items that are below EBITDA.
We have somewhat higher depreciation due to higher depreciation on some of our assets. Then we had asset impairment. Actually, we booked CZK 2 billion impairment on our mining activities, on coal mining companies, Severočeské doly. Last year, as some of you may remember, we actually increased value of this investment due to almost fantastic times in the mining and coal industry due to high power prices. Now, actually, situation looks somewhat different, so we are actually taking an impairment of CZK 2 billion. We have a positive impact of interest, income, and expenses. We actually have a higher income than expenses. The main reason is that we are still, we have still accumulated significant amount of cash.
We pay quite low interest rates, so most of this cash is actually from long-term bond issues. Actually, we receive significantly higher interest today on our- and then we have a few items in other sections that are explained actually in other income and expenses. So, income tax significantly higher, this is something that will not be unnoticed. It used to be CZK 11 billion, now it's CZK 33.6 billion. Actually, purely devoted to Windfall Profit Tax, basically, which booked actually Windfall Profit Tax is CZK 21 billion for first nine months of this year. Adjusted net income, CZK 31.4 billion, adjusted for those CZK 2 billion in mining assets. Let's switch to next slide.
So this is actually our guidance, as I've already touched on. We are increasing our guidance from CZK 105 billion-CZK 115 billion to current CZK 115 billion-CZK 120 billion Czech crowns, and narrowing the range. The main reasons for increasing our guidance is that we have higher contribution from trading activities than originally budgeted. Although it is lower than last year, it is still higher than we originally anticipated. We have also improved financial results of our sales and distribution segments, and we have higher availability of our nuclear facilities. Our adjusted net income stays the same. Again, it's a range, you know, so maybe we are moving in the range, and there are many questions why actually we are not changing the net income.
First, the answer is that it is a range, so we are between bottom and upper part. Second, there is, due to windfall tax, there is actually significant taxation, so CZK 1 billion pre-tax is only CZK 210 million after tax. And, with many items below EBITDA, actually, like interest income and depreciation, and so on, we are actually falling into the range of CZK 33 billion-CZK 37 billion. On next slide, you can see selected events in the past quarter. We have received three binding offers on October 30th from at the end of, on October 31st, actually, from three bidders, EDF, Korean nuclear company, and Westinghouse.
All, all of them submitted, actually, their bids on time. All of them are part of the tender now. We expect to carry the valuation until the end of February, and then we will hand over to state that will further take it for their decision. We also decreased prices for end customers, so now actually, our prices are 20% below the caps guaranteed by the government. This is a function of power prices going down. We have commissioned the largest heating project actually, in the last decade.
Hot water pipeline from a nuclear plant, Temelín, into city of České Budějovice, where we are actually heating up to one third of the city through our heating from our actually heat generated by the nuclear plant that would normally end up in a cooling towers as a waste, waste heat. So now we can actually use it for heating, heating the municipality. ESG, we received international award in sustainability and, and validation of our key climate goals by SBTi. Details are provided actually in the, in the, on the slide.
As a result of development of renewables in the country and by not only the large photovoltaics, but also retail, we connected 42,000 photovoltaic power plants, which equals 488 MW to the grid. Now, we'll switch to details of individual segments, and it's I will cover generation and mining segment. When you look at slide number nine, you can see actually generation segment EBITDA that has improved by 10% as a function of growing prices. Average price, every sales price is higher than it was during last year. Now we are actually at 124-129 EUR of average achieved price for full year 2023.
Nuclear plants 16% higher, renewables somewhat lower, and emission-generating facilities actually 24% higher, or CZK 2.7 billion. Trading, as I said, trading had a good year in trading result, still lower than extraordinary result in 2022. The details actually are also provided below the table. Now, mining activity, as I said, you can see actually that we have increased our EBITDA by CZK 3.9 billion or 77% year-on-year. Same for the third quarter. Mining volumes went down by 14%, or 16% for the third quarter respectively. So that's what I already explained.
Generation activities, or volumes, actually year-on-year on nuclear and renewable generation, it is 0%, so -1% on nuclear, +7% on renewables, with actually details provided. Full year expectation is actually a slight decline of 1%-2% attributable to nuclear due to longer scheduled outages, and 9% up for renewables, mainly coming from Germany and Czech Republic, hydro plants. Electricity and generation from coal, we have a significant reduction in our coal generation, 18%, 26% actually on Polish coal assets, 9% on gas, in total, 18%.
The main reason is actually the fact that the power that was not sold on a forward market, and we kept it for spot market, it was actually the conditions were actually much more difficult than last year, so the power plants were not running at full speed as they were last year, for example, because of the market conditions, and especially talking about power prices and carbon credits. Same expectation, basically, for a full year, 10% reduction on the coal and 24% reduction on Polish plants. We don't show here estimate for gas plants.
Gas plants have generated so far CZK 1.6 billion, but, and they will definitely generate more, but we have adopted actually this format of not showing the estimate because, it's those are peaking plants, and we really don't know how much it will be. So minimum CZK 1.6 billion, which is already produced, very likely more than that. Important slide on emissions of CO2, SO2, and NOx. So you can see that both quarter-on-quarter and estimated year-on-year, we are reducing our carbon footprint.
We should be aiming at 0.27 tons of CO2 per megawatt hour produced of our carbon intensity, which is 78% of emissions of new CCGT, 42% of emissions produced by the marginal generating facilities in Germany. Same for sulfur dioxide and nitrogen oxides in thousands of tons, so we are following our ESG targets in emissions as well. Price for 2023, I said already, it is EUR 124-129 per megawatt hour. This will be average achieved price. We are fully. We don't need to buy any more carbon credits.
We have still 2% of our position open, towards the end of the year, and, of course, we expect that that will be the result. As of generation revenue and hedging as of September 30, actually, for 2023, we achieved EUR 125 average achieved price. On next slide, it's important slide for the future, and you can actually see what is our position in our carbon credits, and also sales of power. So we are using our standard hedging line, and average achieved price for 2024 on 77% of sold production is EUR 130, 51% sold for 2025 at EUR 127, and 20% sold for 2026 at EUR 108. Corresponding numbers for carbon credits are on the left side. So this is all for generation and mining, and now I will hand over to Pavel, who will go through distribution sales.
Okay, well, thank you, Martin, and hello, everyone. Let's have a look at the distribution sales. Obviously, the variations are typically lesser than in the case of generation, but still. On the distribution side, we see a 5%, CZK 0.7 billion decline year-on-year. It's to some degree driven by the increase of operating expenses, but the underlying dynamic is lower consumption that we see here, and we also see then later in the sales segment.
Obviously, the expectation or the decrease in the consumption gets factored in the tariffs only, let's say, only on the way it's expected, and it will come back to us in the form of what they call a correction factor or return in year plus two. But what we do see, we do see overall a decrease in consumption, both in electricity and gas. What we see is that the savings that have been started last year not only remain, but people still continue in finding ways to save both electricity and gas. In terms of the sales segment, we actually have a very high year-on-year growth.
You see, more than 100%, CZK 3.9 billion on the first three quarters of the year growth. There are some one-off factors and some kind of continuing growth of the business. In the retail segment, ČEZ Prodej, this year-on-year growth is mainly driven by the fact that we have collected the proceeds from litigation with the railway operating company. This litigation that dates back to 2010 and 2011, when the company refused to offtake electricity and we were suing them for the mark-to-market value of the unused electricity. And we have won.
Obviously, it kind of goes back and forth for those who don't remember the whole story, but we already once collected the money, then we had to return them, and then again, we won in another stage of the litigation, and we collected the money again. This CZK 1.2 billion is for only one year, and then there is basically a similar amount being litigated for the other year. So this and this is still in the making. Otherwise, we would see a pretty much flat result where we have lower electricity and gas sales, driven by the lower consumption and also a somewhat lower margin.
But we have a better result in the loss from trade receivables and also in the photovoltaic and installation and fixed expenses. We see a significantly higher growth on the B2B segment. There's a kind of gradual annual growth in the energy services, both in Czech and German, and we plan to continue in this in the futures as well. We have a very good result, both in absolute terms and year-on-year, in the sales of commodity. This is actually driven less by sales of commodity, but we have an excellent result from the purchases from renewables. We were able to contract the electricity from renewables at very good prices for this year, and this is the profit we are deriving from it.
On page 19, you see the development of our supply, which, as I said, is driven to a large degree by the consumption pattern. You see that in terms of the number of customers, the number is pretty stable. We grew by more than 300,000 customers a year ago, and now we are keeping it stable, but the consumption goes down in the natural gas more than in electricity. This is mostly driven by the fact that the place where you can save the easiest for the consumers is in heating, and gas is used more for heating than other uses, and in relative terms than in the case of electricity.
In terms of the revenues from the sales of energy services, we see a significant growth, you know, about around 30%. Obviously, it is driven by the organic growth, but also some of the acquisitions. I would wanna say that it is all driven by only our activity, but I do have to admit that obviously a pretty high inflation also factors in the revenues. So therefore, we do see growth in the EBITDA, but not as high as you see on the revenue side. But anyway, this business is going well, and obviously, as I said, the consumption is going down, but we are turning this into installing more technology solutions for our customers to save electricity, which kind of offsets each other. With this, thank you for the attention, and we'll turn to the Q&A session, right?
Yes, sure. So if you have a question and are connected with Teams, just raise your hand. If you are dialing in, just press star five to raise your hand, and I will call your name to ask a question. So... The first question comes from Piotr Dzięciołowski.
You are allowed to unmute. To unmute yourself, press star six.
Hello, can you hear me now? It's Piotr Dzięciołowski from Citi.
Hi, Piotr. Yeah, we hear you now. Thanks. Ask your question.
Oh, apologies, as I dialed in, and not that straightforward. So I wanted first to ask a question about the windfall taxes. Do you see any willingness from the politicians regarding this issue, that it could be shortened out and it wouldn't affect 2024, 2025? So that would be the question number one. And the question number two: Is there any update you can give us about this discussion? There's a number of different headlines flying around, around the restructuring and the takeover of the company. So what is the latest, and do you have any update on this from the company side, whether you are preparing it? In this context, as a sub-question, can you please tell us, can you imagine going ahead with the nuclear investment within the current ČEZ structure, just maybe tweaking the financing around the different subsidiaries and so on? Thank you.
Well, I will, I will, answer the windfall taxes, and Pavel will probably go on restructuring. Windfall taxes are set by the law for 2023, 2024, 2025. There is also a- there are actually also caps on power prices that that are limiting our sales prices, not in retail, but on from our actually generation sources, mainly impacting the nuclear plants. We actually ... This will cease to exist as of the end of this year, but windfall tax of 60% is actually there. There are some discussions, and from time to time, politicians mention that could be adjusted, but there is no initiative in the parliament, no legislation initiative, actually, that would lead to such a change. You know, so for now, it is in place.
Okay, well, and then on the restructuring and nuclear, obviously there's nothing that we can really say to restructuring. We follow, in general, the discussion and the announcements by our shareholders, mainly the politicians, on this topic. At this moment, there is no active discussion that we would be aware of. Now, how that what that means for the new nuclear projects or nuclear units, at this moment, we have a valid contract with the government, which has, for one unit in Dukovany, the Dukovany 5 unit, which has two possible outcomes.
Either the contract is superseded by a new kind of contract for different type of or offtake PPA type of contract, together with a governmental loan or financing for this 1 unit, and then in such a way that it would be viable and profitable for just to build the 1 unit, and that then we would proceed with it. Or, if there is no such contract, the current contract ends with us selling the SPV Dukovany 5 to the government. It's actually already embedded in the contract, that unless it is superseded, it changes into a basically sale of the shares of the company.
Now, at the same time, what I can say is that if there was a decision on proceeding with four units, then I think it would lead to a situation where taking the nuclear project over by the government from ČEZ would be needed and much more likely because the financing and so forth and so on, whereas it can be suitable for one unit, but it probably would not be possible to do for four units.
Okay. Thank you very much.
Next question from Michal Kozak.
Yes. Thank you. Can you hear me?
Yes, very well.
Okay. I have a couple of questions, if I may. The first one, is there any reason to assume maintaining this exceptionally good performance in sales segments in the fourth quarter?
Um
Because we have very high base effect.
Yeah. Look, what you can expect is that the proceeds from that litigation would be on top of a normal development. But the exceptional performance of the third quarter alone is more driven by what we call seasonal factors, where you don't have a perfect alignment of the allocation of the purchase so electricity towards actual sales of electricity to the consumers, which depict the flat prices throughout the year.
So what I would assume is that I would look at the development on a standalone in the segment standalone, and then I would add the p roceed from the litigation on top, which is, this is on the retail side, on the retail side. On the corporate side, again, we expect basically pretty much normal, gradual development as in the other years, and with the gradual growth on the ESCO services, and we see the commodity to be like the fourth quarter, not adding more compared to next year, but maintaining the growth year-on-year.
Yeah. Maybe just to add to Pavel's answer, what we show on slide 26, that for the whole year, we expect the whole sales segment to be up between CZK 1 billion and CZK 3 billion versus a year ago. So that by itself implies much small contribution in fourth quarter.
Yes, thank you. Another question, you expected CapEx this year in the amount of CZK 51 billion, and after three quarters, we have CZK 28 billion. Should we assume that this CapEx should be lower than your forecast? In which segments is it lower?
It will be somewhat lower, but obviously not proportionate to the three quarters. Probably we are looking at about, roughly 10% variation compared to what was the expectation. And where it comes lower is in the generation segment.
Could you specify what was the CapEx separately in nuclear, renewables, and fossil fuel in the three quarters this year?
Yes, it's on the slides, in the backup. Let me just-
Okay. Sorry.
It is slide 29.
Okay, but we don't see separately the nuclear, renewables and fossil fuel.
We comment just year-over-year changes by these.
Okay.
Yeah.
Mm-hmm. Okay. Thank you. And maybe the last question: Should we expect that higher windfall tax this year will somewhat reduce the tax effect next year?
You know, I'm not sure whether I understood it, higher, higher Windfall Profit Tax this year. Well, I think the rate is the same for this year. Well, for next year, actually, corporate income tax will be going up from 19% to 21%. So, and in addition, we have 60% of Windfall Profit Tax. And base for Windfall Profit Tax is actually based on historical numbers, you know, so it's not that the results of 2023 will increase the bar, you know, that's not the case.
Okay, thank you.
So now we can take the next question from Arthur Sitbon .
Hello, thank you for taking my question. The first one is, I was wondering if the recent European Council agreement on the power market reform, if that changes anything to the group future from your standpoint, then how to think about new nuclear for the group? So that's the first question. And the second one, I'm thinking in terms of moving parts for the fourth quarter. I was wondering if there's any negative impact that maybe I could be missing to explain that, the guidance on net income didn't go up together with the EBITDA guidance. That would be very helpful. Thank you very much.
So I will answer the second question first. And, it's actually, you know, moving parts are always there, but they are, but their impact is much bigger than it was in the past, you know? If you have CZK 1 billion more on your EBITDA, your tax is actually CZK 790 million. So you are only left with 0.21 billion Czech crowns. And then, so, and then, of course, those little moving parts may actually change, or may have an impact, you know.
So, basically, 80% of pre-tax income and guidance on EBITDA disappears with the tax, you know. So an impact of anything that you make pre-tax is fairly small, and therefore does not is not that visible in income, net income. And as we have a range of 33-37, we are comfortable with in this range, actually, even with the new guidance, although we increased old guidance, somewhat, you know, so EBITDA guidance somewhat. So that's, that's the main reason, you know? And, first part
Market reform, like, in general, it does not impact the way we see the market development forward. But, like we see two kind of positive developments. One is we see nuclear being fully kind of recognized as a technology, which contributes to lowering emissions. So with this, we believe that it should receive equal treatment. And, and secondly, we see the emphasis being put on longer term contracts, mostly CFDs, for basically any type of technology, be it renewable or nuclear. And, and again, I think this is in general, like, in a kind of positive development, in the sense that it should stabilize both the environment for the consumers, but also it should stabilize the environment for the investors.
Okay, so next question, from Peter Bartek.
Good afternoon. Can you hear me?
Yes.
So, maybe questions to M&A and future investments. I've seen some news regarding the lithium mining project. So if you could comment on the expected economics of this project and maybe timeline, so how you see it at the moment? And also, if there is any progress on the potential takeover of GasNet, the gas distribution network, any timing, if we can expect it anytime soon? And third thing is the dividend policy. Even after the large dividend payments for last year and after the large taxes, you are still at one time EBITDA, I guess. So if you are considering some adjustments to the dividend policy.
Well, I'll start with the lithium projects and M&A. Look, on the lithium projects, we are now in the process of finalizing the so-called detailed feasibility study. So we are not in a position to provide more information. We'll do it in one of the next calls. But in general, what we've announced previously still holds. That means, we expect, if the project goes according to plan, the productions to start around year 2027. And with some kind of gradual ramp up following that date.
The investments in general being in the order of magnitude, kind of 700, let's say, to 800 million EUR, or 800 100%, not now commenting on the way it will be actually financed. Okay, now on the M&A, I can say only the following, as we have previously said, we believe there are both operational and strategic synergies between electrical networks, such as ČEZ Distribuce, and gas networks, such as GasNet, but we are not in a position to comment anything else on that matter. In terms of dividend policy, Martin?
Yeah, dividend policy stays as it is, you know, so 60%-80% of our net income payout ratio. And so far, I think it's too early to make any suggestions about the dividend, but we always said that should we have a good financial condition, and at the same time, not having enough projects ahead of us for the near future, we will be definitely willing to be closer to 80% rather than to 60. But again, you know, it's too early. I think good timing will be spring of next year.
Thank you. Maybe the clarification, EUR 700 million-EUR 800 million CapEx would be for 100% of the project?
Yes, 100%.
Project. Okay, thank you.
At the moment, we don't have any questions. Again, if you want to ask a question, just raise your hand through Teams or press star five on your telephone. Okay, so it seems that there are no further questions. Thank you for your participation. If something comes up to your mind, do not hesitate to contact Investor Relations, and if not, we will hear each other at the full year results in March. Thank you very much, and goodbye.