Hello, everyone, and welcome to ČEZ Quarter One 2023 conference call. It's my pleasure to invite here Martin Novák, Chief Financial Officer, and Pavel Cyrani, Chief Sales and Strategy Officer. They will start with the pre-presentation, then I will give a room to your questions. Now all the participants are in listening-only mode, and we can start with the presentation right now. I'm handing over to Martin.
Good afternoon. Good morning. Let's start on slide three of our presentation with our financial highlights. You can see our operating revenues went up by 33%, mainly driven by growth of power prices year-over-year. EBITDA is down by 26%. It reached CZK 32.5 billion, and net income and adjusted net income CZK 10.8 billion, which is down 60%. Our financial outlook for the year is being narrowed. We are actually narrowing down our range of EBITDA and also adjusted net income. Our new estimate is actually CZK 105 billion-CZK 115 billion. In the past, it was CZK 105 billion-CZK 125 billion.
Net income adjusted for extraordinary effects is narrowing down as well, originally CZK 30 billion-CZK 40 billion, now CZK 33 billion-CZK 37 billion. We also announced the date of our annual meeting, which will be held in Prague on June 26th. Important, we also announced proposal of the management of the dividend of CZK 117 per share, which is record high dividend. Record high ever. I think our record dividend was something like around 2010, 2011, and it was CZK 53 per share.
We announced this in the morning, and actually, during early morning, Ministry of Finance, as a majority shareholder, published their news that the press release that they will not suggest any other amount, they actually are happy with this dividend. On the next slide, you can actually see main changes on Q1 EBITDA year-on-year. There are three big variances, or two big variances actually on EBITDA and one on net income further on. The largest one is called specific temporary effects of 2022, CZK 7.4 billion negative.
traordinary income that was realized in 2022 as part of our liquidity issues that we actually were working on last year as everybody else in the sector due to margin requirements, raising margin requirements. We had a few transactions, for example, sale of carbon credits that we would not normally not sell, and we would consume them through the year. Now we sold them actually last year during first quarter and realized gain more than CZK 4 billion, which of course, is not repeating itself. We then have a few other derivative revaluations that are positive in 2022
We have also CZK 4.6 lower income on trading activities, partly because some of the trading results are actually going into P&L of future years. Generally with lower volatility, of course, the trading result couldn't be as high as it was in the times of the very high volatility last year. Mining, CZK 2 billion positive effect from higher demand for coal and mainly higher prices. Sales business, CZK 1.5 billion negative, mainly due to seasonal impacts actually, and most of them will cure themselves by the end of the year. CZK 32.5 billion is a final number. On a net income front, all numbers are fairly similar. What's definitely worth commenting is actually income taxes.
Our income tax is actually higher, double compared to last year. The main reason actually in this sector is actually windfall profit tax that was introduced starting this year. CZK 9 billion is actually related to windfall profit tax. It's also worth commenting actually payments that we pay above price limits on mainly nuclear power. This is why we don't see any significant uplift in EBITDA. Positive impact in EBITDA from generation from higher prices was about CZK 11 billion, but actually special levy on excess prices is actually compensating that with CZK 10 billion.
Comparing quarter-to-quarter on EBITDA, I would say that there is a high effect of power prices, compensated by the levy on excess revenues. Then, we have lower income from trading activities, partly due to quarter 1 2022 extraordinary revenues, and we also have CZK 9 billion of extra charge on income taxes. Next slide, you can see actually the financial outlook that I already talked about, so narrowing it down both for EBITDA and adjusted net income. On slide number seven, you can see the dividend per share and payout ratio.
We actually proposed as we a few times actually suggested in the past, payout dividend on the top of the range of our payout ratio, which is 60%-80%. Taking into consideration our CapEx needs, investment needs, financial investments needs into our school businesses and our financial condition, we believe we can afford to pay the dividend at a higher level of the range. CZK 117 per share is a proposal. We actually received the news as all investors today in the morning that the state is fine with this proposal. Generation mining on slide number nine, actually there's a more of a detail of what I just discussed.
Clearly, from this slide, you can see that actually our nuclear EBITDA is actually down compared to previous year, and that's because vast majority of the levy that is paid above price caps is actually related to nuclear. The power price from our fossil fuel generation is below this price cap, and that's why we can see actually 43% growth in fossil fuel generation EBITDA. There's also a line on trading that I already described and special temporary effects of CZK 7.4 billion negative. On next slide, you can see mining. Again, higher prices, and mainly higher coal supplies to the group. CZK 1.5 billion external supplies. CZK 1 billion compensated by higher expenses related to the mining activities.
EBITDA has grown by basically doubled year-on-year. Mining volumes are somewhat similar to quarter one 2022, it's actually function prices. On following slide, you can see actually nuclear and renewable generation. It's important to look at full year numbers. We expect slight decline actually on nuclear, mainly due to longer scheduled outages or refurbishments compared to previous year. We also plan increased power generation from renewables, mainly due to hydro conditions in the Czech Republic. Overall, we should end up at -2% of power generation, 33.7 TWh.
On coal and natural gas, full year, we actually don't estimate the natural gas generation because it is really the plant that is peaking plant. It's difficult to estimate how it will be run. So far we produced 0.6 TWh from natural gas. We had a decline actually in Poland and Czech Republic, mainly due to market conditions that did not allow to run the plants fully. We also expect decline actually on a year-on-year basis. We are meeting our environmental targets that we announced, which you can see on slide 13, both for SO2 and NOx. We are doing better, and we are actually in line with our planned amounts of emissions.
On next slide, you can see actually our hedges. You can see how much as of 31st of March, how many emission carbon credits actually or emission allowances we had purchased, and same with power, how much power is actually sold, what is the open position. Basically, open position on both electricity and carbon credits is reflecting each other, so around 10% open position on both commodities. Important numbers are actually below those charts, where you can see average achieved estimated prices actually for both commodities. Purchase price for carbon credits and sales price for electricity. You can also see hedged volumes and average achieved prices, again, both for electricity and also contracted emission allowances.
For 2023, we still have about 10% of the power, or we had 10% of power unsold as of 31st of March. We are already 53% sold for next year, 29% for 2025, and 7% for 2026.
We have reestablished hedging basically the way that we did it in the past after a short break during last year's liquidity nervousness on the markets. Now I think we are back to standard standard way of hedging. That's all for me. Now I will hand over to Pavel and he will go through distribution and sales segment.
Okay. Well, thank you, Martin. Let me quickly go through both of these segments. On page 17 is our distribution segment with a minimum year-on-year variation. Where we do see a drop is in electricity distribution, driven by the savings on the side of customers, driven by high electricity prices. You see the impact on the residential customers being the largest, and large customers being the second. Obviously, in terms of Czech distributor, this effect, if any, is temporary and is then kind of compensated with the correction factors in the following years. One last year. On the sales side, Martin already touched upon it. We have reported quite a low number for the retail.
The effect that has been with the company always but was never so apparent is the fact that we charge an annual average price for the customers the same, whereas we purchase the electricity. There's higher consumption and higher prices in the winter. The average accounts for it, we charge it in such a way that we make lower margin and with, like, extreme prices for the winter of 2023, which is just behind us, this effect is exaggerated. We do expect a somewhat lower result for the retail segment year-on-year, definitely positive and this will the negative effect of the price watch will be caught up with during Q2 and Q3.
In terms of the B2B segment, there the results are in line with expectations. Energy services slow growing. Actually commodity sales showed up. This is driven by two things, but the main one is by procuring electricity from the renewables, where we were able to procure it at stable prices and resell it at higher prices. In terms of supply of electricity and gas, you see on page 19, in line with what you saw on distribution, which more corresponds to the overall consumption. Here it's obviously also driven by the number of customers.
icity supplied is somewhat lower than for the distribution because it is partially offset by the growing number of customers. At the same time, this was the Q1, and what we also see is that right now the competition is somewhat tightening in the market with the stress and panic kind of going down. So we will have to keep again keep focused on on retaining and acquiring new customers going forward. On page 20, you see the revenues from sales of energy services growing. I think there are two things. One is the business is going well
More and more companies are interested in either reducing their consumption or changing from gas to other types of energy, such as electricity. At the same time, it is also driven by the inflation driven the fact that simply the individual items are more expensive. With this, I think we are finished and over to you, Bara.
That concludes the presentation part of the call. We are now ready for your question. If you are connected via Microsoft Teams, just click on the hand at the upper end of the screen. If you are connected via a dial-in telephone, just press star five and I will call you out. The first question is from Arthur Sitbon. You can unmute yourself and ask your question.
Hello. Thank you for taking my question. It's actually regarding the potential group reorganization/potential nationalization. I was wondering if, well, with the AGM coming, I was wondering if there would be any prerequisite from the government to communicate anything before the date of the AGM, whether it would be on a potential nationalization or on a reorganization. My second question on the same topic is in terms of potential group reorganization, has there been any work done by ČEZ as a company, so independently from the government? What could be a corporate structure that according to you could look optimal or, well, that could be good. Thank you.
Okay. I'll start with the second question. That is, as we've discussed even on these calls previously, we are obviously looking at the internal structure from two perspectives. One is achieving the biggest synergies and avoiding dyssynergies. Even more so, adjusting the structure in such a way that we can obtain financing in the best possible way. 'Cause obviously, with the biggest growing segments being the clean energy and kinda new technologies and so forth and so on, and those being from the financing perspective and under the same balance sheet as the coal stations, it limits our access to banks.
We are looking at how to best reorganize internally in such a way that to some degree we would have two balance sheets from the bank's perspective and we could attract both green banks for the new business and those banks who are willing to help us to transform the lignite business for that lignite business. There's no more detail that I could provide you with, but this is kinda the internal work. Once it's finished and decided, obviously we would communicate that. In terms of the government perspective, obviously, I don't have any information to provide you with on this one. You would have to direct the questions to the government or wait for the government announcement.
I have no news on that.
Thank you. Just to follow up, one, you were mentioning that when your internal work is over, you would communicate that. Is there any timeline that we could reasonably expect on this?
Not at this moment.
Thank you.
Okay. The next question can be asked by Piotr Dzięciołowski. Yeah.
Can you hear me?
Yes, we can hear you.
Hi. Hello, can you hear me? It's Piotr Dzięciołowski from Citi.
Yes, we can hear you very well.
Okay. Okay. I just wanted to ask two questions really. The first one would be potential split. Just theoretically speaking, if I wanted to make a split of a company and save the money not to make a tender offer for the entire company, would you be in a position to sell nuclear reactors or the lignite assets to the government directly, and therefore that would not require the tender offer for the whole company? That's the first question, so if you answer this one first.
At this moment, we don't have any information to provide on that. This is really the decision on the shareholder level. Obviously the majority shareholder being the government, you would have to ask the government. We don't have any more information to provide you with at this moment.
Sure. Okay, that means I don't have a second question. Just maybe trying to understand your numbers. If you can, please tell us with this windfall tax profit at the moment, what is your real sensitivity to power prices for the next three years in terms of earnings? It must be substantially lower, I would assume.
Yes, it is. On the level of the net profit, it's extremely low. On the EBITDA, it's semi-low. It is lower. I don't know, like in what kind of numbers you would like to express it. I don't have any specific numbers on the top of my head that I could share with you, but it is low.
You know, our estimate.
Okay.
Our full year estimate is actually CZK 30 billion-CZK 40 billion, both on the levy, on the caps on power prices and windfall profit tax for 2023. We don't have any power caps for 2024 and 2025, but we have windfall profit tax. Actually, for simplicity, you can use effective tax rate of 70%, corporate income tax rate of 70%, and apply it on pre-tax profits, and you'll be pretty much correct in your estimate.
Sure. What you say is that your guidance for 2023, the next three-year profits won't be far from this level, right?
Depends on power prices.
Comparable.
It depends on power prices.
Okay. Understand. I don't have any other questions. Thank you very much.
Okay. At the moment there are no further questions, so but let's wait a couple of second whether. Okay, we have one from Petr Bártek. Yes. Peter, you can unmute yourself and ask your question.
good afternoon. Can you hear me?
Yes.
Okay. Maybe if you can provide some update on the ongoing nuclear tender. What's the status? What's the timeline? Whether you, as the management, would see the restructuring as a condition to finalize the tender and to sign a contract with the supplier.
Well, okay. Let me answer. The tender is going according to the plan. With the main milestones being the updated bids coming in the third quarter, and then kind of selecting or proposal of the selection from the tender by the end of the year, and then contract signature next year. In terms of the connection, we don't see it that way. The financing for the first unit, Dukovany, should be based on the scheme that was introduced on the government financing and offtake PPA. The work on these contracts is run in parallel to the tender cell. This is what I can say to the running tender.
Okay. For the Dukovany, the scheme agreed with the previous government is kind of still in place. I understand correctly? It would be SPV and the financing would be available.
The, the-
Without-
Yes.
Even without restructuring. Yeah.
For 1 unit, the contract that we concluded is active, it's a concluded contract, and that this contract assumes to be superseded by the financing and offtake contracts.
Thank you.
The one, yes.
Next question comes from Alexandra McDonald. You can unmute yourself and ask your question.
Hi. Thank you. Thank you for the presentation. I just wanted to verify on the timing of the restructuring, if there is any, you know, clue, when are we gonna have any type of news or, you know, if internally you have any deadline. With regard to the first question that was asked, the corporate structure. You said you're looking with the banks, if you can have the two balance sheets. Can you just clarify the activities that would go under, you know, the two balance sheets that you were mentioning? How are you thinking about the allocation of the different businesses in which you are involved? Thank you.
Look, thank you for the question. I totally understand why you're asking it. Unfortunately, at this moment, we don't have any more detail we can provide you with. We are looking at things and we don't want to comment on any things that are not fully kind of finished, analyzed and approved, so not to cause any confusion. Once it's done, we will announce it. Obviously, you do understand that normally we probably spent last year working on it one way or another in line with our Clean Energy of Tomorrow strategy. We dedicated all the capacity to other topics around security of supply and so forth and so on.
That's why I don't have any more detail at this moment to provide you with.
Okay, thank you.
Okay. It seems that there are no further questions at the moment. Thank you everyone for taking part in this call during today's very busy day. If you have some further questions later on, do not hesitate to contact Investor Relations. Thank you very much and bye-bye.
Goodbye.
Goodbye.