©THE HEREN REPORTS - CEZ reports 39% rise in net profit delays listing on CO2 volatility

Czech-based generator and distributor CEZ reported healthy results for Q1 2006, with operating revenues increasing by 26% year-on-year (y-o-y) to CZK 41.5 billion (EUR 1.47 billion), while net profits were up even more significantly, by 39% to CZK 10.4 billion.

Q1 results also showed a positive impact from CO2 emissions certificates, with a gain of CZK 615 million on operating expenses, leading to a rise in EBITDA of 26% to CZK 20.4 million. The slump in the CO2 price is expected to have an impact for quarters to come, however. The impact of CO2 on CEZ’ share price is shown in the table, and has been significant enough to cause CEZ to delay its dual listing on the Warsaw Stock Exchange, in addition to Prague.

A release from the company stated that plans “have been markedly affected by the instability raised by the fall in CO2 allowance prices, to which electricity prices on the European market have also reacted… It would be inauspicious to enter the stock exchange with such strong share [price] volatility.” CEZ stated that it was likely to delay this until after the outlines of national allocation plans (NAP) for the second phase of the EU Emissions Trading Scheme (EU ETS).

Barbara Seidlova, Czech Republic country analyst with ING, told The Heren Report: “I’m not surprised they postponed the dual listing – it would be better to wait until the third quarter, when there will be more clarity on the NAP2 on the ETS and also wholesale power prices going forward.”

CEZ credited the gains made in Q1 to higher margins on generation and trading. Generation increased by 4% y-o-y to 16.8 TWh, and colder temperatures led to a 6.5% increase in demand from wholesale consumers and a 6% increase in retail demand. Generation continues to contribute the most to operating profit (EBITDA), accounting for 63%, although distribution and sales’ share increased to 28% from 26.5% in Q1 2004.

CEZ’ foreign assets also had an impact, including a 4.8% rise in power sales to 113 GWh for the group’s two distribution companies in Bulgaria, and the addition of Electrica Oltenia in Romania, which was incorporated from Q4 2005.

The group continues to expand. It has signed a purchase agreement for the Varna power plant in Bulgaria, and is entering Poland by purchasing the Elcho and Skawina plants. This will increase the group’s installed capacity by 17%, from 12,298 MW currently to 14,368 MW, particularly advantageous as nuclear units in Slovakia are decommissioned. It has also submitted a final bid for Electrica Muntenia Sud in Romania, one of the five shortlisted.

(THE HEREN REPORTS - EDEM 10095 / 18 May 2006)

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