Earnings call: CEZ Group surpasses outlook with strong 2023 financials

CEZ Group (CEZP.PR), the Czech energy conglomerate, has reported robust financial results for the full year of 2023, surpassing its previously stated outlook. The company's EBITDA reached CZK 124.8 billion, with adjusted net income at CZK 34.8 billion. A significant portion of the income—74%—was generated from emission-free activities. CEZ Group also announced an expected dividend payout of CZK 39 to CZK 50 per share, translating to a total of CZK 21 billion to CZK 28 billion.

Despite a challenging environment marked by decreasing power prices and a negative impairment in their coal mining business, the company has secured supplies of non-Russian gas and is actively developing renewable energy sources within the Czech Republic. CEZ Group is on track to achieve its 2030 vision, aiming for an EBITDA increase to CZK 80 billion to CZK 90 billion.

Key Takeaways

• CEZ Group's EBITDA exceeded the November 9 outlook, reaching CZK 124.8 billion.
• Adjusted net income was reported at CZK 34.8 billion, with a significant contribution from emission-free activities.
• Dividend payout is expected to be between CZK 39 to CZK 50 per share.
• The company is transitioning away from coal assets, which are to be discontinued by the end of the decade.
• CEZ Group has secured non-Russian gas supplies and is expanding its renewable energy portfolio.
• A new nuclear unit tender is in progress, with a contract expected in Q1 2025.
• The company acquired a 55% stake in Czech distribution company GasNet.

Company Outlook

• CEZ Group anticipates lower income from generation in 2024 due to falling power prices.
• The company has sold most of its energy hedge power for 2024.
• Electricity consumption is expected to grow in the future, with a current drop attributed to savings, warmer weather, and rooftop solar installations.
• Strategic priorities include reducing emissions, increasing capacity, and digitalizing activities.
• CEZ Group targets an EBITDA of CZK 115 billion to CZK 120 billion and CZK 25 billion to CZK 30 billion in adjusted net income.

Bearish Highlights

• A negative impairment of CZK 5 billion was reported in the coal mining business.
• Coal and natural gas electricity generation decreased, with further declines expected.
• Income taxes increased by CZK 13.5 billion due to a new profit tax.

Bullish Highlights

• CEZ Group is in the top 20% of ESG companies and continues to focus on emission-free activities.
• The trading segment performed well, and the company is stabilizing its customer portfolio.
• Renewable generation is expected to increase by 10% in 2024.

Misses

• The coal mining business faced a total variance of CZK 8 billion in amortization.
• Generation in the nuclear and renewable segments slightly decreased by 1% and 2%, respectively.

Q&A Highlights

• Lignite operations may close between 2027 and 2030 due to significant pressure.
• GasNet financial results will be published in the spring.
• CapEx guidance for the coming years was provided.
• Dividend payout ratio, nuclear plans, and potential support for gas and biomass units were discussed.
• Financing options for nuclear and small modular reactor projects are being considered.

The company's commitment to transitioning from coal assets to more sustainable energy sources reflects a broader trend in the energy industry towards cleaner and more renewable forms of power generation. CEZ Group's strategic initiatives, including the development of new photovoltaic projects and the expansion of e-mobility charging stations, demonstrate its dedication to innovation and sustainability. With the continued digitalization of its activities and a focus on ESG compliance, CEZ Group is positioning itself to meet the challenges of a dynamic energy market while delivering value to its shareholders.

Full transcript - None (CEZYY) Q4 2023:

Operator: Hello everyone. This is CEZ Group Full Year 2023 Conference Call. It's my pleasure to welcome today's speakers, Martin Novak, Chief Financial Officer, and Pavel Cyrani, Chief Strategy Officer. I will now hand over to Martin.

Martin Novak: Good afternoon, good morning, everybody. Let me cover first two sections and then I hand over to Pavel. Looking at the slide number three, you can actually see our financial highlights. Our EBITDA reached CZK124.8 billion. We exceeded actually our November 9 outlook, which was CZK115 billion to CZK220 billion positive impacts or positive changes between our outlook from November 9. And the real numbers for 2023 include trading segments, CZK3.5 billion better results, CZK2 billion are better results from brook trading, CZK1.5 billion is actually reevaluation of derivatives that the HR for 2024 and later. We also had better mining segment numbers by CZK700 million compared to our estimate and revenues from ancillary services and sales of heat in Czech Republic of 1 billion. Our adjusted that income was estimated at CZK33 billion to CZK37 billion, and we actually achieved CZK34.8 billion. On next slide, you can see achieved just in the income of CZK30.8 billion. Actually, is most mainly, or 74% of it is actually from emission free activities and only 26% is generation from emission facilities and mining. The level of our income, when we actually take into consideration, payout ratio of 60% to 80% of adjusted net income, shows that we would be able to pay CZK39 to CZK50 to per share dividend, or CZK21 billion to CZK28 billion dividend in total. Our average or long-term average of our payout ratio since the first dividend we started to pay, which was in 2003 is 70% of adjusted net income. Average industry standard is actually around 50% these days. On next slide you can actually see that power prices are going down and they are basically reaching levels of 2021. It is very well visible on the chart. Of course, the most significant changes in 2024. As you can see, the power prices now at something like EUR69 orders of 2024 and significantly lower was actually a forward price of in 2022 for 2024, which was EUR254. Sharp (OTC:SHCAY) increase of the prices far goes by Russian invasion to Ukraine after ONG supplies to Europe first secured in 2022 and ‘23, the power prices started to be significantly reduced due to a reduction in gas prices. It was clear that there is enough and will be enough of natural gas and also the effect of uncertainty is basically minimal. Current situation indicates that actually when you look at power prices and then carbon credit prices that we can see clear indication that coal assets will be discontinued definitely by the end of decade, in most cases for most dollar generators. There is a lot of investment into stability of transition and distribution networks switching gas plants, building renewables ahead of us, which also requires certain changes in legislation. On next slide, you can actually see our key highlights in energy security area, where we secure supplies of new non-Russian gas, the first through, energy terminal in the Netherlands, where we have contracted, the capacity for five years, in 2022 and also, actually, 15-year capacity to start from 2027 in German terminal, Stade. There is a tender going on for 5 unit in Dukovany There will be slide on it, I'll cover later. We also continue to develop renewables in the Czech Republic. We have now investment support available of up to CZK3 billion and for the projects of installed capacity of 728 megawatts installed. We also started, and launched tender actually to for a supplier of waste, installation plant in Munich, that is part of our energy solution to actually burn waste and generate heat and power. We also completed the heat pipe between our nuclear plant, Temelín and city of Ceské Budejovice, which is actually largest heating project of the decade, supplying heat from the nuclear plant to the city central heating system. On corporate social responsibility, our goal that we set actually in 2021 was to become the best or to become, to be among, top 20% of best companies from, ESG point of view and we actually achieved it. Our ranking through ESG aggregator, CSRHub which compares to 35,000 companies, is now, at us being actually in top 16% of the companies. We also -- our employees actually donated more than CZK500 million and actually originated those projects. Important slide actually is, on the tender for the new nuclear unit in Dukovany. As you know, in October '23, actually, we received bids from three potential bidders or potential suppliers, which was French EDF (EPA:EDF), South Korean and KHNP and US-Canadian company Westinghouse. On January 31st, the government of the Czech Republic approved the conclusion of new amendment to the current contract with the Czech. And, actually, bids were supplied by, all three bidders. At the same time, actually two bidders, French, EDF and Koreans were invited to participate in improving their bids by April 15, 2024, and also extended to potential build of two, three, or four units, not only one unit. On May 31st, actually, we will supplier Elektrárna Dukovany which is our subsidiary will supply or submit a relation report to reaching government, and the government will choose the company or the supplier, actually nuclear plant during summer ‘24. The contract with the supplier with the winner should be signed during the first quarter of ‘25. The next slide actually shows more detail on our two terminals, LNG terminals post on – and also providing some details. And actually, the next slide shows main strategic financial strategic targets for 2024. So, our EBITDA estimate is at CZK115 billion, CZK220 billion, adjusting that income, CZK25 billion to CZK30 billion. Selecting assumptions, total electricity supply is actually 41 to 42 TWh. We expect to achieve average price of EUR130 to EUR135 per MWh. We are accelerating depreciation of our coal fired portfolio, which is reducing our adjusted net income, and we expect windfall tax CZK20 billion to CZK30 billion for 2024. That's mainly -- these are the key elements actually of our financial targets. And we also expect to generate about 30 TWh in our nuclear paths. Dukovany bids should be actually evaluated during this year. We should continue into decarbonization of our portfolio of both power generation and also heat portfolio increase and further deploy digitalization and efficiency and innovation in our both sales and distribution processes and continue with our ESCO development. On the next slide, it's important news and kind of hot news because this was year all concluded yesterday, and we actually after quite a lengthly process are able to acquire 55% stake in Czech distribution company in the Czech Republic called GasNet. We are actually buying assets from Macquarie and replacing them in shareholder structure. There are two more shareholders, BCI and Alliance holding 26.29% and 18.5%. As you can see basic, on the map, actually, this guest distribution covers significant amount of territory of the Czech Republic. And practically a 100% identical to our electricity grade that we actually operate distribution network. So, we expect a lot of synergies from that situation. There are some basic information about GasNet. We should be physically taking over the company sometimes during the summer after European Commission, anti-monopoly clearance is received. And also, Czech ministry of Industry clearance is received only then we can actually physically take over the company. So now, switching to financial results and more numbers on generation segments. So overall, on Slide 12, you can see selected financial metrics, EBITDA and I think can already mentioned. I think it's important to say that we also increased our CapEx by CZK11 billion to CZK45.8 billion. Our net debt has not practically changed. It's a bit lower than it was a year ago and has reached CZK151.3 billion. Our net debt to EBITDA ratio is actually 1.2. We actually produced or sold 43.5 kilometers of electricity at average, achieved price EUR126 per MWh, and we consumed 13.4 million tons of CO2 and average purchase price per ton of CO2 was EUR61. On next slide, you can see changes on our EBITDA year-on-year. There are basically very few moving big moving parts in generation facilities. Although the variance is fairly small, CZK700 million. We actually had one big positive move, and one negative positive was higher prices contribution of CZK8.4 billion and negative was actually a cap on power prices where we had to pay CZK8.8 billion difference variance. Variance was last year. In total it was 10 billion paid, but 1.2 was paid in 2022 as well, so variance is 8.8. Generation segment trading CZK12.3 billion lower, but this is really compared to record high result which was close to CZK27 billion in 2022. This year we achieved CZK9.4 billion. I mean, in 2023, we achieved CZK9.4 billion only. However, normal number under normal times would be somewhere between CZK1 billion and CZK2 billion. So, CZK9.4 billion is still the second-best trading result in our history. Nevertheless, it is lower than in 2022. We had positive impact of more than CZK5 billion actually, which is revaluation of hedging position for future years. So negative variance is than CZK12.3 billion. Mining significance on the contribution of CZK6 billion, mainly due to higher coal prices, both to power plants of CEZ and also external supplies to our external customers. Mainly due to increase in core prices that actually are linked to electricity prices. Sales segment has improved its performance by CZK1.9 billion, CZK1.2 billion of which is actually a result of our court case between us and railway authority where they did not actually buy contracted electricity in 2010 and ‘11. And actually, now we are being reimbursed the lost profit from then. So, this is one of items will not repeat itself clearly in 2024. Next slide. You can see the main causes of year-on-year changes in net income. We have higher depreciation and amortization due to increased depreciation of coal plants, and also our mining company. Asset impairments, we have a negative impairment or impairment of CZK5 billion, which is related to impairment in our coal mining business. Where actually last year we had a reversal of impairment due to significantly better outlooks in mining industry. It has changed very rapidly. So now we actually have an impairment of CZK5 billion, total variance of CZK8 billion. Other expenses and income, actually, what is worse in mentioning is that, despite the level of debt of CEZ151 billion, we basically have no interest expense because all interest income from our free cash is covering or was covering our interest expense from the financing. Interest from nuclear and other provisions is significantly higher than last year or than in 2022, and it reached CZK7.3 billion. This is due to higher interest rates. Significant variance, actually, is an income taxes line, CZK13.5 billion higher tax due to tax win for profit tax that was introduced actually in 2023. So now we are getting down to net income of CZK29.6 billion and, adjusted net income, which is adjusted for CZK5 billion impairment in mining companies, so CZK74.8 billion net adjusting net income. On next slide, you can see actually our generation on nuclear and renewable side. We had 1% lower generation compared to 2022 with 2% lower nuclear due to scheduled or planned maintenance. Same will be the case in 2023 for Nuclear segment. In Renewable segment, we had a 9% better result mainly due to better hydrological conditions in the Czech Republic and we are planning to increase our renewables generation by another 10%, mainly due to new photovoltaic power plants, new wind power plants in France and also biomass availability in Poland. When we look at our emission, electricity, in a generative from actually coal and natural gas, you can see decrease of 13% year-on-year between '22 and '23, and another 9% between '23 and planned '24 to total 16 TWh, mainly due to market conditions both in the Czech Republic and Poland, where it is less and less profitable to start the power plant, especially when you have a free or a cheaper alternative of importing cheaper power from Germany, for example, during summer days. The same applies for natural gas where actually, it is difficult to predict, the power generation from gas, as it is really peaking pond. Our estimate stays on the level of 2023 numbers, which is 2 TWh, but can be actually different depending on how market conditions will work out. Now on next slide here, we have details on generation mining segment. I will not go through all the details, that you can read, by yourself. The total EBITDA from this segment is CZK90.4 billion and mining segment, actually CZK12.3 billion. So significant contributor with zero emissions contributing CZK59.2 billion and emission generating facilities CZK21 billion and trading CZK9.9 billion, actually. On the next slide, you can actually see, year-on-year change between 2023 EBITDA and '24 estimate. We expect lower income from generation due to the details that are provided on the right side of the chart. The same remaining with falling power prices, we would expect also coal prices to go down. Better contribution from distribution sales, zero to CZK2 billion positive. And that's how we should get actually to our estimates of CZK115 billion to CZK120 billion. Next slide. Important slide. We actually can see the level of electricity sold as of 31st of December, 2023, for 2024, ‘25, ‘26, and ‘27. Same actually with the contracted emission allowances for the same period, or purchased carbon credits and to provide you even a fresher number. The number below, actually in the bottom part of the slide shows, the level of energy hedge power for 2024 through ‘27 as of the end of February. So as of the end of February, we are basically sold out other than 6% that we have for potential peaks and potential spot market to be sold in 2024. Next slide. We have a reconciliation for our vision in 2030 project where in 2021, we actually announced that we would like to increase our EBITDA from CZK61 billion to something like CZK80 billion to CZK90 billion in 2030, and this is just to demonstrate that we are in a good track even in 2025. We are actually splitting the column of and showing the impact of the hedges of power prices that were higher than normally anticipated in the plan, which is additional benefit of CZK26 billion. But the baseline comparable baseline will be CZK79 billion to CZK89 billion. And on next slide, actually last slide, you can see the share of our zero emission activities. EBITDA will be increasing to 97% in 2025, and by 2030, actually a coal EBITDA should be replaced with gas with living minimum actually coal assets in our portfolio. So that's all for my part, and now I will hand over to Pavel to guide you through customer segments and fulfillment before 2030 vision.

Pavel Cyrani: Well, thank you, Martin. And hello everyone. Let me walk through the information on the customer facing segments. First, on page 23, there's a recap on of all the trading activity. As Martin already mentioned, we had a very good result. It'll be the second biggest in history of CZK9.4 billion, yet quite a drop from the very extraordinary year of 2022 still. Just for comparison, you see, what is the volume of transactions? It's about on the natural gas, it's more than 10 times Czech consumption. And on electricity it's about 5 times the Czech consumption, and the reason being that a large part of the profit is made from trading in other markets. In terms of distribution, there's a slight decrease here on here partially driven by the decrease in electricity distribution combined with higher fixed operating expenses driven by inflation. If you allow me, I'll comment on the consumption. There's a 4% drop. It's actually driven by kind of three things combined. One is we still see effect of people saving, electricity driven by the higher prices of the previous years. Second date, year 2023 was a very warm year, was the record highest temperature on average which has effect on especially heating use. It's more so with gas, but also on electricity. And last but not least, there is a search of people installing a rooftop solar. So obviously rooftop solar falls out of the distributed electricity through the grid. On the other hand, we consider this temporary because we are already seeing the first signs of both people or households and companies switching from other fuels to electricity. So, in general, we actually expect the electricity consumption to grow significantly. So, this trend of downward or decline of electricity distributed is temporary in our perspective. On the following page, there's a recap on the activities in the cells and supply segment. A drop in the retail segment, which was mostly driven by the very high wholesale prices last year, which obviously creates push on the margins, which was even more so driven by the fact that basically we had a regulated price last year for the household segments with the price ceilings were the costs of suppliers above price ceilings were then offset by subsidies from the government. Again, this is in our respective at a temporary thing that will not repeat itself this year as the price ceilings are not no longer in effect. On the other hand, we saw a surge in both revenues and profits for the energy services with companies asking for all kinds of measures to self-produce and or reduce the consumption of electricity and gas all. And also, we had a very good year in terms of purchasing electricity from all the distributed renewables that have been installed in the past two years. In terms of the volumes on next page, I already committed on electricity. You'll see even a higher drop in gas. This is mostly driven by the average temperature and gas being used mostly for heating. So, this is what we see in terms of the number of customers. There's a slight drop. Obviously, it needs to be seen in the perspective that we have gained several hundred and thousands of customers over the past two years. So, there was some correction last year, but, we aim to stabilize the portfolio this year and either keep it stable or even slightly grow it going forward. On page 27, it is some more detail on the revenues from the energy services I mentioned that we see increased demand for this type of services. Obviously, the 32% is not only growth in demand, there is also inflation factored in because these are nominal revenues, from these services. Again we, aim to continue although not at such a page in year 2024. We wanted to, because this is an annual call, annual presentation, we wanted to set some of the achievements and results in the framework of our strategy vision 2030, which obviously was announced pre-war in Ukraine. It was more articulated in terms of the protection of climate. But given that, it reduces the use of a need for fossil fuels, which are important to a large degree from abroad and historically have been mostly imported from Russia. It also increases the energy independence of Czechia and the region. On the next two pages 29 and 30, let me just quickly recap things that you have seen in the presentation. We obviously still focus on two pillars. The first one being the reduction of emissions in our power and heat generation, where we exceeded again the 30 TWh, for nuclear and then 30 TWh, 40 TWh combined nuclear and renewables. And our emission intensity of heat and power generation declined year-on-year, in all the measures both CO2, SO2 and NOX. We have also, apart from, the comments Martin made on the nuclear tender, we have received the zoning permission, for a new nuclear acid in Dukovany and we have completed the documentation for environmental impact assessment notification for the small mineral reactor in Temelin and we have completed the primary feasible displays for our locations. The LNG terminals already mentioned. We've also started a pretty significant program of replacement of the lignite heat power plants, heating power plants. The first one, where we already started construction in Dvur Králové a small town, but others lined up. We are already running the supplier selection and all of these will be enabled by two types of supports. One is an investment subsidy, drawn from the modernization funds. All of these projects have won or will be will apply for a investment support from modernization fund. The second measure is being the combined heat and power support program, which is now being notified in the European Commission. Hopefully, that will be finished soon and will be swiftly succeeded by first auctions, run by the minister of industry in which we obviously plan to participate, with these projects. Last but not least is, the construction of New photovoltaic, based on the investment support that we've won from the modernization fund. In terms of the second pillar, it's a combination of providing new services, increasing capacity, and also focusing significantly on digitalization of our all activities. I'll just highlight a couple of things. We have connected more than 50,000 new photovoltaic, mostly rooftop solar power plants with capacity over 600 megawatts to our chest distribution grid. We have also built more than 4,000 rooftop solar plants with our own hands through chess per day. And another almost a hundred through just ESCO. We have put out new applications meaning kind of smartphone applications, which increase the share of contacts that we run through digital channels. Maybe last comment on this one is that we are also continuing in building up our E-mobility charging stations adding more than 145 last year with the total capacity reaching now almost 50 megawatts. All in all, both these activities are being recognized by the ESG rating agencies. All of them increased our ESG rating year on year with US falling in the 84th percentile of ESG companies or ESG rating of companies. And on the last page of the presentation, we obviously aim to continue with these strategic priorities, both in -- transforming our generation portfolio and providing secondly, the most cost-effective energy solutions. And this all also supported by our sustainability priorities, and financial targets. Martin already mentioned we aim to achieve CZK115 billion to CZK120 billion EBITDA, and adjusted an income of CZK25 billion to CZK30 billion.

Operator: [Operator Instructions]. I can see that we have the first question from Anna Webb.

Anna Webb: Thank you, very much to taking my questions. Anna Webb from UBS, I've got two questions for you. Firstly, on the dividend. You've said this morning that the 60% to 80% dividend policy would imply a dividend of CZK39 CZK52 per share. Are you ruling out paying above that policy as you did in 2022, or does that still remain open? And this was an indication of what it would be inside the current policy. Just trying to find out what flexibility that there is there or not? And then secondly, maybe digging into the 2024 guidance, which came a little bit below consensus and seems to be driven primarily by the generation division, which you are guiding for CZK5 billion to CZK15 billion lower EBITDA in that business versus 2023 despite obviously – price given the lack of levy in place there, can you discuss the main drivers of the lower expected earnings? I think you put a few on the slide, but could you kind of quantify what are the most significant impacts year-on-year offsetting that higher achieve power price. Thank you.

Martin Novak: Okay, so I will comment on those questions. Actually, dividend we provided a calculation of 60% to 80%, as this is our dividend policy, however, core shareholders cannot propose different number as it happened, for example, last year when actually majority shareholder, if I'm not mistaken, proposed higher dividend actually close to 100%, which was approved at the shareholder meeting. So, our proposal will fall, I guess to 60% to 80%. But this is no guarantee that this is how it'll end up at the end. And second, actually 2024 guidance compared to 2023 actuals our generation segment where we expect 15 to 5, again, relatively large spread or large actually interval is given by the fact that we don't budget really such a high level of proceeds from trading from pro trading, which achieved actually CZK9.4 billion. And as I said, this is the second-best result. And this not reasonable to assume that we will be able to achieve something like that. Of course, we'll be happy to do to if it happens, but we have no guarantee. So quite a few billion are actually attributable to this one item. And actually, we also assume, which is about CZK5.6 billion, I think, lower estimate. Then we also expect close to CZK4 billion lower actually ancillary services, which might be better. But we really don't know. We also have higher cost due to inflation pressures. And we also we have a currency hedge test lower-levels due to stronger grounds in the past. So, we actually receive plus Czech crowns for our euros so, and it's about CZK2 billion check rounds. So those are the main effects actually in generation segment.

Operator: We have the next question from Arthur Sitbon.

Arthur Sitbon: Thank you for taking my question. I hope you can hear me well. The question is on the potential group reorganization of CEZ. I was wondering if there had been any development on that. Obviously, the market environment has changed quite a lot in the past months with lower power prices. We're also closer to the conclusion of the tender on the new nuclear plant. So, I was wondering if you could update on that and if it was still on the agenda. Thank you very much.

Martin Novak: This is a question that should be more directed to the government, but our current understanding is that, exactly in the face of what you mentioned that a larger organization is currently not being discussed. Obviously, there is the interministerial commission that is looking on financing, more than one nuclear unit if the government should decide to actually start construction of more than one, which can have some effect. But, the size, as I put it, kind of the more general or larger organization is currently not on the table, as we understand it.

Unidentified Company Representative: Okay. I see no raised hands. I just read the question that came from ChatGPT, from [Indiscernible]. He is asking what are the main assumption changes that lowered your expected 2023 EBITDA forecast. Is there anything else causing that, apart from the energy prices revision?

Martin Novak: Yes. I assume that when we talk about forecast, it's actually 2024. Right?

Unidentified Company Representative: Yes. In 2023 EBITDA target that was updated. And it was caused, mainly by the different power price assumptions.

Operator: We have the next question from Petr Bartek. Petro? I think we lost him. I'll ask, Bram -- I'm sorry.

Unidentified Analyst: Yes. Regarding the GasNet acquisition, generally, I'm pretty positive on this. It's a good check business. But I'm curious on management if you are able to give any sort of feedback about how you expect this to feed into your capacity to pay dividends from '24 earnings and onwards. Is it going to be a tailwind, a headwind? Thank you.

Pavel Cyrani: Look. I think, in general, the gas network is a good cash flow generator. It is definitely under less demand growth in terms of a new CapEx compared to the electrical distribution. I do not expect that it should have any adverse effect on our ability to pay dividends. To answer your question, I could not say now that it has like a positive effect. Obviously, we expect this to pay the dividends in line with its ability to kind of generate cash flow and in line with the regulatory return on capital.

Unidentified Analyst: So, overall neutral?

Pavel Cyrani: Yeah, I would say at worst neutral and neutral.

Operator: And we have the next question from Robert Maj from…

Robert Maj: Hi, it's Robert Maj from Ipopema Securities. Just follow-up on this gas acquisition. You stated that this company makes around CZK10 billion a year in 22nd, I believe. Should we expect that this is like a recurring result that, which should just plug into the cash forecast CZ10 billion a year, and does your forecast for 2024 includes this CZK10 billion from this new acquisition? That's number question number one. And question number two is, what would be the impact on your net debt? I mean, is this company, I believe this is a debt free company as it generates cash, but correct me if I'm wrong. And the third question is, as you say that you would like to be to have 97% of EBDA in 2025 carbon free in carbon free, in respect of emissions, what would -- does mean for your polish assets? Would you like to try to have another attempt of disposing it, or are you just going to shut it down?

Pavel Cyrani: So many questions. In terms of -- our forecast for ‘24 does not include or any of the forecast that we have ‘25 and ‘30 outlooks per the vision 2013 does not include – because the final steps in the acquisition have been -- were made only late last night. In terms of the forecast, I think, using the last two years as an indication of the next year is a good approach. Obviously similar to the electric suite business, the next potential change will come when there is the new regulatory period, which is aligned with the electricity military period. Now, in terms of the debt, it's actually, it's not a debt free company. There is quite some debt. There's about CZK55 billion of debt on the whole company. And the reason is not that it will not generate cash flow, but the reason is obviously the cash, I mean, the capital structure optimization. And that at least that's what I assume that the previous shareholders have done or the reason it -- they have done it. So, it'll after consolation, it'll increase our net debt to EBITDA ratio. At the same time, it'll obviously improve our risk profile. So, we believe that the rating agencies should recognize that the share of the regulated and stable business is increasing. And therefore, they should also recognize it as when looking at the increased ratios of net to EBITDA. And now I may be that there was some [Indiscernible].

Martin Novak: Then there was actually Polish assets or the Polish protocol. Yes, actually we don't count on our Polish assets in our EBITDA, because we will definitely start another round of disposal process and should it not be successful where we believe it'll, but should it happen now, we will definitely think about basically discontinuing the operations, because we don't want to create co assets and it will not be very economic either. So, we'll have to find another solution.

Operator: Robert, did we answer all your questions?

Robert Maj: Yes. Thank you very much.

Operator: Okay, so we can take the next question from a person who dialed in, I don’t know exactly who it is. It's a polish number +42-721-550.

Piotr Dzieciolowski: It's Piotr Dzieciolowski from Citibank. I have two questions, please. First of all, you said in the morning there was some couple of headlines that you may accelerate the call phase out. So, I just wanted to understand, can you please tell us about the economics of running the lignite at the moment? When do you think that could break even or that was positive or how is the basically operation looking from the kind of EBITDA perspective as well as the cash perspective and second on your gas net? I just wanted to clarify. We have a limited numbers for 22 performance and the valuations based on the 22 wrap or EBTIDA looks a little bit punchy for a gas distribution assets. So, I just wanted to understand how this business developed between ‘22 and expected ‘24 as we're kind of ending first quarter now. Thank you.

Martin Novak: Well, in terms of the business development, obviously we do not control the business yet. We have only signed the SPA, we are now going for the regulatory approvals by the European Commission and the Ministry of Industry. So, I think on this, it is better way for gas nets to publish its annual results, which I think should happen sometime like in the spring. That there the numbers will be public, but as, as I said, I think looking at the previous two years is a good indication. In terms of the price, and the multiples just not to mix up kind of two perspectives of the numbers as the numbers that we published that we are paying are paying the purchase price is a 55% stake equity. Now, if you look at the kind of multiple type of valuation, you're typically looking at the enterprise value a 100%. This is what you need to how you need to look at it. If you want to look at the multiples to wrap or to EBITDA. You need to take our purchase price extended to 100% of equity, and then add as I said, roughly CZK55 billion of net debt.

Piotr Dzieciolowski: Yes. But I was just referring that if I do the math, I get to almost 40% premium to wrap, which for the gas distribution asset, I mean, in public market you typically would see a lower number in a private market, maybe people kind of can get it. I was just thinking what are the business based on what you see improved between '22 to '24, and this multiple is a little bit lower or better.

Pavel Cyrani: I wonder how, obviously, the simple wrap multiple -- obviously, first of all, it needs to be compared to the '23 and '24 which are now in the making. I don't want to publish these numbers, although, for the validation, we had access to them. This is to be published by GasNet and by us once we consolidate the inquiry in the accounting. And then, I guess that's all I can say at this moment.

Piotr Dzieciolowski: That's okay. I understand. No problem.

Pavel Cyrani: EBITDA multiple, which is cool Phase out. And cool phase out, in general what we say is that, by 2027 the coal assets get under significant pressure. In our specific case, the situation is better through a couple of things. One is, we have a pretty high share of assets which are also delivering heat, where the heat obviously is not hit by the reduction of electricity prices and the heat prices are basically rising roughly with inflation. Secondly, we also supply other heating stations with coal and lignite. Actually, we can amortize part of the lignite mine costs, fixed costs and operating costs to the lignite supply to others. And then there's this the power station. It would be difficult to say, and pinpoint it to exact date. It depends a little bit on how other players also, how they offtake for their heating stations and how exactly the spreads develop. But as we put it, '27 is the year where really it hits the signal station significantly and between '27 and '30, it's basically when you really start looking at, closing it down. Obviously, for the heating, it needs to be replaced by new heating stations, because otherwise, you wouldn't have no other rates to supply the heat. As long as we have offtake of -- for third-parties, we also are in a better position.

Piotr Dzieciolowski: Okay. Thank you very much for the answer.

Operator: We can take the next question from Yash Raj.

Unidentified Analyst: Can you hear me?

Operator: Yes. We can hear.

Unidentified Analyst: Yes. My question is, on the CapEx guidance for 2024 and an average ballpark figure. If you can provide for, the vision 2030. Annual figure on average that we'll be looking to spend is CapEx, for the next six years, six to seven years.

Martin Novak: Yes. Actually, CapEx is presented in our financial statements. You will find it actually on the last page, the very last page of the financial statements. It's note 38. And our estimate of CapEx, total CapEx for 2024 is CZK56.9 billion 2025, CZK73.9 billion, ‘26 CZK81.4 billion, ‘27 is CZK75.4 billion, and ‘28, CZK70.5 billion. In total for four-five years, 358.1. There is a significant CapEx devoted mainly to renewables. Total tax in the Czech Republic and also in Europe. In general, Germany, for example, where we own company electric. There is so significant portion going into Czech distribution as always and of course to development of our new gas portfolio as well. And of course, there is a lot of kind of staying business CapEx. The CapEx growth is significant. The investment period is clearly starting so this is -- it's what can be seen actually on those numbers.

Operator: We can take the next question from Petr Bartek.

Petr Bartek: Can you hear me now?

Pavel Cyrani: Yes, we can hear you.

Petr Bartek: I'm sorry. This is this time. This was my mistake. So, three questions. First, back to the dividend, you said a dividend payout ratio or ratio of 60% to 80%. That's fine. But in previous years you always hinted at the higher end of the range of 80%. So, there is any change in your approach, or are you still leaning, let's say towards the 80% payout from 2023 profit. And then a second question would be to nuclear. So, the government asked to extend the tender from one unit to potentially up to four units for the conventional nuclear, let's say. So, what is the plan or what would be this financing scheme if there are, for example, two units in the Dukovany in my view would make completely sense in from technical point of view. But what would be financing background for that if you would still go for the contracts for different or would be anything different considered like, I don't know, regulated to set base or something like that. And also, you mentioned, small modular reactors that you are accelerating the development of this field. So, if it would be purely on CEZ balance sheet just investment or would that be some kind of SPV and potentially looking for joint ventures or some, again, contracted revenues or prices. And first question, maybe I didn't get to the document regarding the potential support for the new gas units and biomass units. First is the modernization fund, and the second, what's the scheme, which is now pending notification. If you can repeat it. Thank you.

Martin Novak: So, I'll start with the dividend. We actually say 60% to 80% as you noted. Don't really say more than that. I think it is too to make any commitments. So, and as you could see, we are entering investment period. Have investment period. So, we'll be announcing our proposal of the dividend later during the spring. That's all I can say.

Pavel Cyrani: In terms of the nuclear, the committee of the Ministry of Industry, Ministry of Finance that should evaluate and design the financing of the additional units is now kind of working and they should come up with a proposal by the end of the year. So, I think, by only then we will know how the financing should happen. Obviously, what we as CEZ keep always in mind is that we need to retain our rating and ability to finance our other businesses. And this is always for us a number one priority in any type of design of financing of the additional units. In terms of first the small major reactors, again, also the discussion on financing is spending. What we are now looking for is what would be the best technology or the best technology partner for us because especially on the small [Indiscernible] we want to also include our company such as Chieszkelya into the supply chain. So, the partnership we are trying to select is a broader than just an offtake of a unit. And then, once we have it, obviously we need to also discuss with the government and with the partner on how to approach financing. And the clarification question on the additional support where the European Commission notification is pending, it is so-called the support for combined heat and power production, [Indiscernible], which is basically a subsidy scheme where electricity produced in this high efficiency combined heat and power gets a per MWh subsidy. This will come on top of the CapEx support, the investment support from the modernization fund.

Petr Bartek: Maybe if there is an indication, what would be the level of this subsidy?

Pavel Cyrani: No, it'll actually, the notification is for auction. So, it'll be auctioned.

Operator: Okay. It seems we do not have any further questions. So, let's conclude the call, as always, Investor Relations department is available just after this call or anytime you come up with some query. Thank you very much and goodbye.

Martin Novak: Goodbye.

Pavel Cyrani: Goodbye.

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