Cez As S/Gdr 144A

Hello, everyone, and welcome on first half 2024 results call of Chess Group. It's my pleasure to welcome Martin Novak, chief financial officer, who will go through the presentation. And I also have Ludwig Horn, head of trading with me, who will be also available for the Q&A part. Now I'm handing over to Martin to go through the presentation.

Good afternoon. Good morning, everybody. So let's start with the financial highlights of our four-year outlook. As you can see on slide number three, our EBITDA has grown by 6.8 billion Czech crowns to 69.2 for 11%. Net income has reached 21.1 billion Czech crowns, which is 5% below last year's numbers. operating cash flow is negative by almost 50%. This is due to margin, basically margin margins that were paid to the market due to higher prices in 2022 and that were actually coming back in 2023. So that is the main effect actually of very high operating cash flow in 2023, where the margins were actually coming back to our accounts. Our capex reached 20.5 billion CZK. Our estimated EBITDA for a full year is actually being increased. Our original guidance was 115 to 120 billion check rounds. Now we are moving to 118 to 122 billion check rounds, so both increasing our estimate and also narrowing it by 1 billion. Net income or adjusted net income is expected to be 25 to 30 billion check rounds, so we don't change guidance in that income. Main differences of year to year changes in EBITDA are shown on slide four. By far the largest positive impact is actually coming from the fact that in 2023, in the first half of the year, we paid 11 billion Czech crowns on actually caps on power prices. And this was actually discontinued as of the end of last year. So in 2024, there is no such a charge. And therefore, actually, our result is or generation margin is actually 11 billion crowns better. Two billion negative impact is coming from our nuclear plants, mainly due to plant outages that were planned for first half of 2024. In trading, our profit is lowered by 3.2 billion CZK. 1.3 billion is coming from lower income from prop trading, 3.9 billion versus 5.2 billion last year. It's important to say that last year was the second best year after 2022. Extraordinary good, I would say, due to still relatively high volatility on the market, which is not the case today. this year or not in such an extent. So even 3.9 billion in first six months is a big success because normal trading profit when those prices are stable is between one and two billion Czech crowns annually. And then there is a relation of derivatives of one point negative billion Czech crowns, negative number. Mining segment is 1.5 billion below last year EBITDA. This is mainly due to fairly warm winter, actually the warmest winter this year compared to last year. So our sales of coal both to our own companies or power plants and also to external customers are lower than in 2023. Distribution has a positive impact of 1.4 billion. In general, distribution segment should be pretty stable. 1 billion out of 1.4 is due to negative correction factors that actually hit our P&L distribution in 2023. And those were correction factors related to 2021. So 2021, we received one billion more than we should have as originally planned from our customers due to COVID, mainly households. And we had to return it back in 2023 after it was audited in 2022. So this puts us together with 600 million positive or increase in sales segment to 69.2 billion Czech crowns EBITDA. When we look at net income for the first half of the year, there are a few items actually in terms of net income. depreciation and amortization is 5% higher. Other income expenses is 4.5 billion versus 1.2 billion. One of the variances is definitely lower interest income due to lower amount of cash and lower interest rates. There is also interest from nuclear and other provisions. There is an increase of 400 million Czech crowns. And then there is a few other items that in total actually generate 1.7 billion negative number compared to 2023 exchange rate effects on Turkish operations, the valuation of financial derivatives. high interest rates from nuclear provisions and so on. So this brings us to 21.1 billion Czech crowns of net income and at the same time adjusted net income as there is no adjustment so far. On the next slide, you can see actually our financial outlook for 2024. As I said, 118 to 122 on EBITDA level and 25 to 30 billion on net income. The main reasons for adjusting EBITDA is due to higher profits from commodity trading, lower cost on actually deviations for our customers when you have to buy power on the open market when they consume more than you expected and on the other hand sell when they consume less. So actually those variations are lower. We have also higher expected deployment of power plants and lower operating costs. We did not change our outlook for net income as actually range of 25 to 30 billion is wide enough to accommodate all potential movements actually in net income area or area after EBITDA, which is much more difficult to predict. And another reason is that we are subject to windfall taxes. So every one billion Czech crowns on EBITDA actually is taxed with a marginal tax rate of 81%. So really the impact on net income is fairly small, only 190 million Czech crowns that actually falls through to net income. We have a few important events in the past quarter. By far the most important one was that government actually decided to go forward with negotiations on building two nuclear units at our Dukovany plant station. and awarded or just chosen as the best offer South Korean company KHMP and this was announced actually on 17th of July so now we have ahead of us negotiations that will take till spring of next year the supplier we also have to resolve financing of the second unit. We have the financing agreed for the first unit and notified the European Commission. Clearly, it would probably be very similar model, but it all needs to be still, there is still a lot to negotiate. We are now ranking in terms of ESG among top 10% companies in the world. So 90% through CSR hub. That actually looks at 37,000 companies in their portfolio. Important thing, we are in arbitration with Gazprom in Switzerland. Gazprom tries to take action actually in front of their own court. in Russia, but actually they were banned from doing that by the International Chamber of Commerce in Geneva. That is the only body that can actually decide on our claim against Gazprom for gas they did not supply and that we had to buy one billion more crowns more expensive and supply to our customers. uh those are probably the most important uh three uh pieces of information and now let's go to generation mining segment uh generation and mining segment uh is improved by seven percent uh in total or 3.8 billion check rounds uh the biggest positive variance is a nuclear as it is as i said already earlier not impacted by charges or caps on power prices and clearly the nuclear plants were impacted the most. So this is not the case anymore. So out of 12.4 billion, about 11 billion is actually attributable to nuclear assets. Emission generating facilities are somewhat below last year. and there is price effect and also increase in purchase prices of carbon credits. Generation segment in total 5.3 and mining segment down 1.5, mainly, as I said, due to lower supplies to our external customers. On the next slide, you can see actually in graphical form our power generation. So it was 4% down compared to 2023, 5% on nuclear and 4% positive on renewables. In nuclear it was mainly because of plant shutdowns that were in nuclear power plant of Dukovany and they were not actually planned for first half of 2023. Year on year we plan to be close to nuclear generation, close to 30 terawatt hours. Again, we will have those outages that are kind of part of the plan that was not the case last year. We have lower availability of tamarine and we hope to increase capacity of the coal. Renewables 4% higher, 3.7 TWh that we expect to produce. We are adding new photovoltaic power plants in Germany and we have commissioned wind farms or wind parks in France. On electricity generation from coal and natural gas, we had a 4% increase in coal generation in Czech Republic due to shorter outages at Sušimica two-part plant. We had lower power generation in Poland, 31% decline due to market conditions, meaning prices and carbon credits. And we had basically flat generation from natural gas. We actually expect to generate 2.3 travel towers of natural gas, which would be about 2% lower than last year for full year. We expect to provide, actually to generate coal. in Poland 15% below last year and coal generation or coal-fired generation would actually be down by 3% year-on-year. Important slide actually on hedging prices. We are, as you know, selling power three years ahead. Average achieved price for 2024 will be somewhere between 132 and 136 euros per megawatt hour. Now you can see how much actually power is sold for what year and at which prices. So we are sold 71% sold for 2025 at 120 euros per megawatt hour. going down to 72 in 2028, but the volume is really low, 1.3 travel towers. And we also at the same time purchase carbon credits that are ranging from 90 to 74 in 2027. Current situation in the market is that prices for 2025 are around 100 or slightly below and prices for the out years are close to 80 euros or below 80 for 2028. Carbon credits are trading at around 70 euros these days. Distribution and sales. Distribution segment, we made 16% more or 1.4 billion, but 1 billion out of it is actually attributable to lower revenue in 2023 as a correction of 2021 number. Otherwise, the distribution as it is to large customers was basically unchanged. And residential customers are 5% down, small businesses 3%, in total 2% down, but it's mainly due to warm weather, warm winter. And if you take actually climate and calendar adjusted electricity consumption, it is 1% below 2023, which is definitely attributable to also energy savings. Sales segment, our retail segment is coming back to normal. So first half 2024 results are significantly above first half of 2023, where we still were caught with high purchase prices and very sharply declining sales prices for retail segment. ESCO companies actually made about 2 billion Czech crowns. It is less than last year, but it's important to know that actually it all basically comes from commodity sales in Czech Republic, where we had a different situation than on retail. We had an extraordinarily good year in commodity sales to large customers. That is again normalizing, coming back to 800 million. 1.5 billion was really significantly higher than normally under ordinary times it would be. And the total segment is actually 3.8 billion or 20% higher than last year. Volume of electricity and gas sold. It's actually down by 15%, electricity 11% and gas 21%. This is all attributable to very warm winter. Actually, February was 6% 6 degrees centigrade above the normal February, which is extraordinary. Nothing that we would experience in the past. We have a slight decline in customer base. This is something that could be expected after we got several hundred thousand customers in our portfolio after collapse of a few entities in 2021. The biggest one being Bohemia Energy. So now actually after the market situation has come down, some of the customers are seeking better value or better proposition and they are changing the supplier. So nothing that would not be expected. And I think our strategy is not necessarily to fight for every single customer, but keep the overall margin on an optimum level. Revenues from sales of energy services are up by 20% so far, and we expect an increase of 6% year-on-year, basically in all segments or in all countries. Of course, the Czech Republic The whole market will be somewhat down, but it's mainly because of lower sales of our revenues related to commodity sales. And we expect to have a significant growth in Germany that is from ESCO activities, our key market. both organic growth and also adding new acquisitions with a few companies actually that were added in the second half of 2023. So this is the last slide from the presentation. Generally, I will say that we had a very good quarter and very good first half of the year and with no significant surprises. stable results, so I think it's a good news. We have, I think, overachieved almost all analysts actually that cover chess, so I think we can be very happy with our second quarter and first half of the year.

Okay, this concludes our presentation and now we are ready to take your questions. If you are connected via Teams, just raise your hand through an icon. If you are connected by a phone, press star five on your telephone. And I can see that first question comes from Anna Webb. You can unmute yourself and go ahead.

Hi, thank you. Anna Webb from UBS. I've got two questions. Firstly, on new nuclear, as you mentioned, KHMP were announced as the winner to build two units with potential for two more. And I think press reports suggest that the government were looking to have a financing model for these units prepared by the end of the year. So could you talk a bit about what you envisage the structure could be for multiple units? From my understanding, it's the size of the CapEx requirement that's the challenge rather than the risk appetite around the framework. So what kind of framework would you need that would facilitate you building multiple units? That's the first question. And then secondly, maybe on the windfall tax, it was reported earlier this year that the finance minister was looking at dropping the windfall tax for 2025. Can you let us know if there's been any more discussion on this? And I think at the time it was also talk about whether you could remove it retroactively for 2024 um given you haven't actually made the payment um the cash payment so is there uh is there still a possibility of that um and and where's the discussion there thank you okay thank you for the question so nuclear actually we have a notification from european commission for

one unit in Dukovane and the scheme is such that we would invest up to 4.5 billion Czech crowns into preparation of the project which is current stage And then the remaining financing would be provided directly to this SPV. We have an SPV, actually, a special purpose vehicle called Elektra na Dukovany 2. So it's our subsidiary, 100% owned. And the rest of the financing, so basically more than 90% or more than 95%, would be actually coming from the government directly through us. through a loan that is a zero interest loan. Why is it zero interest? To support actually as low cost as possible for future power deliveries. At the same time, this entity would receive a contract for difference, basically, so it would sell power to the state. at a guaranteed price so that actually there will be an ability to repay the loan back to the government over a few decades and also for us actually to receive reasonable profit on our investment. The little part actually, the equity, 4.5 billion Czech crowns. And clearly, and this is notified with EU for one unit, but not for two, so uh discussions are now about uh basically how to adopt this plan from one unit to two units uh however it needs to be notified with eu as well the european commission so again we would not put more money than that into the project and we would expect the same scheme meaning basically state providing zero interest financing and also contract for difference. So we have certainty that the power plant will be able to repay the loan going forward. So that's all nuclear, and we have to resolve this issue by the end of the year. At the same time, there are negotiations with the Korean national government or Korea National Nuclear and Hydro Company, about the details of the contract. And of course, financing will be an important part of it as well. Windfall tax, from time to time we hear that there could be potential for change to windfall tax. On the other hand, we have not heard about it for a long time. And we are not aware of any kind of legislative process that will actually aim on reducing the tax for 2024 and discontinuing the tax in 2025. Basically, no legal initiative is taking place. This would have to be a change to law. And there is nothing like this happening. The Ministry of Finance has not actually initiated anything like that. So for conservative purposes, I think it's fair to assume that it will be here with us for definitely 2024. And if nothing happens, also for 2025.

Thank you. Can I just quickly follow up on the nuclear question? Just to confirm that you said that it is possible that you've you undertake multiple units under the same agreement, the CFD framework with the 0% financing. Is that correct?

That would be a logical way. We are discussing it. I think there is really not much other solutions. We cannot take the risk of billing it ourselves, and that's why we have notified the scheme of support of the project with European Commission, but it has notification only for one unit and not two, you know, so we need to go through the procedure clearly in probably much faster way, but the details are actually being now discussed, you know, so that would make sense. There are not many other alternatives that we have actually.

Okay, thank you very much. We have the second question from Bram Boring. Bram, are you there? Just unmute yourself and you can go ahead. Got it. Hello.

Bit of an unmuting problem. I'd like to pick on the financing model for new nuclear just a little bit more. So the the the framework for the first unit for a first unit was based on agreement signed with the previous government. So can I assume that for further units, you would just be signing a carbon copy of that same agreement with the new government for two, three and four? That's the first question. And then the second question is also about the taxes, but a little more prosaic, just trying to understand the difference in the effective tax rate in the first half this year and last year. I'm assuming that it's, you know, accruals for the tax are more aggressive than last year, but if you could just clear that up for me. Thank you.

So actually regarding the financing, as I already said, there is a contract actually and terms for one unit only. The second unit was not covered. So it needs to be all discussed. And clearly this is almost twice as much money as, of course, one unit. It's a bit less than times more than one unit, but much higher amount than originally anticipated. And so, we are now discussing actually financing for six units only, not seventh and eighth, which means there is an option for two units in Temeli, but they are way down the road, you know, so basically, So there is no point in discussing those 10 million units because it's an only option and the option window will be open for quite a few years, you know. So I think now everybody is aiming actually at two Dukovany units, you know, and as it was notified only for one unit, it has to be adjusted. We will see, as I said, there's not much choice than state providing financing and contract for differences. That's what it is, but it needs to be kind of worked out in paper as well.

Okay.

It doesn't really matter which government is in place. I think this is a general understanding that this is the only way to go, actually. Any other way, for example, us building it on our balance sheet and the risk is really not the way forward. It's just too big for us. We couldn't do that. And that's why there is such a scheme that was notified for Unit 5 already.

Understood. I'm only asking because the old contract with the government is fairly well understood, and I'm thinking more about the risk that this new government gets new ideas in its head if it's just a matter of notifying under the same terms as Unit 1 for the second unit. then I'm also wondering why they're taking until the end of the year to make any sort of decision.

You know, I think there is plenty of technicalities that you have to resolve. You know, it's not that easy, and it's only kind of four months to five months until December. are really for because of summer holidays you know so uh it's a kind of you have some technological uh technological deadlines you know that you just need to accommodate as well okay fair enough and the tax question please that question is uh you know whatever is actually booked in our books is uh the best estimate of uh or the best estimate of reality for first six months. Our estimate for full year on windfall tax is actually 27 to 34 billion Czech crowns, depending on EBITDA. We have so far paid 15 billion in cash in first half of 2024. Our tax for last year was 30 billion. so uh cash payments if we if we don't come to a conclusion that they should be lower uh would be according to the law actually two times seven and a half billion meaning uh uh quarterly advances of seven half billion so the cash payment would reach 30 billion and of course uh then there would be uh an adjustment after we file a tax return uh one way or another uh Should there be any change, significant change in the level of tax, for example, or should it be discontinued at all? Of course, we would adjust our payments to this new situation. So that's what it is.

Okay, so if we take an optimistic view to EBITDA for the quarter, and you're paying $7.5 billion quarterly, then in the fourth quarter, as it was last year, we could expect that the tax burden will be, you know, let's say $4 to $7 billion quarterly. higher in the fourth quarter than it has been in the previous, just on the windfall tax.

It really depends on our EBITDA. But generally what you do, if you see that your tax liability is significantly below the advances, you go to the tax office and ask for reduction of advances. You see that it is kind of on par or a bit below what you will pay at the end. You don't go to the tax authorities and you do the settlement, basically settle the rest at the end of June of next year. It looks like if nothing changes, we have paid 15 billion, we will pay another 15 billion and then we will pay the rest. Should it be more? Should it be significantly less? We will go and ask for a reduction. But so far, our estimate is 27 to 34 billion. So basically, the middle of this range is around 30.

Maybe I can add one comment. Maybe Brahmi are referring to the fact that we had a very high effective tax rate in the last quarter last year. But this is not mainly driven by the windfall tax, but by the change in the deferred taxes connected to the change in the tax rate from 19% to 21%. So from that perspective, this year the effective tax rate should be less volatile than last year. And therefore, yes.

Excellent. Thanks for that. Thank you. We have next question from Roland Wetter.

Hello, good afternoon. I would like to come back to the nuclear topic. One investor claimed that a minority buyout is necessary to finance more than one nuclear plant. Given what you said today, do you think this still makes sense? And in your view, does the government have any interest buying out the minorities?

I think it's one of the activist investors and, of course, He would love to receive significant premium over the share price, and that's basically it. But it's a question to government. We don't see any signs that they would want to do it. And actually, their point of view so far is that they will basically provide entire financing interest-free. They will provide contracts for differences to the project. So in the future, we... don't earn much money we earn what we should be earning based on our the investment and government paying it all basically basically bearing all the risks will also receive all the benefits of it after it starts after it will be up and running you know so you know so far there is no no discussion i think about uh government buying out minorities

Okay, perfect. Thank you. A second topic on power prices. When you look at the forward curve, the price is coming down. And for example, 28 midterm, roughly at 73 euros. What is your view on the power prices around, let's say 28 to 30? Do you see reasons that power prices should increase above the current forward curve?

Good afternoon. Actually, it's hard to predict at the moment. We don't see any reason why the prices should change in the upward direction.

Okay. And then the last one on your balance sheet. When you look at the power prices further out and you make an estimate about what is your profitability, we think that it could be around $90 billion in 2028. And then when you have lower EBITDA, financial debt to EBITDA goes up. So given these conditions, do you think that you can keep the current payout ratio, dividend payout ratio, and also pay for all the future investments?

I think it's too early to ask, you know, I mean, of course, we will try to do our best to stay in the rating range, you know, or net that we bid out three. With Gasnet, we can be a little bit more. Gasnet is actually a Czech distribution gas company that we should be taking over by the end of this month. And as they are a regulated business, we could actually have a better position. And we understand dividend is important to our shareholders, but it's really too early to say.

But let's say what would be your preference if you find out that you have, how can you say, not enough money for paying dividends plus investments? Can investments or reducing dividend?

It depends, you know, what kind of investments and what would be time horizon. So we really make our dividend decisions based on our dividend policy that we announce well enough. It's usually in place for two to three years. Currently, it is 60 to 80%, but of course, 2028 is quite far away, so really cannot say. Okay, thank you very much.

We have next question from Piotr Jentzelowski from Citi. Piotr? You can unmute yourself and ask your question.

Okay, so I'll give you a second and in the meantime, Petr Bartek.

Good afternoon. I have actually only one remaining question regarding prices this year. You raised the expected prices for this year by a few euros up from 130, which is already quite a high level. So If you can elaborate a little bit about the development in the near-term markets on the unhedged position, what's actually driving the quite good results in the second half, if you see something similar in Sorry, in the second quarter, if you see something similar in the third quarter still happening, reignite spreads and so on. If you see any interesting developments in the markets and maybe more long term, what do you think about CO2 prices going forward into the autumn and for the next two years, let's say?

So I will elaborate on the first part, actually moving our price from 132 to 136. It's mainly due to taking opportunities from the market. So basically using situations when the power prices go significantly up during the day or sometimes being negative, basically reducing our output and purchasing power. uh on the market or purchasing and being paid actually for it you know so this is really about uh those uh those uh daily uh daily uh peaks uh that we are using in our favor and uh you know we will see uh how how successful we would be in the second half of the year but uh i wouldn't expect that we could move it any further any in any more significant way And on CO2, I will ask Ludek if he can tell us.

Well, if anything changes in the direction of European Commission after elections to European Parliament, the price will be probably moving in the range we are used to last couple of months, so it's between 50 and 100, it's hard to say. There are no fundamental reasons to move it in either direction, so it depends on political decisions.

Thank you. Okay, so we'll try Piotr once again.

You can hear me now? Yes.

Yes, we can hear you.

Thank you. Sorry, I had a trouble standing on the phone. I wanted to ask a bit of a follow-up question to what Roland was talking about. So I'm trying to understand your kind of a cash flow towards a later part of a decade. On the $2 billion equity commitment you have to the first reactor, What could the timeline of this commitment look like? At what point you have to provide this money? Is it a lump sum? Is it coming in the installment? And when is the first time when you have to provide full money into this one? And then how would the second reactor, if the terms are similar, affect it? Is it like just two years afterwards? So that's the first question.

Okay, so there is actually as part of the notification is that we provide those 200 million euros at first and only if things go very wrong during the construction and it's our fault. So it's not fault of our supplier or change in legislation or whatever. Then we are obliged to put up to 1.7 billion euros into the project and that's the cap. And only when it is proven that it's something that is actually caused by us, you know. So that's it. And also, of course, if anything happens, we will do anything to make sure that it's not our fault. And if it ever happens, it will probably be in later phases of construction that should start sometimes in 2028, I guess. 39, you know, so we still are quite a few years down the road. All the rest is kind of wise.

What do you say to that? If everything goes according to plan, you can build, so you can be responsible for building two reactors and spend only 400 million euro on it. Is that the right assessment?

It is the right assessment. It can actually be only 200 million euros, you know, that's what we are discussing. because that's the overall number for one unit, but it may be the same for two units, you know. So those are the things that are being discussed, you know, whether it should be 200 million or 100 million. Definitely the cap of 1.7 billion is something that should be applicable for both reactors. So it's not 3.4, it's still 1.7. And those are the discussions that are now being actually held, you know, in the unit number six.

So for two reactors, you also be maximum cap of up to $2 billion?

Yes, $1.7 billion.

And what is the rating agency's approach to this possible liability? I mean, do they assign some probability to this number? Do they think about it as just a $200 million commitment, or they think about it as $2 billion, and that's what they put in calculating your metrics? Because the potential liabilities.

The agencies are not looking that far so far because we are, you know, quite a few years from first money to be spent and they are usually looking three years ahead. But knowing them, I think they are fairly conservative and they would assume that those 1.7 billion would actually be spent, you know, but I cannot talk for rating agencies, you know.

And is this also fair on this, that the possible return on equity will apply to the 200 million that you spent? So in reality, you're not going to earn much out of it in the context of the whole chess group.

Yes, yes. It will be basically all paid by state, right? So they should have the benefits as well. We don't want to take Raysk, and if you don't want to take Raysk, you... you don't get much reward either.

Okay. And my last question is concerning the lignite units. I mean, as you look through the market, the conditions for the thermal fleet and coal and lignite especially is getting worse every day or this half a year, the volumes are really under pressure. Would you consider early closure and what is your latest thinking about the future of this asset?

I think we announced on our shareholder meeting that the year 2030 is much more probable than 2033. So yes, it probably will be accelerated. Of course, not everything at once. And I think there will be a period when those power plants will be up and running full speed in winter, generating mainly heat. And in summer times, they may be out of operations. We definitely don't invest into it. We invest enough to keep it running maximum 2030, but not beyond. And our monitoring situation. We have a plan actually to replace heat plants with gas plants. We already started in the location of Mělník, which is heating a significant part of Prague. And there is actually a subsidy or program to provide profitability for heat plants. And we are now waiting for the mechanism of capacity payments for the power plants. Without it, of course, it would be too risky to build a gas-fired power plant. But lignite plants and lignite mining activities will probably cease to exist by 2030.

do you think they can generate some losses beforehand?

I think we'll do our best for this not to happen. In Turkey, we would not be excited to run it at a loss. So I don't think it will be anything material.

Okay, I understand. Thank you very much.

Okay, thank you.

Okay, we now have a question from a person whose name I don't know. He's dialing from a phone. Plus 447826. Yeah, so basically you can unmute yourself by pressing star six.

Go ahead. Hello, can you hear me?

Yes, we can hear you. Hi, Arthur.

Great. Hello, this is Arthur Symbol from Morgan Stanley. So, yeah, my question was just on your net income guidance. You've achieved significantly more than half of your guidance of net income for 2024 in the first half. I was wondering if there are any material negatives to expect in the second half that would make it difficult for you to deliver more than the 25 to 30 billion of net income, or if maybe you've made some conservative assumptions for that guidance. That'd be it for me, thank you.

Yeah, there's nothing really, nothing really that, you know, extraordinary that we would plan for. Our business is fairly seasonal, so we basically make most of our net income in first half of the year, very similar to the last few years. we would expect a bit higher interest expense or meaning lower interest income due to decreasing interest rates. And, you know, but that's it, you know, so basically wouldn't really expect anything extraordinary.

Okay, thank you very much.

Now we have a follow-up question from Bram Boring.

Yes, hello. Thank you for taking the follow-ups. First one was, does the concept of contract for distance difference exist yet in Czech legislation, or does it still have to be passed?

No, it doesn't have to be passed. It's a matter of contractual agreement. So basically you create it through the system of contracts.

Okay. Because at some point somebody had introduced legislation that would codify contract for different contracts, but understood. The second question, from the Czech Twitterverse, a certain high net worth individual is threatening to take And I'm not sure if it's just CHES or if they're banding together with other minority investors in other countries, but to challenge the legality of the windfall tax altogether in front of the European Commission. And I'm just curious for your off the cuff feeling on this. I'm not entirely sure if the EC signed off on windfall taxes, you know, for the nations to impose them or if they just look the other way. What kind of what kind of chances would you give this sort of case in front of the European courts?

No, I don't think there are very much changes. Of course, we had a few legal analysis done on this issue. The windfall tax is perfectly in line with what the parliament can do. I would almost call it political risk. So basically, There was no error or no mistake in approving the legislation. EU has absolutely no power over direct taxes. They are involved in VAT, for example, harmonization, but direct taxes are still a responsibility of individual states, no matter how they are built and how high they are. So far, according to legal opinions of a few legal companies, there is not much ground, if any, to dispute it. On the other hand, we are looking at whoever is taking any action, because technically speaking for us, if we want to do something, we should dispute it at the tax office. As we did a few times, for example, you may remember, Bram, actually quite a few years, a decade ago, gift tax on... Oh, yeah. And the way how you can do it is actually to go and ask for a refund from tax office when you find out that you think you have some legal arguments that actually you think will be successful. And it usually goes to court and ends up with some court decision. At that time, actually, the gift tax was against the EU principles because you were supposed to receive carbon credits for free. They should not be taxed. But here, this is a different story. This is a direct tax that the government can impose. And many governments did it in various ways. And yes, the Czech government decided to do it for three years. Versus others for a shorter period of time. Some of them for 2023 retroactively, which the Czech government did not do. They did it for 23, 24, 25. uh so uh and not for 22. uh so uh that's actually uh that's the position so if we want to take it through tax office one day and we are also looking at the reaction of other companies that pay uh windfall tax and their position so far we don't have any information that somebody will do that or kind of take it to the court or or or be against that then we can do it we have more than three years actually or we have three years from this June end of June to actually dispute 2023 tax you know so the window is still open and you can get into it should the situation change but so far it looks like the legal process was correct and EU has really not much to say about direct taxes okay thank you

We have the next question from Robert Mai.

Yes, hi, it's Robert Mai calling from IPP Mal Securities. I would start with the new nuclear. So the profit you can make on this investment, 200 million euro of your equity, would be capped on any given level, like let's say for simplicity, WAC of let's say 10% per year. which we would like to recover from that investment. Is that correct way of thinking on this?

I think there will be in general, you know, this is the correct way of thinking, but we also shouldn't bear any risks, you know, related to the project. And there will be some portion of extra profit that we will be able to make depending on optimization of running the plant. So we have an incentive to run the plant in the most optimal and most profitable way. So there will be an extra bonus, but it will be definitely not the same as if you take full risk, pay for the plant, and then start it, and then use the benefits for following 80 years from purely commercial market, like we do it, for example, with our two current plants. So that will not be the same scheme. And this would be completely off-balance sheet for you, this investment? Yes. Yeah, I mean, technically speaking, yes, you know, we would be receiving some fee for managing or for running the plant, for sure, but that would be probated.

Okay, and the risk, which you mentioned, the 1.7 billion euro, if this would be coming on your account, I mean, if the delay in the construction process, is it something that could be provisioned for with this penalty fee?

You know, it would have to be delay caused by us, you know, so it would have to be delay that is caused by our mistake, we would not be having the construction site on time and place and those things, you know, if it is delay because of the supplier or delay because of the legislation changes, for example,

then we would not be liable so that's really if we do if we do something wrong okay in the presentation you say that the main one of the main reasons for increasing dbd outlook uh compared to last time is the lower fixed operating expenses i was just wondering what could it be what kind of lower fixed expenses you see now down the road to increase the guidance?

Well, I think it's probably related to, for example, mining activities where if you sell less coal, you have less operating expenses, but also, you know, various, you know, it's many, many items that you save here, you save there. And on our large-scale business, it provides some savings. But I would say the biggest part is actually trading activities that are above our original plan. So that will be the biggest portion of the increase in our EBITDA.

Maybe one clarification on that. We are not talking about year-over-year increases, but just lower cost versus previous expectation.

Yes, versus plan. That's correct. On the capacity markets for coal units, you mentioned it for your coal or heating units. How quickly do you think it could be implemented in Czechia? And What kind of impact on your annual P&L could it be, roughly speaking?

We probably don't think there'll be anything call you entire kind of are going to be out of market, as we said, by probably 2030. So nobody really plans to support coal. It's more about natural gas units, and discussion is going on these days. But before it is in place, we will not invest into natural gas power plants.

Understood. And last question on the disposal of Polish units. Anything new happening here? And if you struggle to find any buyers, would you just shut it down or just give it for any kind of symbolic lump sum just to get rid of your balance sheet?

We actually received a few binding offers for a few counterparties by the end of July. So now we are negotiating with a few of them going forward. And we will see whether there will be a deal by the end of the year. And if not, we will think of a different way of how to get out of it. our polish assets because clearly long term running to hardcore plans doesn't make much sense so but it's too early to say so now i think we received we did receive quality offers which is different from when we tried a few you know a year ago or two one and a half years ago okay thanks for the answers

We have the next question from Andrew Moulder.

Yes, hi, Andrew Moulder from Credit Sites. Sorry, I just wanted to come back a little bit on the nuclear question. On the financing, I mean, it sounds like you're quite clear now that the model you're now considering is exactly the same model as you already had for the first reactor. And yet, when I remember the previous conference calls you've held, you were – well, I thought you were quite adamant in saying that you needed a different model if you would be developing more than one reactor. And I just wonder – What's changed your mind to say that the model you had originally is now acceptable if you need to build? I think you've talked about even up to six units. So could you just clarify what's changed in your thinking to make you now use the old model, which you'd said you couldn't use for more than one reactor? And my second question, sorry, also on the nuclear question. It's just I think I remember reading something on Bloomberg that Westinghouse was actually challenging the decision of using the Korean company to build the reactor because they said that actually it was a Westinghouse design and the Koreans didn't have permission to use it. I'm just wondering if that's likely to delay the whole process and whether we might not even see a new nuclear unit yet for the next sort of five or 10 years. So could you just comment on that as well, please? Thank you.

You know, I think it's more about adjusting the model, original model, to two units, but definitely not three and four. This would have to be a different negotiation. So adjusting it to two units and, you know, basically, you know, I'm not thinking of – There are many variations of the same result, but the result should be technically that state should provide full financing at 0% interest, bear the risk that is always kind of connected with the power plant for all errors or mistakes other than ours, where we would be liable for 1.7 billion for both units, not just one. and provide contracts for difference. So this model is not changing. This is the same. Of course, it may have many kind of sub-variants maybe, and we need to discuss it. So this is what's going on. But I wouldn't expect that one unit would be financed like this and the other one in a completely different way. Both units would have to be very similar or the same, actually, because this would be technically one project on the one construction site. Right, okay. And regarding the claim of Westinghouse, Koreans are fully expressing their opinion that they have all the rights to build the reactors. They already did it, actually, in a few instances. The last one, I think, was in the United Arab Emirates. So they declare they absolutely disagree with Westinghouse, and it's kind of... their assurance that they are providing whenever we touch this issue. Of course, there was a discussion about it. There's the outcome.

Okay, so you don't think that's going to delay the whole process? I mean, you know, ultimately, if they can't reach some sort of agreement here, you could see this whole thing having to be retended.

I think we are far from this, you know, it's more of a legal issue, you know, rather than anything else, you know. But I'm really not into detail, you know, on the discussions between those two parties, you know.

Okay. All right. Thank you very much. We have a follow-up question from Ronald Wetter.

Hello. Yes, one follow-up. Also, Nuclea, what construction time do you have in mind? Or in other words, what year do you think you have the first positive P&R contribution from the Nuclea?

I think our original plans are going for 2036 and 2038 for those units, so that's kind of a time frame. And again, a positive outcome will not be as positive as if it was our fully owned plant where we would receive entire EBITDA. If there is anything above contract for differences, it will be received by the state.

Okay, wonderful. Thank you very much.

Okay, we have no further questions, so we can conclude our call, but as always, Investor Relations Department is at your disposal with any other matters that come to your mind later. Thank you very much, and