Cez As S/Gdr 144A

Financial Results Conference call for the first half of 2025. Marky Novak, Chief Financial Officer, will walk you through the presentation and then we will open the floor to the questions. We also have Rudik Horn, Head of Trading, just in case you have some questions on the power market here. Now I'm handing over to Marky.

Thank you. Good afternoon. Good morning, everybody. So let's start with the presentation. In the first slide, or slide number 3, we can see actually overall financial results, where our EBITDA has reached almost 74 billion CZK, which is an increase of 4.7 billion or 7%. Adjusted net income 16.7 billion and net income 16.5 billion, which is down 21, respectively 22% year-on-year. Our capex has grown by about 11% to 22.8 billion CZK. Important slide number 4 actually shows a difference between first half of 2024 and first half of 2025. There are few factors, actually few negative factors, few positive factors. The first negative factor is actually decline in power prices, which has an effect of 6.4 billion year-on-year decline, as prices tend to go down even in the future. So this is about 6.4 billion. Technically speaking, it's actually 7.3 billion. And then there is some effect of different scheduling of nuclear plant outages. which is a positive effect, but overall this segment is impacted by power prices, which is 6.4, very negative. Down 2.1 billion. Again, it's not a loss, it's actually a lower profit as volatility of the market is lower and lower month by month basically. Trading achieved a very reasonable result of 1.9 billion check rounds. However, in the first six months of last year it was 3.9 billion. Then distribution actually segment is up by 3 billion, mainly due to higher allowed revenues, thanks to increased investments and distribution assets of 1.6 billion, higher distributed electricity volume, half a billion check rounds, and mainly higher other allowed revenues and correction factors, which is 0.8 billion. important, by far the largest actually positive impact of this first half is actually consolidation of GasNet, which is a gas distribution that we acquired actually as of September 1, 2024, so it does not show in 2024 numbers at all, so entire EBITDA is actually variant, and it is 6.4 billion check rounds for first six months of 2025. Sales segment shows also improvement both on sales, retail and large customer sales. where the commodity purchase prices were lower compared to the previous times or previous period and we also had 1.3 billion effect of undelivered commodities due to warmer weather in first half, so actually in first half 2024 We had a commodity that we did not deliver to customers, we had to return it or sell it back forever. It did not happen this year. So this is EBITDA variance looking actually at net income. There is actually a decline, as I said, of 22% or 21% respectively. By far the highest and basically the only main charge is actually depreciation. As gas net is impacting our EBITDA, it's also impacting our line items below EBITDA, including depreciation. So part of it actually is related to gas net, about 5.1 billion out of 10.5 variance. And remaining part is basically attributable to accelerated depreciation on coal assets that we adopted as of October 1, 2024. So again, the accelerated depreciation was not in the results of first half of 2024. We adopted accelerated depreciation because of the fact that coal plants seem to be discontinued around 2030, so we switched from a straight line method of depreciation to accelerated method. when we are basically simply set copying the amount of hours it will actually produce power, so in 2025, 2026 it will be definitely more than for example in 2029 or 2030. That's probably, those are the main effects actually on our net income. On the next slide, you have some operating results, volumetric data, which you can go through. We can actually skip that and go to slide number seven, where you can see our financial outlook. We actually increased our EBITDA target by 5 billion check rounds. We keep actually the range of 5 billion, but it is all increased by 5 billion. So now our EBITDA estimate is actually 132 to 137 billion check rounds. adjusted that income was actually, we actually increased the bottom of the range to 26 billion CZK, so now the new range is 26 to 30 billion CZK. The main causes of our EBITDA target change are actually listed on the right of the side of the chart, so it is, I would say, almost equal, it has almost equal effect, it's higher power prices than we expected in our last guidance, so especially the power prices of the power, or the power prices of the power that we had unsold actually or did not sell for 2025 and still have some available for peaks and optimization and so on. We are also saving on fixed operating expenses. We have higher settlement of electricity not invoiced to end customers, higher revenues from distribution and connection fees and lower purchase cost for commodities in sales segment. You can see also assumptions on which our estimate is based. So you can see power generation 44 to 43 terawatt hours. Power prices in Czech Republic 121 to 125. Euro per megawatt hour, emission allowances 79 to 83, depreciation that we already mentioned, 55 billion, out of which 9 billion is gas net, and windfall tax of 29 to 33 billion CZK. Next slide, you can actually see significant events in nuclear energy development. As we, I think, already discussed in May, we managed to sell 80% share in the new nuclear project to the government. As of April 30th, the transaction was settled actually on May the 5th. The purchase price was 3.6 billion, which is 80% of original investment of 4.5 billion. We are not consolidating anything from other than equity method consolidation, so we don't do full consolidation of this investment as we are basically a financial investor with a provided estate, but we have no obligation to furnish any cash or anything in the future. There was also an agreement concluded between the new nuclear project company, Dukovany-2, and the Korean KHNP company. So they have actually two units, each of them 1063 megawatts. Another milestone, actually Great British Energy Nuclear selected Rosrush SMR as a supplier of small modular reactors. We completed its investment in UK-based SMR developer and acquired stake of approximately 20%. So this was actually important milestone now actually the company where we hold 20% stake and start working on the project to deliver 3 units to British government and at the same time we are doing preparatory work for first SMR, road source SMR actually in the Czech Republic internally. The new plant location. So that's That's the new nuclear plant, current nuclear facilities, there are some highlights as well, that relate to actually current facilities, I think the most important one is increase of Dukovane installed capacity by 14 MW per unit, so it is 4 times 14 MW that we have now more, in total Dukovane power plant has 4 times 524 MW of installed capacity. On the slide number 10 actually you can see some information on transformation of the heating industry or heat supply, heat delivery business. We have basically all our power plants are also serving as heat plants or heat locations. And you can see actually individual power plants and the way we treat it. I think the most important is actually Mělník, which is about 30 kilometers out of Prague, supplying city of Prague with heat. Today it is actually through using coal-fired plant, which started construction of largest actually heat plant that will be gas-fired. or gas powered 266 megawatts of electricity and 183 heat megawatts actually will be installed near Prague. The construction has already started. We also started construction of waste to energy facility that should process 320,000 tons of waste per year. Generation mining segment in more detail is actually on slide 12. You can see that the segment actually in total has earned 46.5 billion cheque rounds, which is 15% less. Actually, the largest negative variance is coming from emission generating facilities, where we are actually 51% down compared to the first half of 2024. Again, the details are described on the slide on the right side. Clearly we can see an effect of decreasing power prices, increasing carbon credits in our generation facilities. Then on the next slide actually you can see charts of our nuclear and renewable generation. It is an increase in nuclear generation year-on-year of 6%. We would like to keep that actually for a full year where we are targeting almost absurdity to be produced. mainly due to extension of fuel cycles and modifications of outage plan, so we will have more kind of running hours in 2025 versus 2024. We have increased capacity in Brukovany, as I already described, and shorter scheduled outages of terminal nuclear plant. Renewables were down 17% mainly due to natural conditions in 2024, when we had enough snow and water, which was not the case actually in 2025. And therefore we expect that our power generation from renewables will be 7% lower on a year-on-year basis. for a full year, our clean energy generation would then be 5% higher, 35.2 TWh. Fossil fuels, meaning coal and natural gas generation, was 12% up on first 6 months compared to last year. We expect it to be 4% down. Mainly due to decline in our Polish assets obviously that we don't have anymore. We only had them first 5 weeks of 2025. We disposed them so we will be missing 0.9 TWh from those assets. and our power generation from coal should remain flat, although it was 13% up due to colder winter in 2025 compared to 2024. Hedging, very important slide of market risks. This is actually On slide 15 there you can see our average achieved prices. Those are mainly or those are base hold prices that we are selling at our forward electricity. So 95 euros for 2026 going to 71 euros for 2029. We are 73% sold as of June 30th actually for 2026. The same chart on the right side relates to carbon credits. You can see that the spread between power price and carbon credits is significantly narrower in 2028 and 2029. than it is today. So this will be a pressure on the economics of the coal plants for sure. Then the next segment, a few slides actually on distribution and sales. Distribution segment has a significant increase of actually in total of 90%. They made 9.4 billion, but Clearly it is 6.4 billion coming from gas net, gas distribution, which we did not actually have in our numbers in 2024. And there is an increase in distribution, power distribution actually of 3 billion check rounds. mainly due to higher allowed revenues due to increased cutbacks in the past of 1.6 billion, higher distributed volume of 0.5 billion and then higher other allowed revenues and correction factors of 0.8 billion. Comparing numbers for Gasnet, should we have actually the company in our numbers, they would have made or they did make actually in first half of 2024 5.7 billion, so now actually they are 14% billion better than in the past year. Year-over-year development of gas and electricity distribution. On the left side we have a chart of electricity distribution on our territory, which is 2% higher, but when you actually adjust it by climate and calendar, it is 1% higher. Gas distribution is actually 11% higher, but climate adjusted 2% higher. As I said, the winter of 2025 was colder than 2024. Sales numbers or sales segment numbers actually are on page 19. There we have significant improvement in Chess Pro Day, which is our retail customers company and it delivered actually or earned 4.5 billion on EBITDA, which is 3.2 billion more than in first half of 2024. ESCO companies are about 35% higher and they are both providing EBITDA from sales to commodities in Czech Republic which is 77% increase and then energy services both abroad and in the Czech Republic. Chesterday or the retail organization actually had a lower acquisition of commodity cost. Then they had actually effect of sales of undelivered commodities due to warmer weather in first half of 2024, which had a negative effect of 1.3 billion at that time. Now it's actually not there, so it's a positive variance. They had also higher volumes of deliveries to end-user customers, colder weather, 0.2 billion check rounds. And those are the main variants essentially. Volume of electricity and gas sold and number of customers. I think for first half of the year we are actually up by 8%, 17% in natural gas, 3% in electricity, clearly and obviously it's also a function of the weather. Number of customers is stagnating, but we acquired a few hundred thousands of customers during collapse of a few retail organizations in 2021 and then later 2022. So the move in electricity of 1% is relatively immaterial and we have 4% more customers actually on natural gas. Revenues from sales of energy services, which is ASCO activities, we had 8% decline, which is mainly year-on-year temporary effects, timing effects of big contracts in 2024. But overall for the year, we expect 7% increase in all countries that we operated. So this is all. Then there is more information in the annexes. But for now I think we can switch actually to Q&A session. Thank you.

Yes, so we are now open to your questions. Please use the Teams to raise your hand. I will call out your name and open the floor to your questions. Okay, so we have a first question from Annabeth.

Yes. Hi. Thank you for taking my questions. Two from me. The first one is on the reports that E.ON would potentially be selling their gas grid in Czechia. I know you probably won't be able to comment on the on the specific transaction, but more generally, would you be interested in M&A and grids to increase your exposure there? I mean, you've already done the gas net deal. And I guess, would there be rationale to expand there? I mean, the returns look pretty attractive for the next regulatory period versus other European countries. And if you were to expand the gas distribution grid in the country, would there be synergies from that? If you were kind of almost the sole operator of gas distribution, anything you can comment on a high level, that would be great. The second question is a bit more high level on power prices long term. I think you've hedged a very small amount of 2029 at just over 70 euros per megawatt hour. Is that kind of where you see power prices settling long term? And how do you think about the upside, downside to long term power prices, you know, given? maybe downwards pressure from gas prices, but also a lot of discussion around whether there could be new demand in Europe from data centers, et cetera. So any views you have on the kind of long-term outlook for the power market would be great. Thank you.

Okay, so first question on gas grids. This is an ongoing transaction and we don't provide any comments, any speculations, any ideas on how we view this in detail. So we cannot really comment on anything on E.ON sale of their distribution assets. Hedging prices, we have sold just a little for 2029. It's not taking a position. It's really doing a straightforward hedging. and 2029 is now available actually, so we are actually really selling our power that we are about to deliver, or we intend to deliver a straight line, with no speculative, with no not taking speculative points of view. For speculating points of view we have actually proc trading, that is one of our segments that we report, but this is really straightforward linear hedging as it becomes available. We have actually Ludwig Horn who is head of our trading, so he may tell you any point of view from speculative point of view rather than from straightforward hedging point of view.

Okay, it's really hard to predict what prices will look like in the future because as you know these prices are connected with the prices of natural gas and EUA. And both of these commodities are dependent, prices of these commodities are dependent on other factors. So on long term we expect that the prices will slightly go down and we don't see any reason for prices going up. It would be a result of extraordinary events like the war somewhere in the world and so on.

Perfect. And can I just ask, and I appreciate you can't comment on the EON transaction, but I guess more generally, do you see, do you see balance sheet headroom for potential M&A? Whether that be kind of like more generally, I suppose.

Well, you know, generally, of course, you know, with our net debt to EBITDA of, I think, 1.3 now, there's definitely headroom, but we don't say that it would be necessarily aiming at this asset, you know. So, we can see headroom for, and we do actually have many transactions in ESCO. However, they are quite smaller size, but related to gas, we really say nothing.

Got it. Thank you very much.

We can take the next question from Arthur Sidbon.

Yes, thank you for taking my question. It's just one question on the EBITDA guidance increase. You flagged, you identified a few drivers of the increase in the presentation. And obviously, they are not so noticeable at the net income level because of the corporate tax surcharge in 2025. I was wondering if any of these drivers would still be noticeable in 2026 when potentially the drops through to net income would be more significant. Thank you very much.

You know, this is really, those drivers are actually drivers between our original estimate from May the 15th and now August the 7th. So those are things that actually have caused the guidance to move. So, you know, it's really, I'm just looking at it. It might happen that there might be higher power prices that we think, or that we now actually see. Yes, it could be. fixed operating expenses, again, you know, there could be, but it's really a matter of comparison, you know, so that we really are comparing our original guidance, it's not that we are comparing with it last year or with the with anything else, you know, so some of them might be, if you ask about our EBITDA level, just very simply, again, we don't provide any guidance on EBITDA, it's too early yet, we would normally do it in spring of next year, but with declining power prices, of course, there will be a pressure on our EBITDA, that's clear. On the other hand, with VOLTEX, and this is something that you Touchstone should be attributable to 2025 only, so as of 2026 there should be no WinFloTex effect, which would be probably by far the largest factor.

Thank you very much. We can take the next question from Emanuele Odioni. Can you hear me now?

Yes, we can hear you. Okay, thank you for taking my questions. The first one is on GASnet. I think based on H1 results and your updated guidance, you can reach 13 billion of CHEF crown this year. So you can confirm this and the second question related to GASnet is the guidance for or at least the qualitative moving parts for 2026. And this is basically the first argument. The second question is on the sales segment. They provided a positive outlook and we noticed that the higher profitability of 1.1, 1.4 chest crown billion per quarter in Q1 and Q2 was primarily related to the lower not only the lower cost of commodity but also the lower cost of deviation after the deregulation of the market. So I think this could be a structural, more structural profitability for at least for 2025. remaining part of the year and my question is in particular focus on still on 26 if this higher profitability could be replicated also in 2026 or what are the moving parts and then I have also a third question on the capacity market scheme if you can update on this subject you know, it is currently under discussion. Thank you.

Okay, so, you know, Gasnet actually, I think they are more, not really aiming at 13 billion, I think their target is something like 11 billion. for 2025 rather than 2013, so I would not really multiply the result by two. And partly, again, they are distribution companies, so most of the revenues they get during the winter, which is first quarter of the year. So then in sales segment, yes, lower cost of deviations after the market got liberalized. The deviation cost was higher than it is today after it is stabilized. So we could think that it could last for longer than just 2025. That's perfectly true. And then capacity payments, actually there was a law approved allowing for capacity payments for CCGT plans. the key condition for us to be able to build gas plants making electricity and not heat and power as it is today. However, it needs to be designed, the scheme needs to be designed by the Ministry of Industry. I'm notified with EU and it's not done yet, you know, so they are working on it and have no really detailed schedule available now.

When you expect more clarity on this? Yeah, I have no information on that, you know. Okay, if I may also follow up on GasNet. Indeed, in your slide, you increased by one billion the contribution only for GasNet, and the overall contribution, the overall increase improvement compared with the previous guidance for the distribution business unit, I think it's not only driven, will not be driven only by the electricity improvement, if I may. So probably $1 billion more compared with the old guidance, or $11 billion could be achieved based on your slides, or $8 billion increase compared with $7 billion of the previous quarter guidance for GasNet. if I'm correct.

Yeah, you are right, we previously guided for Gasnet to add 7 billion, now we are giving the range 7 to 8, so clearly there is some upside risk, but not the main driver for increasing guidance in the distribution segment is coming from the electricity part.

Thank you, thank you so much.

Yeah. Yeah. Am I, did we answer everything? Yeah.

Yeah. Yes. Thank you. Thank you so much for your clarity.

Thank you. So, uh, we can now take the questions from from city.

Hi, good afternoon everybody. Thank you for opportunity to ask question. I have a couple of them. So the first one I wanted to ask you about SMR. There was an article today that you may be building one in Czech Republic. So can you tell us, if you know already, like what could be the amount of a CapEx and when could this CapEx take place? That's maybe the first question. I have a couple of ones, but I think one by one would be easier maybe.

So regarding SMRs, yes, you're right. Our first project, which would be second after the British project, would be actually in Tamerlane. You know, we don't communicate any numbers on CAPEX because this scheme would probably be very similar to the one that is today, meaning the state financing as it is for the big units. And I think the size of the SMIs developed by Rossrow is actually 470 megawatts. So this is where we are aiming at with installed capacity.

Okay, I understand. I just wanted to also follow up about your comment about the net debt of being 1.3 and having room for further M&A action. I just wanted to ask whether you are thinking about it as kind of on the going forward basis and whether you should not add different liabilities and what type of power price you would use to feel comfortable at getting leverage because My number suggests you are quite leveraged going above three times on the forward-looking basis, but I just wanted to cross-check what comes on your estimates as a kind of economic net debt, a BTA, when the power price is normalized.

So you're right. Our target actually is... about 3.5 net debt to EBITDA. It used to be 3, but with actually adding GasNet, it provides more stability in our earnings because of a distribution asset. So now it's actually 3.5. I think Moody's actually have issued a new opinion on our rating. So we keep the rating and it went from negative to positive after we disposed nuclear project from our books. nuclear project of Blukhovany-2. And, you know, we are planning to reach that level sometimes by the end of the decade because, as you know, we have a relatively heavy CAPEX program ahead of us of about 400 billion Czech crowns that needs to be invested during a short period of time. So, you know, on a theoretical question, is there any headroom for M&A? Yes, there is, especially now. And 3.5 net debt to EBITDA is our target and should we be getting over it, we would probably change our CAPEX plans or postpone them or modify them in some way. The power prices that we are using are mainly those that you can see on forward. So that's the best indication of what we have today.

Okay. And I have one more question about the Bohunice project. Apparently you have a 49% stake in the Slovak one. So is this an active project and you're going to sell it? Is there any financial involvement there? And if you sell it, how much money would you get back?

I think there are some discussions going on with Slovak government and that's all we can say actually.

Okay, can I squeeze in the last one? Yes. So one last question was, you know, we clearly haven't discussed the takeover speculation about chess, but assuming such an event takes place, what do you see? Do you see any positive elements for the company itself, that the new ownership structure with 100% government, would that help the company operate anyhow from your perspective as a management?

You know, again, it's a theoretical question that, you know, we can hear now before elections, but, you know, I would really leave it after the elections. It would have both advantages and disadvantages. You know, advantage would be, as we can see it on other companies, that they are 100% state-owned. They have significant rating uplift, you know, from... being state-owned, great example is EDF that has uplift of many notches, you know, compared to being an independent company, for example. So that could be, for example, positive, but, you know, I think it's too early to discuss the positives and negatives now.

Okay, thank you very much. Thank you for the answer.

Next question from Oleg Galbur.

Yes, good afternoon and thank you for the presentation. I have two questions, both on your 2025 updated guidance. First, can you please elaborate on your full year EBDA guidance for the sales segment, which, if I'm not wrong, implies a strong decline of the segments EBDA in the second half of the year. So I was wondering what are the underlying assumptions behind this guidance. And secondly, can you tell us if you stick to your original CAPEX guidance for this year, which if I'm not wrong was at 70 billion check rounds. Thank you.

Yes, so we do stick on our original CAPEX guidance of 70 billion check rounds. That's correct. Of course, it can be a few percent more or less as the year develops, you know, and some projects may be actually sliding into next year, but generally it's a correct number. full year sales segment, I think they actually have an impact of one-off payment or settlement of the losses in distribution grid, which is distribution, you know, so there is about 1.5 billion check rounds, I think, charge they have to pay for compared to last year, you know, so that's what it is, you know.

Okay, so this is the 1.3 billion that we can see here on the slide, yeah? Proceeds from litigations or... Yeah, yeah, yeah. Understood, thank you.

From Boring?

Yes, do you hear me? yes um i've less left this one for the end but um nevertheless uh so in one of the business dailies this morning uh the vice chair of anil babish's party uh said that regulated part of power bills is out of control He considered ideal if they cut transmission and distribution costs by 50% or by $50 billion. So within the context of check legislation as it stands like this, what would the impact, if any, on Chesby and on CHEPS and the other distribution companies if the government was to decide to save $50 billion on these tariffs?

Don't forget that we are less than two months before elections, you know, important to realize. The regulatory framework was actually, is defined by Energy Regulatory Office, which is independent body. So government really doesn't have much force how to change that. We don't have a system of ruling the country with president decrees or prime minister resolution. So that's what it is. That's clear.

Maybe I would only add Just for your recollection, when government had a thought that the renewable surcharges in customer bills were getting out of the control, the measure they took to relieve the end-user bills was to finance part of the subsidies from the budget, from the state budget, and this is something that is being used. So that's one example from the history when government had used some tools they had, but that had a neutral impact on operations and the distributors and the companies operating in the sector.

Because I noted that this... this idea of his uh as well as the privatization of chess neither of those things are included in the co in the party's um electoral platform not mentioned at all thank you uh young roshka has a question

Yeah. You can unmute yourself, Honza.

Now, can you hear me? Yes, we can hear you. Okay, thank you. Good afternoon. We see good operating results of GasNet in the second quarter. But what about final result? If you can more elaborate. In non-controlling interests, you released lost almost 300 million check rounds. So is that loss related to GasNet? Understand it correctly?

So what we do, we actually adjust our net income by non-controlling interest. So we fully consolidate on EBITDA level and then on the net income basis we actually have to take out whatever is attributable to the minority shareholders if this is what you are asking.

On this topic I would only add that basically the gas net assets had to be revalued as part of the acquisition and consolidation process and that led to the increase of the depreciation on consolidated books. While for the regulatory purposes, just an LL depreciation, which is lower, is being used. So the company is basically, remains highly free cash flow generative, but in our consolidated accounts, we are using higher depreciation and therefore low contribution to the consolidated net income. Okay, okay, okay, thank you, I understand. Thank you. We have the next question from Peter Bartek.

Good afternoon.

Congratulations to the great results, very nice ones. And follow up to the GasNet consolidation question. In terms of cash flows or dividend payments from GasNet to its owners, so it would be paid from the standalone um profits so so there would be a cash flow in uh even though that the consolidated number looks like zero or or in minus yeah exactly exactly yes okay so far in terms of cash flow there there will be some 50 outflow to to the uh to the second part of owners yeah yeah 45 i guess yeah we are 55 and they are 45 i think Maybe one more question to the distribution business. So if I look correctly, so in this year you now expect some 2 to 4 billion increase in the electricity distribution. Is that sustainable or how much of that was due to the colder weather? Yeah, that would be it. Thank you. Yeah, I think, you know, when we look at the distribution segment explanation in the distribution slide, I think it's, you know, the 1.6 out of those three is attributable to higher revenues from more capex. Something is cold weather, of course, you know, but probably like half a billion, which is high distributed volume of electricity. And then there are higher connection fees of, let's say, 0.8 billion, which is actually higher demand for power connection, both power deliveries, but also offtake, for example, from photovoltaics and renewables, you know, so there's a structure of those 3 billion. So adding 3 billion every year is probably not a reasonable assumption.

Thank you.

Okay, it seems there are no further questions, so thank you everyone for taking part in this call. And the Investor Relations Department, as always, is available for your follow-up questions and detailed discussions on your forecasts, etc. Thank you very much.

Thank you. Goodbye. Bye-bye.