Cez As S/Gdr 144A

Hello everyone and welcome on Chess Group first quarter 2026 results call. It's my pleasure to welcome Martin Novak, Chief Financial Officer and Pavel Serany, Chief Sales and Strategy Officer. We will start the call with the presentation and then we will have room to ask questions. Now I'm handing over to Martin.

Good morning, good afternoon. So, let's start with slide number three, where we actually summarize our quarterly earnings and compare it to the first quarter of 2025. I think it's important to note the EBITDA number, which has reached 35.3 billion check rounds, or 18% less than in the first quarter of 2025. Our net income on the other hand has risen by 13% to $14.5 billion and adjusted net income $13.5 billion where we actually adjusted for non-controllable interest from our shareholdings. Breeding cash flow is somewhere higher due to especially accounting treatment of our investment into state bonds. And CAPEX is significantly higher as we are actually progressing with our intensive CAPEX program. This year and following year will be probably the record high in terms of CAPEX, so we can see an increase of 130%. I will note that it's a personal level of around 200 billion CZK. Next slide, you can see actual contribution of two segments of our business, two key segments. One is actually generation and mining segment, and the other segment is actually distribution and sales. And you can see that our distribution and sales segment is fairly stable, reaching around 16.3 billion EBITDA, very similar to last year as sales and distribution business, so that's no surprise. On the generation segment, there is a significant decrease of about 33% actually in generation, mainly due to lower power prices and a few other effects. So clearly those two segments are almost even and they will be even actually for the full year when you look at it going forward. One of the most important slides is slide number 5 where we actually explain the variation between or variance between $43 billion that we made for the first quarter of last year compared to $35.3 billion this year. By far the most significant change is actually in generation segment, generation facilities. where almost $8 billion is attributable to the decrease in power prices and sales prices. As we indicated many times in the past this year, the difference in prices is fairly significant, so about $8 billion is coming from this effect. And another important effect is actually different schedules of planned nuclear outages. As you know, we have switched to more than 12-month fuel cycle at our pipelines. So we enjoyed actually very little of those fuel replacement outages in 2025 and we reached 32 terawatt hours of power generation. This year we'll be aiming at about 30 terawatt hours because we will have those refueling cycles in place. So this is the effect of the first quarter 1.1 billion. Generation segment trading is up by 1.5 billion, 1.1 billion is coming from temporary evaluation of derivatives and 400 million is actually higher margin due to pro-trading activities. Another important variant is actually coming from the gas distribution segment where, as you know, we acquired actually as of January of this year a company that we are missing geographically in our portfolio that was covering south of the Czech Republic or Bohemia and it's called Gas Distribution. This company will be integrated into Gasnet. It was actually acquired through Gasnet. and this company brought us for the first quarter 400 million Czech crowns and the remaining part is actually another 800 million, 7 to 800 million attributable to higher allowed revenues of GasNet due to higher capex in the past years. Exactly the same amount of 1.2 billion but negative is an impact of our sales segment that this kind of that has somewhat declined back to kind of standard numbers, so that the sales margin is after a very strong year, 2025, coming back to normal, I would say, and actually 600 million chip counts attributable to retail, and about 400 million plus to escrow activities, but mainly commodity sales, not services themselves. Next slide are actually key drivers related to net income. We have somewhat lower depreciation of 1 billion or 7%. This is mainly the effect of accelerated depreciation of local assets that we started to accelerate as of October 2024. 2025 was probably the highest level of depreciation of those assets and now it will be declining down to 2030, where we see the end of lifetime of those assets around 2030. So now there is a lower depreciation in 2026 versus 2025. Other items are pretty much the same as they were last year. although there are different variances that come to the same result. The most important effect of net income and this is actually why our net income is going up versus EBITDA that is going down is actually windfall tax that is not being accounted for in 2026 and it brings us about 8.6 billion check rounds. It's not only windfall, it's also an ordinary income tax as our pre-tax profit is lower and therefore the effect of income tax is lower as well. So this is how we get actually to 14.5 billion check rounds and adjustment of about 1 billion to adjusting that income is attributable to actually to the shareholding of minority shareholders mainly in GasNet. that we have to take out from consolidated numbers. Next slide are actually volumetric data that you can go through yourself on power generation, distribution and sales. Slide number 8, our dividend, I think we announced on 23rd of April our dividend proposal of the Board of Directors And it will be voted about as a shareholder meeting on June 1. We also announced actually the date of the shareholder meeting. All materials and documents for the shareholder meeting are out as of 29th of April, so they are available publicly. And the proposal is 42 check rounds per share, which is 80% of adjusted net income for 2025. Important news, the day later we actually announced One important point that is part of our shareholder meeting agenda and is actually optimization of ownership structure and management structure of the group. We are proposing to create a new entity that will be 100% owned by Chess parent company and actually include into that entity or under that entity all non-power generation assets or core non-power generation assets, meaning distribution of gas, distribution of power, ESCO activities, which is retail business, which are ESCO activities abroad. and carve out actually trading out of Chess and put it into a special trading unit that will be again a subsidiary of the new entity. So that will actually allow us to have an independent view on the assets that are known generation assets that are customer actually oriented and why we actually do it, we already announced this I think in 2022 when the shareholder meeting when we had a change or modification of our strategy that would actually allow this thing to happen. Now we feel there is the best time to do that for many reasons. One of them is also that the segment has grown significantly, so now it's actually on par with the generation segment in terms of future EBITDA. and it has many other advantages I would name. Increase in value, we believe that actually by carrying out stable regulated customer oriented activities from generation activities would probably be very interesting for external investors and they might put higher value actually on those assets versus combined company that we are today. We would also have improved efficiency and governance, enhanced transparency and more targeted management on this segment and One of the most important factors is actually improved financing. There is a big demand for us to be financed actually by external parties, but still many of them are limited due to our coal exposure. Although we belong among 7% of best traded companies in ESG area worldwide, For some investors coal is still an issue and of course then this separate entity would be able to take its own debt, its own financing that would be coal free. So this is something that we will actually ask shareholders at the shareholders meeting to approve. Next step after we do that is actually to, after it is approved, we would actually create this entity and make all legal steps that would actually make sure that this entity is fully functional, operational and all those assets are transferred into that entity by the end of first quarter of 2027. And then we would start exploring the market and work on potential divestment up to 49% of this entity, so that we could actually extract some value from this transaction. The proceeds could be used for future growth, new MA activities, but also something that we have to take into consideration that our government announced a few times. and actually it would be buying back shares of shares of parent company using proceeds from sale of minority in customer company that I just described. So all those options are notable and this is a step to get there. Important development on nuclear side, especially in relation with Rolls-Royce SMR project. We signed a memorandum of understanding with Czech state, where we actually agreed that we will start working on financing process, meaning the investors model that will be important to make sure that we can go ahead on the notification by the European Commission and basically cooperating on those projects together. We also signed a contract for preparatory work with Rolls-Royce, which is called Early Work Contract, and it actually allows us to continue with processing documentation for licensing, permitting process, construction process, paperwork basically for first SMR in the Tamerlane location. Next slide you can see actually what happened in March when the power crisis and gas crisis and crude oil crisis of course moved significantly. And this is one of the reasons that is actually impacting our numbers going forward even for 2026. And because of the move actually in the power prices, We have a positive effect on our entire portfolio of unsolved electricity, where we will definitely enjoy a positive impact of those high prices, although the amount of unsolved electricity was fairly low, definitely below 10%. This move will allow us to optimize on that. And also, this move allows us to produce more electricity than we originally anticipated, which is an important factor. And this electricity will be produced mainly at the coal plants, where we originally anticipated something like 14 terawatt hours, or slightly above 14 terawatt hours to be made. And now I think we moved our expectation to 15.3 terawatt hours. So it's not only about selling power that is unsold for more but also producing new power to be sold and of course also mining more coal to produce this power. So based on those expectations we moved our EBITDA estimate from 103 to 108 billion shekels to 107 to 112 billion shekels and net income from 27 to 31 to 30 to 34 billion Czech crowns. Now I will quickly cover generation segment and mining segment. Actually on slide number 16 you can see more detail to what I already described that EBITDA development slide. It's important to note that price effect is fairly significant and volume effect as well, corrosion nuclear, where we are down by 38% on nuclear or 7 billion check rounds, but even higher decline in percentage is actually in emission generation where we went down from 2.8 to 1.1 billion only, or 61% decline, meaning that profitability of coal plants is really going down. Then, on the next slide, nuclear and renewable generation of the first quarter is actually down by 8%. It's all mainly coming from nuclear. As I already explained, we had a longer scheduled outage on the primary nuclear plant due to the extension of the fuel cycle, so 2035 was without fuel replacement. 2026 is with fuel replacement. Only for a year we actually expect to produce slightly above 30 terawatt hours on nuclear and on the other hand we plan to grow actually on renewables mainly due to standard hydro conditions in 2026 versus rather with dry winter of 2025. On the coal and gas generation front our power generation Those assets was, on a core front, was very similar to Q1 2025. We made significantly more from gas, about 50% more from gas, which was mainly driven by favorable market conditions, actually, in our gas plant in Pochettie. And here you have actually a change in estimate in our a generation of coal, ignited electricity, and that's basically increased 10% year-on-year, but technically speaking also versus original plan, which was basically on the level on target 2025. Last slide from this section, actually hedging. You can see our hedges for 2027-2028 through 2030. Average achieved prices, how much power is actually hedged. We actually used the opportunity of seeing if it increased in coal power spreads. and actually locked in a significant part of our coal generation for 2027 and 2028, where the spread turns from negative to positive. 2029 and 2030 still kind of around zero or even negative. So the same slide is actually on the right side showing you how much carbon credits we have secured and at what prices. So now that's all for me and I'll hand over to Pavel to guide you through distribution and segment.

Okay, Martin, thank you. Let's start with distribution. We saw a 12% EBITDA increase for year-on-year. I said that the story behind it is more extensive, I would say. It makes sense to look at the growth excluding correction factors, which would be one billion higher on electricity. So this, taking into account the year-on-year growth, would be about 19%, which is driven by fundamental changes in In the investments and the underlying wrap, as well as the increased WACC, we are in the first year of the new period. As you all know, the WACC has a variable part based on the amount of investments we make. We are making enough investments to achieve this bonus part of WACC, and that's driving the growth. On the gas side, as already mentioned, also the acquisition of gas distribution. Then the correction factors mainly from year 2024 are having impact on the accounting results of the electricity distribution, but actually that's the nature of the distribution business. In terms of the full year, we still expect around 11% growth without correction factors, so the first quarter which is the quarter mostly affected by winter weather and so forth and so on, cannot be 10 multiplied by 4 for the full year. In terms of the accounting numbers, given the extensive correction factors from 2024, we are expecting about a flat number year on year. And you have all these numbers also in the backup to go through them. But anyway, what is to remember is that we see a very healthy growth of the fundamental business. In terms of the volumes, we see about 4% growth for electricity and 8% growth in gas. Gas being more affected by weather in general, by the colder winter, together with also the acquisition of gas distributions. In terms of sales segment, on page 23, again, a topic we discussed also when we were discussing the full year results, we see a 25% decrease for the overall segment. What I would like to bring to your attention is that if you compare the Q1 of 26 to Q1 of 24, so like looking two years back, you would see a 38% growth. The year 2025 was somewhat an outlier, especially on the sales of commodities, where the combination of a very low payment for ancillary services and in general for the fluctuations led to some extraordinary results, both for Cesprode and ESCO. But even without this taking aside, we see a good underlying growth for the supply business. In terms of the volumes, we see a 7% growth for the sales of electricity and natural gas. And we see a stable portfolio of customers with a a stable portfolio of customers. In terms of the revenues for the energy services, we see a slight decrease year on year for the first quarter, but we consider this temporary driven by the somewhat different revenue trend in the years of 25 and 26. We are still aiming for a healthy 9% growth year-on-year for the full year. And with this, I think we are complete.

Yes, so that concludes the presentation and we are ready to take your questions. Just basically raise your hand in teams and I'll call your name and you can ask the questions. The first question comes from Petr Bartek. Hello.

Good afternoon, can you hear me?

Yes, we can hear you.

Thank you for taking my questions. I would like to ask you if you can provide an update on the distribution business in terms of regulated asset base, what is its value for this year, maybe split to electricity, gas net and the new subsidiary, gas distribution. Also, Do you expect that the VAC for the distribution business would reach the selling at 8.4% or it would be somewhere in the range, in the VAC range? Second, if you can update us on the energy services part, the escrow business, what's your mid-term growth expectation for it and the target margin? If I recall, it used to be 10%, but you have exceeded this margin last year, so whether there is any change in that? And last question, in terms of the mid-stream gas business or the imports from the U.S. and other markets, if you can provide any outlook for this business. Will this be included in the customer services part of CHESS? What volumes do you expect there? And ideally, what EBITDA would you expect from this business? Thank you.

Okay. Okay. Multiple questions, so I start with the wrap. We expect the RAP value for 2026 to be 171 billion for the electricity part, for electricity distribution, and then around 72 billion for gasnet and 7 billion for gas distribution. So all in all, about 250 billion RAP for all three businesses combined. In terms of the WACC, we do aim to achieve the full WACC including the bonus. So this is our target and we consider it to be achievable. Now in terms of the target margin on ESCO business and the overall aim, yes, the The overall target, our ambition remains at 10%. Obviously, we try to balance the growth and profitability because it is somehow sometimes not fully correlated. By acquiring new business, you need to come at margins which are somewhat lower, but 10% is the target. In terms of the overall growth, again, As a general target, we do expect a double-digit growth for our ESCO businesses on the EBITDA level. The LNG transport, the one that is backed by our contract with the government would not be transferred to the customer business. That would be excluded and would remain at CHESS because it is government backed.

Thank you.

Maybe one more question on the supply business. If you think about any expansion from Czechia to foreign markets with the supply business?

If you look at purely commodity supply, so just for the commodity side, no, we do not plan that. We are expanding in the general services, but not the commodity business.

Thank you.

We can take the next question from Anna Beck from UBS.

Hi, good afternoon. Thank you for taking my question. I've got two. Firstly, just on the impact from the current situation in the Middle East, obviously you've flagged higher prices and also higher coal utilization and in part the key drivers, I guess, for the guidance upgrades. I guess my question is to what extent these are kind of one-offs right now while the prices are high, like you're capturing, like you said, on the unhedged volumes and being able to run the lignite that might have otherwise not run. But how much are you able to lock in potentially higher earnings in the future? I'm guessing not that material, given that the forward curves haven't moved that much. But should we think of this as repeatable if prices went back to kind of a prior crisis level tomorrow, would we expect ongoing benefit or not? That's the first question. And the second question is just on trading because you posted quite a strong result in trading in Q1 and the kind of commentary we've heard from other European utilities has been that actually it's very hard to capture the current volatility and to profit in trading given the type of volatility in the market and it not being very fundamentally driven. So any kind of qualitative comments you'd give on the training environment and what we should expect there. Thank you.

So, first, you know, impact on high prices. As you know, actually, the impact on the situation was mainly on the short end, meaning 2026 prices, spot prices, kind of near future prices, it is less so for the following years, although there was an uplift for 2027-2028, In the meantime, there was also a decline of carbon credits. So, as I said, a positive window of opportunity for hooking up our margin in lignite opened up. So, we, I think, used it for 2027-2028. 2029 is already kind of close to zero. 2030 is definitely zero or negative. So, you will see in 2026 Some were 27 and 28, but now the prices, when you look at it, they are down to 72 or something when I looked yesterday, actually in 2029 or 30. So, you know, I wouldn't expect it to be a significant impact, but somewhat better than originally anticipated. But, you know, an impact of billions of crowns rather than tens of billions. So nothing that we experienced in 2022, 2023, 2024. And second, the trading result. Pavel has an answer. I will comment on that.

And also maybe just to direct you where you can find this information, this effect we did, as Martin mentioned, captured to the extent possible. Also this increase, although it was not that big for the years of 27-28, you see that the average prices of ROH went up for 27-28 by about 1 to 2 euro. And also you will see that for a single quarter, the volumes that we sold were somewhat higher than we would normally sell. So this is about the impact we were able to capture for the lignite for years 27-28. Now in terms of trading, so I guess two parts to it. Number one, the situation has improved for us. Our traders have been able to capture more profits than last year by about 0.4 billion, but most of the year-on-year increase of 1.5 are some temporary revolutions of derivatives, so about two-thirds are these temporary things, about one-third is the is the effect of higher margin that we will retain where the traders achieve better results than last year. So we do see some recovery, but not to the extent that you see only from the accounting number comparison.

Thank you. Can I just check, is that expected to reverse in 2026, that derivative revaluation?

Yes, mostly in 2026.

Okay, thank you very much.

Okay, we can take the next question from Arthur.

Yes, thank you for taking my question. I was just looking at the share of EBITDA that you realized in Q1 compared to last year, comparing that to your full year guidance. It seems that you may be a little bit ahead of the of the guidance you provide for the year. I was wondering if you've basically done a full mark-to-market of commodity prices in your guidance, or if you've kept a little bit of buffer in case prices reverse later in the year, and as well how conservative or not your assumptions are on the on the trading side for the rest of the year. Thank you very much.

I would add today that our guidance is the best point of view that we have at a certain point in time. I don't think that we really are over conservative in this position. A lot of power has been actually already sold, you know, one third of the year is behind us. It's important to realize that our business is seasonal business, you know, so we make most money actually in first quarter and maybe last quarter. Summer is, of course, you know, a bit slower in terms of there is no There's less need for power for heating purposes, for example. So that's seasonal business, so it's kind of okay to have a strong first quarter compared to the rest of the year. And of course, many things can change with trading. It depends on volatility and whether we will be able to use this opportunity or not, as it was discussed in a previous question. But so far, 107 to 112 is our best estimate, and that's why we actually provide a range and not one number, because we take all those things that can go not wrong, but not materialized, but things that can that can materialize on the positive side and this actually provides the range for our estimates.

What also you should note is that as the structure of our EBITDA changes internally, so growth on the customer side and decrease in the generation side, the effects of the seasons are different for these two segments. It's always the strongest season. but it's even more so for the generation and less so for the distribution. So from this perspective, also the share of the press culture will change with the changes in the shares of these two segments.

Thank you very much.

Okay, so it seems we have no further questions, so maybe I'll ask you one last time whether someone wants to raise their hand. Okay, so it seems there are no further questions at this point, so let me conclude the call. Thank you everyone for participation. And Investor Relations, as always, is available for any follow-ups. Thank you very much and goodbye.

Goodbye.

Bye.