Cez As S/Gdr 144A

Good afternoon or good morning everyone and welcome to our regular quarterly call organized by CHESS. It's my pleasure to welcome Martin Novak, CFO and Pavel Tsirani, Head of Sales and Strategy. I'm now handing over to Martin to walk you through the presentation.

So good afternoon, good morning. Let's start on slide three with financial results overview. As you can see our sales or operating revenue is five percent lower mainly due to the main factor that's actually influencing all this presentation or entire presentation which are low prices. EBITDA DOWN BY 20% TO 59 BILLION CHECK ROUNDS AND WE'LL GO THROUGH HIGH LEVEL OF DETAIL ON NEXT SLIDE NET INCOME UP BY 10% FROM 16.5 TO 18.1 BILLION CHECK ROUNDS MAINLY CAUSED BY THE FACT THAT WE ARE NOT SUBJECT TO VINFOLTEX THAT ACTUALLY IS NOT IN PLACE IT WAS IT ENDED ITS EXISTENCE IN on the 31st of December 2025. Printing cash flow 26 billion higher or 55% and capex 30% higher. Our net debt is about 9% higher so we are getting close to 200 billion CZK. Slide number four explains the difference between first half 2025 and first half 2026 EBITDA as I said by far the most significant factor influencing this variance is generation segment and mainly decreased power prices which actually are have a negative effect of 11.4 billion check rounds we also had lower profit from trading and the revelation of temporary relation of derivatives which in total is lower by 2.7 billion check rounds versus first half of 2025 as you will see later we are actually planning to produce 9% more power from coal compared to 2025 and therefore despite lower coal prices the volume is actually making up and we can see half a billion check round increase year on year our distribution segment both electricity and gas are actually positive the variance is 300 million on electricity distribution which is negatively impacted by correction factors from past years on normalized EBITDA without correction factors we are doing much better as you will see later on and gas distribution 1.7 billion CZK positive year-on-year, half a billion of which is actually attributable to acquisition of gas distribution company that is covering south of Bohemia. Gasnet, which is the company that we own since I think September 2024, also has an improvement mainly to higher investments or capex and the increase in VEG. Sales segment down by 2.4 billion CZK. partly due to lower margins both in retail and wholesale customers or large customers with declining power prices our margins are getting back to standard levels and we also had a few delays on our projects abroad which causes a variance of about 700 million check rounds. So this is how we get to 59 billion. On next slide we can actually see the details of net income. Basically most of the items like depreciation, asset impairments, other income expenses are fairly similar to previous year and there is an explanation on the slide. What is definitely worth mentioning is income tax. Last year income tax was about 23.1 grand check rounds. Now it is only 5.5 and the biggest difference is that it's not to lower pre-tax income. but to the fact that we are no more paying a windfall profit tax. So that's why actually despite 20% decline in EBITDA, our net income is 10% higher and is achieving 18.1 billion CZK. On slide number six, you can see actually total operating results that I will skip. Those are volumetric numbers if you are interested in those. And the important slide number seven, actually taking into consideration a few positive factors, a few negative factors, we decided to shift our guidance on both EBITDA and also adjusted income upwards. uh so original guidance from May 14th was 107 to 112 grand check rounds uh now actually we moved this range by 2 billion upwards so new guidance is actually 109 to 114 billion check rounds adjusting that income 30 to 34 billion was original estimate now it is actually 31 to 35. main uh positive drivers uh is higher EBITDA of our distribution segment continuous crisis in Persian Gulf, which resulted into higher power prices and allowed us even to produce more power in our coal plants and gas plant. And then we have higher generation in nuclear plants than originally anticipated. negative front, we have lower profits from commodity trading and lower EBITDA in Elevium Group due to the phase that I already described, mainly moving some projects further. There are important selected assumptions of the current forecast in the Czech Republic. so we assume that we will generate 45 to 47 terawatt hours. Average achieved prices will be 106 to 110 euro per megawatt hour and the average purchase price of carbon credits would be 77 to 79 euros per ton. When we look at the next slide, I will touch on newly established subsidiary of Chess, which name is Chess Energy. This is something we discussed on previous call and also did a lot of publicity after shareholder meeting. On June 1, actually, the shareholder meeting approved the mandate for the Board of Directors to optimize the ownership structure. We actually were providing mandate to transfer Chess Group's customer segment into Chess Energy. and those companies that are actually considered is actually both power and gas distribution, which is kind of a decided fact. Those will be a cornerstone of Cez Energy. Then retail business in the Czech Republic, Cez Prodej. Cez ESCO services in the Czech Republic and Eleveon. in Germany also trading both of power and natural gas and telecommunication services. Not necessarily all of those will get transferred but definitely the largest companies will. and then we got a mandate to actually dispose minority stake up to 49% actually of just energy either through direct sale or through IPO in the future. The timeline is such that all the legal work, meaning injecting actually the companies into transferring the ownership from Chess to Chess Energy should be finished by the end of first quarter of 2027. Many of those transfers, however, will occur in 2026. So that's actually it. On the same slide you actually have a board of directors of the company that basically composes of four members of current board of CES with Daniel Beneš being chairman of the board of directors, Pavel Cirány vice chairman of the board of directors, myself and Ondřej Landa members of the board and actually Pavel Cirány is CEO of the company as he's heading actually sales segment and distribution segment currently in CES these days. selected events in the past quarter. I think I can skip that. You can go through it. Those are interesting things. Maybe the one that's worth mentioning is actually a Levion group that acquired or signed an agreement to acquire 100% stake in Tech-Am Solutions in Germany. which is a company that should significantly increase the size of Eleveon and actually switch it to a company that has more assets, is more asset heavy than it was by now. It's operating almost 2,300 energy facilities around Germany, mainly heating systems in municipalities.

So now let's switch to generation mining segment.

On slide 11, you can see actually our generation mining in total is down by 14.5 billion or 31% with an effect, clear effect of power prices actually influencing all those parts of generation segment. What is worth mentioning, despite the fact that we produced a significant amount of power in coal, basically very similar to last year, EBITDA is down by 65% to 1.4 billion only compared to 4 billion for the same period in 2025. So despite the fact that now actually coal plants are profitable due to events in March with power prices going up and carbon grade somewhat down it looks like it's a short-term issue that will last through 2027-28 where we were able to lock the margin but towards the end of decade those units will not be profitable so this is generation segment and mining segment On the next slide, you can actually see our nuclear and renewable generation in graphical format. So on nuclear facilities, we generated 15.3 terawatt hour, which is exactly half of how much it should be for the full year, 30.6, which is a bit more than we originally anticipated. And renewables, similar amount actually of power generated as in first half 2025. and actually a bit higher expectation compared to 2025. So we should reach 3.6 terawatt hours of the renewable power. Next slide, you can see electricity generation from coal and natural gas. As I said, we produced actually 5% more power from coal in the Czech Republic 7.6 TWh and generation from natural gas is also up to 5.7. So in total fossil fuel generation is up by 6% again due to very positive situation on the power markets. On full year we will increase our generation in coal by 9% and natural gas by 87% so totally by 18% to 18.8 terawatt hours. Important slide hedging the power for 2027 we are hedged at 76% average achieved price 88 as you know now actually the power prices are in Germany are around 106 or above 100 definitely so selling actually more will mean that our average achieved price will grow we are still keeping some power unsold for the year when it starts so there is a potential if the power prices stay where they are that our average achieved price would be higher however it will probably not be able to we will not be able to achieve 2026 price which is somewhere between 106 and 110 this is our estimate then you can see also following years and the same for carbon credits that in 2029 are actually visible clearly prices of carbon grids are higher than prices of power that you are actually generating So now that's all for this segment and I will hand over to Pavel to guide you through distribution and sales.

Thank you, Martin. I'll start with distribution. You see that the year-on-year result is a 2 billion or 10% increase. The underlying story is even better. The normalized EBITDA for electricity grew roughly 2 billion or 15% driven by investments and increased WAC as we switched from one to the other regulatory period between last year and this year. On the gas side, the normalized EBITDA grew 25% or 1.5 billion. It was partially driven by the acquisition of gas distribution if we exclude that, there will be still an 18% growth for GasNet alone. So numbers, we will see them fully in the coming years, which will not be as impacted by correction factors from two years ago. In terms of consumption growth, both gas and electricity consumption is growing. 3% for electricity, but 1.6% if you adjust it for weather on the gas side. It's 8% overall, but also about 3% or 2% is climate adjusted on a comparable basis because part of the growth is driven by the acquisition of gas distribution. But on both sides, 1.6% and 2% weather-adjusted same base growth shows that there is recovery both in gas and electricity consumption. In terms of the sales segment, Martin already commented the overall 2.4 billion decrease year on year for the first half. It is to a large degree driven by the exceptional year of 2025. We've also included the comparison to 2024 and I already mentioned it in the last quarter result discussion that we had together. If you look at the retail purchase per day and compared to 2024, there is a growth of 2 billion. And similarly, if you look at the commodity sales, for the large industrials under ASCO companies, the 2026 is roughly at the same level of 2024. So this is This is where we stand today. I think we see the market overall normalizing and stabilizing and we expect a steady development in the commodity business. In terms of the energy services, again, a topic that was already mentioned. we see stable development in energy solutions for buildings and industry both in Czechia and abroad abroad this year is negatively impacted in a delay in some of the green energy segment projects both in the UK and then in terms of biogas facilities in Italy. But again, something that we see recovering in the coming next year and the coming years. In terms of the volumes of supplied electricity and gas, this is roughly the similar story to what we saw in the distributed volumes. Seed growth, 5% overall. with gas supply growing by 10% which is driven by growing portfolio, growing consumption and also colder winter and 2% on the electricity supplies. In terms of customer portfolio development, we keep it roughly stable given our market size. This is also a market share. This is our overall target to keep our market share roughly stable. Last but not least, revenues from the energy services. We see kind of 1% or flat for the first half. We still expect higher growth when you compare year to year for the full year 2025-2026. and most of the effects have been already discussed. So I think this concludes our presentation. Bara, back to you.

Yes, so we can now take your questions. If you are connected through Teams, just raise your hand. We have the first question from Anna Webb.

Hi, Anna Webb from EBS. A couple of questions from me, maybe firstly on the trading. Obviously you reported, I think, a negative number and there are some potentially one off or effects in there. But I think maybe maybe correct me if I'm wrong, but the kind of base result X, those kind of derivative or other effects was was kind of zero. So can you talk a bit about what you're seeing in terms of trading conditions and is it that you're kind of not putting positions on given the volatility or basically what's driving that result and how you see kind of trading generally, the opportunity in trading generally. And then a second question from me, obviously we've seen power prices going up and gas prices remaining at an elevated level given the conflict in the Middle East. I wondered if you could comment on whether you see any risk to further windfall taxes or if there's a level at which you think windfall taxes are a risk or whether you know you think the current government that's really not on the table or if you see any other kind of measures basically whether you see any intervention risk in light of the higher prices if they continue thank you

In terms of trading, you rightly pointed out that most of the effect is the one of the kind of intra-year revolution of energy contracts. At the same time, we do have a slower year also on the base trading. We see this as a slower slower year and we expect a recovery to the standard levels that we had, for example, last year. So that's on the trading side.

We don't hear any, there was not a single sentence actually around reintroducing QuintVoltex. I think this is all behind us. On the other hand, profits of energy companies are significantly lower than they were actually when windfall tax was introduced. So, you know, taking a base, whatever base actually in past few years, very few would be subject to this tax. And I believe that having introduced or being such a tax introduced, which in our opinion is almost impossible, would definitely impair discussions about our new project and separation of just energy and all those things that we would like to do actually. So didn't hear about it and I don't think it's on the table.

Thank you. We can take the next question from Bram Boring.

Hi. Just to follow up on your answer, you said that the negative impact on revaluation of derivatives, that was a tri-annual revaluation. Did I get it right?

How often do you revalue these things? Every time they report. Hello. Hello. Sorry, I was turned off.

I said in prior, meaning it clears out or settles typically within the same calendar year.

Entry year, got it, sorry. Entry year. Thank you, entry.

Revaluate every month depending on market prices.

Okay, and this isn't going to be reoccurring in the second half of the year, I presume.

Well, it can be all different. There can be positive revaluation as it was at the end of first quarter, I think.

But what happens is basically it clears out upon delivery of the electricity. So the volume over time of the contracts that have been revaluated within intra-year, like within the year, kind of decreases as you approach the end of the year. And it typically clears out, not necessarily every year to 100%, but it typically clears out most of it to the end of the year.

Understood. Thank you. A technical point.

I just wanted to be clear that I heard it. Just to say, at the end of the first quarter, actually, the evaluation was 2.6 billion positive. Now it is 2.6 billion negative. So it's swinging one way to another. Gotcha.

And then the question I wanted to ask is with regards to the distribution segment. When I go back to the outlook that you gave in 4-26 back in February, you had distribution and correction factors as a negative, and now and now distribution is becoming more and more positive than you had imagined back in February. So I just want to understand what is behind that.

Okay. What is happening that the underlying business is generating more revenues. So the reason being like higher than expected consumption. We had, let's say compared to the average we had colder winter so for both gas and electricity we see higher consumption and with that it comes you come high revenues for this year and we also see some recovery in in the kind of industrial and household consumption even on top of weather So that obviously at the same time this clears out, we will return this to the customers two years down the road. So that's why we introduced the normalized EBITDA because that basically is the fundamental return that we get on our assets and that we retain. And this one does not fluctuate within the year because this one is basically set with your asset base and WAC at the start of the year.

Okay. So simply the weather is giving you a tailwind that you couldn't have anticipated back in February.

Exactly.

Excellent.

Thank you very much.

Next question from Farhat Malu.

Hi. Thanks for the presentation. Just wanted to ask a question on the Ches Energy split. So I think on the slide you mentioned that you're looking at what extent of financial debt will be transferred from Ches to Ches Energy. So a couple of questions on the back of that. Firstly, can you say how much debt capacity do you think you will have at Ches Energy? And then I think you mentioned this before, but I was just wondering could you I think there's two options right firstly you've got the debt transfer and the other one is raising debt at CHES Energy and doing some debt repayments potentially at CHES so just looking at could you still be looking at these bond repayments and do you think there could be a kind of like make hole in the debt rather than if you don't go for down the consent solicitation pass and path and then also just the timing of a potential debt transfer so will this happen after Q127 or could it happen before in line with the transfer of the businesses?

Thank you.

So, you know, regarding that capacity of Chess Energy, I think the nearest which would be very similar business profile so whatever they are able to take and whatever their targets are we would probably be very similar and second you know the debt transfer and the technical way how to do it and the timing is still under discussion Clearly, there will be that transfer between Chess and Chess Energy for sure, but the technical way how to do that and how fast it will be done will be subject to discussion, which is clearly capital structure discussion, one of the most important parts of the puzzle. and we will communicate it as the time passes, closer to the end of the conclusion of the transaction.

Thank you.

The next question from Emanuele Ogioni.

Good afternoon everybody and thank you for the presentation and for taking my questions. The first one is a follow-up on the increase in the BDA for one billion CZK in this distribution business unit you mentioned said the correction factor higher correction factor in electricity so my question is what is the rate across on 27 so there is some effect or impact or reversal in we should expect in H2 or in H27 for this moving part happened in H1. This is the first question. The second question is on the drought in Europe, which is causing stop and cut in production for many nuclear plants, obviously also lower hydrolytic production. in, for example, in some countries in Eastern Europe. I read that Hungary, for example, has increased a stripe of its import from Czechia. So what are the impact on CHEZ in positive, for example, for higher export to Hungary, for example, of electricity, but also the risk of drought in H2 also for your country. This is the second question. And finally, a question on the decrease, the reason of the slight decrease for still one billion around O'Shea's Crown in a BDA for the sales segment compared, not year on year compared to 25, but compared to May guidance. So what happened compared to May? to cut this ABDA for sales. Thank you.

So on the distribution side, I think the best way to look at or the best place to look at this page 31 in the backups of the presentation where you see both the normalized EBITDA. If you look at 2025 and 2026, this is the one of impact mainly driven by the increase of WEG between the two periods. So what you will see is the normalized EBITDA, the WEG being stable for the future years. but typically and the RAP growing with our investment which exceeds depreciation by about 0.6 so we invest about 1.6 or 1.7 times depreciation so that's kind of the base value in terms of the correction factors what we will see in 2027 is the reversal of the positive correction factor from 2025 was again a year where positive correction factor was generated so this will be subtracted this will be subtracted in 2027. it's it's more it's higher it's more visible on the electricity side than it's on the on the gas side so that's I hope that explains explains this and yeah thank you it's clear thank you

So then water and nuclear, you know, we also follow the news. In our case, we actually don't have any impact on hot weather as all our power plants are using cooling towers so that we actually are not dependent on how much water is in the nearby river. Maybe one of the reasons is that nearby rivers are not as as large as Danube in Hungary so that we are using different methods of cooling which is cooling towers you know which is almost closed cycle so the only thing or the only impact is actually that if the cooling water is not cold enough the the efficiency of the power plant is going down by a few megawatts per unit or by a few very few low percentage points. But that's all it is, so no outages, nothing. The Hungarian situation does not translate into our prices very much because of interconnection between Hungary and Slovakia, which is not very robust. So basically the export to Hungary is limited to this interconnection. Again, we don't export anything directly. We sell on power exchange and whoever picks up the power will actually deliver. So that's the Hungarian situation and our situation which is significantly different actually. And then

decrease in one billion in sales quarter-on-quarter estimate it's actually provided given mainly by the delay in projects in Eleveon ESCO projects abroad which is a delay as put so that with the one roughly one billion decrease that we just announced we are basically getting about stable development for Eleveon year-on-year between 2025 and 26 and we expect we're working to growth both organic including those projects that are delayed moving to next year but also through M&A as we will fully include Techem in the consolidated Leveon results next year.

Thank you, very clear.

Now the next question from Jan Raška.

Jan Raška, you can unmute yourself and ask your question.

Okay, so we will get back to you and I'll give the room to Lukas Altman.

Yes, thank you. My question was also regarding CHES Energy. and with the split, let's say, from the actual power production versus the power distribution, are we expecting to get a higher influx of, let's say, ESG minded investments in CHES Energy in the future? And adding to that, I'm not sure if you can share anything, but I was also reading about a potential expansion of a share buyback for CHES after the after the creation of Chess Energy. Maybe could you give us an update on that? Thank you.

I'm not sure what you mean by the influx of ESG minded investors, but one of the rationales for creating Chess Energy was to basically open up for both equity and bond investors that would normally not invest in a company that still operates coal power and or operates nuclear. So from this perspective, we expect that this company would be open to also investors, both debt investors and equity investors that would normally not invest in the original chess.

Perfect. That was exactly my question. The other question was about the potential increase of the share buyback from the Czech government.

This is actually the second step. We got a mandate to set up Chis Energy, fill it with assets and dispose up to 49%. buy shares back is actually a different mandate that would have to go come from majority shareholder and be approved by shareholders meeting which has not happened so we are just in phase one and phase two is to follow in the future upon the decision of the shareholders at one of the exact future shareholder meetings all right thank you

Okay, and now Jan Raška, you can ask your question.

Hello, can you hear me? Yes. Okay, right. I see interesting acquisition regarding to energy services in Germany, namely acquisition of Techem solutions. Can you more elaborate the profitability of this company, the potential contribution, in what range can we expect the contribution to chess results? Thank you.

I think we are not ready to announce it or detail it out today, but we will include it in the information as we will announce the outlook for next year. So we'll tell you more about that.

Okay, thanks.

Next question from Chris Johnstone.

Chris please unmute yourself and ask your question. Chris, can you ask your question?

Okay, then I'll come to you later and we now allow Petr Bartek to ask your question.

Good afternoon, can you hear me? Yes. Thank you for taking my questions. First, if you are considering in the current market conditions some acceleration in your hedging for future years for the emitting assets, because in this quarter I've seen a relatively steady or maybe even a slowdown in hedging, if I'm not mistaken. And second, if you have any view or you could comment on what do you think about the European Commission draft proposal for the carbon market, if it has somehow changed your view on the carbon market, if you will adjust your strategy or whatever you can share.

Thank you.

In terms of the pace of our hedging, we did increase pace of hedging for the lignite assets for the remainder of this year and next year even. At the same time, or let's say volume of these, but at the same time, what happened is that we've also increased the overall volume generated. So and that was also already at the end of Q1, it was beginning of Q2. So these two effects kind of also net out each other, but we are looking into it and we are definitely looking into how to secure the highest possible spreads for our Lignite assets. In terms of the CO2 market, basically we see adjustments which may have some shorter-term impact in terms of discussion about the reduction factor and so forth and so on, but overall we see that the highest discussion or the topics that are mostly in focus of this is not the energy sector anymore, but it's rather the industry. So it's more about how much free allowances are will be given to industry, what will be the benchmarks, what will be the treatment of how you need to spend the money you save on the CO2 allowances. So right now as we read it, and it may still change, but right now as we read it, we don't see a significant impact on the energy sector. Thank you.

Next question from Andrew Moller.

Yes, hi, thanks for taking my question. I just really wanted to follow up a little bit on CHES Energy. Earlier on, you talked about which companies might go into CHES Energy, but it seemed like you hadn't decided exactly which ones that would be. And I just wonder what factors are influencing your decision about which companies will go into CHES Energy. You also talked about So the debt transfer and the capital structure. But I wonder, do you have any rating target in mind for CHES Energy? I mean, you did compare it to E.ON. And I mean, E.ON is rated BAA2 with Moody's. I know it's higher with S&P and Fitch. But I just wondered, do you have any rating target for CHES Energy? And finally, you talked about CHES Energy being potentially attractive to people who might not invest in the CHES with the generation assets. So would you then envisage CHES Energy being a debt market issuer on its own or would it just have the debt that it initially assumes from CHES? And I guess finally, just some clarification. You talked about cooling towers being the method by which you cool your power plants. And I just want to be absolutely clear that that does apply also to both of your nuclear plants. They are just cooling towers. They do not rely on cooling from river water. If you could just confirm that for me. Thank you.

The questions you have around Chess Energy are the correct questions and right questions. We are working on those in detail obviously. We're analyzing it and we are not ready to answer them as yet. Overall, our overall goal is always value maximization. and complexity reduction so that's kind of what what feeds into the discussion what to include in the perimeter and what to not include so that's why as Martin mentioned previously we are mainly looking at some of the smaller companies that are included in the overall mandate that increase the complexity disproportionately to the value. We are not looking at the major pillars of CES Energy such as the both distribution companies, the supplies and so forth and so on. And in terms of that rating and all of that, we will announce that when the analysis are finished and when we are ready. So please bear with us for some more time and we'll tell you.

So rating exercise is one of the important pillars of the entire project. We will have created both Chess and Chess Energy. regarding that there are again many options as Pavel said transfer of that but yes in the future chess energy will very likely be an issuer of its own bonds that would probably be compelling to as it was said ESG type of investors or you know those that would not normally buy bonds of company running coal plants although we don't see such a big issue these days especially when we have a coal decommissioning plan in place Then cooling towers, yes, all our power plants, thermal power plants basically are using this technology, nuclear, all of them, so no issues there. Great, thank you.

Maybe just one addition to how you phrase your question. Cooling towers still need some water from the river, but a significantly smaller amount compared to flow-through cooling.

So, sorry, Barbara, does that mean you could potentially have to reduce the output from the nuclear plants if this drought continues?

No. No, we have enough water.

Okay, thank you.

Okay, we have no further questions, but as always, investor relations is at your disposal later today or tomorrow and following days. Thank you everyone for participating. Thank you for the insightful questions and speak to you in three months at the latest. Thank you. Bye bye.