ČEZ posts record profits for 2009

Despite a nationwide decline in the consumption and price of electricity, energy giant ČEZ posted a record net profit of 51.9 billion Kč in 2009, according to the company's annual report, released Feb. 26.

ČEZ's profits increased 10 percent year on year due mostly to the company's sale of electricity before prices fell in 2009, said CEO Martin Roman.

"With a strong economic performance even in times of crisis ... ČEZ has proved they belong to a stable pillar of the Czech economy and society," Roman said.

But, according to Marek Hatlapatka, an analyst at Cyrrus specializing in the electricity sector, the secret to ČEZ's success - a hedging policy in which electricity is sold in advance - will lead to lower profits over the next two years.

"Most of the electricity ČEZ sold in 2009 had already been sold in the first half of 2008, at a time when the price of electricity was at the peak before the financial crunch," he said. "Now, ČEZ has sold a good portion of next year's electricity at 'crisis' prices in 2009. As a result, ČEZ's net income will probably drop about 10 percent this year."

Roman admitted ČEZ will feel the effects of the recession more significantly this year. The company's net profit is likely to fall to 46.7 billion Kč ($2.4 billion) in 2010, he said.

ČEZ's hedging, which essentially guarantees reduced profit over the next two years, is not the only difficulty the company has in store, however. A marked decrease in domestic electricity consumption will be a factor in the company's performance, according to Alan Svoboda, senior director of trade at ČEZ.

"The economic recession has had a significant effect on the consumption of electricity in the Czech Republic, which has fallen 5.6 percent," he said.

But Svoboda remains optimistic that consumption will pick up in 2010, saying, "The past months indicate the decline in demand has probably reached its bottom."

The ČEZ Group, which serves 9.2 million customers in Central and Southeast Europe, has undergone phenomenal growth since the company was founded in 1992, thanks in part to strategic investments domestically and in countries like Romania. The company's stock prices have soared from 100 Kč per share in 2004 to a high of 1,400 Kč in 2007 before leveling off at 900 Kč per share in 2009. According to a study published by Boston Consulting in November 2009, ČEZ is the world's most profitable energy company for investors.

But ČEZ's success has come at the price of controversy. Most recently, the company's plans to refit the Prunéřov coal-fired power plant have faced opposition from Greenpeace and the Federated States of Micronesia. The island country claims carbon dioxide emissions resulting from ČEZ's coal plant will lead to the island's destruction. The Environment Ministry has yet to make a ruling on the case.

Stephan Delbos can be reached at
sdelbos@praguepost.com