ČEZ shows up dour forecasts

Third-quarter results for ČEZ beat out "pessimistic" analyst forecasts, with the energy company posting net income that was down 4.1 percent on the year, to 11.54 billion Kč ($659.4 million), and the share price reacted positively as the company announced it would cut its foreign investments.

"The main reason for the year-on-year drop of profit is the electricity price decline," said Martin Roman, chairman of the board of directors and CEO of ČEZ.

The company's net profit in the third quarter of 2010 was 11.94 billion Kč. In the days leading up the results, which were announced the morning of Nov. 9, analysts had more dire forecasts for the company's results, estimating net income to dip nearly 20 percent.

"It's definitely better than the financial markets expected. They have done better on almost every level, especially the net income," Next Finance researcher Ivona Hrušová told The Prague Post.

"The financial markets were simply too pessimistic about the company's ability to push the costs down," Hrušová said.

Both ČEZ and analysts point to declines in electricity prices and rising fuel costs.

"The results of ČEZ are dependent on electricity prices. But fuel prices were rising at the same time, so fuel prices were affecting costs whereas electricity prices were affecting their revenue," she said.

The news was received positively on the markets, with ČEZ's share price rising 2.35 percent to 782.50 per share as of 11 a.m. Nov. 9, after the results were announced.

"The fact that results were better than expected helped the share price ... but the following months will be crucial as the government will decide about selling carbon credits," she said, noting that the share has already taken a hit since the state's proposal to sell rather than distribute for free the carbon allowances for emissions.

ČEZ made it clear Nov. 9 that it is aware of a bumpy road ahead, and introduced the "New Vision" cost-cutting plan.

"We are reducing our investment program," Roman said, in order to support "existing as well as future possibilities for ČEZ."

The company is cutting 78 billion Kč, or 21 percent, from its 2010-14 year investment plan, pulling out of mostly foreign projects to consolidate itself on the domestic market.

"To be honest, the company was kind of forced [to cut investments]," Hrušová said. "Ratings agencies were threatening to lower the ratings if ČEZ continued to do business in the way it has been. Debts were accumulating and were going to really increase in a couple of years because of the Temelín [nuclear power plant] project."

Claire Compton can be reached at
ccompton@praguepost.com