CEZ eyes return to record profit levels in 2011

LONDON Thu May 27, 2010 11:05am EDT

LONDON (Reuters) - Czech utility CEZ CEZPsp.PR, the largest listed company in central Europe, believes operating more efficiently could push next year's profit back to 2009's record levels before a further boost to earnings in 2012.

A higher share of profitable nuclear power and a growing contribution from units abroad could also help lift 2011 earnings, said Alan Svoboda, executive director for sales and trading.

"It's plausible," he said.

As the Prague-based power producer has already sold 70 percent of the electricity it will generate in 2011 -- and bought the necessary commodities -- profit from its main business are very much fixed, he said.

For 2012 CEZ sees a much clearer trend.

"So with growth in coal, CO2, gas (prices) we expect also growth of electricity (prices) coming in," Svoboda told the Reuters Global Energy Summit,

"We are still betting on 2012 to strengthen in the meantime so ... we can benefit from the upside."

The company is holding back from selling power it will produce in 2012 in order to be able to benefit from that expected increase in prices, he said.

CEZ generated record earnings before interest, taxes, depreciation and amortization (EBITDA) of 91.1 billion Czech crowns ($4.37 billion) in 2009 and forecasts EBITDA to drop 3 percent this year.

Utilities in Europe -- and their investors -- have to rely on rising prices to escape the fall in power consumption that has hit the industry since 2009.

Earnings in the sector have remained broadly stable as companies sell most of their power up to three years before it is produced but investors anticipate a drop in earnings once lower prices and demand feed through.

While other sectors are recovering already, power providers are still struggling with a drop in industrial production to levels last seen 10 years ago.

CEZ is betting on higher prices driven by higher costs for commodities to escape that downturn.

Emissions certificates -- allowances to emit the greenhouse gas carbon dioxide -- will rise to 20 euros for each ton of carbon dioxide "soon," Svoboda said, without being more specific. That would be a 30 percent increase to Thursday's price of 15.57 euros.

Gas prices will also pick up as more liquefied natural gas will go to Asia -- instead of Europe, ending the oversupply there and as gas providers such as GDF Suez (GSZ.PA) renegotiate their contracts with suppliers, reflecting lower demand, Svoboda said.

TAKEOVER OPPORTUNITIES OF THE DOWNTURN

The downturn of the sector might lead to opportunities for takeovers.

The sales of stakes in Polish utilities Enea ENAE.WA, PAK and Energy by the Polish government might be interesting for CEZ as there are few bidders, Svoboda said.

CEZ, like other utilities, is looking at expanding in the growing Turkish power market and is looking at the power plant in the southern Turkish city of Iskenderun which the German conglomerate Evonik EVON.UL is selling, Svoboda said.

The plant is interesting as there are few bidders for it, while the other businesses from the former coal miner are of no interest to CEZ, he said.

(Additional reporting by Michael Kahn and Jan Korselt in Prague, Daniel Fineren in London; Writing by Peter Dinkloh)