May 14, 2019 / 10:59 AM / 13 days ago

UPDATE 1-CEZ has strong first quarter, proposes lower dividend for 2018

(Updates with CFO comments, shares, graphic)

PRAGUE, May 14 (Reuters) - Czech electricity producer CEZ on Tuesday reported its strongest quarterly earnings in two years, boosted by higher production and power prices, but also proposed a lower dividend on its 2018 results.

CEZ, which is 70 percent owned by the Czech state, reported a 21% increase in first-quarter adjusted net profit to 8.8 billion crowns and EBITDA rose 10 percent.

The company also confirmed its forecasts for 2019, when it is aiming for at least a 30% rise in adjusted net profit to 17 billion crowns to 19 billion crowns ($741 million to $829 million), boosted by rising electricity prices and an expected 9 percent jump in production.

Last year, the company’s full-year net profit fell sharply to 13.1 billion crowns, from 20.7 billion in 2017, when one-offs boosted the bottom line.

The company has proposed a 24 crown dividend per share, representing 99% of profit on the 2018 results. This is down from a previous payout of 33 crowns a share, and below forecasts of some analysts who had expected management to tap retained earnings for a higher dividend payout.

CEZ’s shares were down slightly before regaining ground around midday, up 0.1 percent at 527.50 crowns.

CEZ Chief Financial Officer Martin Novak said it was good practice to not pay more than 100% of profit in dividends to maintain a stable credit rating. CEZ has a “A-“ rating from Standard & Poor’s.

“In the following two years we have to refinance about 60 billion crowns, and very simply, a decrease in rating would clearly mean an increase of refinancing costs,” Novak told reporters after the results.

CEZ has earmarked a potential gain from divesting its assets in Bulgaria in its outlook. The company has entered into exclusive talks with Bulgarian group Eurohold although Novak said it was difficult to judge timing on a deal.

He said Eurohold’s offer was close to one from Bulgarian firm Inercom. Last year, CEZ was poised to sell the asset to Inercom for an estimated 320 million euros. But the deal fell through after Bulgaria’s regulator blocked it.

NEW NUCLEAR PLANT

Novak said he hoped CEZ could sign a contract by the end of the year with the Czech government that would open the way for CEZ to build a new nuclear unit at its Dukovany plant in the south of the country.

In February, Prime Minister Andrej Babis outlined a plan under which the state, keen on nuclear energy, would control the construction and have power to halt the project if power prices did not support it.

Novak said the contract would protect minority shareholders. Some minority shareholders fear nuclear expansion through reactor construction would dent dividend payouts if CEZ were pushed to finance this on its own.

Novak said if the construction were to go ahead and was financed with a system of state guarantees, real cash outflows from CEZ would likely not start before 2028.

“From the dividend policy and dividend payout we are very far from the point when such a cash outflow would actually mean something for our shareholders,” he said.

($1 = 22.9310 Czech crowns)

Reporting by Jason Hovet; editing by Jason Neely and Jane Merriman

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