August 7, 2018 / 10:28 AM / 10 months ago

UPDATE 1-CEZ says plunge in second quarter profit marks bottom of cycle

(Adds CFO comments on outlook, prices)

PRAGUE, Aug 7 (Reuters) - Czech power producer CEZ partly blamed exceptional gains a year ago for a collapse in its second-quarter net profit on Tuesday and said its business should now start to pick up as prices are on the rise.

CEZ, like many European utilities, has seen profit squeezed in recent years by depressed whole electricity prices.

The majority state-owned company maintained its full-year profit outlook after reporting a 93 percent slump in second-quarter adjusted net profit and its chief financial officer said 2018 results should be “the bottom” of the cycle.

Much of the second-quarter earnings drop was due to gains booked in the same period a year ago from the sale of shares held in Hungarian oil and gas group MOL and real estate in the Czech Republic, it said.

For the full year CEZ has forecast that adjusted net income would fall by up to 42 percent to between 12 billion crowns ($543 million) and 14 billion crowns.

“We are comfortable with this range so far and we think we should get there,” Chief Financial Officer Martin Novak told reporters.

CEZ also forecast EBITDA to fall slightly in 2018 to 51 billion to 53 billion crowns, down from 53.9 billion crowns posted in 2017.

In the second quarter, adjusted net income, which strips out extraordinary items, fell to 0.6 billion crowns ($27.09 million), well below an average estimate of 2.4 billion crowns in a Reuters poll of analysts.

Quarterly revenue slipped to 40.9 billion crowns, versus the average estimate of 44.4 billion crowns in the poll.

Hedging of contracts for delivery in the second half meant that rising spot power prices dented first-half earnings before interest, depreciation and amortisation (EBITDA) by 1.2 billion crowns.

However, same amount will be compensated for in the second half when deliveries will be made at higher prices than the hedges, Novak said.

The company’s strategy of pre-selling expected output means that rising market prices on the back of increasing CO2 allowance prices will not be seen in earnings until later.

CEZ said it had pre-sold 77 percent of its 2019 output at an average price of 32.8 euros per megawatt hour, up from a previous average price of 31.5 euros last quarter when it had sold already 71 percent. CEZ contracts 48 percent of 2020 power at an average price of 36.1 euro per MwH.

“We can clearly see that the trend is turning, our prices for the coming years are beginning to rise,” Novak said. “We think that this year should be the bottom of our results.”

($1 = 22.1520 Czech crowns)

Reporting by Jason Hovet and Robert Muller; Editing by Kirsten Donovan and Susan Fenton

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