March 24, 2014 / 12:01 PM / in 4 years

UPDATE 3-CEZ should pay out all 2013 profit as dividend, says Czech minister

* Finmin wants CEZ to pay out entire 2013 profit

* Shares jump to highest since early November

* Payout would cause problems for investment plan - analyst

* CEZ due to make proposal before AGM, around June (Adds PM comment, updates shares)

By Robert Muller

PRAGUE, March 24 (Reuters) - Czech state-controlled energy company CEZ should pay out all of last year’s 35.2 billion crown ($1.8 billion) profit in dividends, the country’s finance minister said on Monday, sending CEZ shares to their highest in four months.

Finance Minister Andrej Babis said CEZ, in which the state holds a 70 percent stake and whose dividend and tax payments are a major source of state revenue, should abandon its long-held dividend policy of paying out 50-60 percent of net profit.

Investors in central Europe’s largest utility welcomed the prospect of a short-term windfall and CEZ shares jumped to 577.7 crowns, their highest since November.

But analysts said such a payout could be hard to maintain and mean delays to expanding its Temelin nuclear power plant, already on shaky ground because weak electricity prices make the project uneconomical.

Prime Minister Bohuslav Sobotka said the government should discuss the payout idea together with information on CEZ’s investment plans, of which Temelin is the most important.

“Regarding the dividend or dividend policy in one year, that is not anything that could complicate or make it impossible to build new blocks at the Temelin nuclear plant,” Sobotka said.

Raising the dividend would need approval of the three-party government. Babis’s ANO centre-right movement is the second-strongest partner behind the centre-left Social Democrats.

Babis told Reuters the proposal “is my opinion”, confirming comments he made in daily financial paper Hospodarske Noviny on Monday. He added: “The proposal is not yet prepared.”

Since the ruling coalition took power in January, Babis, the billionaire owner of the country’s largest food and agricultural group, has said the state and state companies must be run more effectively in order to help the government manage its budget.

The Czech government’s central budget deficit is expected at 112 billion crowns in 2014 or just below the 3 percent of the gross domestic product ceiling prescribed by the European Union.

Speaking to Hospodarske Noviny, Babis disagreed with CEZ’s policy of needing to keep profit for investment: “I don’t see that the past investments have significantly raised the value of CEZ and that its investment policy has paid off.”


CEZ management is due to propose the company’s dividend payment one month ahead of the annual shareholders meeting, said CEZ spokesman Ladislav Kriz, adding the meeting normally takes place in June, but that the exact date has not yet been set.

Kriz declined to comment directly on Babis’ comments.

“Such a high profit distribution is not sustainable in the long term and it would mean postponing the planned construction of new nuclear blocks in Temelin,” Komercni Banka analyst Miroslav Frayer said in a note.

CEZ’s net profit fell 12 percent to 35.2 billion crowns in 2013. European wholesale electricity prices have fallen by around half since the global financial and economic crisis.

It has forecast a fifth straight year of declining earnings this year, expecting 2014 profit to decrease to 27.5 billion crowns, about half of the record 51.9 billion posted in 2009.

Speculation is growing that CEZ may end its multi-billion dollar tender for Temelin’s enlargement in the coming months without picking a winner. CEZ has sought government support to ensure an expanded Temelin plant is profitable but the new government has balked at guaranteeing electricity prices.

CEZ paid a 40 crowns per share dividend from 2012 profit, providing state coffers with about 15 billion crowns.

Paying out its entire 2013 net profit would raise the company’s dividend yield to 12 percent, or three times that of other utilities in the central European region, said Frayer at Komercni Banka.

$1 = 19.9278 Czech crowns Writing by Jason Hovet; Editing by Sophie Walker and Mark Potter

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