Company corrects throughout comments on seeing profits possibly rising back to record 2009 levels in 2012 not 2011
By Peter Dinkloh
LONDON (Reuters) - Czech utility CEZ CEZPsp.PR, the largest listed company in central Europe, believes operating more efficiently could help stabilize profits in 2011 while higher power prices could boost 2012 results.
A higher share of profitable nuclear power and a growing contribution from units abroad could also help stabilize 2011 earnings before potentially rising back toward record levels in 2012, said Alan Svoboda, executive director for sales and trading.
“If electricity prices rise, then it means that from 2012 we can expect that the results will grow further, and therefore return to the level of this so-far-record year 2009,” Svoboda told Reuters.
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 after it pre-sold most of its 2011 power at prices around 2 to 3 euros per megawatt hour lower than what it has booked for 2010.
“We will benefit from higher proportion of nuclear production, further cost cutting and contributions from abroad, which means that the year 2011 will be very much similar to the 2010,” he said.
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 -- could 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.
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