From our point of view, the improvement of EZ’s outlook for the economy for the entire year 2023 is based on three factors, the result of trading, the improvement of the economy in the Sales and Distribution segments, and the availability of nuclear resources, said Martin Novk, editor of the finance division of the EZ Group, in an interview for Patria.cz . For Patria.cz, he confirmed a large demand for GasNet assets. When will the decision be made on the nuclear tender? In the EZ strategy, how do you stand yourself big and have a small core? What will be the impact on EZ clients of the drastic increase in prices for the regulation of energy payments, which will be countered by the discount of electricity by EZ from January 2024? Is the EZ financial editor at the helm of corporate finance on the brink of a decline in annual rates?
Patria.cz: EZ enacted nine months of 2023 with a measure of EBITDA and a certain profit made up mainly of non-standard taxes. Shall we get an insight into how you, as a financial editor, can spot the weak point of a company’s performance and its circumstances?
Over the past nine months, it is clear to see a slight increase in EBITDA by roughly 6 percent to 95 billion crowns. The main effects are the rising realized price of electricity, which increased by roughly 16 billion crowns compared to the previous year. Against this, there are levies from excessive needs with an impact of less than 9 billion crowns. For the time being, Meziron’s result is a plus of 6.8 billion crowns due to production resources.
Source: EZ presentation of results for 1-3Q23
Trading had a decrease of 6.9 billion crowns on the same level as the change in EBITDA, but let’s say that in the absolutely record anomalous year 2022, when the profit from trading reached 18.5 billion crowns, that is 6.8 billion crowns. Then a number of other items related to the baked derivative. The total amount of profit from trading in the vicinity of 7 billion crowns for the first nine months of the year is still an enormous amount.
Tba wrote almost 4 billion crowns more, which is the bottom despite a relatively significant drop in the price of that angle.
Source: EZ presentation of results for 1-3Q23
In the Sales segment, we were successful both in EZ ESCO and in the supply of large final damages as well as in the purchase of renewable resources. It was an unusual item to drink 1.2 billion crowns from the beginning of the railways for uncollected electricity from 2010 and 2011 as a result of legal disputes. In total, this contributed 6 percent to EBITDA profit.
Patria.cz: A completely different view is provided by the level of immediate profit, affected mainly by extra-ordinary taxes.
Yes, the windfall can be seen, of course, since the drop in actual profit by 40 percent is overwhelming one hundred days before its introduction. The investment for it is approximately 21 billion crowns for the year 2023, and the growth of the 19% income tax rate was very high.
Source: EZ presentation of results for 1-3Q23
Patria.cz: We will now move on to insight. You are improving the estimate of celeron EBITDA to 115 and 120 billion crowns, so far it was 105 and 115 billion crowns. This is a clear positive step for the market, on the other hand, it is to be appreciated that the mood of the market was, at least among the analysts, optimistic.
Nm movement of insight will be reduced. We had a spread of 105 and 115 billion crowns, so let’s move to 115 and 120 billion crowns.
The bottom is mainly glued to the glass by these factors. Although I said that the trading result is weak against the absolutely exceptional year 2022, it is still significantly better than one would expect under normal circumstances. That is the first factor, trading really helped.
The others are the improved economic segment Sales and Distribution and the availability of nuclear resources, and thus a combined mix that leads to optimism and better economic results.
Source: EZ presentation of results for 1-3Q23
Patria.cz: I am still moving towards the overall market, from some comments it was also possible to see the overall movement of insight at the level of a certain profit. But there it is an assumption, especially about conservatism in connection with foreign taxation?
There are a number of items between EBITDA and net profit. The most important of them are income tax of 19 percent and windfall tax of 60 percent. That is a total of 79 percent of profit before tax.
The rest is influenced by years of investments and income, depreciation and the like. Therefore, let’s keep the profit conservatively at the original level of 33 and 37 billion crowns.
Source: EZ presentation of results for 1-3Q23
Patria.cz: The growth of insight awakens everyone in the direction of dividends.
It’s really too soon for that, there will be a time for this darkness and a time for the sun, the rest as always. The general principle of our approach to dividends has not changed in any way.
Patria.cz: How do you predict the development of electricity prices and emission allowances?
The expected development of electricity prices is best seen on the energy exchanges. This is the best indicator of future development. That’s how it translates into a standard sales and marketing strategy. By the end of the year 2024, we had 77 percent of electricity at an average price of 130 EUR/MWh, i.e. at the price of you, not the day. For the year 2025, we have pre-produced 51 percent of electricity at an average price of EUR 127, and for the year 2026 it is 20 percent at an average price of EUR 108/MWh.
Against the background of the prices of electronics, the development of emission allowances. For this year, we have an average purchase price of a very recent permit of around EUR 60, which is really low and is the result of our successive purchases. For the year 2024, the price is at 80 EUR and the pes rises from 97 EUR in 2025 to 101 EUR for 2026.
Source: EZ presentation of results for 1-3Q23
Patria.cz: Volatility in EBITDA generated by emission sources attracted interest on the level of EBITDA. Can you clarify for us the main factors and possible circumstances under which EBITDA from production from emission sources could reach negative values?
The emission sources are mainly and more things will be registered as a problem. Most emission sources therefore produce heat as their main or secondary product. This trend will continue to strengthen.
The basic relationship at the level of profitability is between the price of the permit and electricity, and it has been repeatedly publicly stated that from approximately 2026, 2027, this problem will be reversed in full. The point is that the price of electricity and allowances will increase very much in the coming years, leaving no room to cover the price of coal and other necessary expenses. This makes the system unprofitable and you have to look for other models to at least get hit.
Looking at the individual months, the price is reflected in summer and winter, so the average year does not mean much. On the one hand, power plants produce the same or similar amount of electricity, but the profit margin in individual cities is different.
Then the supporting services are a factor, depending on the current and in recent times very strongly fluctuating prices and other factors such as retirements, deployment of other resources, etc.
Patria.cz: Let’s move to the core. At the end of January, the deadline expired and bids were received from EDF, KHNP and Westinghouse for new nuclear units. And given oekvan steps were commentable, please summarize in our interview.
We drank all the offerings. A serious offer was submitted by the French company EdF, the South Korean KHNP and the American-Canadian Westinghouse. Among all offers for the construction of a new nuclear unit in Dukovany is also an unconsidered offer for another nuclear unit in R.
Now the phase of analysis of these offers is underway, when individual expert teams in closed rooms will analyze their hundred offers. Consequently, sometime at the end of the fifth year, we should teach the German government about the application process. We officially communicate that the overall evaluation and submission to the evaluator of the first Czech state of the EZ Group in the first quarter of 2024.
The government will then have its own space to deal with the matter and then a decision will be made. Finalization of the EPC contract with the preferred bidder and conclusion of relevant contracts with the state is expected by the end of 2024.
Source: EZ presentation of results for 1-3Q23
Patria.cz: The government is about to introduce the installation of small and medium-sized modular reactors into the updated energy concept. How do you stand this darkness in the EZ strategy and the big core vi malma?
Small modular reactors will have a growing and large role in the future. The pilot location in this direction is the Temeln nuclear power plant area, then there are the locations of the first and second power plants, where it makes sense to build a new source. Especially Tuimice and Dtmarovice.
We are actively negotiating with several companies that are developing modular reactors. We have memorandums of cooperation in the field of small modular reactors with the companies NuScale, GE Hitachi, Rolls Royce and Holtec, as well as here with EdF, KHNP and Westinghouse.
The date has not yet been decided.
Patria.cz: In August, you confirmed your interest in GasNet. Has there been any progress in this direction?
The salary we have for these assets is great. But we don’t have anything more to do with that at the moment.
Patria.cz: So has EZ moved into another area, namely lithium? If I’m not mistaken, the communicated deadline for deciding whether and how EZ will industrially use lithium resources is the end of 2023? So is it calculable in some way, in which year the project should already generate some revenue, in what approximate dimensions?
No decision was made yet. We still have two months before the announced deadline of the end of 2023, by which time we would like to have a finalized feasibility study – this is how we have been communicating this year. The study is one of the basis for the decisions that we will review in the course of the fifth year.
Patria.cz: The media is known to resonate with the rather dramatic expected growth regulated by energy price clauses. The comment for EZ was provided by general editor Bene. How is your estimated impact on the client base taking into account fixed and non-fixed prices?
First of all, let’s wait for the end of November, and ER will issue a real final decision. Nothing, from what we know now, applies to the comments made by the editor-in-chief.
For today’s non-fixed products, the change will not be significant at all, the large shift in distribution costs and the support of renewable sources will, from the point of view of the overall effect, be compensatory for the decrease in the price of electricity. From the first of January, EZ Sale is reducing the price of electronics, it will be 20 percent below the current ceilings.
Especially where prices were fixed before the crisis years, the impact will be significant. There, however, the consumer still had the fifth price of electricity for all this time.
Patria.cz: Let’s stop at the level of operational financial women. On the one hand, the past has especially aggravated the situation with Maro’s deposits. On another level, we stand on the threshold of dream annual rates. Do I have any EZ set up for my finances in this context?
At the level of ordinary financial women, we maintain a relatively high volume of cash and bad lines that we do not draw. It is a reflection of being careful about what could potentially happen. The conflict is escalating in the Middle East without a strong impact on gas or oil prices, but this is unlikely to change. The situation is unclear in this regard. Therefore, we are keeping liquidity in the event that there would be an unreasonable increase in the prices of electricity and it would require us to invest more, as was the case last year.
For years, rates are high, and in a lot of indications, we note here that we see interest rates in particular in the euro, the EU could be at the line of stabilization and decline.
The rates are determined by you, on the other hand, pay exactly what they have to pay. They were supposed to slow down economic activity and reduce inflation, which is evidently happening in all the countries we monitor.
There is no significant refinancing ahead of us, so with today’s knowledge, we do not need to issue bonds in the near future. Nothing would happen to me, for example, if we had an attractive acquisition of complicity or wanted to send our liquidity accordingly.
Financial general standard for a long time, i.e. 7, 10 and 30 years. For this reason, we do not have an immediate increase in rates, on the contrary, we can currently generate relatively high annual income on free cash. This can also be seen on the tracker, where today we have annual income and not investments.
Ing. Martin Novk, MBA he graduated from the Faculty of International Relations in Prague. Takt graduated from the Executive Master of Business Administration Program (MBA) at the KATZ School of Business, University of Pittsburgh with a major in energy. He started his career as a tax advisor at Price Waterhouse in 1994. From there he moved to esk rafinrsk, where he worked from 1996 to 2001. The following 5 years he worked for Conoco in Houston, ConocoPhillips in London and ConocoPhillips in Prague. He has worked in the EZ Group since 2006. Since January 1, 2008, he has been the editor of the EZ Group’s finance division, since May 2008 he has been a member of the board of directors, and from January 2011 to December 2019 he was vice-chairman of the EZ board of directors. assemble the restructuring and creation of a shared services center and speed up the reporting result for the external market.
