CEZ Increases Quarterly Profit 68%, Raises Full-Year Outlook

By Andrea Dudikova and Marketa Fiserova

Aug. 14 (Bloomberg) -- CEZ AS, the Czech Republic's biggest power company, increased second-quarter profit 68 percent on cost cuts and higher electricity prices.

Net income advanced to 13.1 billion koruna ($803 million) from 7.8 billion koruna a year earlier, the Prague-based utility said today in a statement. That beat the 10.4 billion-koruna median estimate of 10 analysts surveyed by Bloomberg News. CEZ climbed in Prague trading after raising its earnings forecast.

CEZ, which is seeking to build more nuclear reactors in the Czech Republic, has boosted profit as economic growth has driven up power demand and prices. Higher output from Czech atomic plants has also helped the company raise 2008 earnings guidance to 48.6 billion koruna from 46.6 billion koruna, it said.

The revised forecast remains ``very conservative and the company should not have a problem to even exceed this level in 2008,'' Marek Hatlapatka, an analyst at Cyrrus AS, said today in a note, calling CEZ ``the king of margins.''

The utility also increased its forecast for earnings before interest, tax, depreciation and amortization to 87 billion koruna, and its outlook for earnings before interest and tax to 65 billion koruna.

CEZ rose as much as 59.5 koruna, or 4.8 percent, to 1,290 koruna in Prague, the biggest one-day gain in six months, and traded at 1,245 koruna as of 2:09 p.m. local time.

The ``brilliant earnings'' can be attributed in part to cost cuts in areas such as maintenance, according to CEZ Chief Executive Officer Martin Roman.

Nuclear, Hydro

``There are a couple of positive factors behind our guidance increase,'' Roman told reporters at a press briefing in Prague. ``One of them definitely is rising output from nuclear and hydro resources, which are the most rentable as they consume no CO2 credits.''

Power producers need carbon dioxide permits to release greenhouse gases, blamed by scientists for climate change. More utilities are switching to renewable sources of energy from fossil-fuel-burning generators to cut costs and emissions.

Sales advanced 7 percent in the period as the utility shifted more production to cheaper nuclear plants from coal- burning stations. Earnings were also boosted by gains from selling derivatives on the Prague power exchange, CEZ said.

CEZ will stick to its dividend policy of paying out 50 percent to 60 percent of annual net income, Chief Financial Officer Martin Novak said at the press conference. The size of a planned share buyback program will be determined by acquisition opportunities and the share price, he said.

Buyback

The buyback won't be ``as automatic'' as before, Novak said. A general meeting in May allowed management to purchase as much as 10 percent of shares. Before it can start the buyback, CEZ needs to cancel stock bought under a previous repurchasing program, he said.

Power demand in the Czech Republic, the utility's biggest market, rose 4.2 percent in the first half from a year earlier, or 3 percent after adjustment for ``weather variations,'' CEZ said. Electricity prices ``strengthened significantly,'' the utility said, adding that ``the entire second quarter was characterized by continuous growth in prices of most commodities, to new record levels.''

The company plans to build its future energy mix mainly on nuclear, gas and renewable sources and will begin trading in gas ``soon,'' it said.

To contact the reporters on the story: Andrea Dudikova in Prague at adudikova@bloomberg.net; Marketa Fiserova in Prague mfiserova@bloomberg.net