CEZ announced results according to IAS for the first time consolidated with REAS

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Investiční bankovnictví KB

      CEZ announced IAS results for the first time consolidated with regional distribution companies that CEZ took over on 1 April. Therefore, the results are not directly comparable with results for the same period last year. Results of distribution companies Severomoravska energetika, Stredoceska energeticka, Vychodoceska energetika and Zapadoceska energetika for 2Q03 were fully consolidated, 34% stake in CEPS was consolidated using equity method, while CEPS was fully consolidated in 1Q03 (as CEZ held 10% stake in the company).

       Consolidation of distribution companies significantly influenced the results for 1H03. Total revenues of CEZ increased by 33% to CZK 35.7bn from CZK 26.9bn in 1H02. The growth was particularly driven by consolidation of distribution companies. However, the revenues growth was not only driven by higher domestic sales, domestic market share increased from 61.7% to 82.1%, but also by higher exports. Exports rose from 7.7TWh to 8.9TWh. Moreover, CEZ benefited from higher electricity prices related to warmer weather.

       Operating profit of CEZ slightly deteriorated to CZK 6.4bn from CZK 6.9bn. The main reason is again consolidation of distribution companies. Nevertheless, the operating profit was also dragged down by higher depreciation related to commercial launch of second block of Temelin nuclear power station. EBITDA improved from CZK 12.0bn to CZK 13.9bn.

       Net profit figure caught the market by surprise. First reaction was negative, as the IAS consolidated net profit has usually been higher than the unconsolidated net profit according to CAS. Another difference is a change in methodology in accounting for income tax. In previous periods, income tax was accounted for as prepayments based the previous year’s income tax. Starting in 2003, income tax is determined from current period income. As a result, income tax is higher (due to sale of stake in CEPS), but it better reflects the economic reality.

       We cannot give precise conclusion from the first consolidated results of CEZ and REAS, as the group will change. CEZ will increase its stake in Stredoceska energeticka, Zapadoceska energeticka and Vychodoceska energeticka based on swap agreement with E.ON and as a result of buyout of minority shareholders. Nevertheless, we are optimistic regarding the trends we saw behind the figures. Domestic market share is increasing, shares of CEZ power plants on domestic demand is also increasing and the successful export policy continues.

      

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