Business Czech finance minister earmarks ČEZ as state cash cow

24-03-2014 16:20 | Chris Johnstone

Good news for ČEZ shareholders in terms of possible dividend payments looks more bad news for the firm’s bosses and those companies seeking to profit from continued investment tenders from the Czech energy giant.

Photo: Filip JandourekPhoto: Filip Jandourek Minister of Finance Andrej Babiš has plenty of experience with companies and, according to the photos from publications of his agro-chemical empire, sometimes gets close up with the livestock. His latest comments about almost 70 percent state controlled power company ČEZ suggest he certainly can recognise a cash cow when he sees it.

Mr. Babiš told the business daily Hospodářské Noviny that he does not see why ČEZ this year does not pay out its whole net profit from 2013 in dividends to shareholders. A proposal to carry out such a step would have to be put to government coalition partners, added the founder and head of the ANO party.

The power giant normally distributes around 50-60 of its group net profit, in 2012 it was 54 percent, after ironing out any exceptional items. Such a change would mean that the state could expect to pocket around 25 billion crowns, 10-12 billion crowns more than it might expect under a business as normal scenario.

ČEZ’s shares jumped around four percent following publication of the comments, indicating that the market gives some credibility to his proposal. The utility has lower debts, around 2.3 times earnings before income tax and depreciation compared with an average of 3.4 times for its European energy peers, and a one off wind fall would be welcomed by both the state and private investors.

Going forward, ČEZ investments should begin to shrink even further given that much of the modernisation work on its coal fired power plants has been completed. Capital spending already eased to 44.1 billion crowns in 2013 from 50.4 billion in 2012 with annual figure seen down to under 30 billion crowns in a few years. Those figures take into account preparatory work for expansion of the Temelín nuclear power plant, so if those plans are dropped the total can come down even more.

Analysts argue that there is room for ČEZ’s dividend payments to rise, perhaps as high as 70-75 percent, but a regular 100 percent profit pay out is simply out of the question.

ČEZ bosses have responded diplomatically to Babiš’ comments, saying its up to shareholders to decide how the profits are spent. But the top bosses should be worried from the tone of the finance minister’s latest and previous comments. On the dividend payments, Babiš says that he sees no reason why profits should not be channelled entirely to shareholders because he sees little evidence that the company’s recent investments have added much to the company’s value. He has previously expressed bafflement at the way large state controlled companies set their strategy and are managed.

ČEZ has been buffeted in recent weeks. General manager Daniel Beneš and finance manager Martin Novák are facing criminal charges over the flow of funds to buy out minority shareholders in one distribution company. The case is being prepared within the finance ministry. The investments in Bulgaria are again looking risky due to local regulatory interventions. Beneš also faces problems over alleged gifts to the mistress, now wife, of former Civic Democrat prime minister Petr Nečas. And the Czech competition office is investigating a dubious tender for a ČEZ nuclear storage facility.

What’s more, Babiš’ comments are not alone. Industry minister Jan Mládek has also voiced doubts about ČEZ’s recent investments and the Social Democrat proposal for a special sector tax on major utilities companies is not definitely buried either.

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