CEZ, a. s. (CEZ) Earnings Call Transcript & Summary

Hello, everyone, and welcome on first half 2024 results call of CEZ Group. It's my pleasure to welcome Martin Novak, Chief Financial Officer, who will go through the presentation. And I also have Ludek Horn, Head of Trading, with me who will be also available for the Q&A part. Now I'm handing over to Martin to go through the presentation.

Good afternoon. Good morning, everybody. So let's start with the financial highlights and our full year outlook. As you can see on Slide #3, our EBITDA has grown by CZK 6.8 billion to CZK 69.2 billion or 11%. Net income has reached CZK 21.1 billion, which is 5% growth last year's numbers. Operating cash flow is negative by almost 50%. This is due to margin -- basically margins that were paid to the market due to higher prices in 2022 and that were actually coming back in 2023. So that is the main effect actually of very high operating cash flow in 2023, where the margins were actually coming back to our accounts. Our CapEx reached CZK 20.5 billion. Our estimated EBITDA for full year is actually being increased. Our original guidance was CZK 115 billion, CZK 120 billion. Now we are moving CZK 118 billion to CZK 122 billion, so both increasing our estimate and also narrowing it by CZK 1 billion. Net income or adjusted net income is expected to be CZK 25 billion to CZK 30 billion, so we don't change guidance in this -- in net income. Main differences of year-to-year changes in EBITDA are shown on Slide 4. By far, the largest positive impact is actually coming from the fact that in 2023 in first half of the year, we paid CZK 11 billion on actually steps on power prices. And this was actually discontinued as of the end of last year. So in 2024, there is no such a charge. And therefore, actually, our result is -- or generation margin is actually CZK 11 billion better. CZK 2 billion negative impact is coming from our nuclear plants mainly due to planned outages that were planned for further half of 2024. In trading, our profit is lower by CZK 3.2 billion or CZK 1.3 billion is coming from lower income from prop trading of CZK 3.9 billion versus CZK 5.2 billion last year. It's important to say that last year was the second-best year after 2022, extraordinary good, I would say, due to still a relatively high volatility in the market, which is not the case this year, or not in such an extent. So even CZK 3.9 billion in the first 6 months is a big success because normal trading profit when those prices are stable is between CZK 1 billion and CZK 2 billion annually. And then there is a relation of derivatives of CZK 1.0 negative number. Mining segment is CZK 1.5 billion below last year EBITDA. This is mainly due to a fairly warm winter, actually, the warmest winter this year compared to last year. So our sales of coal both to our own companies or power plants and also to external customers are lower than in 2023. Distribution has a positive impact of CZK 1.4 billion. In general distribution segment should be pretty stable. CZK 1.1 billion out of CZK 1.4 billion is due to negative correction factors that actually hit our P&L in distribution in 2023. And those were correction factors related to 2021. So 2021, we received CZK 1 billion more than we should have, as originally planned from our customers due to COVID, mainly households. And we had to return it back in 2023 after it was audited in 2022. So this puts us together with CZK 600 million positive or increase in sales segment to CZK 69.2 billion EBITDA. When we look at net income for the first half of the year, there are a few items actually in terms of net income depreciation and amortization is 5% higher. Other income expenses is CZK 4.5 billion versus CZK 1.2 billion. One of the variances is definitely lower interest income due to lower amount of cash and lower interest rates. There is also interest on nuclear and other provisions, there is an increase of CZK 400 million. And then there is a few other items that in total actually generate CZK 1.7 billion negative number compared to 2023 exchange rate effects on our Turkish operations, revaluation of financial derivatives, high interest rates from nuclear provisions and so on. So this brings us to CZK 21.1 billion of net income and at the same time, adjusted net income, there is no adjustment so far. On next slide, you can see actually our financial outlook for 2024. As I said, CZK 118 million to CZK 122 million on an EBITDA level of CZK 25 billion to CZK 30 billion of net income. The main reasons for adjusting to EBITDA is due to higher profits from commodity trading, lower cost on actually deviations for our customers. So when you have to buy power on the open market, when they consume more than you expected and on the other hand so they consumed less. So those actually those variations are lower. We have also higher expected deployment of power plants and lower cost of operating cost. We did not change it through our outlook for net income as actual range of CZK 25 billion to CZK 30 billion is wide enough to accommodate all potential movements actually in net income area, or area after EBITDA, which is much more difficult to predict. And another reason is that we are subject to in full taxes. So every CZK 1 billion of EBITDA actually is taxed with the marginal tax rate of 81%. So really the impact on net income is fairly small, only CZK 190 million that actually falls through to net income. We have a few important events in past quarter. By far, the most important one was that government actually decided to go forward with negotiations on building two new nuclear units at our Dukovany plant station and awarded or has chosen as the best offer South Korean company KHNP and this was announced actually on 17 of July. So now we have ahead of us negotiations that will take the spring of next year with the supplier, we also have to resolve financing of the second unit. We have refinancing agreed for the first unit and notified the European Commission, clearly it would probably be a very similar model, but it needs to be still allows to negotiate. We are now ranking in terms of ESG among top 10 percent companies in the world. So 90th percentiles through CSR Hub that actually looks at 37,000 companies in their portfolio. Important thing, we are in arbitration of Gazprom in Switzerland. Gazprom tries to take action actually in front of their own court in Russia, but actually they were banned from doing that by International Chamber of Commerce in Geneva, that is the only body that can actually decide on this -- on our claim against Gazprom for gas they did not supply and that we have to buy a CZK 1 billion more expensive and supply to our customers. Those are probably the most important 3 business information. And now let's go to Generation and Mining segment. Generation and Mining segment is improved by 7% in total or CZK 3.8 billion. The biggest positive variance is in nuclear as it is, as I said already earlier, not impacted by charges or caps on power prices. And clearly, the nuclear plants are impacted the most. So this is not the case anymore. So out of CZK 12.4 billion, about CZK 11 billion is actually attributable to nuclear assets. Emission-generating facilities are somewhat below last year. And there is a price effect and also increase in purchase prices of carbon credit. Generation segment in total, 5.3 and Mining segment down 1.5, mainly, as I said, due to lower supplies to our external customers. Now on next slide, you can see actually in graphical form our power generation. So it was 4% down compared to 2023 of 5% on nuclear and 4% positive on renewables. In nuclear, it was mainly because of plant shutdowns that were in nuclear power plant of Dukovany and they were not actually planned for first half of 2023. Year-on-year, we plan to be closer on nuclear generation close to 30 terawatt hours. Again, we will have those outages at part of the plan that was not the case last year. We have lower availability of the marine and we hope to increase our capacity of the [indiscernible]. Renewables, 4% higher of 3.7 terawatt hours that we expect to produce. We have -- we are adding actually new photovoltaic power plants in Germany and we have commissioned actually wind firms or wind parks in France. On electricity generation from coal and natural gas, we had a 4% increase in coal generation in Czech Republic due to shorter outages at Tusimice 2 power plant. We had lower power generation in Poland, 31% decline due to market conditions, meaning prices and carbon credits. And we had basically generation from natural gas. We actually expect generate 2.3 terawatt hours of natural gas, which should be about 2% lower than last year for full year. We expect to provide actually to generate coal in Poland 15% below last year and coal generation or coal fire generation would actually be down by 3% year-on-year. Important slide, actually on hedge prices. We are, as you know, selling power 3 years ahead. Our average achieved price for 2024 will be somewhere between EUR 132 and EUR 136 per megawatt hour. Now you can see how much actually power is sold for multiyear and at which prices. So we have sold 71% sold for 2025 and EUR 120 per megawatt hour going down to 72 in 2028. But that amount, the volume is really low, 1.3 terawatt hours. And we also, at the same time, purchase carbon credits that are ranging from 90 to 74 in 2027. Current situation in the market is that prices for 2025 are around 100 or slightly below and prices for the OTEs are close to EUR 80 or below EUR 80 for 2028. Carbon credits are trading at around EUR 70 these days. Distribution and sales. Distribution segment, we made 16% more or CZK 1.4 billion, but CZK 1 billion out of it is actually attributable to lower revenue in 2023 as a correction of 2021 number. Otherwise, the distribution as it is to large customers was basically unchanged. And the residential customers are 5% down, small businesses 3%, in total 2% down, but it's mainly due to warm weather, warm winter. And if you take actually climate and cover just in electricity consumption, it is 1% below 2023, which is definitely attributable to also energy savings. Sales segment. Sales segment, our retail segment is coming back to normal. So first half 2024 results are significantly above, for example 2023, where we still were caught with high purchase prices and very sharply declining sales prices for retail segment. ESCO companies actually made about CZK 2 billion. It is less than last year, but it's important to know that actually it all basically comes from commodity sales in Czech Republic, where we had a different situation than on retail. We had extraordinary good year in commodity sales to our customers. That is again normalizing coming back to CZK 800 million, CZK 1.5 billion really significantly higher than normally under ordinary times, it would be. And the total segment is actually CZK 3.8 billion or 20% higher than last year. Volume of electricity and gas sold, it's actually down by 15%, electricity 11% and gas 21%. This is all attributable to a very warm winter. Actually, February was 6% -- 6 degrees centigrade above the normal. February, which is extraordinary and nothing that we will experience in the past. We have a slight decline in customer base. This is something that will be expected after we got several hundred thousand customers in our portfolio after collapse of a few entities in 2021, the biggest one being Bohemia Energy. So now actually after the market situation has come down, some of the customers are seeking better value or better proposition and they are changing the supplier. So nothing that would not be expected. And I think our strategy is not necessary to fight for every single customer, but keep the overall margin on term level. Revenues from sales of energy services are up by 20%. So far, we expect an increase of 6% year-on-year. Basically, in all segments or in all countries, of course, Czech Republic is being the home market will be somewhat down, but it's mainly because of lower sales of our revenues related to commodity sales. And we expect significant growth in Germany that is from ESCO activities, our key market, both organic growth and also adding new acquisitions where a few companies actually that were added in the second half of 2023. So this is the last slide from the presentation. Generally, I will say that we had a very good quarter and a very good first half of the year. And with no significant surprises, stable results. So I think that's a good news. We have, I think, overachieved almost all analysts actually that coverage has. So I think we can be very happy with our second quarter and first half of the year.

Okay. This concludes our presentation, and now we are ready to take your questions. [Operator Instructions] And I can see the first question comes from Anna Webb.

Anna Web from UBS. I've got two questions. Firstly, on new nuclear, as you mentioned, KHNP were announced as the winner to build 2 units with the potential for 2 more. And I think press reports suggest that the government were looking to have a financing model for these units prepared by the end of the year. So could you talk a bit about what you envisage the structure could be for multiple units? From my understanding, it's the sort of size of the CapEx requirement that's the challenge rather than sort of the risk appetite around the framework. So what kind of framework would you need that would facilitate you building multiple units? That's the first question. And then secondly, maybe on the windfall tax, it was reported earlier this year that the Finance Minister was looking at dropping the windfall tax for 2025. Can you let us know if there's been any more discussion on this? And I think at the time, it was also talk about whether you could remove it retroactively for 2024, given you haven't actually made the payment -- the cash payment. So is there still a possibility of that? And where is the discussion there?

Okay. Thank you for the questions. So nuclear, actually, we have a notification from European Commission for one unit in Dukovany. And the scheme is such that we would invest up to CZK 4.5 billion into preparation of the project, which is current stage. And then the remaining financing will be provided directly to this SPV. We have an SPV actually, special purpose vehicle called Elektrarna Dukovany II. So it's our subsidiary, 100%-owned and the rest of the financing, so basically more than 90% or more than 95% will be actually coming from the government directly through a loan that is 0 interest loan. Why is it 0 interest to support actually as low cost as possible for future power deliveries. At the same time, this entity would receive a contract for difference basically. So it would sell power to the state at a guaranteed price so that actually there will be a ability to repay the loan back to the government over a few decades and also for us actually to receive reasonable profit on our investments. The little part, actually, the liquidity CZK 4.5 billion. And clearly -- and this is notified with EU for 1 unit, but for 2. So discussions are now about basically how to adopt this plan from 1 unit to 2 units. However, it needs to be notified with EU as well, European Commission. So again, we will not put more money than that into the project and we would expect the same scheme, meaning basically state providing 0 interest financing and also contract for defense. So we have certainty that the power plant will be able to repay the loan going forward. So that's on nuclear and we have to resolve this issue by the end of the year. At the same time, there are negotiations with Korean national or Korean national nuclear and hydro company about the details of the contract and, of course, financing will be an important part with as well. Windfall tax, from time to time, we hear that there could be potential for change to windfall tax. On the other hand, we have not heard about it for a long time. And we are not aware of any kind of legislative process that we actually aim on reducing the tax for 2024. And this continuing tax in 2025 basically no legal initiative is taking place. This would have to be a change to all. And there is nothing like is happening and Ministry of Finance has not actually initiated anything like that. So for conservative purposes, I think it's fair to assume that it will be here with us for definitely 2024. And if nothing happens also for '25.

Can I just quickly follow up on the nuclear question? Just to confirm that you said that it is possible that you undertake multiple units under the same agreement the CFD framework with the 0% financing. Is that correct?

That will be a logical. We are discussing it. I think there is really not much other solutions. We cannot take the risk of doing it ourselves and that's why we have notified the scheme of support of the project that European Commission, but it has notification only for 1 unit and not 2. So we need to go through the procedure clearly improve much faster rate, but the details are actually being now discussed. So that will make sense. There are not many other alternatives that we have actually.

We have the second question from Bram Buring.

I'd like to pick on the financing model for new nuclear just a little bit more. So the framework for the first unit, for a first unit was based on agreement signed with the previous government. So can I assume that for further units, you would just be signing a carbon copy of that same agreement with the new government for 2, 3 and 4? That's the first question. And then the second question is also about the taxes, but a little more prosaic, just trying to understand the difference in the effective tax rate in the first half this year and last year. I'm assuming that it's accruals for the tax are more aggressive than last year. But if you could just clear that up for me.

So actually, regarding the financing, as I already said, there is a contract actually in terms for 1 unit only, the second unit was not covered. So it needs to be all discussed. And clearly, this is almost twice as much money as of course 1 unit, it's a little bit less than more than 1 unit, but a much higher amount than originally anticipated. And so we are now discussing actually financing for 6 units only, not 7 and 8, which means, [Technical Difficulty] -- Dukovany, there is an option for 2 units in the marine, but they are way down the road. So basically, there is no point in discussing those 10 million units because it's an only option and the option window will be open for quite a few years. So I think now everybody is aiming actually at Dukovany -- 2 Dukovany unit. And as it was notified only for 1 unit, it has to be adjusted. We will see, as I said, there is not much choice than state providing financing and contract for differences. That's what it is, but it needs to be kind of worked out in paper as well. It doesn't really matter which government is in place. I think this is a general understanding that this is the only way to go actually. The other way, for example, as building it on our balance sheet and risk is really not the way forward. It's just too big for us. We can do that. And that's why there is such a scheme that was notified for units 5 already.

Understood. I'm only asking because the old contract with the government is fairly well understood. And I'm thinking more about the risk that this new government gets new ideas in its head. If it's just a matter of notifying under the same terms as unit 1 for the second unit, then I'm also wondering why they're taking until the end of the year to make any sort of decision.

I think there is plenty of technicalities that you have to resolve. It's not that easy and it's only kind of 4 months till 5 months until December, really 4 because of summer holidays. So it's kind of -- you have some technological deadlines that you just need to accommodate as well.

Okay. Fair enough. And the tax question, please?

That question is whatever is actually booked in our books is the best estimate, or the best estimate of reality for first 6 months. Our estimates for full year on windfall tax is actually CZK 37 billion to CZK 34 billion depending on EBITDA. We have so far paid CZK 15 billion in cash in the first half of 2024. Our tax for last year was CZK 30 billion. So cash payments, if we don't come to a conclusion that they should be lower would be according to the law actually 2x CZK 7.5 billion, meaning quarterly advances of CZK 7.5 billion. So the cash payment would reach CZK 30 billion. And of course, then there will be an adjustment after we file a tax return one way or another. Should there be any change, significant change in the level of tax, for example, or should it be discontinued at all of course, we would adjust our payments to those -- to this new situation. So that's what it is.

Okay. So if we take an optimistic view to EBITDA for the quarter, then -- and you're paying CZK 7.5 billion quarterly, then in the fourth quarter, as it was last year, we could expect that the tax burden will be, let's say, CZK 4 billion to CZK 7 billion higher in the fourth quarter than it has been in the previous just on the windfall tax?

It really depends. It really depends on our EBITDA. But generally, what you do, if you see that your tax liability is significantly below the advances, you go to the tax office and ask for reduction of advances. You see that it is kind of on par or a bit below what you will pay at the end, you don't go to the tax authorities and you do the settlement, basically settle the rest at the end of June of next year. So it looks like if nothing changes, we have paid CZK 15 billion, we will pay another CZK 15 billion and then we will pay the rest should it be more. Should it be significantly less we will go and ask for a reduction. But so far, our estimate is CZK 27 billion to CZK 34 billion. So basically, the middle of this range is around CZK 30 million.

Maybe -- well, I can add one comment. Maybe, Bram, you're referring to the fact that we had a very high effective tax rate in the last quarter last year.

Yes.

But this is not mainly driven by the windfall tax, but by the change in the deferred taxes, connective change in the tax rate from 19% to 21%. So from that perspective, this year the effective tax rate should be less volatile than last year. And therefore, yes. We have next question from Roland Vetter.

I would like to come back to the nuclear topic. One investor claimed that a minority buyout is necessary to finance more than one nuclear plant. Given what you said today, do you think this still makes sense? And in your view, does the government have any interest buying out the minorities?

I think it's one of the [indiscernible] he would love to receive significant premium over the share price, and that's basically it. But it's a question to government. We don't see any signs that they will want to do it. And actually, their point of view so far is that they will basically provide entire financing interest free. They will provide contracts for defenses to the project. So in the future, we don't earn much money. We earn what we should be earning based on our -- the investment and government paying it all basically bearing all the risks, also receive all the benefits of it after it will be up and running. So, so far, there is no discussion, I think, about government buying out minorities.

Okay. A second topic on power prices. When you look at the forward curve, the price is coming down and for example, '28 mid-term, you're roughly at EUR 73. What is your view on the power prices around, let's say, '28 to '30? Do you see a reason that power prices should increase above the current forward curve?

Actually, it's hard to predict at the moment, we don't see any reason why the prices should change in the upwards direction.

Okay. And then the last one on your balance sheet. When you look at the power prices further out and you make an estimate about what is the profitability, we think that it could be around CZK 90 billion in '28. And then when you have lower EBITDA, financial debt to EBITDA goes up. So given these conditions, do you think that you can keep the current payout ratio, dividend payout ratio and also pay for all the future investments?

Yes. I think it's too early to ask. I mean, of course, we are trying to do our best to stay in the rating range or net debt to EBITDA of 3. With GasNet, we can be a little bit more and GasNet is actually distribution gas company that we should be taking over by the end of this month. And as their regulated business, we could actually have a better position. And we understand that it's important to our shareholders, but it's really too early to say.

But let's say, what would be your preference if you find out that you have can you say not enough money for paying dividends plus investments, kind of investments or which was in dividend?

It depends. What kind of investments and what will be some horizon. So we really make our dividend decisions based on our dividend policy that we announced well enough. It's usually in place for 2 to 3 years. Currently, the 60% to 80%. But of course, 2028 is quite far away. So really cannot say what is...

We have a next question from Piotr Dzieciolowski from Citi. Okay. So I'll give you a second. And in the meantime, Petr Bartek.

Actually only one main question regarding prices this year. You were -- or you realized the expected prices for this year by a few euros up from EUR 130, which is already quite a high level. So if you can elaborate a little bit about the development in the near-term markets on the unhedged position what's actually driving the quite good results in second half, if you see something similar in -- sorry, in the second quarter, if you see something similar in the third quarter still happening, lignites, [indiscernible] and so on, if you see any interesting developments in the markets? And maybe a more long-term, what do you think about CO2 prices going forward into the autumn and for the next 2 years, let's say?

So I will elaborate on the first part, actually moving our price from EUR 130 to EUR 166 is mainly due to taking opportunities on the market. So basically, using situations when the power prices go significantly up during the day or sometimes getting being negative, basically reducing our output and purchasing power on the market or purchasing and being paid for it. So this is really about those daily peaks that we are using in our favor. And we will see how successful it will be in the second half of the year. But I wouldn't expect that we would move it any further in any more significant way. And on CO2, I will ask Ludek if he can tell us.

Well, if anything changes in the direction of European Commission after elections to European parliament, the price will be probably moving in the range we are used to last couple of months. So it's between 50 and 100. It's hard to say. There are no fundamental reason to move it in either direction. So it depends on political decisions.

Okay. So we'll try Piotr once again.

I wanted to ask a bit of a follow-up question to what Roland was talking about. So on -- I'm trying to understand your kind of cash flow towards a later part of the decade. On the CZK 2 billion equity commitment you have to that first reactor, what could the time line of this commitment look like? At what point you have to provide this money? Is it a lump sum? Is it coming in the installment? And when is the first time when you have to provide full money into this one? And then how would the second reactor if the terms are similar affected, is it like just 2 years afterwards? So that's the first question.

Okay. So there is actually as part of the notification is that we provide those EUR 200 million at first and only if things go very wrong during the construction and it's our fault, so it's not fault of our supplier or change in legislation or whatever, then we are obliged to put up to EUR 1.7 billion into the project and that's the cap. And only when it is proven that it's something that is actually caused by us. So that's it. So of course, if anything happens, we will do anything to make sure it is not our fault. And if it ever happens, it will probably be in later phases of construction that should start sometimes in 2028, I guess, '29, so still are quite a few years down the road. All the rest is covered by...

So what you said is that if everything goes according to plan, you can build -- so you can be responsible for building two reactors and spend only EUR 400 million net. Is that the right assessment?

It is the right assessment. It can actually be only EUR 200 million. That's what we are discussing because that's the overall number for 1 unit, but it may be the same for 2 units. So those are the things that are being discussed, whether it should be EUR 200 million or EUR 400 million. Definitely, the cap of EUR 1.7 billion is something that should be applicable for both reactors. So it's not EUR 3.4 billion, it's still EUR 1.7 billion. And those are the discussions that are now being actually held in the unit number 6.

So for 2 reactors, you also be maximum cap of up to EUR 2 billion?

Yes. Yes, EUR 1.7 billion.

And what is the rating agencies approach to this possible liability? I mean, do they assign some probability to this number? Do they think about as just a EUR 200 million commitment? Or do they think about the EUR 2 billion and that's what they put in in calculating your metrics because the potential liability?

I think [indiscernible] not looking that far so far because we are very quite a few years from first money to be spent and they are usually looking 3 years ahead. But knowing them, I think they are very conservative and they would assume that those EUR 1.7 billion would actually be spent. But I cannot talk for rating agencies.

And is this also fair on this -- that the possible return on equity will apply to the EUR 200 million that you spend. So in the reality, you're not going to have much out of it in the context of the whole CEZ group?

Yes. Yes. It will be basically paid by state, right? So they should have the benefits as well. We don't want to take risk and if you don't want to take risk, you don't get much reward either.

Okay. And my last question is concerning the lignite units. I mean, as we look through the market, the conditions for the term actually and coal and lignite especially is getting worse every day or this half year, the volumes are really under pressure. Would you consider early closure? And what is your latest thinking about the future of this asset?

I think we announced on our shareholder meeting that year 2030 is much more probable than 2033. So yes, it will be accelerated. Of course, not everything at once and I think there will be a period when those power plants will be up and running full speed in winter, generating mainly heat. And in summer times, they may be out of operations. We definitely don't invest into it, or we invest enough to keep it running, [indiscernible] but not beyond and our monetary situation. We have a plan actually to replace heat plants with gas plants. We already started in the location of Munich, which is heating significant part of Prague. And there is actually a subsidy or a program to provide profitability for heat plants. And we are now waiting for a mechanism of capacity payments for the power plants. Without it, of course, it will be too risky to build a gas-fired power plant. So -- but lignite plants and lignite mining [indiscernible] will probably cease to exist by 2030.

Do you think they can generate some losses beforehand?

I think we will do our best for this not to happen. Though clearly, we would not be excited to run it the loss. So I don't think it will be anything material.

Okay. We now have a question from a person whose name I don't know, he's dialing from phone +447826. [Operator Instructions]

This is Arthur Sitbon from Morgan Stanley. So my question was just on your net income guidance. You've achieved significantly more than half of your guidance of net income for 2024 in the first half. I was wondering if there are any material negatives to expect in the second half that would make it difficult for you to deliver more than the CZK 25 billion to CZK 30 billion of net income? Or if maybe you've made some conservative assumptions for that guidance? That be it for me.

Yes, there is nothing really, nothing really that extraordinary that we will plan for. Our business is fairly seasonal. So we basically make most of our net income in first half of the year, very similar to last years. We will expect a bit higher interest expense or meaning lower interest income due to decreasing interest rates. And -- but that's it. So basically, I wouldn't really expect anything extraordinary.

Now we have a follow-up question from Bram Buring.

First one was, does the concept of contract for distance difference exist yet in Czech legislation? Or does it still have to be passed?

No, it doesn't have to be passed. It's a matter of contractual agreement. So basically, you create it through the system of contracts.

Okay. Because at some point, somebody had introduced legislation that would codify contract for different contracts, but understood. The second question from the Czech Twitter verse, a certain high net worth individual is threatening to take CEZ. And I'm not sure if it's just CEZ or if they're banding together with other minority investors in other countries, but to challenge the legality of the windfall tax altogether in front of the European Commission. And I'm just curious for your off-the-cuff feeling on this. I'm not entirely sure if the EC signed off on windfall taxes for the nations to impose them or if they just look the other way, what kind of chances would you give this sort of case in front of the European courts?

I don't think there are much changes. Of course, we did -- we had a few legal analyses done on this issue. The windfall tax is perfectly in line with what the parliament can do. I would almost call it political risk. Also basically, there was no error or no mistake in approving the legislation. EU has absolutely no power over direct taxes. They involved in VAT, for example, harmonization, but direct taxes are the responsibility of individual states, no matter how they are built and how high they are. So, so far, according to legal opinions of a few EU companies, there's not much ground, if any, to dispute that. On the other hand, we are looking at whoever is taking any action because technically speaking, for us, if we want to do something, we should dispute it at the tax office. As we did a few times, for example, you may remember, Bram, actually quite a few years, a decade ago, gift tax on -- and the way how you can do it is actually to go and ask for a refund from tax office when you find out that you think you have some legal arguments that actually you think will be successful and it usually goes to court and ends up with some court decision. At that time, actually the gift tax was against the EU principles because you were supposed to receive carbon credits for free. They should not be taxed. But here, this is a different story. This is a direct tax that government can impose and many governments did it in various ways. And yes, Czech government decided to do it for 3 years, versus others for a shorter period of time. Some of them for 2023 retroactively, which government did not do. They did it for '24, '25 -- '23, '24, '25. So -- and not for '22. So that's actually -- that's the position. So if we want to take it through tax office one day and we are also looking at reaction of other companies that pay windfall tax and their position, so far, we don't have that information that somebody will do that or kind of take it to the court or be against that. Then we can do it. We have more than 3 years actually or we have 3 years from this June, end of June to actually dispute 2023 tax. So the window are still open, and you can get into it, should the situation change. But so far, it looks like the legal process was correct and you have much to say about direct taxes.

We have the next question from Robert Maj.

It's Robert Maj, calling from IPOPEMA Securities. I would start like with the new nuclear. So the profit you can make on this investment, EUR 200 million of your equity would be capped on any given level like of, let's say, for simplicity WACC of, let's say, 10% per annum, which we would like to recover from that investment. Is that correct, what you're thinking on this?

I think there will be, in general, this is the correct way of thinking, but we also shouldn't bear any risks related to the project. And there will be some portion of extra profit that we will be able to make depending on optimization of running the plant. So we have an incent to run the plant in the most and most optimal and most profitable way. So there will [Technical Difficulty]. But it will be definitely not the same as if you take full risk, pay for the plant and then start it and then use the benefits for following 80 years from purely commercial market like we do it, for example, with our 2 current plants. So that will not be the same scheme.

And this will be completely off-balance sheet for you, this investment?

We -- yes, I mean, technically speaking, yes, we would be receiving something for managing -- for running the plant for sure, but that will be [indiscernible].

Okay. And the risk, which you mentioned, the EUR 1.7 billion, if this would be coming on your account. I mean if the delay in the construction process, is it something that could be provisioned for with this penalty fee?

It would have to be delay caused by us. So it will have to be delay that is caused by our mistake. We would not be having the construction site on time and place and those things. If it is delayed because of the supplier or delay because of the legislation changes, for example, then we would not be liable. So that's really -- if we do something around.

Okay. In the presentation, you say that main -- one of the main reasons for increasing the EBITDA outlook compared to last time is the lower fixed operating expenses. I was just wondering what could it be, what kind of lower fixed expenses you see now down the road to increase the guidance?

Well, I think it's probably related to, for example, mining activities where if you sell us coal, you have for us operating expenses, but also various -- so it's many items you save here, you save there. And on large-scale business, it provides some savings. But I would say the biggest part is actually trading activities that are above our original plan. So that will be the biggest portion of the increase in our EBITDA.

Maybe one clarification on that. We are not talking about year-over-year increases, but just lower cost versus previous expectations.

Yes, versus plan.

Versus plan.

Yes, correct. Correct, yes. On the capacity markets for coal units, you mentioned it for your coal heating units. How quickly you think it could be implemented in track? And what kind of impact on your annual P&L could it be roughly speaking?

It probably will be [indiscernible] kind of -- are going to be out of market, as we said by probably 2030, so nobody will let plants to support coal. It's more about natural gas units and discussions going on the issue of, so before there is in place, we will not invest into natural gas power plants.

Understood. And last question on the disposal of Polish units, anything new happening here? And if you struggle to find any buyers, would you just shut it down or just give it for any kind of symbolic lump sum, just to get rid of your balance sheet?

We actually received a few binding offers for a few counterparties by the end of July. So now we are negotiating with a few of them going forward. And we will see whether there will be a deal by the end of the year and if not, we will think of a different way on how to get out of our Polish assets because clearly, long-term running to hard-core [indiscernible] doesn't make much sense. So -- but it's too early to say. So now I think we received -- we did receive quality offers, which is different from when we tried a few a year ago or 1.5 years ago.

We have the next question from Andrew Moulder.

It's Andrew Moulder from CreditSights. Sorry, I just wanted to come back a little bit on the nuclear question. On the financing, I mean, it sounds like you're quite clear now that the model you're now considering is exactly the same model as you already had for the first reactor. And yet when I remember the previous conference calls you've held, you were -- well, I thought you were quite adamant in saying that you needed a different model if you would be developing more than one reactor. And I just wonder what's changed your mind to say that the model you had originally is now acceptable if you need to build -- I think you've talked about even up to 6 units. So could you just clarify what's changed in your thinking to make you now use the old model, which you said you couldn't use for more than one reactor? And my second question, sorry, also on the nuclear. It's just, I think I remember reading something on Bloomberg that Westinghouse was actually challenging the decision of using the Korean company to build the reactor because they said that actually it was a Westinghouse design and the Koreans didn't have permission to use it. So I'm just wondering if that's likely to delay the whole process and whether we might not even see a new nuclear unit yet for the next sort of 5 or 10 years? So could you just comment on that as well, please?

I think it's more about adjusting the model -- original model to 2 units, but definitely not be on 4. This would have to be a different negotiation. So just thinking to 2 units and -- basically I'm not thinking of -- there are many variations of the same result, but the results should be technically that state should provide full financing at 0% interest. Bear the risk that is always kind of connected with the power plant for all errors other than -- or mistakes other than ours where we would be liable for EUR 1.7 billion for both units, not just one and provide contract for difference. So this model is not changing. This is the same. Of course, it may have many kind of sub-variance maybe and we need to discuss it. So this is what was going on. But I don't expect that 1 unit will be financed like this and the other one in completely different way, both units would have to be very similar for the same actually, because this would be technically one project on the one construction side. And regarding claim of Westinghouse, Koreans are fully expressing their opinion that they have all the rights to build their reactors. They already did it actually in a few instances. The last one, I think, was United Emirates. So they declare they absolutely disagree with Westinghouse and it's kind of -- their assurance that they are providing whenever we touch this issue. Of course, there was a discussion about it. This deal would come in, so.

Okay. So you don't think that's going to delay the whole process? I mean, ultimately, if they can't reach some sort of agreement here, you could see this whole thing having to be retendered?

I think we are far from this. It's a more legal issue other than I think else. But I'm really not into detail a bit of the discussions between those two parties.

We have a follow-up question from Roland Vetter.

One follow-up also nuclear. What construction time do you have in mind? Or in other words, what yield do you think you have to first positive P&I contribution from the nonnuclear?

I think original plans are going for 2036 and '38 for those units. So that's kind of a time frame. And again, positive outcome will not be as positive as it was our fully-owned plant where we would receive entire EBITDA. If there is anything above contract for differences, they will be received by the state.

Okay. We have no further questions. So we can conclude our call, but as always, Investor Relations department is at your disposal with any other matters that come to your mind later. Thank you very much and goodbye.

Goodbye.

Bye-bye.