CEZYY - CEZ a. s. (CEZYY) Q3 2022 Earnings Call Transcript
CEZ, a. s. (CEZYY)
Q3 2022 Earnings Conference Call
November 10, 2022 10:00 AM ET
Company Participants
Barbara Seidlova – Investor Relations
Martin Novak – Chief Financial Officer
Pavel Cyrani – Chief Sales and Strategy Officer
Conference Call Participants
Joe Miranda – REDD Intelligence
Piotr Dzieciolowski – Citi
David Richards – Private Investor
Wanda Serwinowska – Credit Suisse
Jan Raska – Fio
Petr Bartek – Erste Group
Presentation
Operator
Welcome to the CEZ Group Q1 to Q3 2022 Results. At our customers’ request, this conference will be recorded. [Operator Instructions] May I now hand you over to Barbara Seidlova, who will lead you through this conference. Please go ahead.
Barbara Seidlova
Hello, everyone, and welcome on our regular call. It’s my pleasure to welcome today’s speakers, Martin Novak, Chief Financial Officer; and Pavel Cyrani, Chief Sales and Strategy Officer.
I will now hand over to Martin to walk you through the first section of the presentation.
Martin Novak
Thank you. Good afternoon, good morning, everybody. So I’ll briefly go through first two sections and then hand over to Pavel. So on the first slide, you can see actually our financial highlights, both for Q3 and the first nine months of 2022. And it is worth mentioning that our EBITDA has grown year-on-year for first nine months by 88% to CZK89.3 billion, which is a record high ever in history of our company. I believe for first three quarters, same with net income of CZK52.3 billion for first nine months revenue CZK211 billion.
Financial outlook for full year is being increased by CZK10 billion, as you will see later in the presentation to a range of CZK115 billion to CZK125 billion for EBITDA and CZK65 billion to CZK75 billion on net income.
On the next slide, there is a chart showing the main variances. And main variances are fairly easy to describe at this time. Basically, vast majority of positive variance of CZK43.4 billion is coming from Generation segment. CZK36 billion is coming from higher power prices, meaning those prices of the product that we are selling throughout the year on mostly spot market or short products shorter than one year. At the beginning of 2022, we still had about 10% of unsold generation and this actually being sold at spot prices around €500 for a big part of the year is making such a significant increase in our sales and also, of course, EBITDA and net income.
Another record high result is coming from our trading activities. Prop trading has a – has generated almost CZK13 billion for the first nine months, which is almost CZK11 billion more than last year for the same period of nine months. Of course, our trading team was able to see the trends on the market, but also volatility on the market was helping the results as volatility is what trading – prop trading mainly needs more for the success.
On next slide, you can see actually the details going down to net income that I already described. Basically, all items are in line with what are the main key drivers and your – you can actually see the details of depreciation and interest income and all those line items in the tax bill. So important, our net income, CZK52.3 billion, up from CZK16.9 billion adjusted net income or even CZK6.7 billion net income for previous nine months of previous years.
We increased our financial outlook. As I said, that’s mainly due to extraordinary positive results for the first – for third quarter and for first nine months of the year. The main reason for increasing our outlook is mainly income from trading activities. As I said, it is CZK10 billion higher or CZK11 billion higher than last year. And this is very simply said basically the difference by which we increase our expectations so by CZK10 billion, both on EBITDA and net income.
Predicted or potential opportunities availability of generating facilities as always a possible revaluation of commodity derivatives for 2023. Movement in power prices, significant increase or decrease in spot prices. And that resulted actually into our estimated 2022 dividend that should be record high CZK97 to CZK112 per share or CZK52 billion to CZK60 billion dividend if we take into consideration 80% payout ratio. So again, a record high dividend. I think our record dividend was around CZK53 billion about 10 years ago.
As you know, there are plenty of developments and now on the front of solving high power prices in Europe in terms of national government and also EU. EU has implemented a framework and suggested to national governments to implement a few measures to make sure that significant increase in power prices do not have an extremely negative impact both on households, but also companies and the economy in general.
So basically, there is a revenue from a new cap on certain power resources. So being allowed by EU saying that it should be on a different level based on different source of power. In case of Czech Republic, the law proposal says that it should be – there should be a cap on nuclear plants of about €70 per megawatt hour into lignite plants on around €880 level basis – of €180 per megawatt hour. It is still not approved. It will go through parliament and then it needs to be – actually the levels need to be decided by the government that have an ability to change those levels. And it should be in place for 2023.
Exceptional tax or windfall profit tax could be levied on the rest of the profits according to EU and suggested minimum rate is 33%. Czech Republic is implementing 60% for three years, 2023, 2024 and 2025 with tax being first time paid as an install – an advance on tax will be paid for 2023, in September 2023 based on the best estimate of the company. Then there’s also consumption reduction target that has been suggested by EU.
On next slide, you can actually see how the market get for power generators will work, how special tax reward or win for profit tax? And then how it actually relates to cap on the power prices, which has been set for households and small and medium enterprises at CZK6 per – including the 80 per megawatt hour, which is something like equals basically to €180 and CZK3 or €90 for natural gas. So basically, producers will be taxed and they will be also kept and taxed and state was subsidized from the proceeds of the producers of the power prices that exceed the cap of CZK60 per megawatt hour on power. That’s – this is what I know.
Next slide, Slide number 9, is actually what I described for modeling purposes, if you look at it, basically, it really doesn’t matter whether you calculate it as a cap – when you try to calculate actually or your models, whether it is – there is a cap on power generation prices or the reserving for profit tax because it’s just a split between those two, the pool of money is the same. So for very, very simple reason, just to make it simple, you could take for 2023, 2024 and 2025 or something like 19% corporate income tax at 60% which is 79%. In reality, the tax rate will be – effective tax rate will be lower because it does not impact all our companies, but just the power generation.
And also it’s not based on pretax profit, but as a taxable income from tax return, which has increased by 20%. So the effective tax rate will be lower, but it will be close to 79%, maybe a few percentage points lower. And it really doesn’t matter whether it’s collected through the cap on the power prices or certain inflow takes.
Next slide, we actually respond to the situation on the market. And we have entered into – we have contracted LNG terminal. We bought 1% of capacity for a period of five years on the LNG terminal, which provides us for five years annual capacity of 3 billion cubic meters of gas every year, which is the consumption of Czech Republic of one-third of the Czech Republic for entire year. So significant capacity for the market. We already had a few cargos coming, and we have a back-to-back contracts, again, agreements with the Czech state, so we don’t bear risk of prices falling down, for example.
So that’s – because not many companies that don’t take us to see have contracted such a terminal in a such short time. Other selected events modernization fund has actually had a deadline of 31, October for applying for subsidies and we actually [indiscernible] will takedowns. We actually submitted 44 projects, total installed capacity, 1,012 megawatts. We do expect to see how much – how many projects actually want to support during first half of 2023.
We also accelerated projects of small modular reactors. We see small majority reactors equivalent to CCGT plants with safe delivery of fuel, which is much more predictable than the deliveries of gas these days. And this became actually – this has shifted in our priorities from some kind of interesting, thanks to that projects to something very real, and we would like to commission actually our first small modular reactor around 2032 on the side of Temelin, which is the new nuclear plant.
Dividend payment for 2021 started on November 1. So many of investors should have already dividend on their bank accounts. Strategic objectives of our company vision 2030, we often get asked or we are asked whether there is any significant change given the changes on the market, given the politics, given the caps on the power prices, our answer is that we basically don’t change anything. Taxes are viewed as a short term thing. And on the other hand, looking at it, the profits that we are facing even after taxation are pretty much in line with what we expected before the war.
So it’s not that our cash flow would be significantly lower or higher compared to pre-war times before a significant increase in gas prices. And even more, we can see importance of clean solutions like photovoltaic plants or investments into ESCO companies to make sure that independence on fossil fuels is even higher than – urgency of independence on fossil fuels is even higher than it was before.
Important slide, actually on margin costs, so I think our record high margin, mainly that very positive margin costs were on 26 August when we had CZK195 billion deposited on power exchange margins. This is almost our annual sales of entire group, which is a significant amount of money, something we could not mention in the past.
As of 31 October, CZK116 billion due to the fact that in the meantime, we again delivered another three months, basically or two months of deliveries of our 2022 power, so it does not need to be margins anymore. And there is also a significant increase of power prices now somewhere to €330 for 2023 based contract. So that’s below contract.
Our liquidity position is as strong as it has ever been, but you never know whether it might be needed in the future. So we keep the cash and credit lines available on a very high level. So as of October, we had CZK137 billion in cash and credit lines and another CZK116 billion deposited with the power exchange. So basically, in euro terms, we are sitting on a €10 billion cash buffer, which is something that is unprecedently high amount of cash compared to a year ago, for example.
We also successfully proceed on our ESG targets. You have a few rating agencies explanation to the ratings. The most important for us is MSCI is up-to-date numbers. We have significantly improved our rating from BBB to AA. We have moved from bottom 20% companies to 66 to 91 percentile. So top third of the company’s in ESG topics, same for S&P Global and other rating companies as well. So we are well on track with our targets.
So now this overall agenda – this overall general actual review and now a few words on Generation and Mining segment. Generation segment is the one that was – and Mining are actually those that contribute heavily basically entire difference in our EBITDA between 2021 and 2022 is driven by Generation segment. Details of Generation segment can be seen on Slide number 16, basically same is from nuclear renewable also coal plants, trading activities from CZK2 billion to almost CZK13 billion that I already commented. So all the reasons I already mentioned and more detail is actually on Slide 16.
Mining segment, the same. There’s a significant increase for coal, both from our power plants, but mainly from external market. So increase of EBITDA year-on-year 59%. Our nuclear generation and renewable generation is up by 1%, renewables down by 15%, mainly due to hydro situation in the Czech Republic last winter and nuclear is 3% up. We expect actually for full year nuclear to be flat, almost 31 terawatt hours and hydro being slightly 10% below 11% below half year due to hydro conditions.
Generation from coal and gas, 1% down on nine months and 2% down full year with lignite being the estimate to be flat, increase on our generation in Poland, decrease on our gas bond that is actually running only the power prices and gas and carbon grades allow it to run – so we had – we expect to generate 2.7 terawatt hours instead of 3.2 last year.
Initial targets are basically in line with our long term plans are slightly higher between 2021 and 2022 due to the fact that our power plants are running a bit more due to supplying – due to the need supplying electricity on the European market, other sulfur dioxide and nitrogen oxides are also shown below.
Important Slide 21 on hedging activities. You can see actually how much of our power is hedged 73% for 2023, 44% 2024 and 18% 2025. Average price is growing €108 million for 2023, €120 million and €126 million for the out years, same related to our position on carbon credits. So there, again, average achieved price of carbon grade is growing especially in the out years like 2025. That’s all for Generation Mining.
And now I’ll hand over to Pavel Cyrani, to guide you through distribution and sales.
Pavel Cyrani
Thank you, Martin. In terms of distribution sales, let me walk you quickly through the three quarter results in terms of distribution on Page 23. We see a flat development both in the third quarter and in the first three quarters. And we see a small drop in the actual volume of electricity distributed I’ll comment it on the next slide. What it is – offsetting some of the drop in the volume is higher revenue from activities to ensure new connections. So we see a big increase in new collections often related to people installing photovoltaic systems or heat pumps.
Now in terms of the volumes, there was a 4% drop year-on-year between 2021 and 2022. When you look at these numbers, it looks like that the number one reason for the drop of electricity distribution is the residential customers, the households. But if you look in a kind of longer period back, what you would find is that the household electricity distribution – distributed outstep households in 2022 is comparable or even higher than it was back in 2019. So before call it.
So what we actually then saw that during the COVID times 2020 and 2021, people stay home more, so we saw a pretty sharp increase in the electricity distributed in the segment, and now we see a normalization. If you would then look at the other segments, where you will see a drop between 2019 and 2022 would be the large customers. Here, it seems flat. But again, it’s compared to the COVID time. So what we are seeing is that now while the companies did start recovering from COVID, the increased cost of energy driven by the war in Ukraine is keeping the consumption for the large customers lower than we saw before COVID.
So that’s how these numbers compare. What do you do also see is that the temperature adjusted electricity consumption decrease is a little bit lower. It is driven by the fact that we are experiencing a very warm year, especially now with the third quarter, which is obviously keeping electricity consumption a little bit lower. It’s impacting gas more than electricity. So that’s for distribution.
If you look at the sales segment, there are two stories, although splitting in several lines. The story number one is that we see a decrease in EBITDA for the commodity supply. So I guess, and electricity, both in retail, where you see a CZK0.5 billion drop. And then also the B2B segment, the large industrial customers where you see a CZK0.6 billion drop. It’s driven by the fact that although we are updating our end user prices quite often. We still, especially at times of significant volatility, we didn’t keep in the speed of updating the price list.
So we – there was a pressure driven on our margins driven by the extreme increases in electricity prices, even though our open positions for the end user customers are always very small, the increases of tenfold sometimes of electricity prices had an impact on our margins. We obviously expect this to be temporary and kind of improve over time as we – also the wholesale prices stabilized and then we update the price list going forward.
Now in terms of the actual Energy Services, there’s a 59%, although smaller in terms of absolute numbers of CZK0.3 billion increase in German other countries, and there’s a pretty much flat development in Czech Slovakia for the first three quarters, and we are expecting this to turn into an increase for the full year. That is driven by the high demand for these services. Obviously, when you will see that the revenues grew even more, but some of the margins have been taken away by the shortage of supplies of some of the components, which obviously drives the price of these components up.
In terms of the supply volumes of electricity and gas which is Page 26, we see a 13% increase, just driven by the fact that the number of customers is increasing 15% year-on-year. The reason why it’s somewhat lower is the warmer temperatures.
Now the last slide is on the revenues from the sale of Energy Services. As I mentioned, we see a significant growth, again driven by the demand. As it is the case today, we are trying to keep up with the growth of demand, but sometimes we are short in some of those subcomponents, but we are solving this along the way. And we think that this dynamics and a significant increase in the demand of the central generation, gas-free had independent and so forth and so on, will stay with us going forward, and we will capitalize on our customers to supply these services.
The one number that I would like to explain is there’s a 55% increase in the revenue in Czech and Slovakia. That is beyond the demand growth that I mentioned, also driven by the fact that in these two markets, we also supply decentralized electricity and heat, which – where you see growth of the cost of fuels such as gas, and also the growth of prices of heat and electricity as an output. So this is what drives it beyond the year, say, the kind of 15%, 20% demand growth that we would normally see.
I think this is it. So the supply segment is this year under pressure. It will probably stay under some pressure also next year. But as you see the demand growth for the services and also our customer base growth. I think we will be well positioned for – to capitalize on this once the wholesale prices stabilize more standard levels.
Thank you and back to Barbara.
Barbara Seidlova
Yes. Operator, we’re now ready for questions.
Question-and-Answer Session
Operator
We will now begin our question-and-answer session. [Operator Instructions] Our first question comes from the line of Joe Miranda of REDD Intelligence. Please go ahead.
Joe Miranda
Hello. Thank you very much for taking the questions. I’d just like to ask what the company intends to do with regards to debt capital markets. I’m aware there is an upcoming maturity. And last year, it was planned to refinance as the invasion of Ukraine and the subsequent effect on markets made this impossible. Are you going to pay down the debt? Or is it still a plan to refinance? And also if you could speak more generally to your medium to long-term plans that would be great. Thank you.
Martin Novak
So we actually don’t plan to pay down the debt. The level is not that high in our case. But we now need liquidity for just in case scenarios due to margining – as any other power generation company. So – but on the other hand, we – our debt capacity is fairly significant. So we don’t see it as a burden. Yes, it’s not perfectly optimal to sit on such an amount of cash, but not having it in the right time is actually even more difficult. So that’s where we are. It does not impact – basically, we are not impacted on our CapEx plans going forward, for example, for renewables or – so acquisitions. So basically no change there.
Joe Miranda
Okay. Thank you very much.
Martin Novak
We are ready to pay the dividend for this year and next year, which will be a significant amount of cash as well as you could see. So everything is as usual.
Joe Miranda
So you refinance then, if I got that right?
Martin Novak
Will be refinancing, but I think our new refinancing is a real kind of the big bond, €700 million bonds are only due in 2024, 2025. So nothing, I think, next year really just a few billions Czech koruna.
Joe Miranda
Okay. Thank you very much.
Operator
Our next question comes from the line of Piotr Dzieciolowski of Citi. Please go ahead.
Piotr Dzieciolowski
Hi. Good afternoon. I have two questions really. So the first one, I wanted to understand that why did we move from kind of discussion in Czech Republic in summer of no windfall taxes and kind of price cuts at a certain level and a very minor risk to all of a sudden extreme opposite situation where you are 79% marginal tax rate plus caps and it’s like a brutal application of everything that could go wrong. What made the external environment changed so quickly and so drastically against you? And then secondly, what is the company response going to be to this new profitability level in the sense of the CapEx or OpEx or any other initiatives you could take to address the issue?
Pavel Cyrani
Look, I would say this is a question that should be right asked to ask but rather the Czech government who came up with the proposals. But if I look from a broader perspective, what we see today is that more and more countries are introducing these measures across Europe. And they have been discussing this even before they announced it publicly. So I think there is a general sense that in order to stabilize kind of the achieve kind of public support, social peace and so forth. These steps are necessary. And this is all I can tell you.
In terms of the – our kind of CapEx and OpEx plans, look, there are two parts to it. One is the government announced that all these measures are temporary. So we are looking at the next 13 months for the price caps and maximum three years for the windfall tax. So if you look at our kind of longer-term plans, we are not changing them. We still want to achieve all the targets in the renewables, indebting our distribution smart grids and eventually beyond 2030 also in our nuclear fleet in order to achieve our decarbonization goals. So we are keeping up with those.
Now my second point is if you look at our investment presentation, when we were calculating the health of our company and the ability to actually perform this plan, we had an outlook of electricity prices between CZK50 and CZK60 per megawatt hour. So although I’m obviously not happy about all these temporary measures such as price caps or windfall tax. It does not impact our long-term plan because we were planning those and we were balancing those with our net debt-to-EBITDA ratio at the times when prices were actually well below any of the caps that have been introduced.
Piotr Dzieciolowski
So as a quick follow-up. You said the maximum of three years for the windfall tax. It’s a chance that it would be shorter than three years or that approved for three years?
Pavel Cyrani
Look, I can only basically repeat some of the public comments that have been mentioned and that the windfall tax is introduced for three years, but there was a public comment that if the extraordinary situation goes away, then the extraordinary measures will no longer be needed. So – but again, there was no strong commitment, but this comment was made. So that’s why I’m saying maximum three years.
Piotr Dzieciolowski
Understood. Thank you.
Operator
Our next question comes from the line of David Richards, who is a Private Investor. Please go ahead.
David Richards
Good afternoon, gentlemen. Thank you very much for the presentation. Two questions really. Firstly, well, with regards to your transition to green sustainable energy. Do you have any further update regards to your Gigafactory plans. That’s the first part. The second part, obviously, you own 51% of GeoMet the lithium mine project? Are there any plans or any updates regarding those two specific exciting moves into lithium? Thank you.
Pavel Cyrani
Look, I’ll start with the later one in lithium. We are working hard on developing the projects, both in terms of engineering the mining process and the refining process, and I think we are progressing well there. We are also working on the permitting. There’s this work on the regional zoning plan has been launched by the region, and we are also in the process of obtaining the environmental impact assessment. So I think this is going well.
In terms of Gigafactory, we are preparing our site at Conesa for safe development. The Pronto plant – the old one, the so-called Pronto 1 is now being dismantled. So the field would be ready. At the same time, some of the discussions that we had with Skoda Auto, Volkswagen, I have not led to them using the site. They decided for a different side because of the size they need much more much bigger area. So we are now looking for other Gigafactory partners for this site. So the project is still on, although I don’t have any specific news to announce as of today.
David Richards
Okay. Thank you very much.
Operator
Our next question comes from the line of Wanda Serwinowska of Credit Suisse. Please go ahead.
Wanda Serwinowska
Hi. Good afternoon. Wanda Serwinowska of Credit Suisse. A few questions from me. The first one is on your comment on the revenue curve that you assume it will be only for one year. I would ask what makes you confident because if we look at what the Czech government has been doing, it has been pretty harsh. The EU was talking about the revenue cap up until end of June in the Czech Republic, if it’s already until the next end of next year. So what makes you confident that it won’t be extended into 2024? That’s my first question.
The second question is on the earnings contribution from the LNG terminal I know there are many, many moving parts, but can you give us some rough idea how – what’s the earnings contribution? I’m not asking for the number, just a range that we may expect in Q4 this year or next year?
And the last question is on the 2023 numbers. I know it’s too early to give any flavor on the guidance. But can you talk about the impact of very high inflation that we have seen this year? Because I would explain that at some point, it will bite EBITDA. So any comments would be much, much appreciated? Thanks a lot.
Pavel Cyrani
I’ll comment on the revenue cap and the terminal. Now as I said, when I was answering in the first question, this such question like for how long and how much and so – and why, it’s not really a question that we can properly answer because we were not the ones designing proposing putting this into the actual law. Why I’m saying this is that if you look at the proposals of the loss, the proposal of the losses three years for the windfall tax, with some of the public comments is that it may not be in place for the full three years, so it may not be in place with the same tax rate for the full three years, at least in kind of in general comments from the Ministry of Finance. But again, it may just I don’t know.
And with the revenue cap, again, it was put in place for 13 months – and again, with the general comment that all these things are temporary measures for unprecedented situation. And as such, they should not stay – at the same time, I cannot promise they will not say this is a question that you would need to revert to the Minister of Finance on both of these.
In terms of LNG terminal, look, at this moment, we are not able to give you any more specific guidance. What we can tell you is that at terminal will contribute to the – in general, put it in the one bundle of trading activities and LNG terminal trading on top of terminals will be one of them. And this has been factored in the updated outlook for this year. So it’s already included there. And I think we’ll comment it in more detail once we have the proper results for the full year in Q1 next year.
Martin, inflation impact on our EBITDA for next year?
Martin Novak
No, inflation EBITDA or inflation impact is in terms of what we see related to power prices, I would say, very marginal. First, we have long-term contracts with many suppliers. Second, our EBITDA and net income even after taxes will be as strong as it used to be in the past. So I wouldn’t see that there is something extremely significant that we are facing in inflation area.
Wanda Serwinowska
If I may, a few follow-ups. How about the labor cost? I mean the inflation across Europe is pretty high. We’re talking about high teens, 18%, 19%. So I can – I just can imagine that at some point, the workers will ask for pay rise. And the second question, I mean, another question, if I may. Why have you [Technical Difficulty] from the range from CZK5 billion to CZK10 billion. And do you have the clarity kind of on the revenue cap and on the revenue cut. So why did you widen it?
Martin Novak
We widen it because of the fact that there is – there are significant movements of power prices. There are big – there can be big gains in trading possibly. And there are also a revaluation of derivatives that related to 2023. So that there are so many moving parts that our range CZK10 billion. And we are very confident that we will be within this range, but we just feel that giving a narrower range could be riskier to make sure that we will actually mention will be actually getting into this range.
Operator
Our next question…
Martin Novak
You also asked about wages. Yes, wages will be growing clearly. I think our company compared to other wage – to other costs, it’s actually – it’s not a major part of our cost. I think total wages are something you would find it in the report, but I would think it will be about CZK10 billion. So even if it goes by CZK10 billion, it’s CZK1 billion also, again, when we look at the overall numbers, it’s not that significant.
Wanda Serwinowska
Okay. Thanks a lot.
Operator
Our next question comes from the line of Jan Raska of Fio. Please go ahead.
Jan Raska
[indiscernible]
Barbara Seidlova
Sorry, we cannot you.
Jan Raska
Maybe can you hear me?
Martin Novak
I’m afraid not.
Barbara Seidlova
But maybe if you can redial and ask later.
Jan Raska
Yes. Okay, okay.
Pavel Cyrani
We can hear you now. Could you just give your question now please, Jan?
Jan Raska
Yes. Can you hear me? Okay. Thanks. Again, windfall tax, it’s something during last weeks and months. Do you have any calculations in this way for the year 2023? Is it possible to communicate your estimates regarding the windfall tax or what payments do you expect in – for the year 2023? Thank you.
Martin Novak
Of course, windfall tax calculation is based on the profit that we would expect. We normally announce our guidance actually in March when we report – when we will report 2022 numbers. We also announced 2023 guidance that will also include actually effects of windfall profits tax, for simplicity, if you want to get a feeling, you can simply take our 2020 estimates and multiplied by 0.79 in terms – instead of where you can calculating FX and this will give you a range. So we would expect higher tens of billions Czech korunas for 2023.
Jan Raska
Higher tens of– okay. Sorry.
Barbara Seidlova
Obviously, it will depend how the revenue caps will be – what the impact of the revenue caps would be so…
Pavel Cyrani
Now taking together revenue caps and windfall profit tax is the same bunch of money at the end.
Jan Raska
Yes. So I understand. So your estimate is higher tens of billions Czech korunas caps in windfall tax.
Pavel Cyrani
Of course, yes.
Jan Raska
Okay. Thank you.
Operator
[Operator Instructions] And our next question comes from the line of Piotr Dzieciolowski of Citi. Please go ahead.
Piotr Dzieciolowski
Hi, everyone. I have one quick follow-up question. You said you accelerated your small reactor program. Can you say a little bit more like which technology and why you chose or you’re aiming to choose? And then any details on this would be welcome.
Pavel Cyrani
We haven’t chosen the technology yet. We have, as of today, seven technologies or seven cooperation agreements, MOUs with technology providers. And we are now in the process of analyzing all seven in order to shortlist and then eventually a big one for the first deployment in time. At the same time, in general, especially with the small module the higher number of extraneous just one technology company, and you can deploy more than one and still achieve enough synergies.
Piotr Dzieciolowski
And how much money you want to spend on this? And when would this one will be spent?
Pavel Cyrani
Look, we want to bring the first small reactor online around 2032. We are now working on it. Obviously, it was not part of the – of our CapEx plan until 2030 when we announced it. Actually, it did not include too much nuclear because the large reactors came only after 2030. So we will update the plan eventually, but it will not have – if you recall, we have announced a CZK500 billion investment plan by 2030, and it will not have a significant impact on this plan. But we don’t have the detailed numbers yet because we are still in the process of preparing the project, the first one in Temelin.
Piotr Dzieciolowski
Okay. Understood. Thank you very much.
Operator
Our next question comes from the line of [indiscernible] of Consilium. Please go ahead.
Unidentified Analyst
Good afternoon. Thank you for the questions. Two points. First, in the past, one of the division called Czech ESCO did not fully deliver on the expected numbers. Do you have any improved outlook or view or potentially any cost-cutting measures in place for ESCO, that’s the first. And second, regarding already several times mentioned windfall tax revenue, et cetera, they somehow did not seen or did not monitor or hurt any IR or PR activity or lobbing activity by the senior management? Was it somehow a capitulation – or was there any effort? Or are there any activities in line with the – I would say, like draconic measures because the European ones are obviously milder. Thank you.
Martin Novak
In terms of ESCO, as I mentioned, we are currently in – when you look at the revenue growth, you see kind of 15% – plus 15% to 20% revenue growth. In terms of the EBITDA growth, it is lower and is mostly driven by the cost of components that we put in our projects. So we are working on streamlining our supply chain. It’s not the fixed cost, but the rather cost of delivering the services. So we are rather pulling together and finding new kind of suppliers and cheaper suppliers for the components. So in terms of this, we are working on some cost cutting, if you will, or reducing our costs.
Also, Czech and Slovakia specifically has been impacted by the commodity growth, as I said. I mean, gas and electricity price growth, as I said, they supply the centralized heat and electricity and buy fuels for that. So again, with the – at the times of extreme volatility in these prices, there is some delay in factoring into the end products. So again, this will improve over time as early as next year already. So actually, we expect a pretty healthy growth also on the bottom line, not only the top line for ESCO next year.
Unidentified Analyst
Perfect. Thank you.
Pavel Cyrani
In terms of senior management response to – so the tax proposals, obviously, we are part of the working groups are discussing this. And – but on the other hand, the decision of the parliament. So I tried to explain to that.
Unidentified Analyst
I was more referring to the fact that the financials and the senior management of the publicly quoted financial institutions were somehow more active and from Czech I didn’t somehow seen anything.
Pavel Cyrani
No. I mean, not necessarily has to be active publicly. It can be active on the working groups and in the forums where it makes impact rather than putting into tabloid newspapers. That’s what it is. And this is all subject to revision of parliament. If parliament decided is what it is. We often have dispute state, especially on taxes, for example. But it’s always when there is a very tax law and we have a different point of view on how it should be applied, but it’s not really us to oppose and probably not many other companies to oppose what the parliament approves. We may disagree. We may be unhappy, but we have to follow it. And on the other hand, from investors’ point of view of you is, of course, a different story. And it’s – anybody can comment on it as much as they need to do that.
Unidentified Analyst
Thank you.
Operator
Our next question comes from the line of Petr Bartek of Erste Group. Please go ahead.
Petr Bartek
Good afternoon. Thank you for taking my questions. So first, if you could elaborate a little bit on the midterm outlook for CapEx for 2023, 2024 and 2025. So specifically for the period when you have this windfall taxes. If there are any large projects or how much you budget for maintenance CapEx? How much budget for the nuclear project as well? And related question is that before the hike for prices or increased prices in 2021 already, you had a payout ratio of 80% to 100% basically to sweeten shareholders returns in more difficult times, I would say. And then you have slashed to this payout ratio to 60% to 80%. So a natural question, if you come back to this 80% to 100% for the term of this special taxes? And also, if you could tell us whether we’ll continue will be projected the split of the company, if you still work on this, I would say, some more intensive way or anything about that. Thank you.
Pavel Cyrani
Okay. Let me quickly comment on the CapEx plan. In general, we expect to see some increase in the CapEx mainly driven by the fact that we should already see the first photovoltaic – large-scale photovoltaic projects being put in place that is driven by the fact that the modernization fund is starting to award the subsidies. As you know, we have received subsidy support in the first round. And now we have applied for the second round as well. We don’t have the results yet, but this will be the project that we want to put in place and that are supported by the subsidy. So that’s where we see the increase. We will continue also with the modernization of the distribution grid. And similarly, we will also work on improving the performance of our current nuclear, which is another significant part of our budget.
So we don’t expect other significant projects at this moment. Anything can arise, but we don’t expect anything at this moment or we do have anything in plans. The last bucket of projects that we had for our new strategy was the upgrade and modernization of centralized heating, and that is something that was supposed to come only later only after 2025. So we will then see how the situation evolves with gas and centralizing in general, we are working on the projects in terms of permitting and preparing the projects, but it will come on later.
So in general, what we have announced as part of the Vision 2030 clean energy for tomorrow holds. And year-on-year, what you should see more is the actual investment going into the new photovoltaics?
Martin Novak
Regarding dividend, we announced our payout ratio, I think, last year. And we also say at the same time that we see it closer to 80% rather than 60%. And so far, there is no change. Of course, shareholders can have a different point of view on a shareholder meeting. But our guidance on this will be, let’s say, 80% – and the 80%, the dividend for 2022 will be double of our ever high dividend, so up to CZK112 per share, as we said. Regarding transformation, this is not really a topic of this fall. I think now we have to digest all the changes in tax legislation and then look at the potential for transformation of the group that is to take for the future, but not of these days.
Petr Bartek
Thank you. And a follow-up question, I would rather think about the dividend threshold with the mix from the last year. So if your earnings are basically going to come back to previous levels or [indiscernible] so payout ratio would come back closer to previous levels.
Pavel Cyrani
I don’t – it’s difficult to say, usually, you can see a few years ahead, we update our payout policy or dividend policy minimum, once in a two years’ time sometimes three years, so it’s hard to say, depending on the power prices as well. But we also reduced it to 60% to 80% to have enough cash for CapEx. And if our earnings, let’s say, will be as they used to be in the past. So the windfall profit tax will keep us – will let us keep ordinary profit, then we would probably need also a little bit more cash for our projects. And that’s basically 60% to 80% was announced before any significant hikes in our power prices. So for now, we don’t expect any change. What will happen in a few years’ time, it is hard to say.
Petr Bartek
Thank you.
Operator
And there are no further questions at this time. Please go ahead, speakers.
Barbara Seidlova
Okay. So thank you, everyone, for taking part. If some additional questions pop up to your mind, just contact Investor Relations. Thank you, and have a nice rest of the day.
Operator
Thank you for your attendance. This call has been concluded. You may now disconnect.
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CEZ, a. s. (CEZYY) Q3 2022 Earnings Call Transcript