CEZ's Strategic Split: Windfall Tax Windfall and Regulated Carve-Out

H1 2026: EBITDA pressured by weak power prices, but net income rises as windfall tax expires and CEZ Energy takes shape.

CZAVF · Earnings Call · 2026-08-11

Power Price Pain, Tax Relief

CEZ reported a 20% drop in H1 EBITDA to CZK 59 billion, hit by low power prices, but net income rose 10% to CZK 18.1 billion because the windfall profit tax ended. As CFO Martin Novak explained: “we are no more paying windfall profit tax.” — Martin Novak, CFO · 2026-08-11 This fiscal tailwind allowed the company to raise both EBITDA and adjusted net income guidance for the full year. The underlying generation segment suffered a CZK 11.4 billion negative variance from power prices, but coal generation actually increased 5% year-on-year thanks to the Persian Gulf crisis lifting spot prices. The company also highlighted its Nuclear energy output at 15.3 TWh, exactly half the annual target, and now expects 3.6 TWh from renewables. The end of the windfall tax is a critical inflection; in the prior year, the tax had reduced net income by about CZK 17.6 billion. Now, with the tax gone, the company is keeping more of its earnings, and management used that headroom to lift the full-year EBITDA guidance by CZK 2 billion to CZK 109-114 billion and adjusted net income to CZK 31-35 billion. The company also noted that operating cash flow surged 55% year-on-year to CZK 26 billion, while CapEx rose 30%, reflecting continued investment in grid modernization and new generation. Net debt increased 9% to nearly CZK 200 billion, but with the strong cash flow and the potential stake sale in CEZ Energy, leverage is not a pressing concern.

The CEZ Energy Carve-Out

The most significant strategic move is the creation of CEZ Energy, a subsidiary that will house the regulated distribution and retail businesses. The company plans to transfer gas and electricity distribution, retail supply, trading, and distributed energy services, then potentially sell up to 49%. Pavel Cyrani, Head of Strategy, explained the rationale:

1 of the rationales for creating CEZ Energy was to basically open up for both, equity and bond investors that would normally not invest in a company that still operates coal power and/or operates nuclear.
Pavel Cyrani, Head of Strategy and Sales and Strategy · 2026-08-11

This mirrors a broader industry trend of separating regulated from merchant generation, as seen in other European utilities. The company also hinted at potential share buybacks but said that would require a separate mandate from the majority shareholder. Management highlighted that the transfer of assets into CEZ Energy is on track for completion by Q1 2027, with many transfers occurring in 2026. The debt capacity of the new entity will likely be similar to E.ON's, and the company will decide on the exact debt transfer and capital structure later. This split is designed to unlock value, as the regulated business will attract a different investor base than the parent, which still holds coal and nuclear generation.

Hedging and Trading

CEZ has hedged 76% of its 2027 power at an average price of EUR 88/MWh, leaving room to benefit from currently elevated German power prices near EUR 106. However, trading results were weak, driven by an intra-year revaluation of energy contracts. “most of the effect is the 1 off the kind of intra-year revaluation of energy contracts.” — Pavel Cyrani, Head of Strategy and Sales and Strategy · 2026-08-11 The company expects this to clear out by year-end and anticipates a return to normal trading levels. Meanwhile, distribution delivered strong growth: normalized EBITDA for electricity rose 15% on higher WACC and investments, and gas distribution grew 25% (18% ex-acquisitions). As Pavel noted: “The normalized EBITDA for electricity grew roughly 2 billion or 15% driven by investments and increased WACC.” — Pavel Cyrani, Head of Strategy and Sales and Strategy · 2026-08-11 This underlying power generation strength supports the case for a value-accretive split. The company's focus on distribution stability and regulated returns contrasts with the volatility of its merchant generation. The shift toward renewable energy and nuclear will likely be the core of CEZ Energy's identity, attracting ESG-minded investors who have avoided the parent due to coal exposure. The recent acquisition of Techem Solutions in Germany, with its 2,300 energy facilities, will further bolster the energy services arm, adding an asset-heavy footprint that complements the regulated distribution base.

Market Context and Risks

The Persian Gulf conflict and the resulting power price spike have been a double-edged sword: they lifted spot prices and allowed CEZ to run its coal plants more, but the company remains cautious about the long-term profitability of coal, expecting it to fade by the end of the decade. The hedging strategy locks in margins for 2027-2028, but the company is not fully covered, leaving upside if prices persist. On the regulatory side, management sees little risk of a reintroduction of the windfall tax, as profits are now far below the levels that triggered it. The European Commission's carbon market draft was also discussed, and while it may tighten industry benchmarks, management sees no significant impact on the energy sector. Overall, CEZ is navigating a period of volatile power prices and a major corporate restructuring. The removal of the windfall tax provides a near-term earnings boost, while the CEZ Energy carve-out promises a cleaner, more investable entity for the long term.