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CEZ heads for record profit in 2022 before windfall taxes hit

Czech electricity producer CEZ's logo is seen next to an electricity pylon in front of the Ledvice coal-fired power plant near the village of Ledvice

By Jason Hovet and Jan Lopatka

PRAGUE (Reuters) -CEZ lifted its full-year earnings outlook on Thursday, after the Czech utility posted a threefold rise in adjusted net profit in the third quarter on its way to record 2022 earnings and dividends as electricity prices soar.

The group, 70% owned by the Czech state, posted 18.7 billion crowns ($772.15 million) in quarterly adjusted net profit, topping a Reuters poll average estimate of 14.0 billion crowns.

CEZ profits have shot up this year as wholesale power prices jumped following Russia's invasion of Ukraine and a cut in Russian gas supplies to Europe.

CEZ forecast its 2022 adjusted net profit would rise to record levels, in a range of 65 billion to 75 billion crowns, as it books more income in commodity trading and higher realised electricity prices.

It was the third time the company has raised its 2022 outlook. CEZ said its forecast indicated a record dividend payout of up to 112 crowns per share using the top of the forecast range and the company's 60-80% payout ratio.

After nine months, CEZ's net profit has risen to 52.3 billion crowns, above a previous record profit of 51.9 billion crowns in 2009.

The Czech government, though, has sought to use windfall gains seen by companies like CEZ to help fund schemes to ease the burden of soaring energy bills for households and companies.

On Wednesday, the government approved caps on electricity producers' revenues that it will combine with an already-approved special tax on windfall energy profits from 2023 to raise budget revenues.

Chief Financial Officer Martin Novak said that while electricity prices CEZ locks in through contracts keep rising for 2023, the extra taxes would cut adjusted net profit next year and lower the dividend potential relative to a record 2022.

CEZ shares are down almost 30% since June, when they hit an almost 14-year high. After initially rising to a one-month high on Thursday, they reversed to trade down half a percent at 832 crowns at 1040 GMT.

For next year, the company has pre-sold 35.2 terawatt-hours (TWh) of its expected 2023 delivery of 47-48 TWh as of the end of September, with the average price at 108 euros per megawatt-hour (MWh), up from the 90.5 euros seen mid-year. Output for 2024 was pre-sold at 120 euros per MWh.

CEZ said it decided in August to discontinue hedging market risks of generation through contracts on energy exchanges and to take measures to reduce trading exposure on energy exchanges due to high margining requirements that have locked up billions of euros of liquidity.

Novak said CEZ was instead putting more focus on over-the-counter transactions, which require lower margining than exchange contracts.

($1 = 24.2180 Czech crowns)

(Reporting by Jason Hovet and Jan Lopatka; Editing by Simon Cameron-Mooore and Mark Potter)