CEZ’s net income came it at CZK 14.1bn, which is less than 1% ahead of market expectations and 1% below our forecast. This was due to CEZ's higher interest payments and currency loss, in comparison to our forecast of a currency gain. Operating profit, which is more important, was in line with our expectations. Total revenues were helped by an increase in electricity sales revenues by 23% y/y to CZK 83.3bn, driven mainly by end user sales (+51.1% y/y) with the prevailing contribution of Bulgarian distribution companies. Electricity sales revenues grew on the back of higher electricity prices (+14.8% y/y), which offset lower electricity sales (-3.5% y/y); however, sales of directly exported electricity fell, part of export volumes shifted to sales to domestic traders.
Total operating expenses were up by 14.8% y/y, to CZK 67.0bn, due to purchases by Bulgarian distribution companies, higher purchases of electricity from producers outside the Group, and higher personnel expenses. The EBITDA margin rose slightly to 40.1%, from its previous 38.7%. CEZ increased its FY 2005 consolidated net income target by 0.6% to CZK 17.2bn, which is in line with our expectations. CEZ’s last acquisition, Electrica Oltenia, has not yet been consolidated. Given the operating performance being in line with our expectations, we keep our projections unchanged and reiterate a fair value of CZK 855, with a Buy recommendation.