ČEZ announces cost-cuts and lay-offs

The golden-era of the state-owned Czech power giant ČEZ appears to be over. With growing uncertainty on European energy markets and problems on the home front, the company is seeking ways to cut costs and optimize investments. According to the internet business news site ihned.cz the planned austerity measures will include layoffs and significant expenditure cuts at company headquarters.

Photo: Filip Jandourek

The power giant’s first quarter profits fell short of expectations and following a mild winter, which depressed demand for electricity and heat at the company’s peak earning periods, the prospects for 2014 look glum. ČEZ is expecting a drop in annual profits to 27.5 billion crowns, its worst result in eight years. Last year the company saw a profit margin of 35.2 billion.

ČEZ’s management is now revising its future expenditures and planning austerity measures to see the company though hard times. It is seeking to cut operating costs by 16 percent on average in the next two years. According to ihned this includes plans for lay-offs, though it is not yet clear how many jobs will be cut. Among the reasons cited for the austerity plans are the EU’s failure to clearly define long-term parameters for energy policy which have led to growing uncertainty on energy markets across Europe. The Czech energy giant is not alone in struggling to deal with a drop in energy prices and a fall in profits.

On the news that the Czech government would not guarantee the price of electricity produced at the Temelín nuclear power plant, ČEZ scrapped a tender for Temelín’s expansion by two nuclear reactors in April arguing that without a state guarantee the project would not be economically feasible. Moreover ČEZ’s management has come under pressure from Minister of Finance Andrej Babiš to pay out all its profits from last year as dividends, a move the company has so far resisted.

Shareholders’ high expectations and the deepening energy crisis on the European market, will impact ČEZ’s plans for the future, the company is quoted as saying in connection with the ongoing revision of planned expenditures. With operational expenditures expected to take a 16 percent cut, it is company headquarters which should feel the pinch most. Cost cuts there are expected to reach 21 percent. The company’s sales department is to take a 20 percent cut in funding. And cuts between 14 and 17 percent are expected in production, mining, distribution and the company’s foreign portfolio.