Cez As · PSECZ:CEZ
Cez As — Investor Presentation (February 2007)
104 slides from Cez As's investor presentation, February 2007
Slide 1: The Leader in Power Markets of Central and Southeastern Europe
CEZ GROUP THE LEADER IN POWER MARKETS OF CENTRAL AND SOUTHEASTERN EUROPE Equity story, February 2007
Slide 2: Disclaimer
DISCLAIMER Certain statements in the following presentation regarding CEZ’s business operations may constitute “forward looking statements.” Such forward-looking statements include, but are not limited to, those related to future earnings, growth and financial and operating performance. Forward-look
Slide 3: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 52 M&A expansion 63 Financial results 2006 70
Slide 4: CEZ Group stands apart from other utilities in Europe
CEZ GROUP STANDS APART FROM OTHER UTILITIES IN EUROPE The vision of CEZ is to be the leader in power markets in the Central and Southeastern Europe The largest Czech corporation and the largest corporation among 10 new EU member states The best performing European utility stock with growth at
Slide 5: CEZ Group offers some exceptional features to equity investors
CEZ GROUP OFFERS SOME EXCEPTIONAL FEATURES TO EQUITY INVESTORS Key features Rationale Strong financial performance EBITDA margin 40% (generation mix, growth potential) Dynamic profit growth expected Growing power prices and consumption, to continue efficiency improvements and synergies Ver
Slide 6: CEZ Group will continue to improve its performance faster than others
CEZ GROUP WILL CONTINUE TO IMPROVE ITS PERFORMANCE FASTER THAN OTHERS 2006 2007 and beyond Long term Wholesale price Wholesale price Stable fuel costs With current growth, stable fuel convergence, stable capital costs fuel costs Transformation Higher utilization savings of plants Savings
Slide 7: CEZ Group is an international utility with stable domestic position
CEZ GROUP IS AN INTERNATIONAL UTILITY WITH STABLE POSITION IN DOMESTIC MARKET AND GROWING PORTFOLIO IN CEE Asset positions CEZ Group in Poland Target markets (75% share in Skawina, 89% in Elcho) Trading office Electricity sales netto (TWh) 3.9 Market share 2.4%* Installed capacity (MW) 830 CEZ
Slide 8: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 52 M&A expansion 63 Financial results 2006 70
Slide 9: CEZ is a strong and vertically integrated player on the Czech market
CEZ IS A STRONG AND VERTICALLY INTEGRATED PLAYER ON THE CZECH ELECTRICITY MARKET Lignite mining* Generation Transmission Distribution Supply 5 out of 8 45% CEZ distribution 53.4% 22 million tons 73.5% companies 32 TWh 62.0 TWh 100% 62% of customers 62 TWh 55% Others 46.6% 27 million tons 26.5% 38% o
Slide 10: Vision of the CEZ Group
VISION OF THE CEZ GROUP IS TO BE THE LEADER IN POWER MARKETS IN CENTRAL AND SOUTHEASTERN EUROPE Business Integrated utility focused on power generation, distribution and supply focus Present in related businesses where relevant (coal mining, heat generation) Our vision Czech Republic Priority
Slide 11: New management team is determined to fulfill the mission
NEW MANAGEMENT TEAM IS DETERMINED TO FULFILL THE MISSION Management team of CEZ Group CEO HR Trade Finance Generation Distribution Operations Zdeněk Pasák Alan Svoboda Petr Vobořil Martin Roman Jiří Borovec Tomáš Pleskač Daniel Beneš Human Trading Treasury M&A Conventional Distribution
Slide 12: CEZ stock has significantly out-performed the Czech market and European utilities
CEZ STOCK HAS SIGNIFICANTLY OUT-PERFORMED THE CZECH MARKET AS WELL AS EUROPEAN UTILITIES Prices of shares and share indexes* Percent 650% CEZ 550% 450% Price on March 6, 2007 Price on Jan 1, 2004 CZK 866.2 350% CZK 146 PX 250% BBG EUR 150% Utilities Index 50% 2004 2005 2006 2007 CEZ shares are among
Slide 13: CEZ Group attracted many international shareholders
CEZ GROUP ATTRACTED MANY INTERNATIONAL SHAREHOLDERS Shareholders of CEZ, a. s. As of December 31, 2006 Types of funds investing in CEZ shares Increasing share Utilities Institutional shareholders Emerging markets (mostly international) Hedge 24.3% Examples of large foreign investors 67.6% Ba
Slide 14: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 52 M&A expansion 63 Financial results 2006 70
Slide 15: CEZ is among top European power utilities
CEZ IS AMONG TOP 10 EUROPEAN POWER UTILITIES Top 10 European power utilities Top 10 European power utilities Number of customers in Europe, million Market capitalization, USD bn, as of February 19, 2007 1 EdF 36.7 1 EDF 134.9 2 Enel 30.0 2 E.ON 96.6 3 E.ON 26.0 3 Enel 65.7 4 Endesa 23.0 4 Suez 63.9
Slide 16: Most profitable utility in Europe measured by EBITDA margin
… AND IS THE MOST PROFITABLE UTILITY IN EUROPE MEASURED BY EBITDA MARGIN EBITDA margin, 2005 Percent E.ON 17.7 RWE 19.9 PPC 21.1 ENEL 22.2 EdF 26.7 Endesa 28.8 Past performance: Iberdrola 30.7 2004: 37.5% 2003: 35.3% Vattenfall 32.9 CEZ Group 40.1 2006: 40.3 % Source: Annual reports, CEZ, Bloomberg
Slide 17: Main competitive advantage is domestic low cost generation fleet
THE MAIN COMPETITIVE ADVANTAGE OF CEZ GROUP IS DOMESTIC LOW COST GENERATION FLEET CEZ Group generation (2006) Annual production of CEZ Group in CR In CR Abroad TWh 12,302 62.0 Utilization MW TWh 2006 Completion of Temelin nuclear power plant Hydro (river 2.3 14% accumulation 2,000 MW 1,935 and pump
Slide 18: Long-term competitive advantage in generation costs
CEZ GROUP WILL MAINTAIN LONG-TERM COMPETITIVE ADVANTAGE IN GENERATION COSTS Sources of long-term competitive advantage: Conventional generation Long term framework agreement for lignite deliveries till 2050 for >90% of consumption Lignite Prices change only as fraction of electricity price and
Slide 19: CEZ Group maintains very high dynamics in profit growth
CEZ GROUP MAINTAINS VERY HIGH DYNAMICS IN PROFIT GROWTH Growth drivers in 2006 EBIT of CEZ Group EUR millions 15% wholesale price increase Savings in CO2 emissions Savings from restructuring (VIZE 2008) Compensation of unbundling costs Contribution from foreign acquisitions Growth drivers
Slide 20: Profitability is driven by generation and trading
CEZ GROUP PROFITABILITY IS DRIVEN BY GENERATION AND TRADING EBITDA contribution in 2005 and 2006 EUR m 2500 1,771 2000 -1 128 57 398 2005 1,189 1500 Generation and trading 1000 contribute more than 67% 22.5% 7.2% 3.2% <1% 2/3 to overall group EBIT 500 Foreign acquisitions 0 contribution more than
Slide 21: CEZ has significantly increased its dividends
CEZ HAS SIGNIFICANTLY INCREASED IT’S DIVIDENDS IN THE LAST YEARS Payout ratio Gross dividend per share % CZK 50% 20.0 New dividend policy 40.3% 41.3% 18.0 49.3% targets payout ratio 40% 16.0 in the range of 40% 14.0 to 50% of the 31.6% +67% consolidated profit 30% 12.0 +13% 10.0 20% 16.4% 8.0 15.0 1
Slide 22: CEZ maintains very strong credit rating
CEZ MAINTAINS VERY STRONG CREDIT RATING Credit rating of CEZ and Czech Republic CEZ A- Neutral Standard CEZ has high credit rating just & Poor’s below the country risk Czech A- Republic CEZ has been first rated company in former Eastern Europe Neutral (1994) CEZ has been first and one CEZ A2 o
Slide 23: Least indebted utility in Europe with strong borrowing capacity
CEZ GROUP IS THE LEAST INDEBTED UTILITY IN EUROPE WITH STRONG ADDITIONAL BORROWING CAPACITY Debt/ EBITDA Multiples, 2005 CEZ Group 0.8 E.ON 1.2 Vattenfall 1.8 Additional borrowing capacity by 2009: EnBW 2.3 ~ 4bn EUR RWE 2.6 Endesa 3.5 Iberdrola 3.8 Industry average 2.5x Additional borrowing capac
Slide 24: Large operating cash-flow in excess of investment needs
CEZ GROUP GENERATES LARGE OPERATING CASH-FLOW IN EXCESS OF INVESTMENT NEEDS Net cash provided by operating CZK billion activities 80 80 Other 2006 CZK 1.3 bn – IT – CEZ Data, sro 70 70 CZK 1.1 bn - other Mining 60 60 2006 CZK 2.0 bn –SD, a.s. 50 50 Distribution and sales - foreign 2006 40 40
Slide 25: Very strong free cash-flow to finance international growth
CEZ GROUP HAS VERY STRONG FREE CASH-FLOW THAT COMBINED WITH ADDITIONAL BORROWING CAPACITY CAN BE USED TO FINANCE INTERNATIONAL GROWTH UP TO EUR 6.0 BILLIONS Free cash flow of CEZ Group (cumulative) EUR million Free Cash for acquisitions ~ 4,000 6,000 Free Cash for acquisitions net of executed/commit
Slide 26: Analysts maintain positive view on CEZ Group performance
ANALYSTS MAINTAIN POSITIVE VIEW ON CEZ GROUP PERFORMANCE Target share price Utilities analysts CZK, ranked by date of issue Current share price CZK 858* 1170 1200 1049 1,075 1,086 1000 1,006 1030 1020 995 1002 1000 1,000 955 915 705 Morgan Citigroup Raiffeisen Erste Bank CAIB/HVB UBS Atlantik ING HS
Slide 27: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 52 M&A expansion 63 Financial results 2006 70
Slide 28: German power prices continue increasing
GERMAN POWER PRICES AS BENCHMARK FOR THE REGION CONTINUE INCREASING 1 year forward EEX Futures (baseload) EUR/MWh 2 years forward 60 50 40 30 20 1/2004 5/2004 9/2004 1/2005 6/2005 10/2005 2/2006 6/2006 11/2006 Source: EEX 27
Slide 29: German prices driven by oil prices, CO2 allowances and supply demand squeeze
GERMAN PRICES ARE DRIVEN BY GROWING OIL PRICES, CO2 ALLOWANCES AND SUPPLY DEMAND SQUEEZE Brent oil CO2 allowances USD / bl EUR/t 90 40 80 30 70 60 20 50 10 Start of EU ETS 40 30 0 1/2005 5/2005 9/2005 2/2006 6/2006 10/2006 1/2005 5/2005 9/2005 1/2006 5/2006 10/2006 2/2007 CO2 allowances were distr
Slide 30: Czech wholesale prices still among the lowest in the region
WHOLESALE PRICES IN THE CZECH REPUBLIC ARE STILL AMONG THE LOWEST IN THE REGION Wholesale power price* Rest of Europe 2007, baseload, EUR/MWh ~ 70.0 70.0 EEX Centrel ~ 52.0 52.0 44.0 ** ~ 44.0 Czech Slovakia Germany Austria UK Italy Republic * Comparing 2006 forward price as of 2005, assuming CZK/EU
Slide 31: Czech wholesale prices linked to increasing German prices
CZECH WHOLESALE PRICES ARE LINKED TO INCREASING GERMAN PRICES Wholesale power price (baseload) 2002 index EEX 2006 – 42.5 EUR/MWh EEX 2007 – 52 EUR/MWh 250 +34 % 225 - 17% 200 +20 % 175 Price in the Czech +20 % Republic will 150 continue increasing +19.5 % to German levels due 125 to shortening supp
Slide 32: Demand growth and decommissioning result in 8 TWh deficit
FAST DEMAND GROWTH ALONG WITH SIGNIFICANT POWER CAPACITY DECOMMISSIONING WILL RESULT IN 8 TWH DEFICIT THIS YEAR Yoy change of power balance in CR and SR TWh Temporary during retrofit Elimination of deficit of 2.2 >8 TWh (approx. 11% CR demand) possible only via 1.4 imports or 1.4 8.1 initiatio
Slide 33: CEZ will move most of its exports to Slovakia and Hungary
CEZ WILL MOVE MOST OF ITS EXPORTS TO SLOVAKIA AND HUNGARY Slovak import / export power balance 2.7 2.3 -2.2 2005 2006 2007 Germany Poland 60 / 40 3/0 Slovakia EUR 12.5** 30 / 55 CEZ´s power export structure in % EUR 0.13** Slovakia Germany Austria 90% 80% 7/5 Hungary 70% Slovakia 60% 50% 40% 30% 20%
Slide 34: Export capacity prices and supply demand development
EXPORT CAPACITIES PRICE SITUATION INDICATES THAT SUPPLY DEMAND DEVELOPMENT WILL EXCEED THE EXPECTATIONS – CAPACITY PRICE DECREASED FROM 12.5 EUR/MWH TO 5.0 EUR/MWH AND FELL TO 1-2 EUR IN MONTHLY AUCTIONS Czech and Slovak power market balance - updated TWh Higher demand growth in CR 125 Higher ex
Slide 35: Prices east of Czech Republic above Czech and German levels
PRICES EAST OF CZECH REPUBLIC ALREADY ABOVE CZECH AND GERMAN LEVELS 2007 baseload price €/MWh 60 55 DE 50 EEX October November December 2006 Slovak prices higher by cross ČR border capacity charge. EEX SK EEX + 3 €/MWh HU High prices in Hungary EEX + 5-10 €/MWh and in the Balkans reflect Prices in G
Slide 36: Short term market impacted by warm weather and low CO2 price
CURRENT DEVELOPMENT OF THE SHORT TERM MARKET IS IMPACTED BY WARM WEATHER AND LOW PRICE OF CO2 (2007) Prices in the short term market are low It can be expected that if current 2008 prices in Central Europe range January was 6.1ºC above normalized trends continue hydro generation will around 52 €/M
Slide 37: CEZ can generate additional 6 TWh by increasing plant utilization
CEZ CAN GENERATE ADDITIONAL ~ 6 TWh BY INCREASING UTILIZATION OF MAINLY COAL PLANTS Current utilization Ancillary services Utilization of generation capacity Percent of hours p.a. Reserve for higher utilization Nuclear 77 3 0.5 Lignite 69 3 12 1.8* (at mine) Additional ~ 6 TWh Lignite 50 11 13 1.9 +
Slide 38: Generation volume reached historical high of 62 TWh in 2006
GENERATION VOLUME OF CEZ IN THE CZECH REPUBLIC REACHED HISTORICAL HIGH OF 62 TWh IN 2006 Generation of CEZ, a. s. (brutto) (TWh) Domestic demand increased by 70 59.5 +4.3 % 62.0 2.9 % (3.1 % on temperature 2.3 adjusted basis) 60 +13.7 % 2.0 50 Nuclear power plants increased 26.0 24.7 +5.3 % gene
Slide 39: Expect to exceed record generation volume in 2007
THIS YEAR WE EXPECT TO EXCEED RECORD HIGH VOLUME IN 2006 IN THE CZECH REPUBLIC AND BENEFIT FROM SUPPLY DEMAND DEVELOPMENT IN THE REGION VIA VOLUME INCREASE AS WELL CEZ, a. s. generation volume (brutto) (TWh) 63.9 70 Record volume achieved +3.1 % 1.3 despite: 1.0 1.6 2.3 60 2.0 Temporary 50 26.1 de
Slide 40: CEZ power auctions expanded offer for suppliers
CEZ POWER AUCTIONS EXPANDED OFFER FOR SUPPLIERS TO END CUSTOMER IN THE CZECH REPUBLIC, SALES ON ENERGY EXCHANGE TO DOMINATE IN 2008 Expected saturation of Czech demand in 2007 2008 sales – further strengthening of market principles – besides auctions by independent (TWh) auction office there will
Slide 41: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 52 M&A expansion 63 Financial results 2006 70
Slide 42: Four key strategic initiatives to achieve its vision
CEZ GROUP HAS LAUNCHED FOUR KEY STRATEGIC INITIATIVES TO ACHIEVE IT’S VISION TO BE THE LEADER IN POWER MARKETS IN CENTRAL AND SOUTHEASTERN EUROPE 1. 2. 3. Integration and Plant M&A operational portfolio expansion excellence development (2004-08) (2007-20) (2004-10) 4. Performance-oriented culture So
Slide 43: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 52 M&A expansion 63 Financial results 2006 70
Slide 44: CEZ unbundled distribution and supply one year ahead of legal requirement
CEZ UNBUNDLED DISTRIBUTION AND SUPPLY ONE YEAR AHEAD OF LEGAL REQUIREMENT… CEZ CEZ Group Generation Project Generation Wholesale trading Vision 2008 Wholesale trading Sales Distribution company 5 CEZ Prodej CEZ Distribuce Distribution company 4 Sales Distribution Distribution company 3
Slide 45: EUR 100 million annual savings upon implementation of Vision 2008
…AND WILL ACHIEVE EUR 100 MILLIONS IN ANNUAL SAVINGS UPON IMPLEMENTATION OF VISION 2008 Gross annual costs saving Total annual costs savings EUR million, compared to 2003 related to Vision 2008 project are to reach CZK 2.9 bn by 2008, i.e., ~10% of operating costs in supply and distribution segment
Slide 46: Vision 2008 project covers four years
VISION 2008 PROJECT COVERS FOUR YEARS, KEY TRANSFORMATION STEPS HAVE BEEN IMPLEMENTED ALREADY Initial status CEZ VISION VISION 2008 time plan 2008 3 3 3 REDC 1 2006 2004 2005 2007 Efficiency Big bang Transformation Conclusion enhancement business model major part of transformation full produ
Slide 47: Regulatory environment in the Czech Republic is fair and transparent
REGULATORY ENVIRONMENT IN THE CZECH REPUBLIC IS FAIR AND TRANSPARENT 2002-04 2005-09 1st regulatory period 2nd regulatory period Introduction of RPI-X Regulation parameters regulation reassessed for distribution Starting values after unbundling (WACC, of regulation parameters RAB, allowed cost
Slide 48: Continues increasing sales margin while protecting market share
CEZ GROUP CONTINUES INCREASING SALES MARGIN WHILE PROTECTING MARKET SHARE Domestic wholesale baseload Distribution regions of CEZ Group CZK/MWh + 19.5% + 11.4% + 14.9% 1,041 1,244 813 906 Děčín Hradec Králové 2004 2005 2006 2007 Praha Market share in power supply Ostrava Plze Percent of MWh ň Brno 5
Slide 49: Lost market share in the most competitive segment
CEZ IS SUBJECT OF MARKET FORCES – LOST MARKET SHARE IN THE MOST COMPETETIVE SEGMENT WITH LOWEST MARGINS Development of domestic end customer market share % Large and 51.0 49.8 44.8 - 12.2% medium sized companies Small 62.8 62.2 62.7 + 0.8% companies and households Total 57.0 56.2 53.4 - 6.3% 2004 20
Slide 50: Sales strategy focused on maximizing wholesale margin
CEZ SALES STRATEGY IS FOCUSED ON MAXIMIZING WHOLESALE MARGIN GIVEN THE AVAILABLE SALES OPTIONS Split of wholesale margin by sales options Annual production of CEZ Group TWh ILLUSTRATIVE 61.4 62.1 60.0 62.4 54.1 2 % Ancillary 50.8 52.2 services CO2 Allowances Base Load Peak Load Power Power 2000 2001
Slide 51: Earning additional margin from saving CO2 allowances
CEZ IS EARNING ADDITIONAL MARGIN FROM SAVING CO2 ALLOWANCES CO2 Emissions Key measures taken Mil. Tons Priority dispatch of units with low Trading CO2 emissions Reduction of export Plant Increased availability of nuclear maintenance plants Increased focus on plant efficiency 36.9 32.8 34.3
Slide 52: Low CO2 allowances price in NAP I
LOW CO2 ALLOWANCES PRICE IN NAP I CAN’T NEGATIVELY INFLUENCE THE GROUP RESULTS – WITH REGARDS TO ADDITIONAL OUTAGE OF TEMELIN AND SUBSTITUTION FROM COAL POWER PLANTS IS THE PRICE DECREASE POSITIVE Cumulative sale of CO2 EUR/t 30 Price shock after 2005 consumption 2008 prices depend on published NA
Slide 53: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 52 M&A expansion 63 Financial results 2006 70
Slide 54: CEZ operates the only clean generation fleet in CEE
CEZ OPERATES THE ONLY CLEAN GENERATION FLEET IN CEE Generation structure of CEZ Group CEZ Group emission change 2005/1993 TWh Percent 60 100% 1993 level Hydro power plants 50 80% -52% 40 Nuclear power plants 60% -79% 30 -95% -92% Desulphurized coal power plants 40% 20 10 20% Coal power plants 2005 l
Slide 55: Reduce generation repairs and maintenance costs by 25% by 2009
CEZ WILL REDUCE GENERATION REPAIRS AND MAINTENANCE COSTS BY 25% BY 2009 CEZ targets to reduce average repairs Key tasks to achieve target and maintenance cost Introduction of adaptive R&M to reduce EUR m workload by 50% - 25% Centralization of preparation R&M to save 20% personnel costs 140 Ce
Slide 56: Nuclear capacity will increase by 9.5% by 2012
NUCLEAR CAPACITY WILL INCREASE BY 9.5% BY 2012 IN DUKOVANY AND IN TEMELIN BY 4% BY 2008 Temelin capacity increase Dukovany capacity increase MW MW 2,100 1,950 + up to 86 1,924 + 79 2,041 2,000 1,850 + 17 1,962 + 61 + 4% 1,760 1,900 1,750 1,800 1,650 + 9.5 % Current HP* parts Target Current HP* LP* I
Slide 57: Reduction of refueling outages in nuclear plants
REDUCTION OF REFUELING OUTAGES IN NUCLEAR PLANTS WILL PROVIDE ADDITIONAL 2.3 TWh Generation DAYS Refuelling Other outages Temelin 2004 286 51 28 Additional 21 days + 39 days of generation in Temelin and 12 days 2009 325 30 10 in Dukovany by 2009 as a result of refueling 2004 326 32 7 outages reduc
Slide 58: Portion of CEZ power plants is nearing end of lifetime
PORTION OF CEZ POWER PLANTS IS NEARING THE END OF ITS LIFETIME Age structure of CEZ thermal blocks MW Portion of CEZ thermal capacity 3,000 2,800 approaches end of its life time in 2010-20 2,500 Desulphurization equipment to reach end of its lifetime in 2015 2,000 -2020 1,550 1,512 The emissio
Slide 59: Future plant fleet built around modern lignite plants
CEZ INTENDS TO BUILD ITS FUTURE PLANT FLEET MAINLY AROUND MODERN TECHNOLOGY LIGNITE PLANTS Coal Nuclear Gas Renewables Environ- Acceptable emissions No emissions Low emissions Limited/no emissions mental if modern technology Nuclear risk No resources impact adopted depletion Competitive
Slide 60: Expected development of brown coal installed capacities
EXPECTED DEVELOPMENT OF ČEZ‘S BROWN COAL INSTALLED CAPACITIES Installed capacity MW Removal of mining limits Current mining limits 7,000 Retrofits Existing plants 6,000 CEZ can only 5,000 maintain existing capacity till 2035 4,000 Other fuels considered to 3,000 grow capacity 2,000 Existing plan
Slide 61: Capex for lignite plants renewal will reach CZK 140 bn
CAPEX FOR LIGNITE PLANTS RENEWAL WILL REACH CZK 140 BN AND BRING 14-25% EFFICIENCY UPLIFT Projects overview Expected CAPEX – conservative scenario Highly efficient and CZK bn environmentally friendly 2008-14: Main Assets Highly profitable Renewal Period Secured fuel – low risk 25 Retrofits 20
Slide 62: CEZ already launched first generation renewal projects
CEZ ALREADY LAUNCHED FIRST GENERATION RENEWAL PROJECTS 2005 2010 2015 2020 Signed contract with general supplier SKODA PRAHA Invest for a complex PP renewal ETU (4x200 MW, refurbishment) Construction starts in 2007 for 1st 2 units, in 2009 for 2nd 2units Commissioning planned for end of 2008,
Slide 63: Higher efficiency decreases coal consumption, fuel costs and CO2
DUE TO HIGHER EFFICIENCY THE COAL CONSUMPTION WILL DECREASE THUS SAVING FUEL COSTS AND CO2 EMISSIONS Comparison of old and new lignite units CO2 tons/MWh Coal burnt GJ / MWh 10 8 1.00 0.80 old units new units Efficiency 36% 45% Source: CEZ 62
Slide 64: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 52 M&A expansion 63 Financial results 2006 70
Slide 65: CEZ Group wants to grow in generation and distribution/supply
CEZ GROUP WANTS TO GROW BOTH IN GENERATION AND DISTRIBUTION/SUPPLY Realized acquisitions Realized acquisitions Bulgaria Bulgaria (distribution) – 1.9 million cust. (distribution) – 1.9 million cust. Romania Romania (distribution) – 1.4 million cust. (distribution) – 1.4 million Central Europe
Slide 66: Best positioned to succeed in Central and Southeastern Europe
CEZ GROUP IS BEST POSITIONED TO SUCCEED IN THE REGION OF CENTRAL AND SOUTHEASTERN EUROPE Focus on one region Intimate knowledge of the region Very well accepted due to close cultural/historical ties and electricity industry transformation experience First-hand experience with transformation
Slide 67: Prudent in M&A decisions
EVEN THOUGH CEZ GROUP HAS AMBITIOUS EXPANSION PLANS, IT IS VERY PRUDENT IN ITS M&A DECISIONS Key criteria for M&A decisions M&A process Target attractive on standalone Always along a global advisor basis (market position, asset with target country ties quality) Valuation prepared by advisor
Slide 68: Despite increased competition CEZ is not willing to overpay for assets
DESPITE INCREASED COMPETITION CEZ IS NOT WILLING TO PRICE ASSETS AT LEVELS IT CANNOT JUSTIFY Slovakia Poland Æ ENEL finished acquisition of SE Æ Elcho (238MW) and Skawina (592 MW) Æ waiting for further development settled in the end of May 2006 in Teplarna Kosice (121 MW) Æ still pursuing PAK (2,338
Slide 69: Greenfield/brownfield projects in Serbia, Kosovo and Republika Srpska
CEZ IS LOOKING AT SEVERAL PROMISING GREENFIELD/BROWNFIELD PROJECTS IN SERBIA, KOSOVO AND REPUBLIKA SRPSKA Slovenia Rep. Srpska Serbia (in Bosnia and Hercegovina) Æ Monitoring potential cooperation with Æ interested in finishing Kolubara B Æ JV with EPRS for Gacko project set HSE project up Æ if govt
Slide 70: Very good performance of foreign acquisitions in 2006
VERY GOOD PERFORMANCE OF FOREIGN ACQUISITIONS IN 2006, EXPECTING CHALLENGING 2007 Bulgaria - distribution Bulgaria - Varna* Romania* Poland* 2500 2500 2500 2500 +28 % 2,019 +142 % 1,940 2000 2000 2000 2000 1,576 1,395 1500 1500 1500 1500 803 EBITDA 1000 1000 1000 1000 564** (CZK m) 500 500 283 500 2
Slide 71: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 52 M&A expansion 63 Financial results 2006 70
Slide 72: Main results for 2006 and 2007 guidance
MAIN RESULTS FOR 2006 AND 2007 GUIDANCE EBITDA increased y-o-y by 28 % to CZK 64.3 bn, increase by CZK 14.2 bn EBIT increased y-o-y by 36 % to CZK 40.1 bn (by CZK 10.7 bn) Net Income increased y-o-y by 29 % to CZK 28.8 bn (by CZK 6.5 bn) ROE increased y-o-y from 12.3 % to 14.9 %. CEZ share
Slide 73: Biggest value for shareholders out of all companies at BCPP
CEZ GROUP CREATES THE BIGGEST VALUE FOR ITS SHAREHOLDERS OUT OF ALL COMPANIES AT BCPP Y-o-y development of EVA (Economic Value Added) CZK bn 12 10.2 In the scale The 2005 EVATM 10 Ranking Czech Republic (agency ČEKIA) CEZ placed 8 6 5.0 1st out of all companies traded at BCPP 4 2nd out of all compan
Slide 74: Net income grew y-o-y by CZK 6.5 bn
NET INCOME GREW Y-O-Y BY CZK 6.5 BN – I.E. BY 29 % CZK bn 45 2.0 2.2 2.0 2.2 16.3 16.3 Main improvements 40 2.6 2.6 17.9 17.9 Higher demand in 35 3.7 the Czech 3.6 3.6 Republic and 30 0.3 0.3 3.9 generation from 3.9 own sources 25 Operating costs 20 28.8 28.8 control 15 ++ CZK CZK 6.5 6.5bn bn
Slide 75: Operating costs under control
CEZ GROUP MANAGES TO KEEP ITS OPERATING COSTS UNDER CONTROL 2006 Index Change Index 06/05 (CZK bn) 2005 2006 comparable comparable 06-05 06/05 entity entity SUM of selected operating costs -29.5 -33.2 -3.7 112% -30.8 104% Salaries and wages -13.4 -15.1 -1.7 112% -14.2 106% Repairs and maintenance -4
Slide 76: Financial expenses and income increased
FINANCIAL EXPENSES AND INCOME INCREASED Y-O-Y BY CZK 0.3 BN 2006 Index Change Index 06/05 (CZK bn) 2005 2006 comparable comparable 06-05 06/05 entity entity Other expenses and income -2.1 -2.4 -0.3 112% -2.2 107% Interest on debt -1.8 -2.2 -0.4 124% -1.8 99% Interest on nuclear and other provisions
Slide 77: Contribution of foreign acquisitions more than doubled
CONTRIBUTION OF FOREIGN ACQUISITIONS TO CEZ GROUP´S PROFITABILITY HAS MORE THAN DOUBLED COMPARED TO LAST YEAR EBITDA CZK bn 70 64.3 65 50.1 In 2006 CEZ Group continued in 4.7 integration of Bulgarian and 60 Romanian distribution companies 55 2.4x Abroad Newly acquired power plants ELCHO and Skaw
Slide 78: 2006 EBITDA CZK 64.3 bn, updated 2007 guidance CZK 70.9 bn
IN 2006 EBITDA REACHED CZK 64.3 BN, UPDATED 2007 EBITDA GUIDANCE AMOUNTS TO CZK 70.9 BN Main financial results CZK bn 80 + 10 % 70.9 70 + 28 % 64.3 60 50.1 50 EBITDA 40 30 20 10 0 thanks to reliable 2005 2006 2007E operations of 60 + 21 % nuclear power 48.5 50 + 36 % 40.1 plant Temelin we 40 29.4 ar
Slide 79: 2007 net income guidance increased by CZK 1.1 bn
2007 NET INCOME GUIDANCE INCREASED BY CZK 1.1 BN COMPARED TO LAST DECEMBER ON THE BACK OF RELIABLE OPERATIONS OF TEMELIN IN DECEMBER AND JANUARY CZK bn 40 Net Income guidance increased thanks to lower 35 expected failure rate (due 30 to stable operation in December and January) 25 34.0 35.1 and rela
Slide 80: Generation and trading remains strongest segment
GENERATION AND TRADING REMAINS THE STRONGEST SEGMENT, BUT DISTRIBUTION AND SALES SAW A NOTABLE GROWTH AS WELL Contribution to EBITDA in 2006 CZK bn 70 2.8 4.4 13.4 60 50 64.3 43.8 40 30 20 10 0 Generation Distribution Mining Others** CEZ Group and trading and sales Index 2006/2005: 130 % 120 % 121 %
Slide 81: Results of main CEZ Group companies in the Czech Republic
RESULTS OF THE MAIN CEZ GROUP COMPANIES IN THE CZECH REPUBLIC ČEZ, a. s. ČEZ Prodej, s.r.o. ČEZ Distribuce, a. s. Severočeské doly a.s. 50000 7000 +29 % 43,023 6,621 45000 7000 7000 6000 +21 % 40000 35000 33,379 6000 6000 5000 4,365 3,607 5000 5000 30000 4000 25000 4000 4000 EBITDA 3000 20000 3000 3
Slide 82: Balance sheet
BALANCE SHEET Increase mainly by CZK 5.6 bn increase of liabilities from income tax CZK 2.4 bn increase of reserve for greenhouse Increase mainly by emissions (burnt CO2 allowances in Poland and CZK 13.2 bn bank accounts lack of CO2 allowances of ČEZ, a. s.) Assets and cash equivalents – Equit
Slide 83: Operating cash flow
OPERATING CASH FLOW CZKKč mld. bn others 80 Y-o-y index: interest paid + 43 % 70 income taxes paid 60 Key impacts on FX loss/gain, net operating cash flow 50 increase interest expense, interest income In CZK bn and dividends income 40 + 14.8 EBIT adjusted for amortization of nuclear fuel non cash it
Slide 84: Indebtedness decreased y-o-y
INDEBTEDNESS DECREASED Y-O-Y DUE TO STRONG CASH FLOW FROM OPERATING ACTIVITIES % 50 45 Total indebtedness was 40 43.8 influenced mainly by the 35 issue of 4th Eurobond issue in the volume of EUR 500 m 30 and repayment of the 2nd 25 27.2 Eurobond issue in the volume 20 of EUR 200 m 15 Increase of
Slide 85: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 52 M&A expansion 63 Financial results 2006 70
Slide 86: CEZ is a key player in all segments of the Czech electricity market
CEZ IS A KEY PLAYER IN ALL SEGMENTS OF THE LIBERALIZED CZECH ELECTRICITY MARKET Czech electricity market in 2005 TWh Free market Regulated market Free market End customer market – Foreign trade Net production Wholesale Grid losses consumption 13.4* CEZ 54.0 (73%) 40.6 33.7 Gross 60.0 (73%) CEZ CEZ’s
Slide 87: Prices in the region came closer last year
PRICES IN THE REGION CAME CLOSER LAST YEAR DUE TO DECREASE OF AVAILABLE CAPACITY AND DEMAND GROWTH 2007 base load as of 10-12/2006 Key factors: 2006 – 47.5 €/MWh 2007 – 57 to 51 €/MWh Decommissioning of Jaslovske Bohunice (Slovakia) Decommissioning of Kozloduj (Bulgaria) No annual exports (Pol
Slide 88: Power consumption grows in line with GDP
DESPITE INCREASING POWER PRICES POWER CONSUMPTION GROWS IN LINE WITH GDP Development of Czech GDP and power consumption GDP % Power Consumption 130% 128.2% 125% 120% 121.0% 115% 115.5% 112.0% 110.6% 110% 110.3% 107.5% 108.1% 104.2% 103.4% 105% 102.2% 103.4% 103.1% 105.0% 103.8% 100.3% 102.7% 101.9%
Slide 89: Principles of regulation in CR identical to rest of Europe
PRINCIPLES OF REGULATION IN CR ARE IDENTICAL TO THE REST OF EUROPE Indexed to a mixture of PPI (65% weight) and wage change index (35%) Adjusted for efficiency factor x (2.085%) Revenue Cap Includes all operating costs expanded in Set by the relation to distribution plus compensation regulat
Slide 90: New EU energy policy – proposal of new measures (1/2)
NEW EU ENERGY POLICY – PROPOSAL OF NEW MEASURES (1/2) Proposals of the Commission Position of CEZ Group Ownership unbundling of transmission Effective application of existing laws and distribution or instituting sufficient, support of independent system Independent System Operator operators Co
Slide 91: New EU energy policy – proposal of new measures (2/2)
NEW EU ENERGY POLICY – PROPOSAL OF NEW MEASURES (2/2) Priority interconnection plan Necessity of new investments into infrastructures and connectivity of EU market European Customer Charter Improve availability of information for customers Correspondent network for questions Security of
Slide 92: Nuclear provisions IFRS statements in line with IAS 37
NUCLEAR PROVISIONS IFRS STATEMENTS ARE FULLY IN LINE WITH IAS 37 CZK 78.9 bn Discounted by 2.5% Interim storage real discount rate 7.4 of spent fuel Temelín 13.7 decommissioning Dukovany CZK 35.9 bn 15.6 decommissioning as stated in BS at December 31, 2005 Annual increase by 4.5% (discount rate 2.5%
Slide 93: First significant savings within Vision 2008 achieved in procurement
FIRST SIGNIFICANT SAVINGS WITHIN VISION 2008 PROJECT WERE ACHIEVED FOR EXAMPLE IN PROCUREMENT new old Examples of procurement savings costs costs metering equipment - 49 % mobile phone services - 63 % mercantile press - 50 % thermal power plants insurance - 43 % high voltage switches and d
Slide 94: CEZ expects same CO2 allocations as under NAP I
CEZ EXPECTS SAME ALLOCATIONS OF CO2 ALLOWANCES FOR NEXT PERIOD AS UNDER NAP I EU first phase allocation – EU second phase allocation – surplus/deficit guidelines guidelines 2005, mil. tons CO2 Member states already meeting -39 Power Kyoto targets (such as CR) may keep NAP II ceiling at NAP I level
Slide 95: Acquired foreign companies at favourable price
CEZ ACQUIRED FOREIGN COMPANIES AT MUCH MORE FAVOURABLE PRICE THAN OTHER COMPETITORS Price per customer in privatizations of CEE power distribution companies EUR/customer 1,212 1200 1000 800 707 600 515 483 2006 2004 2005 400 270 222 230 243 217 200 Slovakia 2002 Bulgaria 2005 Romania 0 RWE EdF E.ON
Slide 96: Elcho is a brand new power plant commissioned in 2003
ELCHO IS A BRAND NEW POWER PLANT COMMISSIONED IN 2003 Elektrocieplownia Elcho Sp. z o. o. Brand new power plant commissioned Basic figures in 2003 million EUR* 2004 2005 Meets all environmental limits including those in place since 2008 Revenues 89.3 88.4 Revenues from electricity sales make E
Slide 97: Skawina is an upgraded plant with exposure to open market
SKAWINA IS AN UPGRADED PLANT WITH EXPOSURE TO OPEN MARKET SET TO PROFIT FROM PRICE CONVERGENCE AND INCREASED HEAT OFF-TAKE Elektrownia Skawina S.A. Basic figures Electricity generation part commissioned million EUR* 2004 2005 in 1961, heating part in 1986 Revenues 99.5 104.9 Almost half of the p
Slide 98: TPP Varna is the largest Bulgarian thermal power plant
TPP VARNA IS THE LARGEST BULGARIAN THERMAL POWER PLANT TPP Varna EAD Basic figures million EUR* 2004 2005 Three units commissioned in late 60´s, other three a decade later (units 1 to 3 Revenues 69.2 73.3 commissioned over the period 1968- EBITDA 8.9 4.9 1969; units 4 to 6 completed in 1977 - 1979
Slide 99: Agreements with Republika Srpska government and ERS to develop Gacko
IN DECEMBER 2006 CEZ SIGNED AGREEMENTS WITH THE GOVERNMENT OF REPUBLIKA SRPSKA AND POWER COMPANY ERS TO DEVELOP GACKO POWER PLANT Details of the arrangement In March 2006 the government of Republika Srpska in Bosnia and Hercegovina (BiH) approved a master agreement between CEZ and ERS (ELEKTROPRIV
Slide 100: NERS will spend around EUR 1.4bn on the Gacko project
THE JOINT COMPANY – NERS – WILL SPEND AROUND EUR 1.4BN IN 2007 – 2015 ON THE GACKO PROJECT Expected timeline of the project 2006 2010 2015 Design phase for New Facility New Facility construction phase Partial overhaul of Spending more than 80% of project costs existing 300 MW facility Master
Slide 101: Selected details on Bosnia and Hercegovina
SELECTED DETAILS ON BOSNIA AND HERCEGOVINA MW out of that ERS: Installed Capacity: 4,052 1,346 Power balance in the region (2005) Hydro 2,095 746 TWh (production/consumptionx) Coal 1,957 600 TWh 2004 2005 Bosnia and Herc. Generation 12.7 12.7 12.7/11.4 Hydro 6.0 6.0 Coal 6.7 6.7 Consumption 10.7 11.
Slide 102: Selected historical financials of CEZ Group CZK
SELECTED HISTORICAL FINANCIALS OF CEZ GROUP CZK Profit and loss CZK bn 2003 2004 2005 2006 Revenues 87.3 102.7 125.1 159.6 Sales of electricity 79.0 92.2 115.9 148.3 Heat sales and other revenues 8.3 10.5 9.1 11.3 Operating Expenses 53.7 63.0 74.9 95.2 Purchased power and related services 21.1 26.5
Slide 103: Selected historical financials of CEZ Group EUR
SELECTED HISTORICAL FINANCIALS OF CEZ GROUP EUR Profit and loss EUR m 2003 2004 2005 2006 Revenues 3,009 3,540 4,312 5,502 Sales of electricity 2,723 3,178 3,998 5,113 Heat sales and other revenues 286 362 315 389 Operating Expenses 1,852 2,174 2,583 3,282 Purchased power and related services 728 91
Slide 104: Investor relations contacts
INVESTOR RELATIONS CONTACTS CEZ, a. s. Duhova 2/1444 14 053 Praha 4 Czech Republic www.cez.cz Jan Brozik Jan Hajek Head of Investor Relations Investor Relations, Fixed Income Phone:+420 211 042 305 Phone:+420 211 042 687 Fax: +420 211 042 003 Fax: +420 211 042 040 email: [email protected] email: jan.haj