Cez As · PSECZ:CEZ
Cez As — Investor Presentation (June 2007)
109 slides from Cez As's investor presentation, June 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, June 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 2 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 42 Integration and operational excellence 44 Plant portfolio development 53 M&A expansion 65 Financial results Q1 2007
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 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 of >310
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 2 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 42 Integration and operational excellence 44 Plant portfolio development 53 M&A expansion 65 Financial results Q1 2007
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 46% CEZ distribution 53.4% 22.5 million tons 73.5% companies 32 TWh 62.0 TWh 100% 62% of customers 62 TWh 54% Others 46.6% 26 million tons 26.5% 38%
Slide 10: Vision of CEZ Group is to be the leader in power markets in CSEE
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 CFO COO Generation Distribution HR Trade Administration Martin Roman Petr Vobořil Daniel Beneš Jiří Borovec Tomáš Pleskač Zdeněk Pasák Alan Svoboda Treasury M&A Generation Conventional Distribution
Slide 12: CEZ stock has significantly out-performed the Czech market
CEZ STOCK HAS SIGNIFICANTLY OUT-PERFORMED THE CZECH MARKET AS WELL AS EUROPEAN UTILITIES Prices of shares and share indexes* Percent 750% CEZ 650% 550% 450% Price on June 1, 2007 Price on Jan 1, 2004 CZK 1081 350% CZK 146 PX 250% BBG EUR 150% Utilities Index 50% 2004 2005 2006 2007 CEZ shares are am
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% Fi
Slide 14: Agenda
AGENDA Summary for investors 2 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 42 Integration and operational excellence 44 Plant portfolio development 53 M&A expansion 65 Financial results Q1 2007
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 May 4, 2007 1 EdF 36.7 1 EDF 158.9 2 Enel 30.0 2 E.ON 102.9 3 E.ON 26.0 3 Enel 68 4 Endesa 23.0 4 Endesa 56.8 5 RWE
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, 2006 Percent E.ON 16.2 RWE 17.5 PPC 17.8 ENEL 22.1 EdF 25.0 Past performance: Iberdrola 33.0 2004: 37.5% Endesa 34.7 2005: 40.1% CEZ Group 40.3 Source: Annual reports, CEZ, Bloomberg 15
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: CEZ Group will maintain long-term competitive advantage in generation costs
CEZ GROUP WILL MAINTAIN LONG-TERM COMPETITIVE ADVANTAGE IN GENERATION COSTS Sources of long-term competitive advantage: Low and relatively stable generation costs Conventional generation Long term framework agreement for lignite deliveries untill 2050 for >90% of consumption; firm contracts till
Slide 19: CEZ Group maintains very strong dynamics in profit growth
CEZ GROUP MAINTAINS VERY STRONG DYNAMICS IN PROFIT GROWTH Growth drivers in 2007 EBIT of CEZ Group EUR millions Wholesale price increase Higner generation volumes Savings from restructuring (VIZE 2008) Compensation of unbundling costs Contribution from foreign acquisitions Growth drivers i
Slide 20: Profitability is driven by generation and trading
CEZ GROUP PROFITABILITY IS DRIVEN BY GENERATION AND TRADING EBITDA contribution in 2006 and Q1 2007 EUR m 1000 767 50 46 750 127 Q1 2007 548 500 71.4% 16.4% 6.4% 5.9% 250 Generation and trading 0 contribute more than Generation Distribution Mining Others EBITDA 2/3 to overall group EBIT and trading
Slide 21: CEZ has significantly increased its dividends
CEZ HAS SIGNIFICANTLY INCREASED ITS DIVIDENDS IN THE LAST YEARS Payout ratio Gross dividend per share % CZK 50% 25.0 New dividend policy 40.3% 41.3% 42.6% 49.3% targets payout ratio 40% 20.0 in the range of 40% +33% to 50% of the 31.6% +67% consolidated profit 30% 15.0 20% 16.4% +13% 20.0 10.0 16.2%
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 additional borrowing capacity
CEZ GROUP IS THE LEAST INDEBTED UTILITY IN EUROPE WITH STRONG ADDITIONAL BORROWING CAPACITY Debt/ EBITDA Multiples, 2006 CEZ Group 0.8 E.ON 1.3 Enel 1.6 Additional borrowing capacity by 2009: EnBW 2.2 ~ 4bn EUR RWE 2.5 Endesa 3.0 Iberdrola 3.9 Industry average 2.5x Additional borrowing capacity ma
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 90 Other 2007 80 CZK 1.1 bn – IT – CEZ Data, sro 70 CZK 1.0 bn - other 70 Mining 60 2007 CZK 1.8 bn –SD, a.s. 60 50 Distribution and sales - foreign 50 2007 40
Slide 25: Free cash-flow can finance international growth up to EUR 6.4 billion
CEZ GROUP HAS VERY STRONG FREE CASH-FLOW THAT, COMBINED WITH ADDITIONAL BORROWING CAPACITY, CAN BE USED TO FINANCE INTERNATIONAL GROWTH UP TO EUR 6.4 BILLION Free cash flow of CEZ Group (cumulative) EUR million Free Cash for acquisitions ~ 4,000 6,400 Free Cash for acquisitions net of executed/commi
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 1081* 1,250 1,250 1,170 1,200 1,200 1,180 1,086 1,092 1,049 1,020 1,002 1,030 962 1,049 975 705 Morgan Erste Bank Atlantik ING HSBC Deutsche Komerční Pa
Slide 27: Agenda
AGENDA Summary for investors 2 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 42 Integration and operational excellence 44 Plant portfolio development 53 M&A expansion 65 Financial results Q1 2007
Slide 28: German power prices as benchmark continue increasing
GERMAN POWER PRICES AS A BENCHMARK FOR THE REGION CONTINUE INCREASING 1 year forward EEX Futures (baseload) EUR/MWh 2 years forward 60 50 40 30 20 4 4 4 5 5 6 6 7 5 6 00 00 0 0 0 0 0 0 0 0 20 20 20 20 20 20 20 20 /2 /2 1/ 5/ 9/ 1/ 6/ 2/ 6/ 3/ 10 11 Source: EEX 27
Slide 29: German prices driven by oil prices, CO2 allowances and supply demand
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 20 NAP2 60 50 Start of EU ETS 10 40 NAP1 30 0 1/2005 5/2005 9/2005 2/2006 6/2006 10/2006 3/2007 1/2005 5/2005 9/2005 1/2006 5/2006 10/2006 2/2007 CO2 allo
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 EEX ~ 61.0 ~ 57.0 57.0 58.0 Centrel 44.0 ** ~ 44.0 Czech Slovakia Germany Austria UK Italy Republic * Comparing 2007 forward price as of 2006, assuming CZK/EU
Slide 31: Czech wholesale prices are linked to increasing German prices
CZECH WHOLESALE PRICES ARE LINKED TO INCREASING GERMAN PRICES Wholesale power price (baseload) 2002 index EEX 2007 – 54 EUR/MWh 250 EEX 2008 – 57 EUR/MWh +34 % 225 ? ? - 28% 200 +20 % 175 +20 % Price in the Czech 150 Republic will continue increasing 125 +19.5 % to German levels due to shortening su
Slide 32: Demand growth and decommissioning will 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: The CR is the last country in the region with generation surplus
THE CR IS THE LAST COUNTRY IN THE REGION WITH AN EXISTING GENERATION SURPLUS The decommission of 3 500 MW Political decision to close of coal power plants for down nuclear power plants environmental reasons(NOx) in (27% of current 2015 already for sure, consumption) potentionally up to7000 MW
Slide 34: 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 35: Export capacity price situation
EXPORT CAPACITY PRICE SITUATION INDICATES THAT SUPPLY DEMAND DEVELOPMENT WILL EXCEED 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 export c
Slide 36: Prices east of Czech Republic already above Czech and German levels
PRICES EAST OF CZECH REPUBLIC ALREADY ABOVE CZECH AND GERMAN LEVELS DE EEX 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 Germany down due critical lack of electricity in to warm weather an
Slide 37: 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 38: CEZ can generate additional ~6 TWh by increasing utilization
CEZ CAN GENERATE AN ADDITIONAL ~ 6 TWh BY INCREASING UTILIZATION OF MAINLY COAL PLANTS; LARGE PART OF THAT WILL BE UTILIZED IN 2007 ALREADY Current utilization Ancillary services Utilization of generation capacity (2005) Percent of hours p.a. Reserve for higher utilization Nuclear 77 3 0.5 Lignite 6
Slide 39: 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 40: Expect to exceed record high 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 41: Market going from campaign to continuous trading
CZECH AND CENTRAL EUROPEAN MARKET CHANGES AND IS GOING FROM CAMPAIGN TO CONTINUOUS TRADING Campaign (e.g.Rainbow, Regulated market Continuous trading auction) 2002 2008 Basic characteristics of price setting mechanism in given period Market regulation – all Rainbow campaign – one Continuous tr
Slide 42: CEZ will conform wholesale sale to trading through Prague Energy Exchange
CEZ WILL CONFORM THE WAY OF WHOLESALE SALE OF OWN ELECTRICITY FOR YEAR 2008 TO ITS COMMITMENT TO TRADE THROUGH THE PRAGUE ENERGY EXCHANGE Campaign system of trading (wholesale auction) is in accordance with EU requirements changed to continuous trading, i.e. each trader can buy and sell anytime
Slide 43: Agenda
AGENDA Summary for investors 2 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 42 Integration and operational excellence 44 Plant portfolio development 53 M&A expansion 65 Financial results Q1 2007
Slide 44: Four key strategic initiatives to achieve vision
CEZ GROUP HAS LAUNCHED FOUR KEY STRATEGIC INITIATIVES TO ACHIEVE ITS VISION Vision: To be the leader in power markets in Central and Southeastern Europe New initiative replacing successfully VISION 2008, Operational International Plant which was completed 18 excellence expansion portfolio months ahe
Slide 45: Agenda
AGENDA Summary for investors 2 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 42 Integration and operational excellence 44 Plant portfolio development 53 M&A expansion 65 Financial results Q1 2007
Slide 46: Project Vision 2008: group transformation
PROJECT VISION 2008: CEZ GROUP TRANSFORMATION INTO AN INTEGRATED, PROCESS ORIENTED AND HIGHLY EFFICIENT ORGANIZATION WITH SEPARATED DISTRIBUTION AND OTHER ACTIVITIES 2004 Project Vision 2008 2008 Whole group transformation and integration ČEZ Headquarters Main executed transformation steps: CEZ
Slide 47: Vision 2008 cost savings of CZK 2.8 bn
PROJECT VISION 2008 CREATED CONDITIONS FOR FURTHER CEZ GROUP EFFICIENCY IMPROVEMENTS, INCLUDING REACHING ANNUAL COST SAVING OF CZK 2.8 BN Establishment of new transparent structure of processes and companies in the Group. Unbundling requirements fulfilled one year ahead of requirement. Initiat
Slide 48: Regulatory environment in the Czech Republic is fair and transparent
REGULATORY ENVIRONMENT IN THE CZECH REPUBLIC IS FAIR AND TRANSPARENT 2002-04 2005-09 2010-14 1st regulatory period 2nd regulatory period 3rd regulatory period Introduction of RPI-X Regulation parameters 2008 will be a benchmark regulation reassessed for distribution after year for 3rd regulato
Slide 49: 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 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 63.9 Ancillary 52.2 54.1 2% services CO2 Allowances Base Load Peak Load Power Power 2001 2002
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 DIDN’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 N
Slide 53: Low CO2 prices in Q1 2007 helped compensate gross margin drop
LOW CO2 PRICES IN Q1 2007 AND CEZ’S SHORT POSITION FOR 2007 HELPED TO COMPENSATE FOR DROP IN WHOLESALE GROSS MARGIN Comparison of CO2 margin growth and electricity margin decrease CZK m 19.00 510.00 529.00 Increase of gross margin Decrease of gross margin from CO2 trading caused by from trading with
Slide 54: Agenda
AGENDA Summary for investors 2 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 42 Integration and operational excellence 44 Plant portfolio development 53 M&A expansion 65 Financial results Q1 2007
Slide 55: 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% -95% -92% 30 40% Desulphurized coal power plants 20 20% 10 Coal power plants 2005 l
Slide 56: 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 57: 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 58: 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 59: Program Safely 15 TERA for Temelin
IN ORDER TO STABILIZE THE OPERATION OF NUCLEAR POWER PLANT TEMELIN WE INITIATED A PROGRAM “SAFELY 15 TERA” WHICH IS TARGETING TO SAFELY REACH GENERATION OF 15 TWH IN MEDIUM TERM HORIZON What we are still not satisfied with Tool Goal Extension of outages (fuel and repeated Project „Safely 1
Slide 60: Project includes personnel changes and knowledge transfer
PROJECT WILL AMONG OTHERS INCLUDE PERSONNEL CHANGES IN THE POWER PLANT MANAGEMENT AND EMPHASIS ON KNOWLEDGE TRANSFER FROM NUCLEAR POWER PLANT DUKOVANY Technical adjustments Organizational adjustments Development of safety culture New strategy of fuel cycle Personnel changes at Long term progra
Slide 61: 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 62: 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 63: 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 64: Capex for lignite plants renewal to 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 65: 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 ETU (4x200 MW, refurbishment) Invest for a complex PP renewal Construction starts in 2007 for 1st 2 units, in 2009 for 2nd 2units Commissioning planned for end of 2008,
Slide 66: Agenda
AGENDA Summary for investors 2 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 42 Integration and operational excellence 44 Plant portfolio development 53 M&A expansion 65 Financial results Q1 2007
Slide 67: 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 68: 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 69: 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 70: Not willing to price assets at levels it cannot justify
DESPITE INCREASED COMPETITION CEZ IS NOT WILLING TO PRICE ASSETS AT LEVELS IT CANNOT JUSTIFY Bulgaria Poland Æ TPP Varna settled at the beginning of October Æ Elcho (238MW) and Skawina (592 MW) Æ monitoring heating plants privatizations settled in the end of May 2006 Æ still pursuing PAK (2,338 MW),
Slide 71: Greenfield/brownfield projects in Serbia, Kosovo and Republika Srpska
CEZ IS LOOKING AT SEVERAL PROMISING GREENFIELD/BROWNFIELD PROJECTS IN SERBIA, KOSOVO AND REPUBLIKA SRPSKA Rep. Srpska Slovenia (in Bosnia and Hercegovina) Serbia Æ Monitoring potential cooperation with Æ JV with EPRS for Gacko project set Æ interested in finishing Kolubara B HSE up project Æ if govt
Slide 72: 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 73: Agenda
AGENDA Summary for investors 2 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 42 Integration and operational excellence 44 Plant portfolio development 53 M&A expansion 65 Financial results Q1 2007
Slide 74: Main results for Q1 2007 and 2007 guidance
MAIN RESULTS FOR Q1 2007 AND 2007 GUIDANCE EBITDA increased y-o-y by 6.6 % to CZK 21.7 bn, increase by CZK 1.3 bn EBIT y-o-y increased by 10.1 % to CZK 16.3 bn, which represents a y-o-y increase by CZK 1.5 bn Net Income y-o-y increased by 25.1 % to CZK 13.0 bn (increase by CZK 2.6 bn) ROE* y
Slide 75: Main financial results for year 2007
MAIN FINANCIAL RESULTS FOR YEAR 2007 (WITHOUT CONSIDERING SHARE BUYBACK) Main financial results CZK bn 80 + 10 % 70.9 70 + 28 % 64.3 60 50.1 50 EBITDA 40 In spite of electricity and 30 20 heat demand decrease, 10 as well as decrease of 0 2005 2006 2007E wholesale prices in Q1 as a result of above 60
Slide 76: CEZ started its share buyback program
CEZ STARTED ITS SHARE BUYBACK PROGRAM; IN THE FIRST DAYS BOUGHT 7.8 M PIECES OF SHARES Number of purchased shares to June 6, 2007 million pcs (cumulative) General meeting dated April 23 approved share buyback up to 10 % of stated capital during following 18 months. Share buyback will lead to adj
Slide 77: Net income grew y-o-y by CZK 2.6 bn
NET INCOME GREW Y-O-Y BY CZK 2.6 BN – i.e. by 25 % CZK bn 16 3.3 0.2 Main changes 0.1 14 Higher generation from own sources 12 1.4 0.1 2.0 0.6 1.0 New acquisitions 0.1 10 (Poland, Varna) 8 13.0 Operating costs control 6 Portfolio 10.4 optimization of 4 + CZK 2.6 bn companies in CEZ + 25 % Gr
Slide 78: Gross margin increased by 7% to CZK 28.7 bn
GROSS MARGIN FROM GENERATION, TRADING, SALE AND DISTRIBUTION Y-O-Y INCREASED BY 7% TO CZK 28.7 BN 2007 Index Q1 Q1 Change Index 07/06 (CZK bn) comparable comparable 2006 2007 07-06 07/06 entity * entity Operating revenues 40,653 44,125 3,472 109% 42,412 104% Electricity sales and services 37,684 40,
Slide 79: Operating costs under control
CEZ GROUP MANAGES TO KEEP ITS OPERATING COSTS UNDER CONTROL 2007 Index Q1 Q1 Change Index (CZK bn) comparable 07/06 2006 2007 07-06 07/06 Compar.entity entity * SUM of selected operating costs -6,337 -6,948 -612 110% -6,479 102% Salaries and wages -2,884 -3,536 -652 123% (114%) -3,401 118% (109%) Re
Slide 80: Other expenses and income increased by CZK 1.0 bn
OTHER EXPENSES AND INCOME INCREASED Y-O- Y BY CZK 1.0 BN Q1 Q1 Change Index (CZK bn) 2006 2007 07-06 07/06 Other expenses and income -1,114 -89 1,025 8% Interest on debt -420 -596 -176 142% Interest on nuclear and other provisions -473 -481 -8 102% Interest income 100 267 168 268% FX profit/ loss an
Slide 81: Financial results y-o-y development
CEZ GROUP FINANCIAL RESULTS Y-O-Y DEVELOPMENT Contribution to EBITDA in Q1 2007 CZK bn 25 0.9 0.0 1.3 0.1 1.4 20 2.7 21.7 15.4 15 10 5 0 Generation Distribution Mining CE* Others CE* Generation Distribution Others SEE** CEZ and trading CE* and sale CE* and trading and sale SEE** Group SEE** Index 20
Slide 82: Indebtedness was y-o-y decreasing
INDEBTEDNESS WAS Y-O-Y DECREASING % % Y-o-y decrease of CEZ Group indebtedness is caused by an 30 30 improving performance (increase of profit, cash and 25 25 27.2 cash equivalents) and 25.9 cumulation of funds before 24.0 share buyback initiation. 20 20 Guidance includes slight decrease of debt
Slide 83: Agenda
AGENDA Summary for investors 2 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 26 Strategic initiatives of CEZ Group 42 Integration and operational excellence 44 Plant portfolio development 53 M&A expansion 65 Financial results Q1 2007
Slide 84: CEZ is a key player in all segments of 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 85: Strong demand for electricity from shortage in Slovakia and Balkans
STRONG DEMAND FOR ELECTRICITY IS MAINLY CREATED BY SHORTAGE IN SLOVAKIA AND IN THE BALKAN REGION AFTER DECOMMISSIONING OF NUCLEAR UNITS Volume of electricity export and Electricity export and y-o-y changes in Q1 2007 import in CR according to ERU TWh 6.12 4.44 + 37.7% 1.98 1.93 +2.6% -21 % CZK 2.9 b
Slide 86: 2007 spot electricity prices significantly decreased
2007 SPOT ELECTRICITY PRICES SIGNIFICANTLY DECREASED MAINLY DUE TO COLLAPSE OF CO2 ALLOWANCES PRICE CO2 allowances Wholesale electricity price EUR/t EUR/MWh 15 Forward 60 53 EUR/MWh Forward 10 + -53.3 43%% 30 Spot 5 0 0 October December February April January February March April May 2006 2006 2007
Slide 87: Lost market share in 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 88: Principles of regulation in the Czech Republic
PRINCIPLES OF REGULATION IN THE CZECH REPUBLIC ARE IDENTICAL TO THE REST OF EUROPE Indexed to a mixture of PPI (65% weight) and wage growth index (35%) Adjusted for efficiency factor x (2,085%) Includes all tax deductible OPEX in Revenue Cap relation to distribution plus compensation Set by
Slide 89: RAB is being revalued to reflect market value
RAB IS BEING REVALUED TO REFLECT MARKET VALUE RAB* development 2005/2006 drop in asset value caused mainly by lower investment during transition period and one off write off of some CZK bn old already depreciated assets that were formerly valued with 10% value for transfer. 70 60 60.6*** 62.1 58.4 5
Slide 90: 33% of CEZ Distribuce revenues are pass-through services
APPROXIMATELY 33% OF CEZ DISTRIBUCE REVENUES ARE PASS-THROUGH SERVICES Distribution revenues without pass through items and losses Break-down of distribution revenues (2006) Transmission fee (CEPS), CHP, renewables, decentralized CZK 30,199 bn. production, OTE, system services (pass through) 4% Dist
Slide 91: Review of Bulgarian regulatory environment
REVIEW OF BULGARIAN REGULATORY ENVIRONMENT Regulated by SEWRC (State Energy and Water Regulatory Commission) Regulatory The regulatory formula for distribution Framework Revenue cap = Costs + Regulatory return on RAB + Depreciation Regulatory rate of return (WACC nominal, pre-tax) –16% for 1
Slide 92: Bulgarian new regulatory rules since October 2005
BULGARIAN NEW REGULATORY RULES IN PLACE SINCE OCTOBER 2005 ARE BELOW OUR ORIGINAL PROPOSAL BUT STILL ABOVE VALUATION CASE I. Regulatory period (10/2005 -10/2008) EUR m (distribution and sales together) Significant reduction of regulated Capex (72% vs. CEZ 500 18% proposal) 16% Similar reduction
Slide 93: Review of Romanian regulatory environment
REVIEW OF ROMANIAN REGULATORY ENVIRONMENT – ELECTRICITY DISTRIBUTION Regulated by ANRE (Autoritatea Nationala de Reglementare in domeniul Energiei) Price cap (tariff basket) methodology Revenue = Controllable OPEX + non-controllable OPEX + Regulatory return on RAB + Depreciation Efficiency f
Slide 94: Romanian regulatory framework similar to Czech and EU
ROMANIAN REGULATORY FRAMEWORK IS SIMILAR TO CZECH AND EU I. Regulatory period (2005 - 2007) EUR m* WACC (12%) 400 14 353 Regulatory framework for distribution is price cap type (tariff basket), 350 based on RAB regulated return (12% pre-tax, real terms WACC for 317 12 first regulatory period – 200
Slide 95: New EU energy policy (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 96: New EU energy policy (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 97: 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 36.7 bn 15.6 decommissioning as stated in BS at December 31, 2006 Annual increase by 4.5% (discount rate 2.5%
Slide 98: First significant savings within Vision 2008 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 99: In NAP I power industry was the only industry in deficit
IN NAP I POWER INDUSTRY WAS THE ONLY INDUSTRY IN DEFICIT EU first phase allocation – Czech Republic CO2 allocation vs. surplus/deficit emissions 2005, mil. tons CO2 mil. tons CO2 -39 Power 97.6 86.8 83.7 82.5 Steel 48 Cement 27 Other 61 -50 -25 0 25 50 75 NAP I CR 2005 CR 2006 NAP II allocation emis
Slide 100: 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 101: Elcho is a brand new power plant
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 2006 Meets all environmental limits including those in place since 2008 Revenues 89.3 88.4 86.5 Revenues from electricity sa
Slide 102: 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 in 1961, heating part in 1986 million EUR* 2004 2005 2006 Almost half of the plant continuous
Slide 103: TPP Varna is the largest Bulgarian thermal power plant
TPP VARNA IS THE LARGEST BULGARIAN THERMAL POWER PLANT Basic figures TPP Varna EAD million EUR* 2004 2005 2006 Three units commissioned in late 60´s, other three a decade later (units 1 to 3 Revenues 69.2 73.3 88.6 commissioned over the period 1968- EBITDA 8.9 4.9 10 1969; units 4 to 6 completed i
Slide 104: Implementation agreement signed on Gacko II power plant
IMPLEMENTATION AGREEMENT SIGNED ON CONSTRUCTION OF GACKO II POWER PLANT On 16. 5. 2007 the implementation agreement in Gacko was signed: Contribution of current power plant and mine into the joint venture till 31. 3. 2008 – increase of stated capital from ERS side, valuation to 31.12. 2007 Com
Slide 105: Gacko project timetable
GACKO PROJECT TIMETABLE (BASIC SCENARIO) Expected timeline of the project 2006 2010 2015 Design phase for New Facility New Facility construction phase Complex refurbishment of existing 300 MW Master Agreement Equity increase via facility Signed contribution in kind and cash contribution Ag
Slide 106: 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 107: 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 108: 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 109: Investor relations contacts
INVESTOR RELATIONS CONTACTS CEZ, a. s. Duhova 2/1444 14 053 Praha 4 Czech Republic www.cez.cz Petra Smolikova Jan Hajek Investor Relations, Shares Investor Relations, Fixed Income Phone:+420 211 042 687 Phone:+420 211 042 514 Fax: +420 211 042 040 Fax: +420 211 042 003 email: [email protected] email: