Cez As · PSECZ:CEZ
Cez As — Investor Presentation (April 2006)
96 slides from Cez As's investor presentation, April 2006
Slide 1: CEZ Group: The Leader in Power Markets of Central and Southeastern Europe
CEZ GROUP THE LEADER IN POWER MARKETS OF CENTRAL AND SOUTHEASTERN Equity story EUROPE April 2006
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 6 Scope of operations 6 Financial performance 14 Strategic initiatives of CEZ Group 27 Integration and operational excellence 31 Plant portfolio renewal 54 M&A expansion 59 2005 results review 75 Appendix 80 2
Slide 4: Summary for Investors
SUMMARY FOR INVESTORS The vision of CEZ is to become 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 >232% in the last 18 months
Slide 5: CEZ Group Provides Some Unique Features for Equity Investors
CEZ GROUP PROVIDES SOME UNIQUE FEATURES FOR EQUITY INVESTORS Key factors Rationale Strong financial performance EBITDA margin 40% with growth potential Dynamic profit growth expected Growing power prices and consumption, to continue efficiency improvements and synergies Vertically integrat
Slide 6: Agenda
AGENDA Summary for investors Introduction Scope of operations Financial performance Strategic initiatives of CEZ Group Integration and operational excellence Plant portfolio renewal M&A expansion 2005 results review Appendix 5
Slide 7: CEZ Group Is an International Utility with Dominant Position in Domestic Market
CEZ GROUP IS AN INTERNATIONAL UTILITY WITH DOMINANT POSITION IN DOMESTIC MARKET AND GROWING PORTFOLIO IN THE BALKANS Target markets CEZ Group in Poland Trading office (75% share in Skawina, 89% in Elcho) CEZ Group in Romania* Electricity sales (TWh) 3.8 (51% share in EDC Oltenia) Market share 2.
Slide 8: CEZ Is a Dominant Player in All Segments of the Czech Electricity Market
CEZ IS A DOMINANT PLAYER IN ALL SEGMENTS OF THE CZECH ELECTRICITY MARKET Supply for final Lignite mining Generation Transmission Distribution consumption 5 out of 8 45% CEZ distribution 54% 22 million tons 72% companies 31.1 TWh 59.5 TWh 100% 62% of customers 62 TWh* 55% Others 46% 27 million tons 2
Slide 9: Low Cost Generation Fleet and Secured Low Fuel Costs
CEZ GROUP HAS VERY ATTRACTIVE LOW COST GENERATION FLEET AND HAS SECURED LOW FUEL COSTS THROUGH LONG TERM CONTRACTS CEZ Group generation capacity (2005) Annual production of CEZ Group MW TWh 100% of Utilization Completion of Temelín 12,297 generation 2005 nuclear power plant Hydro (river 3.4% 12% 2,0
Slide 10: Major Investment Program Focused on Emission Reduction
MAJOR INVESTMENT PROGRAM WAS FOCUSED ON EMISSION REDUCTION Generation structure of CEZ Group CEZ Group emission change 2004/1993 TWh Percent 60 100% 1993 level Hydro power plants 50 80% -50% 40 -77% Nuclear power plants 60% -95% -92% 30 40% Desulphurized coal power plants 20 20% 10 Coal power plants
Slide 11: CEZ Group Is the Largest Czech Company by Any Measure
CEZ GROUP IS THE LARGEST CZECH COMPANY BY ANY MEASURE Top Czech companies in 2004 By profitability By assets EBIT Total assets, EUR billion* EUR million* CEZ Group 9.4 CEZ Group 598 Český Telecom 4.5 RWE Transgas 345 Škoda Auto 2.4 Mittal Steel 327 Unipetrol 2.4 Eurotel 275 Lesy ČR 2.2 Český Telecom
Slide 12: CEZ Is the Biggest Company in New EU Member States
CEZ IS THE BIGGEST COMPANY IN NEW EU MEMBER STATES Market capitalization of top 15 companies in 10 new EU member states* EUR billion 17.4 18 16 14 12 10.4 10.3 10 9.1 8.6 8.5 7.4 8 5.8 5.7 5.7 6 4.7 3.7 3.4 3.2 4 2.2 2 0 Z) I) U) Z) Y) L) Z) L) U) L) ) L) ) L) L) U U (S (C (C (C (P (P (P (C (P (P (P
Slide 13: 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 14: New Management Team Is Determined to Fulfill the Mission
NEW MANAGEMENT TEAM IS DETERMINED TO FULFILL THE MISSION Management team of CEZ Group CEO Trade Finance Generation Distribution Operations Alan Svoboda Petr Vobořil Martin Roman Jiří Borovec Tomáš Pleskač Daniel Beneš Trading Treasury M&A Conventional Equity Distribution Responsibility
Slide 15: Agenda
AGENDA Summary for investors Introduction Scope of operations Financial performance Strategic initiatives of CEZ Group Integration and operational excellence Plant portfolio renewal M&A expansion 2005 results review Appendix 14
Slide 16: CEZ Group Attracted Many International Shareholders
CEZ GROUP ATTRACTED MANY INTERNATIONAL SHAREHOLDERS Shareholders of CEZ, a. s. As of December 31, 2005 Types of funds investing in CEZ shares Emerging markets Hedge Institutional Investors Utilities (mostly international) Growth strategies 24,3% Examples of large foreign investors Baring G
Slide 17: 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 28, 2006 1 EdF 36.2 1 EDF 90,4 2 Enel 29.0 2 E.ON 77,2 3 E.ON 26.0 3 Enel 50,6 4 RWE 20.8 4 RWE 46,9 5 End
Slide 18: One of the Most Profitable Utilities in Europe
CEZ GROUP IS ONE OF THE MOST PROFITABLE UTILITIES IN EUROPE AND WILL REMAIN SO EBITDA margin, 2004 Percent CEZ Group outstanding performance is driven by generation portfolio which has Electrabel 17.8 potential for further improvements: RWE 19.9 Coal Supply Long term fuel contract till 2050 for
Slide 19: Analysts Maintain Positive View on CEZ Group Performance
ANALYSTS MAINTAIN POSITIVE VIEW ON CEZ GROUP PERFORMANCE Target share price CZK Current share price CZK 838,1* 1,020 1,030 998 1000 995 930 960 915 873 857 805 813 705 716 658 Morgan Atlantik Komerční Erste Bank Sal. Deutsche ING Wood & Citigroup CAIB/HVB UBS . Raiffeisen Goldman HSBC Patria / KBC S
Slide 20: CEZ Stock Has Significantly Out-Performed the Czech Market
CEZ STOCK HAS SIGNIFICANTLY OUT-PERFORMED THE CZECH MARKET AS WELL AS EUROPEAN UTILITY Prices of shares and share indexes* Current price Percent CZK 835.5** 950% CEZ 850% 750% 650% 550% 450% Price on Jan 1, 2003 CZK 92 350% PX50 250% BBG EUR 150% Utilities Index 50% 2003 2004 2005 2006 CEZ shares ar
Slide 21: Generation Fleet Is the Main Value Driver of the Group
CEZ GENERATION FLEET IS THE MAIN VALUE DRIVER OF THE WHOLE GROUP Contribution of various segments to consolidated EBITDA Growth drivers EBITDA (2005) CZK billion Generation and trading Regional price convergence to German levels 1.6 CO2 optimization/Power arbitrage Increased capacity of nucl
Slide 22: High Dynamics in Profit Growth in Line with Analysts Expectations
CEZ GROUP MAINTAINS HIGH DYNAMICS IN PROFIT GROWTH IN LINE WITH ANALYSTS EXPECTATIONS 2006 key growth drivers CEZ EBIT of CEZ Group 15% wholesale price increase Analysts’ expectations EUR millions Savings resulting from group (as of Apr. 25, 2006) consolidation Compensation of unbundling costs
Slide 23: Dividend Policy Targets 50% Dividend Increase by 2007
CEZ DIVIDEND POLICY TARGETS 50% DIVIDEND INCREASE BY 2007 (COMPARED TO 2003) Net income and dividends (IFRS, consolidated) Dividend payout ratio (2004) CZK billion Percent 14 14 E.ON 36% 12 12 RWE 39% 10 10 +50% Fortum 41% 8 8 CEZ 41% 6 6 4 4 Endesa 57% 2 2 Inberdrola 57% 0 0 PPC 71% 2000 2001 2002
Slide 24: Very Strong Free Cash-Flow to Finance International Growth
CEZ GROUP HAS VERY STRONG FREE CASH-FLOW THAT CAN BE USED TO FINANCE INTERNATIONAL GROWTH Free cash flow of CEZ Group (cumulative) EUR million 3,000 CEZ Group can finance foreign acquisitions 2,375 in the next 3-5 years from 1,750 free cash flow up to EUR 3,000 million without 1,125 impacting 500
Slide 25: Large Operating Cash-Flow in Excess of Investment Needs
CEZ GROUP GENERATES LARGE OPERATING CASH-FLOW IN EXCESS OF INVESTMENT NEEDS CZK billion 50 50 Net cash provided by operating activities 40 40 Other 2005 CZK 2.4 bn – nuclear fuel and provisions 30 30 CZK 1.2 bn – capitalized interest Distribution CAPEX 2005 20 20 CZK 5.3 bn – domestic distribu
Slide 26: Finances Under Scrutiny of Rating Agencies and Bond Investors
CEZ FINANCES ARE UNDER CLOSE SCRUTINY OF RATING AGENCIES AND BOND INVESTORS Credit rating of CEZ and Czech Republic CEZ bonds Amount Year Million Currency Placement Repayment Positive Matured CEZ BBB+ Outlook 1993 2,100 CZK Prague 1996 Standard & Poor’s 1994 4,000 CZK Prague 1999 Czech 150 USD
Slide 27: Least Indebted Utility in Europe
CEZ GROUP IS THE LEAST INDEBTED UTILITY IN EUROPE WITH STRONG ADDITIONAL BORROWING CAPACITY Additional borrowing capacity equals EUR 2.3 billion by 2009 May be used on top of the free cash flow to finance acquisitions if large, interesting and properly priced acquisition targets appear Long-term d
Slide 28: Agenda
AGENDA Summary for investors Introduction Scope of operations Financial performance Strategic initiatives of CEZ Group Integration and operational excellence Plant portfolio renewal M&A expansion 2005 results review Appendix 27
Slide 29: Four Key Strategic Initiatives
CEZ GROUP HAS LAUNCHED FOUR KEY STRATEGIC INITIATIVES Vision and corporate targets Integration Plant and M&A portfolio operational expansion renewal excellence (2004-08) (2007-20) (2004-10) Performance-oriented culture 28
Slide 30: Performance Oriented Culture Is a Precondition for All Other Initiatives
PERFORMANCE ORIENTED CULTURE IS A PRECONDITION FOR ALL OTHER INITIATIVES Implementation 7 principles of CEZ performance-oriented culture program 1. Value creation is the top priority Top and middle management 2. Individual responsibility for reaching ambitious meetings/ goals/results workshops E
Slide 31: Strategic Initiatives Target Value Enhancement
STRATEGIC INITIATIVES TARGET VALUE ENHANCEMENT Integration and Plant portfolio operational M&A expansion renewal excellence EBITDA Margin Maintain/increase Acquire assets growth improvements installed capacity abroad with drivers Costs savings/ with competitive performance synergies plants u
Slide 32: Agenda
AGENDA Summary for investors Introduction Scope of operations Financial performance Strategic initiatives of CEZ Group Integration and operational excellence Plant portfolio renewal M&A expansion 2005 results review Appendix 31
Slide 33: Second Largest Exporter of Power in Europe
CEZ GROUP IS SECOND LARGEST EXPORTER OF POWER IN EUROPE, PROVIDING POWER TO CENTRAL EUROPEAN COUNTRIES Net exports in 2004 TWh Structure of CEZ exports in 2004 France 64.5 Poland ČR 15.7* 3% Germany Poland 10.3 60% Germany Slovakia 8.1 Austria 30% 7% Slovakia 1.9 Diversification of target export mar
Slide 34: Wholesale Prices Offered by CEZ Are the Lowest in the Region
WHOLESALE PRICES OFFERED BY CEZ ARE THE LOWEST IN THE REGION Wholesale power price* Existing pricing 2005, baseload, EUR/MWh Has been a result of influence of higher +72% German prices and potential cheaper imports from Poland and Slovakia Export markets Import markets Will be changed with full
Slide 35: Gap Between Electricity Prices in the Czech Republic and Abroad Remains Wide
GAP BETWEEN ELECTRICITY PRICES IN THE CZECH REPUBLIC AND ABROAD REMAINS WIDE EEX Forward 2007 1643 CZK/MWh Wholesale electricity prices (baseload) 57.05 EUR/MWh 2000 index +26% 260 +30% 240 220 - 58% 200 +20% 180 ? 160 140 +15.1% 120 +11.4% 100 Czech Republic 2006 1041 CZK/MWh 80 36.1 EUR/MWh* 60 20
Slide 36: Domestic and Export Prices Are Converging to International Levels
DOMESTIC AND EXPORT PRICES ARE CONVERGING TO INTERNATIONAL LEVELS 47.5 35 Domestic annual baseload wholesale prices 24.5 24.8 27.1 30.2 35 EUR/MWh* 2002 2003 2004 2005 2006 Price change 1.5% 9.1% 11.4% 15.1% German Percent wholesale price Net export prices Transmission 34.5 47.5 capacity fee 29.9 21
Slide 37: CO2 Emission Permits Help CEZ to Hedge Its Exports
CO2 EMISSION PERMITS HELP CEZ TO HEDGE ITS EXPORTS Electricity price*** Emission permit’s price Electricity CO2 EUR/MWh EUR/MWh EUR/t 48 35 Emission 46 Export Minimum 30 permit’s 44 margin margin price** 42 25 40 Cross 38 20 border 36 capacity fee Total 15 34 variable Variable costs 32 10 costs * 30
Slide 38: Allocation of CO2 Emission Permits Allows CEZ to Increase Generation
ALLOCATION OF 36.9 TONS OF CO2 EMISSION PERMITS PER YEAR FOR 2005–07 ALLOWS CEZ TO INCREASE GENERATION IN COAL PLANTS 40,8 40.8 37,3 37.3 36,9 36.9 +8.2% 35,1 35.1 35,5 35.5 32.8 32,8 Carbon dioxide Carbon dioxide Allocation Electricity Generation Current ultimate emissions in emissions in of carbon
Slide 39: CEZ Likely to Become Net Buyer of Allowances
THANKS TO GENERATION GROWTH CEZ IS LIKELY TO BECOME NET BUYER OF ALLOWANCES IN THE FUTURE ILLUSTRATIVE CEZ generation volume TWh > 57 Last year CEZ did not achieve record high generation of 2004 57 ~ 57 Expected demand growth will result in need of higher generation volume. CEZ will ~ 55 likely
Slide 40: Second Phase NAP Will Be Submitted to EU
SECOND PHASE NAP WILL BE SUBMITTED TO EU SOON; IT SHOULD COMPLY WITH GUIDLINES PUBLISHED BY EU EU guidelines: Member states already meeting Kyoto targets (such as CR) may keep NAP II ceiling at NAP I levels When distributing the allowances to individual installations the governments should disre
Slide 41: Available Capacity in SR Will Decrease by 24% by 2011
THE AVAILABLE CAPACITY IN SR WILL DECREASE BY 24% BY 2011 … Available capacity* development in the CR and SR (MW) Czech Republic Slovak Republic 12 000 12 000 10 000 10 000 8 000 8 000 Gas Hydro 6 000 6 000 Nuclear Coal 4 000 4 000 2 000 2 000 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 20
Slide 42: Regional Capacity Surplus Will Disappear in 2008-2009
…AND THUS THE REGIONAL CAPACITY SURPLUS WILL DISAPPEAR IN 2008 – 2009 PAVING WAY FOR CROSS BORDER CAPACITY FEE SIGNIFICANT DECREASE TWh 125 demand in CR and SR plus export 120 115 110 available supply in CR and SR plus import 105 2006 2007 2008 2009 2010 2011 starting 2008/9 export capacities will
Slide 43: Czech Market Is More Integrated and Prices Converge
1. 1. 20 0 50 100 150 200 250 300 2. 06 1. 20 3. 06 1. 20 4. 06 EUR/MWh 1. 20 06 5. 1. 20 6. 06 1. 20 7. 06 1. 20 06 8. 1. 20 Prices at OKO and EEX 9. 06 Source: EEX, OKO 1. 2 10 006 .1 .2 00 11 6 COUNTRIES .1 .2 12 0 0 .1 6 .2 1 3 006 .1 .2 1 4 006 .1 .2 00 15 .1 6 EEX .2 1 6 006 .1 .2 1 7 006 .1 .
Slide 44: Additional 8.0 TWh Can Be Generated by Increasing Utilization
ADDITIONAL 8.0 TWh CAN BE GENERATED BY INCREASING UTILIZATION OF NUCLEAR AND COAL PLANTS Current utilization Auxiliary services Time utilization of generation capacity Reserve for higher utilization Percent of hours p.a. Overhauls, outages Nuclear 77 3 20 100% Higher sales opportunity due to Impro
Slide 45: CEZ Group Increased Sales Margin While Maintaining Market Share
CEZ GROUP INCREASED SALES MARGIN WHILE MAINTAINING MARKET SHARE Domestic wholesale baseload Distribution regions of CEZ Group CZK/MWh + 15.1% + 11.4% 1,041 906 813 Děčín 2004 2005 2006 Market share in power retail Hradec Králové Percent of MWh Praha Ostrava 58% 58% Plzeň Target: maintain Brno České
Slide 46: Losing Domestic Markets and Expanding Abroad
CEZ IS SUBJECT OF MARKET FORCES – LOOSING DOMESTIC MARKETS AND EXPANDING ABROAD 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 2005 2006E in the last t
Slide 47: Regulatory Environment in the Czech Republic Is Fair and Transparent
REGULATORY ENVIRONMENT IN THE CZECH REPUBLIC IS FAIR AND TRANSPARENT <2002 2002-04 2005-09 Prepare team 1st regulatory period 2nd regulatory period Czech energy regulator Introduction of RPI-X Regulation parameters established regulation reassessed for distribution* Introduction of TPA to gr
Slide 48: Project Vision 2008: Transparent Holding Structure
WITHIN PROJECT VISION 2008 CEZ GROUP WILL REORGANIZE ITSELF INTO A TRANSPARENT HOLDING STRUCTURE 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
Slide 49: 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 REDC 1 2006 2004 2005 2007 Efficiency Big bang Transformation Conclusion enhancement business model major part of transformation full product
Slide 50: Almost EUR 100 Million in Annual Savings from Vision 2008
ALMOST EUR 100 MILLION IN ANNUAL SAVINGS WILL BE ACHIEVED UPON IMPLEMENTATION OF VISION 2008 Gross costs saving* in 2004-08 Total annual costs savings EUR million related to Vision 2008 project are to reach CZK 2.9 bn by 2008, i.e., ~10% 258 2004 operating costs in supply and distribution segment (e
Slide 51: Number of Employees Will Decline by 1,800 by 2008
NUMBER OF EMPLOYEES WILL DECLINE BY 1,800 BY 2008 Includes distribution and Number of employees in CEZ Group CR support services only Thousands 20 -10% 18,100 18 - 300 - 200 - 400 - 600 16,300 - 200 16 14 12 10 2003 2004 2005 2006 2007 2008 2008 Source: CEZ 50
Slide 52: Targeted Capacity Increase in Dukovany and Temelin
TARGETED CAPACITY INCREASE IN DUKOVANY NUCLEAR POWER PLANT IS 9.5% BY 2012 AND IN TEMELIN 4% Temelin target capacity increase - from Dukovany target capacity increase 1962 MW to 2041 MW in 2007 from 1760 MW to ~ 1924 MW by 2012 MW MW 2,100 1,950 + up to 86 1924 + 79 2041 + 17 2,000 1,850 + 61 1962 1
Slide 53: Refueling Outages Reduction by 2009
BASED ON BENCHMARKING STUDIES CEZ SET A GOAL OF REFUELING OUTAGES REDUCTION BY 2009 CEZ targets to add additional 20.8 days of generation in Temelin and 11.6 days in Dukovany by 2009 as a result of refuelling outages reduction DAYS 2004 Generation Temelin 286 51 28 Refuelling + 39 days* Other outage
Slide 54: Reduce Generation Repairs and Maintenance Costs by 25% by 2009
CEZ IS SET TO REDUCE ITS GENERATION REPAIRS AND MAINTENANCE COSTS BY 25% BY 2009 CEZ targets to reduce average repairs and Key tasks to achieve targeted maintenance cost by CZK 1.262 bn by 2009 goals CZK m, prices not adjusted for inflation Introduction of adaptive R&M to reduce workload by 50% (m
Slide 55: Agenda
AGENDA Summary for investors Introduction Scope of operations Financial performance Strategic initiatives of CEZ Group Integration and operational excellence Plant portfolio renewal M&A expansion 2005 results review Appendix 54
Slide 56: Large Portion of Power Plants Will Be at End of Lifetime
LARGE PORTION OF CEZ POWER PLANTS WILL BE AT THE END OF THEIR LIFETIME Age structure of CEZ thermal blocks MW Portion of CEZ thermal capacity approaches end 3,000 2,800 of its life time in 2010-20 2,500 Also desulphurization equipment to reach end 2,000 of its lifetime in 2015 -2020 1,550 1,512
Slide 57: Future Plant Fleet Around New Generation of Lignite Plants
CEZ INTENDS TO BUILD ITS FUTURE PLANT FLEET AROUND NEW GENERATION OF LIGNITE PLANTS Coal Nuclear Gas Renewables Environ- Acceptable emissions No emissions Low emissions Limited/no emissions mental if well designed/ Nuclear risk No resources impact managed depletion Competitive Low cost
Slide 58: Plans for Lignite Plants Renewal
CEZ HAS FINALIZED PLANS FOR LIGNITE PLANTS RENEWAL AND NOW DEVELOPS STRATEGY IN OTHER FUELS Capacity Best case* MW Conservative 7,000 Retrofits Existing plants 6,000 5,000 In the Best case CEZ would maintain existing capacity till c. 2035 4,000 Otherwise c. 30% reduction after 2015 3,000 2,000 R
Slide 59: Lignite Plants Renewal Capex to Reach CZK 100 bn
LIGNITE PLANTS PORTFOLIO RENEWAL RELATED CAPEX TO REACH CZK 100 BN AND BRING 14-25% EFFICIENCY UPLIFT Expected CAPEX – conservative scenario Projects overview CZK million Highly profitable Secured fuel – low risk 14,000 2008-15: Main Assets Renewal Period Retrofits 12,000 Gross efficiency impr
Slide 60: Agenda
AGENDA Summary for investors Introduction Scope of operations Financial performance Strategic initiatives of CEZ Group Integration and operational excellence Plant portfolio renewal M&A expansion 2005 results review Appendix 59
Slide 61: Growth in Generation and Distribution/Supply
CEZ GROUP WANTS TO GROW BOTH IN GENERATION AND DISTRIBUTION/SUPPLY Ambition for distribution/supply growth Ambition for target generation growth Millions of customers GW of installed capacity ~20.0 ~10.0 6.6 12.3 Bulgaria 1.9 Hydro 1.9 Romania 1.3 Coal 6.6 Czech 3.4 Republic Nuclear 3.8 CEZ 6th Euro
Slide 62: Best Positioned to Succeed in Central and Southeastern Europe
CEZ GROUP IS BEST POSITIONED TO SUCCEED IN THE REGION OF CENTRAL AND SOUTHEASTERN EUROPE Intimate knowledge of the region Very well accepted due to close cultural/historical ties and electricity industry transformation experience First-hand experience with transformation of power markets Nat
Slide 63: Prudent in M&A Decisions
EVEN THOUGH CEZ GROUP HAS AMBITIOUS EXPANSION PLANS, WE ARE VERY PRUDENT IN OUR 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 S
Slide 64: Large Number of Potential Targets in the Region
THERE IS LARGE NUMBER OF POTENTIAL TARGETS IN THE REGION OF CENTRAL AND SOUTHEASTERN EUROPE Target markets Main acquisitions opportunities 2005-06 Central Bulgaria: generation – Ruse Europe Romania: distributors Electrica Muntenia Sud, generation – TPP Turceni, Rovinari, Craiova Poland: genera
Slide 65: CEZ Participates in All Current Transactions in Central Europe
CEZ PARTICIPATES IN ALL CURRENT TRANSACTIONS IN CENTRAL EUROPE ….. PAK – Patnow, Adamow, Konin Dolna Odra (Poland) Kozienice (Poland) (Poland) Installed capacity (MW) 1,950 Installed capacity (MW) 2,820 Installed capacity (MW) 2,338 Sales (2004, TWh) 5.6 Sales (2004, TWh) 11.8 Sales (200
Slide 66: Participation in Southeastern Europe Transactions
….. AS WELL AS IN SOUTHEASTERN EUROPE Muntenia Sud (Romania) Turceni (Romania) ESM – Distribution (Macedonia) Number of customers (million) 1.1 Installed capacity (MW) 2,310 Number of customers (mil.) 0.7 Sales (2004, TWh) 4.3 Sales (2004, TWh) 4.3 Sales (2004, EUR mil.) 286 Æprocess beg
Slide 67: Integration of the Bulgarian EDCs Progressing Faster Than Expected
THE INTEGRATION OF THE BULGARIAN EDCs IS PROGRESSING FASTER THAN EXPECTED Acquisition of distribution in Bulgaria 67% in three EDCs* (Number 1, 42% market share) Status Control gained faster than expected thanks to tight project management Team of 3 observers quickly extended to international te
Slide 68: Bulgarian EDCs: Key Impacts 2005
THE INTEGRATION OF THE BULGARIAN EDCs IS PROGRESSING FASTER THAN EXPECTED Key impacts 2005 Revenues increased by 10 % driven by 3% Selected financials (simple sum) increase in volume and 5% price increase EUR m Electricity losses decreased by 11.4% (from 19.3% to 17.1%) despite increased volume
Slide 69: Acquisition of EDC Oltenia Almost Complete
THE ACQUISITION OF EDC OLTENIA IS ALMOST COMPLETE AND INTEGRATION HAS STARTED Acquisition of distribution in Romania 51% share in EDC Oltenia*, adjacent to the Bulgarian EDCs (Number 2, 17% market share) Status CEZ Group selected as a tender winner Strong CEZ management team on the ground combin
Slide 70: Integration of Romanian EDC Oltenia Is on Track
THE INTEGRATION OF ROMANIAN EDC OLTENIA IS ON TRACK Key impacts 2005 Selected annual financials Transaction settled on September 30, 2005; EUR m consolidated in Q4 only EUR m 2004 1 2005 2 Restructuring process initiated with key positions staffed Sales 387.8 340.5 EBITDA 67.9 26.6 Agreement w
Slide 71: Agreement to Buy Two Power Plants in Poland
IN JANUARY 2006 CEZ SIGNED AN AGREEMENT TO BUY TWO POWER PLANTS IN POLAND Elektrocieplownia Elcho Sp. z o. o. Elcho is a brand new power plant commissioned in 2003 Basic figures million EUR* 2003 2004 Revenues 46.2 88.9 EBITDA 4.2 44.9 EBIT 1.9 36.2 Net profit 10.4 42.0 Net debt (debt - cash) 309.3
Slide 72: Elcho's Electricity Sales Secured via Long Term PPAs
ELCHO´S ELECTRICITY SALES ARE SECURED VIA LONG TERM POWER PURCHASE AGREEMENTS Brand new power plant commissioned in 2003 Meets all environmental limits including those in place since 2008 Revenues from electricity sales make c. 83% of revenues, remainder is mainly heat Production covered by long
Slide 73: Skawina Is an Upgraded Plant with Exposure to Open Market
SKAWINA IS AN UPGRADED PLANT WITH EXPOSURE TO OPEN MARKET Elektrownia Skawina S.A. Basic figures million EUR* 2003 2004 Revenues 98.6 99.5 EBITDA 11.5 9.0 EBIT 6.7 3.8 Net profit 5.1 3.0 Net debt (debt - cash) 1.4 9.3 Electricity sales** (TWh) 2.5 2.4 Installed capacity (MWe) 590 Installed capacity
Slide 74: Skawina Set to Profit from Price Convergence
SKAWINA IS SET TO PROFIT FROM PRICE CONVERGENCE AND INCREASED HEAT OFF-TAKE FROM NEARBY RESIDENTIAL CONSTRUCTION Electricity generation part commissioned in 1961, heating part in 1986 Almost half of the plant continuously refurbished since 1993; some further investments needed to meet stricter emi
Slide 75: Agenda
AGENDA Summary for investors Introduction Scope of operations Financial performance Strategic initiatives of CEZ Group Integration and operational excellence Plant portfolio renewal M&A expansion 2005 results review Appendix 74
Slide 76: EBIT Grew by 49% Y-o-Y to CZK 29 bn
EBIT GREW BY 49% Y-O-Y TO CZK 29 BN, INCREASE OF CZK 9.6 BN Key impacts + Index higher wholesale margin Change CZK m 2004 2005 05/04 05-04 lower power generation (%) Operating Revenues 102,670 125,083 22,413 121.8 CO2 allowance trading Sales of electricity 92,183 115,949 23,767 125.8 and gener
Slide 77: Net Income Increased by 56% Y-o-Y to CZK 22 bn
NET INCOME INCREASED BY 56% Y-O-Y TO CZK 22 BN (INCREASE OF CZK 8 BN) Index Change Key non operating CZK m 2004 2005 05/04 05-04 (%) impacts in CZK bn Operating results (EBIT) 19,785 29,419 9,634 148.7 Other expenses/income 1,284 2,097 813 163.3 - 0.8 income tax Interest on debt 1,823 1,800 -23 98.7
Slide 78: Impact of One-off Items on 2005 Performance
CEZ GROUP RESULTS WERE INFLUENCED BY SEVEROCESKE DOLY CONSOLIDATION AND ACCOUNTING FOR NEGATIVE GOODWILL AT OLTENIA Impact of one off items on 2005 performance CZK bn SD Impact Negative Provisioning CEZ Group (full x equity goowill for STE excl. one off CEZ Group consolidation) Oltenia Building item
Slide 79: Financial Performance by Segments in 2005
FINANCIAL PERFORMACE BY SEGMENTS IN 2005 CEZ Group by segments CZK m Generation Distribution Mining Others Consolidated Revenues 70,248 75,387 7,998 8,654 125,083 EBITDA 33,642 11,272 3,607 1,606 50,157 EBIT 19,734 6,029 2,660 516 29,420 EBIT contribution CZK bn 35 2.7 0.5 0.5 30 6.0 25 29.4 19.7 20
Slide 80: 2006 Expected EBIT and EBITDA
IN 2006 WE EXPECT EBIT AT CZK 36.8 BN AND EBITDA AT CZK 58.1 BN Main financial results CZK bn 40 + 25 % 36.8 35 + 49 % 29.4 30 25 Main growth factors EBIT 20 19.8 15 Gross margin from 10 generation and trade 5 0 Savings within Vision 2004 2005 2006E 2008 and in generation 70 + 16 % Contributio
Slide 81: Agenda
AGENDA Summary for investors Introduction Scope of operations Financial performance Strategic initiatives of CEZ Group Integration and operational excellence Plant portfolio renewal M&A expansion 2005 results review Appendix 80
Slide 82: Appendix
APPENDIX Appendix – Czech power market overview Nuclear safety and provisions Selected historical financial figures
Slide 83: CEZ Is a Dominant Player in All Segments of the Czech Electricity Market
CEZ IS A DOMINANT PLAYER IN ALL SEGMENTS OF THE CZECH ELECTRICITY MARKET … Czech electricity market in 2004 TWh End user market – Foreign trade Net production Wholesale Grid losses consumption 16.7* CEZ 56.2 (75%) 39.5 34.5 Gross 62.1 (74%) CEZ CEZ’s grid Export 16.9 Import 0.2 Own consumption 5.9 3
Slide 84: CEZ Has Always Been a Dominant Producer
… AND HAS ALWAYS BEEN 90,000 Balance of import and export of the others -4,903 70,000 4,204 1,949 1,023 1,598 22,731 17,720 22,624 22,230 50,000 14,486 Gross production of the others GWh 30,000 46,361 47,892 50,842 54,118 61,602 Gross production of CEZ, a. s. 10,000 -1,531 -3,484 -15,591 -10,000 -11
Slide 85: Demand for Electricity Driven by Industrial Customers
DEMAND FOR ELECTRICITY IN THE CZECH REPUBLIC IS DRIVEN BY INDUSTRIAL CUSTOMERS 2003 2004 Installed capacity as of 31st December 17,344 MW 17,434 MW Demand for electricity 54,807 GWh 56,388 GWh Net electricity generation 76,659 GWh 77,919 GWh Gross electricity generation 83,227 GWh 84,333 GWh
Slide 86: Electricity Market to Be Fully Liberalized Starting 2006
ELECTRICITY MARKET TO BE FULLY LIBERALIZED STARTING 2006, 75% LIBERALIZED ALREADY Time plan of end-user market liberalization in the Czech Republic Percentage 100 90 75% of the market Households 80 already liberalized 70 60 Small commercials 50 Continuous metering 40 9-40 GWh 30 20 Over 40 GWh 10 0
Slide 87: Agenda
AGENDA Appendix – Czech power market overview Nuclear safety and provisions Selected historical financial figures 86
Slide 88: Dukovany Is One of European Best Performing Nuclear Power Plants
DUKOVANY IS ONE OF EUROPEAN BEST PERFORMING NUCLEAR POWER PLANTS Type of reactor PWR – pressurized water reactor, as majority of reactor types around the world Basic description Based on the original Russian technical design with many improvements in cooperation with Westinghouse Electric to
Slide 89: Nuclear Power Plants Insured According to Industry Standards
NUCLEAR POWER PLANTS OF CEZ, A. S. ARE INSURED ACCORDING TO INDUSTRY STANDARDS Property damage insurance NPP Dukovany since December 1998 NPP Temelín since July 2000 Nuclear third party liability insurance (operational) NPP Dukovany since January 1998 NPP Temelín since July 2000 Nuclea
Slide 90: 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 29.4 bn 15.6 decommissioning as stated in BS at December 31, 2004 Annual increase by 7% (discount rate 2.5% +
Slide 91: Nuclear Provisions: Decommissioning Cash Flow Impact
NUCLEAR PROVISIONS – CASH FLOW IMPACT 1. NUCLEAR DECOMMISIONIONING Decommissioning of nuclear power plants Czech law requires CEZ to have accounting provisions created under Czech Accounting Standards cash funded (starting 2002) updated 2004 Temelín cost study – estimate CZK 13.7 bn updated 20
Slide 92: Nuclear Provisions: Fuel Storage Cash Flow Impact
NUCLEAR PROVISIONS – CASH FLOW IMPACT 2. FUEL STORAGE Final Storage of radioactive waste and spent fuel contribution to the „nuclear account“ at the Czech National Bank controlled by the state authority RAWRA (Radioactive Waste Repository Authority) contribution stated by a government resoluti
Slide 93: Agenda
AGENDA Appendix – Czech power market overview Nuclear safety and provisions Selected historical financial figures 92
Slide 94: Selected Historical Financials CZK
SELECTED HISTORICAL FINANCIALS CZK Profit and loss CZK bn 2003 2004 2005 Revenues 87.3 102.7 125.1 Sales of electricity 79.0 92.2 115.9 Heat sales and other revenues 8.3 10.5 9.1 Operating Expenses 53.7 63.0 74.9 Purchased power and related services 21.1 26.5 37.5 Fuel 9.2 9.3 9.0 Salaries and wages
Slide 95: Selected Historical Financials EUR
SELECTED HISTORICAL FINANCIALS EUR Profit and loss EUR m 2003 2004 2005 Revenues 3,009 3,540 4,312 Sales of electricity 2,723 3,178 3,998 Heat sales and other revenues 286 362 315 Operating Expenses 1,852 2,174 2,583 Purchased power and related services 728 914 1,292 Fuel 316 321 311 Salaries and wa
Slide 96: 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