Cez As · PSECZ:CEZ

Cez As — Investor Presentation (July 2005)

49 slides from Cez As's investor presentation, July 2005

  1. Slide 1: ČEZ Group – the leader in power markets of Central and Southeastern Europe

    ČEZ GROUP – THE LEADER IN POWER MARKETS OF CENTRAL AND SOUTHEASTERN EUROPE Equity story July 2005

  2. Slide 2: Agenda

    AGENDA ƒ Profile of ČEZ Group ƒ Introduction ƒ Financial performance ƒ Strategic initiatives of ČEZ Group ƒ Integration and operational excellence ƒ M&A expansion ƒ Plant portfolio renewal ƒ Summary for investors Version July 12, 2005 1

  3. Slide 3: Vision of the ČEZ Group is to be the leader in power markets

    VISION OF THE ČEZ GROUP IS TO BE THE LEADER IN POWER MARKETS IN CENTRAL AND SOUTHEASTERN EUROPE ƒ Integrated utility focused on power Business generation, distribution and supply focus ƒ Present in related businesses where relevant (coal mining, heat generation) Our vision: the leader in power ƒ Cze

  4. Slide 4: New management team is determined to fulfill the mission

    NEW MANAGEMENT TEAM IS DETERMINED TO FULFILL THE MISSION Board of ČEZ, a. s. CEO Trade Finance Generation Operations Alan Svoboda Petr Vobořil Martin Roman Jiří Borovec Radomír Lašák Responsibility ƒ Trading ƒ Treasury ƒ M&A ƒ Conventional ƒ Distribution ƒ Sales ƒ Accounting ƒ Procurement generation

  5. Slide 5: ČEZ Group steadily increases production

    ČEZ GROUP STEADILY INCREASES PRODUCTION ČEZ Group generation capacity Annual production of ČEZ Group MW TWh 100% of 12,297 generation Completion of Temelín Hydro (river 3% nuclear power plant accumulation 1,934 2,000 MW 17% and pump storage) 61.4 62.1 50.8 52.2 54.1 Lignite off basin 2,687 and hard

  6. Slide 6: Major investment program was focused on emission reduction

    MAJOR INVESTMENT PROGRAM WAS FOCUSED ON EMISSION REDUCTION Generation structure of ČEZ Group TWh ČEZ Group emission 60 change 2004/1993 50 Hydro power plants CO - 77% Fly-ash - 95% NOx - 50% 40 Nuclear power plants SO2 - 92% 30 ČEZ invested EUR 1.5 20 Desulphurized coal power plants billion into des

  7. Slide 7: After acquisition of 5 regional distributors, ČEZ Group has become major Czech power supplier

    AFTER ACQUISITION OF 5 REGIONAL DISTRIBUTORS, ČEZ GROUP HAS BECOME MAJOR CZECH POWER SUPPLIER Distribution regions of ČEZ Group ČEZ Group has 57% share in the supply to the end user* in the Czech Republic Děčín Hradec Králové Praha Ostrava Plzeň Brno České Budějovice * End user represents both whole

  8. Slide 8: With acquisitions in Bulgaria and Romania, ČEZ Group created a strong foothold in Southeastern Europe

    WITH ACQUISITIONS IN BULGARIA AND ROMANIA, ČEZ GROUP CREATED A STRONG FOOTHOLD IN THE SOUTHEASTERN EUROPE Target markets ČEZ Group in Romania** (51% share in EDC Oltenia) Electricity sales (TWh) 6.8 Number of customers (m) 1.36 Installed capacity (MW) 0 Number of employees 3,027 Sales (EUR m) 340* Č

  9. Slide 9: Agenda

    AGENDA ƒ Profile of ČEZ Group ƒ Introduction ƒ Financial performance ƒ Strategic initiatives of ČEZ Group ƒ Integration and operational excellence ƒ M&A expansion ƒ Plant portfolio renewal ƒ Summary for investors 8

  10. Slide 10: ČEZ Group is the largest Czech company

    ČEZ GROUP IS THE LARGEST CZECH COMPANY Top Czech companies in 2004 By profitability Share in the PX 50 Prague stock exchange By assets Income before income taxes index Total assets, EUR billion* EUR million* Percent as of April 11, 2005 ČEZ Group 9.4 ČEZ Group 598 Český Telecom 4.5 RWE Transgas 345

  11. Slide 11: Market capitalization of USD 11.5 billion; top 10 European power utilities

    WITH MARKET CAPITALIZATION OF USD 11.5 BILLION ČEZ BELONGS TO TOP 500 BIGGEST GLOBAL COMPANIES AND TOP 10 EUROPEAN POWER UTILITIES Market capitalization of ČEZ Group Top 10 European power utilities USD* billion Number of customers in Europe, million ČEZ Group ranked 446 in Financial Times Global 5OO

  12. Slide 12: ČEZ Group is one of the most profitable utilities in Europe

    ČEZ GROUP IS ONE OF THE MOST PROFITABLE UTILITIES IN EUROPE EBITDA margin, 2004 Percent Electrabel 17.8 ČEZ Group has generally lower RWE 19.9 fuel costs and higher E.ON 21.4 depreciation EdF 25.8 Endesa 27.0 Vattenfall 27.7 Iberdrola 27.7 PPC 29.6 ENEL 30.2 ČEZ Group 37.5 11

  13. Slide 13: ČEZ Group maintains high dynamics in profit growth in line with analysts expectations

    ČEZ GROUP MAINTAINS HIGH DYNAMICS IN PROFIT GROWTH IN LINE WITH ANALYSTS EXPECTATIONS EBIT of ČEZ Group EUR million 446-1,012 ČEZ Group expects 546-932 619-915 672-939 722-965 annual increase by 31% 489-822 566-663 ~833 639 433 374 2002 2003 2004 2005E 2006E 2007E 2008E 2009E 2010E Analysts‘ expecta

  14. Slide 14: ČEZ stock has significantly out-performed the Czech market and utilities

    ČEZ STOCK HAS SIGNIFICANTLY OUT-PERFORMED THE CZECH MARKET, EUROPEAN UTILITY MARKET AND MAIN UTILITIES Prices of shares and share indexes * Current ČEZ share Growth Jan 02 - Apr 05 Percent price CZK 487 Percent 700% ČEZ 446 600% ČEZ 500% PX 50 201 400% PUP 47 PX 50 index 300% Prime Utilities 200% Pe

  15. Slide 15: ČEZ Group attracted many international shareholders and is followed by major analysts

    ČEZ GROUP ATTRACTED MANY INTERNATIONAL SHAREHOLDERS AND IS CLOSELY FOLLOWED BY MAJOR EQUITY ANALYSTS Shareholders of ČEZ, a. s. Examples of large foreign As of December 31, 2004 investors ƒ Baring Asset Management Institutional Investors ƒ Merrill Lynch (mostly international) ƒ ABN Amro ƒ Barclays G

  16. Slide 16: Analysts maintain positive view on ČEZ Group performance

    ANALYSTS MAINTAIN POSITIVE VIEW ON ČEZ GROUP PERFORMANCE Target share price Expected CZK increase of 20% 585 510 490 510 515 495 Current share price 350 358 369 CZK 487* UBM Deutsche Raiffeisen UBS Erste Wood CAIB Patria ING Bank Bank Bank & Comp. 12.11.04 2.12.04 20.12.04 9.3.05 21.3.05 15.4.05 16.

  17. Slide 17: ČEZ finances are under close scrutiny of rating agencies and bond investors

    ČEZ FINANCES ARE UNDER CLOSE SCRUTINY OF RATING AGENCIES AND BOND INVESTORS Credit rating of ČEZ and Czech Republic ČEZ bonds Amount Year Million Currency Placement Repayment ČEZ BBB+ 1993 2,100 CZK ƒ Praha 1996 Standard 1994 4,000 CZK ƒ Praha 1999 & Poor’s 150 USD ƒ Luxembourg 1999 Czech 1995 4,000

  18. Slide 18: The balance sheet of ČEZ Group is very robust

    THE BALANCE SHEET OF ČEZ GROUP IS VERY ROBUST CZK billion Total assets Total equity and liabilities 278 281 278 281 Stable low Minority interests 8 6 level of debt Current assets 20 23 16 Deferred taxes liability 16 allows for Other non- 22 31 23 Current liabilities 37 substantial current assets 29

  19. Slide 19: ČEZ Group is the least indebted utility in Europe

    ČEZ GROUP IS THE LEAST INDEBTED UTILITY IN EUROPE WITH STRONG ADDITIONAL BORROWING CAPACITY Long-term debt/ Total assets Percent ČEZ Group 15 EnBW 20 E.ON 23 Vattenfall 27 RWE 28 Endesa 38 Iberdrola 42 18

  20. Slide 20: ČEZ Group has very strong free cash-flow

    ČEZ GROUP HAS VERY STRONG FREE CASH-FLOW FURTHER STRENGTHENING ITS ABILITY TO FINANCE INTERNATIONAL GROWTH Free cash flow of ČEZ Group (cumulative) EUR million 4,000 3,000 3,000 ČEZ Group can finance 2,375 foreign acquisitions 2,000 1,750 in the next 3-5 years from free cash flow up 1,125 to EUR 3,0

  21. Slide 21: ČEZ Group generates large operating cash-flow in excess of investment needs

    ČEZ GROUP GENERATES LARGE OPERATING CASH- FLOW IN EXCESS OF INVESTMENT NEEDS 2005: 50 CZK 2.4 bn – nuclear fuel and provisions CZK 1.2 bn – capitalized interest CZK 5.3 bn – domestic distribution companies 45 Nucle ar fue l and CZK 2.0 bn – Romanian and Bulgarian distribution companies provis ions 4

  22. Slide 22: Summary of ČEZ Group profile

    SUMMARY OF ČEZ GROUP PROFILE ƒ ČEZ Group is the largest Czech corporation ƒ With February 2005 market capitalization of USD 11.5 billion ČEZ belonged to top 500 biggest global companies and top 10 European power utilities ƒ ČEZ Group is one of the most profitable utilities in Europe with strong prof

  23. Slide 23: Agenda

    AGENDA ƒ Profile of ČEZ Group ƒ Introduction ƒ Financial performance ƒ Strategic initiatives of ČEZ Group ƒ Integration and operational excellence ƒ M&A expansion ƒ Plant portfolio renewal ƒ Summary for investors 22

  24. Slide 24: ČEZ Group has launched four key strategic initiatives

    ČEZ GROUP HAS LAUNCHED FOUR KEY STRATEGIC INITIATIVES Vision and corporate targets Integration M&A Plant and expansion portfolio operational renewal excellence (2004-8) (2004-10) (2007-20) Performance-oriented culture 23

  25. Slide 25: Performance oriented culture is a precondition for all other initiatives

    PERFORMANCE ORIENTED CULTURE IS A PRECONDITION FOR ALL OTHER INITIATIVES Value creation is the top priority Enforcing individual responsibility for reaching ambitious goals/results Building ties and shared values within the Group Development of human potential Creation of international organization

  26. Slide 26: Agenda

    AGENDA ƒ Profile of ČEZ Group ƒ Introduction ƒ Financial performance ƒ Strategic initiatives of ČEZ Group ƒ Integration and operational excellence ƒ M&A expansion ƒ Plant portfolio renewal ƒ Summary for investors 25

  27. Slide 27: Within Project Vision 2008 ČEZ Group will reorganize into a transparent holding structure

    WITHIN PROJECT VISION 2008 ČEZ GROUP WILL REORGANIZE ITSELF INTO A TRANSPARENT HOLDING STRUCTURE ČEZ, a.s. ČEZ, a.s. Production Production - Nuclear Project VISION 2008 - Nuclear - Conventional - Conventional Sales and trading Trading Distributor 1 Domestic Foreign ČEZ Prodej, s.r.o. Domestic Foreig

  28. Slide 28: Strong profitability growth is driven by multiple factors across the value chain

    STRONG PROFITABILITY GROWTH IS DRIVEN BY MULTIPLE FACTORS ACROSS THE VALUE CHAIN Generation Trading Supply Distribution Group level Positive ƒ Low and stable ƒ Convergence ƒ Stable market ƒ Higher WACC ƒ Centralization cost of lignite of price share and eligible of corporate ƒ Higher utilization to

  29. Slide 29: Additional 8.7 TWh can be generated by increasing utilization

    ADDITIONAL 8.7 TWh CAN BE GENERATED BY INCREASING UTILIZATION OF NUCLEAR AND COAL PLANTS Time utilization of generation capacity Percent of hours p.a. Nuclear 77 3 20 Higher sales 100 % opportunity due to improved utilization – potential of additional Lignite 100 % 8.7 TWh sales (14% 69 3 12 16 (at

  30. Slide 30: ČEZ Group will benefit from fast growing demand and forced shut down of old plants

    GOING FORWARD, ČEZ GROUP WILL BENEFIT FROM FAST GROWING DEMAND AND FORCED SHUT DOWN OF OLD PLANTS Power consumption in the Czech Republic Estimated capacity reduction in Central Europe by 2010 TWh Installed capacity, MW 64 62 environmental impact % Slovakia nuclear safety 1,540 I.Q 2005 1. 5 60 +1.5

  31. Slide 31: ČEZ Group is second largest exporter of power in Europe

    ČEZ GROUP IS SECOND LARGEST EXPORTER OF POWER IN EUROPE, PROVIDING POWER TO CENTRAL EUROPEAN COUNTRIES Net exports in 2004 Structure of ČEZ exports in 2004 TWh 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

  32. Slide 32: Domestic and export prices are converging to international levels

    DOMESTIC AND EXPORT PRICES ARE CONVERGING TO INTERNATIONAL LEVELS EUR/MWh* German wholesale price Average electricity prices 45 for households 35 EUR cent/kWh, VAT excl. Domestic annual Italy 14.1 baseload wholesale prices 24.5 24.8 27.1 30.2 ? Germany 12.8 2006 forward Austria 9.8 2002 2003 2004 20

  33. Slide 33: Wholesale prices offered by ČEZ are the lowest in the region

    WHOLESALE PRICES OFFERED BY ČEZ ARE THE LOWEST IN THE REGION . . . Wholesale power price Existing approach how to set up level of 2005, baseload, EUR/MWh electricity prices +72% ƒ has been a result of influence of higher German prices and potential cheaper imports from Poland and Slovakia Export mar

  34. Slide 34: ČEZ Group increased sales margin while maintaining market share

    ČEZ GROUP INCREASED SALES MARGIN WHILE MAINTAINING MARKET SHARE Distribution regions of ČEZ Group Market share in power retail Percent of MWh 61% 61% Děčín Hradec Králové Praha 2004 2005 Ostrava Plzeň Average net margin Brno Percent České Budějovice 6% 2% 2004 2005 33

  35. Slide 35: ČEZ Group is ready to operate in fully liberalized end-user market

    ČEZ GROUP IS READY TO OPERATE IN FULLY LIBERALIZED END-USER MARKET Market regulator (Energy Regulatory Office, ERÚ) Provides for equal conditions for all market participants, sets prices for transmission, distribution, system services and for supply to protected customers Suppliers Transmission, Cus

  36. Slide 36: 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 ƒ Czech energy regulator established ƒ Introduction of RPI-X ƒ Regulation parameters ƒ Introduction of TPA to grids regulation reassessed for distributi

  37. Slide 37: Summary of profit improvement and business growth initiatives

    SUMMARY OF PROFIT IMPROVEMENT AND BUSINESS GROWTH INITIATIVES ČEZ Group has launched multiple initiatives focused on improvement of the existing businesses ƒ Project Vision 2008 aims at restructuring of the entire group and will lead to major operational improvement ƒ Additional profit growth is dri

  38. Slide 38: Agenda

    AGENDA ƒ Profile of ČEZ Group ƒ Introduction ƒ Financial performance ƒ Strategic initiatives of ČEZ Group ƒ Integration and operational excellence ƒ M&A expansion ƒ Plant portfolio renewal ƒ Summary for investors 37

  39. Slide 39: ČEZ Group wants to grow both in generation and distribution/supply

    ČEZ GROUP WANTS TO GROW BOTH IN GENERATION AND DISTRIBUTION/SUPPLY Ambition for distribution/supply growth Ambition for target generation growth Millions of customers MW of installed capacity ~ 20,000 ~10.0 6.6 12,297 Bulgaria 1.9 Hydro 1,934 Romania 1.3 Coal 6,603 Czech 3.4 Republic Nuclear 3,760 Č

  40. Slide 40: ČEZ Group is best positioned to succeed in Central and Southeastern Europe

    ČEZ GROUP IS BEST POSITIONED TO SUCCEED IN THE REGION OF CENTRAL AND SOUTHEASTERN EUROPE ƒ Intimate knowledge of the region ƒ Very well accepted, successful but “local” investor due to close cultural/historical ties ƒ First-hand experience with transformation of power markets ƒ Natural hedge to curr

  41. Slide 41: Large number of potential targets

    … AND LARGE NUMBER OF POTENTIAL TARGETS Main acquisitions opportunities Target markets 2005-2006 Central ƒ Bulgaria: generation – TPPs Varna, Europe Russe ƒ Romania: distributors Muntenia Sud, generation – TPP Turceni, Rovinari, Craiova ƒ Poland: generation – PAK, Dolna Odra, Kozienice, distribution

  42. Slide 42: Prudent in M&A decisions

    EVEN THOUGH ČEZ GROUP HAS AMBITIOUS EXPANSION PLANS, WE ARE VERY PRUDENT IN OUR M&A DECISIONS Key criteria for M&A decisions ƒ Target attractive on standalone basis (market position, asset quality) ƒ Synergies with ČEZ Group (welcomed but not taken into valuation) ƒ Return above cost of capital (wit

  43. Slide 43: ČEZ already started integration of distributors in Bulgaria and Romania

    ČEZ ALREADY STARTED INTEGRATION OF DISTRIBUTORS IN BULGARIA AND ROMANIA Romania 51% shares in EDC Oltenia owned by ČEZ, a. s. Status ƒ ČEZ Group selected in tender ƒ SPA signed ƒ Management team ready to go CZ RO Bulgaria 67% shares in 3 EDCs are owned by ČEZ, a .s. BG Status ƒ Management team on si

  44. Slide 44: Agenda

    AGENDA ƒ Profile of ČEZ Group ƒ Introduction ƒ Financial performance ƒ Strategic initiatives of ČEZ Group ƒ Integration and operational excellence ƒ M&A expansion ƒ Plant portfolio renewal ƒ Summary for investors 43

  45. Slide 45: ČEZ's coal-fired power plants emissions

    ČEZ‘S COAL-FIRED POWER PLANTS EMISSIONS 800 Emissions of CO, Fly-ash, NOx , SO2 and CO2 Desulphurization has 15 year cycle 700 40 37.0 37.3 35.1 35.6 35.1 Main investments 32.6 proceeded in 35 600 1996-1998 m tons CO2 30 500 25 k tons 400 20 1999 2000 2001 2002 2003 2004 300 200 100 0 1993 1994 1995

  46. Slide 46: Large portion of ČEZ power plants will be at the end of their lifetime

    HOWEVER, LARGE PORTION OF ČEZ POWER PLANTS WILL BE AT THE END OF THEIR LIFETIME Age structure of ČEZ thermal blocks MW 2,800 ƒ Substantial portion of 2 800 ČEZ thermal capacity 2500 approaches end of its life time 2000 1,550 ƒ Additionally, the 1,512 1500 emission limits on SOx, NOx will get much 10

  47. Slide 47: ČEZ intends to build its future plant fleet around new generation of lignite plants

    ČEZ INTENDS TO BUILD ITS FUTURE PLANT FLEET AROUND NEW GENERATION OF LIGNITE PLANTS Coal Nuclear Gas Renewables Environ- ƒ Acceptable ƒ No emissions ƒ Low emissions ƒ Limited/no emissions mental emissions if well ƒ Nuclear risk ƒ No resources depletion impact designed/managed Competitive ƒ Low cost

  48. Slide 48: Agenda

    AGENDA ƒ Profile of ČEZ Group ƒ Introduction ƒ Financial performance ƒ Strategic initiatives of ČEZ Group ƒ Integration and operational excellence ƒ M&A expansion ƒ Plant portfolio renewal ƒ Summary for investors 47

  49. Slide 49: ČEZ Group provides some unique features for equity investors

    ČEZ GROUP PROVIDE SOME UNIQUE FEATURES FOR EQUITY INVESTORS Key factors Rationale ƒ Robust balance sheet ƒ Lowest level of debt among large players ƒ Strong financial performance ƒ EBITDA margin 37% ƒ Growing dividend payout by 50% in 5 years ƒ 41% of net profit and 2.1% yield in 2004 ƒ Dynamic prof

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