CEZ As · PSECZ:CEZ
CEZ As — Investor Presentation (January 2007)
100 slides from CEZ As's investor presentation, January 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, January 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 27 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 51 M&A expansion 62 Financial results Q1-Q3 20
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 (TWh) 3.6 Market share 2.4% Installed capacity (MW) 830 CEZ Group
Slide 8: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 51 M&A expansion 62 Financial results Q1-Q3 20
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 56% 22 million tons 72% companies 31.1 TWh 60.0 TWh 100% 62% of customers 62 TWh 55% Others 44% 27 million tons 28% 38% of custo
Slide 10: Vision of the CEZ Group is to be the leader in power markets
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 January 5, 2007 Price on Jan 1, 2004 CZK 936.6 350% CZK 146 PX 250% BBG EUR 150% Utilities Index 50% 2004 2005 2006 2007 CEZ shares are amo
Slide 13: 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 Increasing share Utilities Institutional shareholders Emerging markets (mostly international) Hedge 24.5% 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 27 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 51 M&A expansion 62 Financial results Q1-Q3 20
Slide 15: CEZ is among top European power utilities by size
CEZ IS AMONG TOP 10 EUROPEAN POWER UTILITIES BY SIZE …. Top 10 European power utilities Top 10 European power utilities Number of customers in Europe, million Market capitalization, USD bn, as of January 11, 2007 1 EdF 36.7 1 EDF 125.5 2 Enel 30.0 2 E.ON 89 3 E.ON 26.0 3 Suez 65.1 4 Endesa 23.0 4 En
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 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 Czech generation (2005) Annual production of CEZ Group TWh 12,298 60.0 Utilization MW TWh 2005 Completion of Temelin nuclear power plant Hydro (river 2.2 12% 2,000 MW accumulation 1,935 and pump storage) 62.1
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 2004 and 2005 EUR m 2000 -1 1,771 128 57 Generation and trading 398 contribute more than 1500 1,189 2/3 to overall group EBIT 2005 1000 Distribution and supply contribution impacted by 67% 22.5% 7.2% 3.2% <1% one-of
Slide 21: Improved guidance for 2006
EXPECTED PROFITABILITY GROWTHS IS CONFIRMED BY THE LATEST SET OF QUARTERLY DATA RESULTING IN IMPROVED GUIDANCE FOR 2006 Contribution to EBITDA of CEZ Group EUR m 1,600 1,400 105.9 43.9 1356.3 313.5 Q1-Q3 2005 1,200 EBITDA of CEZ Group 1,000 893.0 2006 guidance, EUR m 800 600 400 + 9.6 % 200 198 0 Ge
Slide 22: 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 23: 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 24: Least indebted utility in Europe
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 25: 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 26: Free cash-flow can finance international growth up to EUR 6.0 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 6.0 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 27: 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 908.7* 1170 1200 1,105 1,075 1030 1049 1020 1000 1,000 962 1,006 995 1002 955 915 705 Morgan Citigroup Raiffeisen Sal. Erste Bank CAIB/HVB UBS Atlantik
Slide 28: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 51 M&A expansion 62 Financial results Q1-Q3 20
Slide 29: German power prices as benchmark for the region 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 28
Slide 30: 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 40 Start of EU ETS 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 CO2 allowances were distributed
Slide 31: Wholesale prices in the Czech Republic 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 ~ 54.0 54.0 44.0 ** ~ 44.0 Czech Slovakia Germany Austria UK Italy Republic * Comparing 2006 forward price as of 2005, assuming CZK/EU
Slide 32: 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 – 55 EUR/MWh 250 +34 % 225 - 24% 200 +20 % 175 Price in the Czech +20 % Republic will 150 continue increasing +19.5 % to German levels due 125 to shortening supp
Slide 33: 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 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 capacities price decrease
EXPORT CAPACITIES PRICE SITUATION INDICATES THAT THE REALITY WILL EXCEED THE EXPECTATIONS – CAPACITY PRICE DECREASE FROM 12.5 EUR/MWH TO 5.0 EUR/MWH Czech and Slovak power market balance - updated TWh Higher demand growth in CR 125 Higher export capacities to Germany (Poland limited its Demand i
Slide 36: Lack of power impacts the whole region and spot prices
LACK OF POWER IMPACTS THE WHOLE REGION AND SPOT PRICES IN CRITICAL MOMENTS GROW SKY HIGH WHILE CZECH AND GERMAN MARKETS COUPLE OKO EEX and OKO* prices in July 2006 (EUR/MWh, spot) EEX 300 250 200 €/MWh 150 100 50 0 06 06 06 06 06 06 06 06 06 06 06 06 06 06 06 06 06 06 06 06 06 06 0 0 0 0 0 0 0 0 0 0
Slide 37: CEZ can generate additional ~6 TWh by increasing 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: Virtual power plant auction drove 2007 base load price 17.1% higher
IN THE VIRTUAL POWER PLANT AUCTION DEMAND HAS DRIVEN 2007 BASE LOAD PRICE 17.1% ABOVE 2006 LEVEL Key outcomes of virtual power plant auction 18 registered participants, out of which 15 complied with auction rules Total of 40 bids submitted Successful bids in the range of 1,255 – 1,273 CZK/MWh
Slide 39: Second wholesale auction attracted even more interest
SECOND WHOLESALE AUCTION ATTRACTED EVEN MORE INTEREST LEADING TO 2007 BASE LOAD PRICE INCREASE BY 19.5% WHILE PEAK PRODUCTS WERE KEPT AT 10.8% INCREASE OVER 2006 PRICES Main results of the annual base load auction 22 registered participants (all complied with auction rules) 167 bids submitted –
Slide 40: CEZ will see record high power generation volume in 2007
CEZ WILL SEE RECORD HIGH POWER GENERATION VOLUME IN 2007 Expected power sales from CEZ Generation TWh 70 Export and other Demand in the auctions 56.0 ~ 58.0 Auctions exceeded expectations 60 CEZ Sales 8.4 8.2 High demand confirms 50 expected supply/demand 40 15.5 18.7 squeeze in the region CEZ ex
Slide 41: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 51 M&A expansion 62 Financial results Q1-Q3 20
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 27 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 51 M&A expansion 62 Financial results Q1-Q3 20
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 millions annual savings upon 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 REDC 1 2006 2004 2005 2007 Efficiency Big bang Transformation Conclusion enhancement business model major part of transformation full product
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: 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 61.0 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, 2005 - 11 % 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.
Slide 52: Low CO2 allowances price in NAP I can't negatively influence results
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 Sales of allowances are made depending on production Cumulative sales of CO2 allowances optimization
Slide 53: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 51 M&A expansion 62 Financial results Q1-Q3 20
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 in Dukovany and Temelin
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 the end of its 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 technology 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 125bn
CAPEX FOR LIGNITE PLANTS RENEWAL WILL REACH CZK 125BN* AND BRING 14-25% EFFICIENCY UPLIFT Projects overview Highly efficient and Expected CAPEX – conservative scenario environmentally friendly CZK bn Highly profitable 2008-15: Main Assets 20 Renewal Period Secured fuel – low risk 18 16 Retrofi
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 and CO2 emissions
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 27 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 51 M&A expansion 62 Financial results Q1-Q3 20
Slide 65: CEZ Group wants to grow both 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 its 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: 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 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: Results of the Bulgarian acquisition better than expected
RESULTS OF THE BULGARIAN ACQUISITION BETTER THAN EXPECTED IN 1st YEAR AFTER ACQUISITION, IMPROVEMENTS ALSO CONTINUED IN 2006 Selected financials (simple sum) EUR m 2004 2005 Sales 361.6 396.6 Key impacts 2005 EBITDA 42.4 54.2 Revenues increased by 10 % driven by 3% EBITDA Margin 11.7% 13.7% increa
Slide 71: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 51 M&A expansion 62 Financial results Q1-Q3 20
Slide 72: Main results for Q1-Q3 2006
MAIN RESULTS FOR Q1 - Q3 2006 EBITDA y-o-y increased by 26 % to CZK 48.3 bn, y-o-y increase by CZK 9.9 bn EBIT y-o-y increased by 29 % to CZK 29.9 bn, which represents a y-o-y increase of CZK 6.7 bn Net Income increased y-o-y by 44 % to CZK 22.0 bn (increase of CZK 6.7 bn) ROE increased in r
Slide 73: Net income grew y-o-y by CZK 6.7 bn
NET INCOME GREW Y-O-Y BY CZK 6.7 BN – I.E. BY 44 % CZK bn 35 1.4 0.5 Main improvements 30 13.6 Higher demand in 1.3 14.2 1.8 CR and generation 25 4.3 from own sources 3.2 1.8 Operating costs 20 control 22.0 CZK appreciation, 15 optimization of free + CZK 6.7 bn financial resources 10 usage in
Slide 74: CEZ Group keeps its operating costs under control
CEZ GROUP MANAGES TO KEEP ITS OPERATING COSTS UNDER CONTROL Index Q1 – Q3 2006 Q1 – Q3 Q1 – Q3 06/05 (CZK bn) comparable 2005 2006 comparable entity entity Salaries and wages 9.0 10.1 9.4 104% Repairs and maintenance 2.3 3.2 2.7 114% Material and supplies 2.8 3.5 3.4 120% Others 4.0 4.6 3.9 98% Y-
Slide 75: Financial costs and income contributed y-o-y by CZK 1.8 bn
FINANCIAL COSTS AND INCOME CONTRIBUTED Y-O-Y BY CZK 1.8 BN Czech crown appreciation Q1 – Q3 Q1 – Q3 Change Index helped to (CZK m) 06/05 decrease FX 2005 2006 06-05 (%) losses and losses Other expenses (+) and income (-) 3,279 1,506 -1,772 45.9 Interest on debt 1,276 1,511 235 118.4 from derivativ
Slide 76: 2006 power generation reached historical high
2006 POWER GENERATION OF THE GROUP IN THE CZECH REPUBLIC REACHED HISTORICAL HIGH OF 46.1 TWH IN Q1 – Q3; THE WHOLE GROUP GENERATED 47.8 TWH Own generation Sales increase, namely in TWh the domestic market, due to consumption growth in the 60 Czech and Slovak Republic 47.8 (Czech demand increased 4
Slide 77: Foreign acquisitions contribution has almost tripled
FOREIGN ACQUISITIONS CONTRIBUTION HAS ALMOST TRIPPLED COMPARED TO LAST YEAR EBITDA CZK bn 50 48.3 48 3.6 46 Growth in Bulgaria by 40 % 44 and new acquisitions in 2,8x 42 Romania and Poland 40 38.4 Abroad brought y-o-y CZK 2.3 bn in Czech Republic 44.7 EBITDA 38 1.3 36 37.1 34 10 32 0 30 Q1 - Q3 20
Slide 78: 2006 expected EBITDA, EBIT and net income
IN 2006 WE EXPECT EBITDA OF CZK 63.7 BN, EBIT OF CZK 39.8 BN AND NET INCOME OF CZK 28.5 BN Main financial results 70 + 27 % 63.7 60 + 27 % 50.1 50 39.6 EBITDA 40 30 In Q4 we expect an 20 on-going growth of 10 generation and 0 2004 2005 2006E gross margin 45 40 + 35 % 39.8 Operating costs 35 + 49
Slide 79: Net income guidance increased to CZK 28.5 bn
CEZ INCREASED NET INCOME GUIDANCE FROM CZK 28.0 BN PUBLISHED IN H1 2006 TO CZK 28.5 BN Main influence Higher generation and sales from own sources Operating costs savings (repairs and maintenance) CZK bn Acquisition of Polish power plants ELCHO 35 and Skawina 1.4 0.6 1.1 30 0.1 -0.4 -0.6 -1.7
Slide 80: Generation and trading the most significant segment
GENERATION AND TRADING SEGMENT THE MOST SIGNIFICANT SEGMENT, BUT DISTRIBUTION AND SALES ACHIEVES BIG GAINS Contribution to EBITDA in Q1 - Q3 2006 mld. CZKKč bn 60 60 2,6 2.6 50 50 2,8 2.8 10,9 10.9 48,3 48.3 40 40 32,0 32.0 30 30 20 20 10 10 66.2 % 22.6 % 5.8 % 5.4 % 100 % 00 Výroba Generation Distr
Slide 81: Balance sheet
BALANCE SHEET Increase mainly by CZK 6.3 bn increase of ST loans ( in Assets Inrease mainly by Equity and context of Varna acquisition preparation) CZK bn CZK 2.5 bn Polish power Liabilities and of bonds maturing in 1 year plants CO2 allowances CZK bn CZK 3.2 bn increase of liabilities from
Slide 82: Operating cash flow
OPERATING CASH FLOW CZK bn others 60 Y-o-y interest paid change: + 38 % 50 income taxes paid Key impacts on FX loss/gain, net operating cash flow 40 increase interest expense, interest income and in CZK bn dividends income, net 30 + 11.5 EBIT adjusted for amortization of nuclear fuel non cash items
Slide 83: Indebtedness y-o-y grows and improves capital structure
INDEBTEDNESS Y-O-Y GROWS AND IMPROVES THE CAPITAL STRUCTURE OF CEZ, A. S. % % 90 90 Indebtedness growth as of September 30, 2006 80 80 82.1 corresponds with 79.5 70 75.3 70 77.3 acquisition of Polish 60 60 power plant ELCHO 50 50 The estimate also reflects the Eurobond 40 40 issue in volume of E
Slide 84: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 8 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 40 Integration and operational excellence 42 Plant portfolio development 51 M&A expansion 62 Financial results Q1-Q3 20
Slide 85: 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 86: Regional power prices continue growing and converging
REGIONAL POWER PRICES CONTINUE GROWING AND KEEP ON CONVERGING EEX Price of 2007 annual base load 47.5 2006 EEX 53.0 - 55.0 2007 DE 53-55 €/MWh 2006 36.5 CR SE 42.8 50-52 €/MWh auction Broker SK TFS 50.0 - 52.0 50-52 €/MWh 2006 37.2 Virtual PP 42.8 HU 57-59 €/MWh 2006 38.0 2nd auction 44.4 Broker TFS
Slide 87: 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 88: 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 89: 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 90: Number of employees will decline by 10% by 2008
NUMBER OF EMPLOYEES WILL DECLINE BY 10 % BY 2008 WITHIN VISION 2008 PROJECT Number of employees in distribution and support services of CEZ Thousands -10% 18,100 - 300 - 200 - 400 - 600 16,300 - 200 2003 2004 2005 2006 2007e 2008e 2008 base base Source: CEZ 89
Slide 91: 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 92: CEZ expects same allocations of CO2 allowances for next period
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 93: 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 94: Balance sheet of Romanian Oltenia has been cleared up
BALANCE SHEET OF ROMANIAN OLTENIA HAS BEEN CLEARED UP AND THE COMPANY IS ON A GOOD TRACK TO SIGNIFICANTLY IMPROVE IN 2006 Selected financials (restated) EUR m 2004 2005 Key impacts 2005 Sales 352.6 350.7 Transaction settled on September 30, 2005; EBITDA 64.0 45.3 consolidated in Q4 only EBITDA Mar
Slide 95: Elcho is a brand new power plant commissioned in 2003
ELCHO IS A BRAND NEW POWER PLANT COMISSIONED 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 EB
Slide 96: 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 97: 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 98: Selected historical financials of CEZ Group CZK
SELECTED HISTORICAL FINANCIALS OF CEZ GROUP 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 Salar
Slide 99: Selected historical financials of CEZ Group EUR
SELECTED HISTORICAL FINANCIALS OF CEZ GROUP 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 Sa
Slide 100: 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: brozik@cez.cz email: jan.haj