CEZ As · PSECZ:CEZ
CEZ As — Investor Presentation (June 2006)
97 slides from CEZ As's investor presentation, June 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 June 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 stable position in domestic market
CEZ GROUP IS AN INTERNATIONAL UTILITY WITH STABLE 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) 3.6 (51% share in EDC Oltenia) Market share 2.5%
Slide 8: CEZ is a large player in all segments of the Czech electricity market
CEZ IS A LARGE 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 28%
Slide 9: CEZ Group has attractive 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 12,298 generation 2005 nuclear power plant Hydro (river 4% 12% 2,000
Slide 10: Major investment program in lignite power plants focused on emission reduction
MAJOR INVESTMENT PROGRAM IN LIGNITE POWER PLANTS WAS FOCUSED ON EMISSION REDUCTION 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
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 2005 By profitability By assets EBIT Total assets, EUR billion* EUR million* CEZ Group 11,2 CEZ Group 941 Český Telecom 4,3 T-Mobile 422 Škoda Auto 3,1 Škoda Auto 347 Unipetrol 2,6 Český Telecom 302 Lesy ČR 2,3 RWE Transgas
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 18 16 13,6 14 12 10 8,3 7,9 8 6,5 6,5 5,4 5,1 5,0 6 4,4 4,3 4,2 3,4 3,0 4 2,5 2,2 2 0 Z) I) U) Z) Y) ) Z) L) ) U) L) L) ) L) L) L U U (S (C (C (P (C (P (P (C (P (P (P
Slide 13: Vision of the CEZ Group is to be the leader in power markets in CSE Europe
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 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 Responsibility Conventional
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 June 23, 2006 1 EdF 36,7 1 EDF 89,7 2 Enel 30 E.ON 73,2 2 3 E.ON 26 Enel 50,7 3 4 Endesa 23 RWE 41 4 5 RWE 19,7 5 E
Slide 18: Most profitable utility in Europe measured by EBITDA margin
… AND IS THE MOST PROFITABLE UTILITY IN EUROPE MEASURED BY EBITDA MARGIN AND WILL REMAIN SO EBITDA margin, 2005 CEZ Group outstanding performance is Percent driven by generation portfolio – mix on nuclear and domestic lignite - which has 15.4 potential for further improvements: Electrabel E.ON 17.7
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 695* 1 030 998 1000 995 1 005 960 950 962 915 880 857 805 705 716 658 Morgan Atlantik Komerční Sal. Deutsche Citigroup CAIB/HVB Raiffeisen Goldman HSBC Patria / KBC UBS . Erste Bank Wood & ING Sta
Slide 20: 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 UTILITY Prices of shares and share indexes* Current price Percent CZK 695** 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 are
Slide 21: CEZ 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: CEZ Group maintains high dynamics in profit growth
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: New dividend policy targets payout ratio of 40% to 50%
NEW DIVIDEND POLICY TARGETS PAYOUT RATIO IN THE RANGE OF 40% TO 50 % OF THE CONSOLIDATED PROFIT Net income and dividends (IFRS, consolidated) Dividend payout ratio (2004) CZK billion Percent 50% 49.3% 20 Dividend E.ON 36% 41.3% 18 policy payout 40% 16 ratio target RWE 39% 40.3% 14 31.6% Fortum 41% 3
Slide 24: CEZ Group has 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: CEZ Group generates 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: CEZ finances under close 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: CEZ Group is the 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: CEZ Group has launched 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: CEZ Group is 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 2005 France 64.5 Year Poland ČR 12.5* 2005 0% Germany Poland 10.3 48% Germany Slovakia 8.1 Austria 46% 6% Slovakia 1.9 Diversification of target
Slide 34: Wholesale prices offered by CEZ are among the lowest in the region
WHOLESALE PRICES OFFERED BY CEZ ARE AMONG 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
Slide 35: Wholesale electricity prices in Central Europe grow
WHOLESALE ELECTRICITY PRICES IN CENTRAL EUROPE GROW DRIVEN BY INCREASING DEMAND AND LACK OF GENERATION CAPACITIES Wholesale power price (baseload) 2000 index EEX 2006 – 45.3 €/MWh +30 % 260 EEX 2007 – 50 €/MWh +30 % 240 +10 % 220 200 +20 % 180 -25 % 160 140 +15.0 % +?? % 120 +11.4 % 100 • The price
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: CEZ likely to become net buyer of allowances in the future
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 39: Second phase NAP will be submitted to EU soon
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 40: 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 41: 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 42: 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 43: 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 44: CEZ Group increased sales margin and aims to stabilize profitability
CEZ GROUP INCREASED SALES MARGIN AND AIMS TO STABILIZE PROFITABILITY 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 Č
Slide 45: CEZ lost market share in the most competitive segment
CEZ IS SUBJECT OF MARKET FORCES – LOST MARKET SHARE IN THE MOST COMPETETIVE SEGMENT WITH LOWES 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 200
Slide 46: 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 47: Project Vision 2008 reorganizes CEZ Group into a 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 48: Vision 2008 project covers four years, key steps implemented
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 49: Almost EUR 100 million in annual savings upon Vision 2008
…AND ACHIEVE ALMOST EUR 100 MILLION IN ANNUAL SAVINGS 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 (exclu
Slide 50: 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 49
Slide 51: Targeted capacity increase in Dukovany and Temelin nuclear plants
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 52: 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 53: 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 54: 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 53
Slide 55: Large portion of CEZ power plants at the end of their 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 56: Future plant fleet built 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 57: Finalized 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 58: 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 59: 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 58
Slide 60: CEZ Group wants to grow 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 61: CEZ Group 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 62: Prudent M&A decisions: criteria and process
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 63: 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 64: 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 65: Transactions in Southeastern Europe
….. 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 66: 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 67: Integration of the Bulgarian EDCs: key impacts
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 68: 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 69: 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 Restructuring process initiated with key positions staffed Sales 352 350 EBITDA 63.3 45 Agreement with regu
Slide 70: 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 71: 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 72: 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 73: Skawina set to profit from price convergence and heat off-take
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 74: CEZ signed SPA to acquire 100% in Varna power plant
CEZ SIGNED SPA TO ACQUIRE 100% IN VARNA POWER PLANT TPP Varna EAD Basic figures million EUR* 2003 2004 Revenues 62.1 69.2 EBITDA 7.8 8.9 EBIT 2.7 3.4 Net profit 1.9 2.8 Net debt -0.9 2.9 Electricity sales (TWh) 2.2 2.4 CZ Installed capacity (MWe) 6 x 210 TPP Varna EAD Fuel hard coal 3 units in late
Slide 75: Varna will increase its utilization
VARNA WILL INCREASE ITS UTILIZATION DRIVEN BY DECREASING SUPPLY IN BULGARIA, GROWING DEMAND AND EXPORT POTENTIAL Three units commissioned in late 60´s, other three a decade later (units 1 to 3 commissioned over the period 1968-1969; units 4 to 6 completed in 1977 - 1979) Negotiated extension of
Slide 76: 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 75
Slide 77: 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 78: 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 79: 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 80: 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 81: In 2006 we expect EBIT at CZK 36.8 bn and EBITDA at CZK 58.1 bn
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 82: 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 81
Slide 83: Appendix
APPENDIX Appendix – Czech power market overview Nuclear safety and provisions Selected historical financial figures
Slide 84: 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 85: Balance of import and export
… 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 86: Demand for electricity driven by industrial customers
DEMAND FOR ELECTRICITY IN THE CZECH REPUBLIC IS DRIVEN BY INDUSTRIAL CUSTOMERS 2004 2005 Installed capacity as of 31st December 17,434 MW 17,412 MW Demand for electricity 56,388 GWh 57,664 GWh Net electricity generation 77,919 GWh 76,192 GWh Gross electricity generation 84,333 GWh 82,579 GWh
Slide 87: Electricity market to be fully liberalized starting 2006
ELECTRICITY MARKET TO BE FULLY LIBERALIZED STARTING 2006, MARKET ALREADY LIBERALIZED Time plan of end-user market liberalization in the Czech Republic Percentage 100% of the market 100 already liberalized 90 Households 80 70 60 Small commercials 50 Continuous metering 40 9-40 GWh 30 20 Over 40 GWh 1
Slide 88: Agenda
AGENDA Appendix – Czech power market overview Nuclear safety and provisions Selected historical financial figures 87
Slide 89: 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 90: 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 91: 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 92: Nuclear provisions cash flow impact: decommissioning
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 93: Nuclear provisions cash flow impact: fuel storage
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 94: Agenda
AGENDA Appendix – Czech power market overview Nuclear safety and provisions Selected historical financial figures 93
Slide 95: 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 96: 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 97: 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