CEZ As · PSECZ:CEZ

CEZ As — Investor Presentation (July 2006)

80 slides from CEZ As's investor presentation, July 2006

  1. 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 EUROPE Equity story, July 2006

  2. 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

  3. Slide 3: Agenda

    AGENDA ƒ Summary for investors 3 ƒ Introduction 6 ƒ Overview of CEZ Group 6 ƒ Financial performance 14 ƒ Wholesale price development 26 ƒ Strategic initiatives of CEZ Group 39 ƒ Integration and operational excellence 41 ƒ Plant portfolio development 49 ƒ M&A expansion 62 ƒ Appendix 74 2

  4. Slide 4: CEZ Group stands apart from other utilities in Europe

    CEZ GROUP STANDS APART FROM OTHER UTILITIES IN EUROPE ƒ The vision of CEZ is to be the leader in power markets in the Central and Southeastern Europe ƒ The largest Czech corporation and the largest corporation among 10 new EU member states ƒ The best performing European utility stock with growth at

  5. Slide 5: CEZ Group offers some exceptional features to equity investors

    CEZ GROUP OFFERS SOME EXCEPTIONAL FEATURES TO EQUITY INVESTORS Key features Rationale ƒ Strong financial performance ƒ EBITDA margin 40% (generation mix, growth potential) ƒ Dynamic profit growth expected ƒ Growing power prices and consumption, to continue efficiency improvements and synergies ƒ Ver

  6. 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 ƒ Wholesale price ƒ Wholesale price ƒ Stable fuel costs With current growth, stable fuel convergence, stable capital costs fuel costs ƒ Transformation ƒ Higher utilization savings of plants ƒ Savings

  7. Slide 7: Agenda

    AGENDA ƒ Summary for investors 3 ƒ Introduction 6 ƒ Overview of CEZ Group 6 ƒ Financial performance 14 ƒ Wholesale price development 26 ƒ Strategic initiatives of CEZ Group 39 ƒ Integration and operational excellence 41 ƒ Plant portfolio development 49 ƒ M&A expansion 62 ƒ Appendix 74 6

  8. Slide 8: 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 CEE Asset positions CEZ Group in Poland Target markets (75% share in Skawina, 89% in Elcho) Trading office ƒ Electricity sales (TWh) 3.6 ƒ Market share 2.4% ƒ Installed capacity (MW) 810 CEZ Group

  9. Slide 9: CEZ belongs to top 10 European power utilities

    CEZ BELONGS TO 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 30.0 E.ON 73.2 2 3 E.ON 26.0 Enel 50.7 3 4 Endesa 23.0 RWE 41.0 4 5 RW

  10. Slide 10: CEZ is a strong and vertically integrated player on the Czech electricity 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 57% 22 million tons 72% companies 32.0 TWh 60.0 TWh 100% 62% of customers 62 TWh 55% Others 43% 27 million tons 28% 38% of custo

  11. Slide 11: 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 ƒ Integrated utility focused on power generation, distribution and supply focus ƒ Present in related businesses where relevant (coal mining, heat generation) Our vision ƒ Czech Republic Priority

  12. Slide 12: 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 ƒ Human ƒ Trading ƒ Treasury ƒ M&A ƒ Conventional ƒ Distribution ƒ

  13. Slide 13: 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 550% CEZ 450% Price on July 13 350% CZK 726.5 Price on Jan 1, 2004 250% CZK 146 PX 150% BBG EUR Utilities Index 50% 2004 2005 2006 CEZ shares are among the most liquid

  14. Slide 14: 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 ƒ Utilities ƒ Emerging markets Institutional shareholders ƒ Hedge (mostly international) 24.5% Examples of large foreign investors 67.6% ƒ Ba

  15. Slide 15: Agenda

    AGENDA ƒ Summary for investors 3 ƒ Introduction 6 ƒ Overview of CEZ Group 6 ƒ Financial performance 14 ƒ Wholesale price development 26 ƒ Strategic initiatives of CEZ Group 39 ƒ Integration and operational excellence 41 ƒ Plant portfolio development 49 ƒ M&A expansion 62 ƒ Appendix 74 14

  16. Slide 16: CEZ Group is the most profitable utility in Europe

    CEZ GROUP IS THE MOST PROFITABLE UTILITY IN EUROPE 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% Vattenfall 32.9 2003: 35.3% CEZ Group 40.1 Source: Annual reports, CEZ, Bloomberg 15

  17. Slide 17: Main competitive advantage is the low cost generation fleet

    THE MAIN COMPETITIVE ADVANTAGE OF CEZ GROUP IS THE LOW COST GENERATION FLEET CEZ Group generation (2005) Annual production of CEZ Group TWh 12,298 60.0 MW TWh Completion of Temelin nuclear power plant Hydro (river 2.2 2,000 MW accumulation 1,935 and pump storage) 62.1 61.4 59.5 60.0 52.2 54.1 50.8 3

  18. Slide 18: 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 ƒ 15% wholesale price increase ƒ Savings in CO2 emissions ƒ Savings from restructuring (VIZE 2008) ƒ Compensation of unbundling costs ƒ Contribution from foreign acquisitions Growth drivers

  19. Slide 19: CEZ Group will maintain long-term competitive advantage in generation costs

    CEZ GROUP WILL MAINTAIN LONG-TERM COMPETITIVE ADVANTAGE IN GENERATION COSTS Sources of long-term competitive advantage: ƒ Conventional generation ƒ Long term fuel lignite contract till 2050 for >90% of consumption ƒ Prices change only as fraction of electricity price and inflation changes ƒ Large sh

  20. Slide 20: CEZ Group profitability is driven by generation and trading

    CEZ GROUP PROFITABILITY IS DRIVEN BY GENERATION AND TRADING EBIT contribution in 2004 and 2005 EUR m 1000 800 207 21 683 3 ƒGeneration and trading 2004 600 452 contribute more than 400 2/3 to overall group EBIT 200 66% 30% 3% <1% 0% ƒDistribution and supply 0 contribution impacted by one-off items i

  21. 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 CZK bn 20 1.1 0.4 16.2 15 4.3 Q1 2005 10.4 10 EBITDA of CEZ Group 2006 guidance, CZK bn 5 + 3.4 % 0 2.0 Generation Distribution CEZ Mining Other

  22. Slide 22: CEZ has significantly increased its dividend payments

    CEZ HAS IN LAST YEARS SIGNIFICANTLY INCREASED IT’S DIVIDEND PAYMENTS Payout ratio Gross dividend per share % CZK 50% 49.3% 20.0 New dividend policy 41.3% 18.0 targets payout ratio 40% 16.0 in the range of 40% 40.3% to 50% of the 14.0 31.6% consolidated profit 30% 12.0 10.0 20% 16.4% 8.0 15.0 16.2% 6

  23. Slide 23: Least indebted utility in Europe with strong borrowing capacity

    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 capacity

  24. Slide 24: CEZ maintains very strong credit rating

    CEZ MAINTAINS VERY STRONG CREDIT RATING Credit rating of CEZ and Czech Republic Positive CEZ BBB+ Outlook Standard ƒ CEZ has high credit rating just & Poor’s below the country risk Czech A- Republic ƒ CEZ has been first rated company in former Eastern Europe Neutral ƒ CEZ has been first and one of t

  25. Slide 25: Very strong free cash-flow to finance international growth

    CEZ GROUP HAS VERY STRONG FREE CASH-FLOW THAT COMBINED WITH ADDITIONAL BORROWING CAPACITY CAN BE USED TO FINANCE INTERNATIONAL GROWTH UP TO EUR 6.2 BILLIONS Free cash flow of CEZ Group (cumulative) EUR million ~ 4,000 6,200 CEZ Group can finance foreign acquisitions in the next 3-5 years 2,200 from

  26. Slide 26: Analysts maintain positive view on CEZ Group performance

    ANALYSTS MAINTAIN POSITIVE VIEW ON CEZ GROUP PERFORMANCE Target share price Utilities analysts CZK, ranked by date of issue Current share price CZK 726.5* 998 1,006 1,030 1,005 1010 1000 980 960 962 915 923 907 889 880 705 Morgan Deutsche Komerční Citigroup Raiffeisen Sal. CAIB/HVB Goldman Patria /

  27. Slide 27: Agenda

    AGENDA ƒ Summary for investors 3 ƒ Introduction 6 ƒ Overview of CEZ Group 6 ƒ Financial performance 14 ƒ Wholesale price development 26 ƒ Strategic initiatives of CEZ Group 39 ƒ Integration and operational excellence 41 ƒ Plant portfolio development 49 ƒ M&A expansion 62 ƒ Appendix 74 26

  28. Slide 28: German power prices continue increasing

    GERMAN POWER PRICES AS BENCHMARK FOR THE REGION CONTINUE INCREASING 1 year forward EEX Forward 2007 (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 Source: EEX 27

  29. Slide 29: 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 80 70 40 60 30 50 20 40 10 Start of EU ETS 30 0 1/2005 5/2005 9/2005 1/2006 6/2006 1/2005 5/2005 9/2005 1/2006 5/2006 ƒ CO2 allowances were distributed to emitters for fre

  30. Slide 30: Czech wholesale prices are linked to increasing German prices

    CZECH WHOLESALE PRICES ARE LINKED TO INCREASING GERMAN PRICES Wholesale power price (baseload) 2000 index EEX 2006 – 47.5 EUR/MWh +25 % EEX 2007 – 55.0 EUR/MWh 260 +30 % 240 +15 % Price in the Czech 220 Republic will 200 +20 % - 50% continue increasing 180 to German levels due 160 to shortening supp

  31. Slide 31: Czech wholesale prices still among the lowest in the region

    WHOLESALE PRICES IN THE CZECH REPUBLIC ARE STILL AMONG THE LOWEST IN THE REGION Wholesale power price* Rest of Europe 2006, baseload, EUR/MWh 74.0 EEX 62.0 55.0 55.0 Centrel ~ 40.0 36.5 ~ 36.5 Czech Slovakia Hungary Germany Austria UK Italy Republic * Comparing 2006 forward price as of 2005, assumin

  32. Slide 32: Domestic and export prices after transmission capacity cost are equal

    CEZ DOMESTIC AND EXPORT PRICES AFTER TRANSMISSION CAPACITY COST DEDUCTION ARE EQUAL 47.5 55 35 Domestic annual baseload forward prices 24.8 27.1 30.2 35.0 42-43 EUR/MWh* 2003 2004 2005 2006 2007e German Price change 9% 11% 15% wholesale price Percent Net export prices Transmission 55.0 capacity fee

  33. Slide 33: Sales strategy focused on maximizing wholesale margin

    CEZ SALES STRATEGY IS FOCUSED ON MAXIMIZING WHOLESALE MARGIN GIVEN THE AVAILABLE SALES MARGIN 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

  34. Slide 34: CEZ is earning additional margin from saving CO2 allowances

    CEZ IS EARNING ADDITIONAL MARGIN FROM SAVING CO2 ALLOWANCES CO2 Emissions Key measures taken Mil. Tons, 2005 -7% ƒ Priority dispatch of units with low Trading CO2 emissions ƒ Reduction of export Plant ƒ Increased availability of nuclear maintenance plants ƒ Increased focus on plant efficiency 36.8 3

  35. Slide 35: CEZ expects same allocations of CO2 allowances for next period

    CEZ EXPECTS SAME ALLOCATIONS OF CO2 ALLOWANCES FOR NEXT PERIOD EU first phase allocation – EU second phase allocation – surplus/deficit guidelines guidelines 2005, mil. tons CO2 ƒ Member states already meeting -39 Power Kyoto targets (such as CR) may keep NAP II ceiling at NAP I levels Steel 48 ƒ Wh

  36. Slide 36: CEZ is redirecting its exports from Western to Central Europe

    CEZ IS REDIRECTING IT’S EXPORTS FROM WESTERN EUROPE TO CENTRAL EUROPE Development of CEZ Exports in 2005/2006 Percent of total export Germany Poland 60 / 40 3/0 Slovakia ƒ Demand in CR and other CE EUR 12.5** 30 / 55 countries will grow EUR 0.13** proportionally to high GDP growth Austria 7/5 ƒ Shut

  37. Slide 37: CEZ can generate additional 8 TWh by increasing plant utilization

    CEZ CAN GENERATE ADDITIONAL 8 TWh BY INCREASING UTILIZATION OF NUCLEAR AND 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 4.0 (at mine) Additional ~ 8 TWh Lignite 50 11 13 1.9

  38. Slide 38: Regional capacity surplus will disappear in 2008-2009

    THE REGIONAL CAPACITY SURPLUS WILL DISAPPEAR IN 2008 – 2009 AND MARKETS OF WESTERN AND CENTRAL EUROPE WILL CONVERGE TO ONE PRICE Czech and Slovak power market balance TWh 125 Demand in CR and SR plus export (Germany, Austria, Hungary) 120 115 110 Available supply in CR and SR plus import 105 (Poland

  39. Slide 39: Czech wholesale power prices for 2007 likely around 42-43 EUR/MWh

    CZECH WHOLESALE POWER PRICES FOR 2007 LIKELY TO LEVEL AROUND 42-43 EUR/MWh First indicators of 2007 wholesale prices in the region EUR/MWh* 2006 36.5 SE auction 42.8 – 44.6 Czech 2007 Rep. Disco ~ 42.5 tenders Slovakia Hungary 2006 36.5 Commodity 2006 40.0 42.0 exchange 2007 2007 Trading Trading 43.

  40. Slide 40: Agenda

    AGENDA ƒ Summary for investors 3 ƒ Introduction 6 ƒ Overview of CEZ Group 6 ƒ Financial performance 15 ƒ Wholesale price development 26 ƒ Strategic initiatives of CEZ Group 39 ƒ Integration and operational excellence 41 ƒ Plant portfolio development 49 ƒ M&A expansion 62 ƒ Appendix 74 39

  41. Slide 41: Four key strategic initiatives to achieve the 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

  42. Slide 42: Agenda

    AGENDA ƒ Summary for investors 3 ƒ Introduction 6 ƒ Overview of CEZ Group 6 ƒ Financial performance 15 ƒ Wholesale price development 26 ƒ Strategic initiatives of CEZ Group 39 ƒ Integration and operational excellence 41 ƒ Plant portfolio development 49 ƒ M&A expansion 63 ƒ Appendix 75 41

  43. Slide 43: 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 ƒ Generation Project ƒ Generation ƒ Wholesale trading Vision 2008 ƒ Wholesale trading ƒ Sales Distribution company 5 CEZ Prodej CEZ Distribuce Distribution company 4 ƒ Sales ƒ Distribution Distribution company 3

  44. Slide 44: EUR 100 millions in annual savings upon implementation of 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

  45. Slide 45: Number of employees will decline by 10% by 2008

    NUMBER OF EMPLOYEES WILL DECLINE BY 10 % BY 2008 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 44

  46. Slide 46: First significant savings achieved in procurement

    FIRST SIGNIFICANT SAVINGS WERE ACHIEVED FOR EXAMPLE IN PROCUREMENT new old Examples of procurement savings costs costs ƒ metering equipment - 49 % ƒ mobile phone services - 63 % ƒ mercantile press - 50 % ƒ thermal power plants insurance - 43 % ƒ high voltage switches and disconnectors - 30 % Source:

  47. Slide 47: Key targets for 2005 have been achieved

    KEY TARGETS FOR 2005 HAVE BEEN ACHIEVED IT support Processes management All IT systems were transformed New operational and economic and became operational in record model of CEZ Group implemented time and incorporated in SLA contracts Unbundling Social reconciliation Results of Transformation steps

  48. Slide 48: Regulatory environment in the Czech Republic is fair and transparent

    REGULATORY ENVIRONMENT IN THE CZECH REPUBLIC IS FAIR AND TRANSPARENT 2002-04 2005-09 1st regulatory period 2nd regulatory period ƒ Introduction of RPI-X ƒ Regulation parameters regulation reassessed for distribution ƒ Starting values after unbundling (WACC, of regulation parameters RAB, allowed cost

  49. Slide 49: CEZ Group continues 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 + 11.4% + 15.1% ? 906 1,041 813 Děčín Hradec Králové 2004 2005 2006 2007 Praha Market share in power supply Ostrava Plze Percent of MWh ň Brno 58% 57% 55% Č

  50. Slide 50: Agenda

    AGENDA ƒ Summary for investors 3 ƒ Introduction 6 ƒ Overview of CEZ Group 6 ƒ Financial performance 14 ƒ Wholesale price development 26 ƒ Strategic initiatives of CEZ Group 39 ƒ Integration and operational excellence 41 ƒ Plant portfolio development 49 ƒ M&A expansion 62 ƒ Appendix 74 49

  51. Slide 51: 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

  52. Slide 52: Reduce generation repairs and maintenance costs by 25%

    CEZ WILL REDUCE GENERATION REPAIRS AND MAINTENANCE COSTS BY 25% (EUR 35M ) BY 2009 CEZ targets to reduce average repairs Key tasks to achieve target and maintenance cost ƒ Introduction of adaptive R&M to reduce EUR m workload by 50% - 25% ƒ Centralization of preparation R&M to save 20% personnel cos

  53. Slide 53: Nuclear capacity increase in Dukovany and Temelin

    NUCLEAR CAPACITY WILL INCREASE IN DUKOVANY BY 9.5% BY 2012 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

  54. Slide 54: 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 ƒ 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

  55. Slide 55: Portion of CEZ power plants nearing end of lifetime

    PORTION OF CEZ POWER PLANTS IS NEARING THE END OF ITS LIFETIME Age structure of CEZ thermal blocks MW ƒ Portion of CEZ thermal capacity 3,000 2,800 approaches end of its life time in 2010-20 2,500 ƒ Desulphurization equipment to reach end of its lifetime in 2015 2,000 -2020 1,550 1,512 ƒ The emissio

  56. Slide 56: Future plant fleet built around modern lignite plants

    CEZ INTENDS TO BUILD ITS FUTURE PLANT FLEET MAINLY AROUND MODERN TECHNOLOGY LIGNITE PLANTS Coal Nuclear Gas Renewables Environ- ƒ Acceptable emissions ƒ No emissions ƒ Low emissions ƒ Limited/no emissions mental if modern technology ƒ Nuclear risk ƒ No resources impact adopted depletion Competitive

  57. Slide 57: Large investment program leading to 30% reduction of emission rate

    CEZ COMMITED TO A LARGE INVESTMENT PROGRAM LEADING TO A 30% REDUCTION OF THE AVERAGE EMISSION RATE CEZ average CO2 emission t CO2 / MWh ƒ CEZ designs new plant - 30% portfolio consistent with national energy policy ƒ New CEZ plant portfolio would represent a major 0.6 contribution to CO2 reduction i

  58. Slide 58: Higher efficiency decreases coal consumption and CO2 emissions

    DUE TO HIGHER EFFICIENCY THE COAL CONSUMPTION WILL DECREASE THUS SAVING NATURAL RESOURCES AND CO2 EMISSIONS Comparison of old and new lignite units CO2 tons/MWh Coal burnt GJ / MWh 10 ƒ CEZ is convinced that EU ETS is functional mechanism 8 providing liquidity and transparency and reacting to basic

  59. Slide 59: Capex for lignite plants renewal to reach CZK 100 bn

    CAPEX FOR LIGNITE PLANTS RENEWAL WILL REACH CZK 100 BN AND BRING 14-25% EFFICIENCY UPLIFT Projects overview Expected CAPEX – conservative scenario CZK million ƒ Highly efficient and environmentally friendly ƒ Highly profitable 14,000 2008-15: Main Assets ƒ Secured fuel – low risk Renewal Period 12,0

  60. Slide 60: EU ETS incentivised CEZ to accelerate generation investments

    EU ETS INCENTIVISED CEZ TO ACCELERATE AND INCREASE ITS INVESTMENTS IN GENERATION 38 Mton NAP EMISSIONS* 34 Mton 30 Mton € 700 M EU ETS driven INVESTMENTS* plan** € 350 M Original plan 2005 07 10 12 15 2020 * Best scenario **CO2 directly related projects Source: CEZ 59

  61. Slide 61: CEZ already launched first generation renewal project

    CEZ ALREADY LAUNCHED FIRST GENERATION RENEWAL PROJECT 2005 2010 2015 2020 ƒ Signed contract with general supplier SKODA ETU (4x200 MW,) PRAHA Invest for a complex PP renewal ƒ Construction starts in the end of 2007 for 1st 2 units in 2009 for 2nd 2units ELE (1x660 MW) ƒ Commissioning planned for beg

  62. Slide 62: Plans for lignite renewal finalized; developing strategy in other fuels

    CEZ HAS FINALIZED PLANS FOR LIGNITE PLANTS RENEWAL AND NOW DEVELOPS STRATEGY IN OTHER FUELS TO GROW IT’S CAPACITY Capacity Removal of mining limits MW Current limits 7,000 Retrofits Existing plants 6,000 5,000 ƒ CEZ can only maintain existing capacity till 2035 4,000 ƒ Other fuels considered to grow

  63. Slide 63: Agenda

    AGENDA ƒ Summary for investors 3 ƒ Introduction 6 ƒ Overview of CEZ Group 6 ƒ Financial performance 14 ƒ Wholesale price development 26 ƒ Strategic initiatives of CEZ Group 39 ƒ Integration and operational excellence 41 ƒ Plant portfolio development 49 ƒ M&A expansion 62 ƒ Appendix 74 62

  64. Slide 64: CEZ Group wants to grow both 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 14.4 Poland 0.8 6.6 Bulgaria 1.3 Bulgaria 1.9 Czech Romania 1.3 12.3 Republic Czech 3.4 Republic

  65. Slide 65: CEZ Group builds on first successful expansion moves

    CEZ GROUP BUILDS ON FIRST SUCCESFULL EXPANSION MOVES Realized acquisitions Realized acquisitions ƒƒ Bulgaria Bulgaria (distribution) – 1.9 million cust. (distribution) – 1.9 million cust. ƒƒ Romania Romania (distribution) – 1.4 million cust. (distribution) – 1.4 million Central Europe ƒƒ Poland Pola

  66. 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 ƒ Focus on one region ƒ Intimate knowledge of the region ƒ Very well accepted due to close cultural/historical ties and electricity industry transformation experience ƒ First-hand experience with transformation

  67. Slide 67: Prudent in M&A decisions despite ambitious expansion plans

    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 ƒ Target attractive on standalone ƒ Always along a global advisor basis (market position, asset with target country ties quality) ƒ Valuation prepared by advisor ƒ

  68. Slide 68: CEZ acquired foreign companies at more favourable price than competitors

    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

  69. Slide 69: CEZ 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 (220 MW) and Skawina (590 MW) Æ waiting for further development settlement expected within next few weeks in Teplarna Kosice (121 MW) Æ still pursuin

  70. Slide 70: 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 interested in cooperation with HSE Æ interested in finishing Kolubara B Æ if govt. starts privatization CEZ will Æ actively working on J

  71. Slide 71: Bulgarian acquisition results better than expected in first year

    RESULTS OF THE BULGARIAN ACQUISITION BETTER THAN EXPECTED IN 1st YEAR AFTER ACQUISITION, IMPROVEMENTS EXPECTED TO CONTINUE Key impacts 2005 Selected financials (simple sum) ƒ Revenues increased by 10 % driven by 3% EUR m increase in volume and 5% price increase ƒ Electricity losses decreased by 11.4

  72. Slide 72: Balance sheet of Romanian Oltenia cleared up

    BALANCE SHEET OF ROMANIAN OLTENIA HAS BEEN CLEARED UP AND THE COMPANY IS ON A GOOD TRACK TO SIGNIFICANTLY IMPROVE IN 2006 Key impacts 2005 Selected financials (restated) ƒ Transaction settled on September 30, 2005; EUR m consolidated in Q4 only ƒ Restructuring process initiated with key 2004 2005 po

  73. Slide 73: January 2006 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. ƒ Brand new power plant commissioned Basic figures in 2003 million EUR* 2003 2004 ƒ Meets all environmental limits including those in place since 2008 Revenues 46.2 88.9 ƒ Revenues from elec

  74. Slide 74: 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 ƒ Electricity generation part commissioned million EUR* 2003 2004 in 1961, heating part in 1986 Revenues 98.6 99.5 ƒ Almost half of the pl

  75. Slide 75: Agenda

    AGENDA ƒ Summary for investors 3 ƒ Introduction 6 ƒ Overview of CEZ Group 6 ƒ Financial performance 14 ƒ Wholesale price development 26 ƒ Strategic initiatives of CEZ Group 39 ƒ Integration and operational excellence 41 ƒ Plant portfolio development 49 ƒ M&A expansion 62 ƒ Appendix 74 74

  76. Slide 76: CEZ is a strong player in all segments of the Czech electricity market

    CEZ IS A STRONG 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 31.7

  77. Slide 77: 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%

  78. Slide 78: 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

  79. Slide 79: 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

  80. Slide 80: 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

CEZ Group — Investor Presentation (July 2006) on 6ix