CEZ As · PSECZ:CEZ
CEZ As — Investor Presentation (September 2006)
99 slides from CEZ As's investor presentation, September 2006
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, September 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 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 39 Integration and operational excellence 41 Plant portfolio development 50 M&A expansion 61 Financial results H1 2006
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: International utility with stable domestic position and growing CEE portfolio
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 7 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 39 Integration and operational excellence 41 Plant portfolio development 50 M&A expansion 61 Financial results H1 2006
Slide 9: 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
Slide 10: Vision of CEZ Group: 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 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 550% CEZ 450% 350% Price on August 31 Price on Jan 1, 2004 CZK 823.3 250% CZK 146 PX 150% BBG EUR Utilities Index 50% 2004 2005 2006 CEZ shares are among the most liqu
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 7 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 39 Integration and operational excellence 41 Plant portfolio development 50 M&A expansion 61 Financial results H1 2006
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 August 24, 2006 1 EdF 36.7 1 EDF 104.8 2 Enel 30.0 E.ON 88.2 2 3 E.ON 26.0 Enel 54.7 3 4 Endesa 23.0 RWE
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 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 1,200 67.2 28.3 975.3 1,000 247.0 EBITDA of CEZ Group H1 2005 800 2006 guidance, EUR m 629.0 600 400 + 5.5 % 200 113 0 Generation Distribu
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 Positive CEZ BBB+ Outlook 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 o
Slide 24: 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 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: 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 6.0 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 823.3* 1,065 998 1,005 1,006 1030 1,000 960 980 962 915 923 907 916 889 705 Morgan Deutsche Komerční Citigroup Raiffeisen Goldman Sal. Erste Bank Wood &
Slide 28: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 39 Integration and operational excellence 41 Plant portfolio development 50 M&A expansion 61 Financial results H1 2006
Slide 29: German power prices 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 Source: EEX 28
Slide 30: German prices driven by oil, 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 80 40 70 30 60 20 50 40 10 30 Start of EU ETS 1/2005 5/2005 9/2005 1/2006 6/2006 0 1/2005 5/2005 9/2005 1/2006 5/2006 CO2 allowances were distributed to emitters for
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 2007, baseload, EUR/MWh ~ 74.0 ~ 70.0 EEX Centrel 57.0 57.0 ~ 50.0 44.0 ~ 44.0 Czech Slovakia Hungary Germany Austria UK Italy Republic * Comparing 2006 forward price as of 2005, ass
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 – 56.5 EUR/MWh 250 +34 % 225 - 28% 200 +20 % 175 Price in the Czech +20 % Republic will 150 continue increasing +19.5 % to German levels due 125 to shortening su
Slide 33: Demand growth and decommissioning result in 8 TWh deficit
FAST DEMAND GROWTH ALONG WITH SIGNIFICANT POWER CAPACITY DECOMISSIONING AT THE END OF THIS YEAR WILL RESULT IN 8 TWH DEFICIT 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.
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 90% Germany Austria 80% 7/5 Hungary 70% Slovakia 60% 50% 40% 30% 20%
Slide 35: 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
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 Shutdowns in the region 300 Plant Capacity Capacity reduced by Unterweser 1,310 MW 30-70 % 250 Krummel 1,316 MW 25 %
Slide 37: CEZ can generate additional ~6 TWh from higher 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 up 17.1%
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 ATRACTED 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 – 2
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 expe
Slide 41: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 39 Integration and operational excellence 41 Plant portfolio development 50 M&A expansion 61 Financial results H1 2006
Slide 42: 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
Slide 43: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 39 Integration and operational excellence 41 Plant portfolio development 50 M&A expansion 61 Financial results H1 2006
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 million 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: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 39 Integration and operational excellence 41 Plant portfolio development 50 M&A expansion 61 Financial results H1 2006
Slide 53: 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 54: 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 55: Nuclear capacity 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 56: 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 57: Power plants nearing the end of their 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 58: 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- Acceptable emissions No emissions Low emissions Limited/no emissions mental if modern technology Nuclear risk No resources impact adopted depletion Competitive
Slide 59: 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 60: 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 61: CEZ 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 the end of 2007 for 1st 2 units in 2009 for 2nd 2units Commissioning planned for end
Slide 62: Higher efficiency reduces 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 61
Slide 63: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 39 Integration and operational excellence 41 Plant portfolio development 50 M&A expansion 61 Financial results H1 2006
Slide 64: CEZ Group wants to grow 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 65: 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 66: Ambitious expansion plans but prudent 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 67: 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 in Teplarna Kosice (121 MW) Æ still pursuing PAK (2,338 MW),
Slide 68: 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 HSE Æ actively working on JV with EPRS project Æ if govt. sta
Slide 69: Bulgarian acquisition results better than expected
RESULTS OF THE BULGARIAN ACQUISITION BETTER THAN EXPECTED IN 1st YEAR AFTER ACQUISITION, IMPROVEMENTS EXPECTED TO CONTINUE Selected financials (simple sum) Key impacts 2005 EUR m Revenues increased by 10 % driven by 3% 2004 2005 increase in volume and 5% price increase Electricity losses decreas
Slide 70: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 39 Integration and operational excellence 41 Plant portfolio development 50 M&A expansion 61 Financial results H1 2006
Slide 71: H1 2006 main financial results and expected performance for 2006
H1 2006 MAIN FINANCIAL RESULTS AND EXPECTED FINANCIAL PERFORMANCE FOR 2006 EBITDA y-o-y increased by 24 % to CZK 34.2 bn, y-o-y increase by CZK 6.6 bn. EBIT y-o-y increased by 32 % to CZK 23.2 bn, which represents y-o-y increase by CZK 5.6 bn. Net Income y-o-y increased by almost 41 % to CZK 1
Slide 72: Net income grew y-o-y by CZK 4.7 bn
NET INCOME GREW Y-O-Y BY CZK 4.7 BN – i.e. by 41 % CZKKčbn mld. 25 1.0 0.4 0,4 1,0 8,1 8.1 20 0,7 0.7 8,8 0.8 0,8 8.8 2,3 2.3 Main improvements 0,9 0.9 15 1,7 1.7 Increase of gross margin from generation and 16,4 16.4 trading 10 Increased sales of electricity to end 11.7 11,7 customers 5 + CZK 4
Slide 73: Gross margin from generation, trade, sale and distribution
GROSS MARGIN FROM GENERATION, TRADE, SALE AND DISTRIBUTION OF ELECTRICITY Y-O-Y INCREASED BY 23 % TO CZK 47.8 BN Index Increase of generation and sales in CZK m H1 2005 H1 2006 Change 06/05 the wholesale market 06-05 (%) Generation + 4.3 % 31.9 Operating Revenues 61,715 77,183 15,469 125.1 TWh 30.
Slide 74: Operating expenses excluding new companies increased only 11%
OPERATING EXPENSES, EXCLUDING IMPACT OF NEW COMPANIES, INCREASED ONLY BY CZK 4.7 BN (BY 11 %) out of Change Index H1 Index 06/05 H1 H1 that change 06-05 (CZK m) 06/05 2006 w/o comparable comparable 2005 2006 new 06-05 new cons. consolidated comp. (%) comp. entity entity Gross margin 38,964 47,801 2,
Slide 75: Net income grew 41% to CZK 16 bn
NET INCOME GREW Y-O-Y BY 41 % TO CZK 16 BN (INCREASE BY CZK 4.7 BN) Index H1 H1 Change (CZK m) 06/05 2005 2006 06-05 (%) EBIT EBIT 17,560 23,206 5,646 132.2 Other expenses and income 2,476 1,668 -808 67.4 Out of that: FX profit and loss and derivative operation 945 -18 -962 x Other financial expense
Slide 76: Expect EBITDA CZK 61 bn and EBIT CZK 38 bn for 2006
WE EXPECT EBITDA CZK 61 BN AND EBIT CZK 38 BN FOR FULL 2006 Main financial results CZK bn 70 + 22 % 61.3 60 + 27 % 50.1 50 39.6 40 The trend of growing 30 gross margin and EBITDA operating cost savings to 20 continue in H2 10 0 CEZ Group grew by new 2004 2005 2006E power plants in Poland – 45 +
Slide 77: 2006 net income guidance is CZK 28 bn
2006 NET INCOME GUIDANCE IS CZK 28 BN – BY CZK 0.8 BN MORE COMPARED TO GUIDANCE FROM Q1 mainly services repairs and maintenance Expected contribution salaries and wages of Polish power plants mld. bn CZK Kč to consolidation is app. 0,1 0.1 CZK 0.28 bn 30 25 0,7 0.7 20 + 0,8 CZKmld. 0.8 Kč bn 1
Slide 78: Generation and trading remains dominant segment
GENERATION AND TRADING REMAINS A DOMINANT SEGMENT, BUT DISTRIBUTION AND SALES HAVE ALSO ACCOMPLISHED BIG GROWTH Generation Index Distribution Index Index Index Intergroup CEZ Index H1 2006 and trading 06/05 and sales 06/05 Mining 06/05 Others 06/05 eliminations Group 06/05 Revenues total 47,490 135%
Slide 79: Distribution and sales segment results
DISTRIBUTION AND SALES SEGMENT RESULTS Czech Republic Bulgaria Romania Distribution and Sales H1 H1 out of that: H1 H1 H1 H1 2005 2006 CEZ Distribution 2005 2006 2005 2006 Revenues total CZK m 31,094 36,957 15,264 5,992 6,378 x 5,288 EBITDA CZK m 6,002 6,053 4,115 1,007 1,345 x 999 EBIT CZK m 4,249
Slide 80: Assets, equity and liabilities overview
ASSETS, EQUITY AND LIABILITIES OVERVIEW Growth drivers CZK 8.9bn due dividend ASSETS Growth drivers EQUITY, CZK 8.3bn increase in ST loans CZK bn CZK 8.3bn cash and LIABILITIES CZK 2.6bn increase payables on cash equivalent CZK bn derivatives CZK 4.0bn receivables 324.2 357.1 namely due to
Slide 81: Operating cash flow increased y-o-y by 36.8%
OPERATING CASH FLOW INCREASED Y-O-Y BY 36.8% CZK BN others 40 y-o-y index: interest paid + 36.8 % 35 income taxes paid 30 Main impacts on foreign exchange rate loss/gain,net operating cash flow 25 increase interest expense, interest income CZK bn and dividends income,net 20 + 5.8 operating profit am
Slide 82: Total indebtedness slightly increased y-o-y
TOTAL INDEBTEDNESS SLIGHTLY INCREASED Y-O-Y WHILE LONG TERM INDEBTEDNESS MARGINALLY DECREASED Expected figures do not include % Total indebtedness limit 50 % Polish power plants (their debts (derived from current loan contracts) stand at approx. CZK 7bn); if 50 50 included total indebtedness would 4
Slide 83: Agenda
AGENDA Summary for investors 3 Introduction 7 Overview of CEZ Group 7 Financial performance 13 Wholesale price development 27 Strategic initiatives of CEZ Group 39 Integration and operational excellence 41 Plant portfolio development 50 M&A expansion 61 Financial results H1 2006
Slide 84: 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 85: Price level of executed contracts in the region
PRICE LEVEL OF ALREADY EXECUTED CONTRACTS IN THE REGION CONFIRMS THAT THERE IS AN INCREASING MARKET DEMAND FOR ELECTRICITY CONTRACTED 1 YEAR AHEAD First indicators of 2007 wholesale prices in the region EUR/MWh* (unless stated otherwise) In the map - volume traded in TWh (est.) vs. respective countr
Slide 86: 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 87: 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 88: 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 89: 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 88
Slide 90: 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 91: CEZ expects same CO2 allowance allocations 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 92: Foreign companies acquired at favourable price per customer
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 93: Romanian Oltenia balance sheet 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) Transaction settled on September 30, 2005; EUR m consolidated in Q4 only Restructuring process initiated with key 2004 2005 po
Slide 94: 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 95: 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 96: 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 97: 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 98: 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 99: 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