THE LEADER IN POWER MARKETS OF CENTRAL AND SOUTHEASTERN EUROPE

Transcription

1 CEZ GROUP THE LEADER IN POWER MARKETS OF CENTRAL AND SOUTHEASTERN EUROPE Equity story, November 2008

2 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-looking statements are not intended to be a guarantee of future results, but instead constitute CEZ s current expectations based on reasonable assumptions. Forecasted financial information is based on certain material assumptions. These assumptions include, but are not limited to continued normal levels of operating performance and electricity demand at our distribution companies and operational performance at our generation businesses consistent with historical levels, as well as achievements of planned productivity improvements and incremental growth from investments at investment levels and rates of return consistent with prior experience. Actual results could differ materially from those projected in our forward-looking statements due to risks, uncertainties and other factors. CEZ undertakes no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. In preparation of this document we used certain publicly available data. While the sources we used are generally regarded as reliable we did not verify their content. CEZ does not accept any responsibility for using any such information. 1

3 AGENDA Introduction Wholesale prices development Response to possible CO 2 auctioning Financial performance International expansion Back up Regional power prices CO 2 position Investments into Czech power plants Recent M&A deals Regulatory frameworks Financial results of Q1-Q Financial overview

4 CEZ GROUP RANKS AMONG THE TOP 10 LARGESTS UTILITY COMPANIES IN EUROPE Top 10 European power utilities Number of customers, million Top 10 European power utilities Market capitalization, EUR bn, as of November 18, Enel EdF RWE GDF Suez EdF E.ON E.ON RWE Iberdrola Enel EdP Iberdrola PPC CEZ Group CEZ Group Fortum Vattenfall Verbund Fortum EdP 10.0 Source: Bloomberg, Annual reports 3

5 CEZ GROUP IS A COMPANY WITH HIGHEST GROWING SHAREHOLDER VALUE CEZ creates shareholder value through: 1. Increasing profits and margins 2. Foreign expansion Prices of shares and share indexes* Percent Price on November 18, 2008: CZK % 300% Price on Jan 1, 2005 CZK 348 CEZ 200% 100% PX BBG EUR Utilities Index 0% * Rebased to January 1, 2005 Source: Bloomberg 4

6 CEZ GROUP IS BENEFITING FROM LOW COST GENERATION FLEET 1. Hydro and others Black coal (baseload and midmerit) CEZ Group installed capacity and generation (2007) 14,292 MW 1,941 2, TWh % 16% 46% Nuclear plants have very low operational costs Coal power plants are using mostly lignite from CEZ s own mine (60% of lignite needs sourced internally) CEZ has 100% free allocation of CO 2 allowances for NAPII i.e Lignite / Brown coal (baseload and midmerit) Nuclear (baseload) 5,803 3, % CEZ has a long-term competitive advantage of low and relatively stable generation costs Installed capacity Generation, gross Share on generation Source: CEZ 5

7 AND FROM GROWING ELECTRICITY PRICES IN EUROPE AND IN THE CZECH REPUBLIC Wholesale power price (EUR / MWh) (Year ahead baseload as of 20 Aug) %* % % +15 % % +15%* % % % % Czech Rep. Germany Y-o-Y change * Prices as of November 18, 2008 Source: CEZ 6

8 CEZ GROUP IS ONE OF THE MOST PROFITABLE UTILITIES 1. EBITDA margin, 2007 Percent Fortum CEZ Group Verbund Iberdrola EdF EdP Enel E.ON RWE EnBW Past performance: 2005: 40.1 % 2006: 40.3% Source: Annual reports 7

9 CEZ GROUP MAINTAINS VERY STRONG DYNAMICS IN PROFIT GROWTH 1. EBITDA and NET INCOME of CEZ Group CZK bn Growth drivers in 2007 Wholesale price increase EBITDA Higher generation volumes Savings from restructuring (VIZE 2008) Net income Contribution from foreign acquisitions Growth drivers in 2008 and beyond Regional wholesale price convergence Increased nuclear capacity Operational excellence program Contribution from foreign acquisitions E 2009* 2010* Annual growth EBITDA Net income 32% 26% 28% 17% 16% 52% 56% 29% 49% 14% Guidance as of August 2008 * Illustrative Source: CEZ 8

10 CEZ GROUP RAPIDLY EXPANDED TO FOREIGN MARKETS 2. CEZ Group in Poland (99.91% stake in Skawina, 89% in Elcho) Electricity generation, net (TWh) Market share Installed capacity (MW) Market share Number of employees Sales (EUR million) CEZ Group in the Czech Republic Electricity sales, net (TWh) Number of connection points (million) Market share Installed capacity (MW) Market share Number of employees Sales (EUR million) % % % 12,303 70% 21,319 4,960 Notes: IFRS 2007, Exchange rate CZK/EUR = Source: CEZ, national statistics Energy Assets Trading Activities Target markets Presence / Subsidiaries CEZ Group in Romania (51% stake in EDC Oltenia) Electricity sales, net (TWh) Number of connection points (million) Market share Number of employees Sales (EUR million) CEZ Group in Bulgaria (67% stake in 3 EDCs, 100% in TPP Varna ) Electricity sales, net (TWh) Number of connection points (million) Market share Installed capacity (MW) Market share Number of employees Sales (EUR million) % 3, % 1, % 4,

11 CONTRIBUTION FROM FOREIGN SUBSIDIARIES IS INCREASING 2. In 2007 foreign subsidiaries Represented 21% of revenues Represented 16% of fixed assets Generated CZK 6.3 bn of EBITDA (8.4% of total) Employed 8,770 people (29% of total) Contribution of foreign subsidiaries in 2007 (%) Employees Revenues EBITDA 29% 21% 8% 10

12 AGENDA Introduction Wholesale prices development Response to possible CO 2 auctioning Financial performance International expansion Back up Regional power prices CO 2 position Investments into Czech power plants Recent M&A deals Regulatory frameworks Financial results of Q1-Q Financial overview

13 CZECH ELECTRICITY MARKET HAS FULLY CONVERGED WITH GERMANY AND THERE ARE NO ADMINISTRATIVE INTERVENTIONS Czech market is integral part of wider European electricity market Czech power prices are fully liberalized and are driven by the same fundamentals as German market There are no administrative interventions from the side of the government Spread of German and Czech 1 year ahead baseload (EUR/MWh) baseload (EUR/MWh) Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Nov-08 Czech Rep. Germany 12

14 CURRENT EARNINGS ARE BASED ON POWER PRICES MUCH LOWER THAN CURRENT FUTURES Upside potential Record 2008 financial results are based on >52 Eur/MWh baseload price Current German 1Y baseload futures trade around 65 Eur/MWh There is large room to improve profitability in 2009 and onwards CEZ s achieved price Current forward curve* *Prices as of November 13,

15 MORE THAN 50% OF EXPECTED NET GENERATION OF ČEZ, A. S. FOR NEXT THREE YEARS IS ALREADY HEDGED Share of hedged generation from ČEZ, a. s. power plants (as of October 2008) ~ TWh ~75 % ČEZ, a. s., applied standard concept of gradual hedging of its open position from generation portfolio against price risks Within this strategy ČEZ, a. s., sells electricity on forward basis for years Y+1 through to Y+3 ~30 % ~5 % ~ 15 TWh Volume supplied by ČEZ Prodej to end customers from category of households and small businesses Source: CEZ 14

16 HISTORY OF EXECUTION OF ELECTRICITY HEDGING FOR THREE YEARS AHEAD TWh 20 Realized volumes and development of market prices /MWh Q Q Q Q (as of October 31 st, 2008) Source: PXE, CEZ 40 15

17 MAIN DRIVERS OF POWER PRICE IN GERMANY ARE PRICE OF HARD COAL, GAS AND CO 2 ILLUSTRATIVE Generation cost curve EUR/MWh Min load Peak load Hydro Wind Nuclear Lignite Hard coal CCGT Other oil and gas Available capacity MW In free market, power price is set by variable cost of marginal plants In Germany, the marginal plants are fueled by hard coal (in off peak) or gas (in peak) As a result, the power price should be driven by coal, gas and CO 2 price 16

18 PRICES OF ALL COMMODITIES ARE CURRENTLY VERY VOLATILE Oil Brent (USD/bl) CO 2 allowances NAPII (EUR/t) / / / / / / / / / / / / / / / / / / / / / / / / / /2008 Coal (USD/t) Power price - EEX Y+1 (EUR/MWh) / / / / / / / / / / / / / / / / / / / / / / / / /2008

19 MODELLING RESULTS DEMONSTRATE THAT POWER PRICE IS DIRECTLY LINKED TO THE COMMODITY PRICES 1-year forward price EEX baseload, EUR/MWh Cal09Base 80 Model Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Sep-08 Fundamental model shows a very good fit of model outputs based on commodity price forwards with the actual forward power prices. The analysis shows that changes in commodity prices directly translate into power price variations. 18

20 ELECTRICITY PRICE GROWTH HAS POSITIVE IMPACT ON CEZ S GROSS MARGIN, BECAUSE VARIABLE COSTS REMAIN ALMOST UNCHANGED ILLUSTRATIVE Power plant economics /MWh Power price CEZ Generic coal plant CEZ Generic coal plant CEZ has > 90% domestic production in lignite & nuclear energy Long-term contracts have been closed for fuel for the lifetime of power plants CEZ is 100% covered until 2012 for CO 2 emissions Generation cost Gross margin CEZ unit costs will remain stable even under short-term growth in oil & CO 2 prices Source: CEZ 19

21 CEZ IS IDEALLY POSITIONED FOR THE MIDTERM CEZ is in an excellent position to create significant value for shareholders in the next 5 years Current profits are driven by power prices at a large discount to prevailing futures curve Our input costs are stable We have 100% allocation of CO 2 allowances 20

22 AGENDA Introduction Wholesale prices development Response to possible CO 2 auctioning Financial performance International expansion Back up Regional power prices CO 2 position Investments into Czech power plants Recent M&A deals Regulatory frameworks Financial results of Q1-Q Financial overview

23 SINCE 2013, MORE STRINGENT RULES FOR CO 2 ALLOCATION ARE EXPECTED Current draft of EU directive proposes full auctioning of all CO 2 allowances for power industry, while gradual implementation of auctioning is proposed for other sectors Multiple EU member states advocate gradual implementation of auctioning, especially new EU members who over-delivered against their Kyoto targets and who need massive investments to refurbish their energy infrastructure Benchmark based free allocation is likely to continue beyond

24 ALREADY NOW OUR CO 2 INTENSITY IS BELOW EUROPEAN PRICE SETTING PLANT CEZ Group CO 2 intensity currently stands at 0.65 t/mwh of supplied electricity This is already below European price setting plant, which we estimate has an emission factor of 0.8 t/mwh Thus increase in CO 2 price has a positive impact on CEZ profitability Carbon intensity of selected European utilities (t/mwh) PPC Drax RWE CEZ EDP Endesa Enel (Italy) E.ON Iberdrola Fortum Verbund High Medium Low Source: Company data 23

25 NEGATIVE IMPACT OF CO 2 AUCTIONING ON OUR PROFITABILITY CAN BE SIGNIFICANTLY REDUCED CEZ Group EBITDA ILLUSTRATIVE Until 2013 EBITDA will grow driven by power prices One-off drop in 2013 due to CO 2 auctioning can be largely mitigated After 2013 growth should resume due to the expected growth of CO 2 After corrective steps Status quo 24

26 IN ORDER TO ELIMINATE NEGATIVE IMPACT OF CO 2 AUCTIONING WE ARE IMPLEMENTING SEVERAL MEASURES CEZ is reacting by following strategic priorities: 1. Diversification of the generation fleet by constructing gas plants 2. Development of nuclear power projects wherever possible 3. Establishing portfolio of renewables and environmental investments 4. Within the EU, investments in coal plants only if there is a significant cost advantage 5. Investment in JI/CDM projects, forward purchases of emission allowances 6. Investments into projects in growing markets outside the EU 25

27 PROJECTS UNDERWAY WILL BRING 3,760 MW OF GAS CAPACITY BY Location Name Approximate Size (MW) Czech Rep. Pocerady 800 Czech Rep. Uzin 400 ČR Slovakia MOL SK Hungary MOL 800 HU RO Bulgaria Varna 800 BG More projects are under consideration 26

28 NUCLEAR ENERGY REMAINS VERY ATTRACTIVE AND CEZ PURSUES OPPORTUNITIES IN THIS AREA 2. Reasons for nuclear energy in the money CO 2 free solution Reliable & predicable fuel suppliers Another way to diversify generation portfolio Increasing awareness of the need for nuclear energy in the EU CEZ response Increase of production at existing plants from 26TWh to 31 TWh in 2012 Temelin up to 3,400 MW of new capacity, in July 2008 EIA study submitted to Ministry of Environment Dukovany up to 1,700 MW of new capacity CEZ placed a bid for Cernavoda (RO) Interested in participation in construction of Jaslovske Bohunice (Slovakia) when tender is launched 27

29 RECENTLY ACQUIRED WIND PROJECT WILL SIGNIFICANTLY INCREASE OUR PRESENCE IN RENEWABLES 3. Romania Fantanele & Cogealac project will bring 600 MW wind capacity by targets in the Czech Republic Triple the annual renewable energy production from 1.7 TWh to 5.1 TWh Intention to invest CZK 30 bn into renewable sources Wind power preferred, promising opportunities in photovoltaic Already MW of capacity in five locations have secured agreement of municipalities, have guaranteed connection to the grid and partly land assurance 28

30 CEZ DECIDED TO INVEST INTO RENEWAL OF ONLY SELECTED LIGNITE PLANTS IN THE CZECH REPUBLIC 4. Lignite capacity (MW) 5,680 Current lignite capacity 2, Approved renewal projects Prunerov Ledvice Tusimice Rationale Low cost of domestic lignite Thermal power plants next to mines only costs of internal logistics Replacement of old units with more efficient new technology (20% lower CO 2 emissions, from 1t CO 2 /MWh to 0.8 CO 2 /MWh) Secured lignite supplies for the investment lifetime 29

31 CEZ ALREADY CONTRACTED OVER 2/3 OF ITS TOTAL QUOTA OF CERs 5. JI (Joint Implementation), CDM (Clean Development Mechanism) mechanisms of Kyoto protocol, which enable investments into projects for reduction of green house gases and their import to ETS for utilization instead of CO 2 allowances Until 2012 CEZ Group can import to EU ETS approximately 21 mil of CER credits from JI/CDM So far CEZ contracted more than 14 mil of credits with deliveries in Directly from CDM projects Example : wind farm or project of biomass power plant in China On secondary markets Outstanding target of 7 mil to be contracted till Q Expected geographical composition JI/CDM portfolio of direct investments 20% 20% 60% Others Asie (zejména Čína) Central and stření Eastern a východní Europe Evropa ostatní Asia (mainly China) 30

32 CEZ IS INVESTIGATING OPPORTUNITIES OUTSIDE EUROPEAN UNION 6. CEZ FINDS COUNTRIES OUTSIDE EU ATTRACTIVE DUE TO FOLLOWING REASONS: Dynamic growth of GDP leads to high electricity demand growth Need to build additional generation capacities Exclusion from EU ETS gives higher flexibility regarding portfolio mix NEGOTIATIONS ON SPECIFIC OPPORTUNITIES ARE ALREADY UNDER WAY: Turkey Acquisition of 37.5% stake in Akenerji agreed Russia 600 MW of CCGT co-generation planned in Moscow 31

33 INVESTMENT PROGRAM WILL ALLOW CEZ TO REDUCE THE AVERAGE CO 2 EMISSION FACTOR BY 50% Installed capacity (GW) Wind Gas Black coal New lignite Lignite Nuclear Hydro Emissions CO 2 (mil t CO 2 ) CO 2 Emissions (t CO 2 /MWh supplied) Source: CEZ 32

34 AGENDA Introduction Wholesale prices development Response to possible CO 2 auctioning Financial performance International expansion Back up Regional power prices CO 2 position Investments into Czech power plants Recent M&A deals Regulatory frameworks Financial results of Q1-Q Financial overview

35 CEZ EXPECTS 16% INCREASE OF EBITDA IN 2008 BASED ON GUIDANCE UPDATED IN NOVEMBER 2008 EBITDA CZK bn % + 17 % E % + 33 % Key drivers: Positive Optimization of repairs and maintenance, reduction of other operating costs Successful trading strategy of electricity sales Increase in wholesale electricity prices Slight growth of generation volume in nuclear and hydro power plants of CEZ Group EBIT E2008 Negative Extended shutdown of Temelin s first unit in Q Negative impact of strengthening of CZK in 2008 was almost fully eliminated by successful hedging strategy NET INCOME % + 49 % E2008 Application of new IFRS rules (one-off depreciation of reclamations) Profit in 2007 was boosted by two extraordinary factors: 1. change of income tax rate used for calculation of deferred tax liability (influence of approximately CZK + 3 bn) 2. change in valuation and rectification of volume of non-invoiced electricity 34

36 CASH FLOW GENERATION EXCEEDS OUR INVESTMENT PLANS Expected CAPEX development (CZK bn) Net operating cash flow Net cash provided by operating activities CAPEX breakdown: Other Mining 90 CAPEX 90 Distribution and sales foreign Distribution and sales domestic Generation and trading Of which: Key generation projects: Investments into lignite plants in the Czech Republic see slide Wind farms in Romania New CCGTs in JV with MOL and in Pocerady and in Varna Preparatory works for new units of Temelin power plants 35

37 OUR CURRENT LEVERAGE IS LOW COMPARED TO INDUSTRY STANDARDS Net debt/ EBITDA Multiples, 2007 CEZ Group EdF Current level of debt is low, which is a comfortable position in current tight debt markets EnBW 1.3 E.ON RWE Medium term target leverage remains intact: Endesa Iberdrola PPC Net debt/ebitda ratio at x consistent with current rating of A-/A2 Enel 5.7 Industry average 2.5x 36

38 CEZ IS COMMITED TO MAINTAIN ITS PAYOUT RATIO OF % OF NET INCOME 60% 50% 40% Payout ratio (%) 49% 40% 41% 43% 50% Dividend policy targets payout ratio in the range of 50% to 60% of the consolidated profit adjusted for extraordinary items 30% 20% 10% 0% 32% % +33 % % +13 % % F 2009F 2010F Dividend from 2007 profit approved at CZK 40 per share Dividend per share (CZK) Payout ratio Source: CEZ 37

39 CEZ COMPLETED CZK 67.3 BN SHARE BUYBACK PROGRAMME IN MAY 2008 During completed share buyback program CEZ purchased m of shares for CZK 67.3 bn. Average purchase price was CZK 1,158, which is 2.0 % lower than volume weighted average price for the same period. On 21st May 2008, shareholder meeting approved cancelation of 54,221,084 shares. Cancellation will happen after completion of all required legal steps, which is expected by mid December AGM on 21 st May 2008 approved buyback of additional 53.8m shares. Launch date and size of new share buyback will be determined by several factors such as: Conditions on financial markets Pipeline of M&A and other development projects 38

40 AGENDA Introduction Wholesale prices development Response to possible CO 2 auctioning Financial performance International expansion Back up Regional power prices CO 2 position Investments into Czech power plants Recent M&A deals Regulatory frameworks Financial results of Q1-Q Financial overview

41 THIS YEAR CEZ GROUP SUCCEEDED IN SEVERAL M&A DEALS Poland CEZ signed a contract to acquire 25% + 1 share in Elektrownia Skawina from Polish state. CEZ s share will thus increase to 99.91%. CEZ will pay 92.6 million PLN. Hungary and Slovakia gas plants with heat supply - strategic alliance with Hungarian company MOL. JV will develop two CCGT plants with combined installed capacity of 1,600 MW Romania Gas plant - CEZ won a tender for strategic partner for modernization of existing 535 MW Galati plant and for construction of new power plant Wind park - CEZ acquired 600 MW wind farm project Fantanele & Cogealac from Continental Wind Partners. It should be fully online by 2011 Turkey distribution - CEZ together with our local partner Akkok Group won a tender for a Turkish distribution company Sedas, with 1.3 m customers generation - CEZ agreed to buy 37.36% stake in Akenerji from subjects related to Akkök Source: CEZ 40

42 CEZ AGREED TO BY 37.36% STAKE IN AKENERJI CEZ agreed to buy 37.36% stake in Akenerji for USD m from subjects related to Akkök Thus CEZ and subjects related to Akkök will have an equal stake in Akenerji with combined shareholding of 75% Akenerji is the largest company among private generation companies with 10% market share. It produces 2% of Turkey s electricity generation Current power plants of 496 MW* are located in the backbone of main industrial zones in western part of Turkey Akenerji plans to build 9 hydro power plants with 375 MW of capacity and 15MW of wind power plants Cerkezkoy NG (98) Alaplı NG (5) Çorlu Yalova NG (38) Bursa-Gürsu Yalova-Akal NG (11) Uluabat HEPP (100) Bozuyuk NG (132) Akocak HEPP 81) ( Uşak Kemalpasa NG (127) Denizli * Only power plants in Cerkezkoy, Bozuyuk and Kemalpasa of 357 MW will remain in operation, others are closed or intended for sale Source: CEZ, Himmetli Gokkaya Saimbeyli Burç HEPP Bulam HEPP Feke II HEPP Operational Feke I HEPP Ongoing investments To be sold/ not in operation 41

43 CEZ WON A TENDER FOR TURKISH DISTRIBUTION COMPANY SEDAŞ On July 1 st, 2008, CEZ won in an auction in consortium with two Turkish partners Auction price USD 600 m (CEZ s share 50 % of auction price) Essence of the transaction is a transfer of operating rights for Turkish company for 30 years Expected steps Administrative settlement of the transaction ending with High Privatisation Council decision Preparation and signature of privatization agreement is expected within approximately 3 months Takeover of the company and settlement of the transaction Poland Key facts - Sedaş CZ SK Electricity sales Number of customers 8 TWh 1.3 mil. Hungary B+H RO BG Sedaş Share of industry customers 50 % Turkey Source: CEZ 42

44 CEZ GROUP WON A TENDER FOR STRATEGIC PARNER FOR PROJECT GALATI IN ROMANIA In October 2008, CEZ was picked as a winner of a tender for strategic partner for Galati project in Romania Project should include modernization of existing power plant and construction of new power plant with heat supply. Current installed capacity of SC Electrocentrale Galati SA is 535 MW (3x105 MW, 2x60 MW, 1x100 MW) Negotiations about specific details concerning establishment of joint-venture including stakes of respective parties should be launched shortly. Source: CEZ 43

45 CEZ ACQUIRED LARGE WIND PARK PROJECT IN ROMANIA Fantanele MW net capacity factor 28.1 % fully permitted, turbines contracted commissioning 2009/ CZ 2010 Fantanele Bucharest Cogealac Cogealac MW net capacity factor 28.2 % fully permitted 2009 commissioning 2011 Project highlights Biggest wind farm project in Europe Excellent wind conditions for an on shore site Turbines contracted at price quite competitive compared to current price level Construction related risks covered by a set of interlinked contracts Source: CEZ 44

46 PIPELINE OF FURTHER EXPANSION PROJECTS REMAINS STRONG Slovakia MOU signed with U.S. Steel with intention to build up to 400MW plant Russia Moscow - 660MW CCGT green field project Romania Cernavoda - tender for strategic partnership for construction of nuclear power plant Albania won in a tender for distribution company, waiting for a final confirmation by government Source: CEZ 45

47 SUCCESS IN A TENDER FOR ALBANIAN DISTRIBUTOR IS HIGHLY LIKELY Albania distribution CEZ placed the sole bid of EUR 102 m for 76% stake in Albanian distribution company OSSH. Privatization committee picked CEZ as a winner of the tender. The decision has to be confirmed by government. CZ OSSH is the only distribution company in Albania. It serves nearly 1 million customers and supplies 5.3 TWh of electricity. Albania has been affected by a large shortage of electricity lately in particular due to the absence of investment in power development in last decades. In 2007 Albania imported approximately 40% of its annual consumption amounting to 6.5 TWh. Albania Source: CEZ 46

48 AGENDA Introduction Wholesale prices development Response to possible CO 2 auctioning Financial performance International expansion Back up Regional power prices CO 2 position Investments into Czech power plants Recent M&A deals Regulatory frameworks Financial results of Q1-Q Financial overview

49 SUPPLY-DEMAND BALANCE IS GETTING TIGHTER : CR IS THE LAST COUNTRY IN THE REGION WITH AN EXISTING GENERATION SURPLUS Political decision to close down nuclear power plants (23% of consumption in 2007) Even with an investment boom in the future it will at best fulfill its own requirements Germany Czech Republic Poland The decommission of 3,500 MW of coal power plants for environmental reasons (NOx) in 2015 already for sure, potentially up to 7,000 MW Already shutdown of 3,500 MW will result in Poland being dependent on imports Currently there is no ongoing LT construction plan Slovakia Austria Hungary Today dependent on imports during peaks Total net imports in 2007 were 6.9 TWh, i.e. 10% of consumption The largest importer in Central Europe (10% of consumption) Non existing construction plans Limited fuel sources Shutdown of total installed capacity 1,600 MW by 2008 (Nováky, Vojany, Jaslovské Bohunice) Source: CEZ, national statistics 48

50 CROSS BORDER FLOWS IN H MAINTAINED THEIR TREND EXPORTS FROM THE CZECH REPUBLIC ARE SHIFTING TO THE EAST Balance of cross border trades of the Czech Republic for H and y-o-y changes (y-o-y change in %, balance in TWh) % % -0.5 Electricity exports were directed mainly to Slovakia; y-o-y decline to Germany by far exceeded the decline to Slovakia Volume of flows to Slovakia caught up with flows to the west The Czech Republic is in the position of net importer with Poland % % 2.1 Note: Balance of all subjects active in the Czech electricity market is shown. (CEZ sells mainly in PXE and direct exports by CEZ are hardly being concluded) source: CEPS, Czech Statistical Office 49

51 SHORTAGE OF SUPPLY IS PUSHING PRICES EAST OF CZECH REPUBLIC ABOVE GERMAN LEVELS DE 69.2 /MWh PL 63.2 /MWh CR 68.8 /MWh SK 78 /MWh HU 82.5 /MWh High prices in Hungary and in the Balkans reflect critical lack of electricity in the region RO 55 /MWh SR 80 /MWh Note: Prices for BL 2009 as of end of October 2008 Source: CEZ; EEX, PXE 50

52 WITH MOVE TO NAP II ELECTRICITY PRICES IN POLAND INCREASED TO A MARKET LEVEL Development of electricity prices in Poland /MWh, Day-ahead market H Oct-08 For several past years Polish power prices did not reflect the costs of CO 2 allowances Power prices dramatically increased in the beginning of 2008 and then stabilized on the level above 50 /MWh. Prices now reflect not only the variable costs of fuel but also price of CO 2 allowances Source: PolPX 51

53 NAP 2 ALLOCATION IS SUFFICIENT TO COVER CEZ GENERATION NEEDS CO 2 Emissions of CEZ, a.s. Mil. Tons Key measures taken to earn additional margin from saving of CO 2 allowances Trading Priority dispatch of units with low CO2 emissions Reduction of export Plant maintenance Increased availability of nuclear plants Increased focus on plant efficiency Increased renewable generation NAP 1 allocation Real emission in 2005 Real emission in 2006 NAP 2 allocation Measuring Management Implementation of more accurate measurement systems Opportunity cost of CO2 emission considered in all decisions Polish power plants Elcho and Skawina got allocated 3.6 m in NAP 2, a reduction of 21% compared to NAP 1. Their average emissions were 4.2m in Bulgarian allocation plan has not been approved yet. Source: CEZ 52

54 MODERNISATION OF TUSIMICE AND CONSTRUCTION OF NEW UNIT IN LEDVICE IS PROGRESSING ACCORDING TO SCHEDULE AND BUDGET Power plant Tusimice Complex renewal (4 x 200 MWe) Power plant Ledvice New supercritical unit (1 x 660 MWe) Gradual renewal (2+2 units) Increase in net efficiency from 33% to 38% Extension of service life until 2035 Initiation of renewal: June 2, 2007 Planned start of operation: October 2010 Components contracted Planning permission issued Planned net efficiency 42.5% Expected service life 40 years, i.e. until 2052 Initiation of implementation: July 17, 2007 Planned start of operation PAC: Dec

55 PREPARATION OF MODERNIZATION OF PRUNEROV AND OF CCGT PROJECTS IS UNDER WAY Power plant Prunéřov Complex renewal (3 blocks x 250 MWe) Steam gas projects (Počerady) New construction PPC 440 / 880 MW Boiler room, generator room and desulphurization unit (FGD) contracted Increase in net efficiency from 33% to % Extension of service life by years Initiation of renewal: March 1, 2011 Planned start of operation of new blocks: Q Q Tenders for gas turbine supply, HRSG and steam turbines in version 440 / 880 MW Net efficiency 57.4% (ISO) Service life until 2043 Start of construction: April 2011 Planned start of operation: June

56 MARKET OF RENEWABLES IN ROMANIA Development of mandatory quota* 9.00% 8.30% 8.30% 8.30% 8.00% 6.78% 7.00% 6.00% 5.26% 5.00% 4.00% 3.74% 3.00% 2.20% 2.00% 1.00% 0.70% 0.00% EUR/certificate Green certificates market clearing price November 2005 January 2006 March 2006 May 2006 July 2006 September 2006 November 2006 January 2007 March 2007 June 2007 August 2007 October 2007 December 2007 February 2008 May 2008 July 2008 Support of renewables Green certificate (GC) is obtained by the producer for each MWh supplied in the network The legally set up price for green certificate is from 24 to 42 EUR in GC may be sold : to electricity suppliers within bilateral contracts at negotiated prices monthly on the centralized market of green certificates Duration of support 15 years Penalty for suppliers unable to comply with annual mandatory quota double of the maximum trade value of GC The mandatory quota has been increasing gradually, the goal is to reach 8.3 % in 2010 Wholesale tariff for electricity in Eur/MWh (base, including transmission fees) *annual percentage of the gross national electricity consumption, source: ANRE, OPCOM 55

57 TURKISH ELECTRICITY MARKET IS VERY ATTRACTIVE Selected data on Turkey: Turkey is with its 80 m inhabitants comparable in size with the whole Central Europe Dynamically growing economy, fast urbanization, real GDP growth 6.1 % in 2006 In 2006 electricity demand reached 170 TWh (almost three times as much as in the Czech Republic) Electricity consumption per capita is currently low (a quarter of EU average) Annual growth of electricity demand is around 6-8% in which compares to growth in European countries of 2-3 % Demand also driven by growing population (80m inhabitants, the average age 27.3 years) Need for additional 50,000 MW of the installed capacity by 2020 to match growing demand Gross Electricity Consumption in Turkey TWh CAGR of 6.7% Structure of installed capacity in Turkey Gas/oil 48% Hard coal 5% Hydro 24% Lignite 23% Source: Eurostat, TEIAS 56

58 STRATEGIC ALLIANCE WITH MOL: PRINCIPLES OF CEZ MOL JOINT VENTURE JV 50:50 in equity interest, voting rights and other benefits Operations targeted for 4 countries of CSEE Hungary, Slovakia, Croatia and Slovenia The initial projects in Hungary and Slovakia MW CCGT in Dufi (Százhalombatta) and 800 MW CCGT MW TPP expansion in Bratislava MOL contributes current heat plants and related infrastructure into JV JV investment of app. 1.4 billion EUR (for initial projects) Gas supply contract from MOL, off-take contract for refineries steam, electricity Dual fuel capability (gas, liquid residuals) Source: CEZ - MOL 57

59 STRATEGIC ALLIANCE WITH MOL: RELATED FINANCIAL TRANSACTION Purchase 7% of the common stock of MOL by CEZ for strengthening of the strategic alliance CEZ sells to MOL an American call option with strike price 20,000 HUF: Option can be exercised within 3 years from the date of signing Call price covers spread between strike and purchase price and guarantees CEZ capital cost coverage until the option expires or is exercised Purchase of stake in MOL, net of the option premium received upfront resulted in cash outlay of ca EUR 560 ml. in Q Source: CEZ - MOL 58

60 STRATEGIC ALLIANCE WITH MOL: EXPECTED TIMETABLE ESTABLISHMENT OF CEZ MOL JV Signing of JV and share deal agreements Purchase of MOL shares Setting up JV companies and management team Asset contribution by MOL to JV JV fully operational with current assets Dec 20 th, 2007 Jan 2008 Jan Apr 2008 Jan 2008 Mar 2009 Mar 2009 Ongoing DEVELOPMENT OF FIRST PROJECTS CCGT Feasibility studies Notification of antimonopoly authorities CCGT construction and other permits CCGT supplier selection and contract signing CCGT commissioning Jan Aug 2008 Jan May Apr 2008 Feb Ongoing Source: CEZ - MOL 59

61 PRINCIPLES OF REGULATION IN THE CZECH REPUBLIC ARE IDENTICAL TO THE REST OF EUROPE Revenue Cap Set by the regulatory office Revised annually based on formula and key parameters valid through regulatory period Opex Depreciation EBIT Indexed to a mixture of PPI (65% weight) and wage growth index (35%) Adjusted for efficiency factor x (2.085%) Includes all tax deductible OPEX in relation to distribution plus compensation of costs related to unbundling and outsourcing and by regulator was compensated in allowed costs Backward adjustments to reflect changes in distributed volume, in purchased power from renewables, etc. Indexed to PPI RAB x WACC nominal, pre-tax WACC nominal, pre-tax %* Set for a full regulatory period Risk free rate 4.18% Beta unlevered 0.35 RAB (Regulatory Asset Base) Annually adjusted for changes To increase by 94% (from 2004 level) in the next several years Risk premium 6.32% D/(D+E) 30.00% * Valid in Reduction of WACC from 7.955% in 2007 caused by decrease in statutory income tax rate 60

62 RAB IS BEING REVALUED TO REFLECT MARKET VALUE RAB* development CZK bn /2006 drop in asset value caused mainly by lower investment during transition period and one off write off of some old already depreciated assets that were formerly valued with 10% value for transfer ** 2004 Conceded Asset Value 60.6*** RAB 2006 RAB 2007 Implied RAB Book value as of year end + 94% RAB value accepted by regulator 62.1 Target RAB, ie. Revalued Book Value RAB revaluation is a result of assets revaluation conducted as a part of assets transfer within Vision 2008 on the basis of requirement stipulated by commercial law Revaluation carried out for all transferred assets Part of assets formerly used in distribution moved to support companies and outsourcing and by regulator was compensated in allowed costs One off items increasing profit by CZK 450 mil granted by regulator from 2006 and also 56 mil in 2007 and 329 mil in partial compensation of depreciation revaluation * Adjusted to reflect assets transfer to support companies **Historical value of assets contributed into CEZ Distribuce ***Revalued asset value to the last asset contribution date 01/

63 REVIEW OF BULGARIAN REGULATORY ENVIRONMENT Regulatory Framework Regulatory period Regulated by SEWRC (State Energy and Water Regulatory Commission) The regulatory formula for distribution Revenue cap = Costs + Regulatory return on RAB + Depreciation Regulatory rate of return (WACC nominal, pre-tax) 12% for 2 st regulatory period RAB set at Eur 276 m for 2 nd regulatory period CPI adjustment used for part of costs (OPEX) Losses in 2 nd regulatory period set by regulator 18.5% Efficiency factor introduced in 2 nd regulatory period Investment plan approved by Regulator on yearly basis 1 st regulatory period nd regulatory period Unbundling & Liberalization Successfully completed by December 31, 2006 Since July 2007, all consumers have the right to become eligible but the effective market degree of liberalized market is negligible. Regulated tariffs are lower than the market price thus the customer doesn t have any incentive to opt for eligible status 62

64 BULGARIAN NEW REGULATORY RULES ARE BELOW OUR PROPOSALS BUT STILL ABOVE VALUATION CASE Regulatory asset base (EUR m) / / / /2009 RAB proposed RAB declared Significant reduction of regulated Capex (79% vs. CEZ proposal) Similar reduction for all three groups in Bulgaria (EVN, E.ON and CEZ) Reduced Capex threatens safety of distribution network and meeting EU norms in the long run Distributors filed a complaint against the decision Assumed ROIC is still above original valuation case (savings from losses reduction, synergy effect, efficiency improvements) In 2005/2006 end user prices increased on average by 7.1% compared to 2005/2004 In 2006/2007 end user prices increased on average by 0.7 % compared to 2006/2005 In 2007/2008 end user prices increased on average by 14.3 % compared to 2006/2007 In 2008/2009 end user prices increased on average by 12.2 % compared to 2007/2008 Electricity purchase price from NEK and renewables in 2006/2007 rose faster than the enduser price (both regulated, but each on a different basis), impacting the expected y-o-y results 63

65 REVIEW OF ROMANIAN REGULATORY ENVIRONMENT ELECTRICITY DISTRIBUTION Regulatory Framework Regulated by ANRE (Autoritatea Nationala de Reglementare in domeniul Energiei) Price cap (tariff basket) methodology Revenue = Controllable OPEX + non-controllable OPEX + Regulatory return on RAB + Depreciation Efficiency factor of 1% applied only to controllable OPEX - annually Losses (technical+commercial) reduction program agreed with ANRE (target 2012 average of 9.5%); CEZ almost achieved 2012 target now Minimum quality standard in formula Possibility for annual corrections Regulatory return (WACC real, pre-tax) equals - 12% in 1st regulatory period - 10% in 2nd regulatory period Distribution tariff growth capped in real terms at: 18% in the first regulatory period 12% in the second regulatory period If distribution tariff increase is higher y-o-y than indicated (18;12%) regulator will return the difference in the following year Regulatory periods 1 st regulatory period * 2 nd regulatory period Unbundling Legal deadline according to Electricity law July 1, 2007 CEZ - first company in Romania achieving legal unbundling on March 15, 2007 Liberalization New Electricity law (no.13/2007; harmonized with EU directives) calls for full liberalization by July 2007 Since July % of electricity market opened, protected customers include households and small commercial customers opting out from eligibility Effective market degree approx. 55%; 60 active suppliers (end-user suppliers and traders) Prolongation of the tariff regulation after the full opening of the market for households and small commercials * Regulatory period lasts 5 years except first regulatory period that lasted 3 years 64

66 ROMANIAN REGULATORY FRAMEWORK IS SIMILAR TO CZECH AND EU I. Regulatory period ( ) EUR m* WACC (12%) RAB (mio.euro) Regulatory framework for distribution is price cap type (tariff basket), based on RAB regulated return (12% pre-tax, real terms WACC for first regulatory period ) Regulator targets maximum own technical consumption at 9.5% of total consumption by 2012 (El. Oltenia target was 10.7% in 2006 and 10.5% in 2007) Investment plan approved by ANRE in advance before regulatory period Electrica Oltenia - the only distribution company having negotiated the maximum distribution tariff growth in Year For sales to captive customers (still regulated), the approach is 2.5% margin on top of electricity procurement costs (including wholesale price, transmission, ancillary services, market administration) * Exchange rate used as of year end 65

67 GROSS MARGIN FROM GENERATION, TRADING, SUPPLY AND ELECTRICITY DISTRIBUTION INCREASED BY 19 % TO CZK 93.3 BN (In (in CZK CZK millions) millions) Q1 Q3 / 2007 Q1 Q3 / 2008 Change Index /07 Operating revenues 123, ,821 8, % Electricity sales and services 114, ,111 2, % Electricity derivative trading, netto 1,584 5,402 3, % 107% Heat sales and other revenues 7,464 9,308 1, % Variable operating costs -45,022-38,523 6,499 86% Fuel -12,201-11, % Purchased power and related services -33,125-26,869 6,256 81% CO2 allowances % Gross margin (simplified) 78,474 93,298 14, % of which balance of electricity sales and purchases 82,907 95,644 12, % (Electricity sales and services, Electricity derivative trading, netto and Purchased power and related services) Key changes Increase in wholesale electricity prices and successful trading strategy had a positive impact on gross margin from electricity generation and trading (significant CZK 3.8 bn y-o-y increase of trades classified as derivative trading, trades with physical delivery decreased by CZK 6.6 bn y-o-y on the cost side and by CZK 5.1 bn on the revenue side) Improvement of availability of nuclear power plants (generation up 1.9 TWh, i.e. by 10 %), decrease in generation in coal fired power plants (-5 TWh, -15%) caused by optimization of utilization with regards to price of CO2 allowances and owing to emission ceilings, this also influenced decline in fuel costs Increase of sales to final customers by 0.6 TWh (by 2 %) Increase of volume of electricity distributed to final customers by 1.2 TWh (+ 3 %), increase in distribution tariffs Other revenues include mainly higher revenues of subsidiary I & C Energo a.s. and are also influenced by inclusion of company ČEZ Teplárenská into consolidation in 2008, while in 2007 it was consolidated only for two quarters 66

68 CEZ GROUP MANAGES TO KEEP ITS OPERATING COSTS UNDER CONTROL (in CZK millions) Q1 Q3 / 2007 Q1 Q3 / 2008 Change Index /07 SUM of selected operating costs -23,337-24,480-1, % Salaries and wages -10,942-11, % Other selected operating costs -12,395-12, % Repairs and maintenance -3,124-3, % Material and supplies -4,452-3,336 1,116 75% Others -4,819-6,599-1, % 107% EBITDA 55,137 68,818 13, % Depreciation and Amortization -16,198-15, % Y-o-y increase in operating costs reached 5 % (excluding depreciation, CO2 allowances and purchases of fuel and electricity) Other selected operating costs increased by 5 %. Repairs and maintenance costs decrease were influenced by different time structure of repairs during the year, particularly in ČEZ, a. s. Decline in Material and supplies and increase in Others were caused by different order structure of ŠKODA PRAHA (purchase of services incl. material) Decline of depreciation and amortization was caused mainly due to the extension of service life of energy equipment of CEZ Distribuce since January 1 st 2008 according to the valid ERU notice 67

69 OTHER EXPENSES AND INCOME INCREASED BY CZK 252 M (in CZK millions) Q1 Q3 / 2007 Q1 Q3 / 2008 Change Other expenses and income % Interest on debt -1,773-2, % Interest on nuclear and other provisions -1,442-1, % Interest income 1,045 1, % FX profit / loss and financial derivates > 500% CO2 allowances derivates 729 1, % Gain(-)/Loss on sale of subsidiary/associate % Income from associates % Others % Profit before taxes 38,544 52,553 14, % Income tax -8,860-11,086-2, % Net Income 29,684 41,467 11, % Index 08/07 Increase in interest expense caused by higher average indebtedness, which is a result of higher financial investments and optimization of capital structure (mainly through share buyback). Y-o-y growth of incomes from CO2 allowances derivatives reflects successful trading strategy including effects from JI/CDM programs, which is an environmental program based on Kyoto protocol and whose aim is to reduce world emissions FX losses increased y-o-y by CZK 1,329 m, financial derivatives gains rose by CZK 945 m. Y-o-y growth of Gain on sale of subsidiary is caused by sale of I & C Energo a.s. Y-o-y decrease in Others is caused by sale of small companies with non-core activities in

70 SEGMENTAL CONTRIBUTIONS TO EBITDA Contributions to EBITDA in Q1-Q CZK bn Generation and trading CE* Distribution and Sale CE* Mining CE* Others CE* Generation and trading SEE* Distribution And sale SEE* Others SEE* CEZ Group Index Q1-Q3 08/ Q1-Q % 131 % 96 % 111 % 68 % 87 % N/A Index Q3 08/ Q % 180 % 92 % 90 % 59 % 79 % N/A 125 % 119 % Generation and trading CE*: 31.5 % y-o-y improvement of EBITDA caused by increase in wholesale electricity prices in the Czech Republic and thanks to higher generation from nuclear power plants. Total electricity generation in CE decreased to 48.5 TWh (- 6 %). Distribution and sale CE*: EBITDA grew by 31.3 % y-o-y in Q1-Q It is positively influenced by 1.0 TWh (i.e %) increase in volume of electricity distributed to final customers and by 0.6 TWh (i.e %) growth of sales to end customers outside CEZ Group due to extremely warm winter in Increase is influenced also by change in valuation of invoiced electricity to retail and by lower costs of purchased electricity. These methodical influences are neutral in the whole year, but cause increase in Q2 and Q Mining CE*: EBITDA of Severočeské doly is down by 4.2 % y-o-y. Decline is caused by higher operating costs mainly for repairs and maintenance as a result of faster progress in works. In Q1-Q volume of coal sales is lower by 980 thousand tones y-o-y, due to the lower generation in coal power plants Generation and trading SEE**: Varna power plant generated 2.7 TWh (+ 5.0 % y-o-y). Y-o-y decline is driven by rising coal prices, which are not fully reflected in electricity prices due to non-transparent regulatory environment. Also, rules for allocation of CO2 allowances are not clear (NAP was not approved) and results are negatively influenced by restriction on exports abroad. Distribution and sale SEE**: In Q1-Q EBITDA declined by 13 % compared to the same period in 2007 due to appreciation of CZK against local currencies. In Romania, EBITDA in local currency increased by 2.0 %. Electricity distributed decreased by 4.3 %, electricity sales to final customers declined by 8.7 %. On the other hand positive factors include increase in gross margin in due to higher distribution tariffs and better purchase mix for sale of electricity to final customers. Negative impact had creation of provisions for receivables, mainly after Romanian railways. In Bulgaria, EBITDA increased by 5.4 % in local currency due to the higher distribution of electricity by 8.0 % and higher sales of electricity to final customers by 6.9 %. * CE = segment Central Europe (Czech Republic, Slovakia, Poland, Hungary, Netherlands, Germany) * SEE = segment South-eastern Europe (Bulgaria, Romania, Kosovo, Serbia, Russia, Bosnia & Herzegovina, Ukraine) 69

71 CURRENT BOND MATURITY PROFILE & FUNDING PLANS Significant portion of the future leverage increase will come from M&A and new development projects with timing difficult to predict Acquisitions and new projects with EU-like risk profiles and projects with close to 100% control of CEZ to be funded through centralized treasury Off balance sheet funding will be applied for projects outside EU / higher risk profile or some JV projects CEZ aims to diversify the sources of funding Domestic Funding mainly short term (CPs, Credit Facilities) EMTN mainly medium term Private placements long and very long term Special Purpose Financing Bond Maturity Profile (CZK millions) 18,000 16,000 14,000 12,000 10,000 8,000 6,000 4,000 2, CZK EUR JPY ST credit lines and their drawdown (3Q 2008) * 60,000 50,000 40,000 30,000 20,000 10,000 0 Uncommitted Committed ST credit lines Undrawn uncommitted Undrawn Committed Drawn drawdown of ST credit lines 70