conference call Čez 1st half 2005 results unaudited, unconsolidated according to ifrs
DESCRIPTION
CONFERENCE CALL ČEZ 1st HALF 2005 RESULTS UNAUDITED, UNCONSOLIDATED ACCORDING TO IFRS. Prague, August 1, 2005. AGENDA. Economic performance Petr Vobořil, Chief Finance Officer and Vice Chairman of the Board of Directors Sales performance and strategic initiatives - PowerPoint PPT PresentationTRANSCRIPT
CONFERENCE CALLČEZ 1st HALF 2005 RESULTS
UNAUDITED, UNCONSOLIDATED
ACCORDING TO IFRS
Prague, August 1, 2005
2
Economic performance Petr Vobořil, Chief Finance Officer and Vice Chairman of the Board of
Directors
Sales performance and strategic initiativesAlan Svoboda, Chief Sales Officer and Vice Chairman of the Board of Directors
AGENDA
3
Price of ČEZ’s share on the Prague Stock Exchange rose during 1st half from CZK 341 to CZK 471 (by 38 %) and reached CZK 525 on July 29, 2005.
ČEZ, a. s. will pay a dividend of CZK 9 per share for 2004; the total amount of the dividend pay-out will be CZK 5.3 bn.
EBIT grew by 58 % to CZK 10.9 bn y-on-y, increase of CZK 4 bn.
Net income rose by 111 % to CZK 10.9 bn (increase of CZK 5.7 bn) y-o-y.
We are increasing our full 2005 net income forecast from CZK 13.5 bn to CZK 15.2 bn.
ROE increased by 96% y-o-y; we expect a 38% increase on annual basis.
VISION 2008 on track.
Plans for lignite plants portfolio renewal – finalized.
ECONOMIC PERFORMANCE IN 1st HALF 2005
4
Share price and stock exchange indices%
PRICE OF ČEZ’s SHARE ON PRAGUE STOCK EXCHANGE ROSE DURING 1st HALF FROM CZK 341 to CZK 471 (BY 38.2 %) AND REACHED CZK 525 ON JULY 29, 2005
Source: ČEZ and EEX
January February March April May June July
Movement in ČEZ‘s share price - June 2004 - 2005 ~ 155% - January - June 2005 ~ 38%
*) The modified PX-50 has been re-calculated to eliminate the influence of movements in ČEZ‘s share price.
90 %
100 %
110 %
120 %
130 %
140 %
150 %
160 %
Bloomberg European Utilities
Index
ModifiedPX-50 *
ČEZ, a. s.
470.8
340.7
524.5
5
HAVING REACHED ALL TIMES HIGH OF CZK 535.5 PER SHARE ČEZ, A. S. BECAME THIRD BIGGEST CENTRAL EUROPEAN COMPANY BY MARKET CAPITALIZATION
Source: Analysts‘ reports
+ 59 %+ 70 %+ 31 % Third biggest in Central Europe (incl. financial institutions)
Biggest in Visegrad 4 Biggest in new EU Member States
Market capitalizationbn EUR
Growth:
*) Bank Austria Creditanstalt**) Raiffeisen International
6.6
10.5
0
2
4
6
8
10
12
14
PKO BP
(PL)
Raiff.
(A
)**
TPSA (P
L)
Telek
om A
ustria
(A
)
OTP (H
)
MOL
(H)
Erste
Ban
k (
A)
ČEZ, a. s
. (C
Z)
OMV
(A)
BA-CA
(A)*
December 31, 2004
July 27, 2005
6
ČEZ, a. s. WILL PAY DIVIDEND OF CZK 9 PER SHARE FOR 2004. TOTAL DIVIDEND PAY-OUT WILL BE CZK 5.3 bn.
0
2
4
6
8
10
12
2000 2001 2002 2003 2004 E2005 E2006 E2007
CZK bn
0
2
4
6
8
10
12CZK per share
Amount of dividends Dividend per share
22.5
4
8
9
1.21.5
2.7
4.75.3
7
EBIT INCREASED Y-O-Y BY 58 % TO CZK 10.9 bn, INCREASE OF CZK 4 bn
(CZK m)1st half
2004
1st haIf
2005
Diff.
05-04
Index
05/04
(%)
Revenues 31,099 33,770 2,670 108.6
Sales of electricity 29,904 32,522 2,617 108.8
Heat sales and other revenues 1,195 1,248 53 104.4
Operating expenses 24,172 22,839 -1,333 94.5
Fuel 7,199 7,048 -152 97.9
Purchased power and related services 4,565 3,663 -902 80.2
Repair and maintenance 1,290 1,120 -170 86.8
Depreciation and amortization 6,792 6,732 -59 99.1
Salaries and wages 2,009 1,932 -77 96.2
Materials and supplies 839 789 -50 94.0
Other operating expenses 1,478 1,556 77 105.2
Income before other expenses/incomeand income taxes (EBIT)
6,927 10,931 4,003 157.8
Main impacts
higher wholesale margins
more effective use of low cost plants
repairs and maintenance costs decrease
8
NET INCOME GREW YEAR-ON-YEAR BY 111 % TO CZK 10.9 bn (INCREASE OF CZK 5.7 bn)
Main non-operating impacts
+ 4.0 dividends received
+ 0.6 creation and settlement of allowances
- 1.9 income tax
- 1.0 interest on nuclear provisions
- 0.8 interest on debt
- 0.7 foreign exchange rate losses
(CZK m)1st half
20041st half
2005Diff.
05-04
Index05/04(%)
Income before other expenses/incomeand income taxes (EBIT) 6,927 10,931 4,003 157.8
Other expenses/income 354 -1,854 -2,208 x Interest on debt 715 764 49 106.8
Interest on nuclear provisions 980 1,025 45 104.5Interest income -61 -71 -10 116.7Foreign exchange rate losses/gains, net 159 676 516 423.9Other expenses/income, net -1,440 -4,247 -2,807 294.9from which: dividends received -1,679 -3,963 -2,285 236.1
creation and settlement of allowances 0 -608 -608 x Earnings before taxes 6,574 12,785 6,211 194.5Income taxes 1,403 1,889 487 134.7
Net income 5,171 10,896 5,725 210.7
9
WE INCREASE OUR FULL 2005 NET INCOME FORECAST FROM CZK 13.5 bn TO CZK 15.2 bn
10.415.2
13.2
1.0
2.6 0.4
0
2
4
6
8
10
12
14
16
18
NET INCOM
E 200
4
NET INCOM
E 200
5 (p
lan)
Divid
ends
rece
ived
Operat
ing a
nd oth
er it
ems
Foreig
n exc
hange
rate
loss
es/g
ains
NET INCOM
E 200
5 (fo
reca
st)
+ CZK 2 bn+ 15.4%
CZK bn
10
+ 38.1%
3.4
6.6
0
1
2
3
4
5
6
7
8
9
10
1st half of 2004 1st half of 2005
ROE INCREASED BY 96% Y-O-Y; WE EXPECT 38% INCREASE ON ANNUAL BASIS
Return on Equity (net)%
+ 95.8%
6.6
9.1
0
1
2
3
4
5
6
7
8
9
10
2004 E2005
11
394
488
0
50
100
150
200
250
300
350
400
450
500
1st half of 2004 1st half of 2005
+ 23.8%
VALUE ADDED PER EMPLOYEE AND MONTH INCREASED BY 24 %
Value added per employee and monthCZK / month / person
390
471
0
50
100
150
200
250
300
350
400
450
500
2004 E2005
+ 20.8%
12
RATING BY MOODY’S AND STANDARD & POORS IMPROVED
Standard & Poor’s
confirmed long-term rating BBB+, changed outlook from stable to positive (May 2005)
Moody’s
changed long-term rating from Baa1 to A3, outlook unchanged(June 2005).
Standard & Poor’s
Moody’s
ČEZ, a. s.
CzechRepublic
Credit rating of ČEZ, a. s. and the Czech Republic
BBB+
A-
A3
A1
CzechRepublic
ČEZ, a. s.
Ba1 Baa3 Baa2 Baa1 A3 A2 A1
A+ A A- BBB+ BBB BBB- BB+
13
66.2 69.5
10.4 22.8
173.4178.9
0
50
100
150
200
250
300
31.12.2004 30.6.2005
Current assets
Other non-currentassets
Property, plant andequipment
ASSETSCZK bn
BALANCE SHEET REMAINS ROBUST
255.5 265.7
Increase in cash and cash equivalents by 8.4 CZK bn
255.5 265.7
EQUITY & LIABILITIESCZK bn
Increase in financial investments
38.1 38.0
29.3 29.611.9 14.013.8
17.1
162.4 167.0
0
50
100
150
200
250
300
31. 12. 2004 30. 6. 2005
Current liabilities
Deffered tax liability
Nuclear provisions
Long-term liabilitiesexcl. provisions
Equity
Increase especially in liabilities from dividends declared
Profit of period, net of dividends
14
Increase in cash flow from operating activities in the 1st half 2005 is mainly due to favourable development of the electricity sales.
CASH FLOW FROM OPERATING ACTIVITIES INCREASED
11,414,0
0
5
10
15
20
25
CZ
K b
n
Other
Interest paid, net of interestcapitalized
Income taxes paid
Foreign exchange rate loss/gain,net
Interest expense, interest incomeand dividends income, net
Amortization of nuclear fuel
Changes in assets and liabilities
Depreciation and amortization
Income before income taxes
Net cash provided by operatingactivities
1st half 2004
Annual increase:+ 23.2%
1st haIf 2005
11.414.0
15
Long-term indebtedness Total indebtedness with provisions excluded
DEBT RATIOS REMAIN BEST IN THE INDUSTRY
%
16.414.3
26.224.8
0
5
10
15
20
25
30
35
40
45
50
As of June 30, 2004 As of June 30, 2005
14.9
11.5
23.9 24.4
0
5
10
15
20
25
30
35
40
45
2004 E2005
Limit for Total Indebtedness is 50%(limit results from current loan agreements)
16
OVERVIEW OF KEY SUBSIDIARIES UNCONSOLIDATED H1 2005 RESULTS
146
286
161
561
ČEZnet
14 38 25
84 698 150
24
20
ČEZ Měření
274
37
ČEZData
25
25
ČEZZákaz.služby
54
184
67
1,570
ER Pleven
120
252
160
1,573
ER Sofia Oblast
229
450
280
2,863
ER Stolichno
705
1,157
833
6,421
VČE
644
1,254
879
6,726
STE
860
1,449
1,037
7,708
SME
668
1,223
889
6,207
SČE
10,896
17,663
10,931
33,770
ČEZ
514 Net Profit
4,408 Sales
871
638
ZČE
EBITDA
EBIT
Company Name
As of June 30, 2005 consolidated ČEZ Group
consisted from 32 companies fully consolidated
and 6 companies consolidated by equity method.
1st half 2005
CZK m
Net Profit
Sales
EBITDA
EBIT
Company Name
ČEZ, a. s. andelectricitydistributioncompanies
Other companies
17
Economic performancePetr Vobořil, Chief Finance Officer and Vice Chairman of the Board of Directors
Sales performance and strategic initiativesAlan Svoboda, Chief Sales Officer and Vice Chairman of the Board of Directors
AGENDA
18
Virtual power plant and wholesale electricity auctions to start in the next few days.
Having received 36.9 m metric tons CO2 emission permits, ČEZ can increase power generation in lignite power plants by 5.3% compared to 2004.
ČEZ increased utilization of power plants with lower costs.
ČEZ increased domestic electricity supplies by 0.8 %.
HIGHLIGHTS OF 1st HALF 2005
19
VIRTUAL POWER PLANT AND WHOLESALE AUCTIONS TO START IN THE NEXT FEW DAYS
Virtual Power Plant
Based on the decision of the Czech Antitrust Office (related to acquisition of SČE distribution company), ČEZ will hold an auction to sell a Virtual Power Plant with capacity of 400 MW (lowered during summer to 240 MW); the electricity volume to be sold will be approximately 3.2 TWh.
Auction starts on August 3, 2005. To date 17 parties have expressed interest. Important price signal for the wholesale auction of Duhová Power.
Wholesale auction
Wholesale auction to sell supply for 2006 will follow the Virtual Power Plant auction.
20
GAP BETWEEN ELECTRICITY PRICES IN THE CZECH REPUBLIC AND ABROAD WIDENS
Germany *
Czech Republic **
Wholesale electricity prices2000 index
* Baseload ** Average price charged by ČEZ, a. s. for supply to regional distribution
companiesEZ
40 - 45 EUR
60
80100
120
140160
180
200
220240
260
2000 2001 2002 2003 2004 2005 2006
?
21
FOREIGN PRICES CONTINUE GROWING SIGNIFICANTLY DUE TO INCREASED DEMAND AND SUPPLY UNPREDICTABILITY
Source: EEX
Spot prices on German exchange EEX (baseload)
EUR/MWh
10
20
30
40
50
60
70
80
90
100
110
4.1.
2005
18.1
.200
5
1.2.
2005
15.2
.200
5
1.3.
2005
15.3
.200
5
29.3
.200
5
12.4
.200
5
26.4
.200
5
10.5
.200
5
24.5
.200
5
7.6.
2005
21.6
.200
5
5.7.
2005
19.7
.200
5
31
33
35
37
39
41
43
45
47
4.1.
2005
18.1
.200
5
1.2.
2005
15.2
.200
5
1.3.
2005
15.3
.200
5
29.3
.200
5
12.4
.200
5
26.4
.200
5
10.5
.200
5
24.5
.200
5
7.6.
2005
21.6
.200
5
5.7.
2005
19.7
.200
5
Forward electricity prices for the year 2006 on German exchange EEX (baseload) EUR/MWh
22
FOLLOWING ALLOCATION OF 36.9 m METRIC TONS OF CO2 EMISSION PERMITS PER YEAR FOR 2005 – 2007, ČEZ CAN INCREASE GENERATION IN LIGNITE-FIRED POWER PLANTS BY 5.3 %
Carbon dioxide
emissions in 2004
(m metric tons)
Allocation ofcarbon dioxide
emission permits
Electricity generation
in lignite-firedpower plants
in 2004
(TWh)
Generation oflignite-fired
PPscovered by
current allocations
(TWh)
Currentultimate
capacity oflignite-fired PPs
(TWh)(m metric tons)
36,933,7
35,5
40,837,3
35,1
0
5
10
15
20
25
30
35
40
45+ 5,3 %
Carbon dioxide
emissions in 2001
(m metric tons)
23
CO2 EMISSION PERMITS HELP ČEZ TO HEDGE ITS TRADING POSITION
EUR/MWh
Variable costs *
Cross border
capacity fee
Exportmargin
Totalvariable
costs
Emissionpermit’sprice **
Minimum margin
*) Coal-fired power plants**) Generation of 1 MWh of electricity in coal-fired power plantinduces production of 1.04 metric tons of carbon dioxide.***) 2006 baseload future traded at EEX
28
30
32
34
36
38
40
42
44
46
48
January February March April May June July
EUR/MWh
5
10
15
20
25
30
35EUR/t
Electricity price*** Emission permit‘s price
24
ČEZ INCREASED UTILIZATION OF POWER PLANTS WITH LOWER COSTS
18(59%)
16.9(56%)
12.3(41%)
11.5(38%)
0(0%)
0(0%)
1(3%)
1(3%)
0
5
10
15
20
25
30
35
1st half 2004 1st half 2005
30.5 TWh 30.2 TWh
TWh
Hydro – favorable hydrological conditions, all power plants broken during flood in 2002 are now back in operation
Nuclear – higher utilization of generation capacity will be compensated by lower output of Unit 2 in the second half of 2005 (high pressure part of turbine is broken)
Coal – decrease of share in favor of nuclear power plants
Wind and solar power plants
Hydro power plantsCoal power plants
Nuclear power plants
25
ČEZ INCREASED DOMESTIC ELECTRICITYSUPPLIES BY 0.8%
*) incl. electricity domestic sales for further export
Electricity demand in the Czech RepublicTWh
28.8
0
5
10
15
20
25
30
1st half 2004 1st half 2005
66.8 %
29.5
68.2 %
+ 2.2 %
ČEZ, a. s. share in demand
26
Electricity sales excl. auxilliary servicesCZK m
1st half
2nd half46,233
54,704E 57,700
Slowdown in sales growth is caused by structural changes in the domestic market. Trading through public markets and with regional distribution companies are declining.22,401
27,444 29,572
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2003 2004 2005
REVENUES FROM ELECTRICITY SALES INCREASE MAINLY DUE TO HIGHER PRICE
27
STRATEGIC INITIATIVES
Vision and corporate targets
Plant portfolio renewal
(2007-20)
M&A expansion
(2004-10)
Integration and
operational excellence
(2004-8)
Performance-oriented culture
28
STRATEGIC INITIATIVES
Integration and operational excelence
Vision 2008 on track.
Unbundling to be implemented by the of 2005.
ČEZ, a. s. intends to squeeze out minority shareholders from four out of its five Czech distribution companies.
M&A expansion
ČEZ, a. s. continues in its M&A activities in CEE countries.
Plant portfolio renewal
Supply of lignite from Severočeské doly and Mostecká uhelná mining companies are secured by long-term agreements.
In the period until 2020, ČEZ, a. s. plans to invest CZK 90 – 100 bn in retrofitting existing power plants and in building new power plants.
The Czech Government granted 90-day exclusivity for ČEZ, a. s. to negotiate acquisition of its 56% stake in Severočeské doly mining company.
29
ČEZ, A. S. INTENDS TO SQUEEZE OUT MINORITY SHAREHOLDERS FROM FOUR OUT OF ITS FIVE CZECH DISTRIBUTION COMPANIES
Zdroj: ČEZ, a. s.
ČEZ controls between 97.72 % and 99.13 % stakes in four (out of five) Czech
distribution companies (SME, STE, VČE, ZČE).
ČEZ has decided to utilize a newly implemented squeeze-out procedure in all of
them to gain 100% control.
The first steps have been initiated already.
Total costs of the squeeze-outs are expected to reach CZK 512 m.
30
Poland
1. Privatization of Zespół Elektrowni Dolna Odra SA (power plants Dolna Odra, Pomorzany and Szczecin)
Initial offer on April 21, we are on the short list, due diligence finished, more specific bid is in preparation.
2. Elektrownia “Kozienice“ SA (power plant Kozienice)
Initial offer on April 28, ČEZ is on the short list, due diligence finished, more specific bid is in preparation.
3. Acquisition of ZE PAK – electricity generating company Zespół Elektrowni Patnów – Adamów – Konin SA. Acquisition negotiations are in progress.
M & A IN CENTRAL EUROPE
31
ACQUISITION GOALS IN SOUTHEAST EUROPE
Bulgaria
Generation
We placed bids for the power plants Varna and Russe. ČEZ placed
second behind the Russian company RAO in both cases. However,
according to a decision of the Bulgarian Antitrust Office it is not possible
to sell both power plants to one bidder and the situation remains open.
Romania
Generation
Power plants and mines – Rovinari (1,320 MW), Turceni (2,310 MW)
and Craiova (630 MW). Tender is to begin in the 2nd half of 2005.
Distribution
Distribution company Muntenia Sud. Tender is presumed to begin in
August 2005.
32
PLANS FOR LIGNITE PLANTS PORTFOLIO RENEWAL – FINALIZEDLIGNITE PLANTS INSTALLED CAPACITY TO DECLINE AFTER 2035
0
1 000
2 000
3 000
4 000
5 000
6 000
7 000
2005 2010 2015 2020 2025 2030 2035 2040 2045 2050 2055
Capacity MW
Retrofits New plantsExisting plants
Conservative
Retrofits
Existing plants
In the best case scenario the current level of installed capacity will be retained until 2035; after that the installed capacity will decline sharply.
Agressive
33
LIGNITE PLANTS PORTFOLIO RENEWAL – CONCLUSIONSTOTAL RELATED CAPEX TO REACH CZK 100 bn
EXPECTED CAPEX – CONSERVATIVE SCENARIO CZK m
PROJECTS OVERVIEW
1) Retrofits
Gross efficiency improvement from 36% to 41%
Tušimice II 4 x 200 MW
Prunéřov II 4 x 200 MW
Počerady 3 x 200 MW
2) New units
Gross efficiency 45%
Počerady 1 x 660 MW
Ledvice 1 x 660 MW
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
2005 2007 2009 2011 2013 2015 2017 2019 2021
2008 – 2015 Main Assets Renewal Period
34
BROWN COAL SUPPLIES SECURED VIA LONG TERM SUPPLY CONTRACTS WITH SEVEROČESKÉ DOLY AND MOSTECKÁ UHELNÁ
ČEZ executed long-term supply contracts with its two main lignite suppliers (>90% of ČEZ’s lignite consumption).
The contracts are for period of approximately 50 years.
The contracts guarantee quality and quantity of supplied coal, in line with requirements related to lignite plants portfolio renewal.
Price risks are mitigated by linking the coal price to the index of electricity price and inflation. The link is with gearing below 1, i.e. one point change of the index above brings less than one point change in coal price.
In addition to the above, the Czech Republic Government granted ČEZ 90-day exclusivity to negotiate acquisition of its 56% stake in Severočeské doly.
The potential transaction would further enhance ČEZ’s control over lignite supplies.