cez group q1 2006 results
TRANSCRIPT
CEZ GROUP Q1 2006 RESULTSNONAUDITED CONSOLIDATED RESULTS (IFRS)
Prague, May 18, 2006
1
PROGRAM
Financial results, main events and trading positionPetr Vobořil, CFO
CEZ Trading positionMichal Skalka, Director, Trading
CEZ Group M&A ActivitiesVladimír Schmalz, Director, M&A
2
EBITDA increased y-o-y by 26 % to CZK 20.4 bn for an increase of CZK 4.2 bn
EBIT increased y-o-y by 33 % to CZK 14.8 bn, which represents a y-o-y increase of CZK 3.7 bn
Net income increased y-o-y by 39 % to CZK 10.4 bn (increase of CZK 2.9 bn)
ROE increased y-o-y by 29 % to 5.5 %
CEZ share price increased in Q1 2006 from CZK 742.8 to CZK 819.2 (by 10.3 %) and as of May 16, 2006 the price stood at CZK 771
CEZ Group’s 2006 EBITDA guidance revised to CZK 60.1 bn (from CZK 58.1 bn) and EBIT to CZK 37.7 bn (from CZK 36.8 bn)
ČEZ announced its new dividend policy targeting payout ratio in the range of 40% - 50%
The Board of Directors will propose to AGM dividend of CZK 15 per share
Q1 2006 MAIN RESULTS AND EXPECTED FINANCIAL PERFORMANCE FOR 2006
3
NET INCOME INCREASED Y-O-Y BY ALMOST 40 %
10.47.4
0.05
0.5
0.60.8
4.9
0.8
2.1
0
2
4
6
8
10
12
14
16
NET INCOMEQ1 2005
Electricity sales,netto
Heat sales and
other income
CO 2 allowances
Other operating
costs
Income tax
Depreciation Other operating income
and costs.
NET INCOMEQ1 2006
CZK bn
+ CZK 2.9 bn+ 39.4 %
Mainlyfuel CZK 0.4 bnservices CZK 0.4 bnpersonnel costs CZK 0.3 bngoods sold 0.3 bnchange in inventory CZK 0.2bn
4
EBITDA Y-O-Y INCREASED BY 26 % TO CZK 20 BN, WHICH REPRESENTS Y-O-Y INCREASE BY CZK 4.2 BN
Main impacts on EBITDA+ higher margin from generation
and trading
+ production costs control
+ generation and CO2 allowances sale optimization
+ contribution of Bulgarian distribution and Severoceskedoly
+ Electrica Oltenia included from Q4 2005
- Higher purchased power
(CZK m) Q12005
Q12006
Change06-05
Index06/05(%)
Operating revenues 33,019 41,547 8,528 125.8Sales of electricity 30,741 38,459 7,718 125.1Heat sales and other revenues 2,278 3,088 810 135.6
Operating expenses 21,892 26,731 4,839 122.1Fuel 2,299 2,657 358 115.6Purchased power and related service 9,782 12,770 2,988 130.5
Repairs and maintenance 527 672 145 127.5Salaries and wages 2,573 2,885 312 112.1Material and supplies 828 938 110 113.3CO2 allowances 0 -615 -615 x Other operating expenses 821 1,842 1,021 224.4
EBITDA 16,189 20,398 4,209 126.0Depreciation and Amortization 5 062 5 582 520 110.3EBIT 11,127 14,816 3,689 133.1
Out of which: servicesgoods soldinventories change
1,069109
-123
1,459359121
390250245
136.5329.5
x
5
NET INCOME GREW Y-O-Y BY 39 % TO CZK 10 BN(INCREASE OF CZK 2.9 BN)
Main impactsCZK m
- 0.8 income tax
- 0.2 derivatives
- 0.2 reserves
+ 0.2 sale of subsidiaries and associates
+ 0.2 FX profit and loss
(CZK m) Q12005
Q12006
Change06-05
Index06/05(%)
EBIT 11,127 14,816 3,689 133.1
Other expenses / Income 1,158 1,109 -49 95.7Interest on debt 462 420 -42 90.9Interest on nuclear provisions 606 473 -132 78.2Interest income -83 -99 -16 119.3FX profit and loss, net -2 -167 -165 > 500.0Sale of subsidiaries and associates 187 0 -187 x Negative goodwill write off -20 0 20 x Other expense/income, net 63 539 476 > 500.0Out of which: derivatives 132 375 244 284.1
creation/use of reserves 0 185 185 > 500.0Income from associates -54 -57 -3 105.6
Profit before taxes 9,969 13,707 3,738 137.5Income tax 2,531 3,336 805 131.8
Net Income 7,438 10,371 2,933 139.4
6
GENERATION SEGMENT CONTINUES TO BE THE BIGGEST CONTRIBUTOR TO THE GROUP´S EBITDA (63.2%); CONTRIBUTION OF DISTRIBUTION AND SALES INCREASED FROM 26.5% TO 27.9%
20.412.9
5.71.2 0.6
0
5
10
15
20
25
Generationand trading
Distributionand sales
Mining Others CEZ Group
Contribution to EBITDAQ1 2006CZK bn
16.210.44.3
1.1 0.4
0
5
10
15
20
25
Generation and trading
Distributionand sales
Mining Others CEZ Group
Contribution to EBITDAQ1 2005CZK bn
Generationand trading
Distributionand sales Mining Others Consolidated
Revenues 13,340 26,594 950 663 41,547EBITDA 12,876 5,688 1,218 616 20,398EBIT 9,431 4,467 990 -72 14,816
Contribution to EBITDA
generation and trading maintain it’s dominant position with more than 60%
distribution and sales grow thanks to progress of Bulgarian distribution and inclusion of Romanian distribution to consolidation
7
IN DISTRIBUTION AND SUPPLY SEGMENT CZECH ACTIVITIES IMPROVED OPERATING PROFIT BY 26%; PROFITABILITY IMPROVEMENT IN BULGARIA CONTINUED IN Q1 2006
x1,0672,3532,4667,942x9,45310,29512,986GWhOut of this external
x5276098523,7013,1234,3094,3105,688CZK mEBITDA
x2,9834,8794,7056,4321,1225,87811,31113,566personNo. of employees
x3,2342,9763,04712,58512,13612,13615,56118,418GWhElectricity distribution
x1,0672,3632,4758,192x10,32610,55513,868GWhElectricity sales
x3213036032,8132,4963,5433,1164,467CZK mEBIT
x2,8983,4963,75817,2488,79121,23720,74427,893CZK mRevenues total
Q1 2005Q1 2006Q1 2005Q1 2006Q1
2005
Out of which: ČEZ DistribuceQ1 2006Q1 2005Q1 2006Unit
RomaniaBulgariaCzech RepublicTotal
Main influence on EBIT growthhigher electricity salesbetter results of Bulgarian distribution companiesinclusion of Romanian distribution since Q4 2005
8
WE REVISE OUR GUIDANCE FOR 2006 EBITDA TO CZK60.1 BN FROM CZK 58.1 BN AND EBIT TO CZK 37.7 BNFROM CZK 36.8 BN
Main financial resultsCZK bn
EBIT
37.7
29.4
19.8
0
5
10
15
20
25
30
35
40
2004 2005 2006E
+ 28 %
+ 49 %
EBITDA
60.1
50.1
39.6
0
10
20
30
40
50
60
70
2004 2005 2006E
+ 27 %+ 20 %
Main growth factors
Gross margin from generation and tradingSavings from VISION 2008 and costs controlCO2 allowances arbitrageContribution of CEZ Group foreign operations(Bulgaria, Romania)
9
22.327.226.7
0.8
0.3
0
5
10
15
20
25
30
NETINCOME
2005
NET INCOME
2006(budget)
Increase ofnet
Otherinfluences
(mainlymethodology)
NETINCOME
2006(guidance)
+ CZK 0.5 m+ 1.9 %
CZK bn
electricity
Other impacts(mainly methodology)
+ CO2 allowances
+ interest on nuclear provisions
- depreciation of power plant Tusimice
sales
WE REVISE OUR NET INCOME GUIDANCE TO CZK 27.2 BNFROM CZK 26.7 BN
10
NEW DIVIDEND POLICY TARGETS PAYOUT RATIO IN THE RANGE OF 40% TO 50 % OFTHE CONSOLIDATED PROFIT
2 2.54.5
8 9
1516.2%
31.6%
49.3%
40.3%
41.3%
16.4%
0%
10%
20%
30%
40%
50%
2000 2001 2002 2003 2004 2005E0
2
4
6
8
10
12
14
16
18
20
Dividend per share Payout ratio
Payout ratio%
Gross dividend per shareCZK
Dividend policy payout ratio target
11
45.5 44.6
35.936.0
18.621.6
32.932.0
202.1191.3
0
50
100
150
200
250
300
350
as of 31. 12. 2005 as of 31. 3. 2006
ST liabilities
Deferred tax liability
Nuclear provision
LT liabilities excl.provisions
Equity
Mainly impact of current period profit
21.3 22.2
43.8 58.8
259.1 255.3
0
50
100
150
200
250
300
350
as of 31. 12. 2005 as of 31. 3. 2006
Current Assets
Other non-currentassets
Total property,plant and equipment
ASSETSCZK bn
CEZ GROUP CONTINUES TO HAVE A HEALTHY BALANCE SHEET
324.2 336.3
EQUITY AND LIABILITIESCZK bn
324.2 336.3
Increase in cash and cash equivalents by CZK 7.8 bnand in receivables by CZK 5.2 bn - mainly unbilled supply to small customers of CEZ Prodej (CZK 3.1bnas a result of higher electricity consumption)
12
OPERATING CASH FLOW INCREASED Y-O-Y BY 55.9%
8.0
12.4
0
5
10
15
20
25CZK bn others
interest paid
income taxes paid
foreign exchange rate loss/gain,net
interest expense, interest income anddividends income,net
amortization of nuclear fuel
changes in assets and liabilities
depreciation and amortization
income before income taxes
net cash provided by operatingactivitiesQ1 2005
y-o-y index:+ 55.9 %
Q1 2006
Key impacts on operating cash flow increaseCZK bn
+ 4.0 EBIT adjusted for non-cash items
+ 0.7 income taxes paid
- 0.4 change in assets and liabilities (namely receivables)
13
16.413.3
27.1 26.6
0
5
10
15
20
25
30
35
40
45
50
as of 31. 3. 2005 as of 31. 3. 2006
long-term indebtedness total indebtedness (without reserves)
INDEBTEDNESS SLIGHTLY DECLINED Y-O-Y
% Total indebtedness limit 50 %(derived from current loan contracts) Expected expenditures may
result in need of new external sources, which would lead to
a change in indebtedness trend
ELCHOSkawinaVarnaCEZ dividendssqueeze-out in SČE and SDpurchase of heat distribution Northern Bohemia
Total CZK 31.2 bn
14
MAIN EVENTS SINCE THE START OF 2006
Polish market entrance – in January signed contract to purchase power plants ELCHO and Skawina; transaction to settle soon
Signed privatization contract to purchase black coal power plant in Varna, Bulgaria (EUR 306m). Installed capacity is 1,260 MW
Power plant portfolio renewal project successfully progressing
Execution of contract with general supplier SKODA PRAHA Invest, s.r.o. for a “Complex renewal of power plant Tusimice II“ (investment of CZK 20 bn) –also sub-contracts executed for supply of turbine room and boiler room with SKODA POWER a.s. and VÍTKOVICE HEAVY MACHINERY a. s.
Initiated process for construction of new power plant in Ledvice, installed capacity 660 MW (estimated costs of CZK 26 bn)
Overhaul of the biggest coal unit in Melnik power plant finished (CZK 780 m)
15
FOLLOWING ACQUISITION OF SKAWINA, ELCHO AND VARNA EARLIER THIS YEAR CEZ GROUP GENERATION CAPACITY GREW BY 17 %
12,298 12,298
8101,260
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
as of 31. 12. 2005 new acquisitions
VarnaELCHO and SkawinaCEZ Group in CR
14,368
CEZ Group installed capacityMW
Increase of installed capacity by 2,070 MW
(+ 17 %)
16
PROGRAM
Financial results, main events and trading positionPetr Vobořil, CFO
CEZ Trading positionMichal Skalka, Director, Trading
CEZ Group M&A ActivitiesVladimír Schmalz, Director, M&A
17
ČEZ TRADING ACTIVITIES BENEFITED FROM MARKETS DEVELOPMENT IN Q1
Cold winter resulted in higher electricity demand; as a result Czech short term market has seen power pricing rising to German levelsPrice of CO2 emission allowances increased sharply in Q1; it fell in recent weeks after it became clear EU ETS is in surplusČEZ hedged significant part of expected surplus Lower prices of allowances impacted forward power prices in liquid markets Nevertheless power prices development in Central Europe in the coming years will continue to be under influence of (i) available generation capacity development and (ii) price development in the liquid markets2007 wholesale auctions under preparation – virtual power plant auction as well as the wholesale auctionInternational expansion of CEZ´s trading activities well on the way – office in Hungary obtained a trading license, new trading office in Budapest opening soon, another trading office under preparation in Balkan
18
0
50
100
150
200
250
300
11.1.
0612
.1.06
13.1.
0614
.1.06
15.1.
0616
.1.06
17.1.
0618
.1.06
19.1.
0620
.1.06
21.1.
0622
.1.06
23.1.
0624
.1.06
25.1.
0626
.1.06
27.1.
0628
.1.06
29.1.
0630
.1.06
31.1.
061.2
.06
spot na EEX denní trh na OTE
COLD WINTER RESULTED IN HIGHER ELECTRICITY DEMAND; AS A RESULT CZECH SHORT TERM MARKET HAS SEEN POWER PRICES RISING TO GERMAN LEVELS
Winter temperatures were below long term averageDomestic electricity demand rose sharply, Czech power network came under pressureCEZ increased generation and kept power supplies as well as ancillary services at committed levelsDue to high transmission grid strain CEPS (grid operator) imported regulatory power from GermanyAt this point Czech and German price levels coupled
Electricity spot prices develoment – EEX, OTEEUR/MWh
700 EUR/MWh, 26.1. 18:00
EEX OTE
19
CEZ GROUP GENERATION INCREASED BY 4 % DRIVEN BY HIGH DEMAND
8.09.2
7.57.1
0.60.5
Q1 2005 Q1 2006
Hydro powerplants
Nuclear powerplants
Coal powerplants
CEZ Group production split by fuel type TWh
16.816.1
+14.4%
-5.6%
-15.0%
lower contribution of nuclear power plants as a result of scheduledTemelin outage
increase to record volumes in Q1 2006 (+ 4,0 %) mainly due to higher electricity demandin the Czech Republic
4.0%
20
CEZ responded to demand increase by higher generation volumeQ1 revenues increased generation increase came at power plants with highest variable generation costsmargin contribution was positive yet relatively smallmarket development in Q1 did not impact Czech final customers –price fixed on annual basis
CEZ INCREASED GENERATION AT MORE EXPANSIVE POWER PLANTS, THEREFORE, PROFITABILITY IMPACT WAS NOT LARGE
Variable cost structure of CEZ generation fleet(incl. CO2 allowances)CZK/MWh
CEZ power plantsPower plants utilized to cover increased demand
Sales price range
21
PRICE OF CO2 ALLOWANCES INCREASED SHARPLY IN Q1; IT FELL IN RECENT WEEKS AFTER IT BECAME CLEAR ETS IS IN SURPLUS
Development of CO2 allowances priceEUR/t prices of allowances in Q1
increased in reaction to commodity prices developmentmarket with allowances was very liquid with large volumes tradedprices of allowances grew to all time highs (above 30 EUR/t)following information on actual CO2 emissions in 2005 price of the allowances fell sharply0
5
10
15
20
25
30
35
2.1.
9.1.
16.1.
23.1.
30.1. 6.2
.13
.2.20
.2.27
.2. 6.3.
13.3.
20.3.
27.3. 3.4
.10
.4.17
.4.24
.4. 1.5.
8.5.
22
CEZ HAS ADOPTED EU ETS PRINCIPLES AND IS CONVINCED IT IS FUNCTIONING MECHANISM MOTIVATING COMPANIES TO ECOLOGICAL BEHAVIOUR
in 2005 CEZ adopted EU ETS principles and has been optimizing its production in relation to CO2 emissions
at a period of high prices CEZ actively traded the allowances, optimized its generation decisions and hedged significant part of its allowances position
CEZ is convinced that EU ETS is functional mechanism providing liquidity and transparency and reacting to basic market principles (price decline in reaction to excess supply)
in the long run CEZ expects market stabilization and continues to perceive EU ETS as an effective tool for generation optimization, CO2 savings and providing of incentives investments in new cleaner technologies
23
DESPITE DECLINE IN GERMAN POWER PRICES THE CZECH PRICES ARE STILL 45% BELOW GERMAN 2007 PRICES (AND WERE 30% BELOW RECENT 2007 LOWS)
Wholesale power price (baseload)2000 index
6080
100120140160180200220240260
2000 2001 2002 2003 2004 2005 2006
+11.4 % +15.0 %
+30 %
+20 % -25 %
2007
+30 %
+?? %
EEX 2006 – 45.3 €/MWhEEX 2007 – 50 €/MWh
CR 2006 – 35.9 EUR/MWh(exchange rate CZK 29 / EUR)EEX Forward 2007 (baseload)
EUR/MWh
Electricity prices for year2007 reacted to EUA price development with a decreaseAnnual range for year 2007 on the German market converges to 50 EUR/MWhlevelPrice in CR and surrounding countries will be influenced by supply and demand development (available capacity) and will still converge to dominant European prices
+10 %
45
50
55
60
2.1.06
9.1.06
16.1.
0623
.1.06
30.1.
066.2
.0613
.2.06
20.2.
0627
.2.06
6.3.06
13.3.
0620
.3.06
27.3.
063.4
.0610
.4.06
17.4.
0624
.4.06
1.5.06
8.5.06
15.5.
06
Forward 2007Forward 2008
24
0
1,000
2,000
3,000
4,000
5,000
6,000
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
DEVELOPMENT OF DEMAND AND AVAILABLE CAPACITY IN THE REGION OF CENTRAL EUROPE WILL CONTRIBUTE TO PRICE CONVERGENCE AND WILL INFLUENCE CEZ COMMERCIAL FLOWS
Demand in CR and other countries will grow proportionally to GDP growth
Shut down of nuclear and lignite units in Slovakia
Hungary doesn’t have enough availablegeneration capacity
Available capacity development* in SR (MW)
* Available capacity = installed capacity – planned outages
Germany44 %
Austria2 %
Slovakia54 %
2006
25
WHOLESALE ELECTRICITY AUCTIONS FOR 2007 ARE IN PREPARATION
VIRTUAL POWER PLANT AUCTIONIn accordance with the decision of Antitrust office, CEZ organizes an auction to sell virtual power plant with an installed capacity of 400 MW and max. volume of 3.2 TWh (decreased to 240 MW in summer)Total capacity is divided into 8 units with 50 MW (decreased to 30 MW in summer)1st round of the auction will take place at the turn of July and AugustTraders who would like to sign up for the auction must be financially and personally independent of CEZ, a. s.
WHOLESALE AUCTIONAfter closing Virtual power plant auction, CEZ will initiate a wholesale auction for 2007CEZ is currently analyzing the market interest in individual products and is preparing campaign structure
26
INTERNATIONAL EXPANSION OF CEZ TRADING ACTIVITIES WELL ON THE WAY
Representative officesopenedin preparation
markets with CEZ activities
target marketsmarkets with CEZ presence
Number of CEZ Group final customersCzech Republic 3.5 mBulgaria 1.9 mRomania 1.4 m
CEZ Group representative offices in Central and Southeastern Europe
Czech RepublicPolandGermanySlovakiaHungary – opening on 1. 6. 2006Serbia - in preparation
Distribution companiesBulgariaRomania
Hungary – opening on 1. 6. 2006
Serbia - in preparation
27
PROGRAM
Financial results, main events and trading positionPetr Vobořil, CFO
CEZ Trading positionMichal Skalka, Director, Trading
CEZ Group M&A ActivitiesVladimír Schmalz, Director, M&A
28
CEZ GROUP IS INCREASINGLY EXPLORING GREENFIELD/BROWNFIELD OPPROTUNITIES WHERE COMPETITION IS LIMITED
Realized acquisitions (no. of customers)Bulgaria (distribution) – 1.9 millionRomania (distribution) – 1.4 million
On-going acquisitions (installed capacity)Bulgaria (generation) – 1,260 MWPoland (generation) – 810 MWUkraine (distribution) – 2.6 millionRomania (distribution) – 1.1 millionRussia (generation) – 100 MW
Other opportunitiesRomania (generation) – 4,240 MWRomania (distribution) – 3.3 millionRep. Srpska, Bosnia (green field) – ~660 MW (Gacko only) – pending feasibilitystudiesKosovo (green field) - monitoring Serbia (green field) – monitoring
Acquisitions
Opportunities
Central Europe
Southeastern Europe
29
PolandElcho (220 MW) and Skawina (590MW) settlement expected within next few weeksstill pursuing PAK (2,338 MW), other processes are unrealistic
DESPITE INCREASED COMPETITION CEZ IS NOT WILLING TO PRICE ASSETS AT LEVELS IT CANNOT JUSTIFY – ELECTRICA MUNTENIA SUD IS ANOTHER EVIDENCE
CZ
RO
BG
CZ
RO
BG
RomaniaElectrica Muntenia Sud (1.1 million of customers) - do not expect to beat the advertised pricewaiting for start of privatization of generation complexes Turceni (2,310MW), Rovinari (1,320MW) and Craiova(610MW) and remaining distributioncompanies (3.3m cust.)searching other opportunities (cogeneration,etc.)
Slovakia
ENEL finished acquisition of SEwaiting for further development in Teplarna Kosice (121 MW)
Bulgaria
contract for TPP Varna signed• pending settlement (possible
difficulties in negotiations with NEK about cold reserve)
interested in Sofia heating
SK
Poland
30
ČEZ IS LOOKING AT SEVERAL PROMISING GREENFIELD/BROWNFIELD PROJECTS IN SERBIA, KOSOVO AND REPUBLIKA SRPSKA IN BOSNIA AND HERCEGOVINA
CZ
RO
BG
CZ
RO
BG
Slovenia
interested in cooperation with HSEif govt. starts privatization CEZ will definitely participate
interested in finishing Kolubara BprojectMonitoring the market, analyzing opportunities
SerbiaMontenegro
Rep. Srpska
Ukraineactively pursuing acquisition of Ukrainian distribution companies(2.6 million customers)watching the market and analyzing other opportunities and synergies
lost interest in TPP Plevljaunable to find and justify positive scenario
actively working on JV with EPRS• expect to start working on
the Gacko project already this year
RS + MN
Ukraine
B +H
31
Kosovoestablished company New Kosovo Energy LLCmonitoring the market and analyzingopportunities
IN RUSSIA ČEZ IS LOOKING AT PROJECT FINANCING TYPE OF GREENFIELD INVESTMENT IN MOSCOW AREA
CZ
RO
BG
CZ
RO
BG
Russiaparticipating in tender for construction of PPC in Moscow (100 MW)analyzing other projects in Moscow
and St. Petersburg region
Russia
Al
Al