CEZ GROUP STRATEGY update

Transcription

1 CEZ GROUP STRATEGY update UNICREDIT S EUROPEAN ENERGY AND UTILITIES CREDIT CONFERENCE November 27&28, 2012 (Jan Brozik, Executive Finance Director)

2 AGENDA Introduction Financial Performance Strategic update Financing 1

3 CEZ GROUP IS AN INTERNATIONAL UTILITY WITH A STRONG POSITION IN CEE CEZ Group in Poland (100% stake in Skawina, 100% in Elcho) Electricity generation, gross (TWh) 2.2 Market share 1.4% Installed capacity (MW) 730 Market share 2.0% Number of employees 421 Sales (EUR million) 115 CEZ Group in the Czech Republic Electricity generation, gross (TWh) 63.3 Market share 72% Number of connection points (million) 3.6 Market share 61% Installed capacity (MW) 12,814 Number of employees 20,559 Sales (EUR million) 6,601 Energy Assets Trading Activities Active subsidiary CEZ Group in Romania (100% stakes in CEZ Distributie, CEZ Vanzare, Tomis Team, Ovidiu Development, TMK Hydroenergy Power) El. sales to end customers (TWh) 3.5 Number of connection points (million) 1.4 Market share 16.1% Installed capacity 318 MW Number of employees 1,975 Sales (EUR million) 400 CEZ Group in Bulgaria (67% stake in CEZ Razpredelenie Bulgaria, CEZ Electro Bulgaria, 100% in TPP Varna ) El. sales to end customers (TWh) 10.0 Number of connection points (million) 2.1 Market share 40% Installed capacity (MW) 1,260 Market share 11.9% Number of employees 3,910 Sales (EUR million) 840 CEZ Group in Albania (76% stake in CEZ Shpërndarje) El. sales to end customers (TWh) 4.6 Number of connection points (million) 1.1 Number of employees 4,523 Source: CEZ, national statistics, data for 2011, CZK/EUR CEZ Group in Turkey (44.3% stake in SEDAS through AkCez, 37.36% stake in Akenerji) El. sales to end customers (TWh) 6.1 Number of connection points (million) 1.3 Market share 6.5 % Installed capacity (MW) 715 Market share 1.1% 2

4 CEZ GROUP RANKS AMONG THE TOP 10 LARGEST UTILITY COMPANIES IN EUROPE Top 10 European power utilities Number of customers in 2011, in millions 1 Enel 61.0 Top 10 European power utilities Market capitalization in EUR bn, as of November 9, GDF Suez EdF E.ON Iberdrola EdF E.ON Enel RWE Iberdrola GdF Suez RWE EdP CEZ CEZ Fortum EnBW EnBW PGE PGE 7.8 Source: Bloomberg, Annual reports, companies websites and presentations 3

5 AGENDA Introduction Financial Performance Strategic update Financing 4

6 CZK bn CEZ GROUP S PERFORMANCE IN Q1-Q3 WAS INFLUENCED BY ONE-OFF REVALUATION OF TRANSACTIONS HEDGING POWER PRODUCTION AND HIGHLY NEGATIVE PERFORMANCE OF ALBANIAN SUBSIDIARY CZK bn. +3.6% 59 EBITDA 1-9/ 2011 Gross margin: Power Production & Trading *) Distribution Albania Romania: Production, Sale, Distribution Gross margin: Sale Czech Republic and Slovakia Other EBITDA 1-9/ 2012 Gross margin from Power production & trading (CZK +2.6 bn) increase in the volume of production, especially nuclear +1.6 TWh (CZK +1.7 bn) higher revenues from production affected by revaluation of contracts, which are hedging production on Q (CZK +2.2 bn) other effects, especially release of the provision for emission allowances in 2011 (CZK -1.3 bn) Distribution in Albania (CZK -4.2 bn) regulator's decision on tariffs and conditions, higher volume of grid, higher market prices of electricity imported for losses, increase in purchase prices of electricity (CZK -2.6 bn) creation of provision for costs related to additional invoicing for supplied electricity to cover losses, additional imposed tax, reduction of margin from the biggest customers due to legislative measure (CZK -1.6 bn) Production, sales and distribution, Romania (CZK +2.0 bn) especially improvement of the payment discipline of Romanian Railways (CZK +1.0 bn) and increase in production from wind power installations (CZK +1.0 bn) Gross margin: sales in the Czech Republic and Slovakia (CZK +1.3 bn) Czech Republic: higher margin from the sales of electricity (CZK +0.7 bn) and natural gas (CZK +0.2 bn) Slovakia: revaluation of derivative transactions and better average purchase prices of commodities (CZK +0.5 bn) Other (CZK +0.6 bn) mainly higher margin from an increase in the volume of distributed electricity and the regulator's decision on higher tariffs in Bulgaria *) ČEZ, a. s. and Elektrárna Chvaletice, a.s., without renewable sources 5

7 IN 2012 WE EXPECT EBITDA OF CZK 85.0 BN AND NET INCOME OF CZK 40.0 BN (COMPARED TO EXPECTATIONS IN H OF EBITDA AT CZK 87.9BN AND NI AT CZK 41BN) EBITDA CZK bn % E -6% Selected negative effects: declining electricity prices trend decisions and actions of the Albanian Regulatory Authority, increase in purchase prices from the state-owned electricity producer KESH correction factors on distribution in the Czech Republic increase in depreciation reflecting the investment programme EBIT NET INCOME E -2% E Selected positive effects: increase in power generated by power plants in the Czech Republic (+2%) increase in production from wind power stations in Romania extraordinary financial costs and higher gift tax paid on emission allowances in 2011 Selected prediction risks: future development in Albania economic slowdown and debt crisis in Europe development of energy regulation in Europe 6

8 REDUCTION IN EXPECTED RESULTS OF CEZ GROUP REFLECTS THE DEVELOPMENT IN ALBANIA, OTHER ACTIVITIES OF CEZ GROUP PROGRESS BETTER THAN PLANNED IN CZK bn CEZ GROUP'S EBITDA - current predictions E* 2012 E excluding Albania 2012 E Albania 2012 E Albania - development in the past quarter agreements on the gradual adjustment of regulatory conditions for the proper fulfillment of the obligation of the distribution license holder CEZ Shpërndarje were not met EBITDA in Albania registered loss of CZK 1.5 bn in Q3 initiation of the World Bank Guarantee negotiations took place with the Albanian Prime Minister on the settlement of the prevailing situation, including CEZ Group's possible exit from Albania further negotiations ongoing 2012 E* = initial expected EBITDA

9 CEZ GROUP'S TOTAL OPERATING CASH FLOW IS NOT SIGNIFICANTLY AFFECTED BY DEVELOPMENTS IN ALBANIA In Q1 - Q3 2012, CEZ Group generated operating cash flow*) of CZK 53.6 bn, which is CZK 5.2 bn more year-on-year. In the same period, EBITDA increased by CZK 2.3 bn. CZK bn Cash flow generated from operations*) CZK bn EBITDA % % CZK +5.2 bn CZK +2.3 bn Albania's accounting impact exceeds cash flow impact on CEZ Group in 2012 we dispute selected invoices, penalties and tax bills against CEZ Shpërndarje we suspended all financing of CEZ Shpërndarje by ČEZ, a. s. *) Cash flow generated from operations before income tax, interest and dividends received 8

10 CEZ REPRESENTATIVES PRESENTED TO THE ALBANIAN PRIME MINISTER THE FOLLOWING OPTIONS FOR FURTHER DEVELOPMENT. BOTH PARTIES EXPRESSED PREFERENCE FOR THE LATER TWO. Preferred options Escalation Albanian regulator (ERE) initiates a proceeding to suspend the license, or possibility of re-negotiating regulation in Albania and salvage the situation, or license suspension and termination of CEZ Shpërndarje's business and subsequent arbitration Agreement re-negotiation of the general terms of privatization with the state, or amicable termination of CEZ Group's presence in Albania even in this situation, CEZ may act as a temporary manager of the company Sale sale of some or all of the shares (up to 76%) to a third party possibility to start a new stage of operation in Albania with an external partner, especially as a guarantor of technical procedures and know-how The final option will be decided by the end of

11 CEZ CONTINUES HEDGING ITS REVENUES FROM SALES OF ELECTRICITY IN THE MEDIUM TERM AND RECENTLY TIGHTENED BENCHMARK OF ITS HEDGING POLICY Achieved baseload price ( /MWh) Share of hedged production from power plants of ČEZ, a. s. incl. ECH and EPC (at November 1, 2012, 100% equals 50 to 55TWh) 92% 48% 20% ~ 4% ~27% ~65% ~16% ~32% ~11% ~9% hedged volume from August 1, 2012 to November 1, 2012 hedged volume at August 1, 2012 ~1% ~3% CEZ applies a standard concept of hedging its open positions from the electricity production portfolio against price risks within this strategy, CEZ sells electricity on a forward basis for years Y+1 to Y+3 and hedges currency for years Y+1 to Y+5 ČEZ, a. s. concluded another long-term contract with the supply by 2020 transaction currency hedging (hedge accounting) natural currency hedging costs, investment and other expenses, debts in EUR (hedge accounting) Source: ČEZ, a. s. ECH = Power Station Chvaletice EPC = S-Power Plant EPC Počerady 10

12 AGENDA Introduction Financial Performance Strategic update Financing 11

13 THE KEY BLOCKS OF OUR STRATEGY REMAIN THE SAME THOUGH SOME OF THEM HAVE BEEN MODIFIED IN THEIR AMBITIONS NEW VISION New nuclear units Securing fuel availability Performance Regional energy business Renewables 12

14 UPDATE ON INDIVIDUAL STRATEGIC INITIATIVES (1/2) Strategy block Aspiration Current status 1 2 New nuclear power plant units in Temelín Securing fuel availability 3 Performance achieve conditions that enable the implementation of the project and its financing solve associated construction and regulatory risks settle relations with lignite suppliers and secure enough fuel for operations of coal-fired plants maximize use of biomass and alternative fuels improve performance of CEZ Group in the long term secure additional cash-flow until 2015 for our development initiatives supplier selection in progress Environmental Impact Assessment in progress continued support of the public State Energy Policy lays ground for preparation of an effective support mechanism (see further) pending negotiations with Czech Coal (~ 35% of total lignite supplies; supplies mainly to Počerady power plant) and Sokolovská uhelná (~ 5%) Sale of Počerady part of the discussion Back-up plan worked out and ready for implementation on Jan 1, 2013 (see further) Design to cost implemented in Severočeské doly and CEZ Distribution Shared Services Center to start on Jan 1,

15 UPDATE ON INDIVIDUAL STRATEGIC INITIATIVES (2/2) Strategy block Aspiration Current status 4 Regional energy business strengthen business activity in the fields of heat generation, cogeneration, use of waste and biomass in energy production Expansion into distributed electricity generation in CR micro co-generation (in JV), target 200MW by 2020 Scanning market for business opportunities in heat (eg. linking heat output of NPP Temelín to nearby city) and waste incineration 5 Renewables gradually develop presence in renewables development outside Czech Republic Poland, Germany, Romania maintain know-how and project development skills focus on development readily available and liquid assets to divest in case of balance sheet weakness dynamically manage portfolio 600 MW in Romania to be completed in 2012 Initiating divestment process of a minority stake 170 MW out of recently acquired Ecowind s development pipeline being prepared for construction in 2014 non-recourse financing 1 4 No further construction envisaged unless CEZ s available debt capacity significantly improves 14

16 CEZ IS ADVANCING IN PREPARATION FOR CONSTRUCTION OF NEW UNITS AT TEMELIN NUCLEAR POWER PLANT Project schedule and tender participants Submission and evaluation of the bids Selection of winner and Permitting and signature of the contract licencing Construction July- 12 Dec-12 Aug-13 Dec-13 Reactor type 1st stage evaluation of the bids Bidder Limited spending In case of cancelling the project no further payments / penalties Final Notice to Proceed AP 1000 MIR 1200 EPR 1600 Westinghouse Electric Company LLC Westinghouse Electric Czech Republic s.r.o. ŠKODA JS a.s. ZAO Atomstroyexport OAO OKB Gidropress AREVA NP S.A.S. Areva s bid failed to comply with public tender requirements and was disqualified in Oct-12 15

17 THE BUILDING OF NEW REACTOR UNITS OF THE TEMELÍN NUCLEAR POWER PLANT IS A PRIORITY FOR BOTH CEZ AND THE CZECH REPUBLIC State energy policy Guarantee energy supplies which will be Reliable Safe (safe production resources) Friendly to the environment For an acceptable price Supplying continuously even in crisis situations CEZ s attitude The new nuclear reactors will help CEZ to increase the proportion of emission-free generation facilities By building new units, CEZ would replace decommissioned existing coal power plants BUT new nuclear projects are highly risky in liberalized environment Construction of 2 units in Temelin State energy policy anticipates preparation of regulatory regime increasing level of certainty on sales from nuclear power plants Scheme may be inspired by UK s Energy Market Reform Ongoing discussions with potential strategic partners 16

18 DISPUTES REGARDING LIGNITE SUPPLIES FROM CZECH COAL CEZ is self-sufficient in approx. 60% of its lignite needs Remaining approx. 35% from Czech Coal and approx. 5% from Sokolovská uhelná (SU) CEZ has a long term agreement till 2027 with SU. SU is disputing conditions of the contract. CEZ is in negotiations with SU on amendments of certain conditions of the long term agreement. CEZ s agreement with Czech Coal expires in CEZ and Czech Coal have a pending litigation over Czech Coal s commitment dating back to 2005 to enter into a new agreement securing lignite supplies till approx CEZ is having negotiations over commercial terms of a new agreement with Czech Coal. The negotiations include a potential sale of Počerady power plant (see next slide) consuming approx. 45% of production of Czech Coal. CEZ is fully ready for a situation when there will be no agreement in place by the end of 2012: Over the last 12 months mining activity of Severočeské doly has been optimized to maximize output and supply plants supplied by Czech Coal mainly Počerady. Power plants ran test for burning coal from Severočeské doly. CEZ s business plan has been constructed to reflect higher production of lignite in Severočeské doly and lower power production in Počerady and other plants currently supplied by Czech Coal. CEZ off takes approx. 60% of Czech Coal s production. 17

19 EUROPEAN COMMISSION INVESTIGATION CEZ OPTED FOR SETTLEMENT TO END THE INVESTIGATION EVEN THOUGH IT BELIEVES IT DID NOT PREVENT NEW ENTRANTS FROM ENTRY TO THE MARKET AS EC CLAIMS In 2009, European Commission started to investigate CEZ for suspicion of anticompetitive behavior. Most accusations were rebutted and in July 2011, EK decided to continue only investigation of suspicion of blocking the transmission capacity so as new electricity producers couldn't enter the market. In June 2012, CEZ decided to terminate the investigation by settlement. CEZ offered to divest 800 MW of its capacity. It is fully consistent with CEZ s strategy to operate only limited number of upgraded power plants in the future. Although CEZ is required to divest only 800 MW, wider portfolio of plants offered for sale will help to improve negotiation position. Assets considered for divestment Name Type of plant Start of operation Installed Capacity (MW) Electricity generated in 2011(TWh) [load factor] Coal supplier Tisova Pocerady Melnik Prague Chvaletice Detmarovice Chvaletice brown coal * [41%] Severoceske doly and Czech Coal Pocerady brown coal * [75%] Czech Coal Detmarovice Tisova Melnik III hard coal brown coal brown coal 4* [38%] [53%] OKD (New World Resources) Sokolovska uhelna 2.8 [64%] Severoceske doly and Czech Coal Severoceske doly brown coal mines Czech Coal brown coal mines Sokolovska uhelna brown coal mines OKD hard coal mines (New World Resources) power plants 18

20 AGENDA Introduction Financial Performance Strategic update Financing 19

21 CEZ GROUP MAINTAINS A STRONG LIQUIDITY POSITION CZK Utilization of short-term credit facilities (September 30, 2012) Bond maturity profile (September 30, 2012) 2012 repaid on 12 Oct CZ E JP US new private placements CZK 29bn of committed facilities have been renewed. CEZ has not experienced any difficulties during the renewal. as of September 30, 2012, only CZK 0.7bn of committed facilities were utilized mainly uncommitted credit facilities are used; committed facilities are held as a reserve to cover unexpected needs CEZ plans to introduce firm underwriting commitments under its Domestic Bond Program in order to diversify the group of banks providing committed facilities. The underwriting commitment targets foreign banks with no presence in the Czech Republic as it is difficult for these banks to join CEZ s promissory note program. 20

22 CEZ DIVERSIFIED ITS INVESTORS BASE TO US MARKET AND REMAINED ACTIVE ON EUROPEAN PP FINANCIAL MARKETS. ITS DCM ACTIVITY IN 2013 DEPENDENT ON RESULTS OF DIVESTITURE PROCESS. Summary of material external financing transactions since the beginning of A Bond issues extended the investor base to US market several long-dated private placements and NSV were issued another loan for renewal of Czech distribution was signed with EIB Depending on the results of pending divestiture CEZ s public market issuance in 2013 may be limited to small public issue with long duration or may be non-existent CEZ intends to remain active on private placement front to capture potential interest for longer duration bonds among investors amount transaction maturity 700 mil. USD 144A 10 Years 300 mil. USD 144A 30 Years 40 mil. EUR NSV 20 Years Committed 40 mil. EUR Bilateral loan 3 Years 200 mil. EUR EIB loan 10 Years 50 mil. EUR Private placement 30 Years 60 mil. EUR + 20 mil. EUR tap Private placement 35 Years 50 mil. EUR Private placement 35 years 21