CEZ Group introduction

FROM A CZECH CORPORATION TO A MULTINATIONAL GROUP

CEZ Group is an established, integrated electricity conglomerate with operations in a number of countries in Central and Southeastern Europe and Turkey, headquartered in the Czech Republic. Its principal businesses encompass generation, trading, and distribution of power and heat, as well as coal mining. The shares of the Group's parent company, ČEZ, a. s., are traded on the Prague and Warsaw Stock Exchanges, where they form a significant part of the respective indexes. As of December 31, 2013, the Czech Republic remained the company's largest shareholder with a nearly 70% stake in the stated capital.

ilustr. obr. - profil - 1Apart from the production and sale of electricity, CEZ Group also deals in telecommunications, informatics, nuclear research, planning, construction and maintenance of energy facilities, mining raw materials, and processing energy by-products. CEZ Group is currently one of the three largest heat suppliers in the Czech Republic.

The parent company and core of CEZ Group is ČEZ, a. s. the largest electricity producer in the Czech Republic, founded in 1992 by the National Property Fund. CEZ Group was created in 2003, when ČEZ, a. s. merged with several regional distribution companies. Today, CEZ Group belongs among ten of the largest energy companies in Europe, both in terms of installed capacity and number of customers. It occupies a leading position on the electricity market in Central Europe.

Playing by EU regulations

The interconnection of electricity generation, distribution, and trade within CEZ Group has brought the Czech energy sector closer to EU standards applicable in Western European countries. Since 2005, it imposed a strict separation of distribution as a regulated activity from trade, through a process known as unbundling. The new structure of the Czech electricity industry is beneficial to the consumer and creates a competitive environment.

ilustr. obr. - profil - officeFulfilling obligations to investors

CEZ Group has managed to raise the output of acquired firms in Southeastern and Central Europe, thereby justifying its acquisitions and enabling them to increase its market value. Successful operation on the electricity markets of the Czech Republic and abroad enables the group to fulfill its obligation to shareholders by securing them a long-term steady profit.

Profitability

Within Europe, CEZ Group is the most profitable and the least indebted power company. This has a positive effect on the CEZ, a. s. stock prices, which are among the best developing prices among european energy companies. Excellent economic results are a logical outcome of fulfilling the company strategy based on successful acquisitions in Southeastern Europe, cost optimization, and output orientation. As the largest contributor to the public budget, CEZ Group is also the most important economic entity in the Czech Republic.

Rating

The rating of ČEZ, a. s., remained unchanged during 2013.

Dividends

ČEZ's dividend policy is based on its consolidated net income, adjusted for any extraordinary factors. Each year 50-60% of this income is designated for dividends (pay-out ratio). In all cases, dividend pay-out is decided by the General Meeting. On June 19, 2013, that body decided to pay Company shareholders a 2012 dividend of CZK 40/share, before taxes. Pay-out will take place in the period August 1, 2013-August 2, 2017, through authorized banks.

Foreign expansion

CEZ Group commenced its foreign expansion in January 2005 when it won the privatization tender and obtained majority shares in three Bulgarian distribution companies. In autumn 2005, ČEZ succeeded in the privatization tender for the purchase of majority share in Electrica Oltenia, the largest Romanian distribution company. In 2006, ČEZ Group expanded its foreign portfolio by three power generation plants, the Polish Elcho and Skawina power plants and the Varna power plant in Bulgaria. A year later, CEZ undertook its most important acquisition, the partnership with MOL, an Hungarian oil and gas company focusing particularly on building gas-fired power plants. In 2008, ČEZ made significant acquisitions in the form of construction buildingEurope’s largest wind park in Romania. In the same country, ČEZ became the selected partner for the construction of the third and fourth block of the Černavoda power plant. At the end of 2008, ČEZ was selected by the Slovak government for the construction of the Jaslovské Bohunice nuclear power plant. In 2008, ČEZ also successfully entered the Turkish market and won a privatization process for an Albanian distribution company.

Now, foreign activities of the ČEZ Group focus on renewable resources, especially in the area of wind and water power plants.

CEZ Group is perceived as a prestigious and a much sought-after employer. The companies that make up CEZ Group employ nearly 26,000 people in over one thousand unique job positions in the generation, distribution, and sale of electricity and heat, mining of coal, and other related operations.

 

EFFICIENTLY PRODUCTING NEARLY 60 THOUSAND GWH A YEAR

CEZ Group produces nearly three-quarters of the total electric energy manufactured in the Czech Republic. CEZ Group currently operates 2 nuclear power plants, 15 coal-fired power plants in the Czech Republic, 3 coal-fired power plants abroad, 35 hydropower plants, including 3 pumped storage plants, 2 locations with wind power plants, 13 photovoltaic (solar) power plants and 1 biogas station. This diverse portfolio of plants enables the group to respond flexibly to changing demand and provide all the services necessary for generating a reliable supply.

ilustr. obr. - profil - 4In managing production, CEZ Group places emphasis on increasing productivity, which has risen by more than 50% over the course of four years since 2000. The economic return for one employee per month has also been rising continuously. The CEZ group currently has the highest value added per employee in the Czech Republic.

The largest coal consumer in the Czech Republic

Coal-fired power plants account for a majority of the installed capacity of CEZ Group. The group purchases most of its fuel from the coal companies of northern Bohemia. The largest supplier of brown coal, Severočeské doly, is a member of CEZ Group. As the leading purchaser of coal in the Czech Republic, CEZ Group provides work opportunities for a large number of employees in the coal industry.

Distribution according to the rules of unbundling

The regional electricity distribution companies, incorporated into the CEZ Group during the integration of the energy sector not only distribute electricity to end-users, but also trade it. During the course of 2005, the existing regional layout of CEZ Group’s distribution companies was replaced with a process layout. In accordance with EU policy, this model assumes the strict separation of distribution as a regulated activity, or unbundling. The key functions of distribution and the sale of electric energy were taken over by the independent companies CEZ Distribuce, a. s. and CEZ Prodej, s. r. o.

The new model of CEZ Group features ten companies, each of which concentrates on one basic component of the energy group’s activities. The processing facilities are evenly located throughout the group’s distribution territory. CEZ Group will continue to maintain the distribution networks in a way that assures undisturbed electricity supplies to all its customers.

 

TRADING DOMESTICALLY AND ABROAD

Demand for electricity in the Czech Republic increases on a year-to-year basis. Although a majority of the electricity produced by CEZ Group is intended for the domestic market, a substantial portion is exported, making CEZ Group the second largest electricity exporter in Europe after EDF. CEZ Group is also the leading supplier of ancillary services for the Czech transmission system.

Emission permits for CO2 have become a lucrative trade commodity, aimed at reducing the pollutants emitted by industrial companies in EU countries. They operate on the premise that if a firm falls short of its allocated emission volume, it may sell unused permits. Contrarily, those that surpass their limit must purchase additional ones. The fully consolidated companies of CEZ Group traded a portion of their permits through bilateral contracts and allocated another to the upcoming year. In January 2006, ČEZ, a. s. further extended its know-how in the field of trading emission permits by enlisting on the Amsterdam stock exchange ECX.

Expanding services

In order to expand customer service, improve the utilization of production capacities, and strengthen the position of CEZ Group on new markets, a network of sales centers and offices has been established throughout the Czech Republic. Trade agencies have also been opened in several neighboring countries.

An agreement between CEZ Zákaznické služby, s. r. o. and regional gas distribution companies in the Czech Republic to open joint offices is just one example of how CEZ is constantly improving customer service. In six cities throughout the country, electricity and gas related services will be offered in former sales offices of CEZ Group.

CEZ Group is pursuing further means of modernizing, as well as increasing the speed and quality of its contact with customers.

 

INVESTING IN THE ENVIRONMENT

In its recent-year history, the parent company of CEZ Group invested a total of over 7 billion euro into development and ecological measures. CEZ Group’s largest investment into the environment was an extensive program aimed at the desulphurization of its coal-fired power plants. Between 1992 and 1998, the group invested a total of 1.58 billion euro into the project, as a result of which the levels of SO2 were reduced by 92%, ash particles by 95%, nitrogen oxides by 50%, and carbon dioxide by 77% from values in the early 1990s.Since the end of 1998, all of these plants have been fitted with equipment reducing pollutant emissions.

ilustr. obr. - profil - ŽPThe technology and parameters for reducing pollutant emissions employed in the Czech Republic comply with the highest standards of available technologies recommended by the European Union, and enable the group to meet air protection regulations. Furthermore, nearly 90% of the energy by-products from the desulphurization process no longer classify as waste, and may be further utilized. The surroundings of coal-fired power plants have undergone a series of technical and biological reclamations, which are aimed at removing the effects of storing energy by-products and revitalizing the landscape. Refurbishment of devices measuring emissions has taken place in all coal power plants since 2005, and CO2 measurements have also began.

CEZ group has made a major ecological investment in the refurbishment of its coal fired power plants, which will further reduce the volume of SO2 and NOx emissions by over 50%. A notable step will be the reduction of CO2 emissions by 8% of 1990 levels, in accordance with fulfilling the Kyoto Treaty by 2012. CEZ Group is the first company in the European Union to undertake the complex refurbishment of its facilities in compliance with new EU guidelines.

Other significant environmental investments were realized through an alternative fuel project and the implementation of the Environmental Management System (EMS). As a result of these environmental investments, which in the case of CEZ Group are the highest of any other Czech company, the group (including hydropower and nuclear facilities) fulfills the most stringent EU standards.