Annual reports

Annual Financial Report 2022

Dear shareholders,

The past year of 2022 was marked by an unprecedented energy crisis that affected everyone’s lives. The war in Ukraine and the confluence of a number of other factors have resulted in energy market prices rising to historic highs. This was mainly due to the restriction of gas supplies from Russia and the resulting surge in the cost of generating electricity from emission generating sources, as well as the general uncertainty in Europe. The sanctions adopted by the European Union against Russia and Russia’s reaction have subsequently led to a major reduction in Europe’s trade and payment relations with Russia. The panic on the markets culminated in August when the price of natural gas on the main European commodity exchanges broke the EUR 300/MWh mark. Yet the collapse of a number of energy suppliers in Czechia due to soaring commodity prices had already occurred in the autumn of 2021, when the market price rose to EUR 50/MWh. Compared to natural gas prices in 2020, prices increased up to 20 times. During 2022, the price of electricity on the wholesale markets followed the trend of natural gas prices and reached an extreme level of almost EUR 1,000/MWh in August, a year-on-year increase of more than tenfold.

It was necessary to take extraordinary measures very quickly within CEZ Group and ensure the energy security of Czechia. I am pleased to say that we were able to secure all nuclear fuel supplies and the necessary maintenance of all generating facilities. Thanks to this, we also achieved record generation at nuclear power plants, and thus made a major contribution to limiting the negative impact of the crisis on Czech companies and households. In addition, in June, four months after the invasion began, we succeeded in securing, together with the Czech state, significant capacity at the liquefied natural gas (LNG) terminal in Eemshaven, the Netherlands, including transport routes to Czechia. ČEZ has thus become able to import up to 3 billion m3 gas per year for 5 years, which will allow to cover one third of the Czech gas consumption. The floating LNG terminal, the first in Europe after the outbreak of war in Ukraine, was commissioned in record time on September 8.

In an emergency situation, our sales companies have shown responsibility by meeting all their commitments and, in addition, by taking care of many new customers whose suppliers refused to extend their contracts. They have ensured a reliable supply of electricity and gas thanks to their long-term strategy of phased commodity purchasing.

We have proven that ČEZ is a stable and reliable energy company in the economic area too, where we managed the enormous demands for hedging concluded commodity deals due to the difference between the contracted and high current market price of commodities. We were forced to send as much as hundreds of millions of EUR per day to the exchanges, similar to all major generators in Europe, and we took a number of complex measures during the year to ensure sufficient cash. With the extreme fluctuation in electricity prices in August, we were forced to replenish these margin deposits to almost CZK 200 billion. Despite this, we were able to pay a high dividend of CZK 48 per share to shareholders.

Thanks to the high availability of generating facilities, record profits from commodity trading, and the increase in realized generation prices in 2022, in particular, CEZ Group achieved a record profit which will enable us to pay the highest dividend in the Company’s history in 2023.

In addition to ensuring sufficient energy for customers in Czechia, CEZ Group is also thinking about a clean future and reliability of electricity supply. That is why we have worked hard on preparing the building for a new nuclear power plant and accelerated the preparation of small modular reactors. Nuclear power is the future of Czechia, as confirmed also by surveys. Support among the Czech public reached a record high of 72% at the end of 2022, the highest since 1999, when IBRS agency began regularly surveying Czech attitudes towards nuclear power.

On March 17, Elektrárna Dukovany II, a wholly owned subsidiary of ČEZ, launched a tender for a contractor to build a new nuclear power plant. In November, it received initial bids from all three qualified bidders. All three bids met the defined conditions and are now undergoing a thorough evaluation. The new nuclear power plant should be commissioned for trial operation before 2040.

The selection of new nuclear fuel suppliers for Temelín power plant was another step towards strengthening energy security. The tender resulted in two suppliers, the US company Westinghouse and the French company Framatome, replacing the Russian TVEL, which will share the fuel assembly supply from 2024. We have also accomplished a lot in the field of small modular reactors. Space has already been allocated for the first small reactor in Czechia at the site of the Temelín nuclear power plant. Following this decision, the South Bohemian Nuclear Park was established, i.e., a contractual cooperation between ČEZ, ÚJV Řež group, and the South Bohemian Region. The first reactor could be started up as early as the mid-2030s. Other sites under consideration include Tušimice in North Bohemia and Dětmarovice in the Karviná District of the Moravian-Silesian Region.

We are also strengthening Czechia’s energy security and self-sufficiency through other steps, one of which is the purchase of the major Czech engineering and manufacturing company ŠKODA JS from the Russian engineering group OMZ. This group was subject to European sanctions after the outbreak of war in Ukraine. The purchased company is largely responsible for modernizing and maintaining Czech nuclear power plants, in the construction of which it once played a significant role.

Despite an extremely challenging year, we are continuing to pursue decarbonization, and reducing CO2 emissions remains a priority for us. We are targeting the phase-out of coal-fired generation and a major conversion of our generation portfolio to low-emission. We intend to reduce the share of coal-fired generation in total electricity generation to 25% by 2025. We ill phase out coal-fired power plants by 2038 at the latest, but probably much sooner.

CEZ Group is meeting its commitments to reduce all emissions in line with the Paris Agreement targets. CEZ Group’s emission intensity in electricity and heat generation reached 0.29 t CO2e/MWh in 2022, which is 83% of the emission intensity of new CCGT plants. In the area of emission-free sources development, we have the ambition to add a total of 6,000 MW of installed capacity of renewable primary photovoltaic sources by 2030. In early 2022, the European Commission approved the final form of the so-called taxonomy under the European Green Deal. We welcomed the temporary inclusion of nuclear and gas as clean energy sources. Especially because, besides renewables, nuclear power plants are Czechia’s clean, emission-free future.

By continuing to optimize the operation of the Temelín and Dukovany power plants, we aim to gradually increase emission-free nuclear generation above 32 TWh in the long term while maintaining maximum safety and operational stability. It is an admirable achievement that the Czech nuclear power plants generated the highest amount of energy ever in 2022. The Temelín power plant delivered 16 TWh and the Dukovany power plant 15 TWh to the transmission grid, totaling 31 TWh of electricity, a year-on-year increase of almost 300 GWh.

We are serious about the development of renewable energy sources, and so we need to modernize CEZ Distribuce’s distribution grid, which must be ready to accommodate a large number of new renewable energy sources. The European Investment Bank (EIB) has supported CEZ Group in this regard with a record EUR 790 million loan. This will contribute to Czechia’s energy independence by enabling the connection of approximately 2.2 GW of new renewable energy sources. The loan will also support the implementation of the European Commission’s REPowerEU package created in response to the conflict in Ukraine and designed to save power, produce clean energy, and diversify Europe’s energy supply.

Interest in renewables has increased significantly in the wake of the energy crisis. Both ČEZ Prodej and ČEZ ESCO have registered high increases in demand. I am pleased to see that both our companies are the right choice for our customers and that thousands of people are approaching them with confidence for installation. For reference, ČEZ Prodej installed a total of 4,102 rooftop photovoltaic plants in Czech households in 2022, compared to 1,514 photovoltaic plants in 2021. The total capacity of household solar power plants increased roughly fourfold in 2022.

In 2022, we made significant progress in fulfilling our strategic commitment and public pledges in all three ESG sustainability areas: Environmental, Social, and Governance. The positive development in this area is confirmed by renowned international rating agencies. ČEZ has already ranked among the top 30% in ESG. It was the first company in Central Europe to issue green bonds, the yield of which is linked to meeting the 2025 emission intensity reduction target. ČEZ has also taken a significant step in the field of climate protection. It signed a Memorandum on Cooperation in Climate Protection with the Ministry of the Environment of the Czech Republic and publicly committed to achieving climate neutrality already by 2040. This is an acceleration of ten years compared to the original ambition.

In the area of social policy, we have set a long-term goal of maintaining our position as an employer of choice and a top employer. We devote great effort to employee satisfaction, treating them with the utmost respect, while at the same time striving to attract new professionals. Our success in the prestigious 2022 TOP Employers study shows that we are succeeding. For the third time in a row, ČEZ has retained its position as the absolute winner of the survey entitled Clear Choice, which is voted on by 12,000 students of Czech universities. In addition to the prestigious main prize, it also dominated two secondary categories as in the previous years.

The year 2023 will not be easy. Nevertheless, I believe that the situation not only on the energy markets will gradually start to calm down and stabilize and we will successfully continue to meet the goals of “VISION 2030—Clean Energy of Tomorrow”. Let me assure you that CEZ Group will do its best to build on the successful year 2022 and be a reliable supplier for its customers, an attractive employer, and deliver maximum value for its shareholders.

Daniel Beneš
Chairman of the Board of Directors and Chief Executive officer of ČEZ, a. s.


Dear shareholders,

Looking back on 2021, the year cannot be called anything other than turbulent. We have faced several waves of the COVID-19 epidemic and, in the second half of the year, Europe experienced a price crisis due to a combination of many factors with wholesale energy prices soaring to all-time highs. Electricity prices for supply in 2022 more than quadrupled over the year 2021, the main reason being the extremely rising cost of generating electricity from carbon-based sources. CO2 emission allowance prices forsupply in 2022 increased by almost 150% during 2021, mainly due to the strengthening of the European Union’s decarbonization ambitions, and gas prices for supply in 2022 increased by almost 400%, mainly due to tight gas supply on world markets following COVID-19 and uncertainty of supply from Russia. In this situation, a number of energy suppliers have gone out of business. However, CEZ Group lived up to its reputation and remained a trustworthy and reliable partner even in these times.

Clean energy of tomorrowThe year 2021 confirmed the relevance of our long-term strategy aimed at developing emission-free generating facilities and providing quality and reliable services. The value of CEZ shareholders’ assets almost doubled in the past year. The market capitalization increased from CZK 276 billion to CZK 444 billion during 2021. In addition, we paid our shareholders the second highest dividend in the Company’s history at CZK 52 per share. The total return to shareholders for the year, i.e., the change in share value plus the dividend paid in the year, was over 70% and was the highest among all European energy companies included in the STOXX Europe 600 Utilities stock index.

Decarbonization has been the number one issue in the energy sector for many years. The drive to reduce CO2 emissions has become a truly global objective in 2021. The European Commission has further specified the parameters of the European Green Deal and backed the ambitious targets for CO2 reduction, renewable energy sources construction, and increased energy efficiency with further regulatory interventions and measures. In particular, it defined the reallocation of significant financial resources of European countries to support the achievement of climate goals and established a way of classifying the sustainability of different types of generating facilities within the framework of what we call taxonomy. ČEZ, as the largest generator and supplier of electricity in Czechia and a major producer in the region, has long been committed to decarbonization and intends to play a leading role in the overall transformation of the region’s energy sector.

In 2021, we have therefore decided to make our long-standing strategy of transitioning to carbon neutrality more tangible andto significantly accelerate the overall reduction of emissions. In the accelerated VISION 2030—Clean Energy of Tomorrow strategy CEZ Group commits to fulfilling precise targets and public commitments in three ESG sustainability areas: Environmental, Social, and Governance. We have the ambition to become one of the top-ranked energy companies in Europe in ESG, and we estimate the implementation of the updated strategy to contribute to a 40% increase in EBITDA by 2030, beyond the impact of market electricity prices.

Accelerated decarbonization is a key ambition of the updated strategy. This means, in particular, an earlier phase-out of coal-fired generation and a major conversion of the generation portfolio to low carbon. We intend to reduce the share of coalfired generation in total electricity generation to 25% by 2025 and to 12.5% by 2030. By 2030, we will completely phase out coal-fired heat generation. Coal-fired power generation in Czechia is likely to be phased out by 2033 at the latest, given the government’s priorities, while current market conditions indicate that CEZ Group’s coal-fired facilities will operate until 2030 at the latest. In line with these commitments, we shut down one of the largest coal-fired units in Czechia, the Energotrans 3 power plant with an installed capacity of 500 MW, in 2021. CEZ Group’s emission intensity in electricity and heat generation reached 0.29 t CO2e/MWh in 2021, thus decreasing by 13% year-on-year. Emissions of pollutants SO2 and NOX from Given our emphasis on social aspects, we are committed to providing all employees affected by the phase out of coal with the opportunity to transfer to another position, retraining, or compensation. We want to remain among the most attractive employers in Czechia. Our goal is to provide good working conditions for women and to increase their share in management positions. We intend to be the most reliable supplier of energy commodities and services in the region and to develop professional company management. In 2021, we obtained the prestigious ISO 37001:2016 anti-corruption certification. ČEZ is the first company listed on the PragueStock Exchange and the first energy company in Central Europe to boast compliance with this international standard.

I am pleased that we were able to meet our initial earnings expectations even in the year of 2021. CEZ Group generated an operating profit before depreciation, interest, and tax of CZK 63.2 billion, significantly exceeding our initial estimate by more than CZK 3 billion. This was despite the fact that the Romanian and Bulgarian assets were sold earlier, so their operations took a shorter time to be consolidated. The proceeds from this successful sale contributed to debt reduction, higher dividends for shareholders and will be used for development investments in line with the updated strategy. We managed to increase EBITDA from existing assets by CZK 2.7 billion year-on-year, not only due to the reliable operation of the entire generation portfolio, but also due to exceptional additional gains from commodity trading, where we took advantage of the increased volatility in foreign commodity markets.

CEZ Group also demonstrated its strength and stability during the liquidity crisis at the end of 2021 resulting from the extreme increase in commodity prices and the consequent need to supply cash in the amount of hundreds of EUR millions per day as collateral for its sales contracts on exchanges. All the largest electricity generators in Europe faced a similar situation, especially those with significant volumes of pre-sold electricity. Unlike several major foreign energy companies, ČEZ did not have to apply for state guarantees and managed the situation within the framework of a prudent financial policy and risk management tools. ČEZ’s overall debt adequacy and financial stability are also appreciated by rating agencies, which confirmed the Company’s high ratings during the year.

The record increase in energy prices on wholesale markets caused existential problems for alternative suppliers in Czechia, who did not have enough purchased electricity and gas for their customers and were forced to announce their closure. Almost one million customers were transferred to the locally competent suppliers of last resort in accordance with the legislation and were forced to start paying current market prices for energy supplies, which were many times higher. Our subsidiary ČEZ Prodej, as one of the suppliers of last resort, had to immediately take care of electricity supplies for more than 370,000 clients. It is worth emphasizing that the existing customers of ČEZ Prodej and ČEZ ESCO benefit from a serious approach and a responsible hedging strategy, thanks to which the increase in market prices of commodities is reflected in the end price of customers with a delay and eliminates extreme price fluctuations.

CEZ Group has also demonstrated its reliability and trustworthiness in dealing with the impacts of COVID-19 and all related state and multinational measures. ČEZ is an entity of the state’s critical infrastructure and is aware of its responsibility to ensure trouble-free electricity and heat supply. Therefore, based on the experience of previous years, we have taken a very conservative approach in 2021 and have often been more stringent than others in implementing protective and preventive measures. For example, we were the first to introduce precautionary employee testing at the very beginning of the year and then maintained it throughout the year in some operations. This ensured that all generation and distribution sites ran smoothly throughout 2021. I am proud of our employees who were able to achieve excellent availability of generating facilities in these conditions preventing even higher electricity price increases for end-use customers, and who were able to contribute to an excellent result in all business segments.

Preparations for the new nuclear power plant in Dukovany continued in 2021. We received the approval of the State Office for Nuclear Safety for the siting of two nuclear units at the location for a maximum capacity of 2 × 1,200 MW and submitted an application for a zoning permit. Only three bidders who have met the Czech government’s safety requirements remain among the candidates for completion.

Finally, I must mention the conflict in Ukraine, which escalated just before this Annual Report was approved. CEZ Group has taken security measures as a critical Czech infrastructure entity and is intensively assessing the potential impact of the conflict, including the ensuing sanctions imposed on the Russian Federation, which may negatively affect the European energy industry, including CEZ Group’s operations.

Let me assure you that CEZ Group will do everything in its power to build on an extremely successful 2021 even in these difficult conditions. I am confident that we will be able to contribute to further increasing the Company value for our shareholders, to maximizing customer satisfaction, and to meeting the other goals of VISION 2030—Clean Energy of Tomorrow.

Daniel Beneš
Chairman of the Board of Directors and Chief Executive officer of ČEZ, a. s.


Dear shareholders,

At the beginning of 2020, few could imagine what was ahead of us. The COVID-19 pandemic paralyzed the European and world economies for many months and fundamentally affected everyone’s daily lives. The unknown situation brought chaos, uncertainty, and fear for our loved ones. However, even in the darkest moments, the lights remained on, devices in hospitals and computer screens were running, often remaining the only connection to the outside world. What is taken for granted by some, was available thanks to the efforts and determination of tens of thousands of power engineers, including those from CEZ Group.

Annual report 2020We were among the first to introduce strict measures to be able to maintain a reliable supply of electricity and heat in all circumstances, while maximally protecting our employees. Proof of this is the fact that even in this situation we managed to control the regular outages of nuclear power plants, and their year-round electricity generation exceeded 30 TWh again. However, it is not just a matter of changing the fuel, but mainly of extensive equipment inspections, assembling new parts, and other technical issues, on which hundreds of people work, including external suppliers from Czechia and abroad. As part of these activities, naturally, all safeguards against the spread of COVID-19 had to be observed. Nevertheless, we managed the outages successfully and safely, at a time when many other companies in the country stopped generation completely.

We also did not hesitate to offer a helping hand to others. In Czechia, for example, it was a question of postponing advances from our customers, supplying scarce disinfectant to large hospitals, crisis financial assistance to municipalities, or the experience and skills of our operators in tracing infected people. Even in other countries where we operate, we have earned our reputation as a reliable partner and good neighbor through a variety of projects aimed at mitigating the impact of anti-COVID-19 measures. We have thus demonstrated that the topic of sustainable development and social responsibility has a firm place in the motivation and attitude of CEZ Group employees.

I am glad that during this ordeal we also proved that CEZ Group is a stable economic entity capable of providing its shareholders, business partners and suppliers with certainty even in times of economic downturn. Despite the negative impact of all anti-COVID-19 measures on the company’s economy and operations, CEZ Group generated an operating profit before depreciation, interest, and taxes of CZK 64.8 billion, thus fulfilling the annual ambition announced before the spread of COVID-19 to Europe. The results of 2020 were only partially affected by the consequences of COVID-19, mainly due to the proven hedging strategy of preselling electricity and purchasing emission allowances for generation for three years ahead. We managed to offset the negative effects of COVID-19 on the Group’s operations mainly due to the extraordinary profit from commodity trading, where Trading once again used market volatility to make significant additional gains. In addition, ČEZ was able to pay a high dividend for the previous year in 2020, while a number of energy companies canceled this step in response to the impacts and uncertainty surrounding COVID-19. In total, a dividend for shareholders in the amount of CZK 18 billion was approved. This amount represents the highest dividend yield for 2020 among all European energy companies included in the STOXX Europe 600 Utilities stock index (6.7% of the initial share value). The overall debt adequacy and financial stability of ČEZ have also been appreciated by rating agencies. The S&P agency confirmed ČEZ’s rating at “A–” and subsequently improved the rating outlook from “negative” to “stable”.

Although COVID-19 seems to have overshadowed most other events as the central theme of 2020, this is certainly not the case in energy sector. Efforts to decarbonize Europe continue with even greater vigor, and the actions of individual countries and energy companies follow. The European Commission has approved a further increase in ambitious targets for CO2 reduction, renewables, and energy efficiency as part of the “European Green Deal” for 2030. Czechia adopted an energy and climate plan and decided to gradually phase out coal as a priority from the heating industry and subsequently from the entire energy sector. The Czech Coal Commission recommended closing coal-fired power plants by 2038. In particular, as a result of the strengthening of Europe’s climate ambitions, the price of emission allowances increased by more than 30% in the course of 2020, which, together with the negative impact of COVID-19 on electricity demand, has significantly worsened economic conditions for the coal sector.

CEZ Group anticipated this development in its strategy from 2019, which is based on modern emission-free generation, comprehensive energy services, and innovation and digitization in the field of distribution and sales. In the generation-related aspects, the main strategic goal is to gradually increase the share of emission-free facilities in our generation portfolio and reduce the carbon footprint in general. We have been succeeding in fulfilling this strategy. We are gradually ending generation in coal-fired power plants—in 2020, we shut down the Prunéřov I power plant after more than half a century, and in 2021 we will end the operation of one of the units at the Mělník site. We have been modernizing the most efficient coal-fired power plants that remain in operation so that they meet the strictest European emission limits. At the same time, we have been intensively preparing for the construction of transitional gas facilities, especially to ensure heat supply obligations with significantly lower CO2 emissions, and for the construction of new fully emission-free facilities: both renewable and nuclear. We invest in modernizations and increasing capacity primarily in our nuclear power plants. As part of the development of renewable sources, we expect to build and put into operation photovoltaic power plants with a capacity of over 1 GW in Czechia by 2025. In the future, our ambition is to become a regional leader in sustainable energy and in the pace of reducing the carbon footprint. In 2021, we expect the average CO2 emissions per generated electricity of the entire CEZ Group to be 22% lower than in 2019 and at the same time almost 20% lower than the specific emissions of the new CCGT facility.

However, the pursuit of climate neutrality cannot only depend on a change in the generating portfolio; energy savings also play an equally important role. Moreover, the European Union itself is considering further tightening the present 2030 targets in this area from the current 32.5% to 40%. And CEZ Group is ready. For the last few years, we have focused on building and expanding our know-how in the field of modern energy services and savings. Thanks to this, our company ČEZ ESCO is one of the established and respected leaders in the field today, and its market share is growing. Specifically for EPC guaranteed savings projects, we cover 60% of the Czech market and help our customers and the entire region to achieve environmental and economic goals. We are equally ambitious abroad, where modern energy services are provided in Western Europe by companies associated in the Elevion Group and in Slovakia under ČEZ ESCO. Demand for these services is gradually rising, and I expect this growth to accelerate in the future as huge amounts of European funding begin to be released and the COVID-19-related situation stabilizes.

In 2020, there has been a development in preparing a new nuclear unit in Dukovany. Two out of three key agreements between the Czech state and ČEZ were signed, an act on Czechia’s transition to low-carbon energy was drawn up, and prenotification negotiations with the European Commission began. I consider it a great success that we managed to negotiate such conditions of cooperation so that the interests of all shareholders are protected without distinction.

The year 2020 was also successful in fulfilling the divestment strategy. We sold the Počerady coal-fired power plant and got rid of a long-term commitment to buy coal from Vršanská uhelná. We managed to conclude an agreement on the sale of Romanian assets with a renowned international investor at a good price. As a result of the sale, CEZ Group will obtain significant funds that, in accordance with the current strategy, will contribute to debt reduction, will be used for development investments in Czechia and in stable countries, and will enable a higher dividend for shareholders.

We will do our utmost to ensure that CEZ Group builds on the successful year 2020 in 2021 and manages to contribute to the maximum growth of the Company’s value for our shareholders and thus to actively support socially responsible and sustainable energy transformation in Czechia and Europe. At the same time, we must all build on the well-managed health protection of our employees in 2020.

Daniel Beneš
Chairman of the Board of Directors and Chief Executive officer of ČEZ, a. s.


Dear shareholders,

Although 2019 was full of events, I will start from the end of the year. A step taken last December will radically change not only the energy sector but almost all economic sectors, especially industry, transportation, the building industry, agriculture, and financial services. European Union countries approved a program called the European Green Deal, making a commitment to turn Europe into a carbon-neutral continent by 2050.

This did not come as a surprise, as emission reduction has been part of the pan-European discourse for a rather long time, and CEZ Group already announced its goal to achieve carbon neutrality by 2050 several years ago. However, what is surprising is the scope of the ambitions. The European Green Deal is so comprehensive and ambitious that it is no exaggeration to say it is a turning point for Europe’s energy sector as well as economy.

CEZ Group has already been responding to this trend for several years: we have drawn up a preliminary decarbonization plan for our generation portfolio based on a phaseout of coal-fired facilities and we help reduce both energy consumption and emissions through our ESCO products and services. We modernize our power plants for higher efficiency and lower environmental impacts, we invest in research into zero-emission technologies in both generation and transportation, we also support innovative clean-tech and new energy startups, and we are a leader in Czech e-mobility.

That is why we do not see the new program as a threat but as an opportunity to make use of our expertise and experience and fulfill our updated corporate business policy and strategy, which reflect the reinforcing trends in the European energy sector and were confirmed at the annual shareholders’ meeting in June 2019.

We have defined four strategic priorities, which will help us remain a strong energy-sector player in Europe: operating our existing portfolio efficiently, modernizing distribution networks, offering comprehensive services to customers, and developing new energy and energy services especially in Czechia and its neighboring countries.

Talking of our energy future, we should also mention Czechia’s goals for the construction of new nuclear units. Naturally, ČEZ is the Czech government’s key partner in this respect and works closely with the Standing Committee on the Construction of New Nuclear Power Plants. An important milestone in the whole process was reached in August: the Ministry of the Environment issued a favorable EIA opinion for new units at the Dukovany Nuclear Power Plant. Intense negotiations about a framework agreement between ČEZ and the Czech state were taking place at the same time and we continued to prepare documentation for a siting permit application and for land use proceedings.

Concurrently, we began analyzing whether small nuclear reactors could also find use in Czechia and started cooperation with companies developing such reactors worldwide.

I am pleased with the steady growth in the amount of orders and sales and CEZ Group’s development in energy services. During the five years of its existence, ČEZ ESCO has earned a reputation as a reliable contractor and partner that brings its customers comprehensive, custom-tailored solutions. As a result, some big names in industry as well as government and public administration have chosen to collaborate with us. For example, the City of Prague chose us as its partner for energy-saving measures under several selected building modernization projects, such as the Municipal House, Prague-Holešovice Exhibition Ground, Oliva Children Sanatorium in Říčany near Prague, or Aquacentrum Šutka.

Furthermore, our ESCOs abroad are also successful, especially in Germany, Slovakia, Poland, and Romania. Our revenue from these services in Czechia and abroad amounted to CZK 21.8 billion in 2019.

We continue with digitization projects in all areas, most importantly in distribution and sales.

At the end of the year, CEZ Group validated its reputation as one of the best-rated companies in the region in terms of credibility and financial health. ČEZ will pay a coupon of just 0.875% on issued bonds with a nominal value of EUR 750 million. The seven-year bond will mature in 2026. The issue attracted much interest despite the low yield; prospective investors were willing to buy more than triple the amount of ČEZ bonds before the final price was announced. This was the lowest interest in euros achieved in 2019 by issuers from Central and Southeast Europe for any maturity and the lowest interest in euros achieved by any corporate issuer in Central and Southeast Europe for maturity of 5 or more years.

In a year-on-year comparison, CEZ Group considerably increased its profits in 2019 (by more than 21%), primarily due to increased realization prices of generated electricity, higher generation at nuclear power plants, and an exceptionally successful year in commodity trading. Our nuclear power plants generated over 30 TWh of electricity—hundreds of millions of kilowatt-hours more year-on-year. We achieve growth in profit thanks to our well-balanced generation portfolio (with an almost 55% share of zero-emission generation) in spite of high prices of emission allowances. We expended on maintenance, modernization, and asset safety enhancement in 2019 and made financial investments, primarily in ESCO abroad.

In line with our hedging strategy, we continue with medium-term electricity futures contracts and the fixation of emission allowance costs for future years. Assuming that generation will be stable, especially at nuclear power plants, we can expect further growth in profit in 2020.

Dear shareholders, I hope that CEZ Group will build on the successful year of 2019 in 2020 and we will manage to contribute to the maximum growth in the Company’s value.

Daniel Beneš
Chairman of the Board of Directors and Chief Executive officer of ČEZ, a. s.


Dear shareholders,

Another year has passed and I am pleased to observe that our company’s worth has increased again in 2018. CEZ Group is a transparent and stable energy corporation. ČEZ remains one of Europe’s financially healthiest energy companies, as evidenced by its Standard & Poor’s credit rating of A– with a stable outlook and Moody’s credit rating of Baa1 with a positive outlook.

Annual report 2018The Standard & Poor’s rating of ČEZ has been upgraded by a total of three notches over the years even though the ratings of a number of other energy companies have gone in the opposite direction. Prior to becoming the first Central and Eastern European company to enter foreign capital markets and issuing its eurobonds in 1994, ČEZ was assigned its first rating of BBB− by Standard & Poor’s in May 1994. now we have the same credit rating as, for example, EdF, the France-based European energy giant.

We were also pleased that Institutional Investor journal assessed ČEZ as having the best investor relations and the best corporate governance system among all EMEA utilities.

In what has become a tradition, we published our Sustainability Report in 2018. We presented CEZ Group’s operations in Czechia and abroad through nonfinancial information, with emphasis on our responsible business practices.

We are successfully implementing our growth strategy focusing on comprehensive energy services for customers. In addition, the growth potential of our ČEZ ESCo companies in Czechia and Elevion group in Germany is potentiated by the European union’s long-term goals to cut energy consumption, which is an opportunity for companies offering smart energy solutions. CEZ Group’s total operating revenues were CZK 184.5 billion in 2018, increasing by CZK 10.8 billion year-on-year after adjustment for methodology changes in IFRS, primarily due to increased sales of energy services. We found this to be a highly promising new energy sector even under Czechia’s conditions. ČEZ ESCo is also becoming a major player in the ongoing environmental upgrades to power generation facilities in Czech industry, successfully winning substantial contracts. We completely replaced coal-fired boilers with gas and cogeneration units at Energocentrum Vítkovice in ostrava and continue to work on a large project for environmental upgrades to our Mělník site so as to ensure long-term heat supply for Prague and its vicinity. The Eu’s environmental commitments resulting from its winter package pose a risk to utilities including ČEZ due to additional expenditures on environmental upgrades but also present an opportunity for development. If Europe wants to cut its emissions it cannot do so without significant electrification. According to a Eurelectric study, the share of electricity in energy consumption should rise from 22 to 48%. In line with its commitment, CEZ Group intends to start generating electricity without any greenhouse gas emissions no later than in 2050.

Rapid development of new technologies continued, ambitious Eu goals for 2030 were set, and commodity prices rose significantly in the past year. Wholesale electricity prices increased by almost 50% in 2018, primarily due to the market prices of emission allowances growing by more than 200%. under its hedging strategy, CEZ Group resells electricity and purchases emission allowances in advance on a long-term basis, which delays the effect of price changes on its financial performance. After years of year-on-year decreases, the realization prices of generated electricity rebounded in the second half of 2018, which is beginning to have a positive effect on CEZ Group’s financial performance. Most of the effect will be seen in 2019 and the following years. A key prerequisite is stable generation at nuclear power plants, whose margin is not affected by the growing prices of emission allowances. We generated almost 30 TWh of electricity at our nuclear plants in 2018.

In terms of our 2018 annual performance, we managed to meet expectations for net income and came up a bit short in EBITDA, primarily due to lower generation at our coal-fired power plants and due to partial postponement of new acquisitions.

As for development investments, we should mention a project for the construction of a heat supply pipe from Temelín to České Budějovice. only now are we starting to build what the previous generation was considering. The clean heating project for the regional capital was waiting for the first concrete and binding step for over thirty years. We managed to proceed to its final stage together with České Budějovice leaders after extensive difficult negotiations. A contract has been entered into for twenty years of supply. With Temelín’s heat, the Southern Bohemia region will be able to avoid burning up to 80,000 tons of coal a year and releasing the same amount of carbon dioxide. We consider the heating sector to be highly promising and have made several acquisitions in it in both Czechia and Slovakia.

We are gradually fulfilling a difficult task relating to the generational renewal of employees in electricity generation and distribution in Czechia. Another great challenge is the digitization of distribution networks with transition to smart grids and innovation focusing on the enhancement of our pro-client approach. Investments in the distribution grid in Czechia exceeded CZK 10 billion in 2018 and we are planning even higher investments in 2019.

What to say in conclusion? I assume that the energy market will continue to be affected by persisting regulatory uncertainty and rapid technological advancement in 2019. our fundamental strategy, based on growth in the new energy sector and comprehensive energy services as well as on our ambition to be among the best in the operation of conventional power facilities, remains unchanged. The debate about how Czechia chooses to prepare the construction of new nuclear power plants and what role CEZ Group will play in this will continue in 2019. It remains our task to take care of the traditional energy segment, that is, nuclear, coal-fired, and hydroelectric power plants, and of further growth in the new energy segment, most importantly through promising smart energy solutions for customers

Daniel Beneš
Chairman of the Board of Directors and Chief Executive officer of ČEZ


Dear shareholders,

The past year reminded all of us of just what turbulent times the energy sector is currently facing: rapid development of new technologies, legislative changes, debates on setting EU targets, the changing preferences and position of customers/consumers, and above all high volatility of wholesale electricity prices. The traditional energy sector, as we used to know it, has been experiencing a period of intense changes for several years now. I am happy that CEZ Group continued to have considerable success in meeting its financial and strategic goals in 2017.

Annual report 2017First, I would like to briefly comment on our financial results. We exceeded our initial targets for EBITDA and net income by almost CZK 2 billion and managed to generate more net income than in 2016 despite lower electricity realization prices. This was greatly aided by our successful sale of MOL shares and the concurrent redemption of convertible bonds. ČEZ delivered a return on the long-term investment for its shareholders in this transaction, as the total positive cash-flow balance for CEZ Group from 2007 to 2017 was CZK 3.4 billion and the contribution to 2017 net income totaled CZK 4.5 billion. Exceeding the initial financial targets for 2017 was also helped by the Temelín Nuclear Power Plant’s record-breaking availability; its generation of 16.48 TWh beat the previous record from 2012 by 1.18 TWh. CEZ Group’s trading teams also continued to be successful, as they managed to derive additional profits from the increased volatility and growing prices of electricity in wholesale markets in 2017. ČEZ’s market capitalization increased by CZK 35.6 billion, that is 15.5%, in the past year. Although we made a number of major strategic acquisitions in 2017, we remain one of Europe’s financially healthiest energy companies, as evidenced by ČEZ’s credit rating of A– with a stable outlook by Standard & Poor’s.

We managed to fulfill two strategic objectives in traditional energy—what I consider immensely important is the fact that we were granted long-term operating licenses for the remaining three of the Dukovany Nuclear Power Plant’s four units by the State Office for Nuclear Safety in 2017. The whole process was preceded by not only thousands of analyses and tests but also years of continual upgrading. We see the licenses as a covenant of trust in our continued safe operation and continual improvement of safety parameters based on our unique know-how. We want to set an example for the nuclear community worldwide. Therefore, we are pleased that the last year’s review by WANO’s international mission experts (the fourth of its kind) identified two good practices that can be an inspiration to other nuclear power plants throughout the world. Nuclear power plants delivered a total of more than 28 TWh of electricity to the grid, which is 4 TWh more than in 2016. After a period of relicensing and prolonged outages, our nuclear facilities’ production is now returning to a level of 30 TWh a year, which we want to maintain in the long run.

The other fulfilled strategic objective in traditional energy was the completion of our new supercritical coal-fired unit at Ledvice and the commencement of its two-year pilot operation. With the Ledvice facility, CEZ Group acquired another large and stable electricity generating facility, operable for several decades, and completed the largest capital expenditure project in the Czech energy sector in the new millennium—full renovation of ČEZ’s coal-fired portfolio consisting of principal brown coal-fired power plants located in mining regions, namely Tušimice, Prunéřov, and Ledvice.

CEZ Group also managed to achieve its ambitious objectives in the new energy sector in 2017, taking a significant step towards its long-term development, especially by making major acquisitions in renewable energy sources and energy services.

CEZ Group entered the French market by acquiring wind farm development projects with a potential for the construction of up to 101.8 MW. It expanded its portfolio in Germany with an operated 35.4 MW wind farm at Lettweiler Höhe, increasing CEZ Group’s total capacity in German wind farms to 133.5 MW and to almost 770 MW throughout Europe.

CEZ Group’s most important acquisition in 2017 was Elevion, a leading German provider of comprehensive energy services (ESCO services) in the country. CEZ Group thus acquired more than 1,800 experts, annual sales of approximately CZK 8 billion, and most importantly a pivotal base for its activities in Germany’s dynamically growing ESCO market. In addition, CEZ Group entered the Polish market by acquiring Metrolog and OEM Energy and began providing ESCO energy services in Slovakia in 2017. CEZ Group is already one of the largest energy service companies in Central Europe today and wants to take part in setting the trends in this promising market in the future. ČEZ ESCO (the umbrella company for Czech companies in the group) and ESCO International currently employ almost 3,500 Czech and foreign experts, who are able to provide our corporate and public authority customers with comprehensive solutions to their energy needs: retrofit the energy systems of buildings and industrial sites, install smart lighting, photovoltaic installations, and cogeneration units, or introduce energy conservation measures.

A good year was had by Inven Capital fund, which acquired a minority stake in Cloud&Heat Technologies, a Dresden-based company providing innovative solutions that use waste heat from computer servers to heat buildings, and became a shareholder in French company VU LOG, the global leader in providing green mobility sharing technologies. A huge acknowledgment of Inven Capital’s work and results to date was the establishment of collaboration with the European Investment Bank (EIB), which decided to entrust EUR 50 million to the fund to invest in innovative and quickly growing energy startups.

In distribution, we completed a merger between ČEZ Distribuce and ČEZ Distribuční služby with effect from January 1, 2018, as well as integration of customer service provided by ČEZ Zákaznické služby, which was merged with ČEZ Prodej. This finalized full customer service separation between sales and distribution companies in Czechia. I believe that this step will help further improve the quality of care for our distribution assets and our customer service. I am happy to say that in the last year our distribution team coped well with one of the largest disasters of the past decades, windstorm Herwart, which cut the power to more than 600,000 customers, with our team being able to reconnect over half a million of them to the grid within 18 hours.

What to say in conclusion? I assume that the energy market will continue to be affected by persisting regulatory uncertainty and rapid technological advancement in 2018. Our strategy remains unchanged—it will continue to be based on growth in the new energy sector, on offerings of comprehensive energy services for end-use customers, as well as on our ambition to be among the best in the operation of conventional power facilities. One thing that awaits CEZ Group in 2018 is a debate with representatives of the Czech government about how Czechia chooses to prepare the construction of new nuclear power plants and what role CEZ Group can play in this. We will also discuss options for a possible transformation of CEZ Group in this context and in the context of trends in the European energy market. It remains our task to take care of the traditional energy segment, that is, nuclear, coal-fired, and hydroelectric power plants, and further dynamic growth in new energy through comprehensive customer care, renewable energy sources, and most importantly through promising smart energy solutions, which I consider the future of the energy sector as a whole and the future of CEZ Group.

Daniel Beneš
Chairman of the Board of Directors and Chief Executive Officer, ČEZ, a. s.


Dear shareholders,

In 2016, we had to counteract many external effects brought about by a complicated and often unforeseen situation in world politics as well as the European energy sector. I am confident we coped with the effects well. We achieved our key financial target of CEZ Group’s net income and accomplished the key tasks resulting from our strategy focusing on operational efficiency, advanced decentralized energy, and end-use customers.

Annual report 2016CEZ Group continued to face global trends that affect ever more strongly our opportunities and position in Europe’s energy market and profoundly impact changes in electricity prices. The wholesale price of electricity fell below 21 EUR/MWh in 2016, which was its 14-year low. The reason was developments in the global prices of commodities, especially coal, and the quickly increasing efficiency of renewable generation. Generation efficiency has been increasing primarily due to massive state aid in Germany, Denmark, and other European Union countries, and due to fast technological advancements. The development of new technologies makes renewable generation cheaper while helping enhance the efficiency of decentralized energy systems. For example, the price of battery systems dropped by 20% year-on-year, which brings about unprecedented levels of competition in the implementation of decentralized solutions. The whole energy environment remains highly regulated; ironically, some regulatory measures and mid-term ambitions very often fail to benefit the energy sector or the economy as a whole. Renewable generation support, market regulation measures, and energy efficiency ambitions can only be achieved by the deadlines announced by the European Commission at huge expenses, which are very difficult to quantify and, consequently, discuss with European countries’ citizens and governments today.

I believe we rose to the challenges, and I consider the year 2016 successful in the global context. First, and this is crucial, we maintained ČEZ’s position in the European market. Financially, we are one of the healthiest energy companies in EU countries, and we can quickly adapt to trends—both negative and positive. We do everything to meet our shareholders’ key expectations: we maximize our potential for dividend payment through efficient performance; we deal with matters related to ensuring Czechia’s energy safety and self-sufficiency, including the matter of new nuclear facilities; and we also gradually implement our development strategy in order to secure future sources of dividend. Furthermore, we made considerable advancements in improving our production efficiency—I would like to highlight, for example, the completion of a comprehensive renovation of our Prunéřov brown coal-fired power plant or enhanced flexibility in hydropower deployment. We have also been growing in neighboring markets, for instance, in wind parks in Germany. I am personally very pleased by how we also manage to take up opportunities in decentralized energy. Through ČEZ ESCO, we are on the path toward becoming the leader in providing a comprehensive energy solution to both private and public entities in Czechia. Abroad, we focus on Poland, Germany, and Slovakia.

In the context of developments in the energy market, we remain one of a few stable energy companies in Europe, as confirmed by our high Standard & Poor’s credit rating of A– with a stable outlook.

I would like to mention now several events that were extremely important to CEZ Group in 2016, having the potential to favorably influence its situation and stability in years to come:

  • We obtained an operating license for Unit One of the Dukovany Nuclear Power Plant for an indefinite period of time. We also stabilized the situation resulting from the necessity of weld inspections, which will continue at both nuclear power plants in 2017.
  • We managed to almost completely offset the decline in electricity generation in our nuclear power plants by increased generation in other generating facilities in Czechia.
  • We continue to prepare projects for the construction of new nuclear units at both contemplated sites in line with the government strategy. We spun off these processes into newly established companies to suppress potential risks for CEZ Group.
  • We made many important investments; we completed the comprehensive renovation of the Prunéřov Power Plant (with an installed capacity of 750 MW e ) and we made major investments in distribution networks to allow connecting not only new customers in, for example, industrial zones or newly inhabited communities.
  • We made an important agreement with Sokolovská uhelná concerning a new contract for brown coal deliveries until 2025, the sale of our Tisová Power Plant to Sokolovská uhelná and both parties’ commitment to take every step necessary to end all mutual lawsuits and legal proceedings.
  • In renewable sources of electricity, we entered the promising German market by acquiring several wind parks with a total installed capacity of almost 100 MW.
  • During the year, we offered residential end-use customers new products and services such as tailor-made heat pump installations, gas boiler replacements and inspections, rooftop photovoltaic installations, or a top-level battery system made by sonnen.
  • Thanks to ČEZ ESCO’s activities, we began gaining prominence in energy services and solutions for corporate customers and municipalities, specifically in the delivery of tailor-made energy systems, including financing, from cogeneration units and heat management systems to public and enterprise lighting to comprehensive EPCs to provide energy savings.

I assume that the energy market will continue to be affected by low commodity prices and persisting regulatory uncertainty in 2017. In such an environment, we will necessarily have to discuss with our shareholders which of the goals that are naturally conflicting in some aspects CEZ Group should give priority to and what the best path to meeting our shareholders’ expectations will be. It remains our task to take care of the traditional energy segment, that is, our nuclear, coal-fired, and hydroelectric power plants. Stability of this segment will allow us to accelerate the development of our business in the new energy segment. This includes in particular renewables, comprehensive customer care, and above all promising, smart energy solutions, which I believe to be the future of the energy sector as a whole, as well as the future of CEZ Group.

Daniel Beneš
Chairman of the Board of Directors and Chief Executive Officer, ČEZ, a. s.


Dear shareholders,

Please allow me to start with a brief reflection on the development of the whole energy sector. What we have been advising of for several years is proving true: changes in the energy market are having a massive impact on Europe’s traditional energy companies, including CEZ Group. Technological advancement, but especially public support, have ignited quick development of renewable energy sources in Europe. A major role in the development is played by Europe’s regulatory environment. There are stricter demands on emission reduction and the efficiency of power generation facilities. The process of energy decentralization forges ahead as customers’ orientation is changing toward comprehensive services, making use of energy auto-production. Small, midsize, and large consumers are turning into producers as well, becoming “prosumers”. What does not change, however, is shareholders requesting a stable dividend.

Annual report 2015The trend of declining prices of energy commodities continued. The wholesale price of electricity on the exchange dropped under 30 EUR/MWh during 2015 and even approached the 20 EUR/MWh mark in early 2016. This is a value that was hard to imagine just a few years ago and that even poses a threat to the financial stability of a number of European, especially German energy companies. For the most part, this is due to a significant drop in coal and gas prices on global markets resulting from technological development and stagnant demand. Another factor is high support for renewable energy sources in the EU and especially in Germany, our neighbor whose market is closely tied to that of the Czech Republic.

CEZ Group achieved very good financial results in 2015 in spite of all those factors. The 2015 net income adjusted for extraordinary effects, which is the basis for dividend proposal, was CZK 27.7bn. This exceeds original expectations by more than CZK 700m despite a further decline in the realization prices of generated electricity. Positive effects included the refund of a portion of gift tax on CO 2 emission allowances paid for 2011 and 2012 and successful fulfillment of our program of savings and pro-growth measures. By contrast, negative effects on the results were derived from a loss of income due to unscheduled outages at the Dukovany Nuclear Power Plant and extended regular outages at the Temelín Nuclear Power Plant. CEZ Group managed to cut fixed operating costs by CZK 2.9bn in 2015 while increasing its total revenues to CZK 210.2bn, i.e. by 4% year-on-year. This was primarily thanks to increased sales of electricity, gas, and heat to end customers. EBITDA was CZK 65.1bn, decreasing by 10% year-on-year. Still, CEZ Group managed in 2015 to generate operating cash flow CZK 1.9bn greater than in 2014 and cut its net debt by CZK 16bn. In the context of developments in the energy market as a whole, CEZ Group remains one of a few stable energy companies with a very low level of debt, as confirmed by its high Standard & Poor’s credit rating of A– with a stable outlook. We continue to keep our position of a reliable leader in Central Europe’s energy markets and are on the lookout for new opportunities in conventional energy as well as new energy focusing on renewables and decentralized generation.

Back in 2014, we presented an updated strategy for CEZ Group, which was a reaction to the changes and trends in the energy market and which we have been successfully implementing. Developments in the European energy sector in 2015 fully confirmed the legitimacy of ČEZ’s conservative financial policy and the correctness of the updated strategy oriented toward operational efficiency, modern decentralized energy, and end customers. In 2015, we strengthened and rearranged our internal capacities and resources toward development activities and defined our strategic financial ambitions for 2020. Together with that change we bolstered segment management. We rearranged our capacities based on lines of business, replacing the previous country- based arrangement. This made each business segment directly responsible for results achieved across all countries we operate in. The objective of the Operations team, led by Martin Novák, Vice-Chairman of the Board of Directors, is to continually improve efficiency and flexibility in the operations of traditional assets, improve the internal efficiency of the whole CEZ Group, and contribute an additional CZK 3bn to EBITDA by 2020. The task of the Development team, led by Tomáš Pleskač, a member of the Board of Directors, is to ensure future growth for CEZ Group based on decentralized energy and renewables, expand the portfolio of innovative products and services for end customers, carry out acquisitions and investments in the Czech Republic and in countries with a stable regulatory environment, and contribute an additional CZK 6bn to EBITDA by 2020

I consider it highly positive that CEZ Group is successfully fulfilling one of the main pillars of its new strategy, namely developing new products and services tailored to our customers’ changing requirements. Examples include the sale of CHP units, where we are the Czech market leader, our offer of energy services, or turnkey deliveries of smart energy solutions, including our “Rooftop Photovoltaics” and “ČEZ WITHOUT WORRIES” products. Our customers appreciate this, as confirmed by customer satisfaction increasing from 77% to 84%. We closely watch developments in innovations. We want to participate in technological advancement and benefit from the opportunities it offers. In 2015 we announced our entry into German technology companies Sonnenbatterie and SunFire. This is the type of investment we are seeking intensively and plan to keep on making.

In view of the development of the European energy market, 2016 will be another year highly affected by low prices of energy commodities and regulatory developments. Therefore, our main task remains to be the protection of ČEZ’s key value, namely conventional power, based on electricity generation at coal-fired, nuclear, and hydro power plants. In the long term, however, CEZ Group’s development activities in new energy, smart distribution grids, and the sale of comprehensive services will be no less important. CEZ Group is ready to invest a total of CZK 50–60bn in this strategy in 2016–2020.

Daniel Beneš
Chairman of the Board of Directors and Chief Executive Officer, ČEZ, a. s


Dear shareholders,

I am happy that I can start the summary of our past year with positive news. The market capitalization of ČEZ, i.e. the value of shareholders’ stake in ČEZ’s assets, grew by CZK 35.3bn in 2014. That’s an increase of 12.6% in the same year that the Czech PX stock exchange index decreased by 4.7%. EBITDA amounted to CZK 72.5bn, which is two billion above the original expectations despite climatic conditions unfavorable to our business and despite negative developments in the regulation of the energy sector in 2014. We generated CZK 29.5bn of net income adjusted for extraordinary effects.

Annual report 2014The good results were driven in particular by the successful start of an ambitious program of savings and active growth measures throughout CEZ Group. The results of this initiative surpassed the expectations of all renowned analysts and substantially helped CEZ Group maintain its high profitability in 2015 despite the ongoing crisis of the European energy sector and uncertainty on the markets that we operate in. Another key contribution was the final end of our dispute with Albania and the signing of an agreement that will bring ČEZ a total of EUR 95m, i.e. a sum similar to its initial investment in the acquisition of the Albanian distribution company.

A significant event of the year 2014, reflecting the developments in the energy market and regulation in Europe, was our decision to cancel the tender procedure for the construction of two new units at the Temelín Nuclear Power Plant, which became economically unreasonable under the existing conditions. However, canceling the tender procedure did not mean scrapping the project as such. Preparations continue, as the Czech government publicly declared the country’s intention to build two nuclear units—one in Temelín and one in Dukovany—and to update the State Energy Policy accordingly and create a National Action Plan for the Development of Nuclear Energy. These strategic documents will have a profound influence on the direction taken by the Czech energy sector in the next decades including the execution dates of nuclear projects. The future of CEZ Group will also be affected by a new tariff system in distribution, which should create fairer and more transparent conditions and increase customers’ motivation for responsible management of energies in the Czech Republic.

However, let’s now move from local to European events, which I personally consider even more important as we are operating on an open market, which is subject to EU rules. At the EU level, we are discussing key documents that will substantially affect the future of CEZ Group as well as the entire Czech and European power sector in the next decades. Naturally, debates in Brussels were dominated by the formation of the EU’s climate and energy targets for 2030. As a proud member of the group of Europe’s leading energy companies, we took an active part in negotiations on the final form of the EU’s energy targets. Allow me to say that thanks to rational and transparent dialog, we managed to reduce many risks resulting from some unrealistic expectations and intentions, which might have an adverse effect not only on our business but also on the security of electricity supplies and the competitiveness of the entire European economy. We welcome the EU’s 2030 energy framework as it brings about a higher degree of certainty and enables continued dialog on business conditions for CEZ Group and Europe as a whole.

Developments in the energy markets and regulation in Europe motivated us to adopt a historic change in our overall corporate strategy. We officially presented our new vision and strategy in 2014, although we had partially fulfilled them earlier. CEZ Group’s strategy for this era, which can be called post-liberal from the perspective of the energy sector, is based on three priorities. Our first priority is to be among the best in the operation of conventional power facilities. We will continue to operate conventional generation facilities, including nuclear facilities, to the best of our abilities, i.e. with the lowest costs and the maximum safety possible, efficiently operate and develop distribution grids, and keep working on improving our internal efficiency and team performance. In 2014, we managed to increase the capacity of the Temelín Nuclear Power Plant, implement safety enhancing measures at the Dukovany Nuclear Power Plant, reduce emissions from coal-fired plants, and significantly improve our overall internal efficiency. Our active measures concerning both costs and revenues helped us improve our 2015 EBITDA outlook by CZK 6.4bn in comparison to our original business plan.

Another of our strategic priorities is developing a pro-customer approach, which consists in offering quality and innovative services and products focusing on the energy needs of our end customers. We can see great potential in the development of advanced, decentralized energy. We are planning to increase our share in the market of small cogeneration plants and pursue business in intelligent energy solutions. And we will be able to deliver to our customers products such as rooftop photovoltaic panels or heat pumps on a turn-key basis including financing and subsequent equipment maintenance. At the same time, we support and have prepared ourselves for the expected growth of electromobility.

It is our objective to stay among the top ten European energy companies, so the third priority of our new strategy is strengthening and consolidating CEZ Group’s position in Central Europe. We have the lowest debt among Europe’s large energy companies, so unlike our competitors we have room for considering acquisitions. We aim at acquisitions in Central European countries that are culturally and economically close to us. When evaluating specific acquisition opportunities, however, we will continue applying a conservative financial policy and carefully evaluate the course of European energy regulation.

Fulfillment of our new strategy is a long-term task, but the financial results we achieved, the active action we took, as well as the price of the Company’s shares, which grew in 2014, prove so far that we are heading in the right direction and that we can effectively withstand negative external factors better than a number of large energy players in Europe.

I believe that the strength of our 26,000 employees will enable us to gradually fulfil our new strategy, creating a modern, innovative energy company that will provide our shareholders with a stable and high dividend as well as long-term growth in the Company’s value.

Daniel Beneš
Chairman of the Board of Directors and Chief Executive Officer of ČEZ, a. s.


Dear shareholders,

While summing up and briefly evaluating the past year might seem like an easy task, it is not possible in a mere introduction even to mention everything that made a difference – just because so much happened at CEZ Group in 2013. The reason for this is that 2013 was another challenging time for the power market in Europe and we had to actively respond to the situations that arose. I dare say that, despite all the difficulties we had to face, we can consider the past year a successful one from CEZ Group’s perspective. CEZ Group posted net income of CZK 35.2 billion; measured by return on equity, this represents a net return on equity of 14.1%.

Annual report 2013The European power industry is in a deep crisis. Overall, electricity prices for customers and companies in Europe are steadily growing, due in particular to massive, guaranteed support for renewable sources. On the other hand, wholesale electricity prices have been declining significantly for a number of years now, as electricity generated from renewable sources (which does not compete in the marketplace) displaces the output of conventional power plants. This, combined with the overall uncertainty surrounding power industry regulation in Europe, is causing businesses to severely limit new investment in power sources, regardless of type. As a result of the ongoing deterioration of business conditions in the power industry, all the large utilities in Europe are having difficulty achieving a positive return on a portion of their assets. To address this, they have had to recognize considerable impairment losses on property, plant and equipment, which has further exacerbated the decline in their profits. From 2010 to September 2013, leading European utilities recognized impairment allowances and write-offs on 3–16% of their fixed assets, representing tens or even hundreds of billions of Czech Korunas. In the case of CEZ Group, the figure was just 2.7%, and that includes the last quarter of 2013.

CEZ Group is weathering the European power industry crisis better than its competition in terms of financial stability, as well. As one of few European utilities, we have managed to keep our indebtedness within prudent limits, and this is confirmed by our credit rating from Standard & Poor’s, which remains at A–, its highest level ever. We accomplished this not only by leveraging our competitive generation portfolio, but also through timely identification of threats, active implementation of measures, and, in particular, ongoing adaptation of our growth strategy to our financial means in accordance with our conservative financing policy. We are responding to energy market turbulence primarily by optimizing our portfolio, putting emphasis on internal efficiency, and developing new growth opportunities.

In 2013 we took a number of crucial steps that will contribute substantially to the future stability of ČEZ and of coal and electricity markets in the Czech Republic. The first is a long-term agreement on supplies of coal for Počerady Power Station. The second was the successful sale of the Chvaletice power plant, which had the additional benefit of ending a European Commission investigation – which had gone on for years – through a settlement agreement. I am pleased to report that we managed during the past year to further increase the output of our nuclear power plants and, at the same time, reaffirm the high level of our safety management in the OSART CORPORATE review carried out by the International Atomic Energy Agency.

We also made progress in developing new business opportunities and jump-started a very aggressive program to increase CEZ Group’s customer focus. We successfully entered a completely new market for us – mobile services – where we very quickly acquired nearly 54,000 customers by the end of March 2014. In the Czech Republic, we reinforced our positions as the leader in the small-scale cogeneration market and the biggest alternative natural gas supplier. Through major acquisitions, we are developing our domestic operations in the traditional district heat market.

CEZ Group also demonstrated its social responsibility. In the interests of ensuring safety and the security of electricity supplies, we became part of a joint initiative by major European power utilities that aims to contribute to finding a solution to the industry’s current crisis. Together, we want to help renew a functional power market and restore a level playing field for investment in new power sources in Europe. We consider this aim to be extremely important, not only for our energy sector, but for the entire European economy and its competitiveness, which we believe is a necessary precondition for lowering Europe’s high unemployment rate.

An important indicator of the power sector’s further development will be provided by the debate, within the European Union, on Europe’s climate and energy policy until the year 2030. This is a process in which we intend to play an active role in 2014, within the framework of the joint initiative of European utilities. We will continue to pursue our ambitious greenhouse gas emissions reduction goals, but in a way that will not damage the electricity market and will prefer competitive, low-emission power sources. In conclusion I would like to assure you, dear shareholder, that in the past year we capitalized on CEZ Group’s potential to ensure long-term growth in shareholder value in the most effective way possible under the conditions that prevailed in the power market. I am confident that our strong team of nearly 27,000 employees will continue to drive our success in future years, as well.

Daniel Beneš
Chairman of the Board of Directors and Chief Executive Officer, ČEZ, a. s.