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.
Chairman of the Board of Directors and Chief Executive officer of ČEZ, a. s.
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.
The 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
Chairman of the Board of Directors and Chief Executive officer of ČEZ
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.
First, 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.
Chairman of the Board of Directors and Chief Executive Officer, ČEZ, a. s.
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.
CEZ 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.
Chairman of the Board of Directors and Chief Executive Officer, ČEZ, a. s.
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.
The 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.
Chairman of the Board of Directors and Chief Executive Officer, ČEZ, a. s
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.
The 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.
Chairman of the Board of Directors and Chief Executive Officer of ČEZ, a. s.
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%.
The 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.
Chairman of the Board of Directors and Chief Executive Officer, ČEZ, a. s.
By way of introduction, I would like to assure you that ČEZ’s principal objective is – and will continue to be – to maximize and secure long-term growth in shareholder value. However, the conditions for meeting this objective are getting more and more difficult from one year to the next.
The European energy industry is going through a difficult period and has become a sector where words like “security”, “stability”, and “simple rules” may no longer apply. Nearly all big European utilities are under a lot of pressure as they face a number of common factors, most of them unfavorable. These factors go far beyond the prolonged debt crisis in the European Union and the related sluggishness in the economies of most European countries. They are now being joined by growing regulatory interventions at both the pan-European and national levels, in the form of massive growth in subsidized renewable power sources, shifts in the stance on nuclear energy in major European Union countries, a languishing emission rights system, and substantial declines in the prices of energy commodities – reflecting in particular growth in shale gas extraction in the USA. Together, these factors are bringing about a long-term decline in electric power prices, which are currently at levels last seen in 2006, and limiting the resources that less-developed European countries, in particular, can dedicate to making necessary investments in distribution grid operation and maintenance.
Despite these negative factors, CEZ Group managed a solid financial performance in 2012, nearly matching the previous year’s level. CEZ Group net income reached CZK 40.2 billion in 2012, while EBITDA exceeded CZK 85.5 billion. That’s down just 2% year-on-year, despite the major negative impact of losses associated with unprecedented actions of the Albanian government against the country’s distribution company, leading to a loss of CEZ Group control over the company.
As one of few European utilities to do so, we maintained our credit rating from Standard & Poor’s at A– with stable outlook. The Company’s overall financial stability, strong liquidity position, and investor trust is also attested to by the successful placement of a CZK 1 billion, USD-denominated bond issue in the American market. This was the first ever corporate issue in the U.S. Dollar market under Rule 144A of the Securities Act of 1933 (USA) not just in the Czech Republic, but in the entire region. A portion of the issue (USD 300 million) has a maturity of 30 years, making it the issue with the longest maturity in Central and Eastern Europe, issued under the demanding terms of the most liquid bond market in the world, and the interest rates achieved are close to the levels commanded by the highest-rated Western European utilities.
CEZ Group’s position amongst successful utilities is also documented by a number of global rankings. For example, in the Platts TOP 250 survey, ČEZ improved its position in the Europe, Middle East, and Africa (EMEA) region by three notches, coming in fourth just behind Enel SpA, Iberdrola S.A., and Électricité de France S.A. Worldwide, we continue to occupy seventh place. In the CE TOP 500 ranking by Deloitte, ČEZ is the most valuable power company in Central Europe – a position we held in previous years as well.
What did we do to maintain financial performance and prevent a weakening of the Company’s position? In response to unfavorable economic developments and the deteriorating business environment in Europe, over the past few years we have undertaken a number of countermeasures aiming to stabilize and mitigate CEZ Group’s risk profile. In view of the persistent risk of further declines in the price of electric power, we are diversifying our asset structure to leverage business opportunities in price-regulated segments. In sales, we fix our margins by selling larger volumes of electricity several years in advance, as well as through long-term contracts expiring in 2020. We are developing sales of natural gas and rolling out new products. On the expenses side, we are emphasizing internal efficiency through initiatives such as the creation of shared service centers in support, distribution, and customer services.
For me, the conclusion of an agreement with Czech Coal Group on long-term supplies of coal for Počerady Power Station is an important milestone. This agreement marks a fundamental advance in the strategic area of securing fuels for ČEZ power sources, as well as for the future of the Počerady site.
Over the past few years we have worked intensively to increase power plant output, efficiency, and reliability, particularly at the nuclear plants, as they are the pillars of our production base. Two key projects, SAFELY 16 TERA for Dukovany and 15 TERA for Temelín, are already bearing fruit. In 2012, both nuclear power plants broke their previous electricity generation records to grow power output by a total of 2 TWh (+7%) year-on-year – all under safety measures that are getting stricter and stricter. 2012 was a year of plant inspections conducted in response to the events at the Fukushima nuclear power plant in Japan. Both of our nuclear plants passed a series of stress tests, demostrating resistance to extreme natural influences and the capacity to withstand even very grave situations without threatening their surrounding areas. Based on the experience and lessons of the Fukushima nuclear power plant accident, certain requirements were identified for further increasing the resistance of nuclear power plants, particularly in conjunction with extreme natural phenomena. Yet still, we will continue to improve them because safety has always been, and always will be, our first priority.
2012 also saw continuation of the comprehensive renewal of selected coal-fired power plants in the Czech Republic with the aim of operating only highly efficient sources with the lowest possible emission factors. The upgrade of Tušimice Power Station was completed in June, the construction of a new, Czech coal-fired power source in Ledvice is continuing in accordance with an updated timeline, and the retrofit of Prunéřov II Power Station got underway following a protracted approvals process. We entered into a contract on the sale of Chvaletice Power Station, bringing us closer to fulfillment of a proposed settlement with the European Commission.
In the area of electricity and natural gas sales to end customers, our company ČEZ Prodej is successfully holding its position as the electricity market leader in all customer segments, despite growing competition. In gas sales, early last year the company became the biggest alternative supplier. Compared with 2011, the number of connection points served increased by 86%. In line with the strategic objective of diversifying CEZ Group assets, 2012 saw the completion of the acquisition of Energotrans, bringing about a major increase in our market share in heat. We also made progress in the regional energy initiative, in the areas of microcogeneration, environmentally-friendly utilization of waste, and biomass. ČEZ’s position in renewable energy sources grew substantially, especially at the international level as we completed construction of the largest onshore wind farm in Europe with 600 MW total installed capacity. The last, 240th turbine at the Fântânele and Cogealac site in Romania was connected to the grid on exactly November 22, 2012, the previously announced completion date. We are also developing other plans in Poland. However, we will support only those projects that offer attractive returns with acceptable risk profiles.
At the very top of ČEZ’s priority list for future development is to lay the groundwork for construction of, and selection of a contractor for, two new reactor units at Temelín Nuclear Power Station. On July 2, 2012 we received bids from three qualified contractors. Due to its failure to meet required criteria, however, Areva had to be disqualified. As a result, just two consortia – the U.S.-Japan Westinghouse and the Czech-Russian MIR 1200 – are continuing in the tender, which is the only one in the world conducted according to the strict terms of the Public Procurement Act. And while a team of specialists is working very intensively to assess the bids, preparations for the permit and licensing process are going forward according to plan. We applied to the State Office for Nuclear Safety for a building permit and, in January 2013, the Ministry of the Environment of the Czech Republic issued a positive opinion within the Environmental Impact Assessment (EIA) process for the two new units. I can report that we are fully aware of the importance and risk of this investment decision for CEZ Group, as we are that the current situation in Europe is not favorably inclined toward the construction of any new nuclear power source purely on a market basis. My principal tasks for 2013 are to ensure that the conditions for building the new nuclear source are the best possible, and prepare top-quality materials for the shareholders to make a decision on the further course of action in this key ČEZ project.
I have mentioned above the loss that affected the 2012 results ensuing from developments in Albania, and later in this Annual Report you will read what legal steps the Company is taking to ensure that the loss is not permanent. In early 2013, ČEZ’s equity holdings in Bulgaria came under pressure as well. In both cases, baseless and unjustified allegations are being leveled at CEZ Group. Regardless of what further developments take place in these countries I am confident that, in the end, CEZ Group will defend its actions and investments, though it be forced to take legal action to do so. In conclusion allow me, dear shareholders, to share my conviction that the measures we are taking, such as modifying the risk profile and exerting sustained pressure toward improving internal efficiency through cost-cutting, are the way to navigate CEZ Group through the current period of challenges in the power sector.
Chairman of the Board of Directors and Chief Executive Officer of ČEZ, a. s.
Allow me to address you once again after a year, but for the first time as Chairman of the Board of Directors and Chief Executive Officer of the Company, in this section of the CEZ Group Annual Report. In introduction, I would like to assure you that ČEZ’s intent is and will continue to be to bring shareholders the highest possible return on their investment, even though the energy sector is laboring under the economic and debt problems of the Eurozone countries. When I took over leadership of ČEZ in September we were in good, stable shape and, despite the adverse external conditions, CEZ Group posted solid financial performance results for the year 2011.
Net income of CEZ Group reached CZK 40.8 billion in 2011, while operating profit before depreciation and amortization (EBITDA) exceeded CZK 87.3 billion. Although the 2011 operating results are 1.7% lower than in 2010, in the end ČEZ delivered a higher than expected net income. Another very positive signal is the fact that ČEZ, as one of few power utilities to do so, managed to maintain its credit rating throughout 2011, reflecting the Company’s overall financial stability. The results justified our long-term focus on CEZ Group internal efficiency. This imperative is something that we also demand of our international companies as their contribution to the overall CEZ Group results continues to grow. Thanks to the fact that all our international acquisitions meet or exceed their expected rates of return, their cumulative EBITDA at year-end 2011 covered 70% of capital expenditures. The average annual rate of return on CEZ Group international acquisitions is now 17.6% (in terms of operating profit).
In 2011 we put a lot of effort into fine-tuning CEZ Group’s strategy to address rising uncertainty concerning the future economic development and business environment in Europe.
In addition to the Eurozone debt crisis and the risk of recession in Europe, another significant factor bringing fundamental uncertainty into all ČEZ decision-making processes is the future of European Union regulation in the power industry. The entire energy sector is going through a period of turbulence and long-term investments are subject to extreme levels of uncertainty.
Due to this situation, in the last decade construction of power plants – other than renewables – practically ground to a halt in European Union Member States. The track record to date, however, clearly confirms the opinion of energy professionals that renewable sources in their current form cannot cover energy needs. For the time being, then, conventional plants play a crucial role in the energy mix because they generate electricity regardless of the weather, enabling them to absorb deviations in output from renewable sources. The United Kingdom, which in the past has utilized its geographic position and invested massively in renewable sources in general, and wind power plants in particular, came forward with a comprehensive energy sector support package focused, among other things, on building new nuclear power plants.
Nuclear power is a very important part of the energy mix, both in the Czech Republic and in Europe as a whole. If it were to be partially or fully replaced, an alternative source of baseload power would need to be found. Renewables cannot be that alternative, and what’s more their feasibility relies on massive subsidies. More likely it would be a combination of increased generation from natural gas and a renaissance in power generation from coal. Reducing CO2 emissions – something the European Union has pledged to do – would in all likelihood become more difficult, and it would become even more urgent to develop and roll out solutions for capturing and storing carbon dioxide from coal-fired power plants, regardless of the effect this would have on electricity prices.
A common thread that runs through the entire CEZ Group strategic decision-making process is the question of the future direction of energy sector regulation in the European Union. Here, the decisive factors will be how, and to what extent, to support renewable sources, and how, and over what time period, will CO2 emissions be regulated. These two factors will have a major impact on the competitiveness of European utilities and on prioritization of investments in the energy sector. Another fundamental question is what requirements will be placed on the operation and construction of nuclear power plants in Europe in the wake of the natural catastrophe in Japan and Germany’s unprecedented decision to prematurely close down selected nuclear power plants.
In autumn 2011, we updated the CEZ Group strategy to take into account the range of possible responses to these issues. We vetted 15 possible scenarios and selected the seven most probable. For each of these seven scenarios, we modeled how CEZ Group’s cash flow and value would develop. At the same time, we analyzed the energy needs, conceptual priorities, and capacity of the Czech Republic, which as a European Union Member State is a part of the regional market. Based on our comprehensive assessment, we selected a strategy that we are convinced will be the best in all the scenarios under consideration, and will ensure CEZ Group has the financial strength and stability necessary to successfully build a new nuclear power source in Temelín.
So, the development of nuclear energy and, primarily, the construction of new generating units at Temelín Nuclear Power Station, is at the forefront of our strategic objectives. In 2011, we made substantial progress in our preparations when, in late October, we distributed a call for bids and Request For Proposal (RFP) documentation to qualified parties interested in completing the power plant. This is the biggest tender, not just in ČEZ or the Czech Republic, but within all of central Europe. More, it is the only nuclear power plant tender in the world that is subject to public procurement laws, underlining the transparency of the whole process.
Concerning nuclear power, I should add that both existing nuclear power plants successfully underwent comprehensive “stress tests”, which the countries of the European Union agreed to do in light of the consequences the natural catastrophe in Japan had on the plant in Fukushima. I am pleased that the positive results of these comprehensive tests confirmed long-term assessments from relevant national and international institutions. Both plants are built to withstand even extreme natural forces with a large margin of safety, and are located in areas that are extremely favorable in terms of seismic activity and climate. The result of the stress tests also confirmed that our philosophy of taking an active approach to nuclear power plant safety, in which we continually vet and improve plant parameters, is the right one.
CEZ Group has a broad portfolio of generating facilities and our development plans call for its further diversification. We will focus on resolving relations with coal suppliers and on securing sufficient fuel for operating our coal-fired power plants. We also anticipate continued development and use of biomass and other alternative fuels to ensure the maximum possible increase in the value of our conventional installations. Closely related to this is our emphasis on regional power, with increased investment in district heat and cogeneration, including the search for environmentally-friendly ways to utilize waste in the energy industry.
The updated strategy reaffirms our priority focus on the Czech Republic in our business operations. Going forward, we intend to expand only those international projects that are highly profitable and relate to renewable sources – particularly wind power installations with short payback periods that will help us to obtain stable future cash flows and thereby enable us to implement the chosen development strategy. Currently, we have renewables projects either in operation or in the implementation phase in Romania and Poland.
In conventional power, we are already retrofitting those coal-fired power plants for which we have secured sufficient coal for their future operations. In 2011, we made major progress in all the coal plant retrofit projects, as well as in building a new installation in Ledvice. We also commenced construction on a large CCGT power plant in Počerady and the Egemer CCGT installation in Turkey. We are increasing the efficiency of our existing hydro power plants as well. Through the FUTUR/E/MOTION program, we are also involved in the “new power” area – cogeneration, distributed generation of power and heat, electromobility, and smart distribution grids.
In addition to the strategic priorities discussed above, we will continue – both this year and in the years to come – to take measures designed to maximize the internal efficiency of CEZ Group.
Although the forecasts for this year show only modest growth potential, we are confident that we will post good results in 2012 for you, our shareholders.
May you, too, have a successful 2012.
Chairman of the Board of Directors and Chief Executive Officer of ČEZ, a. s.
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, 2010, the Czech Republic remained the company’s largest shareholder with a nearly 70% stake in the stated capital.
A crucial part of CEZ Group’s mission is to maximize the return on investments in the Group, and ensure long-term growth in shareholder value. To this end, CEZ Group is directing its efforts toward fulfilling its vision of becoming the leader in the electricity market of Central and Southeastern Europe. At the same time, however, CEZ Group upholds the principles of sustainable development, supports energy conservation, brings new technologies to bear, systematically reduces the environmental burden posed by its business, and furthers the development of education, childcare, and health. In its internal operations, CEZ Group emphasizes continual improvement in efficiency, and repeatedly expresses that emphasis by successfully implementing specific programs focused in this direction. Following the completion of the previous program, a new project – entitled “NEW VISION” – was launched in September 2010, reflecting the current power industry reality following the economic crisis. That reality led CEZ Group to reassess its program of capital expenditures and adapt it to the current state and near-term forecast of the company’s resources. The aim of the newly launched program is to increase performance and improve the cost effectiveness of key processes in the upcoming period of stabilization and consolidation. Extraordinary emphasis is being placed on preserving and further utilizing key knowledge assets. In the Czech Republic, CEZ Group companies generate and distribute electricity and heat, engage in electricity trading, mine coal, and supply natural gas. CEZ Group is also developing operations outside the Czech Republic, focusing in particular on the markets of Central and Southeastern Europe, where we can apply our unique expertise in managing an electricity conglomerate during a period of transition to a liberalized power market and leverage our know-how. CEZ Group focuses primarily on markets where it already has some form of operations, as well as on the renewables sector. Outside the Czech Republic, CEZ Group currently has actively operating companies in Albania, Bulgaria, Romania, Poland, the Netherlands, Bosnia and Herzegovina, Germany, Hungary, Turkey, Serbia, and Slovakia. In Albania, CEZ Group operates the country’s sole distribution company. In Bulgaria, CEZ Group distributes and sells electricity in the western part of the country and generates power in its own coal-fired power plant near Varna, the Black Sea port city. In Romania, CEZ Group engages in distribution and sale, operates the Fântânele wind farm and, nearby, is building the Cogealac wind farm. In Poland, two black coal-fired power plants near the country’s border with the Czech Republic are part of CEZ Group. In Germany, the Group co-owns – with a partner – a brown coal-mining company that includes coal and wind power plants. In Turkey, CEZ Group and its local partner operate a distribution company, generate electricity, and are preparing to build new power plants. In Slovakia, CEZ Group sells electricity and natural gas to end customers and is teaming with a local partner to build a new nuclear power plant at the Jaslovské Bohunice site. Companies in the remaining countries carry on electricity wholesale operations, function as holding companies, or engage in financing activities. Throughout Central and Southeastern Europe, CEZ Group engages in wholesale trading in electricity and natural gas.
To ensure the CEZ Group’s business continues to be successful in the future, it is necessary to renew the generation portfolio. CEZ Group is investing, and will continue to invest, significant sums in upgrading aging Czech brown coal power plants and building new, high-efficiency plants in the Czech Republic. In 2010, CEZ Group expanded its generation mix by adding solar power plants. The first containers were successfully installed in the newly-built spent fuel storage facility in Temelín. Power plant upgrades and new power plants are also planned in Hungary, Germany, Turkey, and Slovakia.
CEZ Group is bravely embracing the technologies of the future. Together with a major European automaker, we have struck a deal to implement a pilot project focused on developing electromobility (electric cars) in the Czech Republic. Some of the new electric cars will be tested in the Vrchlabí area, where CEZ Group’s “Smart Region” project is currently underway, focused on building an area covered by a “smart distribution grid”. Several new-build CHP (combined heat and power) projects are currently in various phases of implementation. Other CAPEX projects are dedicated to research and development, environmental protection, and energy conservation.
The CEZ Group has a performance-oriented corporate culture. We operate our plants to the highest possible safety standards. At the same time, however, our business operations adhere to strict ethical standards, which include behaving responsibly toward local communities, society, and the environment. CEZ Group is a major supporter of a number of non-profit organizations and public-benefit projects.