CEZ's Consolidated Quarterly Report on Operational, Economic and Financial Results for 1st Half 2003, in accordance with IFRS
Main Features
- As widely expected the lower net income (CZK 11.7 bn) according to IFRS results from a different valuation of the costs associated with the sale of the 66% equity stake in ČEPS.
- The New ČEZ Group was set up on 1 April 2003 with the purchase of shares in distribution companies and the sale of a majority stake in ČEPS; including 5 majority owned regional distributors the Group consists of 95 companies; consolidated results comprise 31 companies, of which 21 are fully consolidated and 10 are consolidated by the equity method.
- ČEZ annual general shareholder meeting approved a CZK 4.5 per share dividend.
- ČEZ Group total electricity generation grew by 14.5%; contributing to this figure was generation in nuclear power stations (up 31.4%) and in fossil power stations (up 8.1%).
- ČEZ Group turnover totaled CZK 35.7 bn, which is CZK 8.9 bn higher than in 1st half of 2002 due to the establishment of New ČEZ Group as well as higher electricity sales both in the Czech Republic and abroad.
- ČEZ Group market share increased in year-on-year terms from 61.7% to 82.1%, also due to the establishment of the ČEZ Group.
- Electricity demand in the Czech Republic reached 27.9 TWh, which represents a year-on-year increase of 2.3%.
- Unit Two of Temelín was put into commercial operation on 18 April 2003.
- Starting in September 2003, ČEZ Group introduces new logo and corporate identity.
- Project "REAS" was put on track. Purpose: to take advantage of synergies within the ČEZ Group.
| Income Statement in Accordance with International Financial Reporting Standards | June 30, 2003 | June 30, 2002 | Index 03/02 | |
|---|---|---|---|---|
| CZK m | EUR m | CZK m | ||
| Operating revenues | 35,740 | 1,132 | 26,888 | 132.9% |
| Operating expenses | 29,332 | 929 | 19,945 | 147.1% |
| Fuel | 7,287 | 231 | 6,207 | 117.4% |
| Purchased power and related services | 6,900 | 219 | 3,812 | 181.0% |
| Depreciation and amortization | 7,518 | 238 | 5,042 | 149.1% |
| Operating income | 6,408 | 203 | 6,943 | 92.3% |
| Other expenses (income) | -10,432 | -330 | -1,235 | 844.7% |
| Income before income taxes | 16,840 | 533 | 8,178 | 205.9% |
| Income taxes | 5,177 | 164 | 1,466 | 353.1% |
| Net income | 11,710 | 371 | 6,712 | 174.5% |
| Unit | June 30, 2003 | June 30, 2002 | Index 03/02 | |
|---|---|---|---|---|
| Earnings per share (EPS) | CZK | 19.8 | 11.4 | 174.5% |
| Price/earnings ratio (P/E) * | 1 | 4.6 | 5.7 | 80.9% |
| Return on equity (ROE) net * | % | 9.1 | 6.5 | 140.8% |
| Return on total assets (ROA) net * | % | 5.1 | 3.9 | 130.1% |
| Assets turnover * | 1 | 0.25 | 0.24 | 103.6% |
| Total indebtedness (provisions excluded) | % | 32.9 | 27.3 | 120.5% |
| Long-term indebtedness | % | 12.7 | 16.0 | 79.1% |
| * For the last 12 months |
Revenues, Expenses, Income
The structure of ČEZ Group significantly changed on 1 April 2003. This change is reflected in this report as follows: the first half 2003 financial figures consist of first quarter 2003 numbers for the old structure of the ČEZ Group (ČEZ plus 3 companies only) and second quarter 2003 numbers for the New ČEZ Group, i.e. fully consolidated data for ČEZ and 20 companies (4 of which are distributors – SME, STE, VČE and ZČE – see list at bottom of next page) and a portion of the earnings of 10 affiliated companies determined using the equity method (see ČEZ Group web site). The financial figures for the same period of 2002 are for the old structure. The non-financial figures presented herein, on the other hand, are for ČEZ and 20 fully consolidated companies mentioned above, and they cover the entire first half of 2003. Thus, the 2003 financial and non-financial figures disclosed herein do not have the same base.
ČEZ Group turnover totaled CZK 35.7 bn, which is CZK 8.9 bn higher than in the same period of 2002, mainly due to enlargement of the Group (including sales of electricity by distributors to final consumers) as well as higher electricity sales in the liberalized wholesale market. Net income for the first half of 2003 amounted to CZK 11.7 bn, an increase of CZK 5.0 bn (by 74.5%) in comparison with the same period last year. While EBIT was lower by CZK 0.5 bn, EBT increased by CZK 8.7 bn mainly due to the gain realized on the sale of ČEPS. Operating expenses increased by CZK 9.4 bn (47.1%), mainly as a result of the Group's enlargement (including distributors' activities), as well as depreciation and amortization, as Unit One of Temelín Nuclear Power Station started commercial operation in June 2002 and Unit Two in April 2003. Increased fuel costs are connected with the rise in electricity and heat generation. Other income amounted to CZK 10.4 bn, up CZK 9.2 bn from the same period of 2002. This result was due to the gain on sale of ČEPS (CZK 10.8 bn) and, on the other hand, lower foreign exchange rate gains (by CZK 3.0 bn). Income tax (CZK 5.2 bn) was higher by CZK 3.7 bn (253%) due to a change in methodology – starting in 2003, income tax is determined from current period income, not as prepayments based on the previous year's income tax.
Earnings per share went up from CZK 11.4 to CZK 19.8 due to the increase in net income. The price/earnings ratio decreased from 5.7 to 4.6. Although share price on the Prague Stock Exchange rose by 21.4%, the growth in net income over the past twelve months was even greater - 50.1%. The net return on equity increased from 6.5% to 9.1% due to net income growing faster than equity. The net return on total assets increased from 3.9% to 5.1% as a result of higher net income and lower increase in the average value of total assets. Assets turnover rose from 0.24 to 0.25. Total indebtedness (provisions excluded) increased from 27.3% to 32.9%, which is caused mainly by bills of exchange issued to pay for new acquisitions described below. Long-term indebtedness fell to 12.7% (from 16.0%)
Sales of Electricity
In monetary terms, total sales of electricity, at CZK 33.7 bn, were up CZK 8.1 bn due to establishment of New Group as well as higher electricity sales volume in both domestic and foreign markets. The total amount of electricity sold in the domestic market, at 23,940 GWh, was up 5,773 GWh (31.8%) over the same period of the previous year.
Demand for electri city in the Czech Republic, amounting to 27.9 TWh, increased year-on-year by 629 GWh (2.3%). Industrial consumption increased by 222 GWh (1.4%). Household consump-tion increased by 2.8% over 1st half 2002 and small business consumption rose 5.3% by the same comparison. Heat sales were up 3.5%, the main reason being lower average temperature (by 1.2°C).
ČEZ Group electricity market share increased in year-on-year terms from 61.7% to 82.1%, mainly due to the establishment of New Group. ČEZ power plants increased their share of overall Czech Republic net electricity consumption, too, from 54.8% to 60.4%.
Investment Program
The acquisition of stakes in eight regional distributors was the most important investing activity during the 1st half of 2003. ČEZ acquired majorities in 5 distributors, and minority stakes in other 3. A total of CZK 11.7 bn was spent on acquisitions of subsidiaries and affiliates, and additions to property, plant and equipment amounted to CZK 14 bn. On the other hand, proceeds from disposal of the subsidiary ČEPS totaled CZK 12.2 bn.
Financing
Net cash provided by operating activities increased by CZK 4.0 bn to CZK 13.0 bn (by 43.6%). Total cash used in financing activities decreased by CZK 1.6 bn to CZK 1.3 bn (by 56.2%).
The total price paid by ČEZ for the 8 REAS stakes was CZK 31.9 bn and is being financed as follows: CZK 15.2 bn represents the (new) valuation of the sold stake in ČEPS, CZK 1.8 + 3.7 bn has been settled already and three CZK 3.7 bn bills of exchange will mature from 2003 to 2005.
| Current credit rating for ČEZ: | from Moody’s | - 'Baa1' with a stable outlook, |
| from Standard & Poor’s | - 'BBB+' with a positive outlook. |
Other information
Effective 1 January 2003 the process of opening the electricity market to competition moved forward another step with the addition of entities that consume over 9 GWh per year to the category of eligible customers. This increased the total number of eligible customers from 76 to 341. ČEZ Group now serves 204 (60%) eligible customers.
The Antitrust Office's decision on ČEZ's appeal cleared the way for transferring the shareholdings in the regional distribution companies and ČEPS, which took place on 1 April 2003, thereby commen-cing the process of setting up the New ČEZ Group. ČEZ acquired shareholdings in all the regional distribution companies (five majorities and three minorities). On the other hand, it sold a 66% shareholding in ČEPS, which is the operator of the transmission grid. Under a published decision of the Constitutional Court, ČEZ had to offer buyout of shares from minority shareholders of ZČE and STE. The offer took place and was valid from 2 June till 30 June 2003. It was accepted by significant minority shareholders RWE (STE) and Energie AG Oberösterreich (ZČE), among others.
ČEZ and E.ON signed an agreement on a minority shares swap on 4 July 2003. ČEZ will acquire E.ON's current shares in VČE and ZČE in exchange for its current shares in JME and JČE. The obligatory buyout of shares of VČE and ZČE triggered by this transaction will take place in September. ČEZ also entered into agreement with E.ON concerning an option to buy E.ON's minority shares in distributors SČE and SME, which may be exercised in 2004.
The goal of those transactions is to streamline the management of the New ČEZ Group and make it more effective.
Investors viewed the New ČEZ Group in a positive light, sending the ČEZ share price up significantly from CZK 92.47 (31 December 2002) to CZK 134.74 (August 29), which represents 45.7% growth.
Two power-transmission poles (operated by ČEPS) connecting Prunéřov II Power Plant (1,050 MW of installed capacity) and (in the short term) parts of Prunéřov I and Tušimice II with transmission grid were broken down by storm on August 14. Power failure 1,560 MW was immediately secured from other ČEZ’s sources thanks to greatness and flexibility of ČEZ. Full operation of Prunéřov II thanks to temporary connection to the transmission grid begun at the end of August.
The annual general meeting took place on 17 June 2003. It approved a CZK 4.5 per share dividend and CZK 70 m in donations. One member of the Supervisory Board was changed.
ČEZ signed an agreement with Škoda Praha a.s. on capitalization of ČEZ's CZK 700 m in receivables which will increase ČEZ's share in Škoda Praha up to 68.9%.
List of subsidiaries fully consolidated as of June 30, 2003
| Name of Company | ČEZ share | Name of Company | ČEZ share |
|---|---|---|---|
| CEZ FINANCE B.V. | 100.00% | STMEM | 59.10% |
| ČEZnet | 100.00% | Union Leasing | 59.10% |
| Energetické opravny | 100.00% | Středočeská energetická | 58.30% |
| HYDROČEZ | 100.00% | STE-obchodní služby | 44.40% |
| I & C Energo | 100.00% | Ústav jaderného výzkumu Řež | 52.46% |
| rpg Energiehandel | 100.00% | Východočeská energetika | 50.07% |
| Severomoravská energetika | 59.10% | VČE - elektrárny | 50.07% |
| Energetika Vítkovice | 59.10% | VČE - montáže | 50.07% |
| ePRIM | 59.10% | Západočeská energetika | 50.26% |
| Moravskoslezská elektromontážní | 59.10% | EN-DATA | 50.26% |
| Income Statement in Accordance with International Financial Reporting Standards (IFRS) (CZK m) | June 30 2003 | June 30 2002 |
|---|---|---|
| Operating revenues | 35,740 | 26,888 |
| Sales of electricity | 33,662 | 25,571 |
| Heat sales and other revenues | 2,078 | 1,317 |
| Operating expenses | 29,332 | 19,945 |
| Fuel | 7,287 | 6,207 |
| Purchased power and related services | 6,900 | 3,812 |
| Repairs and maintenance | 1,271 | 1,126 |
| Depreciation and amortization | 7,518 | 5,042 |
| Salaries and wages | 3,249 | 1,927 |
| Materials and supplies | 1,302 | 817 |
| Other operating expenses/income, net | 1,805 | 1,014 |
| Income before other expense/income and income taxes | 6,408 | 6,943 |
| Other expenses/income | -10,432 | -1,235 |
| Interest on debt, net of capitalized interest | 640 | 159 |
| Interest on nuclear provisions | 835 | 749 |
| Interest income | -166 | -78 |
| Foreign exchange rate losses/gains, net | -1,190 | < P align=right>-4,213 |
| Gain on sale of subsidiary | -10,771 | |
| Other expenses/income, net | 700 | 2,381 |
| Income from associate | -480 | -233 |
| Income before income taxes | 16,840 | 8,178 |
| Income taxes | 5,177 | 1,466 |
| Income after income taxes | 11,663 | 6,712 |
| Minority interests | -47 | |
| Net income | 11,710 | 6,712 |
| Cash Flow in Accordance with International Financial Reporting Standards (IFRS) (CZK m) | June 30 2003 | June 30 2002 |
|---|---|---|
| Cash and cash equivalents at beginning of period | 4,225 | 2,280 |
| Effect of change in group structure on openning balance of cash and cash equivalents | 159 | |
| Operating activities: | 13,038 | 9,082 |
| - Income before income taxes | 16,840 | 8,178 |
| - Depreciation and amortization and asset write-offs | 7,521 | 5,052 |
| - Amortization of nuclear fuel | 1,579 | 883 |
| - Foreign exchange rate loss (gain) | -1,191 | -4,213 |
| - Provision for nuclear decommissioning and fuel storage | 250 | 411 |
| - Changes in assets and liabilities | 627 | 1,362 |
| Investing activities | -13,528 | -3,825 |
| Financing activities | -1,279 | -2,919 |
| Net effect of currency translation in cash | -38 | -377 |
| Cash and cash equivalents at end of period | 2,577 | 4,241 |
| June 30 2003 | June 30 2002 | |
|---|---|---|
| Electricity supply from ČEZ Group power plants - net (GWh) | 27,617 | 24,333 |
| Electricity sold by ČEZ Group in the Czech Republic (GWh) | 23,940 | 18,167 |
| ČEZ Group electricity exports (GWh) | 8,941 | 7,733 |
| ČEZ Group electricity imports (GWh) | 411 | 412 |
| Capacity, Employees | June 30 2003 | Dec 31 2002 |
|---|---|---|
| ČEZ Group installed capacity (MW) | 12,275 | 11,146 |
| ČEZ Group number of employees (pers) | 16,985 | 7,677 |
| This report has not been audited. |
| Balance Sheet in Accordance with International Financial Reporting Standards (IFRS) (CZK m) | June 30 2003 | Dec 31 2002 |
|---|---|---|
| Assets | 295,706 | 231,465 |
| Fixed assets | 261,442 | 216,112 |
| Plant in service | 334 ,864 | 242,338 |
| Less accumulated provision for depreciation | 130,094 | 103,355 |
| Net plant in service | 204,770 | 138,983 |
| Nuclear fuel, at amortized cost | 9,608 | 7,931 |
| Construction work in progress | 11,167 | 56,513 |
| Investment in associates | 10,169 | 5,880 |
| Investments and other financial assets, net | 20 ,311 | 5,631 |
| Intangible assets, net | 5,280 | 1,174 |
| Deferred tax assets | 137 | |
| Current assets | 34,264 | 15,353 |
| Cash and cash equivalents | 2,577 | 4,225 |
| Receivables, net | 18,787 | 4,117 |
| Income tax receivable | 3,209 | 1,994 |
| Materials and supplies, net | 3,520 | 2,464 |
| Fossil fuel stock | 682 | 618 |
| Other current assets | 5 ,489 | 1,935 |
| Shareholders´ equity and liabilities | 295,706 | 231,465 |
| Shareholders´ equity | 153,438 | 143,675 |
| Stated capital | 59,051 | 59,041 |
| Retained earnings | 94,387 | 84,634 |
| Minority interests | 13,362 | |
| Long-term liabilities < ;/TD> | 61,689 | 59,595 |
| Long-term debt, net of current portion | 33,041 | 35,729 |
| Accumulated provision for nuclear | ||
| decommissioning and fuel storage | 24,161 | 23,866 |
| Other long-term liabilities | 4,487 | |
| Deferred taxes liability | 19,217 | 12,541 |
| Current liabilities | 48,000 | 15,654 |
| Short-term loans | 1,054 | |
| Current portion of long-term debt | 6,376 | 4,235 |
| Trade and other payables | 32,811 | 8,934 |
| Income tax payable | 227 | 256 |
| Accrued liabilities | 7,532 | 2,229 |
| Consolidated Statement of Shareholders´ Equity in accordance with IFRS (CZK m) | Stated Capital | Fair Value and Other Reserves | Retained Earnings | Total Equity |
|---|---|---|---|---|
| December 31, 2001 | 59,050 | - | 77,676 | 136,726 |
| Additional paid-in capital | 12 | - | - | 12 |
| Dividends declared | - | - | -1,480 | -1,480 |
| Net Income for period 1-6/2002 | - | - | 6,712 | 6,712 |
| June 30, 2002 | 59,062 | - | 82,908 | 141,970 |
| Acquisition of treasury shares | -181 | - | - | -181 |
| Sale of treasury shares | 160 | - | 17 | 177 |
| Net Income for period 7-12/2002 | - | - | 1,709 | 1,709 |
| December 31, 2002, as previously reported | 59,041 | - | 84,634 | 143,675 |
| Change in accounting policy-effect of change | - | - | - | - |
| in group structure | - | - | 686 | 686 |
| January 1, 2003 as restated | 59,041 | - | 85,320 | 144,361 |
| Dividends declared | - | - | -2,657 | -2,657 |
| Returned dividends on treasury shares | - | - | 4 | 4 |
| Sale of treasury shares | 10 | - | -1 | 9 |
| Share on equity movements of associates | - | - | 8 | 8 |
| Change in fair value of available-for-sale financial | - | - | - | - |
| assets recognized in equity | - | 5 | - | 5 |
| Net Income for period 1-6/2003 | - | - | 11,710 | 11,710 |
| Other movements | - | - | -2 | -2 |
| June 30, 2003 | 59,051 | 5 | 94,382 | 153,438 |