CEZ, a. s.

Hello, everyone. It's my pleasure to welcome today's speakers.

As usual, I have Martin Novak, Chief Financial Officer here; and Pavel Cyrani, Chief Strategy and Sales Officer. I will now hand over to Martin, who will go through the first part of the presentation.

Pavel will go through the second part. And then we will have room for questions.

Now over to Martin.

Good afternoon, good morning to everybody. So I will start with Slide 3, where you can see highlights of our three quarters.

Our operating revenue amounted to CZK 156 million, EBITDA of CZK 47.5 billion, net income CZK 6.7 billion, more important, this adjusted net income that we use as a base for the dividend of CZK 16.9 billion. We had a few events actually that we are mentioning here, the electricity prices where we saw actually during the third quarter, extreme rise in power prices somewhere up to €160 per megawatt hour.

We also had a situation here with one of the alternative players who had 900,000 customers actually not going out of business because their position was open. They sold electricity to customers, but they didn't buy on time, and they just couldn't make it.

So we are taking over as part of this collapse of Bohemia Energy, a few hundred thousands of customers as a supplier of last resort. More specifically, 374,000 actually are falling into our hands, that we expect majority of them staying with us.

Plus, we are also getting some customers in gas, but I think Pavel will talk about it later. We sold Bulgarian assets on 27th of July, received €335 million.

The arbitration with Bulgarian state still continues, it's not linked actually through sale of assets. We decided not to sell our Polish assets due to economic environment in coal sector, basically, the bid that we received, binding bids were not attractive.

So we decided to cancel that process, keep the assets, and actually take a few months to analyze the future of both locations that are mainly generating heat to local municipalities. And actually see what else could be actually done in those locations and how to replace hard coal plants that are not something we would like to continue with long-term.

Financial results, as I said, there's EBITDA net income, adjusted net income, operating cash flows at about half of whatever in Q1 through Q3. One of the important factors is actually daily margin income power exchange, with power prices going up to €160.

We needed about €700 million to actually provide the power exchange as a margining that is happening on a daily basis. So that's one of the reasons why our operating cash flow was relatively low.

On the other hand, now when the power prices have declined somewhat, we are getting money back from the power exchange. Then on the second part of the slide, you have volumetric data on power generated and sales of heat and workforce and so on.

And we will skip on that and go to Slide 5, where you can see comparison between our 2020 Q1 through Q3 2020 compared to current year. Our decline on EBITDA on current assets is CZK 0.3 billion so basically flat EBITDA, CZK 44.9 billion for this year versus CZK 45.2 billion for previous year.

The biggest decline is actually on something that we call divested assets, which is Bulgaria and Romania. The reason is very simple, it is basically timing during Q1 through Q3 of last year, we had those assets on our books for full year versus 2021.

Actually, we disposed the Romanian assets after the end of first quarter and Bulgarian assets on 27th of July. So we did not have them in our books for the full first quarter.

You can see actually a few negative developments in generation segment. It's in total of CZK 3.4 billion, negative CZK 1.9 million coming from generation, which is caused mainly by higher gas prices.

So we were earning our CCGT less, more expensive carbon credits than in the previous year and also impact of hedging and exchange rate. Trading rate, CZK 2.8 billion in the first nine months and CZK 1.8 billion was actually made in third quarter due to high volatility of prices, which is still CZK 0.4 billion below last year, which was a record year.

So we are happy with our trading results, but in comparison with last year, they are CZK 0.4 billion lower. And that specific effect, which is mainly timing difference in our derivatives, CZK 1.1 billion negative.

Mining corporations were doing better than the last year, CZK 800 million, mainly due to higher supplies to our coal plants. Compared to last year, they were running on higher output just because last year, for part of the spring, the demand for electricity was fairly low and due to COVID closing, the corporate manufacturing being closed.

Distribution of CZK 700 million plus, mainly due to more distributed electricity. We are now back on 2019 numbers or pre-COVID numbers, as you will see later on.

And of course, sales are as a function also of distributed electricity, so plus CZK 1.6 billion compared to last year. On the next slide, you can actually see changes below EBITDA.

We have higher impairments for first three quarters of this year, mainly driven by second quarter impairments of coal mining operations. So there is CZK 6.2 billion higher impairments.

We have also somewhat higher depreciation and amortization caused by shortening the lifetime of certain coal assets. On the other hand, it is partly compensated by lower depreciation due to impairment of the assets of coal mining business, meaning there is a lower asset base, and that's why also lower annual depreciation.

On the next slide you can see development of power prices. Today, the power prices are around €120 per megawatt hour for next year with €60 for carbon credit.

And it's actually declining somewhere to €75, €70-ish actually in three to four years’ time. But for next year, those are the pricing levels that we see here, which are pretty much record prices compared to whatever we have seen in the past.

We are continuing in our hedging policy. So important slide, Slide number 8.

Here, you actually see how hedged we are. So for 2022, we are at about 79% hedged with €54.1 average achieved price.

The level of hedges is declining from 2020 to 2023 where it is 49%, 2024 is 21%, and 2025 is 4%, with average reduced prices are shown on the chart. Also, at the same time, we are hedging our carbon credits that are for next year hedged at the level of €31.1 and growing to something like €40.4 for 2024.

With current prices, we are selling actually at higher levels than you can see here. So there is a positive effect or impact in the future years, both on 2022 but even more 2023 and 2024.

So good environment in terms of power prices. We actually are progressing in meeting our de-carbonization target.

Emission intensity has decreased year-on-year by 12% so we are on 0.28 tons of CO2 per megawatt hour produced, which means we are well below, actually current emission of margin of power plant in Germany, but also below emissions of CCGTs that actually are used to generate power in our region as well. So we are actually on a good track in terms of de-carbonization goals.

On Slide 10, there are selective events of the past quarter that I will probably not go through. You can go through it yourself.

You have probably done it. It relates both to nuclear development for current units and also fulfilling our ESG targets.

On the next slide, you can actually see our guidance. We decided to increase our guidance both on EBITDA, on adjusted net income.

Our original guidance from August 10th was CZK 58 billion to CZK 60 billion. Now we are actually moving the bottom of CZK 58 billion to actually CZK 59 billion and at the same time narrowing curve of the band, so CZK 59 billion to CZK 60 billion.

And we are moving net income by CZK 1 billion, both the lower part of the range and the upper part of the range. So from CZK 18 billion to CZK 20 billion, we are moving to CZK 19 billion to CZK 21 billion with actually the reasons described on the slide.

So this is actual general overview and adjustment of our guidance. And now I will quickly go through performance of our generation in mining segment.

So on Slide 13, you can see actually EBITDA of our generation segments and mining segments and both in terms of billions of Czech Crowns, but also terawatt hours generated and the millions of tons mined. The reasons actually for the decline on the generation segment and on the other hand, better results on mining, they're described at the beginning of the presentation on where it was covering variance versus 2020.

So those are just numbers, and I'm not going to repeat it again. Let's move actually to next slide, actually to generation segment EBITDA, existing assets.

This is providing information on the details of how much actually EBITDA was generated by nuclear plants, renewables, fossil fuel trading, again, all the reasons for the movements were already provided. Was important to say, I think, that fossil fuel generation is at about 50% of last year result, which is driven by the effect of higher carbon credits, as I said, and the narrower margin that was achieved for 2021 with forward sales in the past.

Generation on Slide 15, in terms of volume. So nuclear was basically flat and is running close to full speed.

Renewables, about 1% decline with high volatility. Czechia hydro is plus 11%, Germany Wind minus 24%, mainly due to worse than average weather conditions and some maintenance.

So those are the main factors and we actually achieved almost the same result, 24.8 versus 25 terawatt hours produced. Our estimate is very close to that.

We assume to produce 2% more on nuclear for full year, 4% less on renewables and overall we would be 1% higher, which is 34.4. So this is actually fossil fuel free generation.

Fuel electricity, fossil fuel electricity, we saw a decline of 18% on our power plants, both -- and the same result is expected actually for full year. The main reasons are actually shown on the gas assets, we assume 19% decline mainly due to market conditions, expensive gas these days.

So it's not efficient to run our Počerady power plant as much as it was last year. On coal generation portfolio, there is actually important factor of selling power plant Počerady as of the end of 2020, which was pretty big plant.

So it was 3.5 terawatt hours that we had for full year -- for the first nine months of last year. And actually full year of last year was 40.9 terawatt hours, which is significant.

We don't have that plant as of January 1 so that's an important factor. And we also discontinued operations at Prunéřov power plant, which is 0.6 terawatt hours for the first 9 months.

We had longer outages at Tušimice power plant and so on. So that's the reason why we have lower power generation at those assets compared to 2020.

Mining, on next slide, you can actually see basic information on mining, how much we actually -- how many million tons we actually extracted and what is an EBITDA impact. The EBITDA impact of CZK 800 million improvement is mainly coming from higher supplies to our existing power plants.

And now I will hand over to Pavel to guide you through distribution and sales segment.

Okay. Martin, thank you.

Let's look at the distribution segment. I'll skip Page 19, which is a summary of the numbers, but I'll comment them on later pages.

You see that year-on-year, on Page 20, we see a 6% growth in distribution segment EBITDA, which is driven, and that is on the lower -- in the lower part of the page, mainly by higher volume of distributed electricity by 7% or 1.7 terawatt hour. On the next page, you see on the left hand side that it is across both of the main segments, residential customers and the large industrial customers.

Both of them are driven by two different factors. For the residential customers, it's mainly the fact that winter of 2021 was rather cold.

And also we still had a lot of people staying home because of COVID in the first and second quarter, which had a significantly higher consumption for the residential customers. And even with that, already in the second half of the year, second quarter and third quarter, we also see the economy bouncing back after COVID, which is driving the large customer consumptions.

Now on the supply side, on Page 22, basically the same effect translating also into the growth of retail segment growth by 0.9 billion year-on-year or 36%, which is mostly driven by the growth of the supply volume, both in electricity and gas. And in the B2B side, with ESCO companies, we see also the signs of recovery after COVID with overall 0.5 billion growth.

Now on Page 23, you see also the numbers, in terms of retail, there is a 13% growth of consumption. Now there is a similar growth of electricity for distribution, but significantly higher for gas.

Gas is obviously more sensitive for use for heating for the colder winter translated into high-growth of gas. And in terms of number of customers, we see that overall, it's pretty much flat with 4% growth in the gas, where we are not the incumbent and we are still getting quite a number of new customers and a flat development on the electricity side.

Obviously, Martin mentioned the fact that beginning of October, a major independent supplier lost his license, which translated into these customers being transferred under the delivery -- supply as last resort, which is basically set by the footprint of the original distribution. So for quite some part to the public, it's just for other parts, it's EON and -- in electricity and similarly, energy, again, EON and [indiscernible] gas supply company for gas.

For us, it meant a little under 400,000 customers being transferred into this supply of last resort. Obviously, this is a regulated business where the prices are regulated to cover the justified cost.

This is not a profit-making thing. What we are obviously trying to do both for the sake of the customers and for the sake of growth of our business, offer these customers to stay with CEZ even after they leave the supply of last resort.

Already more than half of the 400,000 customers left or asked to be transferred and a significant share are staying with us. So especially the number of customers for electricity, we'll see a jump in the later months.

And obviously, once the customers are staying with us, we are offering also to them to stay with us with gas, so also the gas numbers will go up, even though we are not the supplier of last resort for gas. In terms of energy services, as I said, we see signs of recovery after COVID mostly in Germany.

Germany is recovering the fastest. Czech Republic, Slovakia, are also recovering fairly well.

In terms of Poland, which is the dark green, Poland is a little bit slower in recovery, but we hope that the pace is picking up. So we have to see the recovery to come also there by the year-end.

And I think this is it from my side, and we are ready for questions.

Hi, this is Bram Buring for Wood & Co. A very small question.

I was looking at your percentage of power sold forward for 2020 and the increase quarter-on-quarter was relatively modest. This is because you were not particularly interested in selling power at these prices or what's the dynamic with regards to that, please?

I'm just looking at it and there is no specific change that we would do in terms of selling forward. We obviously, sometimes, and we struggle with the fact that especially for the later years, the clean spread for lignite went to a situation where we're not selling at all and we're waiting for the spreads to increase.

So that could be one of the impact otherwise we are not really changing this. So for 2024, especially 2025, there are situations where the clean spreads were solo that we decided that we would not be hedging this level of clean spreads and we would be either waiting for them to increase or if they were to prevail, then probably lower our production and produce more only in winter and less in the summer.

But generally speaking encouraging progress, so we are hedging in our way. And we're kind of playing with the volume, trying to sell more or less depending on the power prices, the -- of trading to speculate on the movement of the prices but we don't speculate with the physical volume that we are about to deliver in the following three years.

Okay. Maybe I can ask my question slightly differently.

How -- what is the demand for forward power at these levels, are you seeing buyers as you might usually expect or are buyers waiting for prices to come down?

See, the liquidity in the region is so high we typically, for the further years, we actually sell forward on EEX and then we roll it back to the Czech commodity exchange one year before delivery and the liquidity from our perspective, for the volumes that we need to sell is okay, is fine. We don't see like significant decrease in liquidity.

Okay. So it's really down to what kind of spreads you can lock in at the current macro.

Right.

Great. Thank you very much.

Hi, hello. It's Piotr Dzieciolowski from Citi.

Can you hear me.

Yes, we can hear you.

Okay, I have two questions really. So the first one I have on the retail electricity bills in Czech Republic.

Can you say how much they are meant to increase between, let's say, beginning of 2021 versus the kind of 2021, 2022 and 2023, what kind of end customer bill pressure we're talking about and as you look through the outcome of the political elections, have you seen in any of the parties on the agenda some kind of ideas about the intervention in this retail market? So that's the first question.

And then maybe second question, I ask straightaway. When it comes to the Polish asset disposal, can you say anything, maybe a range or anything of what were the bids for the assets, too low doesn't mean much, was it -- or at least you can say what the multiple level was or what were the level that you were happy with and so on?

Thank you.

Well, in terms of prices the one indication, it differs significantly across the way you use electricity, whether you only use it for the light and cooking or for water, for like heating water or actually heating the whole houses. But we -- if you look at the most common product with the highest number of people, which is basically a regular family using electricity for lighting and cooking.

Their invoice increase is about 30% year-on-year between 2021 and 2022. Now in terms of interventions, no, you don't hear that that much.

There was -- some of the comments that you can hear is whether or not the energy regulators should not check the suppliers, whether they are hedged enough, whether they have enough electricity actually purchased for the customers before winter. So these were some of the topics.

But it has not been translated in any concrete proposal yet. It will be discussed just to mention that there is actually a security standard for gas.

For gas, the suppliers need to buy gas storage and need to store actually physically gas before the winter. So these were some of the topics discussed also for electricity, but no discussion on actual regulation.

And in terms of the Polish assets, we will not provide any further details. They are actually -- this is all what we can say.

Sure. And if I can just follow-up on this electricity bill rises, maybe just as a small follow-up question.

Do you see any demand destruction signs or demand destruction across more industrial customers when you give them a new price for next year, they say, oh, maybe we want to change something or maybe the volumes will not be as high, do you see any signs of this?

For industrial customers you mean?

For any customers but, I guess, for retail use, there are things sensitive that's why I asked more about industrial?

No, we don't. We actually -- the overall kind of recovery after COVID that we see actually drives consumption up so we don't see really a reduction.

Actually, if there is a reason for reduction, it's not driven by electricity. It's the chip shortage in the automotive and it's like these things that the supply chain problems after COVID in other areas, but not the electricity prices, at least not yet.

Sure, thank you very much.

Okay. So thank you, everyone for taking part.

And as always, if some additional questions come up to your mind, please do not hesitate to contact Investor Relations. Thank you and have a good rest of the day.

Goodbye.

Bye.