Investor Presentation • Aug 31, 2018
Investor Presentation
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Headquartered in Czechia, CEZ Group is an integrated energy conglomerate with operations in Western, Central, and Southeastern European countries. Its core business is the generation, distribution, trade in, and sales of electricity and heat, trade in and sales of natural gas, and coal extraction. It also provides comprehensive energy services to its customers. CEZ Group companies currently employ more than 30,000 people.
The largest shareholder of its parent company ČEZ is the Czech Republic with a nearly 70% stake in the company's stated capital. ČEZ shares are traded on the Prague and Warsaw stock exchanges and included in the PX and WIG-CEE exchange indices.
CEZ Group's mission is to provide safe, reliable, and positive energy to its customers and society at large. Our vision is to bring innovations for resolving energy needs and to help improve the quality of life. CEZ Group's strategy is based on three priorities: we are among the best in the operation of conventional power facilities and proactively respond to the challenges of the 21st century, we offer a wide range of products and services addressing our customers' needs, and we reinforce CEZ Group's position in Europe by investing in promising energy assets. The energy sector is heading towards greater decentralization and renewable energy sources, which are areas where CEZ Group is actively seeking additional opportunities and new markets. CEZ Group focuses on modern technologies, which will continue to alter the shape of the energy sector and which it wants to play a major proactive role in.
CEZ Group companies in Czechia extract and sell coal, generate and distribute electricity and heat, and trade in electricity, natural gas and other commodities. They also offer customers technologies for electricity generation and storage and provide them with comprehensive energy services. Their generation portfolio consists of nuclear, coal-fired, gas-fired, hydroelectric, photovoltaic, wind, and biogas facilities.
CEZ Group's business activities abroad concern primarily electricity distribution, generation, trading, and sales, as well as natural gas trading and sales, commodity trading in wholesale markets, and active presence in energy services and renewables. Foreign countries where CEZ Group is doing business include, most importantly, Germany, France, Poland, Romania, Bulgaria, Hungary, Slovakia, and Turkey.
CEZ Group's business activities are governed by strict ethical standards that include responsible behavior toward employees, society, and the environment. In its business activities, CEZ Group embraces the principles of sustainable development, supports energy efficiency, promotes new technologies, and creates an environment for employees' professional growth. Its corporate culture emphasizes safety, continuous growth in internal efficiency, and support for innovation in order to increase CEZ Group's value.
| Statutory Declaration of Persons Responsible for the CEZ Group Half-Year Report 3 | |
|---|---|
| Selected Indicators of CEZ Group 4 | |
| Shares 6 | |
| Selected Events 9 | |
| Developments in Relevant Energy Markets 11 | |
| External Conditions in the Energy Sector 12 | |
| CEZ Group Strategy 15 | |
| CEZ Group Financial Performance 17 | |
| CEZ Group Capital Expenditures 29 | |
| CEZ Group Commodity Procurement, Sales, and Generation 31 | |
| Operations Team 35 | |
| - Czechia 36 |
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| - Business Environment in the Energy Sector 36 |
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| - Mining 37 - Generation—TE—Conventional Energy 38 |
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| - Generation—TE—Nuclear Energy 39 |
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| - Research and Development 42 |
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| - Trading 43 |
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| - Poland 44 - Other Countries 46 |
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| Development Team 47 | |
| - Czechia 48 - Business Environment in the Energy Sector 48 - Distribution 49 - Sales 50 |
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| - Generation 52 |
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| - Investments in New Technologies 53 - Germany 55 |
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| - France 57 |
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| - Poland 58 |
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| - Romania 60 |
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| - Bulgaria 62 - Turkey 64 |
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| - Other Countries 65 |
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| Changes in CEZ Group Ownership Interests 66 | |
| Shareholders' Meeting of ČEZ, a. s. 68 | |
| Changes in ČEZ, a. s., Governance Bodies 69 | |
| Legal and Other Proceedings Involving CEZ Group Companies 71 | |
| Contacts 78 | |
| Methods Used to Calculate Indicators Unspecified in IFRS 80 | |
| Abbreviations 82 | |
| CEZ Group Interim Consolidated Financial Statements 83 | |
| Identification of ČEZ, a. s. 102 |
Selected Indicators of CEZ Group
| Unit | H1 2017 | H1 2018 | 2018/2017 Index |
|
|---|---|---|---|---|
| (%) | ||||
| Electricity generated (gross) | GWh | 31,816 | 30,743 | 96.6 |
| Electricity sold 1) | GWh | 18,897 | 19,043 | 100.8 |
| Heat sold 1) | TJ | 13,737 | 12,857 | 93.6 |
| Gas sold 1) | GWh | 5,407 | 5,206 | 96.3 |
| Workforce headcount as at June 30 | Persons | 26,956 | 30,392 | 112.7 |
| Operating revenues | CZK millions | 100,883 | 86,299 | 85.5 |
| Operating revenues—comparable 2) | CZK millions | 85,372 | 86,299 | 101.1 |
| of which: sales of electricity and | ||||
| related services 2) | CZK millions | 70,633 | 67,445 | 95.5 |
| EBITDA | CZK millions | 31,311 | 26,893 | 85.9 |
| EBIT | CZK millions | 17,241 | 12,677 | 73.5 |
| Net income | CZK millions | 16,658 | 7,715 | 46.3 |
| Adjusted net income 3) | CZK millions | 16,953 | 7,843 | 46.3 |
| Earnings per share—basic | CZK/share | 30.5 | 14.0 | 45.9 |
| Dividend per ČEZ, a. s. share (gross) 4) | CZK/share | 33.0 | 33.0 | 100.0 |
| Net cash provided by operating activities | CZK millions | 23,597 | 21,110 | 89.5 |
| Capital expenditures (CAPEX) 5) | CZK millions | (11,913) | (8,962) | 75.2 |
| Investments 6) | CZK millions | (95) | (289) | 304.2 |
| Total assets | CZK millions | 8) 626,207 |
671,642 | 107.3 |
| of which: property, plant and equipment 7) CZK millions | 8) 428,019 |
411,592 | 96.2 | |
| Equity (including non-controling interests) | CZK millions | 8) 254,322 |
242,869 | 95.5 |
| Net debt 3) | CZK millions | 119,398 | 128,256 | 107.4 |
| Return on equity, net (ROE) 3) | % | 6.6 | 4.1 | 61.3 |
| Net debt/EBITDA 3) | 1 | 2.12 | 2.59 | 122.2 |
1) Sold to end-use customers (outside CEZ Group).
2) Comparison applying IFRS 15 on the first half of 2017. According to the standard, w hich changed the manner of reporting as of January 1, 2018, distribution revenue and costs are not reported w here the Group sells electricity in a area in w hich it does not ow n the distribution grid. Application of the standard significantly affects the total revenues and expenses of utility groups (now reported as balance).
6) Acquisition of subsidiaries, associates and joint ventures, net of cash acquired.
7) Property, plant, and equipment (including nuclear fuel and construction w ork in progress).
8) As at December 31, 2017.
The credit ratings of ČEZ, a. s., remained unchanged in the first half of 2018 except for Moody's outlook.
On November 23, 2017, Standard & Poor's Credit Market Services Europe Limited reaffirmed ČEZ's long-term credit rating of A– with a stable outlook. On April 24, 2018, Moody's Investors Service Ltd. reaffirmed ČEZ's long-term credit ratings of Baa1, with the outlook changed from stable to positive in relation to a previous change from stable to positive outlook in the Czech Republic's credit rating (A1). Both credit rating agencies are included in the list of credit rating agencies pursuant to Regulation (EC) No. 1060/2009 of the European Parliament and of the Council, as amended by Regulation (EU) No. 513/2011 of the European Parliament and of the Council and Regulation (EU) No. 462/2013 of the European Parliament and of the Council. When selecting credit rating agencies, ČEZ complies with Article 8d of the above-mentioned Regulation.
Five CEZ Group companies have publicly traded shares.
As at June 30, 2018, the total stated capital of ČEZ, a. s., was CZK 53,798,975,900. The Company's stated capital consisted of 537,989,759 shares with a nominal value of CZK 100. Their ISIN is CZ0005112300.
Structure of Shareholders—by Entity Type (%)
| Share in | Share in | Share in | Share in | |
|---|---|---|---|---|
| Stated Capital | Voting Rights | Stated Capital | Voting Rights | |
| as at June 14, 2017 1) | as at June 15, 2018 2) | |||
| Legal entities, total | 89.83 | 89.76 | 89.80 | 89.73 |
| of which: Czech Republic | 69.78 | 70.27 | 69.78 | 70.20 |
| ČEZ, a. s. | 0.70 | – | 0.60 | – |
| Other legal entities | 19.35 | 19.49 | 19.42 | 19.53 |
| Private individuals, total | 10.17 | 10.24 | 10.20 | 10.27 |
1) Date of record for participation in the 25th Annual Shareholders' Meeting.
2) Date of record for participation in the 26th Annual Shareholders' Meeting.
Entities holding a share amounting to at least 1% of the stated capital of ČEZ, a. s., as registered in the Central Securities Depository as at June 15, 2018, were:
On March 14, 2018, a group of shareholders acting in concert and having the status of a qualified shareholder, consisting of Ing. Michal Šnobr, J&T Securities Management Limited, Tinsel Enterprises Limited, and Hamafin Resources Limited, delivered a notice of its share in voting rights pursuant to Section 122(1) of the Capital Market Undertakings Act. According to the notice, its share in voting rights was 1%. According to the records of the Central Securities Depository, the share of this group of shareholders in voting rights was 1.15% as at June 15, 2018.
On June 20, 2018, Barclays Bank PLC delivered a notice of its share in voting rights pursuant to Section 122(1) of the Capital Market Undertakings Act. According to the notice, its share in voting rights is 1.07%. On July 2, 2018, Barclays Bank PLC delivered a notice stating that its share in voting rights had decreased to 0.89%.
These entities have rights pursuant to Section 365 et seq. of the Business Corporations Act. The possibility that some of the aforementioned entities manage shares owned by third parties cannot be excluded.
To cover claims arising out of the Company's stock option plan, 3,605,021 treasury shares, representing 0.67% of its stated capital, were held on the asset account of ČEZ, a. s., with the Central Securities Depository as at January 1, 2018.
ČEZ used 465,000 shares to satisfy the claims of beneficiaries under the Company's stock option plan in the first half of 2018. The average price was CZK 438.05 per share. The total amount received for the transfer of shares to the beneficiaries was CZK 203.7 million (including interest).
At June 30, 2018, the above-mentioned asset account contained 3,140,021 treasury shares with a nominal value of CZK 314,002,100, that is, 0.58% of the Company's stated capital.
ČEZ, a. s. Share Prices in H1 2018
The share price was CZK 496.50 at the beginning of 2018, reaching a half-year low of CZK 495 on March 2, 2018, a half-year high of CZK 585.50 on May 17, 2018, and closing the half-year at CZK 527.
The annual shareholders' meeting, which was held on June 22 to 23, 2018, decided to pay a dividend of CZK 33 per share before tax. The share of profit to be distributed among shareholders is CZK 17,753,662,047, of which CZK 17,647,731,354 is to be paid out, representing 85.3% of consolidated adjusted net income and 93.1% of consolidated net income.
Entities that were shareholders of ČEZ at the record date, that is, June 28, 2018, are entitled to the dividend. The dividend on treasury shares held by the Company at the record date was not paid out and was transferred to the retained earnings account.
The dividend for 2017 becomes payable on August 1, 2018 and can be claimed until July 29, 2022.
The company's shares were admitted to trading on the Prague Stock Exchange's regulated market with effect from December 31, 2015. Their ISIN is CZ0008041787. An issue of 5,310,498 shares, that is, 15% of the total number of the company's shares, previously held by ČEZ, was admitted to trading. As at the date of admission to trading, ČEZ held a 99.596% stake in the company, the other shareholders being ČEZ Obnovitelné zdroje with a 0.386% stake and ČEZ Korporátní služby with a 0.018% stake in the company's stated capital. On January 2, 2018, 14,000 company shares (0.040%) were sold on the PSE.
The company's shares are traded freely on the stock exchange. A portion of shares representing a 25.3% stake in the company's capital has been freely traded on the Istanbul stock exchange since July 3, 2000. Their ISIN is TRAAKENR91L9. The shares are not traded on any other public markets. ČEZ, a. s. held a 37.361% stake in the company's stated capital as at June 30, 2018.
The company's shares have been traded on the Bulgarian Stock Exchange (Българска Фондова Борса) since October 29, 2012. Their ISIN is BG1100024113. The shares are not traded on any other public markets. As at June 30, 2018, ČEZ held a 67% share and the second largest shareholder, the Chimimport group, held a 25.02% share in the company's capital.
The company's shares have been traded on the Bulgarian Stock Exchange (Българска Фондова Борса) since October 29, 2012. Their ISIN is BG1100025110. The shares are not traded on any other public markets. As at June 30, 2018, ČEZ held a 67% share and the second largest shareholder, the DOVERIE group, held a 11.10% share in the company's capital.
ČEZ brought an administrative action against the decision of the Bulgarian Commission for Protection of Competition concerning the sale of CEZ Group's Bulgarian assets.
Wholesale prices of electricity in Czechia derive from prices in Germany due to the close interconnection of these two markets. Electricity prices are influenced by the following factors in particular:
Electricity prices kept their upward trend in the first half of 2018. The price of the German baseload for 2019 increased from 37 EUR/MWh to 43 EUR/MWh, that is, by 16%. The main factor was the increasing price of emission allowances, followed by increases in gas and hard coal prices. Emission allowance prices continue to increase in the second half-year and have reached a ten-year high.
The price of allowances almost doubled from EUR 8 to EUR 15 during the first half of 2018. This is probably caused by an imminent reduction in the supply of allowances in auctions due to the introduction of the Market Stability Reserve (MSR) in 2019.
Wholesale Price of Electricity in 2018 (2019 Year Band) in Germany
Prices of Emission Allowances in 2018 (2019 Forward Contracts)
A significant body of EU legislation with impact on the energy industry was published in the Official Journal of the EU in the first half of 2018.
A revision of the EU ETS Directive (2003/87/EC), a key legislative tool for the EU's efforts to reduce greenhouse gas emissions, was published in March. The revised EU ETS should enable reaching the 40% reduction target for 2030 (from 1990 levels) in a cost-effective manner as well as meeting obligations arising out of the Paris Agreement made in 2015. The key parameters of the revised directive include streamlining the system, maintaining measures to prevent carbon leakage (reducing CO2 emissions only in developed countries), and providing support from low-carbon mechanisms. A balance should be achieved in the carbon market by accelerated withdrawal of surplus allowances in the first five years of operation of the Market Stability Reserve (MSR) and cancellation of surplus allowances within the system starting from 2023.
Also related to efforts to reduce greenhouse gas emissions is Regulation (EU) 2018/841 of the European Parliament and of the Council of May 30, 2018, on the inclusion of greenhouse gas emissions and removals from land use, land use change, and forestry in the 2030 climate and energy framework, and amending Regulation (EU) No. 525/2013 and Decision No. 529/2013/EU, which was published in June. Sectors affected by the regulation include agriculture and forestry, transportation including the building sector, and waste processing. Altogether, those sectors produce about 60% of all EU emissions.
The Official Journal also published in June a package comprising four directives concerning waste management, landfilling, electrical and electronic equipment packaging and waste, waste batteries and accumulators, and disposal of retired vehicles, jointly referred to as the "Waste Package." According to the newly passed legislation, at least 55% of municipal waste, that is, waste from households and small businesses, should be recycled by 2025. The new legislation also introduces a limit for the amount of waste that can be landfilled. It should be no more than 10% of municipal waste in 2035.
The legislative process of debating the European Commission's extensive package published under the title "Clean Energy for All Europeans" on November 30, 2016, continued in the first half of 2018. Its goal is to transform the European energy market to make it barrier-free, interconnected, based on renewable energy sources, flexible, and with full participation by the demand side.
In terms of potential impacts on the functioning of the whole electricity sector, the most significant proposals are those concerning revision of the energy efficiency directive, revision of the directive on the energy performance of buildings, legislation applicable to the electricity market design (revision of the directive on common rules for the market in electricity, revision of the regulation on the internal market in electricity, revision of the regulation on the ACER—Agency for the Cooperation of Energy Regulators, and a regulation on risk preparedness in the energy sector), revision of the directive on the promotion of the use of energy from renewable sources, and a brand-new regulation on the governance of the Energy Union.
The final versions of three of the legal documents, namely the revision of the directive on the promotion of the use of energy from renewable sources, the revision of the energy efficiency directive, and the regulation on the governance of the Energy Union, were approved during trilateral negotiations (Trialogues) among the European Commission, the Council, and the Parliament at the end of the first half of 2018. The revision of the directive on the energy performance of buildings, the final version of which was approved in late 2017, was published in the Official Journal of the EU in June 2018. Concerning the legislation governing electricity market design, the European Parliament's position and the Council's general approach were adopted in the past period and the approval process is getting to the Trialogue stage. The legislation is expected to be passed in the second half of 2018.
Europe's energy sector will continue to be affected primarily by commodity price changes in wholesale markets, political goals, and technological advancement. Each of these factors contributes to big changes in the energy sector, most importantly its gradual decentralization and the emergence of new consumer-centered business models.
Wholesale electricity prices have reached several-year highs. The main factor in this growth is the price of emission allowances, which has more than doubled since the beginning of the year. The reason is the forthcoming introduction of the Market Stability Reserve (MSR), which will begin to significantly reduce the amount of allowances in auctions as from the next year. Although the accumulated surplus of allowances in the market is more than enough to cover this deficit in supply in the next years, the market price started to increase relatively quickly. This resulted in: first, some energy companies' efforts to buy more allowances in advance; and second, increased demand by new players in the market (investors and speculators). On the other hand there is a decreasing willingness of surplus holders to sell their previously acquired allowances. These factors may keep the price of emission allowances relatively high in the short and medium term. However, their price may also be volatile due to the continued surplus of allowances in the market.
Increasing prices of energy commodities—coal and gas—are another factor behind the rise in the price of electricity in the recent months. These commodities now largely follow the price of oil, which was rising due to greater global demand and the effect of geopolitical factors. However, the relatively high price of oil instigates new oil production so price stabilization is rather likely to be seen in the future. In addition, the global market in hard coal is cardinally affected by events in China, the world's largest producer and importer of hard coal. The Chinese government has recently attempted to stabilize the domestic coal market. However, the alternating restriction and liberalization of mining in China, if anything, results in uncertainty and consequent price volatility in the market. Coal consumption throughout the world will be more closely associated with increasingly strict emission regulation, which will impair the price competitiveness of coal compared to other fuels and renewables.
In the longer run, developments in the energy sector will also be crucially affected by regulatory measures, especially the implementation of the European Union's energy and climate targets for 2030. After lengthy and difficult discussions, an agreement was reached on increasing the targets for renewable energy sources (RES) and energy efficiency. EU member states will have to specify their contribution to meeting these targets in forthcoming integrated energy and climate plans, the first version of which should be prepared by the end of this year and the final version by the end of 2019. They must set an almost linear trajectory for reaching the RES target in their plans.
The target value for the share of renewables increased from the previous 27% to 32% of consumed energy, which means more than half of electricity generated from renewable sources in 2030 and thus less room for conventional energy. Increased generation at photovoltaic plants will cause a further decrease in the prices of electricity during today's peaks. Unstable, weather-dependent supply will require large flexible capacity at power plants or higher flexibility on the side of consumption, and will contribute to the advancement of electricity storage technologies. At the same time, development in renewable generation will be considerably cheaper in the next years than it was in the past, primarily due to technological advancement and multiple elements of competition in RES support.
The target for energy efficiency also increased, from the previous 27% to the current 32.5% in 2030. This means additional pressure on energy savings and, consequently, demand for electricity. In contrast, demand can be positively affected by decarbonization efforts in the transportation and heat sectors through incremental electrification. The emphasis on increased share of renewables and on reduction in electricity consumption will negatively affect demand for emission allowances and the whole emissions trading system (EU ETS) in the long run. However, proposals for increasing the emission target ambitions from the existing 40% to 45% are also beginning to emerge, although this discussion is still at the very beginning.
In respect of the emissions of other pollutants such as nitrogen oxides, sulfur oxides and other substances, approval of BAT/BREF limits for large combustion plants will have a major impact in the next years. Stricter limits for these emissions will require considerable investments in coal-fired facilities in many European countries.
Besides the effects of the European Union's policies and targets, prices are significantly affected by individual political decisions in European countries. Examples include a decision to shut down nuclear power plants in Germany, discussions about shutting down German coal-fired power plants, efforts to reduce the share of nuclear generation in France, the launch of capacity payments in Poland, or the planned introduction of a minimum price for CO2 in the energy sector in the Netherlands. Such effects then result in another wave of uncertainty in market prices.
Technological advancement will be a key factor for the future of the energy sector. The biggest changes it produces are seen in renewable generation and decentral solutions. Investment costs for large photovoltaic power plants have dropped to less than 15% of their initial levels during the past 10 years and a further decrease is expected in the future. Costs have been decreasing and parameters have been improving rapidly for other types of renewable energy sources, too. There is also significant advancement in energy storage technologies. Large batteries with several hundreds of MW of capacity have been put into operation in Europe in just the past few years.
Technological advancement will result in increased energy decentralization at the expense of large facilities. The development of distributed generation will be driven more and more by cost competitiveness rather than subsidies as before. At the same time, distributed generation will bring about new business opportunities for energy companies.
The energy market keeps transforming. The electricity generation side keeps showing a reinforcing trend toward generation gradually shifting from conventional facilities to renewables and decentralized facilities. On the side of end-use customers, comprehensive decentralized solutions and customized products are increasingly coming to the fore. Both these trends bring about growing demands for flexibility in generating facilities and transmission and distribution grids. The priorities defined in CEZ Group's strategy address these trends adequately, hence we are not changing the strategy. CEZ Group's mission is to provide safe, reliable, and positive energy to its customers and society at large. Its vision is to bring innovations for resolving energy needs and to help improve quality of life.
CEZ Group's strategy is built on three priorities, namely:
Under these three strategic priorities, CEZ Group concentrates primarily on the following activities:
Focus on regions with a stable regulatory environment
The idea of CEZ Group transformation, or modification to CEZ Group's internal governance and structure, is based on current changes in the energy sector, and CEZ Group not only implements its approved strategy but is also contemplating possible transformation that has potential to bring benefits to all its shareholders. There are two main reasons why the transformation is contemplated by the management of ČEZ, a. s.
The first reason is the fact that Europe's energy sector has shown a clearly discernible tendency to principally split into two different and increasingly diverging directions in recent years. One direction is traditional energy, characterized by large generating facilities with a focus on the operation and maintenance of existing power plants. This is significantly affected by ever stricter legislation, increasing safety requirements, and tighter regulation in general. The other direction is the dynamically growing segment of new and decentralized energy, prevailingly oriented toward comprehensive customer energy services and decentralized renewable energy sources.
The second reason is the fact that already executed transformations of utilities taking into consideration the aforementioned changes in the energy sector, brought a number of benefits to their shareholders. They resulted in the creation of various kinds of entities with a clear strategic focus and, usually, in a rise in the market price of their shares, as investors find the new energy sector's profile attractive. Now is apparently the right moment for IPOs to obtain funding for development projects. The traditional energy sector can then better concentrate on the operation and possibly construction of large generating facilities to help fulfill energy policy and energy security goals, in response to both regulatory rules and arising market and support mechanisms.
Last but not least, the contemplated transformation of CEZ Group would give CEZ Group a structure suited to the variant of a new nuclear power plant being constructed by an entity wholly owned by the Czech state, creating the conditions for fulfilling the State Energy Policy and Czechia's other goals concerning energy policy and energy security.
Although ČEZ management is contemplating transformation for the above reasons, no conclusions on this matter have been adopted by the Company's Board of Directors.
As at June 30, 2018, the consolidated CEZ Group comprised a total of 148 companies, with 134 companies fully consolidated and 14 associates and joint ventures consolidated using the equity method.
The companies of the consolidated accounting unit of CEZ Group fall into six operating segments.
ČEZ, a. s. Areál Třeboradice, a.s. CEZ Chorzów S.A. CEZ Skawina S.A. CEZ Srbija d.o.o. CEZ Towarowy Dom Maklerski sp. z o.o. CEZ Trade Romania S.R.L. ČEZ Teplárenská, a.s. Elektrárna Dětmarovice, a.s. Elektrárna Dukovany II, a. s. Elektrárna Mělník III, a. s. Elektrárna Počerady, a.s. Elektrárna Temelín II, a. s. Energetické centrum s.r.o. Energocentrum Vítkovice, a. s. Energotrans, a.s. OSC, a.s. Tepelné hospodářství města Ústí nad Labem s.r.o. AK-EL Kemah Elektrik Üretim ve Ticaret A.S. *) AK-EL Yalova Elektrik Üretim A.S. *) Akenerji Dogal Gaz Ithalat Ihracat ve Toptan Ticaret A.S. *) Akenerji Elektrik Enerjisi Ithalat Ihracat ve Toptan Ticaret A.S. *) Akenerji Elektrik Üretim A.S. *) Egemer Elektrik Üretim A.S. *)
A.E. Wind S.A. Baltic Green Construction sp. z o.o. Baltic Green I sp. z o.o. Baltic Green II sp. z o.o. Baltic Green III sp. z o.o. Baltic Green V sp. z o.o. Baltic Green VI sp. z o.o. Baltic Green VIII sp. z o.o. Baltic Green IX sp. z o.o. BANDRA Mobiliengesellschaft mbH & Co. KG Bara Group EOOD CASANO Mobiliengesellschaft mbH & Co. KG CEZ Erneuerbare Energien Beteiligungs GmbH CEZ Erneuerbare Energien Verwaltungs GmbH CEZ France S.A.S. CEZ Chorzów II sp. z o.o. CEZ Windparks Lee GmbH CEZ Windparks Luv GmbH CEZ Windparks Nordwind GmbH ČEZ Obnovitelné zdroje, s.r.o. ČEZ OZ uzavřený investiční fond a.s. ČEZ Recyklace, s.r.o. Eco-Wind Construction S.A. Ferme Eolienne de la Piballe S.A.S. Ferme Eolienne de Neuville-aux-Bois S.A.S. Ferme Eolienne de Saint-Aulaye S.A.S. Ferme Eolienne de Saint-Laurent-de-Ceris S.A.S. Ferme Eolienne de Seigny S.A.S. Ferme Eolienne de Thorigny S.A.S. Ferme Eolienne des Breuils S.A.S. Ferme Eolienne des Grands Clos S.A.S. Ferme Eolienne du Germancé S.A.S. Free Energy Project Oreshets EAD M.W. Team Invest S.R.L. Ovidiu Development S.R.L. TMK Hydroenergy Power S.R.L. Tomis Team S.A. Windpark Baben Erweiterung GmbH & Co. KG Windpark Badow GmbH & Co. KG Windpark Cheinitz-Zethlingen GmbH & Co. KG Windpark Frauenmark III GmbH & Co. KG Windpark Fohren-Linden GmbH & Co. KG Windpark Gremersdorf GmbH & Co. KG Windpark Mengeringhausen GmbH & Co. KG Windpark Naundorf GmbH & Co. KG Windpark Zagelsdorf GmbH & Co. KG ČEZ Energo, s.r.o. *)
| juwi Wind Germany 100 GmbH & Co. KG *) | |
|---|---|
| Distribution | Sales |
| CEZ Razpredelenie Bulgaria AD ČEZ Distribuce, a. s. Distributie Energie Oltenia S.A. Sakarya Elektrik Dagitim A.S. *) |
AirPlus, spol. s r.o. AZ KLIMA a.s. AZ KLIMA SK, s.r.o. CEZ Elektro Bulgaria AD CEZ ESCO Bulgaria EOOD CEZ ESCO I GmbH CEZ ESCO II GmbH CEZ ESCO Polska sp. z o.o. CEZ Magyarország Kft. CEZ Slovensko, s.r.o. CEZ Trade Bulgaria EAD CEZ Trade Polska sp. z o.o. CEZ Vanzare S.A. ČEZ Bytové domy, s.r.o. ČEZ Energetické služby, s.r.o. ČEZ ESCO, a.s. ČEZ LDS s.r.o. ČEZ Prodej, a.s. ČEZ Solární, s.r.o. D-I-E ELEKTRO AG EAB Automation Solutions GmbH EAB Elektroanlagenbau GmbH Rhein/Main EASY POWER s.r.o. Elektro-Decker GmbH Elevion GmbH ENESA a.s. ESCO City I sp. z o.o. ESCO City II sp. z o.o. ESCO City III sp. z o.o. ETS Efficient Technical Solutions GmbH ETS Efficient Technical Solutions Shanghai Co. Ltd. EVČ s.r.o. HAu.S GmbH HORMEN CE a.s. KART, spol. s r.o. Metrolog sp. z o.o. OEM Energy sp. z o.o. Rudolf Fritz GmbH Elevion Co-Investment GmbH & Co. KG ) Sakarya Elektrik Perakende Satis A.S.) |
| Mining | Other |
| Severočeské doly a.s. LOMY MOŘINA spol. s r.o. *) |
Centrum výzkumu Řež s.r.o. CEZ Bulgaria EAD CEZ Bulgarian Investments B.V. CEZ Deutschland GmbH CEZ Holdings B.V. CEZ ICT Bulgaria EAD CEZ International Finance B.V. CEZ MH B.V. CEZ New Energy Investments B.V. CEZ Polska sp. z o.o. |
CEZ Ukraine LLC ČEZ Bohunice a.s. ČEZ Energetické produkty, s.r.o. ČEZ ENERGOSERVIS spol. s r.o. ČEZ ICT Services, a. s. ČEZ Korporátní služby, s.r.o. EGP INVEST, spol. s r.o. Inven Capital, SICAV, a.s. MARTIA a.s. PRODECO, a.s. Revitrans, a.s. SD - Kolejová doprava, a.s. ŠKODA PRAHA a.s. ŠKODA PRAHA Invest s.r.o. Telco Pro Services, a. s. ÚJV Řež, a. s. Akcez Enerji A.S.*) Jadrová energetická spoločnosť Slovenska, a. s.*)
*) Joint venture or associate
CEZ Group Net Income Breakdown (CZK Billions)
Earnings before depreciation and amortization, allowances, sales of property, plant, and equipment and intangibles, and write-off of canceled investments (EBITDA) decreased by CZK 4.4 billion yearon-year to CZK 26.9 billion. Net income (after-tax income) decreased by CZK 8.9 billion to CZK 7.7 billion.
The year-on-year decrease in net income was significantly affected by nonrecurrent 2017 revenue of CZK 6.7 billion in total, including the effect of termination of MOL stockholding (CZK 4.5 billion), revenue from the sale of residential properties in Prague (CZK 1.1 billion), the effect of a settlement agreement with Sokolovská uhelná (CZK 0.7 billion), and the effect of a settlement agreement with Bulgarian state-owned energy company NEK (CZK 0.4 billion). The year-on-year comparison is also negatively affected by revaluation of hedges for the supplies of electricity from planned generation for the second half of 2018 due to a large increase in the market prices of commodities in the first half of 2018. This temporary negative effect of CZK 1.2 billion will be offset in the second half of 2018 because actual supplies of electricity will be realized at a value CZK 1.2 billion higher than the nominal value of hedging.
Adjusted net income decreased by CZK 9.1 billion year-on-year to CZK 7.8 billion: net income decreased by CZK 8.9 billion while adjustment for the negative effect of fixed asset impairments was CZK 0.2 billion lower.
Operating revenues increased by CZK 0.9 billion year-on-year after adjustment for methodology changes in IFRS, primarily due to higher revenue from the sales of services (CZK +5.4 billion) relating mainly to the acquisition of German Elevion group (consolidated since September 2017). In contrast, the year-on-year comparison is negatively affected by lower revenue from the sales of electricity and related services (CZK -3.2 billion) and the effect of the sale of real property in Prague in 2017 (CZK -1.4 billion).
Operating expenses increased by CZK 4.6 billion after adjustment for methodology changes in IFRS. The year-on-year comparison was negatively affected primarily by higher personnel expenses
(CZK -2.2 billion), higher purchased services (CZK -2.2 billion), and higher costs of material (CZK -1.5 billion), primarily due to the acquisition of German Elevion group (consolidated since September 2017). Another negative effect was produced by a change in the balance of impairments and provisions (CZK -1.5 billion), primarily in connection with the termination of disputes with Sokolovská uhelná in 2017, and higher expenses on emission allowances (CZK -0.9 billion). In contrast, operating expenses were brought down in year-on-year comparison by lower expenses on the purchases of electricity and related services (CZK +2.8 billion) and lower depreciation and amortization of fixed assets (CZK +0.9 billion) due to updated estimates of the service life of ČEZ power plants, which exceeded the effect of the start of depreciation of the new Ledvice facility after its completion in late 2017.
Other income (expenses) decreased earnings by CZK 5.5 billion year-on-year, primarily due to the termination of MOL stockholding including related operations in 2017 (CZK -4.5 billion). In addition, earnings were negatively affected by higher interest expenses due to lower interest capitalization after the completion of the new Ledvice facility (CZK -0.7 billion) and other effects (CZK -0.3 billion), primarily exchange differences.
Income tax decreased by CZK 1.2 billion due to lower earnings before taxes.
CEZ Group Cash Flows (CZK Billions)
Cash flows from operating activities decreased by CZK 2.5 billion year-on-year to CZK 21.1 billion. In year-on-year comparison, there was a decrease in earnings before taxes adjusted for non-cash operations (CZK -1.1 billion) and change in working capital (CZK -0.8 billion). Interest paid, net of capitalized interest, increased (CZK -1.0 billion) and received dividends decreased (CZK -0.2 billion) in 2018, while income tax paid decreased (CZK +0.6 billion).
Cash used in investing activities increased by CZK 8.9 billion in year-on-year comparison. This was primarily due to a decrease in proceeds from sale of noncurrent assets (CZK -11.1 billion), primarily due to the sale of MOL Nyrt. stock in 2017 (CZK -12.0 billion), and lower proceeds from disposal of subsidiaries and joint ventures (CZK -1.2 billion) due to CMEPI B.V. liquidation balance in 2017 and the sale of the Tisová power plant in 2017. In contrast, additions to noncurrent assets decreased yearon-year (CZK +3.8 billion) due to lower investments in property, plant, and equipment. Repayment of loans decreased year-on-year (CZK -0.4 billion).
Cash used in financing activities decreased by CZK 3.9 billion year-on-year. This was primarily due to a lower balance of loans and repayments in 2018 (CZK +3.7 billion). Sales of treasury shares were higher in 2018 (CZK +0.2 billion).
The net effect of currency translation and valuation allowances in cash was positive in year-on-year comparison (CZK +0.2 billion).
The value of CEZ Group's consolidated assets, equity, and liabilities increased by CZK 45.4 billion to CZK 671.6 billion in the first half of 2018.
Noncurrent assets decreased by CZK 18.8 billion to CZK 469.2 billion. The value of property, plant, and equipment, nuclear fuel, and construction work in progress decreased by CZK 16.4 billion. The decrease was primarily due to the reclassification of Bulgarian companies as assets held for sale (CZK -10.3 billion). It was also due to depreciation, amortization and fixed asset impairments, which exceeded capital expenditure (CZK -6.2 billion).
Other noncurrent assets decreased by CZK 2.3 billion to CZK 57.6 billion in the first half of 2018 as a result of decrease in other long-term financial assets, net, due to sale of liquid bonds (CZK -1.3 billion). Noncurrent intangible assets decreased (CZK -0.9 billion), with the effect of the reclassification of Bulgarian companies as assets held for sale being (CZK -0.4 billion).
Current assets increased by CZK 64.2 billion to CZK 202.5 billion in the first half-year, primarily due to increased receivables from derivatives including options (CZK +45.9 billion) and the reclassification of Bulgarian companies as assets held for sale (CZK +16.8 billion). Other primary factors for the increase in current assets were higher trade receivables (CZK +3.6 billion), higher income tax assets (CZK +1.9 billion), and higher inventories (CZK +0.4 billion). By contrast, there was decrease in cash and cash equivalents (CZK -2.1 billion), decrease in liquid securities (CZK -1.6 billion), and decrease in emission allowances (CZK -0.7 billion).
Structure of CEZ Group Equity and Liabilities (CZK Billions)
Equity, including noncontrolling interests, decreased by CZK 11.5 billion to CZK 242.9 billion. The decrease was primarily due to change in equity in relation to dividend awarded to shareholders (CZK -17.7 billion). By contrast, net income generated in 2018 increased equity by CZK 7.7 billion. The application of new IFRS standards starting from January 1, 2018, resulting in the reclassification of connection fees received from customers until 2009 as retained earnings, increased equity by CZK 2.4 billion. Other comprehensive income decreased equity (CZK -4.2 billion).
Noncurrent liabilities decreased by CZK 2.3 billion to CZK 239.3 billion, primarily due to the application of new IFRS standards on connection fees (CZK -3.1 billion), while long-term derivatives increased (CZK +0.8 billion).
Current liabilities increased by CZK 59.2 billion to CZK 189.5 billion. The increase was primarily due to increase in payables from short-term derivative trading including options (CZK +51.7 billion) and increase in payables to shareholders in the distribution of profit (CZK +17.7 billion). Liabilities associated with assets held for sale increased (CZK +5.8 billion). In contrast, short-term borrowings decreased (CZK -5.6 billion), as did the current portion of long-term debt (CZK -5.4 billion) and provisions (CZK -1.8 billion) primarily due to decrease in the provision for emission allowances. Other liabilities decreased (CZK -2.3 billion).
Net comprehensive income in the first half of 2018 decreased by CZK 10.3 billion, as compared to the first half of 2017, to CZK 3.5 billion.
Net income decreased by CZK 8.9 billion year-on-year and other comprehensive income decreased by CZK 1.3 billion. Other comprehensive income was negatively affected, year-on-year, primarily by change in the fair value of financial instruments for cash flow hedges (CZK -11.0 billion); in contrast, termination of MOL stockholding in 2017 resulted in the derecognition of equity instruments from equity with a year-on-year effect of (CZK +5.6 billion) on comprehensive income. Translation differences for subsidiaries were (CZK +2.0 billion). Deferred tax associated with other comprehensive income had a positive effect (CZK +2.2 billion).
CEZ Group Net Debt (CZK Billions)
| H1 2017 | H1 2018 | |
|---|---|---|
| Long-term debt, net of current portion | 131.5 | 132.4 |
| Current portion of long-term debt | 9.6 | 3.2 |
| Short-term loans | 5.5 | 5.5 |
| Total debt | 146.6 | 141.1 |
| Cash and cash equivalents | (18.7) | (10.5) |
| Highly liquid financial assets | (8.5) | (2.3) |
| Net debt | 119.4 | 128.3 |
| EBITDA (as in preceding 12 months) | 56.3 | 49.5 |
| Net debt / EBITDA | 2.12 | 2.59 |
| Operating | Operating | Total | EBITDA | EBIT | Income Tax | Net Income | CAPEX | Workforce | |
|---|---|---|---|---|---|---|---|---|---|
| Revenues | Intersegment | Operating | Headcount | ||||||
| Other Than | Revenues | Revenues | as at | ||||||
| Intersegment | June 30 | ||||||||
| Revenues | |||||||||
| (CZK millions) (CZK millions) (CZK millions) (CZK millions) (CZK millions) (CZK millions) (CZK millions) (CZK millions) | (persons) | ||||||||
| Generation—Traditional Energy | |||||||||
| H1 2017 | 27,763 | 15,372 | 43,135 | 12,733 | 4,813 | (563) | 13,818 | 5,120 | 6,618 |
| H1 2018 | 22,118 | 16,901 | 39,019 | 9,549 | 1,310 | 340 | 29,647 | 2,385 | 6,880 |
| Gneration—New Energy | |||||||||
| H1 2017 | 2,175 | 407 | 2,582 | 2,324 | 1,207 | (119) | 931 | 173 | 57 |
| H1 2018 | 2,447 | 278 | 2,725 | 2,152 | 1,276 | (60) | 1,092 | 117 | 133 |
| Distribution | |||||||||
| H1 2017 | 14,493 | 14,450 | 28,943 | 10,046 | 6,943 | (1,249) | 5,575 | 5,279 | 8,212 |
| H1 2018 | 11,591 | 12,230 | 23,821 | 9,973 | 6,892 | (1,241) | 5,602 | 5,342 | 8,353 |
| Sales | |||||||||
| H1 2017 | 53,066 | 2,356 | 55,422 | 2,732 | 2,692 | (511) | 2,067 | 39 | 2,309 |
| H1 2018 | 46,802 | 6,436 | 53,238 | 2,129 | 1,970 | (349) | 1,620 | 134 | 5,271 |
| Mining | |||||||||
| H1 2017 | 2,211 | 2,367 | 4,578 | 2,095 | 938 | (179) | 1,341 | 331 | 2,692 |
| H1 2018 | 2,302 | 2,361 | 4,663 | 2,029 | 877 | (160) | 1,187 | 273 | 2,653 |
| Other | |||||||||
| H1 2017 | 1,175 | 7,177 | 8,352 | 1,378 | 645 | (153) | 5,439 | 3,118 | 7,068 |
| H1 2018 | 1,039 | 5,509 | 6,548 | 1,057 | 348 | (138) | 498 | 1,168 | 7,102 |
| Elimination | |||||||||
| H1 2017 | – | (42,129) | (42,129) | 3 | 3 | – | (12,513) | (2,147) | – |
| H1 2018 | – | (43,715) | (43,715) | 4 | 4 | – | (31,931) | (457) | – |
| Consolidated | |||||||||
| H1 2017 | 100,883 | – | 100,883 | 31,311 | 17,241 | (2,774) | 16,658 | 11,913 | 26,956 |
| H1 2018 | 86,299 | – | 86,299 | 26,893 | 12,677 | (1,608) | 7,715 | 8,962 | 30,392 |
Segments and Their Contributions to CEZ Group's Financial Performance
The EBITDA of CEZ Group's most important segment, Generation—Traditional Energy, decreased by CZK 3.2 billion, of which CZK 3.1 billion in Czechia. The decrease was primarily due to revaluation of hedges for electricity generation in the second half of 2018, reflecting an increase in market electricity prices (CZK -1.2 billion)1 , lower realization prices of generated electricity in the first half-year including the effect of hedges (CZK -0.2 billion), and higher expenses on emission allowances for generation (CZK -1.0 billion). In addition, there was a negative year-on-year effect of decreased generation at the Počerady CCGT plant (CZK -0.3 billion) and coal-fired power plants (CZK -0.2 billion) and higher cost of generating facility maintenance (CZK -0.3 billion). The year-on-year comparison is also negatively affected by the positive effect of the settlement agreement with Sokolovská uhelná in 2017 (CZK -0.7 billion). In contrast, there was a positive effect of increased generation at nuclear power plants (CZK +0.6 billion) and higher revenue from commodity trading (CZK +0.3 billion). EBITDA in Poland decreased by CZK 0.1 billion due to lower amounts of heat supplied (CZK -0.1 billion) primarily due to climatic conditions.
The Generation–New Energy segment's EBITDA decreased by CZK 0.2 billion. In Romania, it decreased by CZK 0.3 billion primarily due to lower allocation of green certificates to wind farms, which have been allocated just one certificate per MWh generated since January 1, 2018, as opposed to two certificates allocated in 2017 (CZK -0.5 billion). The decrease was partially offset by higher selling prices of electricity (CZK +0.1 billion). In Germany, EBITDA increased by CZK 0.1 billion due to the acquisition of wind parks with an installed capacity of 35.4 MW at Lettweiler Höhe (in CEZ Group's portfolio since September 2017). In Czechia (CZK +0.1 billion), it was helped by higher generation and selling prices of electricity.
The EBITDA of the Distribution segment barely changed year-on-year and was CZK 10.0 billion. A year-on-year increase of CZK 0.1 billion was achieved in Czechia thanks to higher gross margin on electricity distribution. The higher margin was primarily due to a year-on-year increase in permitted revenue, partially offset by higher fixed expenses due to an increase in the number of employees related to increased investments in the distribution system and a negative effect of the application of IFRS 15 on revenues from activities to ensure power input and connection (CZK +0.3 billion). The result was negatively affected by higher additions to allowances on receivables (CZK -0.2 billion). There was a minor decrease in Romania (CZK -0.1 billion) and Bulgaria (CZK -0.1 billion), which were also affected by the application of IFRS 15 on revenues from activities to ensure power input and
1 This temporary negative effect will be offset in the second half of 2018 because supplies of generated electricity will be realized at a price CZK 1.2 billion higher than the nominal value of hedge contracts.
connection. Other causes of the decrease were higher fixed operating expenses (especially personnel expenses and facility maintenance) in Romania and higher expenses to cover grid losses (lower amount of losses but higher prices of electricity purchased to cover the losses) in Bulgaria.
The Sales segment reported a year-on-year decrease of CZK 0.6 billion in EBITDA. A decrease in Czechia (CZK -0.6 billion) was due to ČEZ Prodej's lower gross margin resulting primarily from higher expenses on purchases of electricity (CZK -0.5 billion) and gas (CZK -0.2 billion) and was partially offset by higher margin on sales of energy services. A decrease in Bulgaria (CZK -0.5 billion) was due to the positive effect of an out-of-court settlement agreement made between CEZ Elektro Bulgaria and state-owned energy company NEK in 2017 (CZK -0.4 billion). EBITDA in Romania increased by CZK 0.3 billion due to higher gross margin related to delayed reflection of actual expenses on electricity purchases in regulated prices for end-use customers. Thanks to the acquisition of the Elevion group, which has been included in CEZ Group's consolidated results since September 2017, EBITDA in Germany increased by CZK 0.1 billion year-on-year.
The Mining segment's EBITDA decreased by CZK 0.1 billion as compared to the first half of 2017, primarily due to lower coal consumption by CEZ Group companies, which was partially offset by higher sales to external customers. There was also a negative effect of higher fixed expenses and changed frequency of payments for mined minerals.
The Other segment reported a decrease of CZK 0.3 billion in EBITDA, primarily in relation to a decrease in intragroup deliveries and margins in Czechia.
Overview of Receivables from and Payables to Related Parties (CZK Millions)
| Receivables | Payables | |||
|---|---|---|---|---|
| December 31, | June 30, 2018 | December 31, | June 30, 2018 | |
| 2017 | 2017 | |||
| ČEZ Energo, s.r.o. | 83 | 44 | 23 | 9 |
| LOMY MOŘINA spol. s r.o. | 2 | 1 | 12 | 18 |
| Elevion Co-Investment GmbH & Co. KG | – | – | 124 | 125 |
| Ústav aplikované mechaniky Brno, s.r.o. | 7 | 1 | 44 | 9 |
| Výzkumný a zkušební ústav Plzeň s.r.o. | 49 | 54 | 2 | 1 |
| Others | 27 | 15 | 16 | 6 |
| Total | 168 | 115 | 221 | 168 |
Sales to and Purchases from Related Parties (CZK Millions)
| Sales to related parties | Purchase from related parties | |||
|---|---|---|---|---|
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | |
| Akcez Enerji A.S. | 13 | 6 | – | – |
| Akenerji Elektrik Üretim A.S. | 14 | 8 | – | – |
| ČEZ Energo, s.r.o. | 147 | 129 | 139 | 57 |
| LOMY MOŘINA spol. s r.o. | 5 | 5 | 93 | 93 |
| Teplo Klášterec s.r.o. | 32 | 30 | – | – |
| Ústav aplikované mechaniky Brno, s.r.o. | 4 | 1 | 23 | 27 |
| VLTAVOTÝNSKÁ TEPLÁRENSKÁ a.s. | 16 | 16 | 1 | 1 |
| Others | 22 | 5 | 26 | 12 |
| Total | 253 | 200 | 282 | 190 |
Interest and Revenue from Shares of Profit Received—Related Parties (CZK Millions)
| Interest and other financial | Interest and other financial income | Dividend income | ||||
|---|---|---|---|---|---|---|
| expenses | ||||||
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | |
| Akcez Enerji A.S. | – | – | 9 | 7 | – | – |
| CM European Power International B.V. 1) | – | – | – | – | 208 | – |
| Elevion Co-Investment GmbH & Co. KG | – | 4 | – | – | – | – |
| LOMY MOŘINA spol. s r.o. | – | – | – | – | 11 | 5 |
| Sakarya Elektrik Dagitim A.S. | – | – | 1 | 3 | – | – |
| Výzkumý ústav pro hnědé uhlí a.s. | – | – | – | – | 11 | – |
| Total | – | 4 | 10 | 10 | 230 | 5 |
1) Related party until December 31, 2017, when its liquidation was completed.
As at August 7, 2018, CEZ Group estimated 2018 consolidated operating income before depreciation and amortization, impairments including goodwill amortization, and sales of fixed assets (EBITDA) at CZK 51 to 53 billion. The outlook anticipates that CEZ Group will generate a total of 64 TWh of electricity in 2018, including almost 30 TWh at nuclear power plants and almost 29 TWh at coal-fired power plants.
EBITDA is estimated to decrease year-on-year primarily due to specific year-on-year effects totaling CZK 3 billion, including the valuation of green certificates for Romanian wind parks (allocated in the past) in 2017 (CZK -0.8 billion), lower allocation of green certificates to Romanian wind parks since January 1, 2018 (CZK -0.7 billion), the settlement agreement made with Sokolovská uhelná in 2017 (CZK -0.7 billion), the effect of the out-of-court settlement agreement made with Bulgarian state-owned company NEK in 2017 (CZK -0.4 billion), and better-than-average revenue from commodity trading in 2017.
CEZ Group estimates its 2018 adjusted net income at CZK 12 to 14 billion. The estimated year-onyear decrease is primarily due to lower EBITDA as well as the effect of termination of MOL shareholding in 2017 (CZK -4.5 billion), lower interest capitalization (CZK -1.3 billion), and revenue from the sale of real property in Prague in 2017 (CZK -1.1 billion). The use of an interval in the prediction of CEZ Group's 2018 EBITDA and net income is primarily caused by the following risks and opportunities: payment of SŽDC debt from 2011, availability of generating facilities, and possible new RES and ESCO acquisitions.
CEZ Group estimates its 2018 capital expenditures at approximately CZK 30 billion, with a majority planned to be invested in generation and distribution assets in Czechia.
No major changes are expected in the overall structure of assets from which the income for 2018 will be generated.
Capital Expenditures (CZK Millions)
| H1 2017 | H1 2018 | |
|---|---|---|
| Additions to property, plant and equipment and other non-current assets, including capitalized interest |
13,791 | 10,013 |
| Additions to property, plant and equipment | 11,552 | 8,847 |
| of which: nuclear fuel procurement | 1,744 | 1,088 |
| Additions to intangibles | 361 | 115 |
| Additions to long-term financial assets | 108 | – |
| Change in balance of liabilities attributable to capital expenditure |
1,770 | 1,051 |
| Financial investments 1) | 95 | 289 |
| Capital expenditures, total | 13,886 | 10,302 |
1) Acquisition of subsidiaries and joint venture, net of cash acquired.
| Additions to Property, Plant, and Equipment and Intangibles (CAPEX), by Type (CZK millions) Czechia |
Germany | France | Poland | Romania | Bulgaria | Other | Total | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | |
| Mining | 331 | 273 | – | – | – | – | – | – | – | – | – | – | – | – | 331 | 273 |
| Generation—Traditional energy | 5,091 | 2,356 | – | – | – | – | 29 | 29 | – | – | – | – | – | – | 5,120 | 2,385 |
| of which: nuclear fuel procurement | 1,744 | 1,075 | – | – | – | – | – | – | – | – | – | – | – | – | 1,744 | 1,075 |
| Generation—New energy | – | – | 28 | – | – | 1 | 14 | 4 | 131 | 111 | – | – | – | – | 173 | 117 |
| Distribution | 3,878 | 4,329 | – | – | – | – | – | – | 738 | 574 | 663 | 439 | – | – | 5,279 | 5,342 |
| Sales | 38 | 56 | – | 72 | – | – | – | 2 | – | – | – | 3 | 1 | 1 | 39 | 134 |
| Other 1) 2) | 932 | 692 | 1 | 1 | – | – | 2 | 3 | 18 | 15 | 18 | – | – | – | 971 | 711 |
| Total | 10,271 | 7,707 | 28 | 73 | – | 1 | 45 | 38 | 886 | 701 | 681 | 442 | 1 | 1 | 11,913 | 8,962 |
| 1) Including the value of inter-segment elimination | 2) Including the purchases of nuclear fuel by Centrum výzkumu Řež |
Electricity Procured and Sold (GWh)
| H1 2017 | H1 2018 | 2018/2017 | |
|---|---|---|---|
| Index (%) | |||
| Electricity procured | 28,640 | 27,584 | 96.3 |
| Generation | 31,816 | 30,743 | 96.6 |
| In-house and other consumption, including pumping in pumped-storage plants |
(3,176) | (3,159) | 99.5 |
| Sold to end-use customers | (18,897) | (19,043) | 100.8 |
| Wholesale balance | (7,440) | (6,467) | 86.9 |
| Sold in the wholesale market | (126,442) | (157,386) | 124.5 |
| Purchased in the wholesale market | 119,003 | 150,919 | 126.8 |
| Grid losses | (2,304) | (2,074) | 90.0 |
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| Czechia | Germany | Poland | Romania | Bulgaria | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | ||
| Nuclear | 13,876 | 14,851 | 13,876 | 14,851 | |||||||||
| Coal | 13,652 | 12,006 | – – |
– – |
– 1,164 |
– 1,164 |
– – |
– – |
– – |
– – |
14,816 | 13,170 | |
| Hydro | 1,132 | 1,133 | – | – | 5 | 3 | 43 | 46 | – | – | 1,180 | 1,181 | |
| Biomass | 298 | 246 | – | – | 87 | 120 | – | – | – | – | 385 | 366 | |
| Photovoltaic | 73 | 72 | – | – | – | – | – | – | 3 | 3 | 76 | 75 | |
| Wind | 3 | 5 | 97 | 142 | – | – | 654 | 593 | – | – | 754 | 740 | |
| Natural gas | 727 | 358 | – | – | – | – | – | – | – | – | 727 | 358 | |
| Biogas | 2 | 2 | – | – | – | – | – | – | – | – | 2 | 2 | |
| Total | 29,763 | 28,673 | 97 | 142 | 1,256 | 1,286 | 697 | 639 | 3 | 3 | 31,816 | 30,743 | |
| Electricity Sold to End-Use Customers (GWh) | Czechia | Poland | Romania | Bulgaria | Slovakia | Hungary | Total | ||||||
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | |
| Large end-use customers | 4,283 | 4,158 | 1,317 | 1,259 | 434 | 330 | 1,943 | 2,342 | 778 | 900 | 596 | 758 | 9,350 |
| Commercial retail | 1,084 | 1,042 | 140 | 135 | 415 | 444 | 808 | 775 | 59 | 78 | – | – | 2,506 |
| Residential | 3,779 | 3,719 | – | – | 865 | 868 | 2,331 | 2,235 | 65 | – | – | – | 7,040 |
| Total | 9,146 | 8,919 | 1,457 | 1,394 | 1,714 | 1,642 | 5,082 | 5,353 | 902 | 977 | 596 | 758 | 18,897 |
| Czechia | Poland | Romania | Bulgaria | Slovakia | Hungary | Total | ||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| H1 2017 | H1 2018 H1 2017 | 2018 E |
2017 ř |
2018 $\overline{\pm}$ |
H1 2017 | 2018 $\overline{\pm}$ |
2017 $\overline{\pm}$ |
2018 £ |
H1 2017 | 2018 E |
H1 2017 | H1 2018 | ||
| arge end-use customers | 4,283 | 4,158 | 1,317 | 259 | 330 | 2,342 | 778 | ဓ္ဌ | 596 | 758 | 9,350 | |||
| Commercial retail | ,042 | 140 | 135 | $rac{4}{3}$ $rac{4}{6}$ $rac{8}{6}$ | 444 | $\frac{1,943}{808}$ 2,331 |
775 2,235 |
59 | 78 | I | ı | $\frac{2,506}{7,040}$ | $\frac{9,747}{2,475}$ | |
| Residential | $\frac{1,084}{3,779}$ | 3,719 | I | I | 868 | 65 | I | I | I | 6,821 | ||||
| Total | 9,146 | 8,919 | 1,457 | 1,394 | 1,714 | 1,642 | 5,082 | 5,353 | go | 576 | 596 | 758 | 18,897 | 19,043 |
| Czechia | Germany | Poland | Romania | Bulgaria | Total | |||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | |
| Nuclear power plants | 4,290 | 4,290 | – | – | – | – | – | – | – | – | 4,290 | 4,290 |
| CCGT power plants | 845 | 845 | – | – | – | – | – | – | – | – | 845 | 845 |
| Coal-fired power plants | 5,533 | 6,193 | – | – | 678 | 678 | – | – | 1,260 | – | 7,471 | 6,871 |
| and heating plants | ||||||||||||
| Hydro power plants | 1,960 | 1,961 | – | – | 2 | 2 | 22 | 22 | – | – | 1,985 | 1,986 |
| Photovoltaic power plants | 125 | 125 | – | – | – | – | – | – | 5 | 5 | 130 | 130 |
| Wind power plants | 8 | 8 | 98 | 134 | – | – | 600 | 600 | – | – | 706 | 742 |
| Biogas power plants | 1 | 1 | – | – | – | – | – | – | 2 | – | 2 | 1 |
| Total | 12,762 | 13,423 | 98 | 134 | 681 | 681 | 622 | 622 | 1,267 | 5 | 15,430 | 14,864 |
Installed Capacity by Type of Generation and Country (MW)
Heat Supplied and Sold (TJ)
| Heat supplied | External heat sales | |||
|---|---|---|---|---|
| for heating purposes | (outside CEZ Group) | |||
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | |
| Czechia | 12,443 | 11,654 | 10,268 | 9,719 |
| Poland | 3,538 | 3,238 | 3,470 | 3,138 |
| CEZ Group, total | 15,981 | 14,892 | 13,737 | 12,857 |
Natural Gas Procured and Sold (GWh)
| H1 2017 | H1 2018 | 2018/2017 Index (%) |
|
|---|---|---|---|
| Procured | 98,029 | 108,976 | 111.2 |
| Of which: External suppliers | 97,741 | 108,712 | 111.2 |
| OTE | 288 | 264 | 91.6 |
| Removed from storage | 2,224 | 2,344 | 105.4 |
| Sold | (96,859) | (108,494) | 112.0 |
| Of which: Trading | (91,141) | (103,000) | 113.0 |
| External large end-use customers | (2,158) | (1,957) | 90.7 |
| Medium-sized end-use customers | (496) | (914) | 184.2 |
| Small end-use customers | (706) | (671) | 95.0 |
| Residential | (2,047) | (1,664) | 81.3 |
| OTE | (311) | (288) | 92.6 |
| Placed in storage | (1,819) | (1,951) | 107.3 |
| Consumed in-house | (1,576) | (874) | 55.5 |
Electricity Distributed by CEZ Group (GWh)
| Czechia | Romania | Bulgaria | Total | |||||
|---|---|---|---|---|---|---|---|---|
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | |
| Electricity distributed to end-use customers |
18,337 | 18,299 | 3,298 | 3,407 | 4,976 | 4,891 | 26,611 | 26,598 |
Czechia
| Generation— | Generation— | Total | |||||
|---|---|---|---|---|---|---|---|
| Unit | Traditional Energy | New Energy | |||||
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | ||
| Electricity generation | GWh | 29,573 | 28,473 | 190 | 199 | 29,763 | 28,673 |
| External heat sales | TJ | 10,268 | 9,719 | – | – | 10,268 | 9,719 |
Germany
| Unit | Generation— Traditional Energy |
Generation— New Energy |
Total | ||||
|---|---|---|---|---|---|---|---|
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | ||
| Electricity generation | GWh | – | – | 97 | 142 | 97 | 142 |
| External heat sales | TJ | – | – | – | – | – | – |
| Unit | Traditional Energy | Generation— | Generation— New Energy |
Total | |||
|---|---|---|---|---|---|---|---|
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | ||
| Electricity generation | GWh | 1,256 | 1,286 | – | – | 1,256 | 1,286 |
| External heat sales | TJ | 3,470 | 3,138 | – | – | 3,470 | 3,138 |
| Unit | Generation— Traditional Energy |
Generation— New Energy |
Total | ||||
|---|---|---|---|---|---|---|---|
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | ||
| Electricity generation | GWh | – | – | 697 | 639 | 697 | 639 |
| External heat sales | TJ | – | – | – | – | – | – |
| Unit | Generation— Traditional Energy |
Generation— New Energy |
Total | ||||
|---|---|---|---|---|---|---|---|
| H1 2017 | H1 2018 | H1 2017 | H1 2018 | H1 2017 | H1 2018 | ||
| Electricity generation | GWh | – | – | 3 | 3 | 3 | 3 |
| External heat sales | TJ | – | – | – | – | – | – |
The Operations Team's primary task is to carry out activities supporting CEZ Group's first strategic priority, namely to be among the best in the operation of traditional power facilities, in order to help create good conditions for the Company's financial strength.
Its key tasks include concentration on high operational safety and operational efficiency. This involves above all ensuring the long-term operation of nuclear power plants at both operated sites and developing projects for new nuclear power plants depending on the Czech state's attitude to both their funding and the development of nuclear energy in general. As regards conventional facilities, the Operations Team gives priority to brown coal-fired power plants adjacent to open-pit brown coal mines operated by CEZ Group. It will prepare the phaseout of older condensing units.
The following significant legislation relevant to the energy sector was amended in the first half of 2018:
• Act No. 254/2001 Sb., on waters and on amendment to some acts
The amendment focused on two aspects; one was making several transposition adjustments to remedy insufficient implementation of EU law. In terms of impacts on the energy sector, the more important aspect was a predominantly formal modification of procedures (technical adjustments to the legislation) relating to fees for groundwater extraction and wastewater discharge to surface water. For example, the amendment abolished the system for making and reporting the method of calculation of advance payments for the discharge of wastewater. This will also slightly reduce the administrative burden, as administration associated with the system of advance payments outweighed the actual benefit of the system of advance payments for the operators of chargeable facilities. After the amendment, the operator of a chargeable facility will calculate and directly pay the fee once a year. As for the level of fees, there were no changes that would affect CEZ Group's financial performance. The amendment is set to enter into effect on January 1, 2019.
Furthermore, some decrees were amended:
• Decree No. 145/2016 Sb., on the reporting of energy from promoted sources
The amendment to the decree on the reporting of electricity and heat from promoted sources and implementing some other provisions of the act on promoted energy sources rectified ambiguities in interpretation occurring in the application of the amended provisions in the decree in relation to deadlines for submitting information on electricity and heat generation to the market operator.
In connection with a change in legislation concerning land use planning and the building code (amendment to Act No. 183/2006 Sb., Building Act, which was made in 2017 with effect from January 1, 2018), changes were also made to its related and implementing regulations. An amendment to Decree No. 499/2006 Sb., on building documentation, entered into effect concurrently with the Building Act. Another amendment to Decree No. 500/2006 Sb., on zoning data, planning documents, and manner of recording planning activities, and an amendment to Decree No. 503/2006, on detailed rules for land use permit proceedings, land use measures, and the building code, were published in the Collection of Laws and entered into effect in the first half of 2018. With respect to the amendments to the two decrees promulgated in the first half of 2018, the more eagerly awaited one was the amendment to decree No. 503, published in April 2018, as it sets down detailed requirements for an application for a decision and the contents of individual types of decisions issued under the Building Act. This information is crucial both for applicants, so that they know what information they should submit to the building authority, and for the building authority in the formulation of a decision/permit.
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In conventional energy, electricity generation at CEZ Group generating facilities was 13,623 GWh in the first half of 2018, as compared to 15,698 GWh in the first half of 2017.
Coal-fired power plants (biomass excluded) generated 12,006 GWh of electricity, that is, 1,646 GWh less than in the same period of 2017. The largest drop was in the generation of the Dětmarovice power plant, which has operated on a limited scale since a fire in 2017, resulting in a decrease of 705 GWh year-on-year. Other year-on-year decreases in generation occurred at the Prunéřov II and Mělník III power plants, in particular. By contrast, there was a positive year-on-year effect of increased generation by the new Ledvice 4 power plant unit.
The Počerady II CCGT plant generated 358 GWh of electricity, that is, 369 GWh less year-on-year, due to less favorable spot market prices of electricity and gas in 2018.
Generation from biomass amounted to 246 GWh, that is, 52 GWh less year-on-year. This was due to lower biomass utilization in generation at the Hodonín power plant.
Generation by large hydroelectric power plants was 1,012 GWh, that is, 7 GWh less year-on-year, with the most significant drop in generation registered at the Lipno and Slapy power plants.
In conventional energy, we continued with preparatory, designing, and implementing work for projects concerning plant renovation and the maximization of operational safety, efficiency, and environmental friendliness, giving priority to projects enabling plant operation after 2020 when new BREF limits (applied to integrated permits issued to polluters) are to enter into force.
As at June 30, 2018, conventional generating facilities operated by CEZ Group in Czechia had a total installed capacity of 8,930.6 MW (coal-fired power plants and heating plants: 6,192.9 MW; CCGT plants: 844.9 MW; hydroelectric and pumped-storage plants: 1,892.8 MW).
The start of two-year pilot operation at the new unit of the Ledvice brown coal-fired power plant increased the installed capacity by a total of 660 MW as compared to June 30, 2017. The installed capacity decreased slightly due to the disassembly and termination of license of the Dukovany photovoltaic installation (-10 kW).
Generation by conventional coal-fired power plants is estimated at 25.5 TWh in 2018. Generation will decrease, in particular, at the Mělník III and Dětmarovice power plants, while increased generation is anticipated at the Ledvice 4 and Tušimice power plants.
Hydroelectric power plants are estimated to generate the same amounts of electricity as in 2017.
A total of 9,719 TJ of heat was supplied to customers from CEZ Group's facilities in Czechia in the first half of 2018, which represented a 5% decrease (549 TJ) compared to the same period of 2017. This was primarily due to lower amounts of heat supplied by the Energotrans facility.
Total generation of heat for heating purposes is estimated to remain at the 2017 level, representing approximately 21,000 TJ.
ČEZ's nuclear power plants were operated in compliance with applicable nuclear energy legislation, fulfilling the conditions of all valid licenses. Their operation has had a negligible impact on the environment and the populace. The physical protection systems at the two nuclear power plants are maintained at Level 1 of 4. We continued implementing the requirements of the new Atomic Energy Act and its implementing decrees.
In the wake of the new nuclear legislation, we issued our Nuclear Safety Policy aiming to protect people and the environment from the effects of ionizing radiation through the safe operation of ČEZ's nuclear facilities. The policy includes annual assessments, updates, and implementation of the nuclear power plants' Safety Enhancement Plans. The assessments and updates are carried out every April and submitted to the State Officer for Nuclear Safety (SÚJB).
Since January 2018, all four units have been operated on the basis of the Decision of the State Office for Nuclear Safety in which it approved the operation of the units under certain conditions the fulfillment of which is regularly reviewed and documented.
We gradually undertake modernization work on radiation protection-related systems for further power plant operation, completely rebuilding the Electronic Personal Dosimetry System and reconstructing the radiation protection system of the radioactive waste processing facility; we also continued with a multi-year project to upgrade sub-distribution switchgear.
The first-ever cooperation exercise of the Czech Army, the Czech Police, and ČEZ, a. s., that aimed to prepare participants for the defense and protection of facilities important for national defense took place in April; in this case, the facility was the Dalešice pumped-storage hydroelectric power plant, whose reservoir is the source of cooling water for the Dukovany Nuclear Power Plant.
An "RWR Event" exercise took place in May to test the capability of personnel present on the Radioactive Waste Repository (RWR) site to report an event to appropriate points at the Dukovany Nuclear Power Plant.
"Radiation Incident Using DAM Equipment" exercises took place in May and June to test personnel activities when using DAM (diverse and mobile) equipment to resolve an event and train them in using DAM equipment.
Since the beginning of the year, work has been fully underway on the Periodic Safety Review (PSR ETE 20), which is undertaken at ten-year intervals. The Periodic Safety Review (PSR) is an internationally widely applied tool for thoroughly assessing the condition of key areas affecting safety and specifying technical and organizational improvements to be made in order to remedy any identified deviations from current national and internationally recognized safety standards and practices.
The nuclear fuel reserve was replenished in May and it now allows the nuclear power plant to be operated for at least two years even if fuel deliveries were suspended.
The "Radiation Incident and Environmental Event Response" emergency exercise took place in April with the involvement of the WANO regional crisis center (Moscow).
Two emergency response exercises took place in May. The first full-site exercise took place with the involvement of the State Office for Nuclear Safety. It included practicing the sheltering of all site staff except operators, health center personnel, and kitchen staff, as well as a training callout of mobile monitoring groups, which practiced sample collection and radioactivity measurement in the power plant's neighborhood. The theme of the second exercise was "Response to a Radiation Incident— Large Aircraft Crash" and it aimed to test the activities of the emergency response organization at the Temelín Nuclear Power Plant following a large commercial aircraft crashing right on the power plant site.
Nuclear power plants generated 14,851 GWh of electricity in the first half of 2018, or 975 GWh more year-on-year. The Dukovany Nuclear Power Plant generated 1,555 GWh more, primarily due to generation stabilization following extensive inspections of welded joints, and the Temelín Nuclear Power Plant generated 580 GWh less due to a scheduled outage at the beginning of 2018.
At the Dukovany Nuclear Power Plant, work continued in the first half-year on projects started in previous years, focusing on the enhancement of nuclear safety and necessary equipment renovation. Preparatory, implementation, and completion work was also initiated under capital construction projects relating to upgrading, stabilizing, securing, and improving the efficiency of generation in relation to the extension of operation. Preparatory work and selection procedures were underway for projects aimed to fulfill legislative requirements arising from the amended Atomic Energy Act.
At the Temelín Nuclear Power Plant, work on projects from previous years continued in the first halfyear; preparatory, implementation, and completion work was initiated under capital construction projects aimed at enhancing nuclear safety, fulfilling legislative requirements arising from the amended Atomic Energy Act, or undertaking necessary equipment renovation.
Documents named "Procedure for the Preparation and Construction of New Nuclear Power Plants at Dukovany and Temelín" and "Analysis of Selected Investment Models for the Construction of New Nuclear Power Plants and the Manner of Their Financing" were prepared. These documents were debated at the 9th meeting of the standing government committee on nuclear energy on May 17, 2018. This will be followed by the preparation of individual tasks and the submission of a proposal for NNPP investment arrangements and manner of financing to the government; the government should take a decision on further steps in the preparation of the NNPP projects in December.
As regards the Dukovany NNPP project, the year 2035 was set out as the optimum deadline for the completion of construction of a new unit at Dukovany. The preparation of an opinion on the EIA report was started. Intergovernmental consultations with Germany and Austria took place. Public hearings concerning the Dukovany NNPP EIA took place in Budapest, Hungary, and public discussions were held in Vienna, Austria, and Munich, Germany. In Czechia, a public hearing concerning the Dukovany NNPP EIA took place in Třebíč on June 19, 2018. A proposal is being prepared for the contents of individual chapters of documentation for the issue of a siting decision; support documents are being prepared for the incorporation of the Dukovany NNPP project, including related and induced investments, in all levels of planning documentation.
Conditions arising from the obtained EIA opinion are being fulfilled for the Temelín NNPP project. Support documents for a siting application for Temelín Units 3 and 4 are being updated. A concept is being prepared for engineering arrangements for the project preparation stage, which will be prepared in relation to the investment and business model chosen by the government. There is continued collaboration with ČEPS and precontract fulfillment and collaboration with the Southern Bohemia Regional Authority and state-owned enterprise Povodí Vltavy. A proposal is being prepared for the contents of individual chapters of documentation for the issue of a siting decision for the nuclear plant site, support documents are being prepared for a change to the local plan of the municipality of Temelín, and support documents for a siting application for Temelín Units 3 and 4 are being updated.
As at June 30, 2018, CEZ Group's installed capacity at nuclear power plants remained unchanged year-on-year, being 4,290 MW (2,040 MW at Dukovany, 2,250 MW at Temelín).
Nuclear power plants are estimated to increase their production to a total of 29.8 TWh, that is, by 1.5 TWh as compared to the year 2017, which was significantly affected by finishing weld inspections and related prolonged unit outages. There is also a positive effect of the early completion of a scheduled outage at Temelín Unit 1, during which its achievable capacity was increased by 2 MWe.
A standard refueling-related outage of Unit 2 of the Temelín Nuclear Power Plant is underway; the reconstruction of the drain of the high-pressure flow part of the turbine, postponed from 2017, will also be carried out during the outage. The reconstruction is expected to increase the achievable capacity of Unit 2 by 2 MWe.
Refueling outages will occur at the Dukovany Nuclear Power Plant in 2018. In addition to those standard tasks, steps to further improve operational efficiency will be taken on all units. Moreover, Units 1 and 2 will have their sub-distribution switchgear reconstructed and Unit 4 will undergo a regular revision of its turbines and generators after eight years.
Nuclear R&D included the performance of tests and analyses of segments of fuel cladding tubes irradiated in the reactor core with the aim of obtaining more detailed information on the behaviour of these materials. The implementation of another project, the testing of increased concentration of circulating cooling water at the Dukovany Nuclear Power Plant, will result in reduced consumption of water for the operation of generating units. Non-nuclear R&D included pilot spectrometric combustion chamber measurement to improve the flexibility and emission parameters of the combustion process in pulverized coal boilers.
Two projects of the Technology Agency of the Czech Republic (TA CR) were started, focusing on the implementation of measures to reduce mercury emissions at coal-fired power plants and the collection of information on the stability of steels used in modern generating units. We continued participating in two large TA CR projects, supported under Competence Center programs, focusing on diagnostic methods for steam turbines and waste-to-energy methods.
We also started McSafe, a project that uses Monte Carlo simulation method for advanced simulations light-water nuclear reactors' core..
Trading in electricity and other energy commodities in each European country where CEZ Group operates is organized centrally by the parent company ČEZ. This involves the following activities:
In the first half of 2018, ČEZ continued trading under active control, which includes intraday trading optimization of production positions of CEZ Group across European electricity markets, including optimization outside working hours. Active control includes business operations motivated by the utilization of the flexibility of CEZ Group's generating facilities. Like any market participant, ČEZ is a clearing entity responsible for any deviation and its financial settlement with the market operator. ČEZ seeks to minimize the cost of deviations caused by unplanned outages of facilities or inaccurate predictions through active control, reserve planning and dispatching management of the Company's generating facilities.
ČEZ was also the provider of ancillary services for the transmission system operator in Czechia.
In the first half of 2018, ČEZ sold electricity for delivery in 2019 to 2024, particularly through standard products (one-year, one-quarter, one-month) in the OTC market and at exchanges. It also sold electricity at spot exchanges and intraday platforms. In wholesale markets, it made hedges for future sales of electricity generated by corporate plants, hedges for future provisioning of electricity for enduse customers, and purchases of electricity in case of corporate plant outages.
Proprietary trading primarily involves commodities that are traditional for ČEZ, a. s., such as electricity or emission allowances, which are traded both in OTC markets and on energy exchanges, e.g. the European Energy Exchange (EEX) in Leipzig, Germany. Other traded commodities included natural gas in the form of futures products on the Intercontinental Exchange (ICE) in London, the European EEX, and other trading platforms. Last but not least, ČEZ trades in hard coal using futures-type products on the ICE in London and the OTC market in commodity coal swaps. In the first half of 2018, it also traded in options with electricity as their underlying assets, gas, EUAs, and oil with financial settlement.
ČEZ engaged in proprietary trading in the majority of EU markets as well as in Switzerland and in the electricity market in Serbia in the first half of 2018.
ČEZ expanded its trading activities to new markets such as Slovenia, Belgium, Croatia, and Lithuania. Besides electricity, in which it trades in 19 countries, it also trades in natural gas, hard coal, oil products, and emission allowances.
There are specific risk management frameworks for all trading and dealing activities, which define allowed products, time frames, counterparties, and especially market and credit rules and limits on the basis of stop-loss orders (closing a position when a certain loss is made), value at risk, current credit exposure, and future credit exposure. Adherence to the limits is reviewed daily and any excesses are dealt with in accordance with the applicable risk management framework.
In addition, proprietary trading has been regulated by the European Union since 2011 as a result of wholesale market regulation.
In December 2017, the Capacity Market Act introduced support in the form of additional remuneration (capacity payments) for energy companies for their power plants being able to deliver required capacity for a contracted period if necessary, for example, in case of electricity shortage.
The government expects that energy companies with such additional income will be able to fund upgrades to or construction of new units. The goal is to make the period for which a power plant can be awarded such a contract grow with the size of investment—existing, upgraded, and newly built facilities can get a 1-year, 5-year, and 15-year contract, respectively. Long-term contracts will also be awarded to units with low CO2 emissions and those that supply a sufficient amount of heat to local and municipal heating systems.
CEZ Group's power plants in Poland—Skawina and Chorzów—were entered in the capacity market register of existing and planned units. As regards the Skawina power plant, three existing turbine generators were certified with an indicated gross/net capacity of 285 MW/240 MW. In addition, a planned Skawina OCGT (Open Cycle Gas Turbine) unit was registered (indicated gross/net capacity 200 MW/197 MW). Two units were certified at the Chorzów power plant, each with a gross/net capacity of 113 MW/102 MW.
Public consultations on a bill proposing new support for cogeneration finished on April 20, 2018. The law is expected to enter into effect on January 1, 2019. The proposed system of support anticipates separate regulations for new and upgraded units—for installations from 1 MW to 50 MW (in the form of a "pay-as-bid" auction system, in which the bidder gets the price they bid at), for existing and upgraded units from 1 MW to 50 MW (in the form of a premium set down by an ordinance annually). Units with a capacity less than 1 MW will receive support in the form of a feed-in-premium, that is, a market price markup. Support for generating facilities with a capacity greater than 50 MW will be specified individually for each specific facility by the Energy Regulatory Office. Support for units with a capacity exceeding 300 MW must be approved by the European Commission.
According to the current interpretation of the Energy Regulatory Office, participation in the capacity market prevents participation in the cogeneration support system for both new and existing generating units.
CEZ Group's coal-fired power plants in Poland generated 1,283 GWh of electricity in the first half of 2018, that is, 32 GWh (+3%) more than in the same period of 2017. The Borek Szlachecki small hydropower plant generated 2.1 GWh of electricity and the Skawinka small hydropower plant generated 0.7 GWh of electricity.
The Chorzów and Skawina power plants in Poland supplied 3,138 TJ of heat in the first half of 2018, that is, 332 TJ (approximately 10%) less than in the same period of 2017, which was primarily due to climatic conditions.
The largest portion of capital expenditures went to denitrification at the Skawina power plant.
As at June 30, 2018, CEZ Group companies in Poland owned generating facilities with an installed capacity of 680.9 MW: 678.4 MW in coal-fired power plants and 2.5 MW in hydroelectric power plants. There was no year-on-year change.
CEZ Group power plants in Poland are estimated to generate 2.8 TWh of electricity in 2018.
The total amount of supplied heat is estimated at approximately 5,500 TJ.
The project team currently focuses mainly on a sub-project for legislation changes, aiming to prepare draft amendments to legislation to allow planning permission proceedings for the new nuclear power plant to take place while project specifics remain unknown so as to apply the Final EIA Opinion by April 2023.
The business environment in the energy sector is described in the section Development Team in Turkey.
Akenerji operates a modern CCGT plant with an installed capacity of 904 MW at Egemer. The power plant generated 1,870 GWh of electricity in the first half of 2018, as compared to 2,050 GWh in the same period of 2017.
In addition, Akenerji operates 7 hydroelectric power plants with an installed capacity of 289 MW and a wind park with an installed capacity of 28 MW. Renewables generated 517 GWh of electricity in the first half of 2018: hydroelectric power plants generated 475 GWh and wind turbines generated 42 GWh. This is an increase of 130 GWh as compared to the same period of 2017, when renewables generated 387 GWh.
The Egemer power plant's generation in 2018 is estimated at 3.9 TWh. The year-on-year decrease is due to expected lower generation in connection with scheduled outages. Renewable generation is estimated at approximately 0.8 TWh, of which hydroelectric power plants account for 0.7 TWh and wind turbines account for 0.1 TWh.
Note: The Turkish companies are consolidated using the equity method; consequently, neither their generation nor their installed capacity is included in CEZ Group's aggregate figures.
Offering customers a wide range of products and services addressing their energy needs and reinforcing and consolidating our position in Europe—fulfilling CEZ Group's second and third strategic priorities—is the main task of the Development Team. It focuses on growth and innovation through organic and acquisition-based growth in energy services (ESCO) and renewable energy sources.
Targeted countries include both Czechia and other European countries that are close in terms of both geography and regulation, namely Germany, France, Romania, Slovakia, and Poland as well as other countries in Central and Western Europe. An indispensable part of the team's activities is the preparation of distribution grids for the energy sector's future with a high share of decentral electricity generation.
Last but not least, the Development Team's tasks include Inven Capital's investments in early opportunities and technologies to allow CEZ Group to establish promising positions in the future energy environment.
The energy market in Czechia is fully liberalized and all customers, including residential customers, can choose their electricity supplier. There is a functional electricity exchange (PXE) and a market operator guaranteeing the functioning of the market. The price of electricity distribution is regulated.
As regards price regulation in the energy sector in the first half of 2018, the Energy Regulatory Office published:
Pursuant to Section 19a(9) of Energy Act No. 458/2000 Sb., the Energy Regulatory Office publishes price regulation principles that lay down procedures for the regulation of the price of related service in the electricity sector and related service in the gas sector for a regulatory period and the manner of setting prices for the electricity transmission system operator, the gas transmission system operator, distribution system operators, and the market operator. The validity of the current price regulation principles for 2016–2018 was extended until December 31, 2020.
Furthermore, some decrees were amended:
For details, refer to the section Operations Team in Czechia.
CEZ Group's electricity distribution business in the Czech Republic is taken care of by ČEZ Distribuce, which distributed 18.3 TWh of electricity to customers in the first half of 2018. This is the same amount as in the comparable period of 2017. With regard to individual voltage levels, there was an increase of 0.2 TWh at the medium-voltage level, a decrease of 0.1 TWh at the high-voltage level, and the same decrease at the low-voltage level, where decreased consumption was primarily due to higher average temperatures in 2018.
A merger between ČEZ Distribuce and ČEZ Distribuční služby was carried out with effect from January 1, 2018; the surviving entity is ČEZ Distribuce. This step finalized the creation of one large distribution company and fulfilled regulatory requirements.
ČEZ Distribuce's capital expenditures in the first half of 2018 went mostly into distribution networks at all voltage levels as well as into transformer station reconstructions. Some capital expenditure was made on construction projects initiated at customers' request.
ČEZ Distribuce participated in a project of the Technology Agency of the Czech Republic named "Smart System for Safe and Reliable Electricity Supplies to an Area," which was completed successfully. Its objective was to find as reliable a solution as possible to ensure electricity supplies to critical infrastructure (medical centers, emergency services, etc.) in Prague in case of a large-scale failure of the transmission system.
ČEZ Distribuce expects to supply 36 TWh of electricity to customers in 2018.
CEZ Prodej offered electricity, natural gas, and related services to end-use customers in Czechia in the first half of 2018.
Customers in Czechia can order electricity and natural gas as supplies of the commodity alone (Electricity/Natural Gas Supply Contract) and purchase distribution services directly from a competent distributor under a separate Distribution Service Contract. However, the much more frequent form is "integrated supply" under an Integrated Supply Contract for the commodity in question, under which ČEZ Prodej not only supplies the commodity to the customer but also arranges for the provision of distribution services by a distributor according to the rules specified by law.
In order to meet EU-wide rules liberalizing the electricity market, CEZ Group became the first energy market player in Czechia that fully separated the provision of customer services for sales customers and distribution customers. Concurrently with the separation, ČEZ Prodej launched a new information system that will, moreover, better address its needs resulting from the expansion of its range of products offered to customers.
Electricity and natural gas sales to end-use customers in the first half of 2018 amounted to 8,919 GWh and 3,094 GWh, respectively.
ČEZ ESCO consolidates CEZ Group's expert and sales capacity in energy savings, decentralized sources, lighting, and other energy products. It concentrates on creating integrated offers for business (corporate) customers, small and midsize businesses, and the public sector. It offers solutions to customers' energy needs especially at the decentralized level with emphasis on new technologies, efficient use of energy, and integrated product offers. ČEZ ESCO's guiding principle is preparing turnkey solutions and services for its customers.
The individual products and services are provided by subsidiaries of ČEZ ESCO: ČEZ Energo, ČEZ Energetické služby, EVČ, ENESA, ČEZ Solární, Energocentrum Vítkovice, AZ KLIMA, ČEZ LDS, ČEZ Bytové domy, KART, AirPlus, HORMEN CE.
ČEZ ESCO further develops its activities focusing on the commercial products and services of the Electromobility and Smart City projects.
The ESCO group's noncommodity sales were CZK 2.4 billion in the first half of 2018.
ČEZ Prodej is the market leader in commodity sales to residential customers in Czechia. Besides electricity and gas supplies, it offers additional services connected with modern energy business. It delivers turnkey rooftop photovoltaic installations, complete with battery systems and water accumulation systems; it also designs these PV installations, looks after their operation, takes care of licensing, and provides customers with consultancy on subsidies under the New Green Savings program. In addition, ČEZ Prodej offers complete solutions for heating: consultancy and designing for household heating reconstruction projects and the installation of condensing boilers or heat pumps. To provide truly comprehensive services, it provides regular boiler maintenance, flue way inspections, and assistance services for all boiler owners through its ČEZ Service product. ČEZ Prodej is also the exclusive dealer of a smart thermostat made by Bavarian company tado° in the Czech market.
ČEZ Prodej also offers additional, complementary services besides services directly related to energy. It is a fully-fledged mobile virtual network operator (MVNO) with its own offer of "MOBILE FROM ČEZ" products. Classified as a medium-sized MVNO by the scope of provided services, ČEZ Prodej's portfolio of more than 80,000 SIM cards makes it one of the largest MVNOs in Czechia. Insurance and assistance services were used by more than 276,000 customers in June 2018, with about 216,000 customers having assistance service insurance and about 60,000 customers having payment protection insurance covering energy bills in case of sickness or job loss.
ČEZ Prodej expects a slight decrease in the volume of supplies for the residential customer segment in 2018 as compared to 2017. Prices in the main price list, Electricity Indefinitely, were raised with effect from June 1, 2018, due to a significant increase in wholesale electricity prices that ČEZ Prodej purchases electricity at.
Contracts with individually served customers (B2B) will be transferred from ČEZ Prodej to ČEZ ESCO under a "Division by Spin-Off and Merger" project with effect from September 1, 2018. This change takes the form of a formal change of supplier from ČEZ Prodej to ČEZ ESCO. This activity aims to improve the quality of service and care for individually served customers under a single company focusing on this segment, namely ČEZ ESCO. All business and price terms applying to affected customers remain the same. The project includes establishing a functional ICT system.
CEZ Group expects a positive development in the natural gas market in 2018 and plans to increase the volume supplied to its end-use customers in Czechia.
ČEZ Prodej expects to maintain its position on the market in other products in 2018 and provide its customers in Czechia with the best service possible.
Regarding ESCO, it is planned to merge EASY POWER with ČEZ LDS in the second half of 2018. A project to merge EVČ s.r.o. and ENESA a.s. under a single brand will continue. Not only will this merger resolve internal competition within the ESCO group, as both companies work on very similar projects, it will also combine two well-run entities to allow taking advantage of both companies' competences and strengths to create a sturdy background for the development of new services.
Electricity generation by facilities operated by ČEZ OZ uzavřený investiční fond in Czechia totaled 199 GWh in the first half of 2018, that is, 9 GW more than in the same period of 2017. Hydroelectric power plants generated 121 GWh, solar power plants 72 GWh, wind turbines 5 GWh, and biogas plants 2 GWh of electricity.
The highest year-on-year increase was registered at hydroelectric power plants due to better-thanaverage hydrological conditions in winter months. Following an outage due to emergency valve repair in 2017, the Brno-Kníničky small hydropower plant increased its generation by 2.1 GWh year-on-year.
Modernization investments were made at power plants operated by ČEZ OZ uzavřený investiční fond in the first half of 2018. Financial data will not be available until all invoices are received.
As at June 30, 2018, ČEZ OZ uzavřený investiční fond operated generating facilities in Czechia with a total installed capacity of 202.2 MW (hydroelectric power plants: 68.3 MW; photovoltaic power plants: 125.2 MW; wind turbines: 8.2 MW; biogas plants: 0.5 MW).
The total installed capacity increased by approximately 1 MW as compared to June 30, 2017, due to increased capacity at the Brno-Kníničky (+428 kW) and Hracholusky (+488 kW) small hydropower plants.
Renewable generation in 2018 is estimated at 348 GWh, which would mean a year-on-year decrease of 11 GWh. Small hydropower plants will account for the highest share of generation, estimated at 208 GWh, which would mean 7 GWh less than in 2017, primarily due to the Hradec Králové small hydropower plant's ongoing year-long outage for modernization. Generation by photovoltaic power plants is estimated at 128 GWh, that is, 4 GWh less than in 2017. Generation by wind turbines should amount to 9 GWh.
Investment fund Inven Capital, investiční fond, a.s., was transformed into Inven Capital, SICAV, a.s., an investment company with variable capital, with effect from February 1, 2018. The reason was meeting conditions for the provision of EUR 50 million by the European Investment Bank (EIB) for joint investments in innovative European startups oriented to "new energy." This includes, for example, the field of energy efficiency, distributed energy generation, energy generation flexibility (that is, generating facilities capable of quickly changing the volume of generation to be able to promptly respond to intermittent generation from renewables) and energy storage, customer-oriented products, clean transportation, and smart cities.
Inven Capital SICAV, a.s. ("Inven") is a joint-stock company with variable capital that has established 2 sub-funds: Inven Capital—Sub-fund A and Inven Capital—Sub-fund B. Inven's stated capital is CZK 2 million and the holder of founder's shares is ČEZ, a. s. Investment shares of Sub-fund A are held by CEZ Group; investment shares of Sub-fund B are held by EIB.
Inven focuses primarily on later-stage growth investment opportunities with a sound business model proven by sales and with considerable growth potential. In addition to financial return on investment, Inven provides CEZ Group with access to globally unique technologies and business models that already affect or will significantly affect, sooner or later, the energy sector in Czechia and neighboring countries. Moreover, ČEZ works actively with Inven's portfolio companies both by selling their products to its customers (sonnen, tado) and by undertaking pilot projects (SunFire).
Inven's team reviews up to 500 potential investment opportunities from all around Europe every year, of which approximately 10% proceed to a detailed analysis stage, about 5 or 6 are presented to the investment committee, and 2 or 3 per year are carried through. Since its establishment, Inven has invested more than a quarter of its investment framework in five businesses and the London-based Environmental Technologies Fund (ETF). The businesses comprise four German companies and one French company:
sonnen—a manufacturer of smart battery systems for storing energy from solar panels and other renewables
SunFire—the developer and manufacturer of a fuel cell technology that can convert fuel into electricity and heat but also turn electricity back into hydrogen and other gases (Power-to-Gas)
tado—the European leader offering smart temperature control for households based on the user's location and habits
Cloud&Heat Technologies—the designer, builder, and operator of the most energy- and costefficient distributed and centralized data centers deploying water-cooled servers whose waste heat is used to heat buildings and hot water
VU LOG—the global leader in providing technology for carsharing involving green cars in cities
Inven's sub-funds increased their investments in the current portfolio companies sonnen, SunFire, ETF, and tado in the first half of 2018.
ČEZ, a. s., is a founding member of the I2US cooperation platform, associating primarily innovative, mutually noncompeting utilities. The I2US platform attempts to accelerate innovation to exploit business opportunities and address the needs of customers as well as the energy sector itself. Its main collaboration tool is sharing innovation opportunities and experience from the implementation of new services, products, business models, and methods for cooperation with partners.
ČEZ continues to work with Rockstart, a Dutch start-up accelerator where it participated as a partner in the third round of the Smart Energy program. Under the six-month program, supported by major commercial entities, the best 9 to 10 chosen energy startups sought to consolidate their business potential and expand their know-how so as to become coveted trading partners in the market after the end of the program.
In electromobility, CEZ Group has focused primarily on the expansion of its network of public charging stations. As at June 30, 2018, it operated a total of 110 charging stations, comprising 54 fast charging stations (DC) and 56 normal charging stations (AC). As the number of operated charging stations grows, the number of partners involved in the ČEZ Electromobility project increases both among private entities and among state administration and municipal entities. Cooperation with ARRIVA CITY and PASSERINVEST GROUP continued successfully.
Construction is significantly supported under two projects funded by the EU's Connecting Europe Facility (CEF). Altogether, 102 fast charging stations (DC) should be built, as well as two sites featuring a combination of a renewable energy source, energy storage, and three charging stations each. In all cases, the DC fast charging stations will be located close to major TEN-T (Trans-European Transport Network) roads.
At the same time, CEZ Group offers a wide range of related electromobility services and products for companies, municipalities, and regions through its ČEZ ESCO subsidiary. These include, for example, turnkey charging station design and installation, wallboxes, charging cables, vehicle fleet electrification, charging platforms, including IT solutions, and lease or sale of electric vehicles. For municipalities, CEZ Group offers the implementation and operation of electric-bus charging stations or conceptual designs of electromobility for individual cities and regions. Development in electromobility takes place under the National Action Plan for Clean Mobility (NAP CM) as well as under the Memorandum on the Future of the Automotive Industry in Czechia signed recently by the Czech government and the Automotive Industry Association.
Renewables are considered by Germany to be the most important source of energy and their further exploitation is a central pillar of "Energiewende," its transition to low-carbon and sustainable energy generation. The share of renewable energy sources in electricity generation has been growing steadily.
Since 2017, the system of support for renewable energy sources has been based on regularly held auctions, in which the lowest bid is the determining criterion for receiving support.
A total of 4 auctions for the construction of onshore wind turbines are planned for 2018 (February, May, August, October). There was a change of rules for community projects, formerly having a number of advantages over other participants, in 2018 as compared to previous auction rounds in 2017. Community businesses, just as any other participant, must now furnish an environmental permit pursuant to the Federal Immission Control Act (BImSchG). Eighty-three successful projects with a total installed capacity of 709 MW were selected in the first auction (the originally declared allocable limit was 700 MW). In the second auction, support was granted to 111 projects with a total installed capacity of 604 MW; however, it was the first time since the start of the selection system that the whole declared capacity (670 MW) was not allocated.
Auctions for the construction of solar facilities were scheduled for February, June, and October in 2018. A total of 79 bids were made in the first auction round with a capacity of 546 MW, which considerably exceeded the allocated capacity of 200 MW. Fifty-nine bids (360 MW) were made in the second round. The Federal Network Agency granted support to a total of 28 projects with a capacity of 183 MW in the two rounds.
Our revised strategy for entering renewables markets focuses on key technologies in the segment. ČEZ focuses primarily on onshore wind parks, including smaller projects with an installed capacity of up to 20 MW, taking advantage of existing know-how. As a country with a stable regulatory environment and system of support, Germany is the key market for RES expansion. In view of the trends on the market in developed projects, ČEZ aims primarily at the development onshore wind turbines.
CEZ Deutschland GmbH, a Hamburg-based subsidiary, provides support in order to achieve the defined objectives. Through CEZ Deutschland GmbH, ČEZ is a member of leading energy associationsof businesses along the entire value chain in the renewables industry and participates in the activities of their working groups.
In August 2017, CEZ Group successfully bought into the Elevion group—specialists in the installation, modernization, and reconstruction of energy facilities in commercial and industrial buildings, bringing together experts engaged in the construction, optimization, and maintenance of electrical and mechanical installations for industrial customers and buildings and the installation and management of automated heat control systems with focus on thermal savings. Elevion is a well-established brand in the German ESCO market and one of the largest providers of comprehensive energy services in the country.
The potential for CEZ Group's dynamic growth in ESCO is amplified by the EU countries' commitment to major energy savings by 2030. We estimate investment costs necessitated by the EU energy efficiency directive in Germany (derived from GDP developments) at approximately EUR 600 billion by 2030. High demand for ESCO services in the future is primarily guaranteed by attractiveness for customers, whom new technologies provide with greater comfort and modern functionalities, not to mention effectively paying for themselves from savings (not needing to be subsidized).
CEZ Group's wind parks in Germany generated 142 GWh of electricity in the first half of 2018; it was 97 GWh in the same period of 2017 (with a lower installed capacity).
The installed capacity of CEZ Group's facilities—onshore wind parks—was 133.5 MW as at June 30, 2018, increasing by 35.4 MW as compared to June 30, 2017.
CEZ Group power plants in Germany are projected to generate 316 GWh of electricity in 2018.
The Elevion group acquired Kirschbaum & Rohrlack GmbH, a German company providing building automation services, in May 2018. CEZ Group acquired Kofler Energies, a German group providing a wide range of ESCO services, in July.
CEZ Group keeps monitoring the German market in order to identify potential future investment opportunities in all of its business segments.
The sales of noncommodity products by CEZ Group's German ESCO companies amounted to CZK 4.7 billion in the first half of 2018.
Construction investments in Germany are estimated to rise by 2.6%, adjusted for inflation, in 2018. Especially the manufacturing sector expects increased investments in energy supply systems and energy consumption optimization and reduction. Therefore, CEZ Group wants to focus, through the Elevion group or a separate acquisition platform, on decentral energy generation, such as cogeneration units, in addition to building energy and mechanical installations.
The Energy Transition for Green Growth Act specifies an intention to increase the share of renewables to 23% of final gross energy consumption in 2020 and to 32% by 2030. It also defined the objective to reduce the nuclear sector's share in electricity generation from 75% to 50% by 2025, which the government postponed until 2030 or 2035. A precise plan for the shutdown of 7–25 reactors will be presented by the end of 2018.
The main tool for the strategic management of energy transformation and detailed specification of development goals for individual energy sectors is the "Multiyear Energy Program" (PPE). In mid-March, the French government started a public consultation on the future energy direction concerning the program for 2019; opinions on the increase in the installed capacity of renewables and the provision of energy supplies in the period in question, in particular, could be expressed by the end of June. The state discusses the PPE with all stakeholders, especially with companies in which it is a shareholder. An amendment to the upcoming program, aiming to precisely specify energy targets, should be finished by the end of 2018.
The country has a working mechanism of support for renewable electricity generation. Producers are directly exposed to market signals, having revenue from direct sales of electricity in the market while being protected by a compensatory premium paid up to a reference amount.
A total of 2 auctions for the construction of onshore wind turbines are planned for 2018 (June, December). Twenty-two successful projects with a total installed capacity of 508 MW were selected in the first auction held in December 2017. The average bid price in the auction round was 6.54¢/kWh. Most of the successful projects were from the regions of Hauts-de-France (227 MW), Centre-Val de Loire (72 MW), and Pays de la Loire (70 MW). The results of the auction held in June 2018 are not known as yet.
A working group tasked to draw up a proposal simplifying and consolidating rules for onshore wind farms with the aim of reducing administrative burden, providing better access to financial support, and improving fiscal incentives relating to these projects presented its conclusion in January 2018. Presented proposals for simplification are expected to be put into practice in the second half of 2018.
In the first half of 2018, CEZ Group proceeded with the development of a portfolio of 9 wind farms that it acquired from ABO Wind, a renowned German development firm, in 2017.
All necessary permits for the construction and operation of the first wind farm, Aschères-le-Marché, having an installed capacity of 13.6 MW, have already entered into effect. Construction work is expected to start as early as in the second half of 2018. Several other projects are approaching a similar milestone in their advanced stage of development.
In line with the renewables strategy, CEZ Group keeps an interest in projects in the development stage in France on the order of hundreds of megawatts of installed capacity.
CEZ Group's Inven Capital owns a minority stake in VU LOG, the Nice, France-based global leader in the provision of technology for green mobility sharing (autopartage) in cities. The company offers a comprehensive Software-as-a-Service platform enabling carsharing operators to provide services to their end customers. VU LOG's customers are operators from various countries around the world.
The Polish energy market is almost fully liberalized. Wholesale market prices are based on market conditions. Electricity tariffs for residential customers and distribution charges are regulated. Prices in the heat market are based on a tariff system and require annual approval by the Energy Regulatory Office.
The target share of renewable electricity for 2020 is 15% of the total gross electricity consumption.
The Ministry of Energy presented a contemplated amendment to the act on renewable energy sources (RES) in early June 2017. The Senate passed the amendment to the RES act of June 7, 2018, amending the renewable energy sources act and some other acts, without its own amendments on June 29, 2018. The new legislation entered into effect on July 14, 2018. The effect of the amended laws allows the Energy Regulatory Office (ERO) to announce auctions for renewables. The ERO must announce an auction no later than 30 days before its date. The first auction is expected to be held this autumn.
The year 2018 was the third year of the effective operation of the act on investments in wind power plants relating to the development of wind generation in Poland. The adopted amendment to the RES act also amended other acts, including the act on investments in wind power plants. The changes in the amended law are not highly significant to CEZ Group's remaining projects in Poland.
The energy efficiency act changed the system of "white certificates" and obliged entrepreneurs and public authorities to implement solutions enhancing energy efficiency and competitiveness. The regulation has a positive effect on the condition of the natural environment and the number of investments in energy savings and contributes to an economical and more efficient use of energy.
Electricity and natural gas are sold to end-use customers in Poland by CEZ Trade Polska sp. z o.o. The company supplied 1,394 GWh of electricity to its large and commercial retail customers in the first half of 2018, which is a year-on-year decrease of 63 GWh. The company supplied 445 GWh of natural gas to its customers in the first half of 2018 (180 GWh in the first half of 2017); the significant increase was due to the acquisition of new customers.
CEZ ESCO Polska, established in 2016, now has a working organizational structure and offers ESCO products. The company has established several partnerships with local companies to develop energysaving projects in the Polish market. At the moment, CEZ ESCO Polska actively participates in public and industrial tendering procedures in the street lighting and energy efficiency segments. In addition, CEZ Group provides ESCO services through OEM Energy. OEM Energy is a Polish market leader in solar panels, offering the modernization and installation of solar thermal and photovoltaic panels, hot water tanks, and heat pumps.
In addition, CEZ Group purchased Metrolog (100% share), which is a leading manufacturer of compact district heating substations in the Polish market, offering comprehensive services for investments in thermal energy and the construction of water treatment systems.
Sales of noncommodity products amounted to CZK 0.7 billion (of which CZK 0.2 billion for Metrolog) in the first half of 2018.
The total amount of electricity supplied in 2018 is estimated to be 2.7 TWh. Supplies of natural gas and heat are estimated at 0.8 TWh and 5,500 TJ, respectively.
CEZ Group keeps monitoring the Polish market in order to identify potential future investment opportunities in all of its business segments and expects further acquisitions of companies focusing on energy savings in the Polish market.
Market liberalization was completed in 2013 for the corporate customer segment and at January 1, 2018, for residential customers. All electricity users are now entitled to choose their supplier in the free market.
Renewable generation in Romania is supported through "green certificates." On the basis of a government ordinance, new rules governing support for renewable generation entered into force on March 31, 2017. The new legal rules resulted in the tradability of green certificates issued on or after April 1, 2017, being extended from one year until March 31, 2032. Another change was that the price of green certificates was fixed, and the period of tradability of previously deferred certificates as well as the period for which such certificates will be reallocated were extended to eight years starting from January 1, 2018. The government ordinance was valid and effective but still required a formal approval by the Romanian parliament. The parliament approved the government ordinance in the form of an amendment on June 26, 2018, and the Romanian president signed it into law on July 18, 2018. The amendment to the law was published in the Official Gazette of Romania on July 20, 2018.
According to applicable legislation, the Fântânele and Cogealac wind parks are entitled to be part of the renewable generation support program and get green certificates for the electricity they generate. They are allocated one green certificate in 2018; the support period in which they received two green certificates ended in 2017.
The Fântânele and Cogealac wind parks generated 593 GWh of electricity in the first half of 2018, which represented a year-on-year decrease of 60 GWh. The decrease in generation as compared to the first half of 2017 was primarily due to worse weather conditions.
Small hydropower plants operated by TMK Hydroenergy Power S.R.L. at Reşiţa site generated 46 GWh of electricity in H1 2018.
Capital expenditure made in the first half of 2018 was primarily aimed at renovating individual turbine components at the Fântânele and Cogealac wind parks and buying a crane for in-house repair purposes.
No major capital expenditure was made at hydroelectric power plants operated by TMK Hydroenergy Power S.R.L. in the first half of 2018.
As at June 30, 2018, CEZ Group companies in Romania owned generating facilities with an installed capacity of 622 MW (600 MW in wind parks, 22 MW in hydro plants).
The annual generation estimate for 2018 is 1.2 TWh at wind parks and 0.1 TWh at hydropower plants.
Distributie Energie Oltenia S.A. distribution company distributed a total of 3,407 GWh of electricity in the first half of 2018, registering a year-on-year increase of 110 GWh.
Tariffs for the regulated distribution sector effective from January 1, 2018, were published by the Romanian regulatory authority in December 2017. The average distribution tariff decreased by more than 5%. The rates were decreased for the third time in a row. In the previous year, the regulatory
authority decreased distribution tariffs by 4.5% on average. The gradual reduction of prices results from lower-than-planned inflation rates and corrections for higher volumes of distributed electricity in previous years.
A new five-year regulatory period is expected to start in 2019. A new methodology for the calculation of permitted revenue for distribution companies is now being prepared during joint discussions with Romanian authorities. It is expected that the methodology will be updated in September in the form of a legislation amendment that will set down a procedure for the recognition of capital expenditure, the calculation of return on noncurrent assets, and the recognition of operating expenses for all Romanian distribution companies.
Capital expenditures went primarily into distribution assets and new electricity meters.
The amount of electricity distributed to end-use customers in 2018 is estimated at 6.9 TWh.
CEZ Vanzare S.A. sold 1,642 GWh of electricity to end-use customers in the first half of 2018, which was a year-on-year decrease of 72 GWh. The company also supplied 608 GWh of natural gas to both existing and new end-use customers, which was a year-on-year increase of 452 GWh.
CEZ ESCO ROMANIA S.A. was newly established on August 3, 2018. Potential acquisition targets in the field of energy services are currently being analyzed.
Electricity sales to end-use customers are estimated at 3.5 TWh. The estimated amount of natural gas supplied in 2018 is 1.4 TWh.
Customers have been able to choose their energy supplier in the open market and make a contract for supplies at unregulated prices since 2016. Yet, households and businesses connected to the lowvoltage grid largely keep their protected customer status and are generally supplied with energy at regulated prices set by the regulatory authority—the Energy and Water Regulatory Commission (EWRC). The successful completion of liberalization is significantly jeopardized by lack of secondary legislation, a limited portfolio of products on the Independent Bulgarian Energy Exchange (IBEX), the existence of cross subsidization, and the government's pressure on keeping residential energy prices low.
An amended energy act bringing a number of changes came into effect on July 1, 2018. The changes include, most importantly, mandatory purchases of electricity to cover losses directly through an exchange at market prices, increase in the mandatory security for electricity traders, and the regulatory authority's obligation to approve sales of energy assets where ownership interest exceeds 20%.
As part of a transparent selling process, a contract of sale was made with Inercom on February 23, 2018. The sale concerns seven companies: CEZ Bulgaria, CEZ Elektro Bulgaria, CEZ Razpredelenie Bulgaria, CEZ Trade Bulgaria, CEZ ICT Bulgaria, Free Energy Project Oreshets, and Bara Group. The transaction is subject to approval by the Commission for Protection of Competition in Bulgaria, which formally initiated the proceedings on June 26, 2018, and published its decision to disapprove the sale of ČEZ's Bulgarian assets to Inercom on its website on July 19, 2018. An administrative action was brought against the decision by Inercom on July 30 and by ČEZ, a. s. on August 1.
Following a number of interventions by Bulgarian authorities injuring ČEZ companies' business in Bulgaria, ČEZ commenced international investment arbitration in 2016 against the Republic of Bulgaria under the Energy Charter Treaty on grounds of investment nonprotection. The arbitration claim was not sold off and the arbitration is carried on by ČEZ, a. s.
Electricity was generated only at the Oreshets photovoltaic power plant in the first half of 2018 and the amount generated was 3.1 GWh, which was a slight decrease of 2% as compared to the same period (i.e. H1) of 2017.
No capital expenditure on the Bulgarian generation assets was made in the first half of 2018.
Due to the sale of the Varna coal-fired power plant and the sale of a part of the Bara biomass gasification power plant, CEZ Group's installed capacity decreased year-on-year from 1,266.7 MW to 5.0 MW as at June 30, 2018.
On July 1, 2018, the Bulgarian regulatory authority EWRC issued a price decision effective from July 1, 2018, to June 30, 2019.
The price decision does not have a major negative impact on performance estimates for the second half-year. However, the regulatory authority still refuses to recognize the actual amount of technological losses in the grid, so a portion of the costs of losses is borne by distribution companies.
In Bulgaria, electricity is distributed by CEZ Razpredelenie Bulgaria AD, which distributed a total of 4,891 GWh of electricity to end-use customers in the first half of 2018, or 85 GWh less year-on-year.
Distribution CAPEX went primarily to improving distribution grid quality, replacing electricity meters, critical infrastructure in Sofia, and new connections to the distribution grid. Furthermore, capital expenditure was used for mandatory buyouts of distribution assets.
CEZ Group estimates the total amount of electricity distributed in 2018 at 9.5 TWh.
A growing level of competition on the liberalized part of the market is expected in electricity sales.
CEZ Elektro Bulgaria AD sold end-use customers a total of 3,173 GWh of electricity in the first half of 2018, which was a year-on-year decrease of 83 GWh.
CEZ Trade Bulgaria EAD sold end-use customers 2,180 GWh of electricity in the free market in the first half of 2018, that is, approximately 354 GWh more year-on-year. The increase was due to successful acquisition of new customers switching from the regulated market to the free market.
CEZ ESCO Bulgaria EOOD was established in Bulgaria in 2017. The company implements energy projects for end-use customers in the Bulgarian market.
For 2018, the volume of generated electricity is estimated at 6.1 GWh, the volume of electricity supplied to CEZ Elektro Bulgaria's customers is estimated at 6.0 TWh, and the volume of electricity supplied by CEZ Trade Bulgaria EAD is estimated to exceed 4.1 TWh.
Early parliamentary and presidential elections were held in June 2018, whose winners were the incumbent president R. T. Erdoğan and his political party AK Parti. The result of the elections led to a transformation of the parliamentary democracy into a presidential political system, as enabled by an amendment to the constitution approved by a narrow majority in a referendum in 2017. Power is more closely concentrated in the hands of the president, who formed a government following the abolishment of the office of the prime minister. A state of emergency was ended in the country after two years.
The Turkish lira weakened by 21% in the first 6 months of 2018 and the exchange rate was 4.6 TRY/USD on June 30, 2018, while the low in the first half of 2018 was 4.9 TRY/USD. The Turkish lira then fell considerably; the exchange rate was 6.01 TRY/USD on August 24, 2018. The depreciating lira negatively affects the performance of Turkish companies that are funded with loans denominated in US dollars.
International financial institutions are lowering their predictions for GDP growth in the next year and the country's investment rating remains in the speculative category. Standard & Poor's undertook an unplanned downgrade of Turkey's rating from BB to BB− on May 1, 2018, due to growing concerns over a deteriorating inflation outlook (15.39% year-on-year in June 2018, 12.15% year-on-year in May 2018), the long-term depreciation and volatility of the Turkish lira, and the state's encroachments on the central bank's independence. Following further devaluation of the Turkish lira, Standard & Poor's lowered Turkey's rating by another notch to B+ on August 17, with the stable outlook remaining unchanged.
Electricity is distributed in Turkey by regulated regional distribution companies. One of them is Sakarya Elektrik Dagıtım A.Ş. (SEDAŞ), indirectly controlled by ČEZ and its Turkish partner AKKÖK (through their joint venture Akcez Enerji A.Ş.). The amount of electricity distributed to end-use customers in the first half of 2018 was 4,473 GWh, which was an increase of 1% over the same period of 2017.
Based on an approved five-year plan, capital expenditures in distribution were primarily made to enhance capacities and meet new requirements for connection, to upgrade the grid, and to ensure the continuity and quality of electricity supply.
Sakarya Elektrik Perakende Satis A.Ş. (SEPAŞ), a sales company controlled through the joint venture Akcez Enerji A.Ş., sells electricity to end-use customers mostly in the SEDAŞ distribution area. The amount of electricity sold in the first half of 2018 was 6,654 GWh, which was a 35% increase year-onyear. The increase was due partially to higher demand and partially to acquiring new eligible customers in and outside of the distribution area.
The estimates for 2018 are 9.1 TWh of electricity distributed and 13.7 TWh of electricity sold.
Note: The Turkish companies are consolidated using the equity method; consequently, neither their generation nor their installed capacity is included in CEZ Group's aggregate figures.
Sales of electricity and natural gas to large customers and small and medium-sized businesses continued in the first half of 2018. Total electricity supplies to all customer segments in the first half of 2018 amounted to 977 GWh, that is, 76 GWh more than in the same period of 2017. The main reason was higher economic activity and consumption by customers across all segments.
Natural gas supplies amounted to 1,059 GWh in the first half of 2018; in year-on-year comparison, this is 616 GWh less than last year. This was primarily due to the sale of the residential customer portfolio at December 1, 2017, and the loss of the largest customer.
In ESCO services, energy services for customers from among industrial enterprises started to be actively offered in 2018.
In Hungary, CEZ Magyarország Kft. (CEZ Hungary Ltd.) sold 758 GWh of electricity to end-use customers in the first half of 2018, that is, 27% more than in the same period of 2017.
The total amount of supplies in 2018 is estimated at 1,442 GWh.
CEZ Group, through the German Elevion group, acquired a 100% share in Hungarian companies TGS Engineering Kft. (in March 2018) and TFS Hungary Kft. (in June 2018), which are based in Budapest and focus on companies, mostly German, with operations in the Hungarian automotive industry. They offer them the designing, construction, and maintenance of heating, cooling, and ventilation systems and plumbing installations.
Two CEZ Group companies operate in the country—one is part of the German Elevion group, the other of the French VU LOG group.
One company belonging to the German Kofler Energies group operates in the country.
CEZ Group operates in the wholesale market in electricity and natural gas (with both physical and financial settlement). Otherwise, it does not carry out any business activities in the country. The local subsidiaries are holding or financing companies.
CEZ Group's activities in Ukraine were discontinued. The existing subsidiary CEZ Ukraine LLC is in liquidation.
February 1—Shared Services Albania Sh.A. ceased to exist by liquidation.
July 31—Under an acquisition of German Kofler Energies group, a 100% stake was acquired in Kofler Energies Italia S.r.l.
August 3—CEZ ESCO ROMANIA S.A. was established.
July 10—ČEZ LDS s.r.o., a subsidiary of ČEZ ESCO, a.s., acquired a 100% stake in TMT Energy, a.s.
The 26th annual shareholders' meeting of ČEZ, a. s. started on June 22, 2018, and ended on June 23, 2018. The shareholders' meeting, among other things:
The dividend is CZK 33 per share before tax.
| Václav Pačes | Chairman of the Supervisory Board from June 27, 2014, to June 21, 2017, and from June 29, 2017, to June 23, 2018 Member of the Supervisory Board from March 20, 2013, to June 23, 2018 |
|---|---|
| Petr Polák | Member of the Supervisory Board from February 25, 2016, to June 23, 2018 |
| Robert Šťastný | Member of the Supervisory Board from September 29, 2014, to June 23, 2018 |
| Andrea Lukasíková | Member of the Audit Committee since June 27, 2014, |
|---|---|
| reelected with effect from June 28, 2018 (term ending June | |
| 28, 2022) |
Tomáš Pleskač Vice-Chairman of the Board of Directors since June 26, 2017 Member of the Board of Directors since January 26, 2006, reelected with effect from January 29, 2018 (term ending January 29, 2022)
(i) an unsecured claim for CZK 191 million, consisting of losses arising from failure to pay for electricity, heat, and raw water supplied, and
(ii) a claim for nearly CZK 29 million arising from the penalty requested.
Both claims were recognized in review hearings that took place in H1 2011. The enterprise of the debtor, PLP a.s., was realized for USD 10 million. The proceeds were rendered to the secured
creditor in July 2013. The amount of settlement for ČEZ Teplárenská, a.s. in the insolvency proceeding in question is still nil. The insolvency proceeding has not yet been concluded.
pay for distribution system services under a contract. The insolvency proceeding commenced in December 2016. The outcome of the proceeding is impossible to predict.
billion in conditional claims, and approximately CZK 314 million in conditional claims), based on filings in 2015. The filing for the conditional claims amounting to approximately CZK 314 million was withdrawn in June 2017, following the final dismissal of an action seeking the annulment of an award of the Arbitration Court attached to the Economic Chamber of the Czech Republic and Agricultural Chamber of the Czech Republic. While the unconditional claims were settled by the parties out of court, in a settlement agreement in December 2017 (the filing for their first portion and relevant incidental action were withdrawn already in December 2016), the remaining conditional claims are no longer part of the insolvency proceeding, which was concluded upon the fulfillment of the reorganization plan in 2018. The case is thus finished.
relating to a lime suspension accident during the comprehensive renovation of the Prunéřov II Power Plant. The case is heard at first instance. The outcome of the proceeding is impossible to predict.
meters in some areas but at a height of 1–2 meters in other areas. The Court of Justice of the European Union in Luxembourg decided on July 16, 2015, that Anelya Nikolova was discriminated against. The Administrative Court in Sofia has taken the case over. On August 10, 2017, the Administrative Court decided to return the case to the Commission for Protection Against Discrimination. The case was reopened by the Commission. The outcome of the proceeding is impossible to predict.
As part of an investigation into possible criminal activity related to obtaining a license to operate the Vranovská Ves Photovoltaic Power Plant, police authorities issued a resolution to secure a replacement value of the likely proceeds of this criminal activity pursuant to the Code of Criminal Procedure, specifically:
In both cases, these are interlocutory security measures taken by law enforcement authorities in a case where the accused are not employees of CEZ Group companies. ČEZ Obnovitelné zdroje, s.r.o., and consequently ČEZ, a. s., are injured parties in the case.
On March 19, 2014, the Bulgarian regulatory authority EWRC initiated a procedure for revoking the electricity trading license of CEZ Elektro Bulgaria. The initiation of the procedure was the result of Bulgarian authorities' long-term inactivity in matters concerning RES support regulation in 2012 and 2013. There has been no progress in the procedure as at June 30, 2018.
On July 12, 2016, ČEZ, a. s., formally filed a Request for Arbitration with the International Centre for Settlement of Investment Disputes (ICSID), officially commencing international investment arbitration against the Republic of Bulgaria under the Energy Charter Treaty on the grounds of non-protection of investment. It decided to do so after a number of interventions by Bulgarian authorities injuring ČEZ companies' business in Bulgaria and as a result of a long-term, non-improving critical situation in the country's energy market. The claim amounts to hundreds of millions of EUR. ČEZ repeatedly called upon the Bulgarian government to improve the existing situation speedily and compensate incurred losses. In November 2015, it sent the Bulgarian government a Notice of Dispute in which it asked for amicable settlement and reserved the right to commence investment arbitration. Efforts to initiate an amicable settlement with the Bulgarian government did not result in any official response by the competent authorities after November 2015. After the deadline for an amicable settlement expired in May 2016, ČEZ, a. s., formally notified Bulgaria that it would commence the international arbitration procedure. The arbitration claim is not part of the sale of Bulgarian assets approved by ČEZ's governance and supervisory bodies in February 2018 and the arbitration is still carried on by ČEZ, a. s.
| CEZ Group Spokespeople | ||
|---|---|---|
| Ladislav Kříž | [email protected] | +420 211 042 383 |
| Roman Gazdík | [email protected] | +420 211 042 456 |
| Alice Horáková | [email protected] | +420 211 042 460 |
| List of Area Contacts in Czechia |
http://www.cez.cz/cs/pro media/kontakt-pro-media.html |
|
| Information Centers | http://www.cez.cz/cs/o spolecnosti/kontakty-skupina cez/informacni-centra.html |
|
| Virtual Power Plant Tours | http://virtualniprohlidky.cez.cz/cez virtualni-prohlidky/ |
|
| Investor Relations | ||
| Barbara Seidlová | [email protected] | +420 211 042 529 |
| Website | www.cez.cz | |
| Václav Beneš | [email protected] | +420 211 043 194 |
| Martin Schreier | [email protected] | +420 211 042 612 |
| ČEZ Foundation | www.nadacecez.cz | +420 211 046 726 |
| Customer Care Line in Czechia—Sales |
https://www.cez.cz/cs/kontakty.html | +420 800 810 820 Fax: |
| Mailing address: ČEZ Prodej, a.s. |
+420 371 102 008 When calling from |
|
| Guldenerova 2577/19 326 00 Plzeň |
abroad: +420 371 100 100 |
|
| Customer Care Line in Czechia—Distribution Mailing address: ČEZ Distribuce, a. s. Guldenerova 2577/19 326 00 Plzeň |
https://www.cez.cz/cs/kontakty.html | +420 800 850 860 |
| Energy Services—Contact | www.cezesco.cz | +420 211 043 320 |
| ČEZ ESCO Duhová 1444/2 140 00 Praha 4 |
[email protected] | |
| Customer Care Line in Bulgaria—Sales |
[email protected] | 0700 10 010 (when calling from Bulgaria) |
| Fax: +359 (0)2 9871 852 |
| Customer Care Line in Bulgaria—Distribution |
[email protected] | 0700 10 010 (when calling from Bulgaria) Fax: +359 (0)2 8959 667 |
|---|---|---|
| Customer Care Line in Hungary | [email protected] | +36 1 266 9324 Fax: +36 1 266 9331 |
| Customer Care Line in Romania—Sales Mailing address: CEZ Romania S.A. Str. Depozitelor 2 Târgu Jiu, judetul Gorj cod postal 210152 |
[email protected] | 0251 929 (when calling from Romania) Fax: 0248 524 834 |
| Customer Care Line in Romania—Distribution Mailing address: Distributie Oltenia S.A. Str. Depozitelor 2 Târgu Jiu, judetul Gorj cod postal 210238 |
[email protected] [email protected] |
0800 500 000 0251 408 006 0251 408 007 0251 408 008 Fax: 0251 216 471 0372 526 471 |
| Customer Care Line in Slovakia Mailing address: ČEZ Slovensko, s.r.o. Mlynské nivy 48 821 09 Bratislava |
[email protected] www.cez.sk |
0850 888 444 (when calling from Slovakia) |
| Representation in France | [email protected] Additional information: |
|
| www.youtube.com/watch?v=NCd9FC0 Q48Q |
||
| Representation in Germany | [email protected] | +49 (0) 40 999 995 30 |
| Web Sales Office (ČEZ ON-LINE) |
https://cezonline.cez.cz | |
| CEZ Group Ombudsman in Czechia Josef Sedlák Mailing address: Ombudsman ČEZ Hvězdova 1716/2b 140 62 Praha 4 |
www.cez.cz/ombudsman | No phone contact |
| CEZ Group Ombudsman in Bulgaria Radoslav Dimitrov Mailing address: Tsarigradsko Shosse 159 1784 Sofia |
http://www.cez.bg/edee/qf/bg/bsramjet /bg3/ombudsman |
+359 (0) 28 958 450 Fax: +359 (0) 28 959 770 |
In accordance with ESMA guidelines, ČEZ provides detailed information on indicators that are not defined in financial statements or other similar statements prepared in accordance with IFRS. Such indicators represent supplementary information in respect of financial data, providing report users with additional information to assess the financial position and performance of CEZ Group or ČEZ. In general, these indicators are also commonly used in other commercial companies, not only in the energy sector.
| Indicator | |
|---|---|
| Net Debt | Purpose: The indicator shows the real level of a company's financial debt, i.e., the nominal amount of debt net of cash, cash equivalents, and highly liquid financial assets held by the company. The indicator is primarily used to assess the overall appropriateness of the company's debt, e.g., in comparison with selected corporate profit or balance sheet indicators. |
| Definition: Long-Term Debt, Net of Current Portion + Current Portion of Long-Term Debt + Short-Term Loans – (Cash and Cash Equivalents + Highly Liquid Financial Assets). |
|
| Adjusted Net Income (After-Tax Income, Adjusted) |
Purpose: This is a supporting indicator, intended primarily for investors, creditors, and shareholders, which allows interpreting achieved financial results with the exclusion of extraordinary, usually nonrecurring effects that are generally unrelated to ordinary financial performance and value creation in a given period. |
| Definition: Net income (after-tax income) +/− additions to and reversals of impairments of property, plant, and equipment and intangible assets, including goodwill +/− additions to and reversals of impairments of developed projects +/− other extraordinary effects that are generally unrelated to ordinary financial performance in a given year and value creation in a given period +/− effects of the above on income tax. |
|
| Dividend per Share (Gross) | Purpose: The indicator expresses a shareholder's right to the payment of a share in a joint-stock company's profits (usually for the past year) corresponding to the holding of one share. The subsequent payment of the share in profits is usually subject to taxes, which may be different for different shareholders; therefore, the value before taxes is reported. |
| Definition: Dividend awarded in the current year, before taxes, per outstanding share (paid in the reported year from the profits of prior periods). |
|
| EBITDA (EBIT Before Depreciation and Amortization, Impairments, and Asset Sales) |
Purpose: This is an important economic indicator showing a business's operating efficiency comparable to other companies, as it is unrelated to the company's depreciation and amortization policy and capital structure or tax treatment. It is one of the fundamental indicators used by companies to set their key financial and strategic objectives. |
| Definition: Earnings before taxes and other expenses and revenues + depreciation and amortization +/− impairments of property, plant, and equipment and intangible assets, including goodwill (including write-off of canceled investments) +/− sales of property, plant, and equipment and intangible assets. |
| Indicator | |
|---|---|
| Net Debt / EBITDA | Purpose: This indicates a company's capability to decrease and pay back its debt as well as its ability to take on additional debt to grow its business. CEZ Group uses this indicator primarily to assess the adequacy of its capital structure to the structure and stability of its expected cash flows. |
| Definition: Net Debt / EBITDA. EBITDA is the running total for the past 12 months, i.e., the amount of EBITDA generated from July 1 of the previous year to June 30; Net Debt is the amount at the end of the period, i.e., at June 30. |
Most of the components used in the calculation of individual indicators are directly shown in financial statements. The components of calculations that are not included in the financial statements are usually shown directly in a company's books and are defined as follows:
Net Debt indicator—Highly Liquid Financial Assets item (CZK millions):
| As at Jun 30, | As at Jun 30, | |
|---|---|---|
| 2017 | 2018 | |
| Short-term debt securities available for sale | 2,804 | 1,301 |
| Short-term debt securities held to maturity | 900 | – |
| Short-term deposits | 2,500 | 500 |
| Long-term deposits | 500 | – |
| Long-term debt securities available for sale | 1,809 | 512 |
| Highly liquid financial assets, total | 8,512 | 2,313 |
| Adjusted Net Income (After-Tax Income, Adjusted) Unit | Q1–Q2 2017 |
Q1–Q2 2018 |
|
|---|---|---|---|
| Net income | CZK millions | 16,658 | 7,715 |
| Impairments of property, plant, and equipment and intangible assets, including goodwill |
CZK millions | 271 | 157 |
| Impairments of developed projects*) | CZK millions | – | – |
| Impairments of property, plant, and equipment and intangible assets, including goodwill, at joint ventures**) |
CZK millions | 75 | – |
| Effects of additions to or reversals of impairments on income tax***) |
CZK millions | (51) | (28) |
| Other extraordinary effects | CZK millions | – | – |
| Adjusted net income | CZK millions | 16,953 | 7,843 |
*) Included in the row Other operating expenses (impairments of inventories) in the Consolidated Statement of Income
**) Included in the row Share of profit (loss) from associates and joint ventures in the Consolidated Statement of Income
***) Included in the row Income taxes (deferred tax) in the Consolidated Statement of Income
Glossary of Selected Terms and Abbreviations
| Term | Commentary |
|---|---|
| BAT | Best available techniques |
| The most efficient and most advanced technologies and methods of their use for environmental protection |
|
| PSE | Prague Stock Exchange |
| BREF | BAT reference documents |
| Documents providing summary information on the best available techniques in the European Union for individual facility categories |
|
| EIA | Environmental impact assessment |
| EUA | EU Allowances |
| EU ETS | EU Emissions Trading System |
| SHP | Small hydropower plant |
| RES | Renewable energy sources |
| Energy resources that can be naturally replenished, either partially or in full. They include, in particular, solar, wind, and hydro energy, biomass, and biogas. |
|
| SÚJB | State Office for Nuclear Safety (Státní úřad pro jadernou bezpečnost) |
| TE | Traditional energy |
| WANO | World Association of Nuclear Operators |
Totals and subtotals in this half-year report can differ from the sum of individual values due to rounding.
Information in this half-year report was not verified by an independent auditor.
CEZ Group Interim Consolidated Financial Statements
INTERIM CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS OF JUNE 30, 2018
| Note | June 30, 2018 |
December 31, 2017 |
|
|---|---|---|---|
| ASSETS: | |||
| Plant in service Less accumulated depreciation and impairment |
814,942 (435,117) |
833,359 (437,210) |
|
| Net plant in service | 379,825 | 396,149 | |
| Nuclear fuel, at amortized cost Construction work in progress |
15,887 15,880 |
15,218 16,652 |
|
| Total property, plant and equipment | 411,592 | 428,019 | |
| Investment in associates and joint-ventures Restricted financial assets, net Investments and other financial assets, net Intangible assets, net Deferred tax assets |
3,508 18,763 8,547 25,858 913 |
3,520 18,468 9,845 26,804 1,297 |
|
| Total other non-current assets | 57,589 | 59,934 | |
| Total non-current assets | 469,181 | 487,953 | |
| Cash and cash equivalents, net Receivables, net Income tax receivable Materials and supplies, net Fossil fuel stocks Emission rights Other financial assets, net Other current assets Assets classified as held for sale |
5 | 10,539 61,331 3,072 9,966 1,020 8,641 87,433 3,632 16,827 |
12,623 57,766 1,171 9,537 1,021 9,370 43,052 3,684 30 |
| Total current assets | 202,461 | 138,254 | |
| Total assets | 671,642 | 626,207 |
| Note | June 30, 2018 |
December 31, 2017 |
|
|---|---|---|---|
| EQUITY AND LIABILITIES: | |||
| Stated capital | 53,799 | 53,799 | |
| Treasury shares | (3,551) | (4,077) | |
| Retained earnings and other reserves | 188,094 | 200,296 | |
| Total equity attributable to equity holders of the parent | 238,342 | 250,018 | |
| Non-controlling interests | 4,527 | 4,304 | |
| Total equity | 242,869 | 254,322 | |
| Long-term debt, net of current portion | 7 | 132,420 | 132,475 |
| Provisions | 73,043 | 73,291 | |
| Deferred tax liabilities | 20,289 | 19,993 | |
| Other long-term liabilities | 13,510 | 15,844 | |
| Total long-term liabilities | 239,262 | 241,603 | |
| Short-term loans | 8 | 5,476 | 11,072 |
| Current portion of long-term debt | 7 | 3,212 | 8,622 |
| Trade and other payables | 155,777 | 87,236 | |
| Income tax payable | 154 | 176 | |
| Provisions | 7,442 | 9,226 | |
| Accrued liabilities | 11,667 | 13,950 | |
| Liabilities associated with assets classified as held for sale |
5 | 5,783 | - |
| Total current liabilities | 189,511 | 130,282 | |
| Total equity and liabilities | 671,642 | 626,207 |
| in CZK Millions | |
|---|---|
| -- | ----------------- |
| Note | 1-6/2018 | 1-6/2017 | 4-6/2018 | 4-6/2017 | |
|---|---|---|---|---|---|
| Sales of electricity and related services Sales of gas, coal, heat and other |
67,445 | 84,614 | 32,857 | 40,752 | |
| revenues | 18,022 | 14,123 | 7,669 | 5,615 | |
| Other operating income | 832 | 2,146 | 371 | 1,694 | |
| Total revenues and other operating income |
9 | 86,299 | 100,883 | 40,897 | 48,061 |
| Gains and losses from commodity derivative trading, net |
11 | 599 | (846) | (934) | |
| Fuel | (5,763) | (6,338) | (2,412) | (2,705) | |
| Purchased power and related services | (26,327) | (44,268) | (11,907) | (20,768) | |
| Repairs and maintenance | (1,699) | (1,559) | (1,076) | (973) | |
| Depreciation and amortization | (14,096) | (14,982) | (6,967) | (7,485) | |
| Impairment of property, plant and equipment and intangible assets |
|||||
| including goodwill | (157) | (271) | (162) | (270) | |
| Salaries and wages | (11,831) | (9,640) | (6,122) | (4,995) | |
| Materials and supplies | (3,785) | (2,327) | (1,917) | (1,257) | |
| Emission rights, net | (1,597) | (719) | (1,791) | (892) | |
| Other operating expenses | (8,378) | (4,137) | (5,419) | (2,196) | |
| Income before other income (expenses) | |||||
| and income taxes | 12,677 | 17,241 | 2,278 | 5,586 | |
| Interest on debt, net of capitalized | |||||
| interest | (2,492) | (1,800) | (1,275) | (869) | |
| Interest on provisions | (900) | (814) | (451) | (407) | |
| Interest income | 125 | 134 | 85 | 67 | |
| Foreign exchange rate | |||||
| gains (losses), net Gain on sale of subsidiaries, associates |
(395) | 461 | (208) | 561 | |
| and joint-ventures | 2 | - | 2 | - | |
| Other financial expenses | (96) | (1,094) | (34) | (1,065) | |
| Other financial income | 685 | 5,559 | 277 | 4,760 | |
| Share of profit (loss) from associates | |||||
| and joint-ventures | (283) | (255) | (254) | 138 | |
| Total other income (expenses) | (3,354) | 2,191 | (1,858) | 3,185 | |
| Income before income taxes | 9,323 | 19,432 | 420 | 8,771 | |
| Income taxes | (1,608) | (2,774) | 40 | (787) | |
| Net income | 7,715 | 16,658 | 460 | 7,984 | |
| Net income attributable to: | |||||
| Equity holders of the parent | 7,509 | 16,314 | 388 | 7,745 | |
| Non-controlling interests | 206 | 344 | 72 | 239 | |
| Net income per share attributable to equity holders of the parent (CZK per share) |
|||||
| Basic | 14.0 | 30.5 | 0.7 | 14.5 | |
| Diluted | 14.0 | 30.5 | 0.7 | 14.5 |
| Note | 1-6/2018 | 1-6/2017 | 4-6/2018 | 4-6/2017 | |
|---|---|---|---|---|---|
| Net income | 7,715 | 16,658 | 460 | 7,984 | |
| Change in fair value of cash flow hedges recognized in equity |
(7,211) | 3,762 | (8,022) | 1,975 | |
| Cash flow hedges reclassified to statement of income |
1,720 | 2,737 | 205 | 2,015 | |
| Change in fair value of debt instruments recognized in equity Debt instruments reclassified from |
- | (666) | - | (32) | |
| equity | (513) | (32) | (337) | (15) | |
| Change in fair value of equity instruments recognized in equity Equity instruments reclassified from |
- | (191) | - | 272 | |
| equity | - | (5,585) | - | (5,566) | |
| Translation differences – subsidiaries |
581 | (1,452) | 860 | (1,691) | |
| Translation differences – associates and joint-ventures |
101 | (339) | 90 | (226) | |
| Translation differences reclassified from equity Share on other equity movements |
12 | - | - | - | |
| of associates and joint-ventures | - | 35 | - | 9 | |
| Deferred tax related to other comprehensive income |
10 | 1,142 | (1,099) | 1,541 | (747) |
| Net other comprehensive income that may be reclassified to |
|||||
| statement of income or to assets in subsequent periods |
(4,168) | (2,830) | (5,663) | (4,006) | |
| Total comprehensive income, net of tax |
3,547 | 13,828 | (5,203) | 3,978 | |
| Total comprehensive income attributable to: |
|||||
| Equity holders of the parent Non-controlling interests |
3,275 272 |
13,558 270 |
(5,357) 154 |
3,814 164 |
| Note | Attributable to equity holders of the parent | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Stated capital |
Treasury shares |
difference Transla- tion |
Cash flow hedge reserve |
Debt instru- ments |
instruments and other reserves Equity |
Retained earnings |
Total | controlling interests Non- |
Total equity |
||
| December 31, 2016 | 53,799 | (4,246) | (10,779) | (7,499) | 1,666 | 6,173 | 217,698 | 256,812 | 4,548 | 261,360 | |
| Net income | - | - | - | - | - | - | 16,314 | 16,314 | 344 | 16,658 | |
| Other comprehensive income |
- | - | (1,675) | 5,263 | (562) | (5,817) | 35 | (2,756) | (74) | (2,830) | |
| Total comprehensive income |
- | - | (1,675) | 5,263 | (562) | (5,817) | 16,349 | 13,558 | 270 | 13,828 | |
| Dividends | - | - | - | - | - | - | (17,630) | (17,630) | (235) | (17,865) | |
| share options within Transfer of forfeited Share options |
- | - | - | - | - | 12 | - | 12 | - | 12 | |
| equity | - | - | - | - | - | (15) | 15 | - | - | ||
| June 30, 2017 | 53,799 | (4,246) | (12,454) | (2,236) | 1,104 | 353 | 216,432 | 252,752 | 4,583 | 257,335 |
| ◡◡╙◦ | ||
|---|---|---|
| Z Group Interim Consolidated Financial Statements | |
|---|---|
| --------------------------------------------------- | -- |
| Note | Attributable to equity holders of the parent | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Stated capital |
Treasury shares |
difference Transla- tion |
Cash flow hedge reserve |
Debt ments instru- |
instruments and other reserves Equity |
Retained earnings |
Total | controlling interests Non- |
Total equity |
||
| December 31, 2017 | 53,799 | (4,077) | (11,906) | (7,757) | 677 | 571 | 218,711 | 250,018 | 4,304 | 254,322 | |
| Application of new IFRSs | 2.2 | - | - | 143 | - | - | (493) | 2,818 | 2,468 | (24) | 2,444 |
| January 1, 2018 (restated) |
53,799 | (4,077) | (11,763) | (7,757) | 677 | 78 | 221,529 | 252,486 | 4,280 | 256,766 | |
| Net income | - | - | - | - | - | - | 7,509 | 7,509 | 206 | 7,715 | |
| Other comprehensive income |
- | - | 628 | (4,448) | (414) | - | - | (4,234) | 66 | (4,168) | |
| Total comprehensive income |
- | - | 628 | (4,448) | (414) | - | 7,509 | 3,275 | 272 | 3,547 | |
| Dividends | 6 | - | - | - | - | - | - | (17,648) | (17,648) | (17) | (17,665) |
| Sale of treasury shares | - | 526 | - | - | - | - | (322) | 204 | - | 204 | |
| Transfer of exercised and Share options |
- | - | - | - | - | 17 | - | 17 | - | 17 | |
| forfeited share options | |||||||||||
| Acquisition of non- within equity |
- | - | - | - | - | (29) | 29 | - | - | ||
| controlling interests | - | - | - | - | - | - | 8 | 8 | (13) | ||
| Sale of non-controlling | |||||||||||
| Put options held by non- interests |
- | - | - | - | - | - | - | - | 4 | ||
| controlling interests | - | - | 2 | - | - | - | (2) | - | 1 | ||
| June 30, 2018 | 53,799 | (3,551) | (11,133) | (12,205) | 263 | 66 | 211,103 | 238,342 | 4,527 | 242,869 |
| Note | 1-6/2018 | 1-6/2017 | |
|---|---|---|---|
| OPERATING ACTIVITIES: | |||
| Income before income taxes | 9,323 | 19,432 | |
| Adjustments to reconcile income before income taxes to net cash provided by operating activities: |
|||
| Depreciation and amortization | 14,096 | 14,982 | |
| Amortization of nuclear fuel | 1,949 | 1,817 | |
| Gain on non-current asset retirements, net | (77) | (5,858) | |
| Foreign exchange rate losses (gains), net | 395 | (461) | |
| Interest expense, interest income and dividend income, net | 2,213 | 1,435 | |
| Provisions | (1,558) | (2,087) | |
| Impairment of property, plant and equipment and intangible assets including goodwill |
157 | 271 | |
| Valuation allowances and other adjustments | 1,733 | (222) | |
| Share of (profit) loss from associates and joint-ventures | 283 | 255 | |
| Changes in assets and liabilities: | |||
| Receivables | (7,002) | 7,652 | |
| Materials, supplies and fossil fuel stocks Receivables and payables from derivatives |
(506) 477 |
(209) (2,706) |
|
| Other current assets | 3,521 | 282 | |
| Trade and other payables | 2,776 | (3,968) | |
| Accrued liabilities | (1,635) | (2,667) | |
| Cash generated from operations | 26,145 | 27,948 | |
| Income taxes paid | (2,066) | (2,643) | |
| Interest paid, net of capitalized interest | (3,098) | (2,082) | |
| Interest received | 124 | 141 | |
| Dividends received | 5 | 233 | |
| Net cash provided by operating activities | 21,110 | 23,597 | |
| INVESTING ACTIVITIES: | |||
| Acquisition of subsidiaries, associates and joint-ventures, net of | |||
| cash acquired Disposal of subsidiaries, associates and joint-ventures, net of |
4 | (289) | (95) |
| cash disposed of | 156 | 1,314 | |
| Additions to non-current assets, including capitalized interest | (10,013) | (13,791) | |
| Proceeds from sale of non-current assets | 1,675 | 12,734 | |
| Loans made | (8) | (19) | |
| Repayment of loans | - | 356 | |
| Change in restricted financial assets | (816) | (856) | |
| Total cash used in investing activities | (9,295) | (357) |
| Note | 1-6/2018 | 1-6/2017 | |
|---|---|---|---|
| FINANCING ACTIVITIES: | |||
| Proceeds from borrowings Payments of borrowings Proceeds from other long-term liabilities Payments of other long-term liabilities Dividends paid to Company's shareholders Dividends paid to non-controlling interests Sale of treasury shares Sale of non-controlling interests |
33,815 (45,827) 20 (33) (44) (7) 204 5 |
56,241 (71,946) 16 (32) (56) (9) - - |
|
| Total cash used in financing activities | (11,867) | (15,786) | |
| Net effect of currency translation and impairment in cash | 58 | (115) | |
| Net increase in cash and cash equivalents | 6 | 7,339 | |
| Cash and cash equivalents at beginning of period | 12,623 | 11,330 | |
| Cash and cash equivalents at end of period | 12,629 | 18,669 | |
| Supplementary cash flow information Total cash paid for interest |
3,259 | 3,244 | |
ČEZ, a. s. ("ČEZ" or "the Company") is a Czech joint-stock company, owned 69.8% (70.2% of voting rights) at June 30, 2018 by the Czech Republic represented by the Ministry of Finance. The remaining shares of the Company are publicly held. The address of the Company's registered office is Duhová 2/1444, Praha 4, 140 53, Czech Republic.
The Company is a parent company of the CEZ Group ("the Group"). Main business of the Group is the production, distribution, trade and sale of electricity and heat, trade and sale of natural gas, coal mining and providing energy services.
The interim consolidated financial statements for the six months ended June 30, 2018 have been prepared in accordance with IAS 34 and have not been audited by an independent auditor. The interim consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as of December 31, 2017.
The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended December 31, 2017, except for as follows. As of January 1, 2018 the Group applies new International Financial Reporting Standards IFRS 9 Financial Instruments and IFRS 15 Revenues from Contracts with Customers. Several other amendments and interpretations apply for the first time in 2018, but do not have an impact on the interim consolidated financial statements.
The Group has applied IFRS 9 retrospectively, with the initial application date of January 1, 2018 and adjusting the presentation of the comparative information for the period beginning January 1, 2017. Under IFRS 9, the Group split old category of Available-for-sale financial assets into new categories Debt instruments and Equity instruments. The impact of the change in the presentation affected the layout of Consolidated statement of changes in equity and Consolidated statement of comprehensive income for the actual and previous period.
Due to the application IFRS 9, some assets were reclassified from category Available-for-sale to category Fair value through profit or loss and accumulated reserve from revaluation of Available-forsale financial assets amounting CZK 350 million was transferred to retained earnings. Impact of creation of new allowances on receivables and other assets is stated in the table below.
The Group adopted IFRS 15 using the modified retrospective method of adoption. The effect as of the date of application, resulting from recognition of deferred connection fees received from customers prior 2009 in retained earnings, is disclosed in the table below.
The Group recognized as of the date of application of IFRS 9 and IFRS 15 following impact affecting amount of equity (in CZK millions):
| IFRS 9 | IFRS 15 | Total | |
|---|---|---|---|
| Receivables, net Other |
(62) (17) |
- - |
(62) (17) |
| Total assets | (79) | - | (79) |
| Deferred tax liability Other long-term liabilities |
13 - |
(581) 3,091 |
(568) 3,091 |
| Total liabilities | 13 | 2,510 | 2,523 |
| Impact on Total equity | (66) | 2,510 | 2,444 |
| Less: Non-controlling interests | (4) | (20) | (24) |
| Impact on Total equity attributable to equity holders of the parent |
(62) | 2,530 | 2,468 |
In addition to above mentioned effect of IFRS 15 related to connection fees, the Group as a result of application of IFRS 15 changed from January 1, 2018 also the way of presentation revenue and costs in situation when the Group acts as energy provider without distributing it. In these circumstances the Group acts as an agent under IFRS 15 and no revenue and costs for distribution services is recognized, with no effect to net income. The table below presents amounts for selected items of statement of income for 1-6/2017 comparing previously reported figures according to IAS 18, which was replaced from January 1, 2018 by IFRS 15, and adjustments which would be necessary for compliance with IFRS 15 (in CZK millions):
| 1-6/2017 according to IAS 18 |
Effect of connection fees |
Effect of agent vs. principal |
1-6/2017 according to IFRS 15 |
|
|---|---|---|---|---|
| Sales of electricity and related services Sales of gas, coal, heat and other revenues Other operating income |
84,614 14,123 2,146 |
- (326) - |
(13,981) (1,175) (29) |
70,633 12,622 2,117 |
| Total revenues and other operating income | 100,883 | (326) | (15,185) | 85,372 |
| Purchased power and related services Other operating expenses |
(44,268) (4,137) |
- - |
15,143 42 |
(29,125) (4,095) |
| Income before income taxes | 19,432 | (326) | - | 19,106 |
| Income taxes | (2,774) | 51 | - | (2,723) |
| Net income | 16,658 | (275) | - | 16,383 |
The seasonality within the segments Generation - Traditional Energy, Generation - New Energy, Distribution and Sales usually takes effect in such a way that the revenues and operating profits of these segments for the 1st and 4th quarters of a calendar year are slightly higher than the revenues and operating profits achieved in the remaining period.
On January 31, 2018 the Group acquired a 100% interest in the polish company Metrolog sp. z o.o. The company is an engineering firm that focuses on complex services related to heat management and decentralized heat and electricity generation. The values of acquired identifiable assets and liabilities as of the date of acquisition were as follows (in CZK millions):
| Metrolog | |
|---|---|
| Property, plant and equipment Intangible assets, net Cash and cash equivalents Receivables, net Materials and supplies, net Other current assets |
83 51 99 61 23 2 |
| Deferred tax liabilities Trade and other payables Other short-term liabilities |
(10) (36) (22) |
| Total net assets | 251 |
| Share of net assets acquired | 251 |
| Goodwill | 120 |
| Total purchase consideration | 371 |
| Liabilities from acquisition of the subsidiary | (40) |
| Cash outflow on acquisition of the subsidiary in 2018 |
331 |
| Less: | |
| Cash and cash equivalents in the subsidiary acquired | (99) |
| Cash outflow on acquisition of the subsidiary in 2018, net |
232 |
| Revenues and other operating income since 1.1. till acquisition date Net income since 1.1. till acquisition date |
24 - |
If the combination had taken place at the beginning of the year 2018, net income for CEZ Group as of June 30, 2018 would have been CZK 7,715 million and the revenues and other operating income from continuing operations would have been CZK 86,323 million. The amount of goodwill recognized as a result of the business combination comprises the value of expected synergies arising from the acquisition.
From the acquisition date, the newly acquired subsidiaries have contributed the following balances to the Group's statement of income for 2018 (in CZK millions):
| Metrolog | |
|---|---|
| Revenues and other operating income Income before other income (expense) and income |
192 |
| taxes Net income (loss) |
1 - |
| Net income (loss) attributable to: Equity holders of the parent Non-controlling interests |
- - |
On February 23, 2018, a sales contract for the sale of interests in Bulgarian companies CEZ Razpredelenie Bulgaria AD (including its interest in CEZ ICT Bulgaria EAD), CEZ Trade Bulgaria EAD, CEZ Bulgaria EAD, CEZ Elektro Bulgaria AD, Free Energy Project Oreshets EAD and Bara Group EOOD was signed. The requirements of standard IFRS 5 to classify the assets as held for sale were met by granting prior consent to the transaction by the supervisory board of ČEZ, a. s. which took place on February 22, 2018.
The assets classified as held for sale and associated liabilities at June 30, 2018 and December 31, 2017 are as follows (in CZK millions):
| June 30, 2018 | December 31, 2017 |
|
|---|---|---|
| Bulgarian | ||
| companies | Other | |
| Property, plant and equipment | 10,299 | 30 |
| Intangible assets | 433 | - |
| Other non-current assets | 46 | - |
| Cash and cash equivalents | 2,090 | - |
| Receivables, net | 3,334 | - |
| Other current assets | 625 | - |
| Assets classified as held for sale | 16,827 | 30 |
| Non-current provisions | 118 | - |
| Long-term liabilities | 1,774 | - |
| Deferred tax liabilities | 242 | - |
| Short-term loans | 715 | - |
| Trade and other payables | 2,366 | - |
| Current provisions | 509 | - |
| Other current liabilities | 59 | - |
| Liabilities associated with assets classified as held for sale | 5,783 | - |
On June 22, 2018 the Annual Shareholders Meeting of ČEZ, a. s. approved the dividends per share before tax of CZK 33.0. The total amount of dividend approved for distribution to shareholders net of treasury shares amounts to CZK 17,648 million.
Long-term debt at June 30, 2018 and December 31, 2017 is as follows (in CZK millions):
| December 31, | ||
|---|---|---|
| June 30, 2018 | 2017 | |
| 3.005% Eurobonds, due 2038 (JPY 12,000 million) | 2,412 | 2,263 |
| 2.845% Eurobonds, due 2039 (JPY 8,000 million) | 1,609 | 1,510 |
| 5.000% Eurobonds, due 2021 (EUR 750 million) | 19,479 | 19,114 |
| 6M Euribor + 1.25% Eurobonds, due 2019 (EUR 50 million) | 1,299 | 1,275 |
| 3M Euribor + 0,55% Eurobonds, due 2018 (EUR 200 million) | - | 5,106 |
| 4.875% Eurobonds, due 2025 (EUR 750 million) | 19,457 | 19,095 |
| 4.500% Eurobonds, due 2020 (EUR 750 million) | 19,460 | 19,087 |
| 2.160% Eurobonds, due 2023 (JPY 11,500 million) | 2,319 | 2,175 |
| 4.600% Eurobonds, due 2023 (CZK 1,250 million) | 1,249 | 1,249 |
| 2.150%*IR CPI Eurobonds, due 2021 (EUR 100 million) 1) | 2,602 | 2,554 |
| 4.102% Eurobonds, due 2021 (EUR 50 million) | 1,299 | 1,275 |
| 4.250% U.S. bonds, due 2022 (USD 289 million) | 6,412 | 6,114 |
| 5.625% U.S. bonds, due 2042 (USD 300 million) | 6,631 | 6,325 |
| 4.375% Eurobonds, due 2042 (EUR 50 million) | 1,278 | 1,254 |
| 4.500% Eurobonds, due 2047 (EUR 50 million) | 1,278 | 1,254 |
| 4.383% Eurobonds, due 2047 (EUR 80 million) | 2,082 | 2,043 |
| 3.000% Eurobonds, due 2028 (EUR 725 million) | 19,342 | 19,008 |
| 4.500% registered bonds, due 2030 (EUR 40 million) | 1,024 | 1,004 |
| 4.750% registered bonds, due 2023 (EUR 40 million) | 1,034 | 1,014 |
| 4.700% registered bonds, due 2032 (EUR 40 million) | 1,036 | 1,016 |
| 4.270% registered bonds, due 2047 (EUR 61 million) | 1,563 | 1,534 |
| 3.550% registered bonds, due 2038 (EUR 30 million) | 777 | 763 |
| Total bonds and debentures | 113,642 | 116,032 |
| Less: Current portion | - | (5,106) |
| Bonds and debentures, net of current portion | 113,642 | 110,926 |
| Long-term bank and other loans: | ||
| Total long-term bank and other loans | 21,990 | 25,065 |
| Less: Current portion | (3,212) | (3,516) |
| Long-term bank and other loans, net of current portion | 18,778 | 21,549 |
| Total long-term debt | 135,632 | 141,097 |
| Less: Current portion | (3,212) | (8,622) |
| Total long-term debt, net of current portion | 132,420 | 132,475 |
1) The interest rate is based on inflation realized in Eurozone Countries (Harmonized Index of Consumer Prices – HICP) and is fixed through the closed swap to the rate 4.553% p. a.
Short-term loans at June 30, 2018 and December 31, 2017 are as follows (in CZK millions):
| June 30, 2018 |
December 31, 2017 |
|
|---|---|---|
| Short-term bank loans Bank overdrafts |
5,351 125 |
10,976 96 |
| Total | 5,476 | 11,072 |
The composition of revenues and other operating income for the years ended June 30, 2018 and 2017 is as follows (in CZK millions):
| 1-6/2018 | 1-6/2017 | |
|---|---|---|
| Sales of electricity and related services: | ||
| Sales of electricity to end customers * Sales of electricity through energy exchange Sales of electricity to traders Sales to distribution and transmission companies Other sales of electricity Effect of hedging - presales of electricity Effect of hedging - currency risk hedging Sales of ancillary, system, distribution and other services * |
22,436 1,528 16,140 91 9,182 (2,532) 112 20,488 |
25,106 1,882 18,030 127 8,809 161 (1,149) 31,648 |
| Total sales of electricity and related services | 67,445 | 84,614 |
| Sales of gas, coal, heat and other revenues: | ||
| Sales of gas Sales of coal Sales of heat Other * |
3,693 2,192 3,664 8,473 |
5,113 2,110 3,826 3,074 |
| Total sales of gas, coal, heat and other revenues | 18,022 | 14,123 |
| Other operating income: | ||
| Contractual fines and interest fees for delays Gain on sale of property, plant and equipment Gain on sale of material Other * |
144 47 72 569 |
32 1,184 82 848 |
| Total other operating income | 832 | 2,146 |
| Total revenues and other operating income | 86,299 | 100,883 |
* Application of IFRS 15 from January 1, 2018 affected this item (see also Note 2.2).
Tax effects relating to each component of other comprehensive income are the following (in CZK millions):
| 1-6/2018 | ||||||
|---|---|---|---|---|---|---|
| Before tax amount |
Tax effect |
Net of tax amount |
Before tax amount |
Tax effect |
Net of tax amount |
|
| Change in fair value of cash flow hedges recognized in equity |
(7,211) | 1,370 | (5,841) | 3,762 | (715) | 3,047 |
| Cash flow hedges reclassified to statement of income |
1,720 | (327) | 1,393 | 2,737 | (520) | 2,217 |
| Change in fair value of debt instruments recognized in equity |
(513) | 99 | (414) | (666) | 128 | (538) |
| Debt instruments reclassified from equity |
- | - | - | (32) | 8 | (24) |
| Change in fair value of equity instruments recognized in equity |
- | - | - | (191) | - | (191) |
| Equity instruments reclassified from equity |
- | - | - | (5,585) | - | (5,585) |
| Translation differences – subsidiaries |
581 | - | 581 | (1,452) | - | (1,452) |
| Translation differences – associates and joint-ventures |
101 | - | 101 | (339) | - | (339) |
| Translation differences reclassified from equity |
12 | - | 12 | - | - | - |
| Share on other equity movements of associates and joint-ventures |
- | - | - | 35 | - | 35 |
| Total | (5,310) | 1,142 | (4,168) | (1,731) | (1,099) | (2,830) |
The Group reports its result using six reportable operating segments:
The segments are defined across the countries that CEZ Group operates. Segment is a functionally autonomous part of CEZ Group that serves a single part of the value chain in the energy sector and is within the purview of individual members of the ČEZ, a. s. Board of Directors.
The Group accounts for intersegment revenues and transfers as if the revenues or transfers were to third parties, that is, at current market prices or where the regulation applies at regulated prices.
The Group evaluates the performance of its segments based on earnings before interest, taxes, depreciation and amortization (EBITDA). The reconciliation of EBITDA to income before other income (expenses) and income taxes summarizes the following table (in CZK millions):
| 1-6/2018 | 1-6/2017 | |
|---|---|---|
| Income before other income (expenses) and income | ||
| taxes (EBIT) | 12,677 | 17,241 |
| Depreciation and amortization | 14,096 | 14,982 |
| Impairment of property, plant and equipment and | ||
| intangible assets including goodwill | 157 | 271 |
| Gains and losses on sale of property, plant and | ||
| equipment, net * | (37) | (1,183) |
| EBITDA | 26,893 | 31,311 |
* Gains on sale of property, plant and equipment are presented in the statement of income as part of the line item Other operating income. Losses on sale of property, plant and equipment are presented in the statement of income as part of the line item Other operating expenses.
| June 30, 2018: | Traditional Energy ration - Gene |
Energy ration - Gene New |
Distribu tion |
Sales | Mining | Other | Combined | Elimination | Consoli- dated |
|---|---|---|---|---|---|---|---|---|---|
| income - other than intersegment Revenues and other operating |
22,118 | 2,447 | 11,591 | 46,802 | 2,302 | 1,039 | 86,299 | - | 86,299 |
| Revenues and other operating income - intersegment |
16,901 | 278 | 12,230 | 6,436 | 2,361 | 5,509 | 43,715 | (43,715) | - |
| Total revenues and other operating income |
39,019 | 2,725 | 23,821 | 53,238 | 4,663 | 6,548 | 130,014 | (43,715) | 86,299 |
| Depreciation and amortization EBITDA |
9,549 (8,150) |
2,152 (877) |
9,973 (3,036) |
2,129 (163) |
2,029 (1,164) |
1,057 (706) |
26,889 (14,096) |
4 - |
26,893 (14,096) |
| equipment and intangible assets Impairment of property, plant and including goodwill EBIT |
1,310 (90) |
1,276 - |
6,892 (52) |
1,970 - |
877 11 |
(26) 348 |
12,673 (157) |
- 4 |
12,677 (157) |
| Share of profit (loss) from associates Interest on debt and provisions Interest income |
(3,168) 250 |
(156) 5 |
(164) 29 |
(60) 7 |
(98) 8 |
(116) 196 |
(3,762) 495 |
(370) 370 |
(3,392) 125 |
| and joint-ventures Income taxes Net income |
29,647 - 340 |
1,092 (60) 28 |
5,602 (1,241) 93 |
1,620 (349) 36 |
1,187 (160) 3 |
(443) (138) 498 |
39,646 (1,608) (283) |
(31,931) - - |
7,715 (1,608) (283) |
| Identifiable assets | 248,116 | 28,317 | 106,385 | 1,215 | 19,646 | 8,972 | 412,651 | (1,059) | 411,592 |
| Investment in associates and joint Unallocated assets ventures |
- | 599 | - | - | 173 | 2,736 | 3,508 | - | 3,508 256,542 |
| Total assets | 671,642 | ||||||||
| Capital expenditure | 2,385 | 117 | 5,342 | 134 | 273 | 1,168 | 9,419 | (457) | 8,962 |
| Traditional Energy ration - Gene- June 30,2017: |
27,763 income - other than intersegment Revenues and other operating |
15,372 Revenues and other operating income - intersegment |
43,135 Total revenues and other operating income |
(9,066) 12,733 Depreciation and amortization |
(2,379) 4,813 328 - equipment and intangible assets Impairment of property, plant and Interest on debt and provisions including goodwill Interest income |
13,818 (563) (65) Share of profit (loss) from associates and joint-ventures Income taxes Net income |
5,120 Capital expenditure |
Traditional Energy ration - Gene December 31,2017: |
255,773 - Investment in associates joint-ventures Unallocated assets Identifiable assets |
Total assets |
|---|---|---|---|---|---|---|---|---|---|---|
| Energy ration - Gene- New |
2,175 | 407 | 2,582 | 2,324 (847) |
1,207 (269) (119) - |
(119) (30) 931 |
173 | Energy ration - Gene New |
28,845 646 |
|
| Distribu- tion |
14,493 | 14,450 | 28,943 | (3,109) 10,046 |
6,943 (167) (8) 15 |
(1,249) 5,575 34 |
5,279 | Distribu tion |
113,805 - |
|
| Sales | 53,066 | 2,356 | 55,422 | 2,732 (41) |
2,692 (4) 1 - |
2,067 (511) (83) |
39 | Sales | 1,110 - |
|
| Mining | 2,211 | 2,367 | 4,578 | (1,158) 2,095 |
(95) 938 1 - |
1,341 (179) 2 |
331 | Mining | 20,517 175 |
|
| Other | 1,175 | 7,177 | 8,352 | 1,378 (761) |
(146) 645 85 6 |
5,439 (113) (153) |
3,118 | Other | 9,050 2,699 |
|
| Combined | 100,883 | 42,129 | 143,012 | (14,982) 31,308 |
(2,910) 17,238 (271) 430 |
(2,774) 29,171 (255) |
14,060 | Combined | 429,100 3,520 |
|
| Elimination | - | (42,129) | (42,129) | 3 - |
(296) 296 3 - |
(12,513) - - |
(2,147) | Elimination | (1,081) - |
|
| Consoli- dated |
100,883 | - | 100,883 | (14,982) 31,311 |
(2,614) 17,241 (271) 134 |
(2,774) 16,658 (255) |
11,913 | Consoli- dated |
428,019 194,668 3,520 |
626,207 |
Fig. Environmental upgrades to the Energotrans generating facility, July 2018
ČEZ, a. s. Duhová 2/1444 140 53 Praha 4 Czechia
Registered in the Commercial Register kept by the Municipal Court in Prague, Section B, File 1581
| Established: | 1992 |
|---|---|
| Legal form: | Joint-stock company |
| Company reg. No.: | 452 74 649 |
| LEI: | 529900S5R9YHJHYKKG94 |
| Banking details: | KB Praha 1, acc. No. 71504011/0100 |
| Phone: | +420 211 041 111 |
| Fax: | +420 211 042 001 |
| Internet: | www.cez.cz |
Closing date of the 2018 Half-Year Report: August 24, 2018
E-mail: [email protected]
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