CEZ, a. s. ($CEZ)

Hello, everyone, and welcome to CEZ Group call on the announcement we made yesterday on optimization of ownership structure and governance of CEZ group. We will have only two slides, which will be presented by Pavel Cyrani, but then we will hopefully spend most of this call on questions. And we have also Martin Novak, the CFO, who can also answer your questions. Now I'm handing over to Pavel.

Thank you, and hello, everyone. As you probably learned by now, we, as Board of Directors approved and then later also the Supervisory Board a proposal to our general meeting to decide on the optimization of the ownership structure and governance of CEZ Group. And before I go into more details of this proposal, let me just give you a short context. The last time we have significantly updated our strategy was in the May 2021 under the name of Clean Energy of Tomorrow and as a part of it, we have also updated our business policy, which was then approved at the shareholder meeting in 2022. And already in this strategy, as a way to achieve the business targets that we've set forth. We've indicated that one of the steps needed would be to adjust and optimize our internal structure. With a focus of looking independently at two business areas: one being generation; and second, being supply and distribution as two pieces of business with significantly different profiles, financing needs and other aspects. Also indicated that the energy crisis back in 2021, '22 was also one of the drivers of these changes and unfortunately, we are today, again, facing a global energy crisis. So the goals and the tools that we've indicated back in 2021, '22 are as up to date as they were today as they were then. What has changed that we have, in the meanwhile, also managed to consolidate our customer-oriented assets and grow them significantly. We've developed strong energy services companies, both in Czechia and abroad. We have become the main and natural gas distributor in Czechia by acquisition of majority stake in GasNet and later just earlier this year, gas distribution we've also grew our supply business. And as a result, in 2026, this year, we expect the customer segments to represent approximately 50% of CEZ Group EBITDA with this are even growing beyond that in the years to come. Hence, is a proposal, and the proposal is as follows. As you can see on the Page. One is we've proposed to transfer the customer segment of CEZ Group to a dedicated subsidiary, which for the lack of a better name, we now call a customer segment subsidiary company. As a proposition number one, number A; and B, to have the option to sell a minority share in this newly created subsidiary and/or the shares of other companies within the customer segment of CEZ Group. Now what is part of it? comes naturally from what is a customer business from our perspective is the electricity and the natural gas distribution. The main part CEZ distribution GasNet, electricity and grid and gas grid. The supply business of electricity and natural gas to end customers under -- which is now under a subsidiary CEZ Prodej, the trading arm of CEZ, which would be put us in a stand-alone subsidiary and included in this customer segment subsidiary company, including its unit in Hungary. And then the smart energy services, which are under CEZ ESCO in Czechia, Elevion elsewhere in Europe with the exception of Slovakia and Slovakia is under CEZ Slovensko Slovakia. And then last but not least, is the end customer telecommunication services, which are under Telco Pro Services. So this is the proposal. As I said, this is something we have been aware and discussed for quite a long time now. So let me just quickly summarize what we -- what are the main reasons why there's a rationale behind it and its on the next page. Number one, the actual transfer of these segments into the dedicated subsidiary, we believe it will create value. It will actually separate this business. It will put a spotlight on it. It will show to our investors that although we are probably still known as a generation company or mostly generation company. The situation has changed over the past years, and we are a company with a very large share of stable and regulated activities, which we think should be -- which should allow to value the company higher. Then secondly, improved efficiency and governance. Again, both generation and customer segments need a different approach and making a dedicated subsidiary will help us to differentiate between the governance and management -- and last not -- but not least, is the financing perspective, which is on a similar note. Today, we see that you can differentiate the financing that covers duration, especially generation from nuclear and lignite stations, which we still operate and from supply and distribution business, and we believe by separating and allowing for separating these two financing streams through a dedicated subsidiary will allow to achieve an overall more favorable financing terms. Now that's on the transfer alone. As far as for the potential sale that basically what it is, is materializing the value uplift we believe, is there. So we've asked for a mandate to sell a minority share of this dedicated subsidiary, as I mentioned, through any of the possible ways, including public offering, direct sales, a combination of these or any other structure that we will see brings the highest valuation and through that, the highest value to our shareholders. What we also -- this mandate will also contain is that at all times, CEZ Group will hold at least 51% share in this subsidiary and in all the strategic parts of the subsidiaries, such as CEZ Distribuce, GasNet, CEZ Prodej,Trading and ESCO. So we will retain management control, and we aim to still manage the subsidiary as a full part of CEZ Group. So including all the synergies that can be achieved in having an integrated utility energy group. Now -- what also needs to be said that creating this structure will give us also flexibility in future financing needs both for our growth plans, but also we are aware of the government policy statement that the Czech government intends to buy out or -- initiate buyout of minority shareholders of CEZ by initiating a share buyback, so financed by CEZ Group funds. This is something that if that should be happening, it needs to be initiated by shareholders, so -- by the Czech government and it needs to be initiated at a shareholder meeting -- this is not part of what we are proposing here. But it will give us best management the flexibility to comply with such shareholder decisions if there is one to come in the future. So it gives us the flexibility and just to wrap it up. These proposals are subject to approval of the General Meeting, which will take place on June 1, 2026. So and that's all at this moment, and I think we are happy to take questions.

Yes. So that concludes the presentation, and we can take questions. The first question comes from Arthur Sitbon. I'll have to allow the microphone.

Yes. Can you hear me? .

Yes. Great Thank you very much for the presentation. So yes, a few questions on my side. The first one may be on the assets that you intend to put in the CSSC I was wondering why keeping renewables, in particular, the non-Czech renewable assets in the other one CEZ Group? And why putting retail in the NewCo as quite often, it's perceived that there are synergies of managing generation and retail together. And another question more on the -- still on the CSSC on the NewCo. I was wondering what you believe would be the right leverage ratio for that company in net economic debt to EBITDA terms. And as well, given the debt of that entity as far as I understand, will still be consolidated by CEZ Group. I was wondering if they -- will not that lead to a situation where CEZ Group would have a bit of an incentive to favor dividend distribution from that NewCo as opposed to growth in order to help funding the nuclear business. So that's the first big question, let's put it that way. The second one is just -- I was wondering how coordinated that proposal was with the government and to try to understand basically how likely is an approval of that proposition on June 1.

Okay. I will just answer the first few questions that you asked. One is why is renewables abroad not included. Well, number one, it's really marginal. And number two, we really believe that the split is customer business versus generation in general. So that's why we propose to retain the Czech renewables in the main -- in the mother company CEZ A.S. and the way we have organized the way we have the experts is basically for all the renewables in one group. So -- that's why we kept it with CEZ as a generational -- as a generation business. And again, it's -- it wouldn't really matter either way, it's really marginal. Secondly, why is retail? And you asked a specific from the synergies perspective, Well, on the other hand, retail is a customer business. We believe that the way you manage the companies, and it's -- you manage it. along being the customer business. And as far as the synergies, again, as we said, we will always retain 51% and more in this NewCo as you put it. And through that, we will not lose these synergies. I mean the retail will still buy its electricity and gas or electricity from CEZ A.S. as the same way as it does today. And this will -- this practice will continue, so there will be no change.

So I will comment -- maybe one more comment on retail. Retail is actually buying from CEZ as a power generator based on market terms based on power exchange quotations, so there is no advantage to retail staying actually in -- or close to power generation. So that's additional comment actually to that. Leverage, yes. So now, as you know, our group is funded mainly by debt that is actually taken all by a parent company and then allocate it downwards. We had a few exceptions, for example, GasNet. GasNet is actually financing itself. And it is also issuing its own bonds. So we would assume that in the future, when there is no 100% ownership of the new company. It will also leave its own independent financial life. That allocation, of course, depends on criteria so that we actually retain a high ratings as possible for all entities. . Definitely, there is a group of investors who will -- who will prefer, especially I'm talking about credit investors investing into, I would say, a company -- a clean company that does not have any exposure on coal generation. So -- and there is a demand actually for it, as we can see. So I think it's too early to talk about it, but we'll definitely take those things into consideration. And yes, independent company, although majority owned will have its own financial policy that will maximize its value.

You asked about the coordination and you've also asked about then the probability of approval of the shareholders meeting. Well, two things. One is, this thing is not coordinated. This is our perspective of how we believe that the company should optimize its structure. Obviously, we are doing this in light of what we see the government is announcing. So from this perspective, it is preparing the company for the steps that the government is saying that it will take. You can look at the comments from the government members I rest through some of them. It seems that they understand that it is a step that is in line with their governmental policy. So I think that would give you the indication on the likelihood. But again, we'll only see after or at the shows meeting on June 1. .

Okay. Thank you. We can take the next question from Anna Webb.

I'll ask two. Firstly, just a quick follow-up on the question on the leverage. I saw some headlines that the valuation for the subsidiary could be something like EUR 150 billion. I assume that that's after considering debt. That's like a market cap valuation for the minority stake. Is that correct? Or is it for the -- like the EV of the company? The second question, is kind of more of a clarification, so maybe just for my understanding, but I think there was some discussion about the sale of the 49% stake in a subsidiary being facilitating the government's plan to buy out the minorities in generation in a kind of self-funded way without using the government balance sheet. But I guess the proceeds from that would go to CEZ Group rather than the government as the shareholders. So would you be -- is the idea that there would be some sort of special dividend or return of money to shareholders to facilitate then a buyout? I know this is all potentials down the line, but is that kind of the right logic? Or am I misunderstanding something there?

So I'll answer your questions. First, it did not come from us actually. Also I cannot really comment on anything that was produced by somebody else. I think you can see actually the valuation or the value of EBITDA of this segment for 2025 and '26 and then come down to your numbers, less, of course, any potential debt? Second thing, I think should it go the path that government intends according to what we hear from the public media I think their intention would be rather than be in the money or the proceeds going to the government and government buying the shares. It would rather be an instruction or decision of the shareholder meeting which will be initiated by the shareholders to do share buyback in any form so that we actually would use those proceeds and buy back shares of parent company, that would be kind of the structure that is publicly being discussed. .

We can take the next question from Piotr Dzieciolowski.

So I wanted to ask you -- do you have already in mind how you're going to sell the 49% minority stake in the subsidiary? Is it going to be there via IPO? Or is it to design other entity? Or what's the route to disposal? And then I still -- can you -- have you done some math around your capacity to deliver the buyback of the minorities on the holding level, even if you dispose the 49% stake in this -- in the subsidiary because you presented a CZK 400 billion CapEx program by 2030. And I thought that really makes your balance sheet relatively leveraged and so even if you create extra space by selling these minority is it enough to buy out all of the minorities at the holding level?

Look, I guess two things, one is, no, we don't have a specific way to bring the minority shareholders to this customer segment subsidiary in mine yet. Two ways or two things. One is, first, we need to create a subsidiary, and that will take us until Q1 next year. And then secondly, we are most likely to run several types of processes in parallel. And we will -- if we were/are to sell, eventually, then we would make the decision only when we can compare the valuations and the proceeds we could get through the various paths. So we would not choose upfront one path, but we would around different paths in parallel and decide only at the very last moment depending on the valuations we can get. In terms of -- if the proceeds are enough. Look, at this moment, it's very premature to discuss. We have not formed the company yet. We have not -- we will see how the markets develop in all forms and shapes, we'll see if and when the government actually initiates the share buyback and all of this. So I think it's very early to speculate on this at this moment.

We can take the next question from Emanuele Oggioni.

I have two. The first one is on the potential target or the financial leverage of the new entity, which is mainly regulated. So could reach for higher leverage than the current group, including the generation business? This is the first question. The second one is more general and high level considering that in my understanding, the ultimate goal of the government is to protect the affordability the energy bills for the finance customers. And so the government focus is by taking control of the generation assets. In this way, could the retail business, which ultimately is still included in the CSSC assets, a bunch of assets. So the profitability of the retail business could be affected by the intervention in the government intervention in the generation business. So the decision taken for the generation business. So if you can clarify this detail more the opportunities or the risk on that. And probably to maximize the value of these assets probably would be better to create a pure RAB based network company without -- so excluding the other assets like sales of electricity, natural gas or trading, et cetera, in my opinion, at the least.

Okay. Well, thank you for the questions. I guess the question is what the government will or will not do in the future, it's more to the government. The only thing that I would bring your attention to is that if you read them are recent comments on this, for example, from the Minister of Industry, Mr. Havlicek, he's not talking about kind of general reduction of prices in terms of like getting 100% of CEZ generation to bring prices down at all times, but he's rather talking about times of crisis, which were in at times of crisis, a number of countries did something to the prices like all kinds of stuff, some kind of -- there are the ceilings and info taxes and all that. But again, it's more a question to the government. In terms of the supply business, again, I understand your question. On the Czech market, the supply business is very strictly separated from generation. There is -- it's really at arm length. So the supply business is normally buying base load and peak standard types of products that everybody can buy. It's very much looked after by the regulator that the fact that you own generation does not give you any advantage over other supply businesses, where the competition in the supply business is very fierce. So from this perspective, the synergies that are there, they are, for example, in margining and stuff like this. But in terms of the functioning of the market, it's very independent, and we simply think that in our market, it's better to manage distribution and supply business together rather than supply and generation. And that's how we propose the subsidiary to the general -- the shareholder meeting. And Martin, yet another question on...

I would also add one more comment on the question. Pavel just answered that the market is extremely competitive with quite a few players in the market. and government cannot really influence any of those directly, although it will be -- it would have a stake and it has stake actually of 70% in our supply business today, but there is no way how it could be influenced actually. So I wouldn't be worried about that. Above leverage, yes. The new company will be more stable in terms of predictability of cash flows due to distribution cash flows and both power and gas. If you have also some growth segments like escrow activities, both in the Czech Republic and in Western Europe. And the same for trading. But generally, the stability of distribution will be there. And for sure, we'll be able to allow higher level of leverage. But it always a process that is ahead of us. and we need to find an optimum between those two actually both parent company that would have reduced actually stability if part of it -- if part of the distribution business is sold, clearly, there will be less distributed cash flows or distribution cash flows, regulated cash flows in CEZ as a parent company. On the other hand, should it ever be more state-controlled or even fully state-owned it would have relatively significant or higher uplift that higher than it is today, probably from state support. So all those things are ahead of us and need to be well considered.

Next question can come from [indiscernible]

I think you've touched upon some of these questions before, but I just wanted to clarify it in a bit more detail. What's the overall intention from the proceeds of a mandatory stake sale to be used towards? Would you be looking to pay down some debt with it? Or do you think it will just be purely debt transfer from ParentCo to NewCo? And then on both CEZ or RemainCo and NewCo, would you have any kind of credit rating targets or aspirations in mind? Would it be looking to maintain your kind of A3, A- rating and kind of structuring it in such a way. Is that kind of the aspiration? Or given you have a reduced stake in NewCo, are you happy for that potentially to even have a lower rating. Another question was just on debt transfer. You touched upon that in your presentation. Have you thought about that in much detail, could that be bond? Or would here be other kind of debt in your structure? And -- and then finally, I guess, I assume it's very early to say, but have you decided on kind of what exact percentage you sell? I know it's a minority, so is up 49%. But could you sell less than 49%? And then maybe over time, so at sell down a bit more, and it just depends on the valuation in the state of the market at that point in time.

So if I understand correctly, we're talking about the use of proceeds actually from sales. So as Pavel already commented, there are many ways of how to use it. Of course, one of them could be actually use it for buying back shares of CEZ, but not necessarily the only one, should the proposal at the shareholder meeting, not come, for example. Then actually, the debt allocation and tied to rating of both entities. Of course, we would like to keep as high rating as possible, understanding that actually rating of parent is usually a limit for the rating of the subsidiary. So of course, our intention is to keep both companies perfectly healthy as we are today, actually. . And yes, we could sell less than 49%, 49% is maximum. The sale might not be done actually in one go as it usually is, especially when things are going through both private sale or IPOs, they are often split into tranches, but 49%, if approved by shareholder meeting is the upper limit it can be anything below.

Sorry, what about the debt transfer on bonds?

Debt transfer is something that we'll be looking at as well. Yes, debt transfer is a question. It can be done. You need a need actually bondholders' consent -- on the other hand, there are a few positive structures, either direct debt transfer, subject to bond holders approval or you can actually issue new bonds on both the parent company and new company and just repay the old bonds in a standard way, so not transfer the ownership and allocated that in intracompany, -- all those things are actually possible. So we are just now looking at it, how difficult it is, what procedures it could take and that's it. . But generally, the new company, if part of it is sold, actually open market should be -- should start living its own independent financial life.

Okay. The next question comes from Rajiv [Indiscernible]

So my question is towards the sale of the 49% so you kind of said we may say less. But also, I'm asking under which customers could be higher. A second question related to that is, are you going -- in case it's 49% for minor shareholder, like nonpublic and 59% is going to be CEZ. Are you going to provide them like managerial control. And the third question is, what are your expectations? I believe when CEZ was buying 55% of GasNet, you were paying 8.3% EV EBITDA and some minor shareholders believe that now this valuation to be up to 14% or at least 11%. So can you elaborate on that, what's our expectations? And if you don't get proceeds of at least CZK 200 billion. Are you going to stop hold the process or going for high percentage or sweeten up the deal or how we will continue.

Thank you for the questions. A lot of questions to most of them, the question is simply, we are not ready to comment on this. I think this -- this process is ahead of us. And as I mentioned, we will run the potential ways of bringing minority shareholders on board at this customer NewCo in a number of parallel formats and then we'll decide how much at what timing and -- in which way or in which combination only when we have the information and when the time is right. In terms of the 51% minimum, yes. Within the decision of the shareholder meeting that we are proposing there is a hard limit of 51% being the minimum that we will retain as CEZ so within this decision, there is no way to sell more, and we have the intention to keep at least 51% and keep the management control over the subsidiary. . And all the subsequent questions, as I said, is higher at this moment, simply premature, we cannot answer them properly.

Next question from Mr. Kant.

So my question is that basically can creditors -- so like the reorganization, can it alter credit positioning or structural subordination anywhere in the group.

I think it's still too early to discuss that. We didn't get into the full detail yet. So I would just let it for later discussions.

Okay. And can you just show me the first slide I missed the first 5 minutes of the presentation.

Show you first slide, I think we can.

Yes. Okay. So in the meantime, we can take the question from Petr Bartek.

Two technical questions. Well, first, I understand the debt question debt consideration that -- it would be easier to keep debt where it is in terms of timing and speed of the whole process. So what is currently the debt on CEZ distributes GasNet and the other subsidiaries altogether. And if it would be okay for you just to keep the debt where it is, the debt on the parent on the parent and the debt in subsidiaries in subsidiaries, and that's it? And second question, if you can share some details regarding the smaller segments in the new company, meaning retaining business, how much it generates in terms of EBITDA and maybe also the telco business and the other small businesses.

In terms of financial debt, the last number that we published end of 2025 is CZK 249 billion. And of that CZK 60 billion is allocated at GasNet, CZK 11 billion is allocated elsewhere, mainly Elevion. There is no debt directly allocated to distributor. That's -- it goes through the mother company. So the rest, which adds up to about CZK 178 billion is basically allocated on CEZ as the mother company. So that's the starting situation. And I think all this kind of timing, they needed approvals, the ways to reallocate the debt, as Martin described by, for example, issuing new and repaying the old and so forth. That is still ahead of us, and that will be part of preparing and using the dedicated subsidiary once it's established in the first quarter next year. So we'll use that time also to prepare the details of all the financial structures around it. And there was one question at the end was.

Something on trading, but can you.

So I think I remember trading kind of profits of trading entity. In general, as you know, I think I remember last year, trading made about CZK 2 billion, which is CZK 1 billion but the average achievement or average amount of money under normal times that this trading making is around CZK 2 billion.Of course, we had an extreme in 2022, I think, when it was CZK 27 billion due to volatility on the market, which was up to EUR 500 per day per megawatt hour, which hopefully, we'll never see again. So in normal terms, CZK 2 billion. Telco business, it's fairly small. There are low hundreds of millions of crown kind of. So that's something fairly immaterial to the rest of the group. We are just moving telco business there just for just because it is customer-oriented, it is actually related to end customers as well. On the other hand, it is no secret that we are in the process of disposing this business. So if we dispose this business, then it's not get transferred if we won't dispose it we will transfer it.

Thank you, maybe one for us, the loans from EIB for the upgrades of the distribution grids, they are on the parent company on CEZ.

Yes. The loans from EIB are on brand company, and they have dedicated actually to distribution assets. So we actually are financing CapEx from -- in distribution assets from those loans. There is a ratio of the amount of loans and CapEx that you are able to cover we take loans on parent company and push it down to distribution. So -- but the creditor is actually a parent company. I would assume that, for example, those new loans when we take them could be taken directly by the new company.

Next question from Andre [indiscernible]

Could you provide more detail on the potential time line for the potential sale of minority stake in the new company -- and assuming everything goes according to plan, could we assume that, that potential sale could happen in 2028? Or this is too early to late. Could you -- could you comment on this?

The first milestone is establishing the dedicated subsidiary, which we have set for Q1 next year, '27 and it's only then when the potential process of divesting a minority could start. In terms of how long it will take, it will very much depend on the way we approach it. So it's difficult to comment. But definitely, that's not something that happens in a few months. . And this is about like the detail I can give you at this moment. We'll obviously give you more detail as the time goes forward and will be -- for example, we will have already established a subsidiary and we'll then comment more on the steps forward.

Okay. It seems we have no further questions. So thank you, everyone, for participation. As always, Investor Relations Department is available later on for any follow-ups. Thank you very much, and goodbye.

Goodbye.

Goodbye.