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    CEZ   CZ0005112300

CEZ, A. S.

(CEZ)
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CEZ a s : Sustainability linked financing framework

07/01/2022 | 06:23am EDT

ČEZ Group Sustainability-Linked

Financing Framework

10 March 2022

Sustainability-Linked Financing Framework - March 2022

1. Introduction

  1. ČEZ Group at a glance

According to the Czech Energy Regulatory Office and our internal data, ČEZ Group (thereafter 'ČEZ', 'the Group' or 'the Company') is the largest electricity generation and distribution company in the Czech Republic. Employing more than 30,000 employees, ČEZ Group is one of the largest economic entities in the Czech Republic and Central Europe. As of June 30, 2021, the consolidated ČEZ Group consisted of 194 companies performing different business activities. The core business is located in the Czech Republic, however the Group widely operates in Western, Central, and SouthEastern Europe, in particular in France, Germany, Italy, Poland, Romania, Slovakia and Turkey.

ČEZ Group's main business activity is the generation, distribution, trade, and sale of electricity and heat. ČEZ Group's activities also include commodity trading, trade and sale of natural gas, and, in particular, the provision of comprehensive energy services, which, together with electromobility, form ČEZ Group's fast-growing business sector.

The largest shareholder of the parent company ČEZ, a. s. 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. ČEZ's market capitalization was CZK 432 bn as of January 31, 2022.

The mission is to provide safe and reliable energy to its customers and society at large. The long-term vision is to be a driver and incubator of innovations, a leader in the field of modern energy, and the everyday partner for solving energy needs of customers. Among others, VISION 2030 - Clean Energy for Tomorrow, ČEZ Group's accelerated strategy, shall lead to this goal. Next to that, ČEZ Group's business activities are governed by strict ethical standards that include responsible behaviour toward employees, society, and the environment. As part of its business activities, it adheres to the principles of sustainable development with an emphasis on the area of ESG, which is an integral part of its management. Donorship forms an integral part of corporate responsibility, and the ČEZ Foundation has been helping in all areas across the Czech Republic since 2002.

ČEZ Group emphasizes the implementation of global climate goals and the decarbonization of its portfolio in accordance with the Paris Agreement, and the environmental impact of its business in general. In the areas of environmental protection, social relations, and corporate governance, ČEZ Group has made specific commitments, including a commitment to reduce the CO2 emissions intensity of electricity generation by more than 50% by 2030 and an overall ambition to rank among the top 20 percent of European energy companies in ESG rating by 2023.

  1. Playing a leading role to the energy transition

ČEZ Group believes the energy sector needs to play a leading role in climate and environmental protection and as a leader in the traditional energy industry ČEZ is aware and accepting its duty to act. The Group strategy is based on three priorities: to actively respond to new challenges of the 21st Century (1), by offering a wide range of products and services focused on its customers' energy requirements (2), while strengthening its position in Europe via investments into prospective low carbon emissions energy assets (3).

The pivotal areas on this path are energy decentralization and emission-free sources, with a particular focus on renewables and development of modern technologies.

In the Czech Republic, the main business of the Group is to produce and distribute electricity and heat. The production portfolio consists of nuclear, hydro, photovoltaic, wind, gas and coal1 sources. Furthermore, to its customers such as households, firms, and municipalities, ČEZ Group offers facilities for the production and storage of electricity and provides comprehensive ESCO energy services, for example, in conjunction with savings. Moreover, ČEZ Group also focuses on innovation, being a shareholder in a number of cleantech companies in modern power engineering, and its subsidiaries heavily invest in scientific projects and R&D.

On the field of renewables, ČEZ currently operates wind parks with a capacity of 142 MW2, mainly in Germany and the Czech Republic. In the Czech Republic, ČEZ is the largest producer of electricity from renewable sources, which consists of hydro (1 961 MW, out of which 1 170 MW pumped-storage hydro), photovoltaic power plants (125 MW), and

  1. CEZ Group's coal power plants are using mostly lignite from CEZ's own mine. External sales of coal on the total consolidated revenues are expected to decrease from 2% in 2020 to around 1% in 2025 and to close to 0% in 2030.
  2. Installed capacity as of 30th June 2021.

1

Sustainability-Linked Financing Framework - March 2022

on-shore wind (8 MW). ČEZ is also engaged in wind energy projects in France and Germany and in JV co-owns hydroelectric power plants in Turkey.

ČEZ is also the leading regional company in the modern energy services sector (ESCO). In the ESCO sector, which focuses on the installation of modern energy sources, energy savings, energy digitization and automation, and other climate protection and carbon footprint measures, ČEZ owns more than 60 companies located in the Czech Republic, Germany, Austria, Italy, Slovakia, Poland and Romania. On the German market, ČEZ owns two large groups in this sector, Elevion Group and Koffler Energies. Recently, the Belectric company has joined ČEZ Group's portfolio of ESCO companies, fitting with its remarkable experience in photovoltaic power plants construction.

Through the Inven Capital fund, ČEZ invests in cleantech energy growth-stagestart-ups. Inven Capital owns minority shareholdings in companies such as Sunfire, tado°, Zolar, Cloud & Heat Technologies, Vulog, Cosmo Tech, Driivz, Neuron Soundware, Forto, Eliq or Topite.cz. These companies focus primarily on innovations in green technologies, such as photovoltaics, green synthetic fuel production, electromobility, smart thermostats, and computer server heating. Other companies are dedicated to digitization, automation, and industry 4.0, and are active in security, critical infrastructure management using artificial intelligence, and predictive maintenance.

  1. Clean Energy of Tomorrow (VIZE 2030) Strategy

ČEZ Group's accelerated strategy, VISION 2030 - Clean Energy of Tomorrow, is based on transforming its generation portfolio to a lower emission one, achieving carbon neutrality by 2050, and providing the most cost-effectiveenergy solutions and the best customer experience in the market.

In May 2021, as part of its accelerated strategy VISION 2030 - Clean Energy of Tomorrow, ČEZ Group defined strategic objectives for 2030 reflecting the EU's decarbonization vision and set specific ambitions in the area of social responsibility and sustainable development. The basic premise is to continuously adjust the structure of ČEZ Group to meet the demands of investors, creditors and employees, and to enable maximum increase in shareholder value.

The main strategic objectives and commitments defined under the individual strategic priorities:

  • Pillar I: Transforming the generation portfolio to a low-emission one and achieve carbon neutrality by 2050
  • Pillar II: Providing the most cost-effective energy solutions and best customer experience in the market
  • Pillar III: Developing ČEZ Group in a responsible and sustainable manner in accordance with ESG principles.

Figure 1: From ČEZ Group's Strategic Objectives to VIZE 2030

2

Sustainability-Linked Financing Framework - March 2022

Under the new strategy, the Group aims to accelerate sustainable and economic growth achieving 40% increase in EBITDA by 2030.

Pillar I: Transforming the Generation Portfolio to Low Emissions and achieving Carbon Neutrality

In 2015, ČEZ Group committed to generating electricity with a neutral carbon footprint by 2050. Together with other European energy groups, ČEZ registered its commitments to reduce greenhouse gas emissions under the Non-State Actor Zone for Climate Action (NAZCA), formed before the Paris Climate Conference in 2015. At the same time, ČEZ committed to reducing CO2 emissions per MWh of electricity generated by ČEZ Group in the Czech Republic by 46% by 2020 compared to 2001. This commitment has been met for 2020 - a 54% reduction in the CO2 emission intensity of electricity generation in the Czech Republic was achieved compared to 2001, and the production of emissions in the Czech Republic from electricity generation by more than 3.6 million tons was reduced, i.e., by more than 15% year-on- year. ČEZ has revised its decarbonization strategy and intends to reduce CO2 emissions in line with the Paris

Agreement 'well below 2 degrees' by 2030, by decreasing carbon intensity from 0.38 tCO2e/MWh (0.36 tCO2/MWh) in 2019 to 0.16 tCO2e/MWh in 2030.

ČEZ Group has signed a commitment letter to the Business Ambition for 1.5 ° C3 and has defined interim and long-term targets to reach net-zero by no later than 2050. Currently, ČEZ has set net-zeroscience-based interim emission reduction targets in line with well below 2 degrees. Targets have been submitted for approval to the SBTi.

In order to reach carbon neutrality, ČEZ Group intends to take important steps to decarbonize its generating portfolio:

  • Coal phase-out: ČEZ Group is committed to no new investments in coal plants and is gradually closing down coal plants and transitioning its current coal sites to new activities such as hydrogen and biomethane ready natural gas plants and biomass plants4. In particular, ČEZ Group plans to reduce the share of coal-firedelectricity generation to 12.5% by 2030, corresponding to 2.2 GW installed capacity, and completely exit coal by 20385, in line with the recommendation of the Czech Coal Commission. Subject to current market conditions and investment pipeline on less polluting technologies, ČEZ estimates coal exit will materialize earlier than the date recommended by Czech Coal Commission.
  • Increase Renewable Energy generation: Developing renewable energy sources (RES) while fulfilling the Czech energy and climate plan. ČEZ Group intends to build additional renewable energy generation capacity of 1.5 GW by 2025, respectively 6 GW by 2030.
  • Safely increase zero-emissionnuclear energy generation: ČEZ Group intends to safely increase generation volume in existing plants above 32 TWh on average and achieve 60-yearoperating life. In addition, the construction of a new nuclear facility in Dukovany is considered, subject to governmental supporting scheme. ČEZ Group operates nuclear power plants in compliance with legislation and monitors the effect of nuclear operations on the environment and human health. The safety of nuclear installation is the absolute priority. Safety culture features are a defined standard and are enforced together with other commitments on all levels of management. The Temelín and Dukovany nuclear power plants follow the Internal Emergency Plan for Nuclear Power Plants, a licensing document approved by the State Office for Nuclear Safety (SÚJB). ČEZ Group manages radioactive waste (RAO) at nuclear power plants in compliance with Act No. 263/2016 Sb. Atomic Energy Act.
  1. For clarification purposes, the commitment signed by ČEZ Group is called 'Business Ambition for 1.5 ° Commitment Letter' however the issuer has currently submitted Net-zeroscience-based reduction targets and not 1.5 ° science-based reduction targets.
  2. ČEZ intends to use local biomass sourced by respecting Czech/EU criteria for sustainable biomass.
  3. New Czech government appointed in December 2021 stated in its Policy Statement that it will create the conditions for energy transformation and development of coal regions to allow for a shift away from coal by 2033.

3

Sustainability-Linked Financing Framework - March 2022

Figure 2: Carbon neutrality via transformation of the generating portfolio

*0.36 in 2019

Pillar II: Provide best energy solutions and highest quality customer experience in the market

ČEZ Group intends to modernize its distribution grid and to develop new best in class energy services sources (ESCO) for its clients in the Czech Republic, as well as in other regions such as Germany, Northern Italy, Austria and Poland.

  • Build Smart Digital Electricity Grid: ČEZ Group will invest into smart grids and decentralisation for developing digital distribution grid including fiber optic networks. The 2030 digitalization targets such as 80% of consumption covered by smart meters, 80% of remotely measured transformer stations and 11,000 km of optic fiber networks (compared to 4,200 km today) have been set up. The purpose of these investments is to increase network reliability and to reach more efficient management and as a consequence, cost reduction.
  • Growing retail customer base while maintaining high customer satisfaction: 100% of key customer processes will be digital by 2025. ČEZ Group aims to maintain the highest NPS (net promoter score) among largest electricity supplies and to increase its customer base by broadening its product portfolio for households, facilitating their decarbonization and energy savings.
  • Incentivizing customers decarbonization: Via investments in B2B, the ČEZ Group will enable efficient decarbonization and delivery of energy savings for its customers in industry, municipalities and public administration.
  • In addition, investments in electromobility infrastructure will represent an additional area of growth for the ČEZ Group, which aims to operate at least 800 stations by 2024, quadrupling current charging capacity.

Pillar III: Developing ČEZ Group in a responsible and sustainable manner in accordance with ESG principles.

The comprehensive objective is defined to increase ČEZ's ESG rating to rank among the top 20 percent of European energy companies in ESG rating by 2023.

Selected objective in the environmental area:

  • The goal to reduce CO2 emissions in line with the Paris Agreement "well below 2 Degrees" by 2030 (reduction from 0.38 tCO2e/MWh (0.36 tCO2/MWh) in 2019 to 0.16 tCO2e/MWh in 2030).

Selected objective in the area of social relations:

  • We will continue to be decent corporate citizens, cultivating good relationships with communities. Selected objective in the area of corporate governance:
  • Achieve 30% female representation in management.

4

This is an excerpt of the original content. To continue reading it, access the original document here.

Disclaimer

CEZ a.s. published this content on 29 June 2022 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 01 July 2022 10:22:07 UTC.


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Sales 2022 278 B 11 469 M 11 469 M
Net income 2022 51 230 M 2 110 M 2 110 M
Net Debt 2022 109 B 4 487 M 4 487 M
P/E ratio 2022 9,75x
Yield 2022 4,53%
Capitalization 569 B 23 436 M 23 436 M
EV / Sales 2022 2,43x
EV / Sales 2023 2,05x
Nbr of Employees 28 000
Free-Float 28,8%
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Daniel Beneš Chief Administration Officer
Martin Novák Chief Financial & Operating Officer
Otakar Hora Chairman-Supervisory Board
Michaela Chaloupková Chief Purchasing Officer
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