consolidated annual report veolia energie Čr, a.s. · the veolia group in the czech republic is in...

CONSOLIDATED ANNUAL REPORT VEOLIA ENERGIE ČR, A.S.

2016

#oneVeolia

Veolia Energie ČR, a.s. 28. října 3337/7, Moravská Ostrava 702 00 Ostrava Czech Republic

www.veoliaenergie.cz www.veolia.cz

In Veolia Group, we rely on our awareness that people are part of nature and that the entire ecosystem of our planet is integrated through shared links. By the same token, in their cooperation with each other and their synergies, the Group companies create a single functional whole. We are here for you, whether you need water, energy, or waste management.

We are #oneVeolia

All life is one

Content1 Corporate and General Information

about the Company 2

1.1. Basic Information 2 1.2 Company Description 3 1.3. Corporate Governance

as at 31 December 2016 4 1.4. Organisational Structure 5 1.5. Other Information 5

2 Management Report 6

2.1. Foreword 6 2.2. Core Values 9

3 Financial Part 28

3.1. General Information 28 3.2. Non-consolidated

Income Statement 30 3.3. Notes to the Non-consolidated

Financial Statements 35 3.4. Consolidated Income Statement 60 3.5. Notes to the Consolidated Financial

Statements 65

4 Report on Related Parties 94

5 Auditor’s Reports 108

2 | Veolia Energie ČR, a.s.

1.1. Basic InformationCompany name: Veolia Energie ČR, a.s.

Registered office: 28. října 3337/7, Moravská Ostrava, 702 00, Ostrava, Czech Republic

Legal form: Public limited company, subject to the Act on CommercialCompanies and Cooperatives

Company No.: 451 93 410The Company is incorporated by entry in the Companies Register kept by the Ostrava Regional Court under number B 318.

Date incorporated: 24 April 1992

Share capital: CZK 3,146,446,440

Shares: 78,661,161 unlisted dematerialised registered shares with a nominal value of CZK 40.00 per share

ISIN CZ0009105904

1 Corporate and General Information about the Company

Consolidated annual report 2016 | 3

1.2. Company Description

Veolia Energie ČR, a.s. is part of the Veolia Group in the Czech Republic and the global Veolia Group, a world leader in the optimised management of resources. Employing a workforce of nearly 174,000 employees over five conti-nents, the Group designs and implements water, waste and energy management solutions contributing to sustain-able urban and industrial development. By pursuing these three lines of complementary activity, Veolia plays a role in the accessibility, preservation and renewal of available resources.

The Veolia Group in the Czech Republic is in the vanguard of water, energy and waste service provision. The integra-tion of Veolia Energie ČR, a.s. (hereinafter also referred to as “Veolia Energie ČR” or the “Company”) into the Veolia Group has given rise to a group figuring among the 20 largest companies in the Czech economy. The main customer cate-gories are households, municipalities, industrial companies, the tertiary sector, and health and educational facilities.

The core business of the Veolia Energie Group in the Czech Republic is the supply of heat, electricity, cooling, nitrogen and compressed air, organized into three strategic areas: heating and cooling networks, industrial utilities and energy services for buildings. The Group also focuses on environmentally friendly cogeneration and trigeneration, offers comprehensive energy services and operates energy infrastructure and facilities for municipalities. The entire Group is constantly working towards the enhanced

performance of its facilities, thus helping to control energy use and to cut down on CO2 emissions. Veolia Energie ČR is the first ever independent operator of a separate cooling network in the country. As one of the largest providers of ancillary services for the Czech transmission system, the Company does its part to ensure a balance between electricity consumption and generation in the Czech Republic.

KEY FIGUREScompany turnover CZK 7.5 billion

profit CZK 321.9 millioninvestment CZK 523.4 million

electricity sales 2,319 GWhboiler-generated heat 26,049 TJ

heating network length 753.14 km

biomass-based generation22.8 GWh of electricity and

280,807 GJ of heat from 73,432 tonnes of biomass

number of employees 1,598

Aside from Veolia Energie ČR, the Veolia Energie Group in the Czech Republic also comprises the following companies: Veolia Energie Praha, a.s., Veolia Energie Kolín, a.s., Veolia Energie Mariánské Lázně, s.r.o., OLTERM & TD Olomouc, a.s., AmpluServis, a.s., and Veolia Průmyslové služby ČR, a.s. and its two subsidiaries Veolia Komodity ČR, s.r.o. and Poland-based Veolia Powerline Kaczyce Sp. z o.o.


Corporate Governance as at 31 December 2016

BOARD OF DIRECTORS

Philippe Guitard Chairman

Josef Novák Vice-Chairman

Reda Rahma Member

Daniel Marie Melin Member

Jan Hrabák Member

SUPERVISORY BOARD

Zdeněk Duba Member Chairman until 21 June 2016

Malika Ghendouri Vice-Chairwoman

Zdeněk Krakovský Member

Renaud Capris Member

Martin Bernard Member

Petr Štulc Member until 17 May 2016

Martin Jašek Member since 21 June 2016

Note: In 2015, the Supervisory Board elected Zdeněk Duba as a substitute Member of the Supervisory Board and also the Chairman of the Supervisory Board until the nearest General Meeting held on 21st June 2016, which elected him as a full Member of the Supervisory Board. Voting on his chairmanship will take place at the nearest Supervisory Board meeting.

1.3. Corporate Governance


1.5. Other InformationVeolia Energie ČR, a.s. has no subsidiaries or other parts of its enterprise abroad and does not engage in any research and development. After the balance sheet date, no signifi-cant events affecting its results occurred in 2017 before the day of publishing of this consolidated annual report. As at 31 December 2016, the Company did not hold any of its own shares.

1.4. Organisational Structure

Chief Executive Officer’sSection

Section of the Finance and Administration

Manager

Section of the Business Manager

Chief Technical Officer’sSection

Section of the Human Resources Manager

North Moravia Region

Central Moravia Region

East Moravia Region

Bohemia Region


2.1. ForewordDear Shareholders, Trade Partners, and Colleagues, Ladies and Gentlemen,

As every year, we are presenting the business and financial results of Veolia Energie ČR, a.s. for 2016.

Following experience from 2013 to 2015 we, as a company operating in heat supply, watched weather forecasts with great hopes. In mid-2016, some meteorologists predicted an arctic winter, but there were not too many opportunities to engage in winter sports or for increased use of heat supply capacities until the end of 2016. A true winter only arrived at the very end of 2016 and the beginning of 2017, and we will cover that season in our next annual report. By the same token, electrical energy prices were either stable or tended to decline slightly, and so the electricity price could have been more favourable for the final customers but for various subsidies, grants and re-distributions. However, what we are seeing is the generators realizing a price for electrical energy of approximately 40 % of the 2008 price while customers are paying a final price higher than in 2008.

But 2016 also saw some favorable developments. The ruling coalition remained stable despite occasional conflicts of opinions between its members, and it can be expected to complete its four-year term in office. Because of the election campaign, however, the axiom that in addition to internal factions within political parties, a party’s greatest adversaries are its coalition partners will quite certainly be vindicated towards the end of its term.

Unfortunately, the Czech energy sector is not a self-standing sector in Europe and has to adjust to the European Commission’s frequently disagreeable decisions. Virtually the entire energy legislation is now controlled by Brussels. From time to time, zealous local bureaucrats imposing stricter criteria than the EU complicate life for Czech companies even more, which is in particular apparent in the opportunity to draw on EU funds. Our “obstacle course” towards obtaining EU subsidies is one of the most difficult and longest in the European Union.

Countries such as Germany and France wield considerable influence over the energy policy, including the Czech policy. For example, our neighbour to the west has almost completed the destruction of its energy giants such as RWE and E.ON by now, by pushing through and following its Energiewende, energy sector transformation; but despite all of its “green efforts”, it has burned the largest amount of coal since the unification of Germany.

The ratification process for the conclusions of the COP 21 climate conference held in Paris in 2015 is now under way. But the EU’s “winter package”, presented to the public before the end of 2016, also pressurises for a more massive use of renewable energy sources, and energy savings and energy demand reduction.

For energy utilities it means that going forward, they will have to look for suitable ways and means of coping with the changes in the energy sector.

2 Management Report


In 2016, we again continued to green our generating capacities, in particular the Třebovice Power Station and the Karviná CHP Plant, and elsewhere. We also carried out a number of projects to improve the efficiency of our plants, reduce losses and renovate networks. This was also helped by our business teams that were able – amidst the keen competition on the market – to keep the portfolio of our customers and, moreover, approach and acquire additional new customers, primarily through their long and close cooperation with developers mainly in Prague and Olomouc.

In 2016, Veolia Energie ČR’s capital expenditure amounted to more than CZK 520 million, including the subsidies received. The takeover of Pražská teplárenská LPT, a.s. and the acquisition of new customers in the relevant district of Prague, taking about 1.8 million GJ per year, was probably the greatest achievement last year.

In 2016, heat sales declined by 65 TJ compared with 2015, to 11,691 TJ despite the slight increase in degree days and customers. Heat sourcing from third party suppliers increased by 8 TJ on 2015 and amounted to 894 TJ. In 2016, the Group sold 2,319 GWh of electrical energy, down by 31 GWh on 2015.

One more major event impacted on the business of the Veolia Energie Group in the Czech Republic in 2016: the insolvency of OKD, a.s., one of our largest trade partners. Veolia Energie ČR takes about 40 % of the steam coal produced by OKD while supplying OKD with energy and other utilities through its subsidiary company Veolia Průmyslové služby. Initially, OKD disputed contracts that had

been in place for a long time, and then reduced its payments for energy and other utilities, while the set-off of payments to and from OKD is prohibited by both the court and the contract. This has resulted in provisioning.

Despite all the unpropitious circumstances in 2016, Veolia Energie ČR met the plan, also thanks to leveraging the synergic effects and managerial and working procedures shared with Veolia’s water arm and Veolia’s operations in Slovakia.

Following the merger of the Foundation within the Veolia Group, donor activities have been broadened. In addition to the traditional creation of jobs for small and medium-sized enterprises, the number of which has exceeded 2,000 over the time of the Foundation’s existence at a cost of CZK 96.5 million, and the MiNiGRANTS project, already traditional as well, this drive also included activities geared towards an active life of elderly people. The good news is that Veolia Energie ČR will also promote all of these donor activities in 2017.

In conclusion, our thanks go to all our customers, partners, associates and you, our shareholders, for your confidence in us and for your contribution to the meeting of our shared objectives.

Philippe Guitard Josef NovákChairman, Board of Directors Vice-Chairman, Board of Directors and CEO


2.2. Core Values In its work Veolia Energie ČR relies on core values shared across the Veolia Group, which are customer focus, innova-tion, responsibility, respect and solidarity.

RESPONSIBILITY

Veolia’s objective is to take an active part in the shaping of a society committed to sustainable development. It is a key player in the environmental services market and as such it assumes, daily, the responsibility for the meeting of general interests such as, in particular:

� Supporting harmonious development of regions;

� Improving the living conditions of the people affected by its operations, and environmental protection;

� Promoting the business skills of our employees, improv-ing personal safety at work (occupational injury preven-tion) and creating a sound working environment.

CUSTOMER FOCUS

Veolia pursues this value by, in particular, striving to continuously improve the efficiency and quality of its services. Veolia promotes transparency and ethical rules as the essential prerequisites for building lasting relationships with its customers. Veolia listens to its customers and provides suitable and innovative solutions that meet their technical, economic and environmental requirements.

INNOVATION

Research and innovation combine to form the core of the Veolia Group’s strategy of developing sustainable solutions and services for the customers, the environment and society at large.

RESPECT

This value guides the individual conduct of all Veolia Group employees and is expressed by compliance with the law and the Group’s internal rules and through the respect shown to others.

SOLIDARITY

As through its business activity Veolia serves common and shared interests, solidarity is one of its core values in its relationships with all stakeholders.

Concretely, this value is expressed by developing solutions which enable the Veolia Group to provide essential services for everyone, which we consider to be one of our major social responsibilities.


Our Services

HEAT, COOLING AND ELECTRICITY PRODUCTION AND SALE

Veolia Energie ČR’s core business in 2016 was the produc-tion, distribution and sale of heat and cooling, and the generation and sale of electricity, including the provision of ancillary services. Heat and electricity are mainly produced in combined heat & power generation known as cogene-ration, which, besides making greater use of the energy contained in fuel, is also very green.

HEAT PRODUCTION

In 2016, heat was generated using 1,468 boilers, of which 52 were steam boilers and 1,416 were hot and superheated water boilers. Their total installed thermal capacity is 2,669 MW. In all, the boilers generated 26,049 TJ of thermal energy for the production of electricity and supply of heat, which was 824 TJ less than in 2015.

Of the fuels used to fire the boilers, 86.11 % was coal (75.84 % hard coal and 10.26 % brown coal). Gaseous fuels accounted for 11.09 % (5.7 % coke-oven gas, 4.29 % natural gas and 1.1 % drained (mine) gas). Of the fuel consumed, 2.62 % took the form of various types of biomass and 0.18 % heavy fuel oil and gas oil, which are used primarily to start up the boilers.

The heating networks were 753.14 km long in 2016.

In 2016, heat sales declined by 65 TJ compared with 2015, to 11,691 TJ despite the slight increase in degree days and customers. This situation was due to a drop in heat off-take at one supply point taking heat for process purposes. Heat purchased from third party suppliers rose by 8 TJ year-on-year to 894 TJ.

Thermal energy was supplied either directly or through distri-bution companies to 253,179 households.

Revenue from heat and related products dropped by CZK 5 mil-lion compared with 2015, and amounted to CZK 5,006 million in 2016.

PRODUCTION OF COOLING

The total cooling capacity of cooling installations is 27.97 MW. The annual cooling supply amounted to 15,447 MWh.

The cooling networks were 1,108 m long in 2016.

Revenue from the sale of cooling in 2016 came to CZK 35 million, down by CZK 3 million on 2015.

ELECTRICITY PRODUCTION

Electricity was produced in 14 steam turbines, 8 cogenera-tion units and 4 steam micro-turbines, with a total electri-cal capacity of 377.2 MW.

Electricity was mostly supplied to electricity traders. In 2016, electricity sales totalled 2,319 GWh, which is 31 GWh less than in 2015.

Revenue from sales of electricity and other services related to electricity generation amounted to CZK 2,400 million in 2016, a drop of CZK 358 million compared with 2015. Reve-nues from electricity account for 31.8 % of Veolia Energie ČR’s total revenues.

Veolia Energie ČR is a cleared entity on the Czech electricity market, and in 2016 again provided ancillary services to ČEPS, a.s., the operator of the Czech Republic’s electricity transmission system.

BIOMASS BURNING

Veolia Energie ČR burns biomass in its boiler plants in an attempt to help to mitigate the environmental impacts of its operations in all regions where it maintains a presence. In 2016, biomass generated 22.8 GWh of electricity and 280,807 GJ of heat. This supply required 73,432 tonnes of biomass in the Company’s plants.

Innovation

INVESTMENT

Our investments focus on upgrading and developing pro-cess equipment with a view to improving quality, efficiency, dependability and safety. Our investment programme relies on the Company’s medium-term plan.

In 2016, we carried out capital projects valued CZK 520 mil-lion (structured as shown below), and received CZK 34.2 mil-lion in subsidies for financing the projects.


Greening projects CZK 141.0 millionProjects focused on safety and compliance CZK 45.3 million

Facility rehabilitation projects, including components (IFRS) CZK 225.4 million

Development projects to increase production or efficiency CZK 10 million

Commercial and heat-supply projects CZK 58.4 millionOther investments CZK 39.9 million

In terms of investments, 2016 was a year in which we mainly focused on the upgrading and replacement of existing equipment and on projects aimed at reducing the produc-tion of nitrogen oxides and particulates and on implement-ing additional projects for reducing sulphur oxides emitted by our plants. A description of the most important capital projects (by nature) is provided below:

COMMERCIAL AND HEAT SUPPLY PROJECTS

In 2016, we erected 26 new district heating network con-nections with an estimated 65 TJ annual increase in heat supply. In Ostrava, among other things, connections to the district heating network continued, including the new buildings in the Hrabová industrial zone and the recently commissioned university Kampus. In Olomouc, mainly new residential buildings and some buildings of Palacký University were connected to the district heating network. In Přerov, the shopping gallery was a new connection. In Havířov’s Dukla industrial zone, we supply heat to a large industrial client, Mölnlycke Health Care.

Our successful development in services is borne out by the 44 new business cases with impacts in 2016 – we will now supply our trade partners with 150 TJ of heat.

The above is primarily based on continued successful cooperation with major Prague developers such as Skanska, Finep, StarGroup and Central Group, predominantly in the Miličovský Háj, Štěrboholy, Stodůlky, etc. residential projects. A new line of development is our success in starting coope-ration with hotels as well; some of the most important are CPI Hotels and the Clarion Hotel.

Thanks to our high-quality services and professional ap-proach, in 2016 we repeatedly won tendering procedures for supply of thermal energy and services at the expected amount of 11 TJ, such as for the Bohumín municipal hospital, and we increased heat supply in the municipality of Horní Suchá.

FACILITY REHABILITATION PROJECTS, INCLUDING COMPONENT REPLACEMENT

In 2016, projects continued for the upgrading and replace-ment of existing equipment and components at generating plants and in district heating networks.

At the Olomouc CHP Plant, the treatment of feed water for the existing steam boilers was upgraded under the Waste Heat Use in the Olomouc District Heating System project.

At the Třebovice Power Station, the electrostatic filter on Boiler K4 was overhauled.

At the Přívoz CHP Plant, an extended overhaul of Turbine Generator TG9 associated with the replacement of the outlet steam pipe was carried out.

Component replacement continued in all district heat-ing systems. For example, a part of the DN600 network in Havířov was replaced and a part of the DN600 network in Karviná was renovated.

STRATEGIC PROJECTS

Modern and innovative technical measures are based on the Veolia Energie ČR Group’s long-term objectives, chiefly as re-gards sustainable development. The strategy focuses primarily on mitigating the environmental impacts of the Company’s operations in line with the technology plans and schedules that we have adopted. This investment policy is associated with identifying the best technical solutions.

Other major projects for reducing emissions were completed and put into trial operation last year, including:

� Desulphurisation of Boiler K14 at the Třebovice Power Sta-tion

� Denitrification of Boilers K1 and K2 at the Karviná CHP Plant

The optimisation of greened installations in Karviná and Os-trava for Polish fuel firing was started.

Furthermore, preparations were under way for projects focused on meeting the requirements of the Industrial Emis-sions Directive combined with plant retrofits:

� Denitrification of Boiler K3 at the Karviná CHP Plant

• Desulphurisation of Boilers K13 and K12 at the Třebovice Power Station


• Denitrification of Boilers K13 and K12 at the Třebovice Power Station

• Upgrading the Karviná CHP Plant

• Greening the Olomouc CHP Plant

• Greening the Přerov CHP Plant

The key objective of these projects is to reduce in advance the production of nitrogen oxide, sulphur oxide and par-ticulate emissions to the level required by the Industrial Emissions Directive to eliminate the impact of these exter-nalities on the environment surrounding the plants.

The Strategic Plan is the continuation of a series of greening projects at Ostrava Třebovice and the Karviná CHP Plant, fol-lowing up with additional projects in the Olomouc Region for achieving compliance with the Industrial Emissions Di-rective combined with the retrofit of the generating plants.

The Company has used its own funds and also tapped into the Group’s cash pooling scheme to meet its obligations under contracts for capital construction.

Customers

CUSTOMER CENTRE

Veolia Energie ČR provides its customer services from a shared information hub fielding all requests and enquir-ies made by customers from everywhere the Veolia Energie Group in the Czech Republic maintains a presence. The Customer Centre provides a service 24 hours a day and can be contacted by telephone on the toll-free number 800 800 860 or by e-mail at [email protected].

In 2016, the Customer Centre received 35,444 calls. More than one half of the calls are requirements of customers in and around Ostrava; the number of requirements from customers in Prague increased year-on-year. In terms of the type of requirements, up to 84 % of them are of a technical nature (heat supply, hot water supply, requests for technical assistance). The popularity of electronic communications increased significantly in 2016, which is borne out by the number of received e-mail messages, which rose by 61 %.

Number of interactions

43 244 15 009 13 468

35 444 27 309 14 122

2015

2016 Calls E-mails Alarms

In 2016, the Customer Centre received 27,215 customer require-ments, of which 13,058 over the telephone and 14,157 via e-mail or the D-Line application.

The number of customer requirements increased in 2016, which can be seen in the increased number of received e-mail messag-es. On the other hand, the number of telephone calls decreased.

In addition to requirements over the telephone and e-mail the Customer Centre also handles incoming alarms from the instal-lations in the Bohemia Region.

Requirements broken down by type

8 % Sales

3 % Other

5 % Billing

84 % Technical

WEBSITE

The Customer Centre team is in charge of the “For Custom-ers” section of the website at www.vecr.cz. On this website, operators update primarily information about shutdowns and failures. Customers can also find FAQ, a link to the D-line customer portal and information about customer satisfaction surveys on the website.


D-LINE APPLICATION

D-line is an application for customers of the Veolia Energie Group in the Czech Republic used:

• for submitting requirements (requests for interventions, technical questions and queries concerning billing etc.), including viewing of the progress in their handling and information about any intervention;

• for monitoring consumption with the option of data export;

• for viewing or downloading invoices or other documents.

D-line can be accessed by customers’ authorised persons who have been assigned a username and password.

The Customer Centre manages application access, updates the information here, and processes applications for new connections. More than 2,000 customers have currently access to D-line; in 2016 about 100 new users requested access.

SATISFACTION SURVEYS

Once in two years, Veolia Energie ČR surveys customer satis-faction to map out how content clients are and what sugges-tions they have for improvement. These surveys are the work of several departments across the Company, spearheaded by commercial units and distribution and service units. The Customer Centre is responsible for the implementation and outputs of surveys.

The latest survey was conducted at the end of October and the beginning of November 2015, and the next survey is planned for late 2017.

Responsibility

INTEGRATED MANAGEMENT SYSTEM (IMS)

In the second half of March 2016, Bureau Veritas Czech Re-public, spol. s r.o. carried out a recertification audit to review the current status of our Group’s Integrated Manage ment System (QMS, EMS, OHSAS, and EnMS) and its future viabil-ity. The audit also marked the completion of the certifica-tion process for the Energy Management System under

ČSN EN ISO 50001. Thus, all parts of Veolia Energie ČR which use energy in significant quantities have in place a certified Energy Management System. The audit did not reveal any non-compliances. Identified observations were accepted and the addressing thereof has helped to further improve our IMS.

The IMS of Veolia Energie ČR and those of its subsidiaries, which share the same fundamental elements, allow for the use of sampling in surveillance audits, which significantly reduces the costs of third-party auditing.

The current scope of the Group’s Integrated Manage-ment System is as follows:

� Head Office – QMS, EMS, SMS, EnMS� Northern Moravia Region - Production – EMS, SMS, EnMS - Distribution and Services – QMS, EMS, SMS, EnMS� Central Moravia Region - Production – EMS, SMS, EnMS - Distribution and Services – QMS, EMS, SMS, EnMS� Eastern Moravia Region - Production – EMS, SMS, EnMS - Distribution and Services – QMS, EMS, SMS, EnMS� Bohemia Region - Sector Prague – EMS, SMS, EnMS - Veolia Energie Kolín – QMS, EMS, EnMS - Veolia Energie Mariánské Lázně – SMS, EMS (necerti-

fikovaný), EnMS� Veolia Průmyslové služby ČR – EMS, SMS, EnMS� OLTERM & TD Olomouc – QMS, EMS, SMS, EnMS� AmpluServis – QMS, EMS, SMS

A fundamental common element of the Group’s Integrated Management Systems is the Sustainable Development Policy of Veolia Energie ČR, approved by Philippe Guitard, Managing Director of Veolia Central and Eastern Europe, on 1 July 2016. The Sustainable Development Policy was updated due to the takeover of a new subsidiary, Veolia Energie Praha, a.s., under the Bohemia Region. No other changes in the content were made. The policy has been published at www.vecr.cz.

This Policy accepts the needs of both the parent company and its subsidiaries.

The Sustainable Development Policy is a top-level IMS docu-ment incorporating not only the mandatory requirements of individual IMS standards, but also the requirements and principles of the senior management to which we must ad-here. These principles define our relationships to customers, the environment, our employees’ occupational safety, and proper energy management.


We maintain sound relationships with our customers not only through our respect for contract terms and conditions, but also by listening to our customers and, wherever possible, meeting any additional requirements they may have.

The integrated system makes a positive contribution to the due observance of legal and other requirements thanks to its sophis-ticated system for the identification thereof and the submission of these requirements to those for whom they are intended. This secures a response to the requirements and ensures that they are incorporated. Adherence to legislative requirements is monitored in the form of compliance assessments.

We continuously improve the IMS by periodically declaring and then pursuing targets aimed at specific areas of the integrated system. Another area where we are making improvements is the active elimination of any non-conformities that we identify and the adoption of corrective actions. Recommendations stem-ming from internal and external audits are an essential driver of improvements and are handled as suggestions aimed at making the system better.

In 2016, 47 targets were declared, i.e. 9 more than in 2015, of which 37 were due to be met in 2016, with the remaining 10 car-ried forward.

27 targets due for fulfilment in 2016 and declared in 2016 were assessed and closed.

One target declared in 2016 and due for completion in 2016 has the actual completion date in early 2017.

Nine targets declared in 2016 have their completion dates planned for 2017 (of those, two targets were met in 2016) and one target declared in 2016 has the completion date planned for 2022.

Twelve targets from past years were closed and assessed in 2016.

Two targets of the Company’s Foundation were defined as peri-odical targets to be assessed annually.

The remaining targets have either been met and await evalu-ation or are in progress, and some of them were extended for future completion.

EMISSION TRENDS AND THE IMPACT OF BIOMASS FIRING

Particulate, SO2 and NOx emissions were significantly re-duced in 2016 compared with 2015, which is attributable to more extensive use of new emission reducing technologies,

i.e. de-dusting, desulphurisation and denitrification on Boilers K3, K4 and K14 at the Třebovice Power Station and Boilers K1 to K4 at the Karviná CHP Plant.

In 2016, the Company burned a total of 126,510 tonnes of bio-mass. The replacement of coal and, to some extent, natural gas made it possible to cut CO2 emissions by 119,314 tonnes in 2016 compared with 2015.

GROUNDWATER CONSUMPTION

In 2016, Špičková výtopna Olomouc (the Olomouc peak-shaving heating plant) had a groundwater demand of one half of its 2015 demand thanks to the optimisation of heat production in the plant; the Frýdek-Místek CHP Plant’s groundwater demand increased compared with 2015 mainly due to the shortage of surface water, which was compensated by groundwater off-take.

SURFACE WATER CONSUMPTION

In 2016, there was a slight year-on-year drop in surface water consumption. This drop was distributed more or less evenly between all sites. We can also note that return condensate is used, great emphasis continues to be placed on the optimisation of water consumption and the wet-to-dry conversion of fly ash removal continues.

LEGIONELLA BACTERIA

The Company has entered into contracts with certain cus-tomers on the prevention of Legionella outbreaks under Act No 258/2000 on the protection of public health, and under Implementing Decree No 252/2004 on sanitary requirements for drinking and hot water. These contracts form the basis for our cooperation with customers in the preparation and imple-mentation of measures to prevent the occurrence of Legionella bacteria. Clients can take up our offer of short- and long-term Legionella control plans, consultations on the implementation of such plans, and communication with the regional public health authority.

The Company also organises staff training focused on Legionella. In addition, potential Legionella outbreaks are monitored at each of the Company’s plants.

UTILISATION OF ASH IN 2016

In recent years, the Company has been reusing all the ash that it produces, especially in backfilling after mining activities, in the


2010 2011 2012 2013 2014 2015 2016

9 0008 0007 0006 0005 0004 0003 0002 0001 000

0

Particles (t) SO2(t) NOx (t) CO2(t)

Emissions over time

2011 2012 2013 2014 2015 2016

380 000370 000360 000350 000340 000330 000320 000310 000300 000

Production (t) Use (t)

Ash Production and Disposal, 2011–2016

2010 2011 2012 2013 2014 2015 2016

800

700

600

500

400

300

200

100

0

Days of absence Number of accidents

Number of Accidents and Days of Absence at Veolia Energie ČR, a.s.

302724211815129630


clean-up and reclamation of former mining sites and other land, in the production of building materials, and as a replacement for the silica sand used in sandblasting. The main customers for ash from the Company’s plants in 2016 were OKD, HBZS, a.s., GEMEC – UNION a.s., TRYMAT, spol. s r.o. and Cement Hranice, akciová společnost.

REACH

In accordance with the requirements of Regulation (EC) No 1907/2006 of the European Parliament and of the Council con-cerning the Registration, Evaluation, Authorisation and Restric-tion of Chemicals (REACH), the Company has pre-registered the following substances: fly ash, and slag and ash from fluidised bed combustion. In 2010, in cooperation with ORGREZ, a.s., we com-pleted the mandatory registration of all of the above substances, and based on this registration certain ash products are now certi-fied products that are offered as such to customers for various uses. Currently, the Třebovice Power Station and the Přerov CHP Plant are involved in ash certification. The registration of another substance, a desulphurisation product formed at the Třebovice Power Station and the Karviná CHP Plant is currently under way.

OCCUPATIONAL SAFETY

In 2016, we again paid particular attention to accident preven-tion, awareness, and improved working conditions. Employees are kept informed of emergencies and preventive action taken in response to registered incidents (minor injuries, accidents, near misses or fires). More detailed information about the results achieved in occupational safety, including the specific causes of injuries and new preventive measures, was also reported at the International Occupational Safety Day organised by the Veolia Group in September 2016.

In 2016, two work-related accidents with sick leave occurred at Ve-olia Energie ČR, a.s. Out of the total number of 422 days missed, 161 were linked to an accident occurring in December 2015.

An employee suffered an accident with sick leave when descend-ing from a machine (sprained ankle). The other accident with sick leave occurred when an employee was burned when repairing equipment. This accident required treatment for 179 days in 2016.

Thanks to the great effort spent on occupational safety, the number of accidents has been reduced; however, the number of missed days has increased due to the long treatment required by one of the accidents and the number of missed days after an accident in December 2015.


HUMAN RESOURCES

Employee LoyaltyVeolia Energie ČR has maintained a very low level of employee turnover for a long time, which reflects employees’ loyalty and is one of the key priorities in personnel management. Employees’ satisfaction and loyalty testify to the high qual-ity of personnel management on a long-term basis and the remarkable attitude to employees, who are the Company’s most valuable asset.

Labour RelationsVeolia Energie ČR consistently complies with all labour legis lation, the current Collective Agreement, the rules of work and all internal regulations.

Employee StructureIn 2016, Veolia Energie ČR continued implementing changes in its internal organisational structure, aimed at optimis-ing the management activities, developing the strategic, coordination and support functions and strengthening the operation line as part of the unified Veolia Group organisa-tion.

The average FTE number of employees was 1,582, down by 59 employees compared with 2015. As part of the reorgani-sation of operations, 2016 saw the transfer of 39 employees (IT activities, the Customer Centre, acceptance of fuels, waste management operations) to companies in the Group. The headcount as at 31 December 2016 was 1,598 employ-ees, of whom 1,328 were male and 270 were female. Broken down by type of business, there were 1,468 employees in the production, distribution, purchase and sale of heat and electricity and 130 employees providing technical services.

The share of employees holding a university degree is 19.2 % (226 men and 81 women), while employees who completed secondary school with a maturita (school leaving certifi-cate) account for 40 % (503 men and 136 women). The average age in 2016 was 47 years. As at 31 December 2016, 86 persons were aged up to 29 years, 226 were in the 30-39 bracket and 567 in the 40-49 bracket, 601 were aged 50-59, and 118 were over 59 years.

As at 31 December 2016, in terms of the total years of ser-vice at Veolia Energie ČR, 299 persons had been employed for up to 5 years, 224 for 6-10 years, 119 for 11-15 years, 152 for 16-20 years, 262 for 21-25 years and 542 for over 25 years.

In 2016, Veolia Energie ČR hired 68 new employees, of whom 62 were external hires. The recruitment related

mostly to operation, where the replacement of retiring employees has become a key priority.

Employee IncentivesEmployees receive contract or tariff-based wages. Con-tract wages are intended for managers, sales staff and key employees, with rules laid down in a management contract and wage agreement.

Tariff-based wages are for other employees (technical and manual professions) in line with rules laid down in the Col-lective Agreement.

Employees have enjoyed numerous benefits under the Collective Agreement concluded for 2016-2018. One of the most significant benefits is the “personal account” amount-ing to CZK 30,000, allowing employees to choose where to use their allowance from several options: a supplementary pension scheme, life assurance, recreation, health and education services or cultural and sporting events, which employees can select in a modern way through the Veolia Energie Benefity Café e-shop. Additional benefits include an extra week of annual leave and three more days of personal time off, catering services at special rates, contributions to children’s recreation and interest-free loans. Veolia Energie ČR pays for employees’ accident insurance covering occupa-tional and other accidents 24 hours a day.

The Company will continue its social policy in the same spirit in the future because for Veolia Energie ČR, its people are and will always be its greatest asset.

Activities and Projects in Human ResourcesIn 2016, Veolia Energie ČR completed a project for preparing the migration to a new personnel and payroll information system aimed at unifying human resources records across the Veolia Group.

A major achievement was obtaining approval for the Support for Employees’ Technical Education II project and subsidies from EU funds under Operational Programme Employment. The subsidy is used for an extensive two-semester educational project called Energy Machines. In this project we follow up on highly successful cooperation with VŠB – Technical University of Ostrava, which provides the teaching. The project includes 18 seminars on electricity and heat supply issues; in 2016, five seminars were held for 42 participants – our employees.


EducationThe corporate training system ensures not only that the skills needed to pursue particular professions are main-tained, but is also a means for improving and increasing employee skills and qualifications.

In 2016, Veolia Energie ČR continued to collaborate with the Institute of Environmental Services (IES), in which it holds a 30% stake alongside the France-based Campus Veolia and Veolia ČR.

In 2016, Veolia Energie ČR provided staff with 44,750 hours of training, equivalent to 9,843 trained employees. Train-ing costs amounted to over CZK 8.7 million, with total costs (after factoring in logistics and payroll expenses) standing at CZK 27.9 million, or 3.4 % of payroll expenses.

Major educational events in 2016 included a training course on “The Public Procurement Act” for over 70 participants, a training course on “The Energy Act and the Amendment Thereto”, which more than 170 employees passed, a course for internal auditors, first aid training, a crisis management seminar, training of persons responsible for action in risk prevention, computer courses on Word and Excel at various proficiency levels, a seminar for procurement employees fo-cused on negotiating tactics, and a seminar on the “Green-ing of Plants”. “Media Training”, attended by 20 employees, mainly from senior management, also received a very good rating. French and English language courses – 69 individual and 27 group courses – were running in 2016.

In 2016, selected employees also attended an international integration workshop called JIVE.

Veolia Energie ČR staff can use the IES e-learning portal, which extends its range every year to include new courses, some of which are also available in English or French ver-sions. In 2016, all new employees had to take “The Code of Ethics” online course; over 300 were trained in Compliance in an online course; since July 2016, the Induction Training has been available in a completely innovative form. This course contains important information about the Veolia Group in the Czech Republic and is also advisable for other than new employees. The e-learning portal also includes computer literacy courses and English and French language courses.

EvaluationVeolia Energie ČR consistently applies a system of employee management via defined targets (landmarks). A regular part of its outreach is appraisal interviews, which line managers conduct with their subordinates. In these interviews, all

evaluated employees are given annual targets. The findings from interviews form a basis for the employees’ personal training programmes and for directing their careers. All staff ranked as professionals undertake the appraisal interview in electronic form based on the uniform methodology applied by the parent Veolia Group.

The seventh ECHOS appraisal took place across all the regions in 2016. It is a group appraisal based on Veolia’s know-how, where the main objective is to assess the impor-tance of key positions in the organisational structure and a revision of the skills and needs of the employees in each position. The web portal of the new personnel information system was used for the first time; it helped to make the preparations for, the running of and the processing of the outputs from the appraisal more effective. The ECHOS ap-praisal covered 234 Veolia Energie ČR employees in 2016.

ECHOS outputs provide important inputs for the further development of employees. They serve the senior manage-ment for personnel planning and offer a view of employees’ development potential.

Cooperation with SchoolsWe are constantly fostering cooperation with secondary schools and universities. Fourteen university students prepared their student projects and diploma or bachelor theses with Veolia Energie ČR during the year. The Company was an exhibitor at the Kariéra Plus 2016 student job fair hosted by VŠB – Technical University of Ostrava. The Company organizes excursions and technical training for secondary school students.

Cooperation with universities is supported by framework contracts with VŠB – Technical University of Ostrava, Brno University of Technology and the Czech Technical University in Prague.

In 2016, the Company continued its successful involvement in the seventh edition of the Veolia Summer School project, held in France. Veolia Energie ČR sent one university student as its representative selected on the basis of the willing coopera-tion he had shown in summer internships, in the preparation of diplomas and bachelor theses, and in personal interviews.

The aim of the Veolia Summer School was to give the stu-dents an insight into Veolia as a company and to involve them in tackling challenging tasks related to Veolia’s activities.

In 2016, we continued to work with seven secondary schools by arranging excursions and mandatory work experience for students.


Employee Structure by Seniority 2016

7,4 % Up to 15 years



33,9 % Over 25 years

14 % Up to 10 years


Employee Structure by Education 2016

40 % Secondary (school leaving certificate)

0,4 % Post secondary vocational

1,7 % Lower secondary

38,7 % Secondary (no school leaving certificate)

19,2 % University

Employee Structure by Age 2016

35,5 % 40 to 49 years

37,6 % 50 to 59 years

7,4 % 60 years or older

14,1 % 30 to 39 years


Average Number of Employees in 2011–2016

1 582

1 641

1 629

1 638

1 680

1 717

2016

2014

2012

2015

2013

2011


Solidarity

Information about the Company’s Involvement in FoundationsVeolia Energie ČR, a.s. pursues a policy of corporate social responsibility with its strong involvement in social initia-tives and the environment through its three foundations (‘endowment funds’): Veolia Foundation (Nadační fond Veolia), Veolia Energie Humain ČR Foundation (Nadační fond Veolia Energie Humain ČR) and Veolia Energie Environment ČR Foundation (Nadační fond Veolia Energie pro životní prostředí ČR). These foundations design their own corpo-rate and foundation projects, take part in projects of other organizations and in Veolia employees’ voluntary work, and assist employees faced with hardship.

Veolia Foundation2016 was the fourteenth year in which the Veolia Founda-tion pursued its mission expressed by its slogan “Caring for the Environment and Community”.

In addition to the traditional programme supporting the cre-ation of new jobs, which supports micro and small start-ups, the popular MiNiGRANTY VEOLIA programme, intended for our employees’ volunteer activities, also continued. The new grant-funded programme for support of the quality of life of the elderly in a community environment, Keep Smiling, ran for the second year in pilot operation; Veolia Foundation’s other traditional programmes, Water for Africa, The Trout Way and Clean Up the World! also continued to run.

Veolia Foundation’s Major Programmes

Facilitating the creation of new jobsSince the programme called Facilitating the Creation of New Jobs focuses on micro and small start-ups, it helps to reduce unemployment in the Moravian-Silesian and Olomouc Regions. The Foundation channels assistance primarily into community projects in areas such as traditional or unconventional crafts and production, the organization of leisure time activities for children, young people and the elderly, services for the local population and households, and social services for the disabled and for families with children.

2016 was the seventeenth year in which the Foundation helped to turn new business ideas into reality.

Thanks to the Foundation’s grants, which totalled CZK,4,139,500, as many as 62 business plans were imple-

mented in 2016, creating 85 new durable jobs in the pro-cess, 14 of which were for persons with disabilities. Since the Foundation’s formation 1,244 projects have enjoyed support and have created 2,078 new jobs (of which 293 have been for persons with disabilities).

Most interesting projects supported in 2016:

Projects employing persons with disabilities

• The Družstvo NAPROTI social business, which has ex-tended its operations to include foodstuffs and bakery and confectionary products, including catering, coffee breaks and distribution of refreshments. It currently offers a high-quality range of its own products made to original recipes and using raw materials and farm produce from small local suppliers and regional farms.

• Mrs Jaroslava Lukšová, who operates a daytime care centre called the Line of Delight for clients with mental, bodily and combined disabilities in Frýdek-Místek. It was also thanks to support provided by the Veolia Founda-tion that the Delight Workshop could be established; it makes it possible for the daytime care centre’s clients to join the labour force in newly set up sheltered work-places.

Projects not only creating business values but also seeking harmony with nature and striking an environmental bal-ance

• Mrs Pavla Skapová sews modern fabric nappies from superior quality materials such as bamboo fibre and merino wool. This environmentally-friendly variant of keeping babies and toddlers clean and dry helps to save one half of the costs compared with disposable nappies and, above all, does not produce about 2.5 tonnes of waste that takes hundreds of years to disintegrate.


• Mrs Karin Toopová focuses on recycling design and exter-nal cooperation with theatres. She uses recycling proce-dures to make women’s and men’s bags and garments, and seats, cushions and seating bags from discarded materials.

Projects in traditional arts and crafts, and infrastructure

• New facilities of the Mrňousek private crèche and kinder-garten were set up in Ostrava and Frýdlant nad Ostravicí. These facilities, established by Mrs Zuzana Běhalová, a finalist in the Lady Business of the Moravian-Silesian Region competition and the founder of Mrňousek, place the heaviest emphasis on children’s health and versatile development. Children are content there thanks to the homelike atmosphere in each of the facilities.

• In Jeseník, Mr Marcel Šos has started a unique chocolate manufactory featuring an untraditional approach to spice blending combined with chocolate together with his own moulds for casting chocolates. It offers luxury bitter chocolate, tourist chocolates in the form of cast-ings of the most attractive tourist sites and high-quality bitter and milk chocolates for children.

Keep Smiling – Active for All LifeThe pilot operation of Keep Smiling, a programme aimed at promoting the active life of elderly people in a community environment, continued for the second year in 2016. Nine-teen entities received funding of more than CZK 1 million as a result of a closed call for applications.

Water for AfricaThrough the benefit sale of various items, we have been raising finance for repairing and building water sources in Ethiopia since 2010.

In 2016, we also offered a limited edition of coffee cups with saucers, all of them decorated with the motif of a jumping cheetah, and the original Ethiopian Sidamo coffee, in addi-tion to a limited edition of crystal glass carafes.

The entire proceeds from the sale, amounting to CZK 770,000, was deposited in the bank account of Veolia Foundation’s public fundraise. We have donated almost 4 million crowns for these purposes over the seven years of running this scheme.

The Trout WaySince 2011, the Foundation has been helping to return original species of salmonids into Czech rivers (in

particular the brown trout and the greyling) that used to live in them in the past. Working with Jakub Vágner, more than 12 tonnes of this fish were released into the natural environment between 2011 and 2016.

Clean Up the World!We are the general partner of the Clean Up the World, Clean Up Czechia! campaign.

The purpose of the campaign is to clean the environment and spread enlightenment as to the responsible attitude to nature and to the prevention of waste production.

Every year, Clean Up the World, Clean Up Czechia! motivates and engages tens of thousands of volunteers in the clean-ing of public spaces and nature throughout the country. More than a half of them are children and young people.

MiNiGRANTS VEOLIAUnder the MiNiGRANTS® VEOLIA programme, we provide financial assistance to the volunteering pursued by our employees in their free time. Many sponsored projects were aimed at helping people with disabilities, improving the learning and the environment in public schools and pre-schools, supporting surrogate family care, improving the working conditions for voluntary fire-fighters and rescu-ers, and promoting leisure activities of children and young people or care for elderly citizens.

In 2016, 139 Veolia employees participated in such volun-teering in their free time and for that they obtained grants totalling over CZK 3.6 million.

In total, between 2008 and 2016, grants in excess of CZK 26 million helped 1,017 projects.

For more information about Veolia Foundation please visit www.nfveolia.cz.


Veolia Energie Humain ČR FoundationAnother endowment fund set up by Veolia Energie ČR is the Veolia Energie Humain ČR Foundation, formed in 2005 to assist current and former employees who find themselves in difficult situations.

The general purpose of the Veolia Energie Humain ČR Foun-dation is specifically pursued by the provision of assistance

• to employees and their family members in difficult per-sonal circumstances,

• in care for physically or mentally disabled children,

• upon childbirth.

In 2016, the Veolia Energie Humain ČR Foundation received donations totalling CZK 1,324,260 from the founder, sub-sidiaries and staff of the Veolia Energie Group companies in the Czech Republic and awarded grants amounting to CZK 1,627,594.

Veolia Energie Environment ČR FoundationThe Veolia Energie Environment ČR Foundation was created in 2006 to help finance projects that have positive environ-mental impacts.

Grants may be awarded to legal entities for projects imple-mented in the Czech Republic, which satisfy the following criteria: quality, fitness for purpose, guaranteed implemen-tation, return, and project support.

The Foundation supports the following:

• Projects mitigating the environmental damage caused by the generation of energy;

• Projects for the use of renewables in energy production;

• Projects for the reclamation and clean-up of land affected by energy production;

• Projects for heat supply, especially through the expansion of district heating from central heat generating plants;

• Projects in line with the Foundation’s mission and general purpose;

• Suppliers of renewable sources.


CORPORATE SOCIAL RESPONSIBILITY

Corporate social responsibility (CSR) is an inseparable part of the strategy followed by Veolia Energie ČR and the whole Veolia Group in the Czech Republic. We therefore develop, on a long-term basis, working procedures contributing to sustainable de-velopment and pursue activities helping to improve the environ-ment around us. We have also been pursuing a balance between the environmental, social and economic aspects of CSR.

Veolia Group in the Czech Republic annually submits its Corpo-rate Social Responsibility Report aiming to offer a comprehen-sive view of its CSR approach and activities.

BiodiversityTo conserve and restore biodiversity is one of the nine key sus-tainability commitments adopted by the Veolia Group’s senior management. For each of these commitments, precise goals have been defined and are to be achieved by 2020.

The Veolia Group companies in the Czech Republic have been involved in environmental protection and biodiversity fostering for several years.

We have been cooperating with the Czech Union for Nature Conservation (ČSOP) to enhance biodiversity on our sites for a long time. We have focused primarily on monitoring and assessing the impacts of our activities on local ecosystems and on implementing measures to preserve biodiversity. We are gradually implementing measures stemming from audits and fostering biodiversity in various ways.

The spring of 2016 saw the start of the finishing work entailed in the revamping of the premises of the Olomouc CHP Plant and Přerov CHP Plant, where the audits had been carried out in 2015. In the summer of 2016, we worked with ČSOP to carry out several additional audits of the premises in terms of conditions fostering biodiversity, this time concentrating mainly on our sites in the Moravian-Silesian Region: the Třebovice Power Sta-tion, the Přívoz CHP Plant, the Frýdek-Místek CHP Plant and the Karviná CHP Plant.

SponsorshipIn 2016, we paid attention primarily to projects that were non-commercial in nature or were geared towards helping children, persons in distress or with a disability, or in developing the com-munity life in towns and villages.

For example, we sponsored financially the Krnov Home for the Elderly, Hospic sv. Kryštofa [the St Christopher Hospice] in cooperation with Charita Ostrava, ONKO Niké in Krnov, Svaz

tělesně postižených [the Association of the Disabled] in Přerov, the Czech Blind United -SONS in Karviná, the AutTalk foundation and the Ostrava Children Choir at the Eduard Marhula Elemen-tary Art School in Ostrava.

In schools and education we again supported all levels of the education system – from crèches to universities. Among other things, we partnered the Fire Protection 2016 conference organ-ised by VŠB – Technical University of Ostrava, and participated in the arrangements for the GLOBE Games international scientific meeting of students and teachers in Karviná and the Moravian-Silesian Mathematics Championship 2016 for secondary school students in Ostrava.

In culture, we traditionally partnered the Janáčkův máj and Svatováclavský hudební festival classical music festivals. We continued cooperation with the Janáček Philharmonic Orchestra in Ostrava and with the Janáček Conservatoire in Ostrava in rela-tion to the Pro Bohemica 2016 music interpretation competition.

In 2016, we also continued to support our sports partners such as, primarily, HC Vítkovice Steel, FBC Ostrava, Volejbal Přerov, MFK OKD Karviná and HC Zubr Přerov.

Veolia Group CodesThe Company adheres to the principles of the Corporate Govern-ance Code applied by the Veolia Environnement Group, which are part of the Group’s Code of Conduct. The application of the principles is further formulated and adapted by the Company for the Czech legal environment in its Articles of Association and internal regulations and in the comprehensive policy and indi-vidual codes of the Company. The corporate culture of the Veolia Group in the Czech Republic relies on three codes, each covering a different area and each having its own significance:

The Code of Ethics sums up the main principles that all employ-ees should follow in their everyday work, covering topics such as cooperation and communication with colleagues, education, personal development, etc. The Manager’s Charter sets out rules for the proper management of subordinated colleagues; the Occupational Safety Charter underlines the rules of safe and responsible conduct at the workplace.

The Sustainable Development Policy covers all Integrated Management System standards related to the environment, em-ployees and customers. Together, these five documents form the Code of Ethics of the Veolia Energie Group in the Czech Republic, which is available on the Company’s website at http://www.vecr.cz/cz/udrzitelny-rozvoj. The Veolia Energie Group in the Czech Republic has also implemented a Major Accident Prevention Policy. The Company complies with the corporate governance system applicable in the Czech Republic.


ResultsIn 2016, Veolia Energie ČR posted a pre-tax profit of CZK 524,634,000, down by 66.88 % compared to the previous year due to lower financial income from dividends received and increased financial costs, especially to the provisions for finan-cial investments.

Total costs net of income tax amounted to CZK 7,245,923,000 which, compared to 2015, is a 4.23 % increase; total revenues amounted to CZK 7,770,557,000, down by 9.0 % compared with 2015.

The operating profit came to CZK 1,104,817,000, which was 19.49 % lower than in the previous year, mainly because of the lower revenue from electricity sales.

Financial operations reported a loss of CZK 580,183,000 in 2016 compared to a profit of CZK 211,622,000 in 2015. The drop in the profit from financial operations compared to 2015 was mainly due to the posting of provisions for financial invest-ments and to decreased dividends received from subsidiaries.

Income tax, including the deferred tax liability, amounted to CZK 202,713,000 and the profit for the accounting period was CZK 321,921,000.

The financial situation of Veolia Energie ČR was stable and balanced throughout the year. The Company’s financing was based on the use of its own resources of CZK 1,345 million, generated by operating and investing activities, resources from the Group’s cash pooling system and short-term loans for a financial investment. These funds were used to acquire non-current assets worth CZK 520 million and a financial investment valued CZK 2,225 million; further to a resolution of the General Meeting, in 2016 the Company paid out dividends totalling CZK 1,321 million.

Year-end financial assets stood at CZK 10 million and included cash in hand and cash in current accounts. Including receivables from cash pooling, the balance of cash and cash equivalents was CZK 327 million.

The Company’s total assets at the end of 2016 were CZK 15,289 million, a rise by 9.7 % compared to 2015.

The rise in total assets is mainly attributable to an increase in the value of non-current assets.

Non-current assets at the end of 2016 came to CZK 12,983 mil-lion, accounting for 84.9 % of total assets. This was an increase by CZK 1,399 million (12.0 %) year on year.

Current assets at the end of 2016 were CZK 2,306 million, ac-counting for 15.1 % of total assets. The value of current assets decreased by CZK 49 million on 2015, mainly due to the decline in cash and cash equivalents.

Year-end equity in 2016 was CZK 7,536 million, i.e. 49.3 % of the Company’s total equity and liabilities. Equity recorded a decrease by CZK 1,012 million (11.8 %) compared with 1 Janu-ary 2016.

The total value of liabilities at the end of 2016 was CZK 7,754 million, up by CZK 2,363 million (43.8 %) on the previous year.

A profit before tax of CZK 785.3 million is projected for 2017. Revenues are forecast to total CZK 6,929.6 million. In 2017, the Company expects a stable financial situation without any problems in debt repayment.

Business PlanIn Veolia Energie ČR’s working life, 2016 did not bring only positive developments such as the acquisition of Pražská teplárenská LPZ, a.s., which has boosted the role of Veolia Energie ČR in Prague, the completion of another stage of the denitrification and desulphurisation of our major CHP plants in Třebovice and Karviná and a number of new develop-ment products, but also unfavourable events, including the insolvency of OKD, a.s., a hard coal supplier and a customer for utilities and energy. We also faced a very uncertain situation surrounding aid to renewable energy generation, because due to a dispute between the Czech Ministry of Industry and Trade and the Energy Regulatory Office, the relevant price decision for 2017 was only signed as late as 31 December 2016.

Together with the persisting warm weather and the low prices of electrical energy, the above were the factors compelling us to do our best to find savings, achieve the planned results and preserve Veolia Energie ČR’s market position.


Nevertheless, despite all the unpropitious circumstances in 2016 we achieved the expected results, also thanks to finding synergies among Veolia Group companies in the Czech and Slovak markets.

The Veolia Energie ČR Group continued its capital expenditure, which amounted to more than CZK 600 million in 2016. Most of these investments are intended for greening our operations, and for reducing losses from and increasing the ef-ficiency of our generating plants. The Company will also take this avenue going forward.

Identifying and leveraging appropriate synergic effects in the Veolia Group’s operations in the Czech Republic and Slovakia will also be a line of our interest in 2017. Success in seeking new business opportunities will again be crucial for the further development of Veolia Energie ČR.

SubsidiariesAt the end of 2016, Veolia Energie ČR held controlling interests in six companies: OLTERM & TD Olomouc, a.s. (a 66% share-holding), AmpluServis, a.s. (100%), Veolia Energie Kolín, a.s. (100%), Veolia Energie Mariánské Lázně, s.r.o. (100%), Veolia Energie Praha, a.s (100%) and Veolia Průmyslové služby ČR, a.s. (100%). Veolia Průmyslové služby ČR, a.s. holds 100% interests in Veolia Komodity ČR, s.r.o. and Veolia Powerline Kaczyce Sp. z o.o. All companies are domiciled in the Czech Republic, apart from Veolia Powerline Kaczyce, which is based in Poland. The registered offices and core business of the subsidiaries are set out in Veolia Energie ČR’s consolidated financial statements.

The parent company and the subsidiaries keep accounts under International Accounting Standards, with the exception of Veolia Energie Praha, the accounts of which were converted to the International Accounting Standards for the purpose of the consolidated financial statements.

REVENUE (CZK THOUSANDS)2016 2015

Veolia Energie ČR, a.s. 7,547,225 7,915,188OLTERM & TD Olomouc, a.s. 388,499 365,618

AmpluServis, a.s. 303,440 335,140Veolia Energie Kolín, a.s. 395,652 427,562

Veolia Energie Mariánské Lázně, s.r.o. 170,067 160,790Veolia Průmyslové služby ČR, a.s. 1,236,653 1,461,260

Veolia Komodity ČR, s.r.o. 2,463,474 2,496,609Veolia Powerline Kaczyce Sp. z,o.o. 231,769 468,579

Veolia Energie Praha, a.s 468,933 -

PROFIT / (LOSS) FOR THE PERIOD (CZK THOUSANDS)2016 2015

Veolia Energie ČR, a.s. 321,921 1,320,670OLTERM & TD Olomouc, a.s. 24,222 21,883

AmpluServis, a.s. 17,973 12,960Veolia Energie Kolín, a.s. 26,980 25,628

Veolia Energie Mariánské Lázně, s.r.o. 24,586 18,552Veolia Průmyslové služby ČR, a.s. -239,460 -860,147

Veolia Komodity ČR, s.r.o. -9,245 27,087Veolia Powerline Kaczyce Sp. z,o.o. 70 3,288

Veolia Energie Praha, a.s. 11,386* -* The reported financial result is for the period from 1 June to 31 December 2016 according to IFRS. The separate financial statement of the company Veolia Energie Praha, a.s. for the year 2016 is based on Czech accounting standards.


REVENUE FROM SALE OF HEAT AND RELATED PRODUCTS (CZK THOUSANDS)

2016 2015Veolia Energie ČR, a.s. 5,040,456 5,047,841

OLTERM & TD Olomouc, a.s. 346,321 322,799AmpluServis, a.s. – –

Veolia Energie Kolín, a.s. 339,670 330,951Veolia Energie Mariánské Lázně, s.r.o. 156,821 150,470

Veolia Průmyslové služby ČR, a.s. 247,441 275,258Veolia Komodity ČR, s.r.o. – –

Veolia Powerline Kaczyce Sp. z,o.o. – –Veolia Energie Praha, a.s. 466,939 –

REVENUE FROM THE SALE AND RE-SALE OF ELECTRICITY ANDANCILLARY SERVICES (CZK THOUSANDS)

2016 2015Veolia Energie ČR, a.s. 2,399,984 2,757,990

OLTERM & TD Olomouc, a.s. – –AmpluServis, a.s. – –

Veolia Energie Kolín, a.s. 53,889 94,540Veolia Energie Mariánské Lázně, s.r.o. 12,866 9,975

Veolia Průmyslové služby ČR, a.s. 601,159 746,926Veolia Komodity ČR, s.r.o. 2,177,718 2,394,773

Veolia Powerline Kaczyce Sp. z,o.o. 227,930 468,573Veolia Energie Praha, a.s. 1,368 –

TOTAL ASSETS (CZK THOUSANDS)2016 2015

Veolia Energie ČR, a.s. 15,289,391 13,939,076OLTERM & TD Olomouc, a.s. 532,572 532,266

AmpluServis, a.s. 214,756 183,211 Veolia Energie Kolín, a.s. 870,403 922,223

Veolia Energie Mariánské Lázně, s.r.o. 237,298 236,436Veolia Průmyslové služby ČR, a.s. 1,469,778 1,748,069

Veolia Komodity ČR, s.r.o. 908,935 752,965Veolia Powerline Kaczyce Sp. z,o.o. 116,617 134,510

Veolia Energie Praha, a.s. 1,293,275 –

The consolidated profit after taxation for the 2016 accounting period was CZK (70,762,000), compared to CZK 438,026,000 in 2015. The drop in the consolidated profit for the period is attributable, in particular, to the posting of provisions for Veolia Průmyslové služby assets and for the impairment of goodwill in that company.

The full text of the annual reports of each of the companies is posted on the Group’s website at www.veoliaenergie.cz


3 Financial Part

3.1. General Information

SELECTED FINANCIAL DATA FROM THE UNCONSOLIDATED FINANCIAL STATEMENTS FOR THE LAST TWO YEARS (IN CZK THOUSANDS)

In accordance with Section 19a of the Accounting Act, the financial statements for 2016 and comparable indicators for the previous period were prepared under International Financial Reporting Standards (IFRS). The Company also prepared its con-solidated financial statements in accordance with International Accounting Standard IAS 27.

The consolidation scope in 2016 encompassed the parent, i.e. Veolia Energie ČR, a.s., and its subsidiaries OLTERM & TD Olomouc, a.s., AmpluServis, a.s., Veolia Energie Kolín, a.s., Veolia Energie Mariánské Lázně, s.r.o., Veolia Průmyslové služby ČR, a.s., Veolia Komodity ČR, s.r.o., Veolia Powerline Kaczyce Sp. z o.o., Veo-lia Energie Praha, a.s. and Nadační fond Veolia Energie pro životní prostředí ČR (Veolia Energie Environment ČR Foundation).

The consolidation scope in 2015 encompassed Veolia Energie ČR, a.s., OLTERM & TD Olomouc, a.s., AmpluServis, a.s., Veolia Energie Kolín, a.s., Veolia Energie Mariánské Lázně, s.r.o., Veolia Průmyslové služby ČR, a.s., Veolia Komodity ČR, s.r.o., Veolia Powerline Kaczyce Sp. z o.o. and Nadační fond Veolia Energie pro životní prostředí ČR (Veolia Energie Environment ČR Foundation).

The consolidated financial statements are disclosed in this Annual Report together with the unconsolidated financial state-ments.

Selected financial data 2016 2015Overall debt (%) 50.71 38.68

Return on assets (%) 2.11 9.47Current liquidity 0.35 0.54

INFORMATION ABOUT SHARE CAPITAL

The Company’s share capital is CZK 3,146,447,000 and is divided into 78,661,161 dematerialised registered ordinary shares, each with a nominal value of CZK 40, ISIN CZ0009105904; the Com-pany is not listed on a regulated market.

Rights and obligations attaching to shares issued by the Compa-ny are specified in detail in the Articles of Association (especially Chapter II, Articles 9 and 10).

INFORMATION ABOUT THE PARENT COMPANY AND THE POSITION WITHIN THE GROUP

The person holding 20 or more percent of the Company’s share capital as at 31 December 2016 is Veolia Energie International, holding a majority stake of 73.06 % as of 18 May 2016 when it merged with the until then majority owner, its wholly-owned subsidiary Société de Participations et d’Investissements Diver-sifiés 2 (SPID 2), the original holder of 63.056 % of the shares in Veolia Energie ČR, a.s.

Veolia Energie International is a company incorporated under French law, having its registered office at 21 rue La Boétie, 75008 Paris. According to its certificate of incorporation, Veolia Energie International’s core business comprises capital interests and shareholdings, purchases, take-overs, and mergers of companies of all legal forms headquartered outside France. Veolia Energie International’s share capital is EUR 1,760,126,700.

Veolia Energie International’s subsidiaries in the Czech Republic are: Veolia Energie ČR, a.s, JVCD, a.s. and Energie Projekt ČR, s.r.o. ‘in liquidation’ (since 1 April 2016).

Veolia Energie International’s parent company is Veolia Envi-ronnement.

Veolia Energie ČR, a.s. is not dependent on other Veolia Group entities.


GENERAL COMPANY INFORMATION

Veolia Energie ČR, a.s. (a public limited company), having its registered office at 28. října 3337/7, Moravská Ostrava, 702 00 Ostrava (the “Company“), as established under the name Moravskoslezské teplárny a.s. by a sole founder, the National Property Fund of the Czech Republic, seated at Praha 1, Gorkého nám. 32 (the “Founder”), pursuant to a Memorandum of Association (containing the Founder’s decision within the meaning of Section 172(2), (3) and Sec-tion 171(1) of Act No 513/1991, the Commercial Code) of 24 April 1992 in the form of a notarial deed. As of 7 January 2002, the Company’s name was changed to Dalkia Morava, a.s., then, as of 1 January 2004, it was changed to Dalkia Česká republika, a.s. and as of 1 January 2015 it was changed again to the present name. The Company was incorporated on 1 May 1992 by entry in the Companies Register on 27 April 1992; it is registered in the Companies Register kept by the Regional Court in Ostrava, File B 318. According to the certificate of incorporation, its core business is the genera-tion and distribution of heat and electricity.

The Company’s website is at www.veoliaenergie.cz; the tele-phone number for the registered office is +420 596 609 111.

CHANGES IN THE COMPANY’S STRUCTURE AND IN THE COMPANIES REGISTER IN 2016

In July 2015, the Supervisory Board elected Zdeněk Duba as a substitute Member of the Supervisory Board and also the Chairman of the Supervisory Board until the nearest General Meeting held on 21st June 2016, which elected him as a full Member of the Supervisory Board. Voting on his chairmanship will take place at the nearest Supervisory Board meeting.

CORPORATE MANAGEMENT AND GOVERNANCE

The Company has implemented and applies an internal control system and risk management system. Risks that relate to the financial reporting process are eliminated by internal control using the CAP (Control Assessment Process) methodology.

The main elements of this internal control are the checking of reported data in the Vector consolidation tool and the controlled verification of control activities in the individual Company processes, in particular the separation of the posi-tions and the authority of authorising officers. Regular inde-pendent controls are annually assessed and documented as part of the internal tool – the Veolia Enablon SOA404 data-base. The Company consistently devotes great attention to risk management, for which it has prepared a cartography of risks in order to increase the transparency of assumed risks in relation to shareholders and investors and to ensure targeted risk management under action plans adopted by the Company’s management.

PERSONS RESPONSIBLE FOR AUDITING THE FINANCIAL STATEMENTS

The issuer’s financial statements were audited by auditors from KPMG Česká republika Audit, s.r.o., having its registered office at Pobřežní 648/1a, 186 00 Praha 8, Licence No 71.

AVAILABILITY OF DOCUMENTS AND MATERIALS CONTAINED IN THE ANNUAL REPORT

All documents and materials referred to in this Annual Report are available for inspection at the issuer’s registered office in Ostrava at 28. října 3337/7, 702 00.


Veolia Energie ČR, a.s.

Non-consolidated income statement For the year ended 31 December In thousands of CZK Note 2016 2015 Revenue 6 7,547,225 7,915,188 Cost of sales 7 (5,897,866) (5,810,024) Gross profit 1,649,359 2,105,164 Distribution expenses / revenue 8 24,067 (68,746) Administrative expenses 9 (568,609) (664,068) Results from operating activities 1,104,817 1,372,350 Finance income 10 93,200 499,327 Finance costs 10 (673,383) (287,705) Profit before income tax 524,634 1,583,972 Income tax expense 11 (202,713) (263,302) Profit for the period 321,921 1,320,670

The notes are an integral part of the financial statements.

3.2. Non-consolidated income statement



Non-consolidated statement of comprehensive income For the year ended 31 December In thousands of CZK 2016 2015 Profit for the period 321,921 1,320,670 Employee benefits – actuarial gains / (losses) (not reclassified to profit or loss)*

(10,398) 12,612

Changes in fair value of cash flow hedge (may be reclassified to profit or loss)*

(2,753) 9,151

Other comprehensive income after tax

(13,151) 21,763

Total comprehensive income for the period 308,770 1,342,433

*Taxation is described in the Note 11.




Non-consolidated statement of financial position As at 31 December In thousands of CZK Note 2016 2015 Assets Property, plant and equipment 12 6,950,562 7,138,824 Intangible assets 13 207,862 230,917 Financial interests 14 5,811,933 4,199,285 Other financial investments 15 13,039 15,239 Total non-current assets 12,983,396 11,584,265 Inventories 17 486,500 529,721 Other financial investments 15 2,471 8,603 Derivatives 15 -- 676 Current tax assets 18 82,610 64,644 Trade and other receivables 19 1,407,569 1,284,456 Cash and cash equivalents 20 326,845 466,711 Total current assets 2,305,995 2,354,811 Total assets 15,289,391 13,939,076 Equity Registered capital 3,146,447 3,146,447 Reserves and other capital contributions 1,962,506 1,965,259 Retained earnings 2,426,835 3,436,033 Total equity 7,535,788 8,547,739 Liabilities Employee benefits 23 581,369 508,664 Provisions 24 62,179 85,925 Deferred tax liabilities 16 462,187 448,010 Derivatives 26 2,870 760 Total non-current liabilities 1,108,605 1,043,359 Loans and borrowings 22 4,926,162 2,315,192 Trade and other payables 25 1,670,544 1,993,600 Employee benefits 23 27,795 20,254 Provisions 24 17,096 16,143 Derivatives 26 3,401 2,789 Total current liabilities 6,644,998 4,347,978 Total liabilities 7,753,603 5,391,337 Total equities and liabilities 15,289,391 13,939,076

The notes are an integral part of the financial statements. On behalf of the Board of Directors of the Company:

Josef Novák

Daniel Melin Date: April 2017



Non-consolidated statement of changes in equity

In thousands of CZK Registered capital

Reserve fund

Other capital

contributions

Cash flow hedges

Retained earnings

Total

Balance at 31 December 2014 3,146,447 -- 1,967,586 (11,478) 4,147,941 9,250,496

Profit for the period -- -- -- -- 1,320,670 1,320,670 Other comprehensive income Employee benefits – actuarial gains (losses) -- -- -- -- 12,612 12,612

Changes in fair value of cash flow hedges -- -- -- 9,151 -- 9,151

Total other comprehensive income -- -- -- 9,151 12,612 21,763

Total comprehensive income for the period -- -- -- 9,151 1,333,282 1,342,433

Transactions with owners, recorded directly in equity Dividends paid to shareholders -- -- -- -- (2,045,190) (2,045,190)


Profit for the period -- -- -- -- 321,921 321,921 Other comprehensive income Employee benefits – actuarial gains (losses) -- -- -- -- (10,398) (10,398)

Changes in fair value of cash flow hedges -- -- -- (2,753) -- (2,753)

Total other comprehensive income -- -- -- (2,753) (10,398) (13,151)

Total comprehensive income for the period -- -- -- (2,753) 311,523 308,770

Transactions with owners, recorded directly in equity Dividends paid to shareholders -- -- -- -- (1,320,721) (1,320,721)





Non-consolidated statement of cash flows For the year ended 31 December In thousands of CZK Note 2016 2015

Cash flow from operating activities

Profit before income tax for the period 524,634 1,583,972 Depreciation and amortisation of non-current assets 12, 13 712,577 700,189 Change in provisions 656,517 100,538 Gain (loss) on sale of property, plant and equipment 1,728 (2,849) Proceeds from dividends 10 (85,464) (479,913) Net interest income and expense 10 27,319 12,979 Non-realized FX differences 104 87 Cash flow from operating activities 1,837,415 1,915,003 Change in receivables (123,356) (111,927) Change in current liabilities (319,444) 246,638 Change in inventories 43,221 (61,829) Income tax paid and tax assessments for previous periods (202,556) (253,485) Net cash flow from operating activities 1,235,280 1,734,400

Cash flow from investing activities

Acquisition of property, plant and equipment (523,391) (474,219) Proceeds from the sale of property, plant and equipment 25,123 28,178 Acquisition of financial investments (2,225,411) -- Dividends received 10 85,464 479,913 Net cash flow from (used in) investing activities (2,638,215) 33,872 Free operating cash and cash equivalents (1,402,935) 1,768,272

Cash flow from financing activities

Loans received 22 1,370,000 -- Unpaid dividends 22 1,434 86 Unpaid interest on loans 5,956 4,597 Instalments on loans 22 -- (10,000) Interest received 10 4,010 5,623 Interest paid 10 (35,926) (21,483) Dividends paid (1,320,721) (2,045,190) Net cash flow from (used in) financing activities 24,753 (2,066,367) Net increase (decrease) in cash and cash equivalents (1,378,182) (298,095) Cash and cash equivalents at 1 January (1,814,682) (1,516,587) Cash and cash equivalents at 31 December 20 (3,192,864) (1,814,682)



Veolia Energie ČR, a.s. NOTES TO THE NON-CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 DECEMBER 2016

1. General information

Veolia Energie ČR, a.s. (“the Company”) is registered in the Czech Republic. The original name of the company, i.e. Dalkia Česká republika, a.s., was changed as of 1 January 2015 due to Veolia Environnement – VE SA acquiring a 100% stake in Dalkia International SA.

The registered office of the Company is at 28. října 3337/7, Moravská Ostrava, 702 00 Ostrava, Company No. 451 93 410. The principal business activity is the production and distribution of heat and the generation of electricity. The Company is controlled by a multinational company, Veolia Energie International SA (formerly Dalkia International SA), and its ultimate parent company is Veolia Environnement – VE SA.

In 2016, the shareholding structure changed as SPID 2 (as at 31 December 2015, it held a stake of 63.06%) merged with Veolia Energie International (as at 31 December 2015, it held a stake of 10%). Following the merger, Veolia Energie International SA holds 73.06%, ČEZ, a.s. holds 15%, DCR INVESTMENT a.s. holds 10%, and minority shareholders hold the balance.

2. Basis of preparation

a) Statement of compliance The financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as adopted by the EU and the Act on Accounting and relevant legislation of the Czech Republic in force as at 31 December 2016. In accordance with Section 19a (1) of the Act on Accounting, No 563/1991, the Company applies IFRS as adopted by the EU in the preparation of its non-consolidated financial statements. The financial statements were approved for release by the Company’s Board of Directors on April 2017.

b) Basis of preparation The financial statements are presented in Czech crowns, as the functional currency, rounded to the nearest thousand. The financial statements have been prepared on the historical cost basis, except for the derivative financial instruments and the provision for employee benefits measured at fair value. The method of measuring fair value is described in Note 4.

c) Use of estimates and judgements The preparation of financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses as at the date of the financial statements. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgement in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in Notes 3 g), 3 h) and 23 and 24.

3.3. Notes to the Non-consolidated Financial Statements



d) Changes in accounting policies (i) Standards not applied A number of new standards, amendments to standards and interpretations are effective for the accounting period beginning on 1 January 2016, and have not been applied in preparing these non-consolidated financial statements. None of these is expected to have significant effect on the Company’s non-consolidated financial statements. Those that may be relevant for the Company are listed below. IFRS 9 Financial Instruments, published in July 2014, will replace the current requirements in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidelines for the classification and measurement of financial instruments, including a new forward-looking expected loss impairment model, and a substantially reformed approach to hedge accounting. It also provides guidance for recognising and derecognising financial instruments from IAS 39. IFRS 9 applies to annual reporting periods on or after 1 January 2018; the Standard is available for earlier adoption. The Company evaluates the potential impacts of IFRS 9 application on its accounting. IFRS 15 Revenue from Contracts with Customers provides a comprehensive framework for specifying how, how much and when an IFRS reporter will recognise revenue. This will replace the current guidelines for revenue recognition, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 applies to annual reporting periods on or after 1 January 2018; the Standard is available for earlier adoption. The Company evaluates the potential impacts of IFRS 15 application on its accounting. IFRS 16 Leases, published in January 2016, specifies rules for leases. It will replace existing IAS 17, IFRIC 4 and SIC-15. IFRS 16 sets out new principles for the recognition, measurement, presentation and disclosure of leases. IFRS 16 is only effective from 1 January 2019; it is available for earlier adoption, but only if the entity also applies IFRS 15. The Company evaluates the potential impacts of IFRS 16 application on its accounting. The following amended standards are not expected to have a significant impact on the Company’s non-consolidated financial statements. IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses IAS 7 New requirements for disclosing liabilities from financing activities (ii) Applied standards The following new or amended standards, applicable as of 1 January 2016, did not have a significant impact on the Company’s non-consolidated financial statements. IFRS 14 Regulatory Deferral Accounts Amendments to IAS 1 Presentation of Financial Statements Amendments to IFRS 11 Joint Arrangements – Accounting for Acquisitions of Interests in Joint Operations Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures – Sale or contribution of assets between an investor and its associate/joint venture Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets: Clarification of Acceptable Methods of Depreciation and Amortisation Amendments to IAS 27 Separate Financial Statements – Equity Method in Separate Financial Statements

3. Accounting policies

The accounting policies described below have been applied consistently in all the accounting periods reported in these financial statements.

a) Foreign currency Foreign currency transactions At the beginning of each month, the Company sets a fixed exchange rate based on the Czech National Bank official rate for the first day of the month, which is applied to transactions recorded during that



month. At the date of the statement of financial position, foreign currency monetary assets and liabilities are translated at the Czech National Bank official rates for that date. Foreign exchange differences arising on translation of foreign currency monetary assets and liabilities are recognised in profit and loss.

b) Financial instruments (i) Non-derivative financial instruments Non-derivative financial instruments comprise investments in subsidiaries and associated companies, investments held for trading, trade and other receivables, cash and cash equivalents, loans and borrowings, trade and other payables. Cash and cash equivalents presented in the statement of cash flows include cash, bank deposits and cash in the cash pool. Based on contractual terms and conditions, cash pooling receivables are reported in cash and cash equivalents in the statement of financial position, whereas cash pooling payables are shown in loans and borrowings. For the purpose of the statement of cash flows both cash pool receivables and cash pool payables are presented as cash. Investments in subsidiaries and associated companies are stated at historical cost. Receivables, liabilities, loans and borrowings are stated at their present/carrying value using the effective interest rate, while adhering to the materiality principle. Cash and cash equivalents are stated at nominal value. Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement receivables are subsequently carried at their amortised cost less any allowance for impairment (see Note 3 f). Other non-derivative financial instruments are initially stated at fair value plus, for instruments not at fair value through profit or loss, any directly attributable transaction costs. If their fair value cannot be reliably determined, the acquisition cost is used. Subsequent to initial recognition, they are measured at cost less any impairment losses (see Note 3 f), or through provisions, depending on the type of financial instrument. (ii) Derivative financial instruments The Company holds foreign currency contracts to hedge its foreign currency risk exposure. Derivatives are initially recognised at fair value; attributable transaction costs are recognised in the income statement when incurred. Following initial recognition, derivatives are measured at fair value, and changes therein are then charged to costs or revenues. Cash flow hedging

Changes in the fair value of derivative hedging instruments designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in the fair value of the derivative are recognised in the income statement.

If the hedging instrument no longer meets the criteria for hedge accounting, or if it expires or is sold, terminated or exercised, then hedge accounting is discontinued as expected. The cumulative gain or loss previously recognised in equity remains there until the anticipated transaction takes place, and then is charged to costs or revenues. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the book value of the asset when the asset is recognised. In other cases the amount recognised in equity is transferred to costs or revenues in the same period that the hedged item affects costs or revenues. The Company has decided to apply the exemption under IAS 39.5, under which in cases of contracts entered into for the purpose of receipt or delivery of a non-financial item in accordance with the entity’s expected purchase, sale, or usage requirements, the derivatives do not have to be accounted for and forwards are only accounted for at the time of purchasing the non-financial asset as such.



Other derivatives When a derivative financial instrument is not held for trading and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised in costs or revenues. (iii) Equity The registered capital comprises fully paid-up shareholders’ contributions. Dividends are recognised as liabilities in the period in which they are declared.

c) Property, plant and equipment (i) Owned assets Items of property, plant and equipment are stated at cost less accumulated depreciation (see below) and impairment losses (see Note 3 f). The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads.

When parts of an item of property, plant and equipment have different useful lives, the individual parts are depreciated separately. (ii) Leased assets Leases in terms of which the Company assumes substantially all of the risks and rewards of ownership are classified as finance leases. Buildings and equipment acquired by way of a finance lease are stated as financial assets at the lower of their fair value and the present value of the minimum lease payments at inception of the lease. The valuation is then decreased by accumulated depreciation (see below) and impairment losses (see Note 3 f). Lease payments from operating leases are accounted for as described under Note 3 j.

(iii) Government grants Government grants for the acquisition of property, plant and equipment are recognised initially in liabilities at fair value when there is reasonable assurance that they will be received and the Company will comply with the conditions associated with the grant. They are then deducted on a systematic basis in the asset’s carrying value.

(iv) Subsequent expenditures The Company recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item, including the costs associated with necessary inspections and major overhaul, where it is probable that the future economic benefits embodied within the item will flow to the Company and costs can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised directly in the costs of the current period. (v) Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows: Buildings and constructions 30–40 years Machinery and equipment 4–20 years Other assets 4 years

d) Intangible assets Intangible assets acquired by the Company are stated at cost less accumulated amortisation (see below) and impairment losses (see Note 3 f). Purchased software that is integral to the functioning of equipment is capitalised as a part of the equipment.

Amortisation Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date the assets are available for use. The estimated useful lives are as follows:



Software 4–5 years Other 4‒10 years

e) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business less associated costs to complete and estimated associated cost to sell the asset. The cost of inventories is determined using the weighted average method and comprises the purchase price and other costs associated with the acquisition, such as freight and storage. At the date of the statement of financial position the Company reviews the carrying values of inventories. If the realisable value of inventories is lower than the purchase price, the difference is recognised in the income statement.

Emission allowances

Allowances for greenhouse gas emissions (“emission allowances” or “EUAs”), are presented as inventory and represent the right of the operator of a facility which generates greenhouse gas emissions to release an equivalent of a tonne of CO2 into the air in a given calendar year. In the financial statements, the granted emission allowances are stated at an acquisition cost of zero. Purchased allowances are stated at acquisition cost. Consumption of emission allowances is recognised using the weighted average method. As at the date of the statement of financial position the Company determines whether there is an indication of impairment of emission allowances. If any such indications exist, the Company assesses whether the recoverable amount of the emission allowances is lower than their book value. Any impairment loss is recognised in profit or loss. If the utilisation of emission allowances in the accounting period is higher than the number of allowances available at the date of the statement of financial position, a provision is established based on the value of allowances that will have to be purchased on the public market in the following period. This provision is measured at the average value of the emission allowances as at the date of the statement of financial position. In 2016, the Company purchased EUA units issued according to the Kyoto protocol that it expects to use in 2016 and beyond. The use of emission allowances and the income from their sale are presented in the non-consolidated income statement in the position “cost of sales”.

f) Impairment (i) Financial assets

A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of financial assets measured at amortised cost using the effective interest rate method is calculated as the difference between the carrying amount and the present value of the estimated future cash flows discounted at the original effective interest rate. Individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that share similar credit risk characteristics. All impairment losses are recognised in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. The reversal of an impairment loss is recognised in profit or loss.

(ii) Non-financial assets

The carrying amounts of non-financial assets other than inventories (see Note 3 e) and deferred tax assets (see Note 3 k) are reviewed at each date of the statement of financial position to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.



Impairment losses recognised in respect of cash-generating units reduce the carrying amount of assets on a pro rata basis. Calculation of recoverable amount The recoverable amount of an asset or cash-generating unit is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

g) Employee benefits The Company’s obligation is the amount of future benefits that employees have earned in return for their service in the current and prior periods. This is calculated using the projected unit credit method. The discount rate is the current rate of return on long-term treasury bonds in the Czech Republic. Any actuarial gains and losses are recognised in profit and loss in the period in which they arise except actuarial gains and losses on post-employment benefits, which are recognised in equity.

Obligations for contributions to defined contribution pension plans are recognised as an expense in profit and loss when they are due. Changes in defined contribution plans relating to retirement benefits classified as postemployment benefits are amortised in profit and loss on a straight-line basis over the average period until the benefits become vested.

h) Provisions A provision is recognised in the statement of financial position when the Company has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic resources will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. (i) Site restoration In accordance with the Company’s published environmental policy and applicable legal requirements, a provision for site restoration and land decontamination is recognised when the land is contaminated. The provision recognised represents the best estimate of the expenditures required to settle the present obligation at the date of the statement of financial position. Changes in the liability that result from a change in the current best estimate of cash flows required to settle the obligation or a change in the discount rate are added to (or deducted from) the amount recognised as the related assets. However, to the extent that such a treatment would result in negative assets, the effect of the change is recognised in profit or loss.

(ii) Litigation A provision for litigation is recognised as soon it is probable that settlement of legal claims against the Company will result in an outflow of economic resources. (iii) Other provisions Other provisions include provisions established in connection with the risks related to the Company’s principal activities. Provisions for other risks were reviewed and adjusted based on the best estimates arising from changes in legislation and in estimates.

i) Revenue Sale of heat, electricity and goods

Revenues from the sale of heat, electricity and goods are recognised in profit or loss when the significant risks and rewards of ownership have been transferred to the buyer.

j) Expenses (i) Operating lease payments Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the lease.



(ii) Finance income and expenses Finance income and expenses comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested, income from dividends and unwinding of the discount on provisions.

k) Income tax Income tax comprises current and deferred tax. Income tax charge is recognised in profit or loss except to the extent that it relates to items recognised directly in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates applicable at the first date of the reporting period and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, using the tax rate expected to be valid in the period when the tax asset or liability is expected to be realised. At the date of the statement of financial position the Company reviews the carrying value of the deferred tax asset. A deferred tax asset is recognised only to the extent that it is probable that such tax asset will be utilised in future periods. The establishment of deferred tax represents tax consequences subject to the method which the Company expects to use at the end of the reported period to realise or settle the book value of its assets and liabilities. It is assumed for investment property measured at fair value that the book value of the investment property is always realised by sale unless such assumption can be disconfirmed.

4. Fair value

Some accounting policies applied by the Company require a fair value to be determined for financial and non-financial assets and liabilities. The Company has in place a review system with regard to the fair value measurement for financial and non-financial assets and liabilities. The Company periodically reviews the measurements and the inputs used for measurement. In determining fair value, the Company uses data available from the market as far as possible. Fair values are then measured using the methods described below.

(i) Trade and other receivables The fair value of trade and other receivables is determined as the present value of future cash flows discounted at the market interest rate as at the date of the statement of financial position.

(ii) Derivatives The fair value of forward contracts for emission allowances, certificates and forward contracts hedging the foreign exchange risk is determined as the discounted difference between the contractual value and the market forward price. (iii) Non-derivative financial liabilities Fair value for the purpose of reporting in the notes is calculated as the present value of future payments of the face value and interest, discounted at the market interest rate as at the date of the statement of financial position.

(iv) Employee benefits Fair value of employee benefits is calculated as the present value of future benefits that employees have earned in return for their service in the current and prior periods. The discount rate is the current rate of return on long-term treasury bonds in the Czech Republic.



5. Financial risk management

The Company has exposure to the following risks: credit risk, liquidity risk, market risk, operating risk. The Board of Directors has overall responsibility for the establishment and oversight of the Company’s risk management framework. The Board reviews and approves the risk management policies described below. The Risk Management Department monitors individual risks and their effect on the Company. Credit risk Credit risk is the risk of financial loss to the Company if a customer or counterparty to a financial instrument fails to meet its contractual obligations.

Trade and other receivables

The exposure to credit risk is influenced mainly by the individual characteristics of each customer, and the Company endeavours to manage and limit this risk. The Company has established a credit policy under which each major customer is analysed individually for creditworthiness before the standard payment and delivery terms and conditions are offered. The review includes external ratings when available, and in some cases references obtained from a specialised firm. Credit limits are established for each customer. Customer analysis and monitoring of observance of the credit limits is carried out by the Collections Department. Customers that fail to keep within the credit limit may have their deliveries suspended, subject to case-by-case assessment. More than 80 percent of customers have been transacting with the Company for over four years, and losses have occurred infrequently. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, their industry and payment history. Deliveries are made on a prepayment basis, with advances reviewed on a continuous basis. Customers that are graded as “high risk” are monitored separately, and sometimes a payment schedule is offered to secure debt recovery. Credit risk related to receivables is covered by provisions that are established on an individual basis for receivables with a specific risk of loss, and on a portfolio basis for groups of receivables with similar risks. For more information see Note 27.

Investments The Company limits its exposure to credit risk by only investing in liquid securities. The management does not expect any losses from these investments. As at 31 December 2016, the Company holds cash and cash equivalents in the amount of CZK 327 million (2015 ‒ CZK 467 million). Cash and cash equivalents are deposited with banks with high ratings and in cash pooling with the parent company. Guarantees The Company’s policy is to provide financial guarantees only on an exceptional basis, where required for the purpose of a tender procedure or where the law provides so. As at 31 December 2016, guarantees of CZK 193 million (2015 – CZK 24.9 million) were outstanding, of which a guarantee of CZK 162 million was provided by the parent company to the subsidiary Veolia Komodity ČR, s.r.o. to secure gas trades. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, not risking damage to its reputation. The Company uses activity-based costing to cost its products and services, which assists it in monitoring cash flow requirements and optimising its cash return on investments. The Company ensures that it has sufficient cash on demand to meet expected operational expenses through participation in cash pooling within the Veolia group. Within the cash pooling, the Company may draw funds of up to CZK 3,000



million. By this approach, the Company limits the possible impacts of unforeseeable events. The 2008 issue of bonds was repaid in 2015.

Market risk Market risk is the risk that changes in market prices, foreign exchange rates, interest rates, equity prices or prices of emission allowances will affect the Company’s income or the value of financial instruments in its possession. Currency risk The Company is not exposed to significant currency risk in the area of sales, purchases and borrowings, as the major portion of these are denominated in Czech currency. For electricity payments and purchase of CO2 emission allowances in foreign currency (EUR), the Company concludes forward contracts to hedge the foreign exchange risk.

Interest rate risk

The Company partly covers its exposure to movement in interest rates by obtaining financing mainly from its parent company. This financing is exposed to market risk from movements in interest rates. Other market price risks In 2016 the Company entered into forward contracts with Veolia Environnement Finance, a Veolia Environnement – VE SA group company, for the purchase and sale of emission allowances and certificates at a contractual price.

Operating risk The Company manages production risk with a view to avoiding financial losses and damage. This involves, in particular, the gradual wear and tear of equipment and components of the Company’s power plants, risks related to shutdowns and risks related to insurance. Gradual wear and tear of equipment and components The influence of operations, as well as of natural processes (e.g. erosion and corrosion), on the technical condition of some equipment and certain components of the production plant constantly increases over time. At the same time, the Company implements a continual major production plant renewal programme in its facilities in order to modernise its production portfolio with a view to realising the Veolia group’s business vision. The Company has prepared a plant renewal programme aimed at reducing energy consumption. Apart from the preparations for renewing its fossil fuel-fired facilities, the Company provides for the firing of biomass. The Company endeavours to adhere to its practices in terms of preventive inspections and maintenance of the equipment and components of its plants, including repairs and replacements, in order to prevent failures and losses. Risks related to shutdowns Despite the complexity of its production plants, the Company endeavours to eliminate the risk of unscheduled shutdowns or to anticipate their exact frequency or effects, in particular by means of preventive inspections and repairs. Insurance of risks The Company has concluded insurance arrangements (e.g. property, plant and machinery insurance; third party liability insurance) for its major assets to cover the risks of significant losses. Capital management The Board of Directors manages the Company’s capital structure in compliance with the investor’s requirements, focusing on appropriate indebtedness and dividend policy monitoring. The objective is to achieve the right proportion of debt to total assets, and to meet the planned dividend targets. This involves looking for an adequate level of debt, which depends on profit (cash flow) generation, and meeting the average cost of capital and working capital targets planned by the group.



The Company’s debt to equity at the end of the accounting period was as follows:

In thousands of CZK

2016

2015

Total liabilities 7,753,603 5,391,337 Cash and cash equivalents (326,845) (466,711) Net debt 7,426,758 4,924,626 Total equity 7,535,788 8,547,739 Cash flow from hedges 5,080 2,327 Adjusted equity 7,540,868 8,550,066 Debt to adjusted equity 0.98 0.58

6. Revenue

In thousands of CZK 2016 2015 Revenues from sale of heat and related products 5,040,456 5,047,841 Revenues from sale and re-sale of electricity and ancillary services 2,399,984 2,757,990

Other operating revenues 106,785 109,357 Total 7,547,225 7,915,188

The drop in revenues from the sale and re-sale of electricity in 2016 was mainly caused by a drop in electricity prices on the market.

7. Cost of sales

In thousands of CZK 2016 2015 Personnel expenses (845,388) (856,821) Depreciation expense (700,271) (689,315) Costs of goods sold excluding electricity (303,374) (281,852) Cost of purchased electricity (822,478) (876,465) Consumption of fuel (2,044,662) (2,140,952) Consumption of raw materials, energy and services (877,919) (881,930) Change in provisions (55,029) 135,232 Consumption of emission allowances and change in provision for emission allowances

(248,745) (217,921)

Total (5,897,866) (5,810,024)

A release of provisions for and provisioning for employee benefits and a release of provisions for asset disposal in 2015 had the most important effect on the level of provisions.

8. Distribution expenses

In thousands of CZK 2016 2015 Personnel expenses (50,463) (48,140) Depreciation expense (8) (112) Change in provisions (1,832) (2,500) Other expenses / revenues 76,370 (17,994) Total 24,067 (68,746)

A release of estimated payables related to the Company’s investment activities had the most important effect on the year-on-year change in other expenses/revenues.



9. Administrative expenses In thousands of CZK

2016 2015 Personnel expenses (280,751) (309,034) Depreciation expense (12,298) (10,762) Change in provisions (5,712) 13,277 Management costs (99,751) (209,938) Cost of raw materials, services and other expenses (170,097) (147,611)

Total (568,609) (664,068)

The management costs for 2016 reflect credit notes related to 2015.

10. Finance income and expenses

In thousands of CZK 2016 2015

Interest income 4,010 5,623 Dividend income 85,464 479,913 Foreign exchange gain 866 5,939 Other finance income 2,860 7,852 Total finance income 93,200 499,327

Interest expense (31,329) (18,602) Foreign exchange loss (1,141) (6,348) Discount of provisions (7,446) (10,746) Other finance expenses (20,704) (22,067) Provisions for financial investments (612,763) (229,942) Total finance expenses (673,383) (287,705)

Dividend income in 2016 included mainly dividends from Veolia Energie Kolín, a.s., amounting to CZK 26 million (in 2015, it was mainly dividends from Veolia Průmyslové služby ČR, a.s. amounting to CZK 438 million). Provision for financial investments relates to investments in the companies described in Note 14.

11. Income tax

Recognised in the income statement

In thousands of CZK Current tax 2016 2015

Current year (181,450) (240,943) Adjustments for prior years (3,140) (3,575) (184,590) (244,518)

Deferred tax Effect of the change in temporary differences and the lower tax rate (18,123) (18,784)

Total income tax expense in income statement (202,713) (263,302)



Reconciliation of effective tax rate In thousands of CZK

2016 2015

Profit before tax 524,634 1,583,972 Income tax calculated using the domestic corporate income tax rate

(99,680) (300,955)

Effect of non-deductible expenses (282,280) (150,849) Effect of tax exempt income 200,027 210,411 Effect of change in the deferred tax rate -- -- Effect of tax credits 483 450 Adjustments for prior years (3,140) (3,575) Total tax payable (184,590) (244,518) Total deferred tax (18,123) (18,784) Total income tax expense in income statement (202,713) (263,302)

Tax overpayment of CZK 83 million is reported as the Current tax assets (2015 ‒ CZK 65 million) and represents a corporate income tax estimate of CZK 181 million (2015 ‒ CZK 241 million), reduced by tax advances in an amount of CZK 264 million (2015 ‒ CZK 306 million). Deferred tax is based on all temporary differences between the carrying and tax value of assets and liabilities, and other temporary differences (tax losses carried forward, if any), multiplied by the tax rate expected to be valid for the period in which the tax asset/liability will be utilised. Tax impact on items of other comprehensive income on deferred tax: Employee benefits – actuarial gains / (losses): before taxation CZK (12) million (2015 – CZK 16 million); tax CZK 2 million (2015 – CZK (3) million); after taxation CZK (10) million (2015 – CZK 13 million). Changes in the fair value of hedging instruments: before taxation CZK (3.3) million (2015 – CZK11 million); tax CZK 0.6 million (2015 – CZK (2) million); after taxation CZK (2.7) million (2015 – CZK 9 million). The Company conducted a legal dispute with the Czech Republic, as did other energy companies that did not agree with the specific gift tax imposed on emission allowances in 2011 and 2012 by the Ministry of Finance. The Company estimated its position at CZK 175 million, which, however, was not recognised as a contingent asset. In December 2015, a decision on this matter was taken and the Company received from the Appeal Financial Directorate a decision that a part of the gift tax, amounting to CZK 22 million, would be refunded. The Company disagrees with the decision, however, and has therefore initiated court proceedings on this matter. No decision was delivered on this matter in 2016.

12. Property, plant and equipment

In thousands of CZK Acquisition cost Land Buildings

and constructions

Plant and equipment

Under construction

and advances

Total

Balance at 1 January 2015

445,952 9,104,005 12,557,853 1,259,210 23,367,020

Additions/transfers -- 322,480 660,896 (638,129) 345,247 Disposals (11,714) (137,600) (182,132) -- (331,446) Balance at 31 December 2015

434,238 9,288,885 13,036,617 621,081 23,380,821


434,238 9,288,885 13,036,617 621,081 23,380,821

Additions/transfers 12,221 177,777 619,440 (315,443) 493,995 Disposals -- (24,452) (77,539) -- (101,991) Balance at 31 December 2016

446,459 9,442,210 13,578,518 305,638 23,772,825



Depreciation and impairment losses

Land Buildings and constructions

Plant and equipment

Under construction

and advances

Total


-- 5,671,525 10,237,334 -- 15,908,859

Current year depreciation

-- 237,847 414,859 -- 652,706

Impairment losses -- -- -- -- -- Disposals -- (137,600) (181,968) -- (319,568) Balance at 31 December 2015

-- 5,771,772 10,470,225 -- 16,241,997


-- 5,771,772 10,470,225 -- 16,241,997

Current year depreciation

-- 245,155 418,583 -- 663,738

Impairment losses -- -- -- -- -- Disposals -- (11,222) (72,250) -- (83,472) Balance at 31 December 2016

-- 6,005,705 10,816,558 -- 16,822,263

Carrying amount Land Buildings and constructions

Plant and equipment

Under construction

and advances

Total

At 1 January 2015 445,952 3,432,480 2,320,519 1,259,210 7,458,161 At 31 December 2015 434,238 3,517,113 2,566,392 621,081 7,138,824 At 31 December 2016 446,459 3,436,505 2,761,960 305,638 6,950,562

Leased assets The Company leases production equipment under a number of finance lease agreements. As at 31 December 2016, the net carrying amount of leased machinery was CZK 22.4 million (2015 ‒ CZK 24.1 million). On 16 June 2011, the Company signed a contract on the lease of part of the business with its subsidiary, Veolia Průmyslové služby ČR, a.s. The contract became effective on 1 September 2011 and was concluded for a definite period until 31 December 2029. Based on this contract, Veolia Průmyslové služby ČR, a.s. leases to its parent company, Veolia Energie ČR, a.s. a set of movables, rights and other property that within Veolia Průmyslové služby ČR, a.s. had its own separate structure and was identified as “TEPLO OBYVATELSTVO” (Heat for households). As at 31 December 2016, the net carrying amount of leased assets was CZK 159 million (2015 ‒ CZK 147 million). The Company capitalised the assets at the lower of the present value and net present value of the minimum lease payments as at the start of the leasing. The lease payments are due over the following periods:

2016 Paid at 31

December 2016

Future lease payments

Due within 1 year

Due in 1 to 5 years

Due in subsequent

years Heat for households 112,987 323,643 22,046 92,682 208,915

Total 112,987 323,643 22,046 92,682 208,915



2015 Paid at 31 December

2015

Future lease payments

Due within 1 year

Due in 1 to 5 years

Due in subsequent

years Heat for households 91,373 351,108 21,980 92,405 236,723

Total 91,373 351,108 21,980 92,405 236,723 Based on the contractual conditions, the Company is obliged to purchase the performed improvements after the leasing period. Assets pledged as security The Company had no pledged assets as at 31 December 2016 and 31 December 2015. Grants In 2016, the Company received a grant for the modernisation and greening of the H&P plant equipment from the “ECO Energy” programme of the Czech Environment Ministry in an amount of CZK 0 million (2015 ‒ CZK 2 million) and from the OP Environment in an amount of CZK 34 million (2015 ‒ CZK 246 million).

13. Intangible assets

In thousands of CZK Acquisition cost Software Other* Total Balance at 1 January 2015 391,160 425,556 816,716 Additions/transfers 18,565 (7,182) 11,383 Disposals (416) -- (416) Balance at 31 December 2015 409,309 418,374 827,683 Balance at 1 January 2016 409,309 418,374 827,683 Additions/transfers 4,205 21,579 25,784 Disposals (3,562) -- (3,562) Balance at 31 December 2016 409,952 439,953 849,905 Amortisation expense Software Other* Total Balance at 1 January 2015 378,489 171,210 549,699 Current year amortisation 8,711 38,772 47,483 Disposals (416) -- (416) Balance at 31 December 2015 386,784 209,982 596,766 Balance at 1 January 2016 386,784 209,982 596,766 Current year amortisation 10,143 38,696 48,839 Disposals (3,562) -- (3,562) Balance at 31 December 2016 393,365 248,678 642,043 Carrying amount Software Other* Total At 1 January 2015 12,671 254,346 267,017 At 31 December 2015 22,525 208,392 230,917 At 31 December 2016 16,587 191,275 207,862

* Balance includes mainly the value of the contract with OKK Koksovny, a.s. for the purchase of coke oven gas. The contract is concluded until 2020.



14. Financial interests

The Company has investments in the following companies: Country Participating

interest AmpluServis, a.s. Czech Republic 100% OLTERM & TD Olomouc, a.s. Czech Republic 66% Veolia Energie Kolín, a.s. Czech Republic 100% Veolia Energie Mariánské Lázně, s.r.o. Czech Republic 100% Veolia Průmyslové služby ČR, a.s. Czech Republic 100% Veolia Energie Praha, a.s. Czech Republic 100% Institut environmentálních služeb, a.s. Czech Republic 30%

In thousands of CZK 2016 2015 AmpluServis, a.s. 18,988 18,988 OLTERM & TD Olomouc, a.s. 64,040 64,040 Veolia Energie Kolín, a.s. 981,040 *980,737 Veolie Energie Mariánské Lázně, s.r.o. 87,962 87,962 Veolia Průmyslové služby ČR, a.s. *3,203,439 *3,203,439 Institut environmentálních služeb, a.s. 3,069 3,069 Veolia Energie Praha, a.s. 2,225,108 -- Provisions for financial investments (842,705) (229,942) Total in subsidiaries 5,740,941 4,128,293 Other financial investments held for trading 70,992 70,992 Total long-term financial investments 5,811,933 4,199,285

*The Company has identified the existence of objective indications of impairment in respect of some financial assets. On the basis of these indications it calculated the impairment of these financial assets, using the effective interest rate, as the difference between the book value and the recoverable amount calculated as the present value of estimated future cash flows discounted at the original effective interest rate. The difference between the recoverable amount and the book value is an impairment loss of CZK 843 million as at 31 December 2016 (2015 – CZK 230 million), which was recognised in the income statement in an amount of CZK 613 million. On 1 June 2016, the Company acquired a 100% stake in Pražská teplárenská LPZ, a.s. On 3 June 2016, the company was renamed Veolia Energie Praha, a.s.

15. Other financial investments including derivatives

In thousands of CZK Long-term financial investments 2016 2015 Other financial investments 13,039 15,239 Short-term financial investments including derivatives

2016 2015

Financial derivatives -- 676 Other financial investments 2,471 8,603



16. Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

In thousands of CZK Receivables Liabilities Difference 2016 2015 2016 2015 2016 2015

Property, plant and equipment -- -- (607,447) (586,568) (607,447) (586,568)

Inventories 17,455 17,130 -- -- 17,455 17,130 Emission allowances including provision 47,201 46,626 (47,201) (41,809) -- 4,817

Provisions 120,946 115,667 -- -- 120,946 115,667 Other items 10,988 5,966 (4,129) (5,022) 6,859 944 Deferred tax assets / (liabilities) 196,590 185,389 (658,777) (633,399) (462,187) (448,010)

Movement in deferred tax assets and liabilities during the year In thousands of CZK

Balance at

1/1/2016 Recognised in

income statement Recognised in

equity Balance at 31/12/2016

Property, plant and equipment (586,568) (20,879) -- (607,447)

Inventories 17,130 325 -- 17,455 Emission allowances including provision 4,817 (4,817) -- --

Provisions 115,667 1,978 3,301 120,946 Other items 944 5,270 645 6,859 Total (448,010) (18,123) 3,946 (462,187)

In thousands of CZK

Balance at 1/1/2015

Recognised in income statement

Recognised in equity

Balance at 31/12/2015

Property, plant and equipment (583,168) (3,400) -- (586,568)

Inventories 17,178 (48) -- 17,130 Emission allowances including provision 3,829 988 -- 4,817

Provisions 136,014 (16,755) (3,592) 115,667 Other items 2,659 431 (2,146) 944 Total (423,488) (18,784) (5,738) (448,010)

17. Inventories

In thousands of CZK 2016 2015 Material and fuel 486,074 502,687 Work in progress 426 88 Emission allowances 0 26,946 Total 486,500 529,721

In 2016, materials and fuels recorded in cost of sales amounted to CZK 2,254 million (2015 ‒ CZK 2,346 million). As at 31 December 2016, the Company posted a provision reducing the value of inventories by CZK 92 million (2015 – CZK 90 million) and a provision for the consumption of emission allowances reducing the value of emission allowances by CZK 248 million (2015 – CZK 245 million).



Emission allowances In 2005 the emission trading scheme was introduced in the European Union. The following table summarises movements in the quantity (in thousands of units). Emission allowances are represented by EUA and CER. As described in Note 3 e), emission allowances allocated in accordance with the National Allocation Plan and purchased emission allowances are recognised in assets as inventory.

The Company has bought forwards for CO2 emission allowances for consumption in 2017 to 2019; the change in their fair value, amounting to CZK 129 million (2015 – CZK 0 million), was not posted in the statement of financial position in accordance with the exception under IAS 39 (see Note 3 b ii).

In thousands of tonnes Quantity Emission allowances available at 1 January 2015 245 Correction of emission allowance consumption in 2014 69 Emission allowances allocated in 2015 1,352 Emission allowances sold in 2015 -- Emission allowances purchased in 2015 1,185 Emission allowances utilised in 2015 against CO2 emissions (2,569) Emission allowances available at 31 December 2015 282 Emission allowances available at 1 January 2016 282 Correction of emission allowance consumption in 2015 (2) Emission allowances allocated in 2016 1,095 Emission allowances sold in 2016 -- Emission allowances purchased in 2016 931 Emission allowances utilised in 2016 against CO2 emissions (2,473) Provision for purchasing missing emission allowances 167 Emission allowances available at 31 December 2016 0

Actual emissions in 2016 were higher than the emission allowances allocated under the National Allocation Plan as at the date of the statement of financial position. The Company therefore used allowances from previous years and bought allowances for 2016 (in 2015, actual emissions were higher than allocated allowances).



18. Current tax assets

In thousands of CZK 2016 2015 Income tax 82,610 64,644 Total 82,610 64,644

19. Trade and other receivables

In thousands of CZK 2016 2015 Trade receivables due from related parties (Note 30) 299,757 198,195 Trade receivables due from third parties 949,286 946,119 Other receivables 158,526 140,142 Total 1,407,569 1,284,456

At 31 December 2016 trade receivables are shown net of provisions for doubtful debts of CZK 159 million (2015 ‒ CZK 135 million) arising from the likely impairment of receivables from the individual debtors.

20. Cash and cash equivalents


Current bank accounts 8,768 15,720 Bank deposits -- -- Cash in hand 1,521 1,423 Total cash 10,289 17,143 Cash pooling with subsidiaries – receivable 316,556 449,568 Total cash and cash equivalents 326,845 466,711 Cash pooling payables (3,519,709) (2,281,393) Total cash in compliance with statement of cash flows

(3,192,864) (1,814,682)

Since 2007, the Company has been involved in a cash pool between Veolia and Société Générale through a contract with Komerční banka, a.s. The Company is also involved in a cash pool arrangement with its subsidiaries. As at 31 December 2016, the net payable from the cash pool with subsidiaries is CZK 654 million (2015 ‒ a receivable of CZK 158 million).

21. Capital and reserves

Reconciliation of movement in capital and reserves

As at 31 December 2016, the authorised registered capital comprised 78,661,161 ordinary registered shares with a par value of CZK 40 (2015 ‒ 78,661,161 ordinary registered shares with a par value of CZK 40). The holders of ordinary shares are entitled to dividends if these are approved by the General Meeting. Each ordinary share carries one voting right, to be exercised at General Meetings. All shares carry the same rights in respect of the surplus assets upon the Company’s liquidation.

Other capital contributions

Other capital contributions primarily include the recorded effect of mergers in the 2001–2007 periods with companies fully controlled by the same entity, TEPLÁRNY Karviná, a.s., EKOTERM ČESKÁ REPUBLIKA a.s., Teplárna Ústí nad Labem, a.s., PPC Trmice a.s. and Dalkia Ostrava, a.s.



In connection with the adoption of the new Act No 90/2012 on Business Corporations, which has fully superseded the Commercial Code with effect as of 1 January 2014, the Company’s General Meeting decided to dissolve reserve fund. Dividend per share In the profit distribution decision, the Company announced dividends of CZK 1,321 million (2015 ‒ CZK 2,045 million). Dividend per share for 2016 amounts to CZK 16.79 (2015 ‒ CZK 26).

22. Loans and borrowings

This note contains an overview of contractual conditions applicable to the Company’s interest-bearing loans and borrowings. Note 27 contains more detailed information about the credit risk and the interest rate risk to which the Company is exposed.

Current liabilities

In thousands of CZK 2016 2015 Unsecured bond issues -- -- Interest payable on loan and cash pool 6,232 5,013 Unpaid dividends 30,221 28,786 Cash pooling with parent company and subsidiaries 3,519,709 2,281,393 Short-term loan from Veolia Energie International 1,370,000 -- Total short-term loans and borrowings 4,926,162 2,315,192

As at 31 December 2016, the Company had a net payable resulting from the cash pool with Veolia Energie International SA and with subsidiaries of CZK 3,203 million (2015 ‒ CZK 1,831 million). In 2016, the Company drew down on a short-term loan from Veolia Energie International SA, amounting to CZK 1,920 million. A part of this loan was repaid during the year. As at 31 December 2016, the balance is CZK 1,370 million (2015 – CZK 0 million).

Terms and debt payment schedule

Secured bank loans Veolia Energie ČR, a.s. had no secured bank loans as at 31 December 2016 and 31 December 2015. The Company may utilise bank credit lines of CZK 350 million and EUR 2.5 million. None of these lines has been drawn down as at 31 December 2016.



23. Employee benefits

Under the collective agreement, the Company is obliged to pay benefits to employees who have worked for the Company for a certain fixed period of time. The Company has changed its collective agreement with effect since 2016. Based on this change, it simplified the structure of some employee benefits.

Movements in the liability for defined benefit obligations In thousands of CZK 2016 2015

Liability for defined benefit obligations as at 1 January 528,918 606,376 Adjustment of opening balances under amended IAS 19 -- -- Benefits paid (17,499) (31,500) Current service costs 34,976 37,206 Amortisation of past service costs -- -- Interest 7,446 9,724 Actuarial (gains) losses recognised in equity 13,699 (16,204) Actuarial (gains) losses recognised in profit and loss 2,419 527 Decrease in liability as a result of organisational changes -- -- Other (changes in the Collective Agreement) 39,205 (77,211) Liability for defined benefit obligations as at 31 December 609,164 528,918 Non-current 581,369 508,664 Current 27,795 20,254

Actuarial assumptions

2016 2015 Discount rate at 31 December 1.30% 1.75% Salary increase rate 2% 2% Employee turnover assumption Average 0.87% Average 1.37%

Social security and health insurance contributions recognised in the income statement in 2016 amount to CZK 276 million (2015 ‒ CZK 280 million). Defined benefit liabilities are calculated on the basis of actuarial valuation under IAS 19. This standard requires the use of the “projected unit credit method” and unbiased and mutually compatible actuarial assumptions. The projected unit credit method was used to determine the present value of liability and current service costs. Demographic assumptions: assumptions about mortality were taken from the 2015 mortality charts for males and females issued by the Czech Statistical Office. The disability assumption was taken from the charts of disabilities monitored by the Company. The assumed number of employees leaving the Company before reaching retirement age is based on expected departures of employees. The same assumptions were used to compute the provision for 2015. Specific assumptions: the Company assumes that there is an 80% probability that agreements executed for a fixed term will be converted into agreements for an indefinite term. The amount of defined benefit liabilities as at 31 December 2016 takes into account social security contributions and health insurance. Description of risks: the Company does not have a separate plan for assets to cover employee benefit liabilities. Taking into account the annual payments from the plan and the nature of the Company’s business this does not constitute a material risk for the Company. Sensitivity analysis The Company carried out a sensitivity analysis of the size of the provision for changes in the actuarial assumptions that influence the defined benefit liabilities. In the event of a change in one of the relevant actuarial assumptions, with other assumptions remaining constant, the defined benefit liabilities would change to the following amounts – based on a sensitivity analysis for assumptions with the most significant impact:



In thousands of CZK Discount rate increase + 0.25%

Inflation rate increase + 0.25%

Defined benefit liabilities as at 31 December 2016

594,499 623,779

Current service costs next year 34,116 35,970

Although this analysis does not take into account the timing of the cash flows that are expected under the plan, it provides information about the size of the liability upon a change in the various assumptions.

24. Provisions

In thousands of CZK Site restoration

Other provisions

Total

Balance at 1 January 2016 46,101 55,967 102,068 Provisions created during the year -- 10,096 10,096 Provisions used during the year -- (9,325) (9,325) Provisions unused during the year -- (23,564) (23,564) Unwinding of discount -- -- -- Balance at 31 December 2016 46,101 33,174 79,275 Non-current 46,101 16,078 62,179 Current -- 17,096 17,096

Site restoration The provision for site restoration was reviewed and adjusted so as to represent the best estimate in the light of the change in the use of land and of restoration techniques used. Other provisions Other provisions include provisions established in connection with the risks related to the Company’s principal activities. In December 2015, the Energy Regulatory Office completed an inspection of heat prices for 2010. The Company did not agree with the outcome of the inspection and lodged an appeal. The Energy Regulatory Office did not complete the procedure within five years, and the case was therefore time-barred in 2016 and the provision was released.

25. Trade and other payables

In thousands of CZK 2016 2015 Trade payables to related parties (Note 30) 358,026 336,141

Trade payables to third parties 1,117,174 1,502,487 Other payables 195,344 154,972 Total 1,670,544 1,993,600

Trade payables to related parties include a leasing liability (see Note 12) of CZK 155 million (2015 ‒ CZK 158 million). In 2016, other payables included a value added tax liability of CZK 55 million (2015 ‒ CZK 20 million).

26. Derivatives

In thousands of CZK 2016 2015 Short-term derivatives 3,401 2,789 Long-term derivatives 2,870 760 Total 6,271 3,549



Derivative financial instruments represent the fair value of forward contracts to ensure exchange rate risk in the amount of CZK (6) million (2015 ‒ CZK (4) million) and are shown in short-term and long-term liabilities.

27. Financial instruments

Credit risk Maximum exposure to credit risk as at the date of the statement of financial position was: In thousands of CZK Note Carrying amount 2016 Carrying amount 2015

Trade and other receivables 19 1,407,569 1,284,456 Cash and cash equivalents 20 326,845 466,711 Total 1,734,414 1,751,167

Impairment loss Fair value of trade, short-term tax and other receivables as at the date of the statement of financial position was:

In thousands of CZK Nominal value 2016

Impairment 2016

Nominal value 2015

Impairment 2015

Not yet due 1,381,226 -- 1,241,328 -- 0–90 days overdue 28,960 4,840 24,081 2,139 90–180 days overdue 910 672 3,446 792 180–360 days overdue 3,106 2,249 18,649 4,343 More than 1 year overdue 152,436 151,308 131,464 127,238 Total 1,566,638 159,069 1,418,968 134,512

Movement in impairment provisions in respect of trade receivables in the course of the year was: In thousands of CZK 2016 2015

Balance at 1 January (134,512) (140,118) Use, release and establishment (24,557) 5,606

Balance at 31 December (159,069) (134,512) Liquidity risk The following are payments of liabilities by the contractual maturities of financial liabilities, including estimated interest payments: At 31 December 2016 In thousands of CZK

Book value

Contractual cash flow

Within 6 months

6–12 months

1–2 years

2–5 years

More than 5 years

Unsecured bond issues -- -- -- -- -- -- --

Cash pooling with parent company and subsidiaries

3,519,709 3,519,709 3,519,709 -- -- -- --

Trade, tax and other payables 1,670,544 1,670,544 1,670,544 -- -- -- --

Total 5,190,253 5,190,253 5,190,253 -- -- -- --



At 31 December 2015 In thousands of CZK

Book value

Contractual cash flow

Within 6 months

6–12 months

1–2 years

2–5 years

More than 5 years


Cash pooling with parent company and subsidiaries

2,281,393 2,281,393 2,281,393 -- -- -- --

Trade, tax and other payables 1,993,600 1,993,600 1,993,600 -- -- -- --

Total 4,274,993 4,274,993 4,274,993 -- -- -- -- Currency risk To hedge purchases and sales of electricity in foreign currencies (EUR), forward contracts were concluded with Veolia Environnement Finance – VE SA (see Note 5). Interest rate risk As at 31 December 2016, the Company has the following interest-bearing financial instruments:

Variable-rate financial instruments

In thousands of CZK Balance at 31 December 2016 2015

Short-term loan Financial liabilities (Note 22)

(1,370,000) (4,926,162)

-- (2,315,192)

Total (6,296,162) (2,315,192)

Sensitivity analysis of fixed-rate financial instruments The Company does not state fixed-rate financial instruments at fair value through profit or loss. The Company has not entered into interest-rate swaps as hedging instruments.

Sensitivity analysis of variable-rate financial instruments As at 31 December 2016 and 31 December 2015 the Company had no variable-rate financial instruments. Effective interest rate and re-measurement analysis The table below shows the effective interest rates of interest-bearing financial assets and liabilities at the date of the statement of financial position and the periods in which they are re-measured. In thousands of CZK

Average interest rate in 2016 (%)

Liability at 31 December 2016

Next re-pricing date

Due date

Short-term loan from Veolia Energie International

1.14

(1,370,000)

3/2017

4/2017

Total (1,370,000)



Fair values In thousands of CZK Note Carrying

amount Fair value Carrying

amount Fair value

2016 2016 2015 2015 Trade and other receivables 19 1,407,569 1,407,569 1,284,456 1,284,456 Tax assets 18 82,610 82,610 64,644 64,644 Cash and cash equivalents 20 326,845 326,845 466,711 466,711 Short-term loan 22 (1,370,000) (1,370,000) -- -- Interest on cash pool unpaid by Veolia Energie International SA 22 (6,232) (6,232) (5,013) (5,013)

Unpaid dividends 22 (30,221) (30,221) (28,786) (28,786) Cash pooling with Veolia Energie International SA 22 (2,548,631) (2,548,631) (1,989,655) (1,986,655)

Cash pooling with subsidiaries 20, 22 (971,078) (971,078) (291,738) (291,738) Trade, tax and other payables 11, 25 (1,670,544) (1,670,544) (1,993,600) (1,993,600) Total (4,779,682) (4,779,682) (2,492,981) (2,492,981)

Note: The above figures do not include derivatives. The method of calculation of fair values is described in Note 4.

In accordance with IFRS 7 Financial Instruments: Disclosures, for measuring fair value, the Company uses Level 3 inputs, which are not based on observable market data (objectively unobservable inputs).

Interest rates used to calculate fair values

The interest rates used to discount cash flows were, as far as possible, based on: the interest rate on treasury bonds as at the date of the statement of financial position in respect of derivatives, and the market interest rate in respect of bonds. The rates applied are as follows:

In thousands of CZK 2016 2015 Derivatives 0.53% 0.5%

28. Operating leases

Major operating lease agreements include an agreement on operating equipment with the municipality of Krnov until 2026, a lease agreement on the heat distribution system of the municipality of Nový Jičín until 2017, a sublease agreement with Teplo ‒ byty, s.r.o. until 2021, a lease agreement with Fakultní nemocnice Ostrava until 2022, a lease agreement with RPG Byty for an indefinite period of time and a lease agreement with Sneo, a.s. until 2021. The Company has also operating lease agreements on some non-residential space, sections of ducts, automobiles and IT equipment. The rent for the lease terms that cannot be terminated totals CZK 340 million (2015 – CZK 382 million). The lease payments under the most important operating lease agreements are due over the following periods: At 31 December 2016 in thousands of CZK

Total Within 1 year 1–5 years More than 5 years

Lease – Nový Jičín 12,099 12,099 -- -- Lease – Fakultní nemocnice Ostrava 18,246 3,041 12,164 3,041 Lease – Krnov 25,105 2,511 10,042 12,552 Lease – RPG Byty 32,080 6,416 25,664 * Sublease – Sneo a.s., Praha 6 8,305 1,661 6,644 -- Sublease – Teplo – byty, s.r.o., Roudnice 7,500 1,500 6,000 -- Total 103,335 27,228 60,514 15,593 * The lease agreement has been concluded for an indefinite period of time with a six-month notice period.



At 31 December 2015 in thousands of CZK

Total Within 1 year 1–5 years More than 5 years

Lease – Nový Jičín 24,198 12,099 12,099 -- Lease – Fakultní nemocnice Ostrava Lease – Krnov

15,473 28,062

3,095 2,957

12,378 10,967

* 14,138

Lease – RPG Byty 15,892 3,178 12,714 * Sublease – Sneo a.s., Praha 6 11,627 1,661 6,644 3,322 Sublease – Teplo – byty, s.r.o. Roudnice 9,000 1,500 6,000 1,500 Total 104,252 24,490 60,802 18,960

* The lease agreements have been concluded for an indefinite period of time. 29. Related parties

Transactions with related parties The Company is controlled by the multinational company Veolia Energie International SA and its ultimate parent company, Veolia Environnement – VE SA. The Company has transactions with its subsidiaries (see Note 30).

Transactions with management personnel

Neither the directors of the Company nor their immediate relatives own any voting shares in the Company. In addition to their salaries, the Company also provides cars and mobile phones for both business and private purposes to directors and executive officers. Management personnel compensation comprised

In thousands of CZK 2016 2015 Employee compensation 59,372 65,481 Long-term benefits 4,956 3,552 Total employee compensation 64,328 69,033

30. Companies in the group

Sales and purchases within the group Typical transactions between the Company and the parent company and other group companies controlled by its parent company are as follows: Sales transactions:

Technical services Re-invoicing of international employees’ living costs Transactions with emission allowances and certificates

Purchase transactions:

Advisory services provided to the Company Invoicing of international employees’ salary costs to the Company Transactions with emission allowances and certificates

Typical transactions between the Company and its subsidiaries are as follows: Sales transactions:

Revenue from the supply of heat and electricity Revenue from the supply of materials Revenue from the sale of fixed assets Revenue from the provision of services



Consolidated income statement For the year ended 31 December In thousands of CZK Note 2016 2015 Revenue 7 11,250,853 11,523,237 Cost of sales 8 (10,416,694) (10,005,698) Gross profit 834,159 1,517,539 Distribution expenses 9 18,910 (73,971) Administrative expenses 10 (732,204) (817,375) Result from operating activities 120,865 626,193 Finance income 11 20,856 29,294 Finance costs 11 (47,187) (50,476) Net finance income and costs (26,331) (21,182) Profit before income tax 94,534 605,011 Income tax expense 12 (165,296) (166,985) Profit / (loss) for the period (70,762) 438,026 Attributable to: Interest of parent company shareholders (78,997) 430,586 Non-controlling interests 8,235 7,440 Profit / (loss) for the period (70,762) 438,026


3.4. Consolidated Income Statement



Consolidated statement of comprehensive income For the year ended 31 December In thousands of CZK 2016 2015 Profit / (loss) for the period (70,762) 438,026 Employee benefits – actuarial gains (losses) (not reclassified to profit or loss) *

(12,352) 12,205

Changes in fair value of cash flow hedge (may be reclassified to profit or loss) *

(17,103) (59,315)

Exchange differences on translation of overseas entities (may be reclassified to profit or loss) *

(10,196) (2,058)

Other comprehensive income after tax (39,651) (49,168) Total comprehensive income for the period (110,413) 388,858 Attributable to: Interest of parent company shareholders (118,819) 381,442 Non-controlling interests 8,406 7,416 Total comprehensive income for the period (110,413) 388,858 *Taxation is described in Note 12.




Consolidated statement of financial position

As at 31 December In thousands of CZK Note 2016 2015 Assets Property, plant and equipment 13 9,187,908 8,805,990 Intangible assets 14 1,793,097 1,601,716 Financial interests 15 74,061 74,061 Other financial investments 15 261,550 431,519 Deferred tax assets 16 11,235 -- Total non-current assets 11,327,851 10,913,286 Inventories 17 505,584 554,346 Other financial investments 15 45,105 51,603 Derivatives 15 851 15,686 Current tax assets 18 161,307 78,175 Trade and other receivables 19 2,207,070 2,022,374 Cash and cash equivalents 20 146,719 157,965 Total current assets 3,066,636 2,880,149 Total assets 14,394,487 13,793,435 Equity Registered capital 3,146,447 3,146,447 Reserves and other capital funds 1,689,408 1,711,946 Retained earnings 1,254,257 2,671,259 Equity excl. minority interests 6,090,112 7,529,652 Non-controlling interests 68,982 68,016 Total equity 6,159,094 7,597,668 Liabilities Employee benefits 23 638,140 550,306 Provisions 24 83,035 96,073 Derivatives 26 3,781 7,740 Deferred tax liabilities 16 665,746 672,787 Other payables 25 163,755 160,829 Total non-current liabilities 1,554,457 1,487,735 Loans and borrowings 22 3,956,506 2,025,011 Trade and other payables 25 2,620,384 2,626,902 Current tax payable 22,983 4,128 Employee benefits 23 32,562 23,174 Provisions 24 35,437 25,991 Derivatives 26 13,064 2,826 Total current liabilities 6,680,936 4,708,032 Total equity and liabilities 14,394,487 13,793,435


On behalf of the Board of Directors of the Company:

Josef Novák

Daniel Melin Date: 27 April 2017



Consolidated statement of changes in equity

Attributable to majority shareholder In thousands of CZK

Registered capital

Reserve Fund

Other capital

contributions

Cash flow hedges

Retained earnings

Total Non-controlling

interests

Total

Balance at 1 January 2015 3,146,447 21,416 1,680,948 63,462 4,281,127 9,193,400 66,731 9,260,131

Profit for the period -- -- -- -- 430,586 430,586 7,440 438,026

Other comprehensive income Employee benefits – actuarial gains (losses) -- -- -- -- 12,229 12,229 (24) 12,205

Changes in fair value of cash flow hedges -- -- -- (59,315) -- (59,315) -- (59,315)

Exchange differences on translation of overseas entities

-- -- -- -- (2,058) (2,058) -- (2,058)

Other comprehensive income -- -- -- (59,315) 10,171 (49,144) (24) (49,168)

Total comprehensive income for the period -- -- -- (59,315) 440,757 381,442 7,416 388,858

Transactions with owners, recorded directly in equity

Allotments -- -- 5,435 -- (5,435) -- -- -- Dividends paid to shareholders -- -- -- -- (2,045,190) (2,045,190) (6,131) (2,051,321)

Balance at 31 December 2015 3,146,447 21,416 1,686,383 4,147 2,671,259 7,529,652 68,016 7,597,668

Profit / (loss) for the period -- -- -- -- (78,997) (78,997) 8,235 (70,762)

Other comprehensive income Employee benefits – actuarial gains (losses) -- -- -- -- (12,523) (12,523) 171 (12,352)

Changes in fair value of cash flow hedges -- -- -- (17,103) -- (17,103) -- (17,103)

Exchange differences on translation of overseas entities

-- -- (5,435) -- (4,761) (10,196) -- (10,196)

Other comprehensive income -- -- (5,435) (17,103) (17,284) (39,822) 171 (39,651)

Total comprehensive income for the period -- -- (5,435) (17,103) (96,281) (118,819) 8,406 (110,413)

Transactions with owners, recorded directly in equity

Dividends paid to shareholders -- -- -- -- (1,320,721) (1,320,721) (7,440) (1,328,161)

Balance at 31 December 2016 3,146,447 21,416 1,680,948 (12,956) 1,254,257 6,090,112 68,982 6,159,094




Consolidated statement of cash flows For the year ended 31 December In thousands of CZK Note 2016 2015

Cash flows from operating activities

Profit before income tax 12 94,534 605,011 Depreciation and amortisation of non-current assets 13.14.15 2,138,022 2,190,949 Change in provisions 69,661 (118,592) Gain / loss on sale of property, plant and equipment 1,481 (3,083) Proceeds from dividends and profit shares 11 (14,281) (6,844) Net interest income and expense 11 30,444 18,709 Unrealised exchange rate gains and losses (121) 263 Cash flow from operating activities 2,319,740 2,686,413 Change in receivables (45,595) (160,858) Change in current liabilities (153,826) 415,067 Change in inventories 48,783 (64,820) Income tax paid and tax assessments for previous periods (334,263) (360,007) Net cash flow from operating activities 1,834,839 2,515,795

Cash flows from investing activities

Acquisition of property, plant and equipment (617,346) (651,526) Proceeds from the sale of property, plant and equipment 72,048 72,756 Change in receivables and other financial assets 215 5,660 Acquisition of a subsidiary (1,885,829) -- Dividends received 11 14,281 6,844 Net cash from (used in) investing activities (2,416,631) (566,266) Free operating cash and cash equivalents (581,792) 1,949,529

Cash flow from financing activities

Unpaid dividends 1,434 86 Repayments of loans, borrowings and finance leases (909) (10,909) Loans and borrowings received 1,370,000 -- Interest received 11 1,027 928 Interest paid 11 (36,432) (22,518) Unpaid interest on loans 22 6,045 4,961 Foreign exchange translation difference (1,434) (864) Dividends paid (1,328,161) (2,051,321) Net cash from (used in) financing activities 11,570 (2,079,637) Net increase (decrease) in cash and cash equivalents (570,222) (130,108) Cash and cash equivalents at 1 January (1,831,690) (1,701,582) Cash and cash equivalents at 31 December 20 (2,401,912) (1,831,690)



Veolia Energie ČR, a.s. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 DECEMBER 2016

1. General information

Veolia Energie ČR, a.s. (“the Company”) is registered in the Czech Republic. The original name of the company, i.e. Dalkia Česká republika, a.s. was changed as of 1 January 2015 due to Veolia Environnement – VE SA acquiring a 100% stake in Dalkia International. The registered office of the Company is at 28. října 3337/7, Moravská Ostrava, 702 00 Ostrava, Company No. 45193410. The consolidated financial statements for the year ended 31 December 2016 include the Company and its subsidiaries (together referred to as “the Group”). In 2016, the shareholding structure changed as SPID 2 (as at 31 December 2015, it held a stake of 63.06%) merged with Veolia Energie International (as at 31 December 2015, it held a stake of 10%). Following the merger, Veolia Energie International SA holds 73.06%, ČEZ, a. s. holds 15%, DCR INVESTMENT a.s. holds 10%, and minority shareholders hold the remaining balance. The Company is controlled by the multinational company Veolia Energie International SA and its ultimate parent company is Veolia Environnement – VE SA. All the companies in the Group have their registered offices in the Czech Republic except Veolia Powerline Kaczyce Sp. z o.o. The principal business activity is the production and distribution of heat and the generation of electricity. The subsidiaries within the Group are as follows:

OLTERM & TD Olomouc, a.s., Olomouc, Janského 469/8, Postal Code: 779 00. The principal business activity is the distribution of thermal energy and hot water. AmpluServis, a.s., Ostrava, ul. Elektrárenská 5558, Postal Code: 709 74. The principal business activities are repairs, production and maintenance of power engineering equipment. Veolia Energie Kolín, a.s. (formerly Dalkia Kolín, a.s.), Kolín, Tovární 21, Postal Code: 280 63. The principal business activity is the production and distribution of heat and the generation of electricity. Veolia Energie Mariánské Lázně, s.r.o. (formerly Dalkia Mariánské Lázně, s.r.o.), Mariánské Lázně, Nádražní náměstí 294, Postal Code: 353 01. The principal business activity is the production and distribution of heat. Nadační fond Veolia Energie pro životní prostředí ČR (formerly Nadační fond Dalkia pro životní prostředí), Ostrava, 28. října 3337/7, Postal Code: 702 00. It has been established to support projects for environmental improvement. Veolia Průmyslové služby ČR, a.s. (formerly Dalkia Industry CZ, a.s.), Ostrava, Zelená 2061/88a, Postal Code: 709 74. The principal business activity is the production and distribution of heat and the generation and distribution of electricity. Veolia Komodity ČR, s.r.o. (formerly Dalkia Commodities CZ, s.r.o.), Ostrava, 28. října 3337/7, Postal Code: 702 00. The principal business activity is trading in electric power and gas. Veolia Powerline Kaczyce Sp. z o.o. (formerly Dalkia Powerline Sp. z o.o.), 43-417 Kaczyce, ul. Morcinka 17, Poland. The principal business activity is trading in electric power. Veolia Energie Praha, a.s., Na Florenci 2116/15, Nové Město, 110 00 Praha 1. The principal business activity is the production and distribution of heat and the generation of electricity.

3.5. Notes to the Consolidated Financial Statements



2. Basis of preparation

a) Statement of compliance The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as adopted by the EU and the Act on Accounting and relevant legislation of the Czech Republic in force as at 31 December 2016. In accordance with Section 19a(1) of Act on Accounting, No. 563/1991, the parent company, Veolia Energie ČR, a.s., applies IFRS as adopted by the EU in the preparation of its financial statements and consolidated financial statements. The consolidated financial statements were approved for release by the Company’s Board of Directors on 27 April 2017.

b) Basis of preparation The consolidated financial statements are presented in Czech crowns, as the functional currency, rounded to the nearest thousand. The consolidated financial statements have been prepared on the historical cost basis, except for the derivative financial instruments and the provision for employee benefits measured at fair value. The method of measuring fair value is described in Note 4.

c) Use of estimates and judgements The preparation of consolidated financial statements in conformity with IFRS requires the Group’s management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period, and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgement in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in Notes 3 h), 3 i) and 23 and 24.

d) Changes in accounting policies (i) Standards not applied A number of new standards, amendments to standards and interpretations are effective for the accounting period beginning on 1 January 2016, and have not been applied in preparing these consolidated financial statements. None of these is expected to have significant effect on the Company’s consolidated financial statements. Those that may be relevant for the Group are listed below: IFRS 9 Financial Instruments, published in July 2014, will replace the current requirements in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidelines for the classification and measurement of financial instruments, including a new forward-looking expected loss impairment model, and a substantially reformed approach to hedge accounting. It also provides guidance for recognising and derecognising financial instruments from IAS 39. IFRS 9 is effective for annual periods beginning on 1 January 2018; however, the Standard is available for earlier adoption. The Group evaluates the potential impacts of IFRS 9 application on its accounting. IFRS 15 Revenue from Contracts with Customers provides a comprehensive framework for specifying if, how much and when an IFRS reporter will recognise revenue. This will replace the current guidelines for revenue recognition, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 applies to annual reporting periods on or after 1 January 2018; the Standard is available for earlier adoption.



The Group evaluates the potential impacts of IFRS 15 application on its accounting. IFRS 16 Leases, published in January 2016, specifies rules for leases. It will replace existing IAS 17, IFRIC 4 and SIC-15. IFRS 16 sets out new principles for the recognition, measurement, presentation and disclosure of leases. IFRS 16 is only effective from 1 January 2019; it is available for earlier adoption, but only if the company also applies IFRS 15. The Group evaluates the potential impacts of IFRS 16 application on its accounting. The following amended standards are not expected to have a significant impact on the consolidated financial statements. IAS 12 Recognition of Deferred Tax Assets for Unrealised Losses IAS 7 New requirements for disclosing liabilities from financing activities (ii) Applied standards The following new or amended standards, applicable as of 1 January 2016, did not have a significant impact on the Group’s consolidated financial statements. IFRS 14 Regulatory Deferral Accounts Amendments to IAS 1 Presentation of Financial Statements Amendments to IFRS 11 Joint Arrangements – Accounting for Acquisitions of Interests in Joint Operations Amendments to IFRS 10 Consolidated Financial Statements and IAS 28 Investments in Associates and Joint Ventures – Sale or contribution of assets between an investor and its associate/joint venture Amendments to IAS 16 Property, Plant and Equipment and IAS 38 Intangible Assets: Clarification of Acceptable Methods of Depreciation and Amortisation Amendment to IAS 27 Separate Financial Statements – Equity Method in Separate Financial Statements

3. Accounting policies

The accounting policies described below have been applied consistently in all the accounting periods reported in these consolidated financial statements.

a) Basis of consolidation (i) Subsidiaries Subsidiaries are the enterprises controlled by the Group. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. In assessing control, the Group takes into consideration potential voting rights that are currently exercisable. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. ii) Business combinations including companies fully controlled by the same company Business combinations include companies or undertakings fully controlled by the same company, where all companies/undertakings participating in the combination are controlled by the same entity/entities before/after the business combination and the control is not temporary. Given the absence of specific guidelines, the Group consistently applied the book value valuation method to all transactions with companies fully controlled by the same company. (iii) Loss of control Assets and liabilities of a subsidiary over which the Group has lost control are derecognised from the consolidated statement of financial position including derecognising equity interests attributable to other owners and other items of equity that relate to the subsidiary. The difference between the loss of control and a consideration acquired for the transfer of the controlling interest is recognised in the consolidated income statement. If the Group maintains an interest in its former subsidiary after losing control over it then such interest is measured at fair value as of the date when control was lost.



(iv) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with affiliates and jointly controlled entities are eliminated to the extent of the Group’s interest in the entity. Unrealised gains arising from transactions with affiliates are eliminated against the investment in the affiliate to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that the asset’s recoverable amount is not exceeded.

b) Foreign currency (i) Foreign currency transactions Transactions in foreign currencies are translated at fixed exchange rates based on the Czech National Bank official rates for the first day of the month in which the transaction occurs. At the date of the statement of financial position, foreign currency monetary assets and liabilities are translated at the Czech National Bank official rates for that date. Foreign exchange differences arising on translation of foreign currency monetary assets and liabilities are recognised in consolidated profit and loss. (ii) Foreign operations The assets and liabilities of foreign operations, including goodwill and fair value adjustments arising on acquisition, are translated to CZK at the exchange rate valid at the reporting date. The income and expenses of foreign operations are translated to CZK at the exchange rates valid at the dates of the transactions. For practical reasons, the exchange rate at the date of the transaction is the average exchange rate announced by the parent company for the period in which the given income arose or expense was incurred. Foreign currency differences are recognised in consolidated other comprehensive income.

c) Financial instruments (i) Non-derivative financial instruments Non-derivative financial instruments comprise investments held for trading, trade and other receivables, cash and cash equivalents, loans and borrowings, and trade and other payables. Non-derivative financial instruments are initially measured at fair value plus, for instruments not at fair value through income statement, any directly attributable transaction costs. If their fair value cannot be reliably determined, the acquisition cost is used. Other investments include unlisted equity and debt securities that are initially measured at fair value plus transaction cost directly attributable to the acquisition. Subsequent to initial recognition they are measured at cost less any impairment losses (see Note 3 g). Receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. After initial measurement receivables are subsequently carried at their amortised cost less any allowance for impairment (see the accounting policy described in Note 3 g). Cash and cash equivalents presented in the cash flow statement include cash, bank deposits and cash in cash pooling. Based on contractual terms and conditions, cash pooling receivables are reported in cash and cash equivalents in the statement of financial position, whereas cash pooling payables are shown in loans and borrowings. For the purpose of the consolidated statement of cash flows both cash pool receivable and cash pool payable are presented as cash. (ii) Derivative financial instruments The Group uses derivative financial instruments to hedge its exposure in CO2 emission allowances trading (see Note 3 f). The Group further uses currency agreements to hedge its risks connected with foreign exchange movements. Derivatives are initially recognised at fair value; attributable transaction costs are recognised in the income statement when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are then charged to costs or revenues.



Cash flow hedging

Changes in the fair value of derivative hedging instruments designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in the fair value of the derivative are recognised in the income statement. If the hedging instrument no longer meets the criteria for hedge accounting, or if it expires or is sold, terminated or exercised, then hedge accounting is discontinued as expected. The cumulative gain or loss previously recognised in equity remains there until the anticipated transaction takes place, and then is charged to costs or revenues. When the hedged item is a non-financial asset, the amount recognised in equity is transferred to the carrying amount of the asset when the asset is recognised. In other cases the amount recognised in equity is transferred to costs or revenues in the same period that the hedged item affects costs or revenues. The Group has decided to apply the exemption under IAS 39.5, under which in cases of contracts entered into for the purpose of receipt or delivery of a non-financial item in accordance with the entity’s expected purchase, sale, or usage requirements, the derivatives do not have to be accounted for and forwards are only accounted for at the time of purchasing the non-financial asset as such.

Other derivatives When a derivative financial instrument is not held for trading and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised in costs or revenues. (iii) Equity The share capital comprises fully paid-up shareholders’ contributions. Dividends are recognised as liabilities in the period in which they are declared.

d) Property, plant and equipment (i) Owned assets Items of property, plant and equipment are valued at cost less accumulated depreciation (see below) and impairment losses (see Note 3 g). The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of production overheads.

When parts of an item of property, plant and equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment. (ii) Leased assets Leases in terms of which the Group assumes substantially all of the risks and rewards of ownership are classified as finance leases. Buildings and equipment acquired by way of a finance lease are stated as financial assets at the lower of their fair value and the present value of the minimum lease payments at inception of the lease. The valuation is then decreased by accumulated depreciation (see below) and impairment losses (see Note 3 g). Lease payments from operating leases are recognised as described under Note 3 k). (iii) Government grants Government grants for the acquisition of property, plant and equipment are recognised initially in liabilities at fair value when there is reasonable assurance that they will be received and the Group will comply with the conditions associated with the grant. They are then deducted on a systematic basis in the asset’s carrying value. (iv) Subsequent expenditures The Group recognises in the carrying amount of an item of property, plant and equipment the cost of replacing part of such an item, including the costs associated with necessary inspections and major overhaul, where it is probable that the future economic benefits embodied within the item will flow to the Group and costs can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are recognised directly in the costs of the current period.



(v) Depreciation Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property, plant and equipment. Land is not depreciated. The estimated useful lives are as follows: Buildings and constructions 30–40 years Machinery and equipment 4–20 years Other assets 4 years

e) Intangible assets (i) Positive and negative goodwill Goodwill (positive and negative) represents amounts arising on acquisition of subsidiaries, affiliates and jointly controlled entities (joint ventures). Goodwill (positive and negative) arising on acquisition is recognised and stated as the difference between the acquisition cost and the fair value of identifiable assets and liabilities, including contingent liabilities of a subsidiary or an affiliate. Negative goodwill arising on acquisition is recognised immediately in the profit or loss. Acquisitions Goodwill generated on the acquisition of a non-controlling interest in a subsidiary represents the excess of the costs of additional investment over the value of the net assets acquired as at the date of the acquisition. Subsequent measurement Goodwill is measured at cost less accumulated impairment losses.

(ii) Other intangible assets Intangible assets acquired by the Group are stated at cost less accumulated amortisation (see below) and accumulated impairment losses (see Note 3 g). Purchased software that is integral to the functioning of equipment is capitalised as a part of the equipment.

(iii) Amortisation Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets. Goodwill and intangible assets with an indefinite useful life are systematically tested for impairment at date of the statement of financial position. Other intangible assets are amortised from the date they are available for use. The estimated useful lives are as follows: Software 4–5 years Other 3–5 years Agreement with OKK Koksovny, a.s. for the purchase of coke oven gas 10 years Framework agreement with OKD, a.s. for the supply of utilities to OKD mines 20 years

f) Inventories Inventories are stated at the lower of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated costs of completion and expected selling expenses. The cost of inventories is determined using the weighted average method and comprises the purchase price and other costs associated with the acquisition, such as freight and storage. At the date of the consolidated statement of financial position the Group reviews the carrying values of inventories. A decrease in the value of inventories to the net realisable value compared to the cost is recognised in the consolidated income statement for the period in which the decrease in valuation is ascertained.

Emission allowances Allowances for emissions of greenhouse gases (“emission allowances” or EUAs) are presented as inventory and represent the right of the operator of a facility which generates greenhouse gas emissions to release an equivalent of a tonne of CO2 into the air in a given calendar year. In the financial statements,



the granted emission allowances are stated at an acquisition cost of zero. Purchased allowances are stated at acquisition cost. Consumption of emission allowances is recognised using the weighted average method. As at the date of the statement of financial position the Group determines whether there is an indication of impairment of emission allowances. If any such indications exist, the Group assesses whether the recoverable value of the emission allowances is lower than their residual value. Any impairment loss is recognised in consolidated profit or loss. If the consumption of emission allowances in the accounting period is higher than the number of allowances available at the date of the statement of financial position, a provision is established based on the value of allowances that will have to be purchased on the public market in the following period. This provision is based on the average price of allowances as at the date of the statement of financial position. In 2016, the Group purchased EUA units issued under the Kyoto protocol that it expected to use in 2016 and beyond. The use of emission allowances and the income from their sale are presented in the consolidated income statement in the position “cost of sales”.

g) Impairment (i) Financial assets A financial asset is considered to be impaired if objective evidence indicates that one or more events have had a negative effect on the estimated future cash flows of that asset. An impairment loss in respect of a financial asset measured at amortised cost is calculated using the effective interest rate method as the difference between its carrying amount and the present value of the estimated future cash flows discounted at the asset’s original effective interest rate. All individually significant financial assets are tested for impairment on an individual basis. The remaining financial assets are assessed collectively in groups that show similar credit risk characteristics. All impairment losses are recognised in profit or loss. An impairment loss is reversed if the reversal can be related objectively to an event occurring after the impairment loss was recognised. The reversal of an impairment loss is recognised in the consolidated profit or loss. (ii) Non-financial assets

The carrying amounts of non-financial assets other than inventories (see Note 3 f) and deferred tax assets (see Note 3 l) are reviewed at the date of the statement of financial position to determine whether there is any indication of impairment. If any such indication exists, the asset’s recoverable amount is estimated. For goodwill, assets with an indefinite useful life and intangible assets not put into use, the asset’s recoverable amount is estimated as at date of the consolidated statement of financial position.

An impairment loss is recognised if the carrying amount of an asset exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that are largely independent from other assets and groups. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs. Impairment losses recognised in connection with cash-generating units are firstly allocated to reduce the carrying amount of goodwill allocated to units and then to reduce the carrying amount of other assets within the unit (group of units) on a pro rata basis. The goodwill impairment loss is not reversed. For other assets, the impairment losses recorded in the previous periods are recognised at the date of the statement of financial position to determine whether there is any indication that the loss has been reduced or ceased to exist. The impairment loss will be cancelled if there has been a change in the estimates used to determine the recoverable amount. The impairment loss will be cancelled only to such an extent that the asset carrying amount is not higher than the amount that would be determined (net of depreciation) should no impairment loss be recognised. Calculation of recoverable amount The recoverable amount of an asset or cash-generating unit is the greater of its fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present



value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.

h) Employee benefits The Group’s obligation in respect of employee benefits is the amount of future benefits that employees have earned in return for their service in the current and prior periods. This is calculated using the projected unit credit method. The discount rate is the current rate of return on long-term treasury bonds in the Czech Republic. Any actuarial gains and losses are recognised in profit and loss in the period in which they arise except actuarial gains and losses on post-employment benefits, which are recognised in equity. Obligations for contributions to defined contribution pension plans are recognised as an expense in consolidated profit and loss when they are due. Changes in defined contribution plans relating to retirement benefits classified as post-employment benefits are amortised in consolidated profit and loss on a straight-line basis over the average period until the benefits become vested.

i) Provisions A provision is recognised in the statement of financial position when the Group has a present legal or constructive obligation as a result of a past event and it is probable that an outflow of economic resources will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and the risks specific to the liability. (i) Site restoration In accordance with the Group’s published environmental policy and applicable legal requirements, a provision for site restoration and land decontamination is recognised when the land is contaminated. The provision recognised represents the best estimate of the expenditures required to settle the present obligation at the date of the statement of financial position. Changes in the liability that result from a change in the current best estimate of cash flows required to settle the obligation or a change in the discount rate are added to (or deducted from) the amount recognised as the related assets. However, to the extent that such a treatment would result in negative assets, the effect of the change is recognised in consolidated profit or loss. (ii) Litigation A provision for litigation is recognised as soon it is probable that settlement of legal claims against the Group will result in an outflow of economic resources. (iii) Other provisions Other provisions include provisions established in connection with the risks related to the Group’s principal activities. Provisions for other risks were reviewed and adjusted based on the best estimates arising from changes in legislation and in estimates.

j) Revenues Sale of heat, electricity, gas, services and goods

Revenues from the sale of heat, electricity and goods are recognised in consolidated profit or loss when the significant risks and rewards of ownership have been transferred to the buyer. Assets acquired on acquisition related to the distribution of heat and compressed air are evaluated in accordance with IFRIC 4 as a lease receivable and charged as one item. This will be accounted for by increased interest and reduced by amounts that are allocated to fixed payments for customers.

k) Expenses (i) Operating lease payments Payments made under operating leases are recognised in consolidated profit or loss on a straight-line basis over the term of the lease.



(ii) Finance income and expenses Finance income and expenses comprise interest payable on borrowings calculated using the effective interest rate method, interest receivable on funds invested, income from dividends and unwinding of the discount on provisions.

l) Income tax Income tax comprises current and deferred tax. Income tax charge is recognised in consolidated profit or loss except to the extent that it relates to items recognised directly in equity. Current tax is the expected tax payable on the taxable income for the current year, using tax rates applicable at the first date of the accounting period and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes, using the tax rate expected to be valid in the period when the tax asset or liability is expected to be realised. At the date of the consolidated statement of financial position the Group reviews the carrying value of the deferred tax asset. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which this asset can be utilised. The establishment of deferred tax represents tax consequences subject to the method which the Group expects to use at the end of the reported period to realise or settle the book value of its assets and liabilities. It is assumed for investment property measured at fair value that the book value of the investment property is always realised by sale unless such assumption can be disconfirmed.

4. Fair value

Some accounting policies applied by the Group require a fair value to be determined for financial and non-financial assets and liabilities. Fair values are determined either by measurement or using the methods described below. (i) Trade and other receivables The fair value of trade and other receivables is determined as the present value of future cash flows discounted at the market interest rate as at the date of the statement of financial position.

(ii) Derivatives The fair value of forward contracts for emission allowances and of certificates and forward contracts hedging the foreign exchange risk is determined as the discounted difference between the contractual value and the market forward price.

(iii) Non-derivative financial liabilities Fair value for the purpose of reporting in the notes is calculated as the present value of future payments of the face value and interest, discounted at the market interest rate as at the date of the statement of financial position. (iv) Employee benefits Fair value of employee benefits is calculated as the present value of future benefits that employees have earned in return for their service in the current and prior periods. The discount rate is the current rate of return on long-term treasury bonds in the Czech Republic.

5. Financial risk management

The Group has exposure to the following risks: credit risk, liquidity risk,



market risk, operating risk. The parent company’s Board of Directors has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Board reviews and approves the risk management policies described below. The Risk Management Department monitors individual risks and their effect on the Group. Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations.

Trade and other receivables

The exposure to credit risk is influenced mainly by the individual characteristics of each customer, and the Group endeavours to manage and limit this risk. The Group has established a credit policy under which each major customer is analysed individually for creditworthiness before the standard payment and delivery terms and conditions are offered. The review includes external ratings when available, and in some cases references obtained from a specialised firm. Credit limits are established for each customer. Customer analysis and monitoring of observance of the credit limits is carried out by the Collections Department. Customers that fail to keep within the credit limit may have their deliveries suspended, subject to case-by-case assessment. More than 80 percent of customers have been transacting with the Group for over four years, and losses have occurred infrequently. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, their industry and payment history. Deliveries are made on a prepayment basis, with advances reviewed on a continuous basis. Customers that are graded as “high risk” are monitored separately, and sometimes a repayment schedule is offered to secure debt recovery. Credit risk related to receivables is covered by provisions that are established on an individual basis for receivables with a specific risk of loss, and on a portfolio basis for groups of receivables with similar risks. For more information see Note 27.

Investments The Group limits its exposure to credit risk by only investing in securities of liquid companies. The management of the Group does not expect any losses from these investments. As at 31 December 2016, the Group holds cash and cash equivalents in the amount of CZK 147 million (2015: 158 million). Cash and cash equivalents are deposited with banks with high ratings and in cash pooling with the parent company. Guarantees The Group’s policy is to provide financial guarantees only on an exceptional basis, where required for the purpose of a tender procedure or where the law provides so. As at 31 December 2016, bank guarantees of CZK 250 million (2015: 70.5 million) and long-term principal of CZK 27 million (2015: 28.8 million) were outstanding. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, not risking damage to its reputation. The Group uses activity-based costing to cost its products and services, which assists it in monitoring cash flow requirements and optimising its cash return on investments. The Group ensures that it has sufficient cash on demand to meet expected operational expenses through participation in cash pooling within Veolia group. Within the cash pooling, the Group may draw funds of up to CZK 3.000 million. By this approach, the Group limits the possible impacts of unforeseeable events. The 2008 issue of bonds was repaid in 2015.



Market risk Market risk is the risk that changes in market prices, foreign exchange rates, interest rates, equity prices or prices of emission allowances will affect the Group’s income or the value of financial instruments in its possession. Currency risk The Group is not exposed to significant currency risk on sales, purchases and borrowings, as the major portion of these are negotiated in Czech currency. For electricity, fuel and CO2 allowance payment in foreign currencies (EUR, PLN) the Group concludes forward contracts to hedge the foreign exchange risk.

Interest rate risk

The Group partly covers its exposure to movement in interest rates by obtaining financing mainly from its parent company. This financing is exposed to market risk from movements in interest rates. Other market price risks In 2016 the Group entered into forward contracts with Veolia Environnement Finance, a Veolia Environnement - VE SA group company, for the purchase and sale of emission allowances and certificates at a contractual price. Operating risk The Group manages production risk with a view to avoiding financial losses and damage. This involves, in particular, the gradual wear and tear of equipment and components of its power plants, risks related to shutdowns and risks related to insurance. Gradual wear and tear of equipment and components The influence of operations as well as of natural processes (e.g. erosion and corrosion) on the technical condition of some equipment and certain components of the production plant constantly increases over time. At the same time, the Group implements a continual major production plant renewal programme in its facilities in order to modernise its production portfolio with a view to realising the Veolia Group’s business vision. The Group has prepared a plant renewal programme aimed at reducing energy consumption. Apart from the preparations for renewing its fossil fuel-fired facilities, the Group provides for the firing of biomass. The Group endeavours to adhere to its practices in terms of preventive inspections and maintenance of the equipment and components of its plants, including repairs and replacements, in order to prevent failures and losses. Risks related to shutdowns Despite the complexity of its production plants, the Group endeavours to eliminate the risk of unscheduled shutdowns or to anticipate exactly their frequency or effects, in particular by means of preventive inspections and repairs. Insurance of risks The Group has concluded insurance arrangements (e.g. property, plant and machinery insurance; third party liability insurance) for its major assets and believes that it has covered the risk of all significant losses. Capital management The Board of Directors of Veolia Energie ČR, a.s. manages the Group’s capital structure in compliance with investor’s requirements, focusing on appropriate indebtedness and dividend policy monitoring. The objective is to achieve the right proportion of debt to total assets, and to meet the planned dividend targets. This involves looking for an adequate level of debt, which depends on profit (cash flow) generation, and meeting the average cost of capital and working capital targets planned by the Group.



The Group’s debt to equity at the end of the accounting period was as follows:

In thousands of CZK 2016 2015 Total liabilities 8,235,393 6,195,767 Cash and cash equivalents (146,719) (157,965) Net debt 8,088,674 6,037,802 Total equity 6,159,094 7,597,668 Cash flow from hedges 12,956 (4,147) Adjusted equity 6,172,050 7,593,521 Debt to adjusted equity 1.31 0.80

6. Acquisition of a subsidiary

In February 2016, Veolia Energie ČR, a.s. and Pražská teplárenská, a.s. signed a purchase agreement under which Veolia Energie ČR, a.s. acquired 100% of the shares in Pražská teplárenská LPZ, a.s. The transaction required approval by the Office for the Protection of Competition. This approval was granted on 31 May 2016, at which date 100% of the shares were handed over. On 3 June 2016, the subsidiary was renamed from Pražská teplárenská LPZ, a.s. to Veolia Energie Praha, a.s. The acquisition of Veolia Energie Praha, a.s. had the following impact on the Group’s assets and liabilities as at the date of the acquisition:

In thousands of CZK Value at acquisition date

Assets Property, plant and equipment 803,820 Intangible assets 6,011 Non-current financial assets -- Total non-current assets 809,831 Inventories 21 Trade and other receivables 134,028 Cash and cash equivalents 342,563 Total current assets 476,612 Total assets 1,286,443

In thousands of CZK Value at acquisition

date Equity and liabilities Provision for employee benefits 7,874 Other payables 148 Deferred tax liabilities 106,163 Total non-current liabilities 114,185 Provisions -- Trade and other payables 157,761 Total current liabilities 157,761 Total net value of identified assets and liabilities 1,014,497

Goodwill 1,210,610

Goodwill arising on the acquisition stems, in particular, from the know-how and technical expertise of the acquired company’s human resources and the expected synergies from the integration of the acquired company in the existing structure of the Group.



As of the date of acquisition, Veolia Energie Praha, a.s. generated total revenues and profit of CZK 469 million and CZK 11 million, respectively. Information about revenues and profit of the consolidation scope as if the acquisition had been carried out at the beginning of the year cannot be estimated accurately.

7. Revenue

In thousands of CZK 2016 2015 Revenues from sale of heat and related products 6,346,329 5,902,000 Revenues from sale and re-sale of electricity and ancillary services

4,349,592 4,988,752

Revenues from sale of compressed air 339,699 388,863 Other operating revenues 215,233 243,622 Total 11,250,853 11,523,237

The majority of the revenue of the Group is realised in the Czech Republic. The drop in revenues from the sale and re-sale of electricity in 2016 is mainly caused by the drop in electricity prices on the market.

8. Cost of sales

In thousands of CZK 2016 2015 Personnel expenses (1,180,419) (1,155,922) Depreciation expense (958,825) (896,419) Impairment to non-current assets (425,677) (1,049,449) Impairment to goodwill (737,224) (229,942) Costs of goods sold excluding electricity (366,538) (177,400) Cost of purchased electricity (2,096,112) (2,211,399) Fuel consumption (2,508,490) (2,559,579) Consumption of raw materials, energy and services (1,712,779) (1,622,414) Change in provisions (163,446) 132,071 Consumption of emission allowances and change in provision for emission allowances (267,184) (235,245)

Total (10,416,694) (10,005,698)

Under the rules for preparing consolidated financial statements (see Note 3g), the Group has identified objective indications constituting an adverse impact on the value of tangible and intangible assets and the value of other financial investments. As a result, it has tested some assets for impairment. The testing confirmed that the recoverable value of these assets is lower than their carrying value. Therefore, in 2015, the Group recognised an impairment adjustment of CZK 1,049 million, which it raised by CZK 426 million to CZK 1,475 million after a 2016 retesting. The increase in the adjustment is allocated as follows: Buildings, constructions, plant and equipment (see Note 13) CZK 87 million (2015: CZK 340 million), Other intangible assets (see Note 14) CZK 209 million (2015: CZK 270 million) and Other financial investments (see Note 15) CZK 130 million (2015: CZK 440 million). Based on systematic goodwill impairment testing (see Note 3g), the Group has identified objective indications of impairment. Based on these indications, impairment has been calculated using the effective interest rate as the difference between their carrying value and the recoverable amount calculated as the present value of estimated future cash flows discounted at the original effective interest rate. The difference between the recoverable amount and the carrying value is an impairment loss of CZK 737 million as at 31 December 2016 (2015: CZK 230 million), which was recognised as impairment to goodwill in the income statement.



Goodwill

In thousands of CZK Veolia Energie

Kolín, a.s.

Veolia Energie Mariánské

Lázně, s.r.o.

Veolia Průmyslové

služby ČR, a.s.

Veolia Energie Praha, a.s. Total

Balance at 1 January 2015 318,256 45,218 819,612 -- 1,183,086

Additions -- -- -- -- -- Impairment losses (147,554) -- (82,388) -- (229,942) Balance at 31 December 2015 170,702 45,218 737,224 -- 953,144

Balance at 1 January 2016 170,702 45,218 737,224 -- 953,144

Additions -- -- -- 1,210,610 1,210,610 Impairment losses -- -- (737,224) -- (737,224) Balance at 31 December 2016 170,702 45,218 -- 1,210,610 1,426,530

9. Distribution expenses

In thousands of CZK 2016 2015 Personnel expenses (55,017) (52,453) Depreciation expense (8) (112) Other expenses / revenue 73,935 (21,406) Total 18,910 (73,971)

10. Administrative expenses

In thousands of CZK 2016 2015 Personnel expenses (327,099) (355,914) Depreciation expense (16,288) (15,027) Change in provisions (14,133) 4,676 Management costs (105,986) (210,088) Cost of raw materials, services and other expenses (268,698) (241,022) Total (732,204) (817,375)

The management costs for 2016 reflect credit notes related to 2015.

11. Finance income and expenses

In thousands of CZK 2016 2015 Interest income 1,027 928 Dividend income 14,281 6,844 Foreign exchange gain 2,699 13,670 Other finance income 2,849 7,852 Total finance income 20,856 29,294 Interest expense (31,471) (19,637) Foreign exchange loss (4,420) (15,417) Discount of provisions (8,151) (11,467) Other finance expenses (3,145) (3,955) Total finance expenses (47,187) (50,476)



12. Income tax

In thousands of CZK Current tax expense 2016 2015 Current year (275,490) (343,853) Adjustment for prior periods (5,536) (8,463) (281,026) (352,316)

Deferred tax expense Effect of the change in temporary differences 115,730 185,331 Total income tax expense in income statement (165,296) (166,985) Reconciliation of effective tax rate 2016 2015 Profit before income tax 94,534 605,011 Income tax calculated using the domestic corporate income tax rate (17,961) (114,952)

Effect of non-deductible expenses (458,326) (371,056) Effect of tax exempt income 200,296 141,467 Effect of tax credits 501 688 Adjustment for prior periods (5,536) (8,463) Total tax payable (281,026) (352,316) Total deferred tax 115,730 185,331 Total income tax expense in income statement (165,296) (166,985)

The Group recorded a corporate income tax receivable of CZK 161 million and a corporate income tax payable of CZK 23 million (2015: tax receivable of CZK 78 million and tax payable of CZK 4 million.) Deferred tax is based on all temporary differences between the carrying and tax value of assets and liabilities, and other temporary differences (tax losses carried forward, if any), multiplied by a uniform tax rate of 19%. Tax impact on items of comprehensive income on deferred tax: Employee benefits – actuarial gains (losses) before taxation CZK (15) million (2015: CZK 16 million), tax CZK 3 million (2015: CZK (4) million); after taxation CZK (12) million (2015: CZK 12 million); changes in the fair value of hedging instruments: before taxation CZK (20) million (2015: CZK (73) million), tax CZK 3 million (2015: CZK 14 million); after taxation CZK (17) million (2015: CZK (59) million).

The Group conducted a legal dispute with the Czech Republic, as did other energy companies that did not agree with the specific gift tax imposed on emission allowances in 2011 and 2012 by the Ministry of Finance. The Group estimated its position at CZK 175 million, which, however, was not recognised as a contingent asset. In 2015, a decision on this matter was taken. In December 2015, the Company received from the Appeal Financial Directorate a decision that the gift tax, amounting to CZK 22 million, would be refunded, on the basis of the Supreme Court’s decision in a similar dispute. The Group disagrees with the decision, however, and has therefore initiated court proceedings on this matter. No decision was delivered on this matter in 2016.

13. Property, plant and equipment

In thousands of CZK Acquisition cost Land Buildings and

constructions Plant and

equipment Under

construction and advances

Total

Balance at 1 January 2015 472,726 10,656,320 14,136,094 1,401,499 26,666,639

Additions/transfers 606 349,542 746,714 (743,613) 353,249 Disposals (11,714) (140,599) (194,470) (2,817) (349,600) Balance at 31 December 2015 461,618 10,865,263 14,688,338 655,069 26,670,288



Balance at 1 January 2016 461,618 10,865,263 14,688,338 655,069 26,670,288

Additions related to the acquisition

175,469

274,679

349,396

4,319 803,863

Additions/transfers 12,881 199,807 663,355 (315,678) 560,365 Disposals (54) (24,913) (85,091) -- (110,058) Balance at 31 December 2016 649,914 11,314,836 15,615,998 343,710 27,924,458

Amortisation and impairment losses

Land

Buildings

and construction

s

Plant and

equipment

Under

construction and advances

Total

Balance at 1 January 2015 -- 6,114,125 10,931,107 3,610 17,048,842

Impairment losses -- 170,852 169,401 340,253 Current year depreciation -- 293,535 517,905 -- 811,440 Disposals (139,165) (193,698) (3,374) (336,237) Balance at 31 December 2015 -- 6,439,347 11,424,715 236 17,864,298

Balance at 1 January 2016 -- 6,439,347 11,424,715 236 17,864,298

Impairment losses -- 44,045 43,771 -- 87,816 Current year depreciation -- 322,089 553,704 -- 875,793 Disposals -- (11,554) (79,803) -- (91,357) Balance at 31 December 2016 -- 6,793,927 11,942,387 236 18,736,550

Carrying amount Land Buildings

and construction

s

Plant and equipment

Under construction

and advances

Total

At 1 January 2015 472,726 4,542,195 3,204,987 1,397,889 9,617,797 At 31 December 2015

461,618 4,425,916 3,263,623 654,833 8,805,990

At 31 December 2016

649,914 4,520,909 3,673,611 343,474 9,187,908

In 2016, an adjustment of CZK 87 million (2015: CZK 340 million) decreased the value of tangible assets as a result of impairment testing (see Note 8).

Leased assets The Group leases production equipment under a number of finance lease agreements. At 31 December 2016, the net carrying amount of leased machinery, thermal equipment and constructions was CZK 31 million (2015: CZK 34.2 million). The Group uses a production facility under a lease agreement with the municipality of Mariánské Lázně, which was valid until 2024. In 2013, it concluded an amendment extending the term of lease until 2039, which became effective on 1 January 2015, provided that by 31 December 2014 the lessee modernises the heat production facility in Mariánské Lázně connected to the construction of a cogeneration plant which was to produce heat and electricity from renewable sources. This condition was fulfilled in 2014. The Group capitalised the assets at the lower of the fair value of the asset and the present value of the



minimum lease payments as at the start of the leasing. The interest rate on the lease has been set at 11.01%. The tables below show anticipated lease payments due. 2016 Leasing liability

at 31 December 2016

Paid at 31 December

2016

Due within 1

year

Due in 1 to 5

years

Due in subsequent years

Production facility 15,117 15,503 1,609 6,437 33,215

Total 15,117 15,503 1,609 6,437 33,215

2015 Leasing liability at 31

December 2015

Paid at 31 December

2015

Due within 1

year

Due in 1 to 5

years

Due in subsequent years

Production facility 15,188 13,894 1,609 6,437 34,825

Total 15,188 13,894 1,609 6,437 34,825 Assets pledged as security

The Group has no pledged assets as at the reporting date.

Grants In 2016, the Group received a grant for the modernisation and greening of the H&P plant equipment from the “ECO Energy” programme of the Czech Environment Ministry in an amount of CZK 0 million (2015: CZK 8 million) and from the OP Environment a grant in an amount of CZK 42 million (2015: CZK 280 million).

14. Intangible assets

In thousands of CZK Acquisition cost Software Other* Goodwill Total Balance at 1 January 2015 408,048 1,440,565 1,183,086 3,031,699

Additions 20,513 (7,017) -- 13,496 Disposals (416) -- -- (416) Balance at 31 December 2015 428,145 1,433,548 1,183,086 3,044,779

Balance at 1 January 2016 428,145 1,433,548 1,183,086 3,044,779

Additions related to the acquisition

993 39 1,210,610 1,211,642

Additions 4,606 21,951 -- 26,557 Disposals (3,562) -- -- (3,562) Balance at 31 December 2016 430,182 1,455,538 2,393,696 4,279,416

Amortisation and impairment losses

Software Other* Goodwill Total


393,080

450,733

--

843,813

Impairment losses -- 269,606 229,942 499,548 Current year amortisation 10,849 89,269 -- 100,118 Disposals (416) -- -- (416) Balance at 31 December 2015 403,513 809,608 229,942 1,443,063




403,513

809,608

229,942

1,443,063

Impairment losses -- 208,844 737,224 946,068 Current year depreciation 11,719 89,031 -- 100,750 Disposals (3,562) -- -- (3,562) Balance at 31 December 2016 411,670 1,107,483 967,166 2,486,319

Carrying amount

Software

Other*

Goodwill

Total

At 1 January 2015 14,968 989,832 1,183,086 2,187,886 At 31 December 2015 24,632 623,940 953,144 1,601,716 At 31 December 2016 18,512 348,055 1,426,530 1,793,097

*The balance consists mainly of intangible assets recognised upon the acquisition of NWR Energy, a.s. (Veolia Průmyslové služby ČR, a.s.). In particular, this includes the value of the contract with OKK Koksovny, a.s. for the purchase of coke oven gas until 2020; and the value of the framework agreement with OKD, a.s. for energy deliveries such as compressed air and heat, until 2029; and other contracts for the sale of electricity. In 2016, an adjustment of CZK 209 million (2015: CZK 270 million) decreased the value of other intangible assets as a result of impairment testing (see Note 8). The adjustment of CZK 737 million (2015: CZK 230 million) to goodwill is described in note 8.

15. Other financial investments including derivatives

In thousands of CZK Long-term financial investments including derivatives

2016 2015

Financial interests 74,061 74,061 Other financial investments 261,550 431,519

In thousands of CZK

Short-term financial investments including derivatives

2016 2015

Derivatives 851 15,686 Other financial investments 45,105 51,603

In 2016, an adjustment of CZK 129 million (2015: CZK 440 million) decreased the value of other financial investments as result of impairment testing (see Note 8). The Group does not own any financial investments held for trading. As at 31 December 2016 short-term derivatives represent the fair value of forward contracts to hedge a foreign exchange risk.



16. Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

In thousands of CZK Assets Liabilities Net 2016 2015 2016 2015 2016 2015

Property, plant and equipment 276,095 199,552 (1,144,037) (1,028,421) (867,942) (828,869)

Other investments -- -- -- -- -- -- Inventories 19,543 18,926 -- -- 19,543 18,926 Emission allowances including provision 50,186 50,727 (48,782) (46,011) 1,404 4,716

Provisions 138,349 127,316 (132) (98) 138,217 127,218 Other items 58,866 11,769 (4,599) (6,547) 54,267 5,222 Deferred tax assets / (liabilities) 543,039 408,290 (1,197,550) (1,081,077) (654,511) (672,787)

Movement in deferred tax assets and liabilities during the accounting period

In thousands of CZK


Recognised in income


Impact of the acquisition

Balance at 31/12/2016

Property, plant and equipment

(828,869)

68,586 -- (107,659) (867,942)

Other investments -- -- -- -- -- Inventories 18,926 617 -- -- 19,543 Emission allowances including provision

4,716 (4,250) -- 938 1,404

Provisions 127,218 5,743 3,760 1,496 138,217 Other items 5,222 45,034 4,011 -- 54,267 Total (672,787) 115,730 7,771 (105,225) (654,511)

In thousands of CZK

Balance at 1 January

2015

Recognised in income


Balance at 31

December 2015

Property, plant and equipment (1,028,303) 199,434 -- (828,869)

Other investments -- -- -- Inventories 18,904 22 -- 18,926 Emission allowances including provision 4,117 599 - 4,716

Provisions 145,663 (14,948) (3,497) 127,218 Other items (8,915) 224 13,913 5,222 Total (868,534) 185,331 10,416 (672,787)

17. Inventories

In thousands of CZK 2016 2015 Materials and fuel 503,203 526,277 Work in progress 426 27,498 Products 379 483 Emission allowances 1,576 88 Total 505,584 554,346



In 2016, materials and fuel recorded in the cost of sales amounted to CZK 2.922 million (2015: CZK 2,588 million). At 31 December 2016, an adjustment was recognised which reduces the value of inventories by CZK 101 million (2015: CZK 99 million). Emission allowances In 2005, the emission trading scheme was introduced in the European Union. The following table summarises the movements in the quantity (in thousands of units). Emission allowances are represented by EUA and CER. As described in Note 3 f), emission allowances allocated in accordance with the National Allocation Plan are recognised in assets as inventory.

In thousands of tonnes Quantity

Correction of emission allowance consumption in 2014

72

Emission allowances allocated in 2015 1,482 Emission allowances sold in 2015 -- Emission allowances purchased in 2015 1,263 Emission allowances utilised in 2015 against CO2 emissions (2,800) Emission allowances available at 31 December 2015 377 Correction of emission allowance consumption in 2015 (65) Emission allowances allocated in 2016 1,248 Emission allowances sold in 2016 -- Emission allowances purchased in 2016 1,028 Provisions for missing emission allowances 167 Emission allowances utilised in 2016 against CO2 emissions (2,721) Emission allowances available at 31 December 2016 34

Actual emissions in 2016 were higher than the emission allowances allocated under the National Allocation Plan as at the date of the statement of financial position. The Group therefore used allowances from previous years and bought allowances for 2016 (in 2015, actual emissions were higher than allocated allowances). As in 2015, the Group did not generate revenues from emission allowance transactions in 2016.

18. Current tax assets

In thousands of CZK 2016 2015 Income tax 161,307 78,175 Total 161,307 78,175

19. Trade and other receivables

In thousands of CZK 2016 2015 Trade receivables due from related parties (Note 30) 62,076 128,193

Trade receivables 1,946,448 1,656,216 Other receivables 198,546 237,965 Total 2,207,070 2,022,374

At 31 December 2016 trade receivables are shown net of provisions for doubtful debts of CZK 405 million (2015: CZK 167 million) arising from the likely impairment of receivables from the individual debtors. The provision was increased due to the announcement of OKD’s insolvency.



20. Cash and cash equivalents

In thousands of CZK 2016 2015 Current bank accounts 96,053 129,481 Bank deposits 48,469 26,499 Cash in hand 2,197 1,985 Total cash 146,719 157,965 Total cash and cash equivalents 146,719 157,965 Cash pooling with Veolia Energie International SA – payable (2,548,631) (1,989,655)

Total cash in compliance with cash flow statement (2,401,912) (1,831,690)

Since 2007, the Group has been involved in a cash pool between Veolia and Société Générale through a contract with Komerční banka.

21. Capital and reserves

At 31 December 2016, the authorised share capital comprised 78 661 161 ordinary registered shares with a par value of CZK 40 (2015: 78 661 161 ordinary registered shares with a par value of CZK 40). The holders of ordinary shares are entitled to dividends if these are approved by the General Meeting. Each ordinary share bears one voting right to be exercised at General Meetings of entities. All shares bear the same rights in respect of the surplus assets upon the liquidation of subsidiaries.

Cash flow hedging

Changes in the fair value of derivative hedging instruments designated as a cash flow hedge are recognised directly in equity to the extent that the hedge is effective. To the extent that the hedge is ineffective, changes in the fair value of the derivative are recognised in the income statement.

Other capital funds

Other capital funds primarily include the recorded effect of mergers in the 2001–2007 period with companies fully controlled by the entity, i.e. TEPLÁRNY Karviná, a.s., EKOTERM ČESKÁ REPUBLIKA a.s., Teplárna Ústí nad Labem, a.s., PPC Trmice a.s. and Dalkia Ostrava, a.s. Dividend per share In its profit distribution decision the Group announced dividends of CZK 1,328 million (2015: CZK 2 051 million). The dividend per share for 2016 amounts to CZK 16.88 (2015: CZK 26.07).

22. Loans and borrowings

This note provides information about the contract terms applicable to the Group’s interest-bearing loans and borrowings. For more information about the Group’s exposure to credit and interest rate risks see Note 27.

Current liabilities

In thousands of CZK 2016 2015 Interest payable on loan from Veolia International SA 6,045 4,961 Cash pooling with Veolia International SA 2,548,631 1,989,655 Short-term loan from Veolia International SA 1,370,000 -- Other financial liabilities 31,830 30,395 Total current liabilities 3,956,506 2,025,011

Terms and debt repayment schedule

Secured bank loans The Group had no secured bank loans as at 31 December 2016 and 31 December 2015.



Unsecured bond issues The 2008 issue of bonds, fixed 4.24%, was repaid in an amount of CZK 10 million in November 2015.

The Group may utilise bank credit lines of CZK 330 million and EUR 2.5 million. As at 31 December 2016 the Group did not use any of these options.

23. Employee benefits

Under the collective agreement, the Group is obliged to pay benefits to employees who have worked for the Group for a certain fixed period of time. The Company changed its collective agreement effective from 2016. This adjustment simplified the structure of employee benefits and changed some of them. Movement in the liability for defined benefit obligations In thousands of CZK 2016 2015

Liability for defined benefit obligations as at 1 January 573,480 648,869 Additions related to the acquisition 7,874 -- Benefits paid (19,485) (32,864) Current service costs 38,243 39,824 Amortisation of past service costs -- -- Interest 8,151 10,446 Actuarial (gains) losses recognised in equity 16,112 (15,702) Actuarial (gains) losses recognised in profit and loss 2,728 118 Other (changes in the Collective Agreement) 43,599 (77,211) Adjustment of liability as a result of organisational changes -- -- Liability for defined benefit obligations as at 31 December 670,702 573,480 Short-term portion of liability for defined benefit obligations 32,562 23,174 Long-term portion of liability for defined benefit obligations 638,140 550,306

Actuarial assumptions

2016 2015 Discount rate at 31 December 1.30% 1.75% Salary increase rate 2% 2% Employee turnover assumption Average 0.87% average 1.37% p.a.

Social security and health insurance expenses recognised in the income statement in 2016 amount to CZK 378 million (2015: CZK 362 million). Defined benefit liabilities are calculated on the basis of actuarial valuation under IAS 19. This standard requires the use of the “projected unit credit method” and unbiased and mutually compatible actuarial assumptions. The projected unit credit method was used to determine the present value of liability and current service costs. Demographic assumptions: assumptions about mortality were taken from the 2015 mortality charts for males and females issued by the Czech Statistical Office. The disability assumption was taken from the charts of disabilities monitored by the Group. The assumed number of employees leaving the Group before reaching retirement age is based on expected departures of employees. The same assumptions were used to compute the provision for 2015. Specific assumptions: the Group assumes that there is an 80% probability that agreements executed for a fixed term will be converted into agreements for an indefinite term. The amount of defined benefit liabilities as at 31 December 2016 takes into account social security contributions and health insurance. Description of risks: the Group does not have a separate plan for assets to cover employee benefit liabilities. Taking into account the annual payments from the plan and the nature of the Group’s business this does not constitute a material risk for the Group.



Sensitivity analysis The Group carried out a sensitivity analysis of the size of the provision for changes in the actuarial assumptions that influence the defined benefit liabilities. In the event of a change in one of the relevant actuarial assumptions, with other assumptions remaining constant, the defined benefit liabilities would change to the following amounts – based on a sensitivity analysis for assumptions with the most significant impact:

In thousands of CZK Discount rate increase +0.25%

Inflation rate increase +0.25%

Defined benefit liabilities as at 31 December 2016 654,656 686,692

Current service costs next year 37,791 39,827 Although this analysis does not take into account the timing of the cash flows that are expected under the plan, it provides information about the size of the liability upon a change in the various assumptions.

24. Provisions

In thousands of CZK Site restoration Other provisions Total

Balance at 1 January 2015 46,101 134,526 180,627 Provisions created during the year -- 45,943 45,943 Provisions used during the year -- (14,420) (14,420) Provisions unused during the year -- (91,108) (91,108) Unwinding of discount -- 1,022 1,022 Balance at 31 December 2015 46,101 75,963 122,064 Non-current 46,101 49,972 96,073 Current -- 25,991 25,991 Balance at 1 January 2016 46,101 75,963 122,064 Provisions created during the year -- 46,074 46,074 Additions related to the acquisition -- 148 148 Provisions used during the year -- (23,242) (23,242) Provisions unused during the year -- (26,572) (26,572) Unwinding of discount -- -- -- Balance at 31 December 2016 46,101 72,371 118,472 Non-current 46,101 36,934 83,035 Current -- 35,437 35,437

Site restoration The provision for site restoration was reviewed and adjusted so as to represent the best estimate in the light of the change in the use of land and of restoration techniques used. Other provisions Other provisions include provisions established in connection with the risks related to the Company’s principal activities. In December 2015, the Energy Regulatory Office completed an inspection of heat prices for 2010. The Group did not agree with the outcome of the inspection and lodged an appeal. The Energy Regulatory Office did not complete the procedure within five years, the case was therefore time-barred in 2016 and the provision was released.

25. Trade and other payables (current and non-current)

Non-current

In thousands of CZK 2016 2015 Other payables 163,755 160,829 Total 163,755 160,829



Current

In thousands of CZK 2016 2015 Trade payables to related parties (Note 30) 20,317 98,678

Trade payables to third parties 2,151,834 2,241,853 Other payables 448,233 286,371 Total 2,620,384 2,626,902

26. Derivatives

In thousands of CZK 2016 2015 Current derivatives 13,064 2,826 Non-current derivatives 3,781 7,740 Total 16,845 10,566

Financial derivatives represent the fair value of forward contracts to secure a foreign exchange risk of CZK 17 million (2015: CZK 11 million) and are recorded as current and non-current liabilities.

27. Financial instruments

Credit risk Maximum exposure to credit risk as at the date of the financial statements was: In thousands of CZK Note Carrying amount 2016 Carrying amount 2015

Trade and other receivables 19 2,207,070 2,022,374

Cash and cash equivalents 20 146,719 157,965 Total 2,353,789 2,180,339

Impairment losses The fair value of trade and other receivables was: In thousands of CZK Nominal

value 2016 Impairment

2016 Nominal

value 2015 Impairment

2015 Not yet due 2,109,198 -- 1,943,627 -- 0–90 days overdue 130,633 64,115 54,983 2,139 90–180 days overdue 89,379 61,480 5,155 797 180–360 days overdue 103,763 101,466 22,822 5,503 More than 1 year overdue 179,122 177,964 162,703 158,477 Total 2,612,095 405,025 2,189,290 166,916

Movement in impairment provisions in respect of trade receivables in the course of the year was: In thousands of CZK

2016 2015

Balance at 1 January (166,916) (171,182) Impact of the acquisition (4,424) -- Recognised impairment losses (233,685) 4,266 Balance at 31 December (405,025) (166,916)

Liquidity risk The following are payments of liabilities by the contractual maturities of Group’s financial liabilities, including estimated interest payments:



At 31 December 2016

In thousands of CZK

Carrying amount

Contractual cash

flow

Within 6 months

6–12 months

1–2 years

2–5 years

More than 5 years


1,370,000 1,375,206 1,375,206 -- -- -- --

Trade and other payables 2,784,139 2,784,139 2,520,305 250 4,000 15,864 243,720

Total 4,154,139 4,159,345 3,895,511 250 4,000 15,864 243,720 At 31 December 2015

In thousands of CZK

Carrying amount

Contractual cash

flow

Within 6 months

6–12 months

1–2 years

2–5 years

More than 5 years


Trade and other payables 2,787,731 2,892,291 2,626,752 250 4,000 155,168 106,121

Total 2,787,731 2,892,291 2,626,752 250 4,000 155,168 106,121

Currency risk To hedge purchases and sales of electricity in EUR and PLN, forward contracts were concluded with the company Veolia Energie International SA for the purchase and sale of EUR and PLN (see Note 5). Interest rate risk As at the reporting date, the Group has the following interest-bearing financial instruments: (i) Fixed-rate financial instruments

In thousands of CZK

Balance at 31 December 2016 2015 Financial liabilities -- --

(ii) Variable-rate financial instruments

In thousands of CZK

Balance at 31 December 2016 2015 Short-term loan (1,370,000) -- Financial liabilities (37,875) (35,356) Total (1,407,875) (35,356)

Sensitivity analysis of fixed-rate financial instruments

The Group does not state fixed-rate financial instruments at fair value through profit or loss. The Group has not entered into interest-rate swaps as hedging instruments.

Sensitivity analysis of variable-rate financial instruments As at 31 December 2016 the Group reported the following variable-rate financial instruments. Effective interest rate and re-measurement analysis The table below shows the effective interest rates of interest-bearing financial assets and liabilities at the date of the statement of financial position and the periods in which they are re-measured.



In thousands of CZK

Average interest rate in 2016 (%)

Liability at 31 December 2016

Next re-pricing date

Due date


1.14

(1,370,000)

3/2017

4/2017

Total (1,370,000)

Fair values

In thousands of CZK Note Carrying amount

Fair value Carrying amount

Fair value

2016 2016 2015 2015 Trade and other receivables 19 2,207,070 2,207,070 2,022,374 2,022,374 Tax assets 18 161,307 161,307 78,175 78,175 Cash and cash equivalents 20 146,719 146,719 157,965 157,965 Short-term loan from Veolia Energie International

22 (1,370,000) (1,370,000) -- --

Interest payable on loan from Veolia International SA 22 (6,045) (6,045) (4,961) (4,961)

Cash pooling with Veolia International SA 22 (2,548,631) (2,548,631) (1,989,655) (1,989,655)

Other financial liabilities 22 (31,830) (31,830) (30,395) (30,395) Trade, tax and other payables 25.12 (2,807,122) (2,807,122) (2,791,859) (2,791,859) Total (4,248,532) (4,248,532) (2,558,356) (2,558,356)

Note: The above figures do not include derivatives.

The method of calculation of fair values is described in Note 4. In accordance with IFRS 7 Financial Instruments: Disclosures, for measuring fair value, the Company uses Level 3 inputs, which are not based on observable market data (objectively unobservable inputs). Interest rates used to calculate fair values The interest rates used to discount cash flows were, as far as possible, based on: the interest rate on government bonds as at the date of the statement of financial position in respect of derivatives, and the market interest rate in respect of bonds. The rates applied are as follows:


Derivatives 0.53% 0.50% 28. Operating leases

Major operating lease agreements include the following: an agreement with the municipality of Krnov until 2026, an agreement with the municipality of Mariánské Lázně until 2039, an agreement with the municipality of Olomouc until 2019, an agreement on the lease and operation of hydroelectric power plant equipment and sub-lease of the hydroelectric power plant building with MVE Kolín s.r.o., an agreement on the heating system of the municipality of Nový Jičín until 2017, an agreement with Teplo – byty Roudnice until 2021, an agreement with Sneo, a.s., Praha 6 until 2021, an agreement with RPG Byty for an indefinite term and an agreement with Fakultní nemocnice Ostrava until 2022. The rent for lease terms that cannot be terminated totals CZK 530 million (2015: CZK 617 million). The lease payments for plant and machinery are due over the following periods. The Group also rents non-residential space, utility tunnels, vehicles and IT equipment.




Total Within 1 year

1–5 years More than 5 years

Lease – Nový Jičín 12,099 12,099 -- -- Lease – Fakultní nemocnice Ostrava 12,164 3,041 9,123 -- Lease – Krnov 25,105 2,511 10,042 12,552 Lease – RPG Byty 32,080 6,416 25,664 * Lease – Hydroelectric power plant MVE Kolín s.r.o.** 93,130 8,731 34,924 49,475

Sublease – Sneo a.s., Praha 6 8,305 1,661 6,644 -- Sublease – Teplo-byty Roudnice 7,500 1,500 6,000 -- Lease – Olomouc 9,871 2,870 7,001 -- Lease – Mariánské Lázně - Bytov 27,600 1,200 4,800 21,600 Lease – Mariánské Lázně 48,476 1,891 7,563 39,022 Lease of plant and equipment - OKD 43,688 7,959 24,621 11,108 Total 320,018 49,879 136,382 133,757 * The lease agreements have been concluded for an indefinite period of time with a six-month notice period. **The lease payment comprises a fixed rent amount and a variable component based on electricity generation.


Total

Within 1

year

1–5 years

More than

5 years Lease – Nový Jičín 24,198 12,099 12,099 -- Lease – Fakultní nemocnice Ostrava 15,473 3,095 12,378 * Lease – Krnov 28,062 2,957 10,967 14,138 Lease – RPG Byty 15,892 3,178 12,714 * Lease – Hydroelectric power plant MVE Kolín s.r.o. 104,102 8,923 35,692 59,487

Sublease – Sneo a.s., Praha 6 11,627 1,661 6,644 3,322 Sublease – Teplo-byty Roudnice 9,000 1,500 6,000 1,500 Lease – Olomouc 12,666 2,795 9,871 -- Lease – Mariánské Lázně - Bytov 28,800 1,200 4,800 22,800 Lease – Mariánské Lázně 50,367 1,891 7,563 40,913 Total 300,187 39,299 118,728 142,160 * The lease agreements have been concluded for an indefinite period of time.

29. Related parties

Transactions with related parties The Company is controlled by the multinational company Veolia Energie International SA and its ultimate parent company, Veolia Environnement – VE SA.

Transactions with Group’s management personnel Neither the directors of the Group companies nor their immediate relatives own any voting shares in Group entities. Management personnel compensation In addition to their salaries, the Group also provides cars and mobile telephones for both business and private purposes to directors and executive officers.



In thousands of CZK 2016 2015 Employee compensation 90,454 95,824 Long-term benefits 6,291 5,641 Total employee compensation 96,745 101,465

30. Companies in the Group

Sales and purchases within the Group Typical transactions between the Group and the parent company Sales transactions:

Technical audits performed on behalf of Veolia Energie International SA Re-invoicing of expatriate employees’ living costs in Czech Republic Transactions with emission allowances

Purchase transactions:

Advisory services provided to the Group Invoicing of expatriate employees’ salary costs to the Group Transactions with emission allowances

All significant transactions with related parties were carried out under arm’s length conditions. All entities within the Veolia group are considered to be related parties. The Group discloses only material relations with those entities.

In thousands of CZK 2016 2015 Purchase Sale Purchase Sale Veolia Environnement Finance / Veetra 222,133 -- 247,078 -- Veolia Energie International SA 98 -- -- -- Veolia Environnement – VE SA 97,867 2,368 174,063 1,927 Veolia Energia Polska SA 171,177 -- 394,156 -- Veolia Energia Slovensko 221 -- 11,549 -- Dalkia Industry Žiar nad Hronom -- -- -- 6,589 Institut Environmentálních služeb 8,802 -- 10,343 -- Solution and Services, a.s. 42,594 -- -- -- Pražské vodovody a kanalizace, a.s. 2,951 56,888 2,034 62,858 MORAVSKÁ VODÁRENSKÁ, a.s. 2,309 22,581 2,324 24,489 Severočeské vodovody a kanalizace, a.s. -- 76,092 -- 80,329 VODÁRNA PLZEŇ a.s. -- -- -- 15,120 Středočeské vodárny, a.s. -- 19,966 -- 22,188 Královehradecká provozní, a.s. -- 7,761 -- -- Vodohospodářská společnost Sokolov -- 6,106 -- -- 1. SčV, a.s. -- 7,849 Vodospol, s.r.o. -- 1,234 -- -- Ravos, s.r.o. -- 2,459 -- -- Veolia Voda Česká republika 1,936 -- -- -- Total 550,088 203,304 841,547 213,500



The Group is involved in a Veolia cash pool (see Notes 20 and 22).

In thousands of CZK 2016 2015 Receivables Payables Receivables Payables Veolia Environnement Finance / Veetra -- 158 -- 1,096 Veolia Energie International SA 231 -- 1,841 -- Veolia Environnement – VE SA 17 5,637 11,183 58,195 Veolia Energia Polska SA -- 208 -- 31,692 Veolia Energia Slovensko 81 -- -- 1,354 SPID2 220 -- 416 -- Institut Environmentálních služeb -- 293 -- 269 Solution and Services, a.s. 204 11,741 -- 3,268 Veolia Centrum Uslug Wspólnych Sp z o -- 1,697 -- 2,647 Pražské vodovody a kanalizace, a.s. 16,853 -- 28,281 -- MORAVSKÁ VODÁRENSKÁ, a.s. 12,377 256 12,877 157 Severočeské vodovody a kanalizace, a.s. 11,069 -- 40,573 -- VODÁRNA PLZEŇ a.s. -- -- 11,300 -- Středočeské vodárny, a.s. 5,532 -- 5,324 -- Královéhradecká provozní, a.s. 5,081 -- 6,362 -- Vodohospodářská společnost Sokolov, s.r.o.

1,815 -- 4,265 --

1. SčV, a.s. 6,613 -- 5,771 -- Vodospol, s.r.o. 752 -- -- -- Ravos, s.r.o. 1,231 -- -- -- Veolia Voda Česká republika -- 327 -- -- Total 62,076 20,317 128,193 98,678

31. Capital commitments

The Group concludes contracts for the lease and operation of heating systems for schools, hospitals, residential buildings, and municipal and industrial sites. In accordance with these lease agreements the Group is committed to provide financing for the modernisation of these leased assets.

32. Fees for statutory auditors

This information is disclosed in the notes to the consolidated financial statements prepared for the broadest consolidation group.

33. Subsequent events

No events occurred between the date of the statement of financial position and the date of preparation of the financial statements that would have any material impact on the financial statements as at 31 December 2016, or that should be disclosed in the financial statements.


4 Report on Related Parties


Report on Related Parties between

the controlling and controlled entities and between the controlled entity and other entities under common control (related parties)

for the accounting period of 2016

prepared

under Section 82 of Act No 90/2012 on commercial companies and cooperatives (the Business Corporations Act), as amended,

by the Board of Directors of Veolia Energie ČR, a.s.

having its registered office at 28. října 3337/7, Moravská Ostrava, 702 00 Ostrava Company No.: 451 93 410,

a company incorporated in the Companies Register maintained by the Ostrava Regional Court, Section B, File 318

Contents 1. Preamble 2. Specification and description of related parties 3. Role of the controlled entity, methods and means of control, and evaluation of the

advantages and disadvantages arising from relations between the related parties 4. Overview of agreements between related parties, assessment of damage and compensation

for damage under Sections 71 and 72 BCA, and overview of acts made at the instigation or in the interest of the controlling entity or entities controlled by the controlling entity

5. Conclusion


I.

Preamble The Report has been prepared by the Company’s governing body under Section 82 of Act No 90/2012 on commercial companies and cooperatives (the Business Corporations Act – BCA), as amended, on 21 February 2017.

The accuracy of the disclosures contained herein was reviewed by the auditors, KPMG Česká republika Audit, s.r.o.

The Report has been prepared for the accounting period of 2016.

II. Specification and description of related parties

Controlled company Name: Veolia Energie ČR, a.s. Registered office: 28. října 3337/7, Moravská Ostrava, 702 00 Ostrava Register entry: B 318, Companies Register maintained by the Ostrava Regional Court Company No.: 451 93 410 Legal form: Public limited company Hereinafter also referred to as Veolia Energie ČR, or the controlled/dependent company/entity, or the Company. Controlling companies and entities controlling the controlling companies Name:

SOCIETE DE PARTICIPATIONS ET D’INVESTISSEMENTS DIVERSIFIES 2 (short name: SPID 2)

Registered office: 36-38 Avenue Kléber, 75116 Paris, France Company No.: 399 345 206 R.C.S. Paris Legal form: Public limited company As at 18 May 2016 SPID 2 and Veolia Energie International merged. Name: VEOLIA ENERGIE INTERNATIONAL Registered office: 21 rue La Boétie, 75008 Paris, France Company No.: 433 539 566 R.C.S. Paris Legal form: Public limited company Name: VEOLIA ENVIRONNEMENT-VE Registered office: 21 rue La Boétie, 75008 Paris, France Company No.: 403 210 032 R.C.S. Paris Legal form: Public limited company Related parties Name: VEOLIA ENVIRONNEMENT ENERGIE ET VALORISATION Registered office: 21 rue La Boétie, 75008 Paris, France Company No.: 488 770 785 R.C.S. Paris Legal form: Simplified public limited company Name: VEOLIA ENVIRONNEMENT TECHNOLOGIES FRANCE Registered office: 1, rue Giovanni Battista Pirelli, 94410 Saint Maurice, France Company No.: 434 011 540 R.C.S. Créteil Legal form: Simplified public limited company As at 1 July 2016, the Company merged with Veolia Environnement.


Name:

VEETRA

Registered office: 36-38 Avenue Kléber, 75016 Paris, France Company No.: 434 007 191 R.C.S. Paris Legal form: Public limited company with an administrative board (conseil

d’administration) As at 28 September 2016, VEETRA merged with Veolia Environnement Finance. Name: VEOLIA ENVIRONNEMENT FINANCE Registered office: 21 rue La Boétie, 75008 Paris, France Company No.: 525 355 475 R.C.S. Paris Legal form: Simplified public limited company Name: CAMPUS VEOLIA ENVIRONNEMENT Registered office: Château d’Ecancourt, Rue d’Ecancourt, 95280 Jouy-Le-Moutier, France Company No.: 440 234 953 R.C.S. Pontoise Legal form: Simplified public limited company Name:

Energie Projekt ČR, s.r.o. ‘in liquidation’

Registered office: Praha 2, Americká 415 Company No.: 257 06 969 Register entry: C 62955, Companies Register maintained by the Prague Municipal Court Legal form: Private limited company The company has been in liquidation since 1 April 2016. Name: JVCD, a.s. Registered office: Praha 2, Americká 36/415, postcode 120 00 Company No.: 601 93 204 Register entry: B 2321, Companies Register maintained by the Prague Municipal Court Legal form: Public limited company Name: OLTERM & TD Olomouc, a.s. Registered office: Janského 469/8, Povel, 779 00 Olomouc Company No.: 476 77 511 Register entry: B 872, Companies Register maintained by the Ostrava Regional Court Legal form: Public limited company Name: AmpluServis, a.s. Registered office: Ostrava-Třebovice, ul. Elektrárenská 5558, postcode 70974 Company No.: 651 38 317 Register entry: B 1258, Companies Register maintained by the Ostrava Regional Court Legal form: Public limited company Name: Veolia Energie Kolín, a.s. Registered office: Kolín V., Tovární 21, postcode 280 63 Company No.: 451 48 091 Register entry: B 1523, Companies Register maintained by the Prague Municipal Court Legal form: Public limited company Name:

Veolia Energie Mariánské Lázně, s.r.o.

Registered office: Nádražní náměstí 294, Úšovice, 353 01 Mariánské Lázně Company No.: 497 90 676 Register entry: C 4776, Companies Register maintained by the Plzeň Regional Court Legal form: Private limited company Name: Veolia Průmyslové služby ČR, a.s. Registered office: Zelená 2061/88a, Mariánské Hory, 709 00 Ostrava

Doručovací číslo: 709 74 Company No.: 278 26 554 Register entry: B 3722, Companies Register maintained by the Ostrava Regional Court Legal form: Public limited company


Name:

Veolia Komodity ČR, s.r.o.

Registered office: 28. října 3337/7, Moravská Ostrava, 702 00 Ostrava Company No.: 258 46 159 Register entry: C 21431, Companies Register maintained by the Ostrava Regional Court Legal form: Private limited company Name:

Veolia Energie Praha, a.s.

Registered office: Na Florenci 2116/15, Nové Město, 110 00 Praha 1 Company No.: 036 69 564 Register entry: B 20284, Companies Register maintained by the Prague Municipal Court Legal form: Public limited company The entity became a Veolia Group company on 1 June 2016. Name: Veolia Powerline Kaczyce Sp. z o.o. Registered office: Morcinka 17, 43-417 Kaczyce, Poland Company No.: 141 89 229, Regional Registry Court in Bielsko Biala Legal form: Private limited company Name: Institut environmentálních služeb, a.s. Registered office: Podolská 15/17, Podolí, 147 00 Praha 4 Company No.: 629 54 865 Register entry: B 9967, Companies Register maintained by the Prague Municipal Court Legal form: Public limited company Name: Veolia Eau - Compagnie Générale des Eaux Registered office: 21 rue La Boétie, 75008 Paris, France Company No.: 572 025 526 R.C.S. Paris Legal form: Partnership limited by shares Name: VEOLIA CENTRAL & EASTERN EUROPE Registered office: 21 rue La Boétie, 75008 Paris, France Company No.: RCS PARIS B 433 934 809 Legal form: Public limited company Name: VEOLIA ČESKÁ REPUBLIKA, a.s. Registered office: Na Florenci 2116/15, Nové Město, 110 00 Praha 1 Company No.: 492 41 214 Register entry: B 2098, Companies Register maintained by the Prague Municipal Court Legal form: Public limited company Name: Pražské vodovody a kanalizace, a.s. Registered office: Ke Kablu 971/1, Hostivař, 102 00 Praha 10 Company No.: 256 56 635 Register entry: B 5297, Companies Register maintained by the Prague Municipal Court Legal form: Public limited company Name: MORAVSKÁ VODÁRENSKÁ, a.s. Registered office: Tovární 1059/41, Hodolany, 779 00 Olomouc Company No.: 618 59 575 Register entry: B 1943, Companies Register maintained by the Ostrava Regional Court Legal form: Public limited company Name: VODOSPOL s.r.o. Registered office: Ostravská 169, Klatovy IV, 339 01 Klatovy Company No.: 483 65 351 Register entry: C 3931, Companies Register maintained by the Plzeň Regional Court Legal form: Private limited company Name: Středočeské vodárny, a.s.


Registered office: Kladno, U Vodojemu 3085, postcode 272 80 Company No.: 261 96 620 Register entry: B 6699, Companies Register maintained by the Prague Municipal Court Legal form: Public limited company Name: Severočeské vodovody a kanalizace, a.s. Registered office: Teplice, Přítkovská 1689, postcode 415 50 Company No.: 490 99 451 Register entry: B 465, Companies Register maintained by the Ústí nad Labem Regional

Court Legal form: Public limited company Name: RAVOS, s.r.o. Registered office: Frant. Diepolta 1870, Rakovník II, 269 01 Rakovník Company No.: 475 46 662 Register entry: C 19602, Companies Register maintained by the Prague Municipal Court Legal form: Private limited company Name: Vodohospodářská společnost Sokolov, s.r.o. Registered office: Jiřího Dimitrova 1619, 356 01 Sokolov Company No.: 453 51 325 Register entry: C 2378, Companies Register maintained by the Plzeň Regional Court Legal form: Private limited company Name: Královéhradecká provozní, a.s. Registered office: Víta Nejedlého 893/6, Slezské Předměstí, 500 03 Hradec Králové Company No.: 274 61 211 Register entry: B 2383, Companies Register maintained by the Hradec Králové Regional

Court Legal form: Public limited company Name: 1. SčV, a.s. Registered office: Praha 10, Ke Kablu 971, postcode 100 00 Company No.: 475 49 793 Register entry: B 10383, Companies Register maintained by the Prague Municipal Court Legal form: Public limited company Name: Česká voda – Czech Water, a.s. Registered office: Ke Kablu 971/1, Hostivař, 102 00 Praha 10 Company No.: 250 35 070 Register entry: B 12115, Companies Register maintained by the Prague Municipal Court Legal form: Public limited company Name: Solutions and Services, a.s. Registered office: Na Florenci 2116/15, Nové Město, 110 00 Praha 1 Company No.: 272 08 320 Register entry: B 11409, Companies Register maintained by the Prague Municipal Court Legal form: Public limited company Name: Veolia Support Services Česká republika, a.s. Registered office: Na Florenci 2116/15, Nové Město, 110 00 Praha 1 Company No.: 290 60 770 Register entry: B 18573, Companies Register maintained by the Prague Municipal Court Legal form: Public limited company Name:

Veolia Vedlejší produkty ČR, s.r.o.

Registered office: Dělnická 6082/34, Poruba, 708 00 Ostrava Company No.: 247 15 964 Register entry: C 63276, Companies Register maintained by the Ostrava Regional Court Legal form: Private limited company Name:

Veolia Energia Slovensko, a.s.


Registered office: Einsteinova 25, Bratislava 851 01, Slovakia Company No.: 357 02 257 Register entry: 1188/B, Companies Register maintained by the Bratislava District Court Legal form: Public limited company Name:

Veolia Energia Polska S.A.

Registered office: Plac Unii C, ul. Puławska 2, 02-566 Warsaw, Poland Company No.: 945 16 47 866 Register entry: 0000006129 maintained by the Warsaw District Court Legal form: Public limited company

Name: Veolia Centrum Usług Wspólnych Sp. z o.o. Registered office: Al. Solidarności 46, 61-696 Poznań, Poland Company No.: 701 00 29 635 Register entry: 0000261026 maintained by the Poznań District Court Legal form: Private limited company Note 1: Schematic diagrams of the Group composed of the controlling and controlled entities as the related parties are shown in Annexes 1 and 2 to this Report. Note 2: The following entities joined the Veolia Group in the Czech Republic and became related parties as of 1 February 2017:

Name: TEGAMO Waste, s.r.o. Registered office: Huťská 1379, 272 01 Kladno Company No.: 05647550 Register entry: C 268254, Companies Register maintained by the Prague Municipal Court Legal form: Private limited company Name:

EKOSEV, s.r.o.

Registered office: Huťská 1379, 272 01 Kladno Company No.: 259 15 819 Register entry: C 197086, Companies Register maintained by the Prague Municipal Court Legal form: Private limited company Name:

Envir s.r.o.

Registered office: Huťská 1379, 272 01 Kladno Company No.: 287 71 419 Register entry: C 26451 maintained by the Hradec Králové Regional Court Legal form: Private limited company

III. Role of the controlled entity, methods and means of control, and evaluation of the advantages and disadvantages arising from relations between the related parties

Within the meaning of Section 79 of Act No 90/2012 on commercial companies and cooperatives, the Business Corporations Act (BCA), Veolia Energie ČR, a.s. is a dependent entity within the Group and is subject to joint management under a common policy of strategic management of the Group; for the dependent entity, the above primarily generates advantages from the know-how provided within the Group for performing the controlled entity’s business.

The dependent entity is controlled through the exercise of the shareholders’ rights at the Company’s general meetings by the majority representation of one shareholder, who thanks to their shares of voting rights has the influence to appoint their representatives to the Company’s bodies and so can influence the business management of the Company. On the other hand, however, under the Company’s Articles of Association all important essential decisions of the general meeting are subject to approval by a qualified percentage of the shareholders, when the general meeting decides on matters under Article 13 (1) (a), (b), (c), (j),


(k), (l), (m), (o), (p), (q), (r) a (s) of the Articles of Association by at least 87 % of the votes of all shareholders.

The Company is not exposed to any future or long-term risks as a result of its membership of the Veolia Group and the governing body is not aware of any material future developments that may jeopardise the Company as a result of its belonging to the Group.

Veolia Energie ČR, a.s. is not aware of any shareholders’ agreements on the exercise of voting rights in place between the Company’s shareholders.

IV. Overview of agreements between related parties, assessment of damage and compensation

for damage under Sections 71 and 72 BCA, and overview of acts made at the instigation or in the interest of the controlling entity or entities controlled by the controlling entity

A. Relations with controlling companies and entities controlling the controlling companies A1. SPID 2 No contracts were concluded or performed, no legal acts were executed or measures taken in relation to this company, and there were no deliveries or considerations between the controlled and controlling companies. Facilitated services (Central Securities Depository and Unicredit Bank costs) were re-invoiced by Veolia Energie ČR, a.s. to SPID 2 according to actual expenditure facilitated. A2. VEOLIA ENERGIE INTERNATIONAL A Group Cash Pool Agreement has been concluded between Veolia Energie ČR, a.s. and VEOLIA ENERGIE INTERNATIONAL on an arm’s length basis. Costs equalling the actually facilitated expenditure were re-invoiced. A3. VEOLIA ENVIRONNEMENT A Service Agreement, an Employee Secondment Agreement and an International Cash Pooling Agreement are in place between Veolia Energie ČR, a.s. and VEOLIA ENVIRONNEMENT on an arm’s length basis. VEOLIA ENVIRONNEMENT re-invoiced costs equalling the actually facilitated expenditure for pension plans and IT services (Mona, Ember and Maximo support). Veolia Energie ČR, a.s. re-invoiced costs for an employee posted by VEOLIA ENVIRONNEMENT, which equalled the actual expenditure.

B. Relations to related parties

B1. VEOLIA ENVIRONNEMENT FINANCE VEOLIA ENVIRONNEMENT FINANCE and Veolia Energie ČR, a.s. concluded an Agreement on CO2 Allowance Trading and an Agreement on Fuel Price Risk Hedging on an arm’s length basis. No other contracts between VEOLIA ENVIRONNEMENT FINANCE and Veolia Energie ČR, a.s. were concluded or performed.

B2. Energie Projekt ČR, s.r.o. ‘in liquidation’ A Service Agreement was concluded between Energie Projekt ČR, s.r.o. and Veolia Energie ČR, a.s. on an arm’s length basis; the agreement was not performed in 2016. No other contracts between Energie Projekt ČR, s.r.o. and Veolia Energie ČR, a.s. were concluded or performed.


B3. JVCD, a.s. A Service Agreement was concluded between Veolia Energie ČR, a.s. and JVCD, a.s. on an arm’s length basis; the agreement was not performed in 2016. No other contracts between JVCD, a.s. and Veolia Energie ČR, a.s. were concluded or performed.

Veolia Energie ČR, a.s. records a receivable from JVCD, a.s. from previous years for facilitating the payment for Securities Centre services. B4. OLTERM & TD Olomouc, a.s. The following agreements are in place between OLTERM & TD Olomouc, a.s. and Veolia Energie ČR, a.s.: Agreements where Veolia Energie ČR, a.s. is the supplier: - Agreement on Thermal Energy (steam, hot water) Supply, Including Make-up Water for

Heat Producing Installations; - Agreement on Heat Supply for the Olomouc Swimming Pool; - Agreement on IS Support; - Lease Agreement on a Connecting Steam Pipe; - Agreement on Wage Processing; - Agreement on Regular Management Advice; - Agreement on Fund Management in the Group; - Agreement on Supplier Invoice Processing; - Agreement on Cooperation in Joint Use of Heat Meters; Agreements where Veolia Energie ČR, a.s. is the customer: - Agreement on the Operation of the Generál Píka Heat Producing Installation; - Lease Agreement on a Connecting Hot Water Pipe; - Lease Agreement on Advertising Space at the Olomouc Swimming Pool; - Commercial Space Lease Agreement;

all of them on an arm’s length basis.

Veolia Energie ČR, a.s. and OLTERM & TD Olomouc, a.s. have entered into a Master Agreement on Mutual Provision of Services and Assistance.

The companies also re-invoiced services (insurance, heat meters, accommodation, renting of halls, consumables, communications, travel costs, employee benefits, etc.).

The Company and OLTERM & TD Olomouc, a.s. have in place an easement agreement in which both parties are specified as entitled persons who have no rights and obligations to one another.

They also have an agreement on the installation of a telecommunications cable as part of the laying of a connecting steam pipeline, free of charge throughout the life of the buried cable. B5. AmpluServis, a.s. Veolia Energie ČR, a.s. and AmpluServis, a.s. have the following in place: Agreements where Veolia Energie ČR, a.s. is the supplier: - Agreement on Heat and Electricity Provision; - Service Agreements; - Agreement on Fund Management in the Group, including implementing addenda; - Commercial Space Lease Agreements; - Agreements on Changing Room Use; - Agreement on Industrial Gas Supply;


- Agreement on Liabilities Settlement – provision of bank guarantees by KB, a.s.; Agreements where Veolia Energie ČR, a.s. is the customer: - Agreements on Installation and Repair; - Agreements on Chemical Services; - Agreements on Expert Services;


Veolia Energie ČR, a.s. takes out insurance policies for AmpluServis, a.s. and then re-invoices the costs. Veolia Energie ČR, a.s. also re-invoices AmpluServis, a.s. for costs incurred in telephone services.

AmpluServis, a.s. made a financial donation to the Veolia Energie Humain ČR Foundation set up by Veolia Energie ČR, a.s.

B6. Veolia Energie Kolín, a.s. Veolia Energie ČR, a.s. and Veolia Energie Kolín, a.s. have the following in place: Agreements where Veolia Energie ČR, a.s. is the supplier: - Agreement on Electricity Supply; - Service Agreements; - Agreement on Fund Management in the Group, including implementing addenda; Agreements where Veolia Energie ČR, a.s. is the customer: - Agreement on Electricity Supply and Agreement on Imbalance Clearing;


Veolia Energie ČR, a.s. takes out insurance policies for Veolia Energie Kolín, a.s. and then re-invoices the costs. B7. Veolia Energie Mariánské Lázně, s.r.o. Veolia Energie ČR, a.s. and Veolia Energie Mariánské Lázně, s.r.o. have the following in place: Agreements where Veolia Energie ČR, a.s. is the supplier: - Agreement on Electricity Supply; - Agreement on Abstraction Well Lease; - Agreement on o a steam micro-turbine lease; - Service Agreements; - Agreement on Fund Management in the Group, including implementing addenda; Agreements where Veolia Energie ČR, a.s. is the customer: - Agreement on Electricity Supply;


Veolia Energie ČR, a.s. takes out insurance policies for Veolia Energie Mariánské Lázně, s.r.o. and then re-invoices the costs. B8. Veolia Průmyslové služby ČR, a.s. Veolia Energie ČR, a.s. and Veolia Průmyslové služby ČR, a.s. have the following in place: Agreements where Veolia Energie ČR, a.s. is the supplier:

- Agreement on Thermal Energy Sale, the ČSA site; - Agreement on Thermal Energy Sale, the LAZY Site; - Agreement on Treated Water Supply for Cold Production, the ČSA Site; - Agreement on the Connection of Producers TKV and TČA;


- Agreement on Fixed Prices for Distributed Generation and Re-invoicing of Costs Related to ČEZ Distribuce’s Consumption,

- Inspection Agreement – Checks and Evaluation of Fuel Supply Quality; - Agreement on Services and on the Use of Substations of Teplárny Karviná; - Agreement on Services and on the Use of Substations of Teplárny Ostrava; - Agreement on Commercial Space Lease, a warehouse at Veolie Energie ČR, Karviná-

Doly, Svobody 5; - Agreement on Commercial Space Lease at Zelená 2061, Ostrava-Mariánské Hory; - Mandate for the Handling of and Trading in Greenhouse Gas Emission Allowances, - Agreement on Investment Acquisition Services and Advisory; - Agreement on Fund Management in the Group, including implementing addenda; - Service Agreement;

Agreements where Veolia Energie ČR, a.s. is the customer: - Agreement on Capacity Booking and Heat Supply in Emergencies and Outages

for the Lazy Site; - Lease Agreement on a 22 kV Line, designated D 641, at the Karviná CHP Plant

(interconnection between ČSA and TKV); - Agreement on Heat and Electricity Supply; - Agreement for the Servicing of Compressors, - Contract for Work relating to the Optimisation of Air Pumps for the Krnov CHP Plant; - Contract for Work – repair of a faulty 23 kV cable for transformer T23; - Agreement on the Lease of a Part of the Enterprise;


Veolia Energie ČR, a.s. takes out insurance policies for Veolia Průmyslové služby ČR, a.s. and then re-invoices the costs, equalling the actually incurred costs. B9. Veolia Komodity ČR, s.r.o. Veolia Energie ČR, a.s. and Veolia Komodity ČR, s.r.o. have the following in place: Agreements where Veolia Energie ČR, a.s. is the supplier: - Service Agreement; - Agreement on Fund Management in the Group, including implementing addenda; - Commercial Space Sublease Agreement and Personal Property Lease Agreement; - Agreement on Electrical Energy Purchase and Sale; Agreements where Veolia Energie ČR, a.s. is the customer: - Agreement on Bundled Gas Supply;


Veolia Energie ČR, a.s. takes out insurance policies for Veolia Komodity ČR, s.r.o. and then re-2invoices the costs equalling the actually incurred costs. B10. Veolia Energie Praha, a.s. Veolia Energie ČR, a.s. and Veolia Energie Praha, a.s. have the following in place: Agreements where Veolia Energie ČR, a.s. is the supplier: - Agreement on Electricity Supply; - Agreement on Fund Management in the Group; Agreements where Veolia Energie ČR, a.s. is the customer: - Agreement on Heat Supply; - Agreement on Imbalance Clearing;



Veolia Energie ČR, a.s. takes out insurance policies for Veolia Energie Praha, a.s. and then re-invoices the costs, equalling the actually incurred costs.

B11. Institut environmentálních služeb, a.s. Under an Agreement on Cooperation in Employee Education, Institut environmentálních služeb, a.s. provided Veolia Energie ČR, a.s. with services in the education of its employees, education record keeping in the personnel system, and regular reporting on education, on an arm’s length basis. It then re-invoiced the costs related to leases and accommodation for the courses.

B12. Pražské vodovody a kanalizace, a.s. Veolia Energie ČR, a.s. and Pražské vodovody a kanalizace, a.s. have in place an Agreement on Comprehensive Services and Maintenance of Heating and Cooling Plants on an arm’s length basis.

In 2016, Pražské vodovody a kanalizace, a.s. and Veolia Energie ČR, a.s. performed under agreements on water supply and wastewater drainage; the performance in 2016 included water supply from the drinking water system and the drainage of wastewater through the sewerage system on an arm’s length basis.

Veolia Energie ČR, a.s. re-invoiced Pražské vodovody a kanalizace, a.s. for costs equalling the actually incurred costs B13. VEOLIA ČESKÁ REPUBLIKA, a.s. No written agreements in documentary form are in place.

In 2016, VEOLIA ČESKÁ REPUBLIKA, a.s. re-invoiced Veolia Energie ČR, a.s. for the costs of conference organisation, public relations services, production of promotional materials and translations. Costs equalling the actually facilitated expenditure were re-invoiced.

Veolia Energie ČR, a.s. made a financial donation to the Veolia Foundation set up by VEOLIA ČESKÁ REPUBLIKA, a.s.

B14. Česká voda - Czech Water, a.s. Veolia Energie ČR, a.s. and Česká voda – Czech Water, a.s. have in place an Agreement on the Facilitation of Sales and Purchase of Fuel for vehicles of Veolia Energie ČR, a.s. on an arm’s length basis. Based on Česká voda – Czech Water, a.s.’s service orders, Veolia Energie ČR, a.s. carries out repairs in the boiler rooms of operating buildings. B15. MORAVSKÁ VODÁRENSKÁ, a.s. In 2016, Veolia Energie ČR, a.s. and MORAVSKÁ VODÁRENSKÁ, a.s. performed under agreements on water supply and wastewater drainage; the performance in 2016 included water supply from the drinking water system and the drainage of wastewater through the sewerage system on an arm’s length basis. B16. Solutions and Services, a.s. Veolia Energie ČR, a.s. and Solutions and Services, a.s. have in place a Service Agreement, a Cooperation Agreement – Contact Centre, and an Agreement on IT Services and Advisory on an arm’s length basis. In 2016, Solutions and Services, a.s. invoiced Veolia Energie ČR, a.s. for costs, according to actual expenditure facilitated. B17. CAMPUS VEOLIA ENVIRONNEMENT


No written agreements in documentary form are in place.

In 2016 CAMPUS VEOLIA ENVIRONNEMENT invoiced Veolia Energie ČR, a.s. for costs related to the organisation of training and courses, according to actual expenditure facilitated. B18. Veolia Energia Slovensko, a.s. Veolia Energie ČR, a.s. and Veolia Energia Slovensko, a.s. have in place a Service Agreement on an arm’s length basis. B19. Veolia Energia Polska, A.S. No written agreements in documentary form are in place.

Veolia Energia Polska, a.s. re-invoiced Veolia Energie ČR, a.s. for costs related to the organisation of a workshop, according to the actual expenditure facilitated.

B20. Veolia Centrum Usług Wspólnych Sp. z o.o. Veolia Energie ČR, a.s. and Veolia Centrum Usług Wspólnych Sp. z o.o. have in place an Agreement on Technology and IT Services on an arm’s length basis.

In 2016 Veolia Centrum Usług Wspólnych Sp. z o.o. invoiced Veolia Energie ČR, a.s. for costs related to the provision of training. All re-invoiced amounts equalled the actually facilitated expenditure.

B21. Other related parties No contracts were concluded or performed, no legal acts were made, and no deliveries or considerations were provided between the other related companies within the Group.

C. Overview of acts carried out at the instigation or in the interest of controlling entities In 2016 no acts were carried out at the instigation or in the interest of the controlling entity or entities controlled by the controlling entity concerning assets in excess of 10 % of the controlled entity’s equity and the controlled entity was not inhibited from making certain acts or strategic decisions due to control over the Company and due to controlling entities’ interest or instigation.

V. Conclusion

On the basis of the information available to the Board of Directors and its individual members, and in view of the information above, the Board of Directors states that in the period under review, the controlled company suffered no damage in its relations with the controlling entity or in relations between Related Parties. Furthermore, the Board of Directors notes that the Report is complete and that the disclosure of any additional information, in particular such as would extend the scope or depth of the disclosures made herein, is subject to trade secrecy under Section 504 of Act No 89/2012, the Civil Code. Prague, 23 March 2017

Philippe Guitard Josef Novák Chairman of the Board of Directors Vice-Chairman of the Board of Directors

No written agreements in documentary form are in place.

In 2016 CAMPUS VEOLIA ENVIRONNEMENT invoiced Veolia Energie ČR, a.s. for costs related to the organisation of training and courses, according to actual expenditure facilitated. B18. Veolia Energia Slovensko, a.s. Veolia Energie ČR, a.s. and Veolia Energia Slovensko, a.s. have in place a Service Agreement on an arm’s length basis. B19. Veolia Energia Polska, A.S. No written agreements in documentary form are in place.

Veolia Energia Polska, a.s. re-invoiced Veolia Energie ČR, a.s. for costs related to the organisation of a workshop, according to the actual expenditure facilitated.

B20. Veolia Centrum Usług Wspólnych Sp. z o.o. Veolia Energie ČR, a.s. and Veolia Centrum Usług Wspólnych Sp. z o.o. have in place an Agreement on Technology and IT Services on an arm’s length basis.

In 2016 Veolia Centrum Usług Wspólnych Sp. z o.o. invoiced Veolia Energie ČR, a.s. for costs related to the provision of training. All re-invoiced amounts equalled the actually facilitated expenditure.

B21. Other related parties No contracts were concluded or performed, no legal acts were made, and no deliveries or considerations were provided between the other related companies within the Group.

C. Overview of acts carried out at the instigation or in the interest of controlling entities In 2016 no acts were carried out at the instigation or in the interest of the controlling entity or entities controlled by the controlling entity concerning assets in excess of 10 % of the controlled entity’s equity and the controlled entity was not inhibited from making certain acts or strategic decisions due to control over the Company and due to controlling entities’ interest or instigation.

V. Conclusion

On the basis of the information available to the Board of Directors and its individual members, and in view of the information above, the Board of Directors states that in the period under review, the controlled company suffered no damage in its relations with the controlling entity or in relations between Related Parties. Furthermore, the Board of Directors notes that the Report is complete and that the disclosure of any additional information, in particular such as would extend the scope or depth of the disclosures made herein, is subject to trade secrecy under Section 504 of Act No 89/2012, the Civil Code. Prague, 23 March 2017


VEOLIA ENERGIE INTERNATIONAL

Institut environmentálních

služeb, a.s.

AmpluServis, a.s.

Veolia Energie Mariánské Lázně,

s.r.o.

OLTERM & TD Olomouc, a.s.

Veolia Energie Kolín, a.s.

Energie Projekt ČR, s.r.o.

‘in liquidation’ Veolia Powerline Kaczyce Sp. z o.o. Veolia Průmyslové

služby ČR, a.s.


JVCD, a.s. 100 %

30 %

100 %

100 %

100 %

73.06 %

100 %

100 %

100 %

100 %

99.95 %

Veolia Komodity ČR, s.r.o.

Notes:

- Veolia Energie International merged with Société de Participations et d’Investissements diversifiés 2 on 18 May 2016 and now owns 73.06 % of shares in Veolia Energie ČR, a.s.

- Veolia Energie Praha, a.s. became a member of the Veolia Group on 1 June 2016.

- Dalkia s.r.o. was renamed Energie Projekt ČR, s.r.o. on 25 January 2016 and has been in liquidation since 1 April 2016.

VEOLIA ENVIRONNEMENT

66 %

Lines of control

Annex 1 to the Report on Related Parties of Veolia Energie ČR, a.s., i.e. the report on

relations between the controlling and controlled entities and between the controlled entity and other entities under common control (related

parties)

Veolia Energie Praha, a.s.

100 %

99.99 %

99.99 %

100 %

VEOLIA CENTRAL & EASTERN EUROPE

MORAVSKÁ VODÁRENSKÁ, a.s.

Severočeské vodovody a kanalizace, a.s.

Královehradecká provozní, a.s.

Pražské vodovody a kanalizace, a.s.

Institut environmentálních

služeb, a.s.

VODOSPOL s.r.o.

Středočeské vodárny, a.s.

1. SčV, a.s.

Vodohospodářská společnost Sokolov

s. r. o.

Česká voda - Czech Water, a.s.

VEOLIA ČESKÁ REPUBLIKA, a.s.

Solutions and Services, a.s.

100 %

100 %

100 %

100 %

100 %

30 %

32 %

34 % 100 % 100 %

66 %

50.1 %

100 %

RAVOS, s.r.o.

100 %

Veolia Support Services Česká republika, a.s.

Notes:

- Středočeské vodárny, a.s. became the sole member of RAVOS, s.r.o. on 9 June 2016.

VEOLIA EAU – COMPAGNIE GENERALE DES EAUX

VEOLIA ENVIRONNEMENT

Veolia Vedlejší produkty ČR, s.r.o.

100 %

Lines of control

Annex 2 to the Report on Related Parties of Veolia Energie ČR, a.s., i.e. the report on

relations between the controlling and controlled entities and between the controlled entity and other entities under common control (related

parties)


5 Auditor’s Reports

This Consolidated Annual Report was prepared by the CEO´s Section of Veolia Energie ČR, a.s.Layout: Veolia, Veolia EnvironnementPhotography: Veolia Group libraryConsolidated Annual Report concept and production. CEO´s Section of Veolia Energie ČR, a.s. in cooperation with Agentura API.

Production and printing: Agentura API s.r.o.

Registered Office:Veolia Energie ČR, a.s.

28. října 3337/7Moravská Ostrava

702 00 OstravaCzech Republic

Customer service800 800 860

www.veoliaenergie.czwww.veolia.cz

Consolidated Annual Report prepared on 27 April 2017

consolidated annual report veolia energie Čr, a.s. · the veolia group in the czech republic is in...

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