Annual Report 2015 - vecr.cz

Annual Report

2015Veolia Energie ČR, a.s.

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Contents1. Corporate and General Information

about the Company 2 1.1. Basic Information 2 1.2. Company Description 3 1.3. Corporate Governance 4 1.4. Organisational Structure 5 1.5. Other Information 5

2. Management Report 6 2.1. Foreword 6 2.2. Core Values 8

3. Financial Section 31 3.1. General Information 32 3.2. Non-consolidated income statement 34 3.3. Notes to the non-consolidated financal statements 39 3.4. Consolidated income statement 64 3.5. Notes to the consolidated financial statements 69

4. Report on Related Parties 97

5. Auditor’s Report 112

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Veolia Energie ČR, a.s. » ANNUAL REPORT 2015

1. Corporate and General Information about the Company1.1. Basic Information

Company 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 Commer-cial Companies and Cooperatives

Company numbeR

451 93 410

The Company is incorporated by entry in the Com-panies 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

Veolia Energie ČR, a.s. is a traditional producer and supplier of heat for municipalities and their inhabitants, industrial companies, health and educational facilities, public institutions and shopping and office centres. It is also one of the Czech Republic’s largest independent combined heat and power producers and a major provider of energy services. Veolia Energie ČR, a.s. is the first independent operator of a cooling network in the country.

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1.2. Company DescriptionVeolia 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 almost 174,000 employees over five continents, the Group designs and implements water, waste and energy management solutions contributing to sustainable 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 integration 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 categories are house-holds, 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, organised 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 so 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.

Aside from Veolia Energie ČR, the Veolia Energie Group in the Czech Republic also comprises the following companies: 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.

KEY FIGURESCOMPANY TURNOVER CZK 7.9 billion

PROFIT CZK 1,321 million

INVEsTMENT CZK 733.3 million

ElECTRICITY sAlEs 2,350 GWh

bOIlER-gENERATEd hEAT 26,873 TJ

hEATINg NETwORk lENgTh 767.6 km

bIOMAss-bAsEd gENERATION 17 GWh

of electricity and 230,336 GJ of heat from

60,525 tonnes of biomass

NUMbER OF EMPlOYEEs 1,638

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1.3. Corporate GovernanceCorporate Governance as at 31 December 2015:

boaRd of diReCtoRs

Zdeněk duba (Chairman until 30 June 2015)

philippe guitard (Chairman since 1 July 2015)

Vincent barbier (Vice-Chairman until 30 June 2015 and Member until 2 July 2015)

Josef novák (Member and Vice-Chairman since 1 July 2015)

Reda Rahma (Member)

daniel marie melin (Member)

Jan hrabák (Member since 2 July 2015)

supeRVisoRy boaRd

Zdeněk duba (Chairman)

philippe guitard (Member, Chairman until 18 June 2015)

malika ghendouri (Vice-Chairwoman)

Zdeněk Krakovský (Member)

petr Štulc (Member)

Renaud Capris (Member)

martin bernard (Member)

audit Committee

philippe beauté (Chairman)

isabelle picard (Vice-Chairwoman)

miroslav novák (Member)

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1.4. Organisational Structure

Note: This organisational structure took effect on 1 October 2015. Regional managements report directly to the CEO.

1.5. Other InformationThe Company’s General Meeting held on 26 June 2015 noted that the Company was no longer obliged to have an audit committee as an addi-tional company body, and it therefore dismissed the Company’s Audit Committee members with effect from 1 January 2016.

Veolia Energie ČR has no foreign subsidiaries and does not engage in any research and development. After the balance sheet date, no signifi-cant events affecting its results occurred in 2016. As at 31 December 2015, the Company did not hold any of its own shares.

Chief Executive Officer’s Section

Section of the Finance, Administration and Legal

Relations Manager

Section of the Business Manager

Chief Technical Officer’s Section

Section of the Human Resources Manager

Chief Executive Officer

North Moravia Region

Central Moravia Region

East Moravia Region

Bohemia Region


2. Management Report

2.1. Foreword

Dear Shareholders, Trading Partners, and Colleagues, Ladies and Gentlemen,

This is the annual report of Veolia Energie ČR, a.s. for 2015, summing up the Company’s business and

financial results in that period.

Due to the experience gained over the past few years, especially 2013 and 2014, we have almost become accustomed to the fact that the weather is not very favour-

able for the heat supply business. From our perspective, 2015 only had three seasons,

because after the spring, summer and autumn, another spring immediately arrived again. Last

year, the plunge in electric energy prices continued: suffice to say that the prices now stand at approxi-

mately 40% of those in 2008. It would be great if at least the end users could take advantage of the price decline but

due to various subsidies, grants and redistributions that ef-fect cannot be attained.

The recovery of the Czech economy gave a positive signal, though. Following a protracted period of time, the coalition government, finally

stable, was able to push through the amended National Energy Policy, the Raw Materials Policy of the Czech Republic and the amendment to the

Energy Act. It is good news that these documents support the district heat-ing industry but the benefits are merely theoretical. All sorts of subsidies con-

tinue to support alternatives to district heating, which do not bear the burden of charges for CO2 and emissions, environmental taxes, etc. Our German neighbours

continue to promote their Energy Transition or EnergieWende, i.e. the transition from fossil and nuclear fuel energy to renewable energy sources, which is resulting in huge

losses and the destabilisation of giants such as E.ON or RWE, and the implementation of which is bound to have an impact on the Czech energy sector.

The conclusions of the COP21 climate conference in Paris, the primary political objective of which was to reach an agreement on the transition to a climate-resilient low-carbon global economy, will

also have a significant influence on the future of the Czech Republic. Veolia Energie ČR will also have to integrate this commitment into its strategic plans.

Thus, in 2016 and beyond, it will be necessary to look for the right ways of coping with the new develop-ments in the energy sector.

In 2015, our technical teams successfully completed many greening activities such as the denitrification and desulphurisation at the Třebovice Power Station and the Karviná CHP Plant. We also undertook many projects to im-

prove the efficiency of our facilities, to reduce losses and to renew our networks, which, including grants and subsidies, constituted investments in excess of CZK 900 million for the entire Veolia Energie Group in the Czech Republic.

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Our commercial teams were also very successful in 2015: despite very strong competition on the market they were not only able to retain our customer portfolio but also to attract and acquire new customers and to successfully cooperate with developers, chiefly in Prague and Olo-mouc and in other areas as well.

Thanks to the weather, heat supply rose from 10,919 TJ in 2014 to 11,755 TJ in 2015 and electricity sales grew from 1,909 GWh in 2014 to 2,350 GWh in 2015.

In order to enhance Veolia Energie’s market position it was important to align decision-making, manage-ment and working procedures with Veolia’s water division and with Veolia’s Slovak operations, because these activities can offer significant synergies not only in terms of costs but also in expanding our activities.

In 2015, the merger between Veolia Foundation and Dalkia ČR Founda-tion was completed and donation activities were enhanced, such as the traditional creation of jobs for small and medium-sized enterprises, the number of which has exceeded 2,000 over the existence of the Foundation, and the MiNiGRANTs project was extended to include activities focused on the active life of elderly citizens. We are glad to say that Veolia will continue to foster all these donation activi-ties in 2016.

To close, we take this opportunity to thank our customers, partners, colleagues, and shareholders for the trust they have placed in us and for their contribution to our common goals.

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

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2.2. Core Values

In its work the Company relies on core values shared across the Veolia Group: customer focus, innovation, responsibility, respect and solidarity.

RESPONSIBILITYVeolia’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 inter-ests 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, improving personal safety at work (occupational injury prevention) and creating a sound working environment.

SOLIDARITYAs 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 es-sential services for everyone, which we consider to be one of our major social responsibilities.

RESPECTThis 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.

INNOVATIONResearch 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.

CUSTOMER FOCUSVeolia 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 custom-ers. Veolia listens to its customers and provides suitable and innovative solutions that meet their technical, economic and environmental requirements.

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Our Services

Heat, Cooling and Electricity Production and SaleVeolia Energie ČR’s core business in 2015 was the production, 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 cogeneration, which, besides making greater use of the energy contained in fuel, is also very green.

Heat ProductionIn 2015, heat was generated using 1,411 boilers, of which 52 were steam boilers and 1,359 were hot and superheated water boilers. Their total installed thermal capacity is 2,663 MW. In all, the boilers generated 26,873 TJ of thermal energy for the production of electricity and supply of heat, which was 481 TJ more than in 2014.

Of the fuels used to fire the boilers, 87.18% was coal (77.3% hard coal and 9.87% brown coal). Gaseous fuels accounted for 10.39% (5.2% coke-oven gas, 4.01% natural gas and 1.18% drained (mine) gas). Of the fuel consumed, 2.20% took the form of various types of biomass and 0.23% heavy fuel oil and gas oil, which are used primarily to start up the boilers.

The heating networks were 767.6 km long in 2015.

Compared with 2014, the 2015 heat sales were up by 836 TJ to 11,755 TJ, mainly on account of slightly higher degree-days. For the same reason, heat purchased from other suppliers rose year-on-year to 886 TJ. Thermal energy was supplied either directly or through distribution companies to 250,343 households.

Revenues from heat and related products rose by CZK 293 million on 2014, amounting to CZK 5,010 million in 2015.

Production of CoolingThe total cooling capacity of cooling installations is 27.97 MW. The annual cooling supply amounted to 16,221 MWh. The cooling net-works were 1,108 m long in 2015.

Revenues from the sale of cooling in 2015 came to CZK 38 million, down by CZK 1 million on 2014.

Electricity ProductionElectricity was produced in 14 steam turbines, 10 cogeneration units and 4 steam micro-turbines, with a total electrical capacity of 377.2 MW.

Electricity was mostly supplied to electricity traders. In 2015, electricity sales totalled 2,350 GWh, which is 441 GWh more than in 2014.

Revenues from sales of electricity and other services related to electric-ity generation amounted to CZK 2,758 million in 2015, a rise of CZK 324 million compared with 2014. Revenues from electricity account for 34.84% of Veolia Energie ČR’s total revenues.

Veolia Energie ČR is a cleared entity on the Czech electricity market, and in 2015 again provided ancillary services to ČEPS, a.s., the operator of the Czech Republic’s electricity transmission system.

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Biomass BurningVeolia 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 2015, biomass generated 17 GWh of electricity and 230,336 GJ of heat. This supply required 60,525 tonnes of biomass in the Company’s plants.

Innovation

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

In 2015, Veolia Energie ČR’s capital expenditure totalled CZK 474 million. Last year, we carried out capital projects valued CZK 733.3 million (structured as shown below), and received CZK 248 million in subsidies for financing the projects.

gREENINg PROJECTs CZK 377.9 million

PROJECTs FOCUsEd ON sAFETY ANd COMPlIANCE CZK 39.3 million

FACIlITY REhAbIlITATION PROJECTs,

INClUdINg COMPONENTs (IFRs) CZK 229.4 million

dEVElOPMENT PROJECTs TO INCREAsE

PROdUCTION OR EFFICIENCY CZK 10.97 million

COMMERCIAl ANd hEAT-sUPPlY PROJECTs CZK 44.173 million

OThER INVEsTMENTs CZK 31.44 million

In terms of investments, 2015 was a year in which we focused on completing projects aimed at reducing the production of nitrogen oxides and particulates and on implementing 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 ProjectsIn 2015, we erected 28 new district heating network connections with an estimated 84 TJ annual increase in heat supply. In Ostrava, we made further progress in connecting newbuilds in the Hrabová industrial zone and the new Integrated Rescue Centre of the Moravian-Silesian Region to the district heating network. In Olomouc, the Brownfield Pavlovická Phase 1 indus-trial zone was connected to the district heating network. In Krnov, we connected a major industrial customer, the European Distribution Centre that manufactures asphalt product, and a new residential project in the Barvířská Street. A housing centre for elderly citizens was connected in Havířov.

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We started to cooperate with the Babylon leisure centre in Liberec in energy supply and optimisation (27 TJ), which is an-other valuable victory of our commercial team.

Last year we continued our successful cooperation with major Prague developers such as Skanska, Finep and StarGroup, mostly on residential projects including Miličovský Háj, Zelené město, Stodůlky and others. Thanks to that activity we expect an overall rise in sales by 88 TJ in Prague.

Thanks to our top-notch services and our professional approach, in 2015 we won again the tendering procedure for thermal energy supply to the South Bohemian town of Horní Planá (expected sales of 12 TJ), which will help us to continue our suc-cessful cooperation in the past years.

The growth in heat supply to our current customers proves that they are satisfied with us. To cite an example of such cooperation, heat supply to the Orlová hospital and policlinic are rising by 24 TJ.

Facility Rehabilitation Projects, Including Component ReplacementIn 2015, projects continued for the upgrading and replacement of existing equipment and components at generating plants and in district heating networks.

At the Třebovice Power Station, a section of the live steam piping was replaced.

At the Přívoz CHP Plant, Boiler K1 underwent an extended overhaul along with a re-placement of parts of heat exchanging surfaces (economiser, air preheater) and of the outlet steam pipe.

The replacement of the air preheater for Boiler K1, the replacement of the connection steam pipe for Boiler K1 and the replacement of steam pipe U1 – reduction stations 1 and 2, were completed at the Přerov CHP Plant. At the Olomouc CHP Plant, Turbine Generator 3 control was retrofitted, and Pressure Reducing Station RS5 and Conveyor I were replaced.

Component replacements continued in all district heating networks, e.g. the replacement of the condensate return piping, Stage IV, Velkomoravská – Wolkerova in Olomouc, and the replacement of secondary heat distributions in Ostrava.

Strategic ProjectsOur long-term investment policy, combined with designing modern and innovative technical solutions for the Company, is based on the Veolia Group’s sustainable development goals. It focuses on mitigating the environmental impacts of the Company’s operations in line with the long-term technical plans and schedules we have adopted.

major projects for reducing emissions were completed and put into trial operation in 2015, including:· Denitrification of Boilers K3 and K4 at the Třebovice Power Station· Denitrification of K14 at the Třebovice Power Station· Denitrification, desulphurisation and installation of a fabric filter on Boiler K2 at the Třebovice Power Station· Denitrification of Boiler K4 at the Karviná CHP Plant

in parallel with this, other major greening projects were implemented in ostrava and Karviná. these are the Company’s strategic multi-year projects:· Denitrification of Boilers K1, 2 and 4 at the Karviná CHP Plant· Desulphurisation of Boilers K14, K13 and K12 at the Třebovice Power Station

These projects were aimed at reducing emissions of nitrogen oxides, sulphur oxides and particulates to a level compliant with the Industrial Emissions Directive in advance. The above projects were co-financed under the Operational Programme Environment.

The Strategic Plan is the continuation of a series of greening projects at Ostrava Třebovice and the Karviná CHP Plant, following up with additional projects for achieving compliance with the Industrial Emissions Directive combined with the retrofit of the generating plants.

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

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Customers

Business ActivitiesIn 2015, Veolia Energie ČR sales staff won contracts worth over CZK 500 million, of which CZK 401 million comprised renewed contracts. The extension of the agreement for the supply of thermal energy to our major client in Ostrava, OKK koksovny a.s., is particularly noteworthy.

Altogether 55 new clients placed their trust in the Company last year, entering into new agreements on the supply of energy and energy services.

In respect of district heating and cooling networks, we signed contracts for the connection of additional loads totalling 155 TJ with customers such as the European Distribution Centre in Krnov, the Kampus Palace in Ostrava and Mölnlycke in the Dukla industrial zone in the Karviná area.

In energy services, we won 19 new contracts and thus our new customers include the Fénix shopping centre with the Clarion Hotel in Prague, the Strahov sports grounds and residential projects of leading Prague developers, which are under development.

Customer CentreVeolia Energie ČR provides its customer services from a shared infor-mation hub fielding all requests and enquiries made by customers from everywhere the Veolia Energie Group in the Czech Republic main-tains 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 2015, the Customer Centre dealt with 43,244 calls, more than half of which involved requests and enquiries from customers in Ostrava and the surrounding area. Broken down by type of enquiry, 71% are related to energy supply. The fact that customers are increasingly switching to electronic communications is reflected in the 14% year-on-year rise in the number of incoming e-mails.

In 2015, the Customer Centre received 22,547 requests and queries, of which 13,733 were calls and 8,814 were in writing via e-mail or letter or via the D-Line application.

2009 2010 2011 2012 2013 2014 2015

Number of All Calls Handled

32

,53

5

39

,39

3

40

,14

6

42

,82

1

50

,778

46

,20

8

43

,24

4

2013 2014 2015Total number of calls 50,778 46,208 43,244

Service level 80.1 % 81.3 % 81.3 %

Number of client emails processed 5,573 7,686 8,779

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The numbers of customer requests and queries have been comparable for three years in a row but telephone interactions with technicians are less frequent, which is related to the transition to electronic communications, where Customer Centre operators send job requests directly to the technicians without the need for a telephone conversation.

WebsiteThe Customer Centre team is also responsible for managing the “For customers” section on the website at www.veoliaener-gie.cz, where clients can find useful information about the Customer Centre’s services, FAQs and a glossary of energy terms. Up-to-date information about current work and shutdowns affecting heat or hot water supply is also maintained here. The “For customers” section also includes parts given over to the D-line application and presentations of satisfaction survey results.

D-line Applicationd-line is an application for customers of the Veolia energie group in the Czech Republic used:• toentervariousrequests(interventionrequests,technicalandbillingqueries,etc.);• toproviderequeststatusupdates(dateofrequestreceiptandhandling,informationonanyactiontaken);• tokeeptrackofconsumption;• toviewordownloaddocuments,e.g.invoices.

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 connec-tions. At the current juncture, almost 2,000 customers (approximately 30% of the overall client base) have access to D-line.

Satisfaction SurveysVeolia Energie ČR periodically surveys customer satisfaction to map out how content clients are and what suggestions they have for improvement. These surveys are the work of several departments across the Company, spearheaded by commer-cial units and distribution and service units. The Customer Centre is responsible for the implementation and outputs of surveys.

The latest survey that took place at the end of October and the beginning of November 2015 gave us feedback from 244 cus-tomers about their satisfaction with supply and with our staff. We also enquired about current issues such as e-billing and

Call Structure by Region/Site

68%

4%

21%

1% 0%

6%

North Moravia Region Central Moravia Region East Moravia Region Bohemia Region Veolia Komodity ČR Veolia Průmyslové služby

Call Structure by Request Type

Heat Hot water Other services (electricity, air, cooling)

Technical assistance Administrative requests

40%

30%

17%

12%

1%

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our Company’s rebranding. The survey suggests that overall customer satisfaction in 2015 was the best for the last five years and the final rating improved by 8% compared with the preceding survey as it went from 1.43 to 1.32. 71% of the respond-ents expressed their satisfaction by 1, the highest mark on a 1 to 4 scale.

2011 2013 2015

Number of All Calls Handled

5% 5% 3%1% 0% 0%

58% 59% 71%

36% 36%

26%

In the survey customers also assessed their satisfaction with our staff and here again the score improved compared with past surveys.

Customers still most frequently interact with technicians (24%) but the number of those who contact the Invoicing Depart-ment, the Customer Centre and manager rose as well.

The best marks were given to managers (mark: 1.10) and the Customer Centre (mark: 1.13).

Satisfied with employees 2015 2013 2011 2009Average mark 1.16 1.25 1.22 1.19

One of the topics that interested us was the customers’ perception of the Company’s renaming as Veolia Energie ČR at the beginning of 2015. According to the survey, most customers were aware of the change and appreciated being notified of the change well in advance.

Reactions to Company Renaming

38%

24%

3%

35% Positive Negative Neutral Unaware of the change

1 – Completely satisfied 2 – Rather satisfied 3 – Rather dissatisfied 4 – Completely dissatisfied

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E-invoicingAnother topical issue was the electronic sending of invoices. Of all the respondents 33% used this service; other clients were advised as to how they can register for this service.

Information about Failures and ShutdownsWe seek to improve customer services and past surveys have suggested that customers wish to be better informed about shutdowns. As part of a forthcoming project for automatic distribution of such information we surveyed the current communi-cation channels and how customers wished to receive this type of information in the future. The results have shown that most clients already receive the information by e-mail but a large number of clients (24%) receive the information through other channels: over the telephone, from the building manager, by text messages, orally from Veolia staff, or from a notice board, and so there is still room for improvement. 59% of them want to receive information automatically (e-mail or text messages).

Do you use electronic sending of invoices?

33%

44%

23%

Yes No Don‘t know

How do you receive information about shutdowns or failures?

26%

37%

5%

8%

24% Post E-mail Internet Other* Don‘t receive it

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AdvertisingAlmost the entire year 2015 was marked by the rebranding. On 1 January 2015, Dalkia Česká republika became Veolia Ener-gie ČR and as a result we had to change the name and logo on all materials, facilities, cars, etc.

In 2015 we joined the global campaign called Veolia – Resourcing the World. We promoted this slogan on our website and in printed materials, in advertising and on other occasions. In the first half of 2015 an advertising campaign backed by the Group headquarters in France was ran in the printed media in the Czech Republic.

Once again, Veolia Energie ČR partnered the District Heating and Energy Days (21-23 April 2015) conference held by the Czech Association for District Heating, where it also had its own exhibition. At the gala evening event the Company’s rep-resentatives received the Project of the Year award for the desulphurisation of two boilers at the Třebovice Power Station. At the beginning of June, a commissioning ceremony attended by many distinguished guests also took place at the Karviná CHP Plant.

In Ostrava, we were present at the Day with Industry that was organised in the Dolní oblast Vítkovice [Lower Area of Vítko-vice] by the Confederation of Industry of the Czech Republic on 1 May and at the Kariéra PLUS job fair at the VŠB-Technical University of Ostrava. As part of our cooperation with the Association for the Development of the Moravian-Silesian Region we took part in the Mayors’ Congress and the ODPADY 21 [WASTE 21] conference.

Responsibility

Integrated Management System (IMS)In the second half of March 2015, Bureau Veritas Czech Republic carried out the second surveillance audit to review the current status of our Group’s Integrated Management System and its future viability. The surveillance audit included a certi-fication audit of the energy management system under ČSN EN ISO 50001 at Northern Moravia Region and the Company’s Head Office. The audit has not revealed any non-compliances. Identified observations were accepted and the addressing thereof has helped to further improve our IMS.

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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 planned unification of the Integrated Management Systems across the Group will be implemented gradually; in the first stage, it will involve the shared use of selected databases in Lotus Notes.

The scope of the Integrated Management System changed in 2015, as Northern Moravia Region and Head Office are now ČSN EN ISO 50001 certified.

the current scope of the group’s integrated management system is as follows:• head office – QMS, EMS, SMS (OHSAS),

EnMS• north moravia Region o Production – EMS, SMS, EnMS o Distribution and Services – QMS,

EMS, SMS, EnMS• Central moravia Region o Production – EMS, SMS o Distribution and Services – QMS,

EMS, SMS• east moravia Region o Production – EMS, SMS o Distribution and Services – QMS,

EMS, SMS• bohemia Region o Sector Prague – EMS, SMS o Veolia Energie Kolín – QMS, EMS o Veolia Energie Mariánské Lázně – SMS, EMS (uncertified)• Veolia průmyslové služby ČR – EMS, SMS• oLteRm & td olomouc – QMS, EMS, SMS• ampluservis – QMS, EMS, SMS

A fundamental common element of the Group’s Integrated Management System is the Sustainable Development Policy of Veolia Energie ČR, approved by Mr Philippe Guitard, Director, Central and Eastern Europe, on 1 May 2015. The policy has been published on notice boards and is also available on the website at http://www.veoliaenergie.cz.

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

The Sustainable Development Policy is a top-level IMS document incorporating not only the mandatory requirements of individu-al IMS standards, but also the requirements and principles of the senior management to which we must adhere. 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 sophisticated system for the identification thereof and the trickle-down 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 inte-grated 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 stemming from internal and surveillance audits are an essential driver of improvements and are handled as suggestions aimed at making the system better.

Last year, 38 targets were declared, i.e. five more than in 2014, of which 29 were due to be met in 2015, with the remaining 9 carried forward.

18


Emission Trends and the Impact of Biomass FiringIn spite of a slight growth in production in 2015 compared with 2014, in 2015 SO2 emissions declined as a result of operat-ing the desulphurisation of Boilers K3 and K4 at the Třebovice Power Station and, mostly, of Boilers K1 to K4 at the Karviná CHP Plant. The emissions of particulates, NOx and CO2 did not change significantly compared with 2014.

In 2015, the Company burned a total of 123,127 tonnes of biomass. The replacement of coal and, to some extent, natural gas made it possible to cut CO2 emissions by 118,971 tonnes in 2015.

Groundwater ConsumptionIn 2015, groundwater consumption at the Olomouc Peak-shaving Heating Plant remained on much the same level as in 2014 and at the Frýdek-Místek CHP Plant it declined mainly due to the drought.

Surface Water ConsumptionIn 2015, there was a slight year-on-year rise in surface water consumption. This rise was distributed evenly between all sites. We can also note that return condensate is used, great emphasis continues to be placed on the optimisation of water con-sumption and the wet-to-dry conversion of fly ash removal continues.

2010 2011 2012 2013 2014 2015

18

0,4

798

,26

7,5

68

6,4

02

,22

92

,95

3,0

25

15

7,6

98

7,8

27,

44

65

,73

0,3

54

2,6

83

,66

2

14

5,0

68

7,5

14

,06

55

,72

3,4

18

2,6

66

,60

9

172

,675

7,6

74,2

26

5,7

23

,22

12

,69

7,3

82

15

7,6

91

6,9

38

,54

15

,40

7,1

81

2,5

31

,371

15

3,5

03

6,6

04

,90

85

,43

7,8

38

2,5

72,2

37

Particulates [t] SO2 [t] NOx [t] CO2 [thousands of tonnes]

Emissions over time, 2010–2015

18 targets due for fulfilment in 2015 and declared in 2015 were assessed and closed. 8 targets due for fulfilment in 2016 were declared in 2015.1 target declared in 2015 is due for completion in 2018.6 targets from past years were closed and assessed in 2015.2 targets of the Company’s foundation were defined as periodi-cal targets to be assessed annually.The remaining targets have either been met and await evaluation or are in progress, and some of them were extended for future completion.

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Legionella bacteriaThe Company has entered into contracts with certain customers 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 2015In recent years, the Company has been reusing all the ash that it produces, especially in backfilling after mining activities, in the 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 2015 were OKD HBZS, a.s., GEMEC – UNION a.s., TRYMAT, spol. s r.o. and Cement Hranice, a.s.

REACHIn 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 Restriction 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 completed the mandatory registration of all of the above substances, and based on this registration certain ash products are now certified products that are offered as such to customers for various uses. Currently, the Třebovice Power Station, the Karviná CHP Plant and the Přerov CHP Plant are involved in ash certification.

Occupational SafetyIn 2015, we again paid particular attention to accident prevention, 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 2015.

In 2015, five work-related accidents with sick leave occurred at Veolia Energie ČR, a.s. Out of the total number of 293 days missed, eight were linked to an accident occurring in October 2014.

Two injuries resulted from falls (walking on an even surface, fall from a height) and three were sustained in handling (a machine, a piece of equipment and a construction trailer). The longest treatment of 149 days was due to an employee’s fall from scaffolding (fall from a height).

Despite the great efforts made in occupational safety we were, unfortunately, unable to maintain the same number of inju-ries as in the previous years; yet, the number of missed days declined slightly compared with 2014.

2010 2011 2012 2013 2014 2015

34

4,4

82

34

4,4

82

35

5,6

38

35

5,6

38

32

9,1

31

32

9,1

31

327,

523

327,

523

35

0,7

79

35

0,7

79

36

8,2

69

36

8,2

69

Production Use

Ash Production and Disposal, 2010-2015

20


2010 2011 2012 2013 2014 2015

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

625

85 4 3

35

362

269

114

310 293

Days of absence Number of accidents

Human Resourcesemployer of the Region 2015In the Employer of the Year 2015 contest, Veolia Energie ČR was named the third best employer in the Moravian-Silesian Region in 2015. Veolia Energie ČR has long ranked among the leaders in this contest, which testifies to our long-standing high-quality personnel management policy and our exceptional approach to our staff as the Company’s most valuable asset.

Veolia Energie ČR has been a certified Investor in People, an internationally recognised standard in the field of human resource management and development that places employees at the heart of company strategy and efficiency, for eight years.

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

Employee StructureIn 2015, Veolia Energie ČR implemented changes in its internal organisation, aimed at optimising the management activi-ties, developing the strategic, coordination and support functions and strengthening the operation line as part of the unified Veolia Group organisation.

The average FTE number of employees was 1,641, up by 12 employees compared with 2014. The headcount as at 31 December 2015 was 1,638 employees, of whom 1,352 were male and 286 were female. Broken down by type of business, there were 1,517 employees in the production, distribution and purchase and sale of heat and electric-ity and 121 employees providing technical services.

The share of employees holding a university degree is 19.2 % (232 men and 82 women), while employees who completed secondary school with a maturita (school leaving certificate) account for 40.0 % (509 men and 146 women). The average age in 2015 was 47 years. As at 31 December 2015, 84 persons were aged up to 29 years, 242 were in the 30-39 bracket and 597 in the 40-49 bracket, 601 were aged 50-59, and 114 were over 59 years.

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As at 31 December 2015, in terms of the total years of service at Veolia Energie ČR, 245 persons had been employed for up to 5 years, 206 for 6-10 years, 128 for 11-15 years, 177 for 16-20 years, 307 for 21-25 years and 575 for over 25 years.

In 2015, Veolia Energie ČR hired 79 new employees, of whom 76 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. Contract 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 Collective Agreement.

Employees enjoyed numerous benefits under the Collective Agreement con-cluded for 2013-2015. One of the most significant benefits is the “personal account” amounting to CZK 30,000, allowing employees to choose where to use their allowance from several options: a supplementary pension scheme, life as-surance, recreation, health and education services or cultural and sporting events.

On 1 January 2015 a new system for drawing on personal accounts through the Veolia Energie Benefity Café web portal was launched. Additional benefits include an extra week of annual leave, catering services at special rates, con-tributions to children’s recreation and interest-free loans. Veolia Energie ČR pays for employees’ accident insurance cover-ing occupational 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 2015 a major activity was the collective bargaining for the period 2016 to 2018, which resulted in the conclusion of a new Collective Agreement for the next three years.

In 2015, Veolia Energie ČR worked on a project for preparing the migration to a new personnel and payroll system aimed at unifying human resources records across the Veolia Group.

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Employees also had the opportunity to join the parent company Veolia Environnement’s employee savings programme, “SEQUOIA 2015”, through two unit trusts for employees.

Employee Satisfaction SurveyIn 2015, the Company carried out an Employee Satisfaction Survey in which 67% of Veolia Energie ČR employees took part. The survey has shown that the Company is regarded as an employer offering good prospects. Areas that scored best includ-ed the technical equipment for work, the working environment and personal protection equipment, followed by the social policy, education and support for enhancing qualifications. Also, measures inspired by the suggestions from employees were taken to improve the Company’s activities.

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

In 2015, 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 2015, Veolia Energie ČR provided staff with 45,680 hours of training, equivalent to 9,000 trained employees. Training costs exceeded CZK 8.5 million, with total costs (after factoring in logistics and payroll expenses) standing at CZK 28.6 million, or 3.3% of payroll expenses.

One of the most noteworthy training events of 2015 was staff training in Google apps, the training of internal auditors, first aid training, computer courses in Word and Excel at various proficiency levels and the internal Heat Pumps workshop. The Finance for the Non-Finance Professionals workshop attended by 26 employees was also highly appreciated. French and English language courses – 63 individual and 30 group courses – were running in 2015.

In 2015, selected employees also attended an international integration workshop called JIVE.

Veolia Energie ČR staff can use the innovative IES e-learning portal, which extends its range every year to include new courses, some of which are also available in English or French versions. In 2015, all new employees took the “Code of Con-duct” online course, while managers took “Occupational Safety and the Manager” training. The training portal also includes an interactive course (Introductory Training), conveying important information about the Veolia Group in the Czech Republic for both new and more established employees. The site 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.

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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 ap-praisal interview in electronic form based on the uniform methodology applied by the parent Veolia Group.

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 2015 student job fair hosted by VŠB – Technical University of Ostrava. The Company organises excursions and technical training for secondary school students.

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

In 2015, the Company continued its successful involvement in the sixth 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 cooperation 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 students an insight into Veolia as a company and to involve them in tackling challenging tasks related to Veolia’s activities.

In 2015, we continued to work with ten secondary schools by arranging excursions and mandatory work experience for students.

2010 2011 2012 2013 2014 2015

Average FTE Number of Employees over the Past Six Years

1,7

21

1,7

17

1,6

80

1,6

38

1,6

29

1,6

41

Up to 29 years 30 to 39 years 40 to 49 years 50 to 59 years 60 years or older

Employee Structure by Age

14.8%

5.1%

36.4%

7%

36.7%

Lower secondary Secondary (no school leaving certificate)

Secondary (school leaving certificate)

Post-secondary vocational University

Employee Structure by Education

38.7%

40%

0.3%

1.8%

19.2%

Employee Structureby Seniority

15%

12.6%

7.8%

10.8%18.7%

35.1%

Up to 5 years Up to 10 years Up to 15 years Up to 20 years Up to 25 years Over 25 years

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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 initiatives through three foundations (‘endowment funds’): Veolia Foundation (Nadační fond Veolia), Veolia Energie Humain ČR Foundation (Na-dační fond Veolia Energie Humain ČR) and Veolia Energie Environment ČR Foundation (Nadační fond Veolia Energie pro životní prostředí ČR). These foundations design their own corporate and foundation projects, take part in projects of other organisati-ons and in Veolia employees’ voluntary work, and assist employees faced with hardship.

Veolia Foundation2015 was the thirteenth year in which the Veolia Foundation pursued its mission expressed by its slogan “Caring for the Environment and Community” and the sixteenth year in which the Dalkia Česká republika Foundation helped to reduce unemployment in the regions where it operates by supporting micro and small start-ups. It was also the year of the long contemplated merger of the two foundations of the Veolia Group, when the Dalkia Česká republika Foundation became an integral part of the Veolia Foundation.

Veolia Foundation Programmes and Projects

facilitating the creation of new jobsSince the programme called Facilitating the Creation of New Jobs assists micro and small start-ups, it helps to reduce un-employment 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 organisation 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.

2015 was the sixteenth year in which the Foundation helped to turn new business ideas into reality. Thanks to the Founda-tion’s grants, which totalled CZK 4,956,700, as many as 62 business plans were implemented in 2015, creating 111 new durable jobs in the process, 22 of which were for persons with disabilities. Since the Foundation’s formation 1,183 projects

have enjoyed support and have created 1,995 new jobs (of which 279 have been for persons with disabilities).

Most interesting projects supported in 2015:•TheOlomouc-basedTrendWheelchairAssociation

employs persons with disabilities to digitise old documents and photo albums of various municipali-ties, schools and associations.

•Medela-péčeosenioryo.p.s.(elderlycareassocia-tion) set up a home in Ostravice, a village in the picturesque foothills of Beskydy, in which up to 37 clients can spend their old age in a pleasant setting of a family-like home with full medical and social care.

•Projectsnotonlygeneratingbusinessvaluesbutalso seeking harmony with nature and preserving environmental balance were supported as well: Mr Richard Milerski makes his own brand of honey and mead in the foothills of Jeseníky in virgin areas un-affected by industrial and agricultural production; and Mr Radovan Janeček launched a business in the extraordinary discipline of hawking in 2015.

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• TheFoundationalsosupportedtheprojectsofdevelopingandpromisingfirmsthathavecreatednewjobsastheyextendtheir production to meet the growing demand for their products, such as Bezlepík in Novy Jičín, which makes gluten-free foods, and the manufacturer of sportswear Atex, which has set up a new manufacturing shop in Jeseník.

MiNiGRANTSUnder the MiNiGRANTS® VEOLIA programme, we provide financial assistance to the volunteering pursued by our employ-ees 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 rescuers, and promoting leisure activities of children and young people or care for elderly citizens.

In 2015, 147 Veolia employees participated in such volunteering in their free time and for that, they obtained grants total-ling over CZK 3.8 million.

Keep Smiling – Active for All LifeA new programme called Keep Smiling, aimed at promoting an active life of elderly persons in the community, was launched in 2015. Fourteen entities received funding of more than CZK 1 million as a result of a call for applications held in this first, pilot edition.

Water for AfricaThrough the sale of water decanters the Foundation raises funds for building and repairing of water wells in Ethiopia. Since 2010, in every pre-Christmas season, it has been selling a limited annual edition of crystal glass decanters. The Foundation donates the entire proceeds of the sale to the Real Help public fundraise drive organised by People in Need, which then uses the money to build and repair water sources for the inhabitants of poor Ethiopian rural areas. Over the six years since the project was started, the Foundation has donated over CZK 3.1 million for these purposes.

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. In cooperation with Jakub Vágner more than eight tonnes of these fish were released in the upper Elbe and into the Střela in Western Bohemia between 2011 and 2015.

Clean Up the World!Since 2008, Veolia Foundation has been the general partner of the international cam-paign aimed at cleaning the environment and raising awareness. The organisers use the financial grants provided by the Veolia Foundation to coordinate the campaign and to buy the material they need (waste bags, gloves).

Every year, thousands of people from the entire Czech Republic take part in the cleaning of public space and nature.

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 foundation is specifically pursued by the provision of assistance• toemployeesandtheirfamilymembersindifficultpersonalcircumstances,• incareforphysicallyormentallydisabledchildren,• uponchildbirth.

In 2015, the Veolia Energie Humain ČR Foundation received donations totalling CZK 283,060 from the subsidiaries and the staff of the Veolia Energie Group in the Czech Republic and awarded grants amounting to CZK 1,463,100.

In total, between 2008 and 2015, grants in excess of CZK 22 million helped 883 projects.

26


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

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

the foundation supports the following: • Projectsmitigatingtheenvironmentaldamagecausedbythegenerationofenergy;• Projectsfortheuseofrenewablesinenergyproduction;• Projectsforthereclamationandclean-upoflandaffectedbyenergyproduction;• Projectsforheatsupply,especiallythroughtheexpansionofdistrictheatingfromcentralheatgeneratingplants;• ProjectsinlinewiththeFoundation’smissionandgeneralpurpose;• Suppliersofrenewablesources.

Corporate Social ResponsibilityCorporate social responsibility (CSR) is an integral part of Veolia Group strategy in the Czech Republic. Veolia has been devel-oping working procedures contributing towards sustainable development and activities aiding improvements in the society around it for a long time. It has also been pursuing a balance between the environmental, social and economic aspects of CSR.

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

Resourcing the WorldVeolia is committed to making the current and future world a more sustainable place. Its goal is to secure the required re-sources for the world through the design and implementation of solutions that will enable us to develop access to resourc-es, preserve resources and replenish resources. In order to meet this goal, the company underwent a radical transformation resulting in a new ambition and motto, which also constitutes its commitment: “Resourcing the World.” Veolia is in a posi-tion to demonstrate its social responsibility and sustainability commitments through actual results. These commitments aim to protect the environment and enable human development of our clients as well as ourselves. This is why Veolia has decided to define and declare nine key commitments in the three main areas. For each of these commitments, precise goals have been defined and are to be achieved by 2020.

Biodiversity To conserve and restore biodiversity is one of the nine key sustainability commitments adopted by the Veolia Group’s senior management. The Veolia Group companies have been involved in environmental protection and biodiversity promotion for

27

several years. They have focused on monitoring and assessing the impacts of our activities on local ecosystems and on the implementation of measures to preserve biodiversity and promote ecosystem services. Veolia has been cooperating with the Czech Union for Nature Conservation (ČSOP) to enhance the natural diversity on our sites. We are gradually implement-ing measures stemming from audits and fostering biodiversity in various ways. Providing information, training and raising awareness concerning biodiversity among our staff and the public are equally important.

measures to support biodiversity at the přerov and olomouc Chp plants (Veolia energie ČR)At the end of August 2015 the Přerov and Olomouc CHP Plants sites were audited with a view to identifying opportunities to improve biodiversity; subsequently, the proposed measures were launched.

At the Přerov CHP Plant, the grassy area behind the coolers was identified as the most promis-ing for enhancing biodiversity. Four groups of three bushes gathered on or near the site were planted in that space. These bushes will offer shelter and food in particular for birds and invertebrates. In addition, 14 fruit and berry trees were planted there for birds and many other creatures to nest and find food. As the trees in the forested strip of land did not offer natural cavities for bird nesting, six bird houses were added for song birds. At the Olomouc CHP Plant, five bird nests were installed on the grassy stretch along the fence and several fruit trees were planted there (an apple tree, a pear tree, a plum tree, and a rowan (Sorbus aucuparia var. edu-lis)). Information panels describing the measures taken will be installed on both sites during 2016.

SponsorshipIn 2015, we continued to support our long-term partners such as, primarily, HC Vítkovice Steel, MFK OKD Karviná and HC Zubr Přerov.

However, we paid more attention than in the past 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 community life in towns and villages.

In schools and education we supported all levels of the education system – from crèches to universities. We partnered the Electric Power Engineering 2015 and the Energy and the Environment 2015 conferences hosted by VŠB – Technical Univer-sity in Ostrava. We also helped to organise the 57th edition of the national round of the Physics Olympics organised by the Gymnázium Mikuláše Koperníka grammar school in Bílovec.

We sponsored, for instance, the Association of the Disabled, the Czech Blind United – SONS Karviná, ONKO Niké Krnov, a club for the parents and friends of disabled children called Čmeláček and a centre for children with diabetes (Centrum pro děti s diabetem, z.s.).

As usual, we partnered the Janáčkův máj and Svatováclavský hudební festival classical music festivals. Our cooperation with the Janáček Philharmonic Ostrava orchestra continued.

Veolia Group CodesThe Company adheres to the principles of the Corporate Governance 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 individual 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 employees 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, employees 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.veoliaenergie.cz/cz/udrzitelny-rozvoj. Veolia Energie Group in the Czech Republic also implemented a major accident prevention policy. The Company complies with the corpo-rate governance system applicable in the Czech Republic.

28


Results

In 2015, Veolia Energie ČR posted a pre-tax profit of CZK 1,583,972,000, which is down by 31.5% compared to the previous year in particular due to increased costs to buy CO2 allowances, increased costs to buy electricity and increased financial costs, especially due to provisions for financial investments.

Total costs net of income tax amounted to CZK 6,951,740,000, which, compared to 2014, is a 15.6% increase; total revenues amounted to CZK 8,535,712,000, up by 2.5% compared with 2014.

The operating profit came to CZK 1,372,350,000, which was 4.2% lower than in the previous year, because of the higher cost of sales.

Financial operations reported a profit of CZK 211,622,000 in 2015 compared to CZK 880,666,000 in 2014. The drop of the profit from financial operations compared to the previous year was mainly due to the posting of provisions for financial investments and to decreased dividends received from subsidiaries.

Income tax, including the deferred tax liability, amounted to CZK 263,302,000 and the profit for the accounting period was CZK 1,320,670,000.

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 2,243 million, generated by operating and investing activities, and resources from the Group’s cash pooling system. These funds were used to acquire non-current assets worth CZK 474 million; further to a resolution of the General Meeting, in 2015 the Company paid dividends totalling CZK 2,045 million.

Year-end financial assets stood at CZK 17 million and included cash in hand and cash in current accounts. Including receiva-bles from cash pooling, the balance of cash and cash equivalents was CZK 467 million.

The Company’s total assets at the end of 2015 were CZK 13,939 million, a drop by 3.3% compared to 2014. The decline in total assets is mainly attributable to a drop in the value of non-current assets.

Non-current assets at the end of 2015 came to CZK 11,584 million, accounting for 83.1% of total assets. This was a fall by CZK 597 million (4.9%) year on year.

Current assets at the end of 2015 were CZK 2,355 million, accounting for 16.9% of total assets. The value of current assets rose by CZK 122 million compared to the previous year, mainly because of an increase in trade receivables.

Year-end equity in 2015 was CZK 8,548 million, i.e. 61.3% of the Company’s total equity and liabilities. Equity recorded a decrease by CZK 702 million (7.6%) compared with the situation as at 1 January 2015.

The total value of debt at the end of 2015 was CZK 5,391 million, up by CZK 228 million (4.4%) on the previous year.

A profit before tax of CZK 835 million is projected for 2016. Revenues are forecast to total CZK 7,400 million. In 2016, the Company expects a stable financial situation without any problems in debt repayment.

Business PlanThe year 2015 was quite busy for district heating companies. Significant legislative activity continued, the debate on the regula-tion of the entire industry went on and the year’s end was marked by turbulences in RES support and a new structure of tariffs. In 2015, the Czech government decided to break through the brown coal mining limits for the Bílina surface mine, where no community will be affected by the mining. In respect of the ČSA surface mine the government postponed the decision to 2020.

Faced with all of these circumstances Veolia Energie ČR had to make every effort to achieve both savings and the planned results while maintaining its market position. It partly succeeded in doing so, also thanks to the synergies within the Veolia Group in the Czech Republic and Slovakia.

We are continuously tackling a difficult situation in our supplier-buyer relationship with OKD, a.s. Despite the great risks, all contracts were performed in 2015. With regard to the developments in OKD, a.s. and to an assessment of all future risks, we

29

posted a provision of CZK 82 million for the financial investment in our subsidiary Veolia Průmyslové služby ČR, a.s., which is the largest provider of energy services to OKD, a.s. This year too we will make our best efforts to honour our commitments to OKD, a.s.

Veolia Energie ČR continued to invest in order to modernise its facilities and to green its operations in line with the appli-cable laws. Over CZK 900 million were invested across the Group in 2015. At the Třebovice Power Station and the Karviná CHP Plant, boilers were successfully refurbished to reduce nitrogen oxide emissions. At the Třebovice Power Station, we also completed the main work for flue gas desulphurisation and de-dusting, which will be commissioned in 2016. Two other des-ulphurisation and denitrification units were commissioned at the ČSM North CHP Plant at the end of 2015. In terms of com-mercial achievements, important contracts were extended and new customers acquired: contracts with 55 new customers were concluded.

In 2016, we will continue to identify and leverage suitable synergies within the Veolia Group. It is set to be a crucial year in terms of further growth in operations and identifying new business opportunities. At the end of 2015 and the beginning of 2016, talks on the takeover of Pražská teplárenská LPZ, a.s. were closed. The acquisition can be completed as soon as at is obtains approval from the Office for the Protection of Competition.

SubsidiariesAt the end of 2015, Veolia Energie ČR held controlling interests in five 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%) and Veolia Průmyslové služby ČR, a.s. (100%). Veolia Průmyslové služby ČR, a.s. holds a 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 con-solidated financial statements.

The parent company and the subsidiaries keep their books under International Accounting Standards.

Revenue (CZK thousands)2015 2014

Veolia Energie ČR, a.s. 7,915,188 7,311,733

OLTERM & TD Olomouc, a.s. 365,618 343,304

AmpluServis, a.s. 335,140 315,052

Veolia Energie Kolín, a.s. 427,562 414,236

Veolia Energie Mariánské Lázně, s.r.o. 160,790 150,035

Veolia Průmyslové služby ČR, a.s. 1,461,260 1,477,628

Veolia Komodity ČR, s.r.o. 2,496,609 1,926,153

Veolia Powerline Kaczyce Sp. z o.o. 468,579 445,433

Profit / (Loss) for the period (CZK thousands)2015 2014



AmpluServis, a.s. 12,960 11,699



Veolia Průmyslové služby ČR, a.s. -860 147 438,025

Veolia Komodity ČR, s.r.o. 27,087 35,882


30


Revenue from sale of heat and related products (CZK thousands)2015 2014



AmpluServis, a.s. – –



Veolia Průmyslové služby ČR, a.s. 275,258 276,779

Veolia Komodity ČR, s.r.o. – –

Veolia Powerline Kaczyce Sp. z o.o. – –

Revenue from the sale and resale of electricity and ancillary services (CZK thousands)2015 2014


OLTERM & TD Olomouc, a.s. – –

AmpluServis, a.s. – –



Veolia Průmyslové služby ČR, a.s. 746,926 744,272

Veolia Komodity ČR, s.r.o. 2,394,773 1,800,304


Total assets (CZK thousands)2015 2014



AmpluServis, a.s. 183,211 153,308



Veolia Průmyslové služby ČR, a.s. 1,748,069 3,268,516

Veolia Komodity ČR, s.r.o. 752,965 667,630


The consolidated profit for the 2015 accounting period was CZK 438,026,000, compared to CZK 1,623,189,000 in 2014. The drop in the consolidated profit for the period is attributable in particular to the posting of provisions for Veolia Průmyslové služby assets.

The full texts of the individual companies’ annual reports are published on the Group’s website at www.veoliaenergie.cz.

3. Financial Section

31

32


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 2015 and comparable indicators for the previous period were prepared under International Financial Reporting Standards (IFRS). The Company also prepared its consolidated financial statements in accordance with International Accounting Standard IAS 27.

The consolidation scope in 2015 encompassed the parent, i.e. Veolia Energie ČR, a.s., and its subsidiaries OLTERM & TD Olo-mouc, 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 consolidation scope in 2014 encompassed Veolia Energie ČR, a.s., OLTERM & TD Olomouc, a.s., AmpluServis, a.s., Veolia Ener-gie 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 statements.

selected financial data 2015 2014Overall debt (%) 38.68 35.82Return on assets (%) 9.47 14.19Current liquidity 0.54 0.55

Information about share capitalThe 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 Company is not listed on a regulated market.

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

Information about the parent company and the position within the GroupThe sole entity with a stake of at least 20% in the Company’s share capital as at 31 December 2015 was Société de Participa-tions et d’Investissements Diversifiés 2 (SPID 2), holding 63.056% of the Company’s shares at year-end. Acting in concert, SPID 2 and Veolia Energie International are the majority shareholders with a 73.056% interest in the Company.

According to its certificate of incorporation, SPID 2’s core business comprises all kinds of investments in movable and immov-able assets, the management of movable and immovable assets, all kinds of financial and other studies, all kinds of financial transactions, and transactions involving movable and immovable assets directly or indirectly associated with the activities out-lined above. SPID 2 is a holding company incorporated under French law, having its registered office in Paris at 33 PCE RONDE 92800 PUTEAUX PARIS LA DEFENSE. It is a wholly-owned subsidiary of Veolia Energie International (a member of the multina-tional Veolia Environnement). The share capital of SPID 2 is EUR 13,237,500.

Veolia Energie International is a company incorporated under French law, having its registered office at 36-38, avenue Kléber, 75116 Paris. According to its certificate of incorporation, Veolia Energie International’s core business comprises all 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 subsidiaries in the Czech Republic are: Veolia Energie ČR, a.s, JVCD, a.s and Energie Projekt ČR, s.r.o. (Dalkia s.r.o. until 25 January 2016).

Veolia Energie International’s parent company is Veolia Environnement. Veolia Energie ČR, a.s. is not dependent on other Veolia Group entities.

Information about securitiesOn 7 October 2008, the Company’s Board of Directors decided to issue listed bonds with a fixed rate yield worth CZK 1,000,000,000, redeemable in 2015. As at 7 November 2008, the Company had issued bonds forming an issue aggregating a nominal CZK 10,000,000.

33

ISIN: CZ0003501603Form: bearerFormat: dematerialisedQuantity: 1,000 Listed: PSE official open market as of 7

November 2008

Coupon: fixed interest rate of 4.24% p.a. Interest payable annually on 7 November

Issue amount: CZK 10,000,000Nominal value: CZK 10,000

The Company redeemed its ISIN: CZ0003501603 bonds on 6 November 2015. Under Section 60 of Act No 256/2004 on the Capital Market, as amended, Burza cenných papírů Praha, a.s. [the Prague Stock Exchange] delisted this investment security from the regulated market at the request of Veolia Energie ČR, a.s.

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 Section 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 incorpo-rated 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 generation and distribution of heat and electricity. The Company’s website is at www.veoliaenergie.cz; the telephone number for the registered office is +420 596 609 111.

Changes in the Company’s structure and in the Companies Register in 2015The General Meeting of the Company held on 26 November 2014 amended the Company’s Articles of Association whereby it changed, inter alia, the company name to Veolia Energie ČR, a.s. effective from 1 January 2015.

On 15 June 2015 the Board of Directors reviewed the resignation of Mr Zdeněk Duba as member and Chairman of the Board of Direc-tors effective on 30 June 2015.

On 18 June 2015 the Supervisory Board reviewed the resignation of Mr Philippe Guitard as member and Chairman of the Supervisory Board and elected Mr Philippe Guitard as a member of the Board of Directors upon the termination of the office of Mr Zdeněk Duba effective as of 1 July 2015.

On 26 June 2015 the Board of Directors elected Mr Philippe Guitard the Chairman of the Board of Directors effective on 1 July 2015. After the removal of Mr Vincent Barbier from his office as Vice-Chairman of the Board of Directors effective on 30 June 2015, the Board of Directors elected Mr Josef Novák the new Vice-Chairman of the Board of Directors effective on 1 July 2015.

On 2 July 2015 the Supervisory Board elected Mr Zdeněk Duba a substitute member of the Supervisory Board until the nearest ses-sion of the General Meeting, effective on 1 July 2015, and concurrently elected Mr Zdeněk Duba as the Chairman of the Supervisory Board. The Supervisory Board then removed Mr Vincent Barbier from his office as member of the Board of Directors and elected Mr Jan Hrabák as a new member of the Board of Directors.

Corporate Management and GovernanceThe 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 automated 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 positions and the authority of authorising officers. Regular independent controls are annually assessed and documented as part of the internal tool – the Veo-lia Enablon SOA404 database – and then reviewed by an external auditor. The Company’s organisational structure includes a sec-tion responsible for risk management. The Company has prepared cartography of risks in order to increase the transparency of risks taken in relation to investors and to ensure targeted risk management under action plans adopted by the Company’s management.

Persons responsible for auditing the financial statementsThe issuer’s financial statements were audited by auditors from KPMG Česká republika Audit, s.r.o., having its registered of-fice at Pobřežní 648/1a, 186 00 Praha 8, Licence No 71.

Availability of documents and materials contained in the Annual ReportAll documents and materials referred to in this Annual Report are available for inspection at the issuer’s registered office in Ostrava at

4.24% bonds redeemable in 2015

28. října 3337/7, 702 00.

34


1

Non-consolidated income statement For the year ended 31 December In thousands of CZK Note 2015 2014 Revenue 6 7,915,188 7,311,733 Cost of sales 7 (5,810,024) (5,262,923) Gross profit 2,105,164 2,048,810 Distribution expenses 8 (68,746) (65,052) Administrative expenses 9 (664,068) (551,740) Results from operating activities 1,372,350 1,432,018 Finance income 10 499,327 924,441 Finance costs 10 (287,705) (43,775) Profit before income tax 1,583,972 2,312,684 Income tax expense 11 (263,302) (267,055) Profit for the period 1,320,670 2,045,629

The notes are an integral part of the financial statements.

3.2. Non-consolidated income statement

35

2

Non-consolidated statement of comprehensive income For the year ended 31 December In thousands of CZK 2015 2014 Profit for the period 1,320,670 2,045,629 Employee benefits – actuarial gains (losses) (not reclassified to profit or loss)

12,612 (47,351)

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

9,151 47,333

Other comprehensive income after tax

21,763 (18)

Total comprehensive income for the period 1,342,433 2,045,611

*Taxation is described in the Note 11.


36


3

Non-consolidated statement of financial position As at 31 December In thousands of CZK Note 2015 2014 Assets Property, plant and equipment 12 7,138,824 7,458,161 Intangible assets 13 230,917 267,017 Financial interests 14 4,199,285 4,429,227 Other financial investments 15 15,239 26,669 Total non-current assets 11,584,265 12,181,074 Inventories 17 529,721 467,892 Other financial investments 15 8,603 8,454 Derivatives 15 676 -- Current tax assets 18 64,644 55,677 Trade and other receivables 19 1,284,456 1,172,200 Cash and cash equivalents 20 466,711 528,425 Total current assets 2,354,811 2,232,648 Total assets 13,939,076 14,413,722 Equity Share capital 3,146,447 3,146,447 Reserves and other capital funds 1,965,259 1,956,108 Retained earnings 3,436,033 4,147,941 Total equity 8,547,739 9,250,496 Liabilities Employee benefits 23 508,664 561,901 Provisions 24 85,925 150,838 Deferred tax liabilities 16 448,010 423,488 Derivatives 26 760 849 Total non-current liabilities 1,043,359 1,137,076 Loans and borrowings 22 2,315,192 2,086,593 Trade and other payables 25 1,993,600 1,862,381 Employee benefits 23 20,254 44,475 Provisions 24 16,143 19,380 Derivatives 26 2,789 13,321 Total current liabilities 4,347,978 4,026,150 Total liabilities 5,391,337 5,163,226 Total equities and liabilities 13,939,076 14,413,722

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: 11 April 2016

37

4

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 2013 3,146,447 629,289 1,716,832 (58,811) 3,973,641 9,407,398

Profit for the period -- -- -- -- 2,045,629 2,045,629 Other comprehensive income Employee benefits – actuarial gains (losses) -- -- -- -- (47,351) (47,351)

Changes in fair value of cash flow hedges -- -- -- 47,333 -- 47,333

Total other comprehensive income -- -- -- 47,333 (47,351) (18)

Total comprehensive income for the period -- -- -- 47,333 1,998,278 2,045,611

Transactions with owners, recorded directly in equity Dividends paid to shareholders -- -- -- -- (2,202,513) (2,202,513)

Other allocations to funds -- (629,289) 250,754 -- 378,535 -- 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)

Balance at 31 December 2015 3,146,447 -- 1,967,586 (2,327) 3,436,033 8,547,739


38


5

Non-consolidated statement of cash flows For the year ended 31 December In thousands of CZK Note 2015 2014

Cash flow from operating activities

Profit before income tax for the period 1,583,972 2,312,684 Depreciation and amortisation of non-current assets 12, 13 700,189 685,528 Change in provisions 100,538 4,519 Gain (loss) on sale of property, plant and equipment (2,849) (1,023) Proceeds from dividends 10 (479,913) (908,317) Net interest income and expense 10 12,979 5,821 Non-realised FX differences 87 (23) Cash flow from operating activities 1,915,003 2,099,189 Change in receivables (111,927) 164,242 Change in current liabilities 246,638 (413,962) Change in inventories (61,829) 428,111 Income tax paid and tax assessments for previous periods (253,485) (293,912) Net cash flow from operating activities 1,734,400 1,983,668

Cash flow from investing activities

Acquisition of property, plant and equipment (474,219) (1,053,217) Proceeds from the sale of property, plant and equipment 28,178 7,112 Dividends received 10 479,913 908,317 Net cash flow from (used in) investing activities 33,872 (137,788) Free operating cash and cash equivalents 1,768,272 1,845,880

Cash flow from financing activities

Unpaid dividends 22 86 10,344 Unpaid interest on loans 4,597 2,881 Instalments on loans 22 (10,000) -- Interest received 10 5,623 3,450 Interest paid 10 (21,483) (11,356) Dividends paid (2,045,190) (2,202,513) Net cash flow from (used in) financing activities (2,066,367) (2,197,194) Net increase (decrease) in cash and cash equivalents (298,095) (351,314) Cash and cash equivalents at 1 January (1,516,587) (1,165,273) Cash and cash equivalents at 31 December 20 (1,814,682) (1,516,587)


39

Veolia Energie ČR, a.s. NOTES TO THE NON-CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 DECEMBER 2015

6

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.

The shareholder structure did not change in 2015. As at 31 December 2015, the share of SPID2 (a part of Veolia group) is 63.056%, the share of Veolia Energie International SA is 10%, the share of ČEZ, a. s. is 15%, the share of DCR INVESTMENT a.s. is 10%, and minority shareholders make up the balance. As at 25 July 2014, the Veolia and the EDF groups concluded talks on terminating of their partnership cooperation. As a result of the termination, Veolia became the sole shareholder of the Dalkia group outside France. The European Union approved the transaction so that international activities of the Dalkia group were fully incorporated within the Veolia group and the French activities of the Dalkia group were transferred to EDF.

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 2015. 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 11 April 2016.

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 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.

3.3. Notes to the non-consolidated financal statements

40



7

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.

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 2015, 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, 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 application. The Company evaluates the potential impacts of IFRS 9 application on its accounting. IFRS 15 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 application. The Company evaluates the potential impacts of IFRS 15 application on its accounting. The following new or amended standards are not expected to 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 – Sales or contributions 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 (ii) Applied standards The Company accepted amendments to IAS 19 Employee Benefits with the date of first application as of 1 January 2015. They are effective in the EU for annual periods beginning on or after 1 February 2015. As at 31 December 2015, the Company did not have any arrangements on obligations falling under amendments to IAS 19 Employee Benefits.

3. Accounting policies

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

41


8

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.

42



9

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.

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.

43


10

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 either at acquisition cost or, if the purchase includes a financial derivative, at fair value. 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 emission allowances as at the date of the statement of financial position. In 2015, the Company purchased EUA units issued according to the Kyoto protocol that it expects to use in 2015 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.

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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 post employment 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.

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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.

l) New IFRS standards and IFRIC interpretations not yet adopted For the year ended 31 December 2015 no new IFRS standards or IFRIC interpretations are valid. The Company is currently assessing the potential impact of new and alternative standards that are not mandatory for the year ended 31 December 2015 and have not been applied in the preparation of these financial statements. None of these standards are expected to have material impact on the financial statements. An exception is IFRS 9 Financial Instruments published in July 2014, which 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 application. The Company evaluates the potential impacts of IFRS 9 application on its accounting. Furthermore IFRS 15, which specifies how and when an IFRS reporter will recognise revenue. This standard will replace the current guidelines for revenue recognition, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is mandatory for annual reporting periods starting from 1 January 2018; the Standard is available for earlier application. The Company is currently evaluating the potential impacts of IFRS 15 application on its accounting.

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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 and 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. The Audit Committee primarily monitors the process of preparing the non-consolidated financial statements and consolidated financial statements, and assesses the effectiveness of internal controls, internal audit and the risk management system.

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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 2015, the Company holds cash and cash equivalents in the amount of CZK 467 million (2014 – CZK 528 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 2015, guarantees of CZK 24.9 million were outstanding (2014 – CZK 23.7 million). 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 in foreign currency (EUR), the Company concludes forward contracts to hedge the foreign exchange risk.

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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 2015 the Company entered into forward contracts with Veetra, 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

2015

2014

Total liabilities 5,391,337 5,163,226 Cash and cash equivalents (466,711) (528,425) Net debt 4,924,626 4,634,801 Total equity 8,547,739 9,250,496 Cash flow from hedges 2,327 11,478 Adjusted equity 8,550,066 9,261,974 Debt to adjusted equity 0.58 0.50

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6. Revenue

In thousands of CZK 2015 2014 Revenues from sale of heat and related products 5,047,841 4,755,678 Revenues from sale and re-sale of electricity and ancillary services 2,757,990 2,434,000

Other operating revenues 109,357 122,055 Total 7,915,188 7,311,733

7. Cost of sales

In thousands of CZK 2015 2014 Personnel expenses (856,821) (833,127) Depreciation expense (689,315) (671,973) Costs of goods sold excluding electricity (281,852) (271,021) Cost of purchased electricity (876,465) (458,561) Consumption of fuel (2,140,952) (2,114,694) Consumption of raw materials, energy and services (881,930) (890,265) Change in provisions 135,232 44,873 Consumption of emission allowances and change in provision for emission allowances

(217,921) (68,345)

Gain realised on sale of emission allowances -- 190 Total (5,810,024) (5,262,923)

8. Distribution expenses

In thousands of CZK 2015 2014 Personnel expenses (48,140) (41,031) Depreciation expense (112) (103) Change in provisions (2,500) (291) Other expenses (17,994) (23,627) Total (68,746) (65,052)

9. Administrative expenses

In thousands of CZK 2015 2014 Personnel expenses (309,034) (282,392) Depreciation expense (10,762) (13,452) Change in provisions 13,277 14,936 Management costs (209,938) (143,456) Cost of raw materials, services and other expenses (147,611) (127,376)

Total (664,068) (551,740)

Growth in management costs is mainly due to change in a structure of fees paid to the parent company.

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10. Finance income and expenses

In thousands of CZK 2015 2014

Interest income 5,623 3,450 Dividend income 479,913 908,317 Foreign exchange gain 5,939 8,987 Other finance income 7,852 3,687 Total finance income 499,327 924,441 Interest expense (18,602) (9,271) Foreign exchange loss (6,348) (11) Discount of provisions (10,746) (11,932) Other finance expenses (22,067) (22,561) Provisions for financial investments (229,942) -- Total finance expenses (287,705) (43,775)

Income from dividends includes mainly dividends from Veolia Průmyslové služby ČR, a.s. of CZK 438 million (2014 – CZK 605 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 2015 2014

Current year (240,943) (282,995) Adjustments for prior years (3,575) (4,745) (244,518) (287,740)

Deferred tax Effect of the change in temporary differences and the lower tax rate (18,784) 20,685

Total income tax expense in income statement (263,302) (267,055)

Reconciliation of effective tax rate In thousands of CZK

2015 2014

Profit before tax 1,583,972 2,312,684 Income tax calculated using the domestic corporate income tax rate

(300,955) (439,410)

Effect of non-deductible expenses (150,849) (72,757) Effect of tax exempt income 210,411 228,722 Effect of change in the deferred tax rate -- -- Effect of tax credits 450 450 Adjustments for prior years (3,575) (4,745) Total tax payable (244,518) (287,740) Total deferred tax (18,784) 20,685 Total income tax expense in income statement (263,302) (267,055)

Tax overpayment of CZK 65 million is reported as the Current tax assets (2014 – CZK 56 million) and represents a corporate income tax estimate of CZK 241 million (2014 – CZK 283 million), reduced by tax advances in an amount of CZK 306 million (2014 – CZK 339 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.

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Tax impact on items of other comprehensive income on deferred tax: Employee benefits – actuarial gains (losses): before taxation CZK 16 million (2014 – CZK (62) million); tax CZK (3) million (2014 – CZK 15 million); after taxation CZK 13 million (2014 – CZK (47) million). Changes in the fair value of hedging instruments: before taxation CZK 11 million (2014 – CZK 58 million); tax CZK (2) million (2014 – CZK (11) million); after taxation CZK 9 million (2014 – CZK 47 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. As the Company disagreed with the decision, the Company has opened a court process in this matter.

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 2014

445,241 8,924,180 12,461,594 523,670 22,354,685

Additions/transfers 711 224,890 231,067 735,540 1,192,208 Disposals -- (45,065) (134,808) -- (179,873) Balance at 31 December 2014

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


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

Depreciation and impairment losses

Land Buildings and constructions

Plant and equipment

Under construction

and advances

Total


-- 5,485,639 9,968,487 -- 15,454,126

Current year depreciation

-- 230,951 403,126 -- 634,077

Impairment losses -- -- -- -- -- Disposals -- (45,065) (134,279) -- (179,344) Balance at 31 December 2014

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


-- 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

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Carrying amount Land Buildings and

constructions Plant and

equipment Under

construction and advances

Total

At 1 January 2014 445,241 3,438,541 2,493,107 523,670 6,900,559 At 31 December 2014 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

Leased assets The Company leases production equipment under a number of finance lease agreements. As at 31 December 2015, the net carrying amount of leased machinery was CZK 24.1 million (2014 – CZK 25.8 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 2015, the net carrying amount of leased assets was CZK 147 million (2014 – CZK 137 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:

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 2014 Paid at

31 December 2014

Future lease payments

Due within 1 year

Due in 1 to 5 years

Due in subsequent

years Heat for households 68,824 378,596 21,892 92,037 264,667

Total 68,824 378,596 21,892 92,037 264,667 Based on the contractual conditions, the Company is obliged to purchase the performed improvements after the leasing period. Assets pledged as security The Company has no pledged assets as at 31 December 2015 and 31 December 2014. Grants In 2015, 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 2 million (2014 - CZK 40 million) and from the OP Environment in an amount of CZK 246 million (2014 - CZK 342 million).

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13. Intangible assets

In thousands of CZK Acquisition cost Software Other* Total Balance at 1 January 2014 392,601 416,564 809,164 Additions 3,948 8,992 12,940 Disposals (5,389) -- (5,389) Balance at 31 December 2014 391,160 425,556 816,716 Balance at 1 January 2015 391,160 425,556 816,716 Additions 18,565 (7,182) 11,383 Disposals (416) -- (416) Balance at 31 December 2015 409,309 418,374 827,683

Amortisation expense Software Other* Total Balance at 1 January 2014 371,221 132,416 503,637 Current year amortisation 12,657 38,794 51,451 Disposals (5,389) -- (5,389) Balance at 31 December 2014 378,489 171,210 549,699 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

Carrying amount Software Other* Total At 1 January 2014 21,380 284,148 305,528 At 31 December 2014 12,671 254,346 267,017 At 31 December 2015 22,525 208,392 230,917

*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% Institut environmentálních služeb, a.s. Czech Republic 30%

In thousands of CZK 2015 2014 AmpluServis, a.s. 18,988 18,988 OLTERM & TD Olomouc, a.s. 64,040 64,040 Veolia Energie Kolín, a.s. *980,737 980,737 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 Provisions for financial investments (229,942) -- Total in subsidiaries 4,128,293 4,358,235 Other financial investments held for trading 70,992 70,992 Total long-term financial investments 4,199,285 4,429,227

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*The Company has identified an existence of objective indications of impairment in respect of some financial assets. Pursuant to 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 230 million as at 31 December 2015 (2014 – CZK 0 million) which was recognised in the income statement.

15. Other financial investments including derivatives

In thousands of CZK Long-term financial investments 2015 2014 Other financial investments 15,239 26,669 Short-term financial investments including derivatives

2015 2014

Financial derivatives 676 -- Other financial investments 8,603 8,454

As at 31 December 2015, forward contracts to sell EUAs were executed; as in 2014, their impact on the statement of the Company’s financial position is not material.

16. Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

In thousands of CZK Receivables Liabilities Difference 2015 2014 2015 2014 2015 2014

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

Inventories 17,130 17,178 -- -- 17,130 17,178 Emission allowances including provision 46,626 15,746 (41,809) (11,917) 4,817 3,829

Provisions 115,667 136,014 -- -- 115,667 136,014 Other items 5,966 8,227 (5,022) (5,568) 944 2,659 Deferred tax assets / (liabilities) 185,389 177,165 (633,399) (600,653) (448,010) (423,488)

Movement in deferred tax assets and liabilities during the year 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)

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In thousands of CZK

Balance at 1/1/2014

Recognised in income

statement


Balance at 31/12/2014

Property, plant and equipment (602,200) 19,032 -- (583,168)

Inventories 17,395 (217) -- 17,178 Emission allowances including provision 8,553 (4,724) -- 3,829

Provisions 117,468 4,301 14,245 136,014 Other items 11,469 2,293 (11,103) 2,659 Total (447,315) 20,685 3,142 (423,488)

17. Inventories

In thousands of CZK 2015 2014 Material and fuel 502,687 455,519 Work in progress 88 233 Emission allowances 26,946 12,140 Total 529,721 467,892

In 2015, materials and fuels recorded in cost of sales amounted to CZK 2,346 million (2014 – CZK 2,303 million). As at 31 December 2015, a provision was recognised which reduces the value of inventories by CZK 90 million (2014 – CZK 90 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.

In thousands of tonnes Quantity

Emission allowances available at 1 January 2014 827 Correction of emission allowance consumption in 2013 (2) Emission allowances allocated in 2014 1,635 Emission allowances sold in 2014 (160) Emission allowances purchased in 2014 512 Emission allowances utilised in 2014 against CO2 emissions (2,567) Emission allowances available at 31 December 2014 245 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

Actual emissions in 2015 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 2015 (in 2014, actual emissions were higher than allocated allowances).

18. Current tax assets

In thousands of CZK 2015 2014 Income tax 64,644 55,677 Total 64,644 55,677

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23

19. Trade and other receivables

In thousands of CZK 2015 2014 Trade receivables due from related parties 198,195 105,436 Trade receivables due from third parties 946,119 960,248 Other receivables 140,142 106,516 Total 1,284,456 1,172,200

At 31 December 2015 trade receivables are shown net of provisions for doubtful debts of CZK 135 million (2014 - CZK 140 million) arising from the likely impairment of receivables from the individual debtors.

20. Cash and cash equivalents


Current bank accounts 15,720 3,340 Bank deposits -- -- Cash in hand 1,423 1,380 Total cash 17,143 4,720 Cash pooling with subsidiaries – receivable 449,568 523,705 Total cash and cash equivalents 466,711 528,425 Cash pooling payables (2,281,393) (2,045,012) Total cash in compliance with statement of cash flows

(1,814,682) (1,516,587)

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 2015 the net receivable from the cash pool with subsidiaries is CZK 158 million (2014 – CZK 312 million).

21. Capital and reserves

Reconciliation of movement in capital and reserves

As at 31 December 2015, the authorised share capital comprised 78,661,161 ordinary registered shares with a par value of CZK 40 (2014 – 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 funds

Other capital funds 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 release statutory reserves. The distribution of statutory reserves to other equity accounts is shown in the Non-consolidated Statement of Changes in Equity as at 31 December 2014. Dividend per share In the profit distribution decision, the Company announced dividends of CZK 2,045 million (2014 – CZK 2,203 million). Dividend per share for 2015 amounts to CZK 26 (2014 – CZK 28).

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24

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 2015 2014 Unsecured bond issues -- 10,000 Interest payable on loan from Veolia Energie International SA 5,013 2,881

Unpaid dividends 28,786 28,700 Cash pooling with parent company and subsidiaries 2,281,393 2,045,012 Total short-term loans and borrowings 2,315,192 2,086,593

As at 31 December 2015, the Company had a net payable resulting from the cash pool with Veolia Energie International SA and with subsidiaries of CZK 1,831 million (2014 – CZK 1,521 million).

Terms and debt payment schedule

Secured bank loans Veolia Energie ČR, a.s. had no secured bank loans as at 31 December 2015 and 31 December 2014. Unsecured bond issues The 2008 issue of bonds, fixed 4.24%, was repaid in November 2015 in amount of CZK 10 million.

The Company may utilise bank credit lines of CZK 330 million and EUR 2.5 million. None of these lines was drawn down as at 31 December 2015.

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 changed its collective agreement effective from 2016. Based on this change, it simplified the structure of employee benefits and cancelled some of them.

Movements in the liability for defined benefit obligations In thousands of CZK 2015 2014

Liability for defined benefit obligations as at 1 January 606,376 523,731 Adjustment of opening balances under amended IAS 19 -- -- Benefits paid (31,500) (19,847) Current service costs 37,206 28,390 Amortisation of past service costs -- -- Interest 9,724 11,333 Actuarial (gains) losses recognised in equity (16,204) 61,596 Actuarial (gains) losses recognised in profit and loss 527 1,173 Decrease in liability as a result of organisational changes -- -- Other (changes in the Collective Agreement) (77,211) -- Liability for defined benefit obligations as at 31 December 528,918 606,376 Non-current 508,664 561,901 Current 20,254 44,475

Actuarial assumptions

2015 2014 Discount rate at 31 December 1.75% 2% Salary increase rate 2% 2% Employee turnover assumption Average 1.37% average 0.87%

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25

Social security and health insurance contributions recognised in the income statement in 2015 amount to CZK 280 million (2014 – CZK 275 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 2014 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 2014.

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 2015 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 2015

516,099 542,158

Current service costs next year 26,649 28,191 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 46,101 124,117 170,218 Provisions created during the year -- 33,515 33,515 Provisions used during the year -- (12,570) (12,570) Provisions unused during the year -- (90,117) (90,117) Unwinding of discount -- 1,022 1,022 Balance at 31 December 2015 46,101 55,967 102,068 Non-current 46,101 39,824 85,925 Current -- 16,143 16,143

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 other provisions established in connection with the risks related to the Company’s principal activities.

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26

In December 2015 the Energy Regulatory Office completed an inspection of heat prices for 2010. The Company does not agree with the outcome of the inspection, and lodged an appeal, which has not been ruled on yet.

25. Trade and other payables

In thousands of CZK 2015 2014 Trade payables to related parties 336,141 303,983 Trade payables to third parties 1,502,487 1,431,326 Other payables 154,972 127,072 Total 1,993,600 1,862,381

Trade payables to related parties include a leasing liability (see note 12) of CZK 158 million (2014 – CZK 160 million). In 2015, other payables included a value added tax liability of CZK 20 million (2014 – CZK 3 million).

26. Derivatives

In thousands of CZK 2015 2014 Short-term derivatives 2,789 13,321 Long-term derivatives 760 849 Total 3,549 14,170

Derivative financial instruments represent the fair value of forward contracts to ensure exchange rate risk in the amount of CZK (4) million (2014 – CZK (14) 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 2015 Carrying amount 2014

Trade and other receivables 19 1,284,456 1,172,200 Cash and cash equivalents 20 466,711 528,425 Total 1,751,167 1,700,625

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 2015 Impairment

2015 Nominal value

2014 Impairment

2014 Not yet due 1,241,328 -- 1,154,142 -- 0–90 days overdue 24,081 2,139 17,587 1,794 90–180 days overdue 3,446 792 2,217 1,373 180–360 days overdue 18,649 4,343 5,009 3,588 More than 1 year overdue 131,464 127,238 133,363 133,363 Total 1,418,968 134,512 1,312,318 140,118

Movement in impairment provisions in respect of trade receivables in the course of the year was: In thousands of CZK 2015 2014

Balance at 1 January (140,118) (191,193) Use, release and establishment 5,606 51,075

Balance at 31 December (134,512) (140,118)

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

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

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 -- -- -- -- At 31 December 2014

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 10,000 10,424 -- 10,424 -- -- --

Cash pooling with parent company and subsidiaries

2,045,012 2,045,012 2,045,012 -- -- -- --

Trade, tax and other payables 1,862,381 1,862,381 1,862,381 -- -- -- --

Total 3,917,393 3,917,817 3,907,393 10,424 -- -- -- Currency risk To hedge purchases and sales of electricity in foreign currencies (EUR), forward contracts were concluded with the parent company Veolia Environnement – VE SA (see note 5). Interest rate risk As at 31 December 2015, the Company has the following interest-bearing financial instruments: (i) Fixed-rate financial instruments

In thousands of CZK

Balance at 31 December 2015 2014 Financial liabilities -- (10,000)

(ii) Variable-rate financial instruments

In thousands of CZK Balance at 31 December 2015 2014

Financial liabilities (2,315,192) (2,076,593)

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.

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Sensitivity analysis of variable-rate financial instruments As at 31 December 2015 and 31 December 2014 the Company has 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 2015 (%)

Liability at 31 December 2015

Next re-pricing date

Due date

Bonds -- -- -- -- Total -- -- -- --

In thousands of CZK Average

interest rate in 2014 (%)



Due date

Bonds 4.240 10,000 Fixed rate 11/2015 Total 10,000 Fair values

In thousands of CZK Note Carrying amount

Fair value Carrying amount

Fair value

2015 2015 2014 2014 Trade and other receivables 19 1,284,456 1,284,456 1,172,200 1,172,200 Tax assets 18 64,644 64,644 55,677 55,677 Cash and cash equivalents 20 466,711 466,711 528,425 528,425 Bonds 22 -- -- (10,000) (10,000) Interest on cash pool unpaid by Veolia Energie International SA 22 (5,013) (5,013) (2,881) (2,881)

Unpaid dividends 22 (28,786) (28,786) (28,700) (28,700) Cash pooling with Veolia Energie International SA 22 (1,989,655) (1,986,655) (1,833,505) (1,833,505)

Cash pooling with subsidiaries 20, 22 (291,738) (291,738) (211,507) (211,507) Trade, tax and other payables 11, 25 (1,993,600) (1,993,600) (1,862,381) (1,862,381) Total (2,492,981) (2,492,981) (2,192,672) (2,192,672)

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 2015 2014 Derivatives 0.5% 0.4% Bonds -- 4.24%

28. Operating leases

Major operating lease agreements include an agreement with the municipality of Krnov until 2026, a lease agreement regarding 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 the Fakultní nemocnice Ostrava for an indefinite period of time, a lease agreement with RPG Byty for an indefinite period of time, and a sublease agreement with Sneo, a.s. until 2022. The lease payments are due over the following periods:

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29

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 agreement has been concluded for an indefinite period of time.

At 31 December 2014 in thousands of CZK

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


22,398 31,111

4,480 3,049

17,918 11,306

* 16,756

Sublease – Sneo a.s., Praha 6 13,287 1,661 6,644 4,982 Sublease – Teplo – byty, s.r.o. Roudnice 10,500 1,500 6,000 3,000 Total 133,103 29,293 79,072 24,738

* The lease agreement has been concluded for an indefinite period of time with a six-month notice period.

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 2015 2014 Employee compensation 65,481 59,916 Long-term benefits 3,552 4,077 Total employee compensation 69,033 63,993

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

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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

Purchase transactions:

Technical services, including the analysis of fuel and production equipment usage General overhaul and ordinary repairs and maintenance of fixed assets Assistance with the assembly of fixed assets and technical inspections Rental of office space Supply of heat and electricity Lease of a part of an enterprise

All significant transactions with related parties were carried out under arm’s length conditions. In 2014 the ownership structure of the Veolia group changed (see note 1). All entities within the Veolia group are considered to be related parties. The Company discloses only material relations with those entities.


Purchases Sales Purchases Sales Veetra 231,223 -- 69,080 173 Veolia Energie International SA -- -- 79,994 9,685 Veolia Environnement – VE SA 174,063 1,927 58,987 538 Dalkia France -- -- 2,211 -- Veolia Energie Mariánské Lázně, s.r.o. 2,757 11,064 2,274 11,107 OLTERM & TD Olomouc, a.s. 340 210,042 335 196,174 AmpluServis, a.s. 189,762 6,682 163,688 6,388 Veolia Energie Kolín, a.s. 64,710 31,659 32,592 31,115 SPID2 -- -- -- 266 Veolia Průmyslové služby ČR, a.s. 4,683 56,881 7,721 61,047 Veolia Komodity ČR, s.r.o. 87,882 860,567 93,085 432,957 Institut environmentálních služeb, a.s. 8,682 -- 7,138 -- Veolia Energia Slovensko, a. s. 11,549 -- 8,820 241 Solution and Services, a.s. 4,975 -- -- -- Veolia Centrum Uslug Wspólnych Sp z o 8,600 -- -- -- MORAVSKÁ VODÁRENSKÁ, a.s. 2,324 -- -- -- Pražské vodovody a kanalizace, a.s. 2,034 2,011 -- -- Total 793,584 1,180,833 525,925 749,691

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Consolidated income statement For the year ended 31 December In thousands of CZK Note 2015 2014 Revenue 6 11,523,237 10,803,139 Cost of sales 7 (10,005,698) (8,029,058) Gross profit 1,517,539 2,774,081 Distribution expenses 8 (73,971) (70,217) Administrative expenses 9 (817,375) (707,781) Result from operating activities 626,193 1,996,083 Finance income 10 29,294 39,803 Finance costs 10 (50,476) (34,087) Net finance income and costs (21,182) 5,716 Profit before income tax 605,011 2,001,799 Income tax expense 11 (166,985) (378,610) Profit for the period 438,026 1,623,189 Attributable to: Interest of parent company shareholders 430,586 1,617,058 Non-controlling interests 7,440 6,131 Profit for the period 438,026 1,623,189


3.4. Consolidated income statement

65 2

Consolidated statement of comprehensive income For the year ended 31 December In thousands of CZK 2015 2014 Profit for the period 438,026 1,623,189 Employee benefits – actuarial gains (losses) (not reclassified to profit or loss) *

12,205 (52,233)

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

(59,315) 18,695

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

(2,058) (1,574)

Other comprehensive income after tax (49,168) (35,112) Total comprehensive income for the period 388,858 1,588,077 Attributable to: Interest of parent company shareholders 381,442 1,583,000 Non-controlling interests 7,416 5,077 Total comprehensive income for the period 388,858 1,588,077 *Taxation is described in note 11.


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3

Consolidated statement of financial position

As at 31 December In thousands of CZK Note 2015 2014 Assets Property, plant and equipment 12 8,805,990 9,617,797 Intangible assets 13 1,601,716 2,187,886 Financial interests 14 74,061 74,061 Other financial investments 14 431,519 844,855 Derivatives 14 -- 40,785 Total non-current assets 10,913,286 12,765,384 Inventories 16 554,346 489,527 Other financial investments 14 51,603 45,454 Derivatives 14 15,686 51,733 Current tax assets 17 78,175 78,975 Trade and other receivables 18 2,022,374 1,862,105 Cash and cash equivalents 19 157,965 131,923 Total current assets 2,880,149 2,659,717 Total assets 13,793,435 15,425,101 Equity Share capital 3,146,447 3,146,447 Reserves and other capital funds 1,711,946 1,765,826 Retained earnings 2,671,259 4,281,127 Equity excl. minority interests 7,529,652 9,193,400 Non-controlling interests 68,016 66,731 Total equity 7,597,668 9,260,131 Liabilities Employee benefits 22 550,306 601,572 Provisions 23 96,073 153,944 Derivatives 25 7,740 849 Deferred tax liabilities 15 672,787 868,534 Other payables 24 160,829 157,111 Total non-current liabilities 1,487,735 1,782,010 Loans and borrowings 21 2,025,011 1,876,695 Trade and other payables 24 2,626,902 2,406,186 Current tax payable 4,128 12,778 Employee benefits 22 23,174 47,297 Provisions 23 25,991 26,683 Derivatives 25 2,826 13,321 Total current liabilities 4,708,032 4,382,960 Total equity and liabilities 13,793,435 15,425,101


On behalf of the Board of Directors of the Company:

Josef Novák

Daniel Melin Date: 11April 2016

67 4

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 2014 3,146,447 706,629 1,425,505 44,767 4,489,565 9,812,912 68,797 9,881,709

Profit for the period -- -- -- -- 1,617,058 1,617,058 6,131 1,623,189

Other comprehensive income Employee benefits – actuarial gains (losses) -- -- -- -- (51,179) (51,179) (1,054) (52,233)

Changes in fair value of cash flow hedges -- -- -- 18,695 -- 18,695 -- 18,695

Exchange differences on translation of overseas entities

-- (968) -- -- (605) (1,574) -- (1,574)

Other comprehensive income -- (968) -- 18,695 (51,784) (34,058) (1,054) (35,112)

Total comprehensive income for the period -- (968) -- 18,695 1,565,274 1,583,000 5,077 1,588,077

Transactions with owners, recorded directly in equity

Allotments -- (684,244) 255,443 -- 428,800 -- -- -- Dividends paid to shareholders -- -- -- -- (2,202,512) (2,202,512) (7,143) (2,209,655)

Balance at 31 December 2014 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


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5

Consolidated statement of cash flows For the year ended 31 December In thousands of CZK Note 2015 2014

Cash flows from operating activities

Profit before income tax 11 605,011 2,001,799 Depreciation and amortisation of non-current assets 12.13, 14 2,190,949 884,988 Change in provisions (118,592) 8,334 Gain / loss on sale of property, plant and equipment (3,083) (1,075) Proceeds from dividends and profit shares 10 (6,844) (13,281) Net interest income and expense 10 18,709 7,852 Unrealised exchange rate gains and losses 263 (1,842) Cash flow from operating activities 2,686,413 2,886,775 Change in receivables (160,858) 118,926 Change in current liabilities 415,067 (480,858) Change in inventories (64,820) 422,499 Income tax paid and tax assessments for previous periods (360,007) (403,243) Net cash flow from operating activities 2,515,795 2,544,099

Cash flows from investing activities

Acquisition of property, plant and equipment (651,526) (1,224,926) Proceeds from the sale of property, plant and equipment 72,756 44,736 Change in receivables and other financial assets 5,660 20,505 Dividends received 10 6,844 13,281 Net cash from (used in) investing activities (566,266) (1,146,404) Free operating cash and cash equivalents 1,949,529 1,397,695

Cash flow from financing activities

Unpaid dividends 86 10,992 Repayments of loans, borrowings and finance leases (10,909) (3,125) Interest received 10 928 1,730 Interest paid 10 (22,518) (9,582) Unpaid interest on loans 21 4,961 2,881 Foreign exchange translation difference (864) (586) Dividends paid (2,051,321) (2,209,655) Net cash from (used in) financing activities (2,079,637) (2,207,345) Net increase (decrease) in cash and cash equivalents (130,108) (809,650) Cash and cash equivalents at 1 January (1,701,582) (891,932) Cash and cash equivalents at 31 December 19 (1,831,690) (1,701,582)


69

Veolia Energie ČR, a.s. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 DECEMBER 2015

6

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 2015 include the Company and its subsidiaries (together referred to as “the Group”). The shareholder structure did not change in 2015. As at 31 December 2015, the share of SPID2 (a part of Veolia group) is 63.056%, the share of Veolia Energie International SA is 10%, the share of ČEZ, a.s. is 15%, the share of DCR INVESTMENT a.s. is 10%, and minority shareholders make up the balance. The Company is controlled by the multinational company Veolia Energie International SA and its ultimate parent company is Veolia Environnement – VE SA. As at 25 July 2014, the Veolia and the EDF groups concluded talks on terminating of their partnership cooperation. As a result of the termination, Veolia became the sole shareholder of the Dalkia group outside France. The European Union approved the transaction so that international activities of the Dalkia group were fully incorporated within the Veolia group and the French activities of the Dalkia group were transferred to EDF. 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, Post Code: 779 00. The principal business activity is the distribution of thermal energy and hot water. AmpluServis, a.s., Ostrava, ul. Elektrárenská 5558, Post 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, Post 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, Post Code: 353 01. The principal business activity is the production and distribution of heat. Nadační fond Veolia Energie pro životní prostředí (formerly Nadační fond Dalkia pro životní prostředí), Ostrava, 28. října 3337/7, Post 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, Post 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, Post Code: 702 00. The principal business activity is trading in electric power. 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.

3.5. Notes to the consolidated financial statements

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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 2015. 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 11 April 2016.

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 22 and 23.

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 2015, 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, 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 application. The Group evaluates the potential impacts of IFRS 9 application on its accounting. IFRS 15 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 application. The Group evaluates the potential impacts of IFRS 15 application on its accounting.

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The following new or amended standards are not expected to have a significant impact on the 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 (ii) Applied standards The Company accepted amendments to IAS 19 Employee Benefits with the date of first application as of 1 January 2015. They are effective in the EU for annual periods beginning on or after 1 February 2015. As at 31 December 2015, the Company did not have any arrangements on obligations falling under amendments to IAS 19 Employee Benefits.

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.

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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 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 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 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 profit or loss 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.

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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.

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

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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 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 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 valued either at acquisition cost or, if the purchase includes a financial derivative, at fair value. 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 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.

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In 2015, the Group purchased EUA units issued under the Kyoto protocol that it expected to use in 2015 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 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 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.

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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 post-employment benefits are amortised in 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 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 which are 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) Revenue Sale of heat, electricity, services 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. 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 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 the income statement 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.

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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 statement of financial position date the Group reviews the carrying values 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.

m) New IFRS standards and IFRIC interpretations not yet adopted For the year ended 31 December 2015 no new IFRS standards or IFRIC interpretations are valid. The Company is currently assessing the potential impact of new and alternative standards that are not mandatory for the year ended 31 December 2015 and have not been applied in the preparation of these financial statements. None of these standards are expected to have material impact on the financial statements. An exception is IFRS 9 Financial Instruments published in July 2014, which 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 application. The Company evaluates the potential impacts of IFRS 9 application on its accounting. Furthermore IFRS 15, which specifies how and when an IFRS reporter will recognise revenue. This standard will replace the current guidelines for revenue recognition, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is mandatory for annual reporting periods starting from 1 January 2018; the Standard is available for earlier application. The Company is currently evaluating the potential impacts of IFRS 15 application on its accounting.

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.

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(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. The Audit Committee primarily monitors the process of preparing the non-consolidated financial statements and consolidated financial statements, assesses the effectiveness of internal controls, internal audit and the risk management system. 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 26.

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 2015, the Group holds cash and cash equivalents in the amount of CZK 158 million (2014: 132 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 2015, bank guarantees of

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CZK 70.5 million (2014: 25.5 million) and long-term principal of CZK 28.8 million (2014: 59.3 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 expense 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. In addition, the Group used funds obtained from bonds issued (see note 21). The 2008 issue of bonds was repaid in November 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 2015 the Group entered into forward contracts with Veetra, a Veolia Environnement – VE SA Group company, for the purchase and sale of emission allowances and certificates at a contract 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.

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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 2015 2014 Total liabilities 6,195,767 6,164,970 Cash and cash equivalents (157,965) (131,923) Net debt 6,037,802 6,033,047 Total equity 7,597,668 9,260,131 Cash flow from hedges (4,147) (63,462) Adjusted equity 7,593,521 9,196,669 Debt to adjusted equity 0,80 0,66

6. Revenue

In thousands of CZK 2015 2014 Revenues from sale of heat and related products 5,902,000 5,572,926 Revenues from sale and resale of electricity and ancillary services

4,988,752 4,494,087

Revenues from sale of compressed air 388,863 410,071 Other operating revenues 243,622 326,055 Total 11,523,237 10,803,139

The majority of the revenue of the Group is realised in the Czech Republic.

7. Cost of sales

In thousands of CZK 2015 2014 Personnel expenses (1,155,922) (1,130,932) Depreciation expense (896,419) (869,245) Impairment to non-current assets (1,049,449) -- Impairment to goodwill (229,942) -- Costs of goods sold excluding electricity (177,400) (189,684) Cost of purchased electricity (2,211,399) (1,546,202) Fuel consumption (2,559,579) (2,512,432) Consumption of raw materials, energy and services (1,622,414) (1,746,133) Change in provisions 132,071 43,391 Consumption of emission allowances and change in provision for emission allowances (235,245) (78,011)

Revenues realised on sale of emission allowances -- 190 Total (10,005,698) (8,029,058)

Pursuant to the rules for the preparation of the consolidated financial statements (see note 3g), the Group has identified objective indications that represent a negative impact on the tangible and intangible assets value and the value of other financial assets. Based on these facts, testing on impairment of specific assets was performed. The testing confirmed that the recoverable value of these assets is lower than the book value. Based on this finding, the Group created an adjustment of CZK 1,049 million, which is allocated as

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follows: Buildings, constructions, plant and equipment (see note 12) CZK 340 million, Other intangible assets (see note 13) CZK 270 million and Other financial investments (see note 14) CZK 440 million. Based on systematic testing on impairment of goodwill (see note 3g) the Group has identified objective indications of impairment. Based on these facts, testing on impairment was performed 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 230 million as at 31 December 2015 (2014 – CZK 0 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.

Total

Balance at January 1, 2014 318,256 45,218 819,612 1,183,086

Additions -- -- -- -- Impairment losses -- -- -- -- Balance at December 31, 2014 318,256 45,218 819,612 1,183,086

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

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

8. Distribution expenses

In thousands of CZK 2015 2014 Personnel expenses (52,453) (45,539) Depreciation expense (112) (103) Other expenses (21,406) (24,575) Total (73,971) (70,217)

9. Administrative expenses

In thousands of CZK 2015 2014 Personnel expenses (355,914) (333,408) Depreciation expense (15,027) (15,640) Change in provisions 4,676 12,530 Management costs (210,088) (143,456) Cost of raw materials, services and other expenses (241,022) (227,807) Total (817,375) (707,781)

10. Finance income and expenses

In thousands of CZK 2015 2014 Interest income 928 1,730 Dividend income 6,844 13,281 Foreign exchange gain 13,670 21,102 Other finance income 7,852 3,690 Total finance income 29,294 39,803

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Interest expense (19,637) (9,582) Foreign exchange loss (15,417) (7,679) Discount of provisions (11,467) (12,714) Other finance expenses (3,955) (4,112) Total finance expenses (50,476) (34,087)

11. Income tax

In thousands of CZK Current tax expense 2015 2014 Current year (343,853) (390,426) Adjustment for prior periods (8,463) (10,300) (352,316) (400,726)

Deferred tax expense Effect of the change in temporary differences 185,331 22,116 Total income tax expense in income statement (166,985) (378,610)

Reconciliation of effective tax rate 2015 2014 Profit before income tax 605,011 2,001,799 Income tax calculated using the domestic corporate income tax rate (114,952) (380,342)

Effect of non-deductible expenses (371,056) (131,987) Effect of tax exempt income 141,467 121,453 Effect of tax credits 688 450 Adjustment for prior periods (8,463) (10,300) Total tax payable (352,316) (400,726) Total deferred tax 185,331 22,116 Total income tax expense in income statement (166,985) (378,610)

The Group recorded a corporate income tax receivable of CZK 78 million and a corporate income tax payable of CZK 4 million (2014: tax receivable of CZK 79 million and tax payable of CZK 13 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 16 million (2014: CZK (68) million); tax CZK (4) million (2014: CZK 16 million); after taxation CZK 12 million (2014: CZK (52) million). Changes in the fair value of hedging instruments: before taxation CZK (73) million (2014: CZK 23 million); tax CZK 14 million (2014: CZK (4) million); after taxation CZK (59) million (2014: CZK 19 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. As the Group disagreed with the decision, the Group has opened a court process in this matter.

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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 2014 472,035 10,403,382 13,911,794 715,447 25,502,658

Additions/transfers 862 304,254 379,149 686,052 1,370,317 Disposals (171) (51,316) (154,849) -- (206,336) Balance at 31 December 2014 472,726 10,656,320 14,136,094 1,401,499 26,666,639

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

Depreciation and impairment losses

Land Buildings and

constructions

Plant and equipment

Under construction

and advances

Total

Balance at 1 January 2014 158 5,878,149 10,589,775 3,610 16,471,692 Impairment losses -- -- -- -- --

Current year depreciation -- 286,459 495,082 -- 781,541 Disposals (158) (50,483) (153,750) -- (204,391) Balance at 31 December 2014 -- 6,114,125 10,931,107 3,610 17,048,842

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

Carrying amount Land Buildings

and constructions

Plant and equipment

Under construction

and advances

Total

At 1 January 2014 471,877 4,525,233 3,322,019 711,837 9,030,966 At 31 December 2014

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

In 2015, an adjustment of CZK 340 million decreased the value of property, plant and equipment after performed impairment testing (see note 7).

Leased assets The Group leases production equipment under a number of finance lease agreements. At 31 December 2015, the net carrying amount of leased machinery, thermal equipment and constructions was CZK 34.2 million (2014: CZK 36.8 million).

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The Group uses a production facility based on a lease agreement with the municipality of Mariánské Lázně, 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 is to produce heat and electricity from renewable sources. This condition was fulfilled in 2014. The Group capitalised the assets in the lower of the fair value of the asset and the present value of the minimum lease payments at the commencement of the lease. The interest rate on the lease has been set at 11.01%. The tables below show anticipated due lease payments. 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

2014 Leasing liability at 31 December 2014

Paid at 31 December

2014

Due within 1

year

Due in 1 to 5

years

Due in subsequent

years Production facility

15,240 12,285 1,609 6,437 36,434

Total 15,240 12,285 1,609 6,437 36,434 Assets pledged as security

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

Grants In 2015, 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 8 million (2014: CZK 53 million) and from the OP Environment a grant in an amount of CZK 280 million (2014: CZK 347 million).

13. Intangible assets

In thousands of CZK Acquisition cost Software Other* Goodwill Total Balance at 1 January 2014 408,888 1,430,918 1,183,086 3,022,892

Additions 4,988 9,647 -- 14,635 Disposals (5,828) -- -- (5,828) Balance at 31 December 2014 408,048 1,440,565 1,183,086 3,031,699

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

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Amortisation and impairment losses

Software Other* Goodwill Total

Balance at 1 January 2014 384,640 361,553 -- 746,193

Impairment losses -- -- -- -- Current year amortisation

14,268 89,180 -- 103,448

Disposals (5,828) -- -- (5,828) Balance at 31 December 2014 393,080 450,733 -- 843,813

Balance at 1 January 2015 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

Carrying amount

Software

Other*

Goodwill

Total

At 1 January 2014 24,248 1,069,365 1,183,086 2,276,699 At 31 December 2014 14,968 989,832 1,183,086 2,187,886 At 31 December 2015 24,632 623,940 953,144 1,601,716

*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 deliveries of utilities, such as compressed air and heat, until 2029; and other contracts for the sale of electricity. In 2015, an adjustment of CZK 270 million decreased the value of intangible assets after performed impairment testing (see note 7). The adjustment to goodwill of CZK 230 million is described in note 7.

14. Other financial investments including derivatives

In thousands of CZK Long-term financial investments including derivatives

2015 2014

Financial interests 74,061 74,061 Other financial investments 431,519 844,855 Derivatives -- 40,785

In 2015, an adjustment of CZK 440 million decreased the value of other financial investments after performed impairment testing (see note 7). In thousands of CZK

Short-term financial investments including derivatives

2015 2014

Derivatives 15,686 51,733 Other financial investments 51,603 45,454

The Group does not own any financial investments held for trading. As at 31 December 2015 short-term derivatives represent the fair value of forward contracts to hedge a foreign exchange risk.

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15. Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

In thousands of CZK Assets Liabilities Net 2015 2014 2015 2014 2015 2014

Property, plant and equipment 199,552 976 (1,028,421) (1,029,279) (828,869) (1,028,303)

Other investments -- -- -- -- -- -- Inventories 18,926 18,904 -- -- 18,926 18,904 Emission allowances including provision 50,727 18,411 (46,011) (14,294) 4,716 4,117

Provisions 127,316 145,765 (98) (102) 127,218 145,663 Other items 11,769 14,231 (6,547) (23,146) 5,222 (8,915) Deferred tax assets / (liabilities) 408,290 198,287 (1,081,077) (1,066,821) (672,787) (868,534)

Movement in deferred tax assets and liabilities during the accounting period

In thousands of CZK




Balance at 31 December 2014

Property, plant and equipment (1,045,777) 17,474 -- (1,028,303)

Other investments -- -- -- -- Inventories 18,973 (69) -- 18,904 Emission allowances including provision 7,995 (3,878) -- 4,117

Provisions 125,623 4,651 15,389 145,663 Other items (8,468) 3,938 (4,385) (8,915) Total (901,654) 22,116 11,004 (868,534)

16. Inventories

In thousands of CZK 2015 2014 Materials and fuel 526,277 474,744 Work in progress 27,498 233 Products 483 360 Emission allowances 88 14,190 Total 554,346 489,527

In thousands of CZK




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)

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In 2015, materials and fuel recorded in cost of sales amounted to CZK 2,588 million (2014: CZK 2,608 million). At 31 December 2015, a provision was recognised which reduces the value of inventories by CZK 99 million (2014: CZK 100 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 2013 (24) Emission allowances allocated in 2014 1,810 Emission allowances sold in 2014 (160) Emission allowances purchased in 2014 575 Emission allowances utilised in 2014 against CO2 emissions (2,754) Emission allowances available at 31 December 2014 360 Correction of emission allowance consumption in 2014

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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

Actual emissions in 2015 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 2015 (in 2014, actual emissions were higher than allocated allowances). In 2015, the Group did not generate revenues from the sale of emission allowances (2014: CZK 0.2 million, which were included in the Consolidated income statement in Cost of sales).

17. Current tax assets

In thousands of CZK 2015 2014 Income tax 78,175 78,975 Total 78,175 78,975

18. Trade and other receivables

In thousands of CZK 2015 2014 Trade receivables due from related parties 128,193 3,416 Trade receivables 1,656,216 1,680,959 Other receivables 237,965 177,730 Total 2,022,374 1,862,105

At 31 December 2015 trade receivables are shown net of provisions for doubtful debts of CZK 167 million (2014: CZK 171 million) arising from the likely impairment of receivables from the individual debtors.

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19. Cash and cash equivalents

In thousands of CZK 2015 2014 Current bank accounts 129,481 108,307 Bank deposits 26,499 21,808 Cash in hand 1,985 1,808 Total cash 157,965 131,923 Total cash and cash equivalents 157,965 131,923 Cash pooling with Veolia Energie International SA – payable (1,989,655) (1,833,505)

Total cash in compliance with cash flow statement (1,831,690) (1,701,582)

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

20. Capital and reserves

At 31 December 2015, the authorised share capital comprised 78,661,161 ordinary registered shares with a pair value of CZK 40 (2014: 78,661,161 ordinary registered shares with a pair 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 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 statutory reserves. The distribution of statutory reserves to other capital funds is shown in the Consolidated Statement of Changes in Equity as at 31 December 2014. Dividend per share In its profit distribution decision the Group paid dividends of CZK 2,051 million (2014: CZK 2,210 million). The dividend per share for 2015 amounts to CZK 26,07 (2014: CZK 28,10).

21. 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 26.

Current liabilities

In thousands of CZK 2015 2014 Interest payable on loan from Veolia International SA 4,961 2,881 Cash pooling with Veolia International SA 1,989,655 1,833,505 Other financial liabilities 30,395 30,309 Unsecured bond issues -- 10,000 Total current liabilities 2,025,011 1,876,695

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Terms and debt repayment schedule

Secured bank loans The Group had no secured bank loans as at 31 December 2015 and 31 December 2014. Unsecured bond issues The 2008 issue of bonds, fixed 4.24%, was repaid in November 2015 in amount of CZK 10 million.

The Group may utilise bank credit lines of CZK 330 million and EUR 2.5 million. As at 31 December 2015 the Group did not use any of these options.

22. 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. Based on this change, it simplified the structure of employee benefits and cancelled some of them. Movement in the liability for defined benefit obligations In thousands of CZK 2015 2014

Liability for defined benefit obligations as at 1 January 648,869 557,748 Adjustment of opening balances under amended IAS 19 -- -- Benefits paid (32,864) (22,528) Current service costs 39,824 30,974 Amortisation of past service costs -- -- Interest 10,446 12,116 Actuarial (gains) losses recognised in equity (15,702) 67,622 Actuarial (gains) losses recognised in profit and loss 118 1,640 Other (changes in the Collective Agreement) (77,211) 1,297 Adjustment of liability as a result of organisational changes -- -- Liability for defined benefit obligations as at 31 December 573,480 648,869 Short-term portion of liability for defined benefit obligations 23,174 47,297 Long-term portion of liability for defined benefit obligations 550,306 601,572

Actuarial assumptions

2015 2014 Discount rate at 31 December 1.75% 2% Salary increase rate 2% 2% Employee turnover assumption average 1.37% p.a. average 0.87% p.a.

Social security and health insurance expenses recognised in the income statement in 2015 amount to CZK 362 million (2014: CZK 359 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 2014 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 2014. 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 2015 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

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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 2015 559,577 587,794

Current service costs next year 29,424 31,104 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.

23. Provisions

In thousands of CZK Site restoration Other provisions Total Balance at 1 January 2014 46,101 149,691 195,792 Provisions created during the year -- 6,717 6,717 Provisions used during the year -- (5,259) (5,259) Provisions unused during the year -- (17,222) (17,222) Unwinding of discount -- 599 599 Balance at 31 December 2014 46,101 134,526 180,627 Non-current 46,101 107,843 153,944 Current -- 26,683 26,683 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

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 other 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 does not agree with the outcome of the inspection, and lodged an appeal, which has not been ruled on yet.

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

Non-current

In thousands of CZK 2015 2014 Other payables 160,829 157,111 Total 160,829 157,111

Current In thousands of CZK 2015 2014

Trade payables to related parties 98,678 70,049 Trade payables – third parties 2,241,853 2,093,637 Other payables 286,371 242,500 Total 2,626,902 2,406,186

25. Derivatives

In thousands of CZK 2015 2014 Current derivatives 2,826 13,321 Non-current derivatives 7,740 849 Total 10,566 14,170

Financial derivatives represent the fair value of forward contracts to secure a foreign exchange risk of CZK 11 million (2014: CZK 14 million) and are recorded as current and non-current liabilities.

26. 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 2015 Carrying amount 2014

Trade and other receivables 18 2,022,374 1,862,105

Cash and cash equivalents 19 157,965 131,923 Total 2,180,339 1,994,028

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


2015 Nominal


2014 Not yet due 1,943,627 -- 1,806,562 -- 0–90 days overdue 54,983 2,139 49,764 1,794 90–180 days overdue 5,155 797 6,354 2,225 180–360 days overdue 22,822 5,503 5,795 4,014 More than 1 year overdue 162,703 158,477 164,812 163,149 Total 2,189,290 166,916 2,033,287 171,182

Movement in impairment provisions in respect of trade receivables in the course of the year was as follows: In thousands of CZK 2015 2014

Balance at 1 January (171,182) (221,989) Recognised impairment losses 4,266 50,807 Balance at 31 December (166,916) (171,182)

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

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

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

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 At 31 December 2014

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

Unsecured bond issues 10,000 10,424 -- 10,424 -- -- --

Trade and other payables 2,563,297 2,672,406 2,405,936 250 4,000 152,097 110,123

Total 2,573,297 2,682,830 2,405,936 10,674 4,000 152,097 110,123

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 2015 2014 Financial liabilities -- (10,000)

(ii) Variable-rate financial instruments

In thousands of CZK

Balance at 31 December 2015 2014 Financial liabilities (35,356) (33,190)

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

The Group does and did not have any significant variable-rate financial instruments as at 31 December 2015 and 31 December 2014.

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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 2015 (%)



Due date

Bonds -- -- -- -- Total --

In thousands of CZK

Average interest rate in 2014 (%)



Due date

Bonds 4.240 10,000 Fixed rate 11/2015 Total 10,000

Fair values

In thousands of CZK Note Carrying amount

Fair value Carrying amount

Fair value

2015 2015 2014 2014 Trade and other receivables 18 2,022,374 2,022,374 1,862,105 1,862,105 Tax assets 17 78,175 78,175 78,975 78,975 Cash and cash equivalents 19 157,965 157,965 131,923 131,923 Bonds 21 -- -- (10,000) (10,000) Interest payable on loan from Veolia International SA 21 (4,961) (4,961) (2,881) (2,881)

Cash pooling with Veolia International SA 21 (1,989,655) (1,989,655) (1,833,505) (1,833,505)

Other financial liabilities 21 (30,395) (30,395) (30,309) (30,309) Trade, tax and other payables 24,11 (2,791,859) (2,791,859) (2,576,075) (2,576,075) Total (2,558,356) (2,558,356) (2,379,767) (2,379,767)

Note: The above figures do not include derivatives.

The method of calculation of fair values is described in note 4. In accordance with the standard IFRS 7 Financial Instruments: disclosure, for the designation of 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:


Derivatives 0.50% 0.40% Bonds -- 4.24%

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27. Operating leases

Major operating lease agreements include: 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 lease and operation of hydroelectric power plant technology and rent of building hydroelectric power plant with MVE Kolín s.r.o., an agreement on the heat distribution 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 2022, a lease agreement with RPG Byty for an indefinite period of time and an agreement with Fakultní nemocnice Ostrava for an indefinite period. The lease payments are due over the following periods:

As at 31 December 2015, in thousands of CZK

Total Within 1 year


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. As at 31 December 2014, in thousands of CZK

Total Within 1 year



22,398 31,111

4,480 3,049

17,918 11,306

* 16,756

Lease – Hydroelectric power plant MVE Kolín s.r.o. 126,249 9,967 39,868 76,414

Sublease – Sneo a.s., Praha 6 13,287 1,661 6,644 4,982 Sublease – Teplo – byty, s.r.o. Roudnice 10,500 1,500 6,000 3,000 Lease – Olomouc 16,237 3,583 12,654 -- Lease – Mariánské Lázně - Bytov 30,000 1,200 4,800 24,000 Lease – Mariánské Lázně 52,257 1,891 7,563 42,803 Total 357,846 45,934 143,957 167,955 * The lease agreement has been concluded for an indefinite period of time with a six-month notice period.

28. Related parties

Transactions with related parties The Group 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.

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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 2015 2014 Employee compensation 95,824 88,685 Long-term benefits 5,641 9,818 Total employee compensation 101,465 98,503

29. 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 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. In 2014 the ownership structure of the Veolia group changed (see note 1). 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 2015 2014 Purchase Sale Purchase Sale Veetra 247,078 -- 69,080 173 Veolia Energie International SA -- -- 79,994 9,685 Veolia Environnement – VE SA 174,063 1,927 58,987 538 Dalkia France -- -- 2,211 -- Veolia Energia Polska SA 394,156 -- 364,027 1,555 Veolia Energia Slovensko 11,549 -- 8,820 241 SPID2 -- -- -- 266 Dalkia Industry Žiar nad Hronom -- 6,589 -- 810 Institut Environmentálních služeb 10,343 -- 8,422 -- Pražské vodovody a kanalizace, a.s. 2 034 62 858 -- -- MORAVSKÁ VODÁRENSKÁ, a.s. 2 324 24 489 -- -- Severočeské vodovody a kanalizace, a.s.

-- 80 329 -- --

VODÁRNA PLZEŇ a.s. -- 15 120 -- -- Středočeské vodárny, a.s. -- 22 188 -- -- Dalkia Romania -- -- -- 138 Total 841,547 213,500 591,541 13,406

The Group is involved in a Veolia cash pool (see notes 19 and 21).

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In thousands of CZK 2015 2014 Receivables Payables Receivables Payables Veetra -- 1,096 -- -- Veolia Energie International SA 1,841 -- 864 -- Veolia Environnement – VE SA 11,183 58,195 299 19,606 Veolia Energia Polska SA -- 31,692 1,155 41,553 Veolia Energia Slovensko -- 1,354 339 8,820 SPID2 416 -- 307 -- Dalkia Industry Žiar nad Hronom -- -- 65 -- Institut Environmentálních služeb -- 269 -- 70 Solution and Services, a.s. -- 3 268 -- -- Veolia Centrum Uslug Wspólnych Sp z o -- 2 647 -- --

Pražské vodovody a kanalizace, a.s. 28 281 -- -- -- MORAVSKÁ VODÁRENSKÁ, a.s. 12 877 157 -- -- Severočeské vodovody a kanalizace, a.s. 40 573 -- -- --

VODÁRNA PLZEŇ a.s. 11 300 -- -- -- Středočeské vodárny, a.s. 5 324 -- -- -- Královéhradecká provozní, a.s. 6 362 -- -- -- Vodohospodářská společnost Sokolov, s.r.o.

4 265 -- -- --

1. SčV, a.s. 5 771 -- -- -- Dalkia Romania -- -- 387 -- Total 128,193 98,678 3,416 70,049

30. 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.

31. 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 2015, or that should be disclosed in the financial statements.

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4. Report on Related Parties

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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 2015

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

I

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 Hereinafter also referred to as SPID 2. Name: VEOLIA ENERGIE INTERNATIONAL Registered office: 36-38 Avenue Kléber, 75116 Paris, France Company No.: 433 539 566 R.C.S. Paris Legal form: Public limited company Name: VEOLIA ENVIRONNEMENT-VE Registered office: 36-38 Avenue Kléber, 75016 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: 36-38 Avenue Kléber, 75016 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. Paris

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Legal form: Simplified public limited company

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) Name: Energie Projekt ČR, s.r.o. (formerly Dalkia s.r.o.) 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

Dalkia s.r.o. was renamed Energie Projekt ČR, s.r.o. with effect from 25 January 2016 on the basis of the decision, adopted by the company’s sole member acting in the capacity of the general meeting on 22 January 2016, to amend the company’s Memorandum of Association. 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. (formerly Dalkia Industry CZ, 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

Dalkia Industry CZ, a.s., was renamed Veolia Průmyslové služby, a.s., with effect from 1 March 2015 on the basis of the decision, adopted by the company’s sole shareholder acting in the capacity of the general meeting on 15 January 2015, to amend the company’s Articles of Association.

Name: Veolia Komodity ČR, s.r.o. (formerly Dalkia Commodities CZ, 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

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Dalkia Commodities CZ, s.r.o. was renamed Veolia Komodity ČR, s.r.o. with effect from 1 April 2015 on the basis of the decision, adopted by the company’s sole member acting in the capacity of the general meeting on 15 January 2015, to amend the company’s Memorandum of Association. Name: Veolia Powerline Kaczyce Sp. z o.o. (formerly Dalkia Powerline 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

Dalkia Powerline Sp. z o.o. was renamed Veolia Powerline Kaczyce Sp. z o.o. with effect from 30 March 2015 on the basis of the decision, adopted by the company’s sole member acting in the capacity of the general meeting on 17 March 2015, to amend the company’s Memorandum of Association. Name: Institut environmentálních služeb, a.s. Registered office: Praha 1, Pařížská 11, postcode 11000 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: 163-169 Avenue Georges Clemenceau, 92000 Nanterre, France Company No.: 572 025 526 R.C.S. Paris Legal form: Partnership limited by shares Name: VEOLIA CENTRAL & EASTERN EUROPE Registered office: 36-38 Avenue Kléber, 75016 Paris, France Company No.: RCS PARIS B 433 934 809 Legal form: Public limited company Name: VEOLIA ČESKÁ REPUBLIKA, a.s. Registered office: recepce D, 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: Praha 1, Pařížská 11, postcode 11000 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: Olomouc, Tovární 41, postcode 779 00 Company No.: 618 59 575 Register entry: B 1943, Companies Register maintained by the Ostrava Regional Court Legal form: Public limited company Name: VODÁRNA PLZEŇ a.s. Registered office: Plzeň, Malostranská 143/2, postcode 317 68 Company No.: 252 05 625 Register entry: B 574, Companies Register maintained by the Plzeň Regional Court Legal form: Public limited company VODÁRNA PLZEŇ a.s. left the group on 31 December 2015. 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

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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: Františka Diepolta 1870, 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, 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: 28. října 3337/7, Moravská Ostrava, 702 00 Ostrava Company No.: 24715964 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

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Legal form: Public limited company Name:

Veolia Energia Brezno, a.s.

Registered office: Clementisova 5, Brezno 977 01, Slovakia Company No.: 366 22 516 Register entry: 752/S, Companies Register maintained by the Banská Bystrica District

Court Legal form: Public limited company Name:

Veolia Utilities Žiar nad Hronom, a.s.

Registered office: Priemyselná 12, Žiar nad Hronom 965 63, Slovakia Company No.: 440 69 472 Register entry: 930/S, Companies Register maintained by the Banská Bystrica District

Court Legal form Public limited company

Name: Veolia Energia Komfort Košice, a.s. Registered office: Einsteinova 25, Bratislava 851 01, Slovakia Company No.: 467 82 532 Register entry: 5593/B, Companies Register maintained by the Bratislava I District Court Legal form: Public limited company

Name: Veolia Energia Kráľovský Chlmec, s. r.o. Registered office: L. Kossútha 99, Kráľovský Chlmec 077 01, Slovakia Company No.: 357 13 640 Register entry: 11992/B, Companies Register maintained by the Košice I District Court Legal form: Private limited company

Name: Veolia Energia Lučenec, a.s. Registered office: Ulica partizánska 1/1990, Lučenec 984 01, Slovakia Company No.: 366 29 359 Register entry: 793/S, Companies Register maintained by the Banská Bystrica District

Court Legal form: Public limited company

Name: Veolia Energia Podunajské Biskupice, s.r.o. Registered office: Einsteinova 25, Bratislava 851 01, Slovakia Company No.: 359 08 700 Register entry: 33935/B, Companies Register maintained by the Bratislava I District

Court Legal form: Private limited company

Name: Veolia Energia Poprad, a.s. Registered office: Široká 2, Poprad 058 94, Slovakia Company No.: 317 30 574 Register entry: 292/P, Companies Register maintained by the Prešov District Court Legal form: Public limited company

Name: Veolia Energia Senec, a.s. Registered office: Sokolská 6, Senec 903 01, Slovakia Company No.: 357 47 404 Register entry: 1762/B, Companies Register maintained by the Bratislava I District Court Legal form: Public limited company

Name: Veolia Energia Vráble, a.s. Registered office: Sídlisko Žitava 1399/16, Vráble 952 01, Slovakia

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Company No.: 358 02 871 Register entry: 10176/, Companies Register maintained by the Nitra District Court Legal form: Public limited company

Name: Veolia Energia Východné Slovensko, s.r.o. Registered office: Moldavská cesta 8/A, Košice 040 11, Slovakia Company No.: 361 79 345 Register entry: 9895/B, Companies Register maintained by the Košice I District Court Legal form: Private limited company

Name: Veolia Energia Žiar nad Hronom, s.r.o. Registered office: A. Dubčeka, Žiar nad Hronom 965 01, Slovakia Company No.: 360 42 544 Register entry: 6531/S, Companies Register maintained by the Banská Bystrica District

Court Legal form: Private limited company

Name: C-bau, spol. s r.o. Registered office: Einsteinova 25, Bratislava 851 01, Slovakia Company No.: 313 65 787 Register entry: 6399/B, Companies Register maintained by the Bratislava I District Court Legal form: Private limited company

Name: C-Shop, spol. s r.o. Registered office: Einsteinova 25, Bratislava 851 01, Slovakia Company No.: 313 62 028 Register entry: 6083/B, Companies Register maintained by the Bratislava I District Court Legal form: Private limited company

Name: SLOVEO a.s. Registered office: Einsteinova 25, Bratislava 851 01, Slovakia Company No.: 359 26 163 Register entry: 3545/B, Companies Register maintained by the Bratislava I District Court Legal form: Public limited company

Name: RSB – Roľnícka spoločnosť Brodské, s.r.o. Registered office: Brodské 161, Brodské 908 85, Slovakia Company No.: 317 18 191 Register entry: 11787/T, Companies Register maintained by the Trnava District Court Legal form: Private limited company

Name: Biomass Energy Corporation, a.s. Registered office: Einsteinova 25, Bratislava 851 01, Slovakia Company No.: 461 61 147 Register entry: 5310/B, Companies Register maintained by the Bratislava I District Court Legal form: Public limited company

Name: ENERGIA s.r.o. (in receivership) Registered office: Čierna Lehota 56, Slavošovce 049 36, Slovakia Company No.: 362 16 500 Register entry: 13512/B, Companies Register maintained by the Košice I District Court Legal form: Private limited company

Note: Schematic diagrams of the Group composed of the controlling and controlled entities as the related parties are shown in Annexes 1, 2 and 3 to this Report.

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II 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 and/or two shareholders in the Group, who thanks to their shares of voting rights have 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.

III

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 to SPID 2 according to actual expenditure facilitated. A2. VEOLIA ENERGIE INTERNATIONAL No agreements in writing (in documentary form) were in place between Veolia Energie ČR and VEOLIA ENERGIE INTERNATIONAL. VEOLIA ENERGIE INTERNATIONAL re-invoiced costs related to foreign employees, equalling the actually facilitated expenditure.

A Group Cash Pool Agreement was concluded between Veolia Energie ČR and VEOLIA ENERGIE INTERNATIONAL on an arm’s length basis. A3. VEOLIA ENVIRONNEMENT

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A Service Agreement, an Employee Secondment Agreement and an International Cash Pooling Agreement are in place between Veolia Energie ČR and VEOLIA ENVIRONNEMENT on an arm’s length basis. Costs equalling the actually facilitated expenditure were re-invoiced.

B. Relations to related parties B1. VEOLIA ENVIRONNEMENT TECHNOLOGIES FRANCE An Agreement on IT services is in place between VEOLIA ENVIRONNEMENT TECHNOLOGIES FRANCE and Veolia Energie ČR (Mona, Ember, Maximo support), on an arm’s length basis. No other contracts between these companies were concluded or performed.

B2. VEETRA VEETRA and Veolia Energie ČR have concluded a Master Agreement on CO2 allowances Trading and an Agreement on Fuel Price Risk Hedging on an arm’s length basis. No other contracts between VEETRA and Veolia Energie ČR were concluded or performed.

B3. Energie Projekt ČR, s.r.o. A Service Agreement was concluded between Energie Projekt ČR, s.r.o. and Veolia Energie ČR on an arm’s length basis; the agreement was not performed in 2015. No other contracts between Energie Projekt ČR, s.r.o. and Veolia Energie ČR were concluded or performed. B4. JVCD, a.s. A Service Agreement was concluded between Veolia Energie ČR and JVCD, a.s., on an arm’s length basis; the agreement was not performed in 2015. No other contracts between JVCD, a.s., and Veolia Energie ČR were concluded or performed.

Veolia Energie ČR records a receivable from JVCD, a.s., from previous years for facilitating the payment for Securities Centre services. B5. OLTERM & TD Olomouc, a.s. The following agreements are in place between OLTERM & TD Olomouc, a.s., and Veolia Energie ČR: Agreements where Veolia Energie ČR 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; - Service Agreement; - 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 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.

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

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The Company and Veolia Energie ČR have in place an easement agreement in which OLTERM & TD Olomouc, a.s. and Veolia Energie ČR 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. B6. AmpluServis, a.s. Veolia Energie ČR and AmpluServis, a.s., have the following in place: Agreements where Veolia Energie ČR 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 is the customer: - Agreements on Installation and Repair; - Agreements on Chemical Services; - Agreements on Expert Services;


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

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

B7. Veolia Energie Kolín, a.s. Veolia Energie ČR and Veolia Energie Kolín, a.s., have the following in place: Agreements where Veolia Energie ČR is the supplier: - Agreement on Electricity Supply; - Service Agreements; - Agreement on Fund Management in the Group, including implementing addenda; Agreements where Veolia Energie ČR is the customer: - Agreement on Electricity Supply and Agreement on Imbalance Clearing;


Veolia Energie ČR takes out insurance policies for Veolia Energie Kolín, a.s., and then re-invoices the costs. B8. Veolia Energie Mariánské Lázně, s.r.o. Veolia Energie ČR and Veolia Energie Mariánské Lázně, s.r.o. have the following in place: Agreements where Veolia Energie ČR 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 is the customer: - Agreement on Electricity Supply;

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Veolia Energie ČR takes out insurance policies for Veolia Energie Mariánské Lázně, a.s., and then re-invoices the costs. B9. Veolia Průmyslové služby ČR, a.s. Veolia Energie ČR and Veolia Průmyslové služby ČR, a.s., have the following in place: Agreements where Veolia Energie ČR 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 (TOV), - Easement Agreement – Havířov Dolní Suchá sewerage connection, - 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, - Service Agreement; - Agreement on Fund Management in the Group, including implementing addenda;

Agreements where Veolia Energie ČR 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, - Agreement for the Optimisation of Raw Water Pump Operation, - Agreement on the Lease of a Part of the Enterprise;

all of them on an arm’s length basis. Veolia Energie ČR takes out insurance policies for Veolia Průmyslové služby ČR, a.s., and then re-invoices the costs, equalling the actually incurred costs. B10. Veolia Komodity ČR, s.r.o. Veolia Energie ČR and Veolia Komodity ČR, s.r.o. have the following in place: Agreements where Veolia Energie ČR 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 is the customer: - Agreement on Bundled Gas Supply;


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

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B11. Institut environmentálních služeb, a.s. Under an Agreement on Cooperation in Employee Education, Institut environmentálních služeb, a.s., provided Veolia Energie ČR 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.

B12. VEOLIA CENTRAL & EASTERN EUROPE No written agreements in documentary form are in place. Throughout 2015, VEOLIA CENTRAL & EASTERN EUROPE invoiced costs of arranging advisory services related to potential acquisitions for Veolia Energie ČR on an arm’s length basis. B13. Pražské vodovody a kanalizace, a.s. Veolia Energie ČR 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 2015, Pražské vodovody a kanalizace, a.s. and Veolia Energie ČR, a.s. performed under agreements on water supply and wastewater drainage; the performance in 2015 included water supply from the drinking water system and the drainage of wastewater through the sewerage system on an arm’s length basis. B14. VEOLIA ČESKÁ REPUBLIKA, a.s. No written agreements in documentary form are in place.

In 2015, VEOLIA ČESKÁ REPUBLIKA, a.s., re-invoiced Veolia Energie ČR for the costs of conference organisation, public relations services, production of promotional materials and the costs of employee secondment, equalling the actually facilitated expenditure.

B15. Česká voda - Czech Water, a.s. Veolia Energie ČR and Česká voda – Czech Water, a.s. have in place an Agreement on the Facilitation of Sales and Purchase of Fuel for Veolia Energie ČR vehicles on an arm’s length basis. Based on Česká voda – Czech Water, a.s.’s service orders, Veolia Energie ČR carries out minor repairs in the boiler rooms of operating buildings. B16. MORAVSKÁ VODÁRENSKÁ, a.s. In 2015, Veolia Energie ČR and MORAVSKÁ VODÁRENSKÁ, a.s. performed under agreements on water supply and wastewater drainage; the performance in 2015 included water supply from the drinking water system and the drainage of wastewater through the sewerage system on an arm’s length basis. B17. Solutions and Services, a.s. Veolia Energie ČR and Solutions and Services, a.s. have in place a Service Agreement and a Cooperation Agreement – Contact Centre on an arm’s length basis. In 2015, Solutions and Services, a.s., re-invoiced Veolia Energie ČR for the costs of IT service provision and HR advisory services, and also costs incurred in arranging air tickets and accommodation for the Company’s employees. All re-invoiced amounts equalled the actually facilitated expenditure. B18. Veolia Energia Slovensko, a.s. Veolia Energie ČR and Veolia Energia Slovensko, a.s. have in place an Employee Secondment Agreement on an arm’s length basis.

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B19. 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 2015, 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.

IV 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, 24 March 2016

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

110


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.

SOCIETE DE PARTICIPATIONS ET D’INVESTISSEMENTS

DIVERSIFIES 2

Energie Projekt ČR, s.r.o.

Veolia Powerline Kaczyce Sp. z o.o.

Veolia Průmyslové

služby ČR, a.s.

Veolia Energie ČR, a.s.

JVCD, a.s.

100%

30%

100%

100%

100%

63.03%

99.99%

10.01%

100%

100%

100%

100%

99.95%

Veolia Komodity ČR, s.r.o.

Notes:

- Dalkia Industry CZ, a.s. was renamed to Veolia Průmyslové služby ČR, a.s. as of 1 March 2015 - Dalkia Powerline Sp. z o.o. was renamed to Veolia Powerline Kaczyce Sp. z o.o. as of 30 March 2015 - Dalkia Commodities CZ, s.r.o. was renamed to Veolia Komodity ČR, s.r.o. as of 1 April 2015 - Dalkia s.r.o. was renamed to Energie Projekt ČR, s.r.o. as of 25 January 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)

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.

98% 2%

Veolia Support Services Česká republika, a.s.

Notes: - Veolia Vedlejší produkty ČR, s.r.o. joined the Veolia Group on 1 May 2015 - VEOLIA VODA S.A. was renamed to VEOLIA CENTRAL & EASTERN EUROPE (June 2015) - VODÁRNA PLZEŇ a.s. left the Veolia Group as of 31 December 2015

VEOLIA EAU – COMPAGNIE GENERALE DES EAUX


Veolia Vedlejší produkty ČR, s.r.o.

100%

Lines of control



parties)

111

VEOLIA ENERGIE INTERNATIONAL

Veolia Energia Žiar nad Hronom, s.r.o.

C-Shop, spol. s r.o.

Veolia Energia Komfort Košice, a.s.

C-bau, spol. s r.o.

SLOVEO a.s.

ENERGIA s.r.o. (in receivership)

Veolia Energia Východné Slovensko, s.r.o.

Veolia Energia Slovensko, a.s.

100%

100%

100%

100%

59%

100%

50%

99.95%

Lines of control



parties)


60%

RBS – Roľnícka spoločnosť Brodské, s.r.o.

Veolia Utilities Žiar nad Hronom, a.s.

Veolia Energia Kráľovský Chlmec, s r.o.

100%

100%

Veolia Energia Poprad, a.s.

Veolia Energia Senec, a.s.

Veolia Energia Vráble, a.s.

Veolia Energia Brezno, a.s.

Veolia Energia Podunajské Biskupice, s.r.o.

Veolia Energia Lučenec, a.s.

Biomass Energy Corporation, a.s.

80%

75%

80%

80%

75%

100%

65%

50%

112


112

5. Auditor’s Report

113

114


115

116


118


This Annual Report was prepared by the Economic-Administrative Department of Veolia Energie ČR, a.s. and by the Communication Department of Veolia Energie ČR.Layout: Veolia, Veolia Environnement.Photography: Veolia Group library, Martin Mecnarowski (author of the photograph on the page 24).Annual Report concept and production: Communication Department of Veolia Energie ČR 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 Ostrava

Customer service 800 800 860

www.veoliaenergie.czwww.veolia.cz

Annual Report prepared on 11 April 2016.

Documents

Annual Report 2015 - vecr.cz