clean energy warms you - Ško-energo

AnnuAl RepoRt 2010

Clean Energy Warms You

1 July 1995start of operations ŠKO-ENERGO and ŠKO-ENERGO FIN

10 t/hoursteam boiler output

140 t/hourfluid steam boiler output

continuous operationof the heating plant

BRC/BLC 50 : 50optimisation of the fluid boilers operating on a mixture of brown (BRC) and black (BLC) coal

BRC/BLC 80 : 20modification on boilers

BRC/BLC 60 : 40continuous operation on a mixture of brown and black coal

2,6 MWtcommencement of operation of the new hot-water feeder

ISO 9001ISO 14001

foundation stoneof the new heating plant is laid

2 × 16 000 m³/hourturbo-compressors output

On 1 July 1995 ŠKO‑ENERGO and the company for financing construction of the new heating plant, ŠKO‑ENERGO FIN, begin operations. The founders of these companies are ŠKODA AUTO, a. s., RWE Energie AG, OBAG AG, Středočeská energetická a. s. and VW Kraftwerk GmbH.

Foundation stone of the new heating plant is laid. The first element constructed is the K40 hot‑water boiler, which during the construction period provides certain supplies of heat for the factory and for the city of Mladá Boleslav.

Commencement of earthworks and laying of the concrete foundations of the heating plant in January. Production of the fluid boilers and steam turbines begins. New water‑cooling equipment for the production operations of ŠKODA AUTO is put into operation.

Implementation of a measure for improving the combustion of the mixture of black and brown coal. High‑voltage operation taken over in steelworks. New heating customers connected in the eastern industrial zone: D+D, Faurecia and, in the Kosmonosy area, Promus.

Upon building approval of the heating plant and other facilities in the area of infrastructure, continuous operation is commenced. The water‑cooling station is expanded for the new operations of ŠKODA AUTO. In the 110 kV distribution point a switching program is installed to protect the heating plant and operations of ŠKODA AUTO in the event of failure of the external network.

Design work begins for the possible combustion of waste oils in the heating plant.

The ownership share of E.ON Bayern AG is transferred to the company E. ON Czech Holding AG.

Optimisation of the fluid boilers operating on a mixture of brown and black coal in the ratio 50:50. Installation of a vibration monitoring system for improving prevention in the area of maintaining important rotary equipment. A new water‑cooling station for ŠKODA AUTO’s new welding shop is put into operation.

Modification of the ash separator on the K80 boiler improves the possibility for further increasing the mixture of brown and black coal. Following the same modification on the K90, up to 80:20 will be achieved. Gradual refurbishment of the 22 kV distribution plant.

The supplier of black coal reports that, in light of termination of mining at the Lazy mine, it will not be possible to deliver black coal after 2015. Alternatives for the change in the fuel base are sought and the share of brown coal is increased. The ownership share held by Středočeská energetická a. s. is transferred to ČEZ a. s.

Successful completion of ISO 9001 and ISO 14 001 certification.

Commencement of operation of the new hot‑water feeder for the ŠKODA AUTO Technology Centre with output of 2.6 MWt. Implementation of the investment creates a prerequisite for connecting other facilities in the city centre.

Commencement of trial operation of the oily‑water treatment plant and station for treating rainwater, including two reservoirs. The new gas steam boiler with output of 10t/hour is put into operation in Vrchlabí.

ŠKODA AUTO, a. s., jointly with VW Kraftwerk GmbH completes a study of the renovation of power‑generation facilities according to VW standards and prepares a project for construction of a heating plant.

Construction begins of wastewater treatment plants. These are intended for treating wastewater from the paint shops and oily water and emulsions from the mechanical operations of the ŠKODA AUTO plant.

Trial operation of the treatment station for wastewater from the paint shop and wastewater measuring facilities. At the Česana plant, operation of the automated gas heating plant begins and construction of a gas steam boiler begins at the plant in Vrchlabí.

All technology for the newly built heating plant is gradually completed. The fluid steam boiler with output of 140 t/hour, the gas steam boiler, both steam turbines and other equipment of the heating plant are set up and brought into trial operation.

The heating plant is brought into operation. Completion of construction of the cooling tower and conversion of the demineralisation station as a source of finished water for the heating plant and for operation of the paint shops at the ŠKODA AUTO plant. The rainwater pumping station is also completed.

Change in the ownership structure: OBAG AG is transformed into the company E.ON Bayern AG.

Preparation of a study focused on increasing the output of the fluid boilers to 105% and on burning a mixture of black and brown coal. Completion of the refurbishment of the control system for the turbo‑compressors and refurbishment of the cooling tower. Refurbishment of the distribution point in the compressor station in connection with the conversion of the HV system of ŠKODA AUTO from 6 kV to 22 kV.

Trials of using the energy content of separated oils begin, eventually resulting in certification for

“ŠKO‑ENERGO oil‑emulsion technological fuel”. The heating system in the Bradlec water‑treatment plant is refurbished with transition to gas, bringing about significant energy savings.

Accession of the Czech Republic to the European Union.

Following the necessary trials, continuous operation on a mixture of brown and black coal in the ratio 60:40 begins in the heating plant. The necessary authorisation was obtained for this purpose. Construction of new hot‑water connectors for the Bondy Centre building and the area in the eastern industrial zone.

A long‑term contract on supplies of brown coal is concluded. Trading in emissions permits begins.

Successful trial of pellet combustion in preparation for a new project.

Construction realised for receiving, transporting and feeding pellets (biomass) into boilers.

Preparation of a study for construction of the third block. Cementation of the industrial‑water mains commenced, structure for the 12‑bar screw compressors realised. A hot‑water connection for the new ŠKODA AUTO Technology Centre is realised in cooperation with Centrotherm.

ŠKO‑ENERGO begins trial combustion of pellets produced from waste‑wood from the operations of ŠKODA AUTO.

New turbo‑compressors with output of 2×16,000 m3/hour are installed in the compressor station. An information system for collecting and processing technical data is gradually brought into operation.

BRC/BLC 100 : 0operation of boilers

waste-woodpelletisation and combustion

combustion of biomassverification operation

RWE Energie AG transfers its share to ŠKODA AUTO a. s. and VW Kraftwerk GmbH.

Verification operation of the equipment for burning biomass successfully conducted.

Operation of boilers on 100% brown coal begins.

In addition to combustion of pellets from biomass, pelletisation and combustion of waste‑wood from ŠKODA AUTO begins.

waste oilsproject for combustion

constructionof wastewater treatment plants

wastewater treatmenttrial operation

projectfor construction of a heating plant

trial operationof heating plant

EcologyOperationOther

Events

1996 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 20101995 1997

Evolution of selected indicators between 1995 and 2010

values in CZK ’000* since 1st July 1995

352,223

2,255,858

2010200920082007200620052004200320022001200019991998199719961995*

857,705

1,010,0471,132,820

1,576,6061,645,215

1,699,1701,612,887 1,596,300 1,583,690

1,667,0501,769,306

1,890,355

2,075,3942,127,588

Operating revenues

* since 1st July 1995

2010200920082007200620052004200320022001200019991998199719961995*

308

251

308 308290

273

249236 232 229 227

242 240 241 236 240

Average number of employees

operating revenues CZK ’000 average number of employees

24,852,214 257

2 ŠKo‑eneRGo Annual Report 2010

values in MWh ’000* since 1st July 1995

99

548

2010200920082007200620052004200320022001200019991998199719961995*

257

307324

370

412

451 443425

443469 470

538 534 531

Sales of electricity

284

506

2010200920082007200620052004200320022001200019991998199719961995*

687643

588 569549

594

544 548 537 526 507471 457 446

values in MWh ’000* since 1st July 1995

Sales of heat

total amount MWhof heat sold

total amount MWhof sold electricity

8,456,000 6,621,000

ŠKo‑eneRGo Annual Report 2010 3

Values in CZK ’000 2010 2009 2008 2007 2006

operating revenues 2,255,858 2,127,588 2,075,394 1,890,355 1,769,306

of which sales of goods, sale of own products and services 2,227,799 2,089,501 2,025,292 1,854,260 1,631,193

operating expenses 2,248,412 2,115,473 2,063,708 1,881,468 1,724,237

of which depreciations of tangible and intangible fixed assets 29,246 24,216 19,644 15,867 9,686

operating result 7,446 12,115 11,686 8,887 45,069

Financial result (2,552) (7,257) (8,845) (4,843) (8,411)

profit before tax 4,894 4,858 2,841 4,044 36,658

profit after tax 2,170 2,190 2,211 2,279 35,429

long‑term assets 283,453 270,636 252,925 206,634 208,193

Short‑term assets 353,294 480,615 431,622 304,851 369,181

equity 58,037 57,338 56,638 55,978 55,275

loan liabilities 490,051 649,005 665,137 392,329 421,659

Balance 657,105 770,349 737,485 526,591 595,126

Values in MWh ’000

Sales of heat 506 446 457 471 507

of which ŠKoDA Auto 319 274 279 300 317

Sales of electricity 548 531 534 538 470

of which ŠKoDA Auto 494 479 493 500 397

Average number of employees 251 240 236 241 240

For the purpose of transparent year‑on‑year comparison, operating costs and revenues do not contain operations with emissions‑allowances, which do not have an impact on the amount of the economic result.

Selected Indicators

sales of heat MWh sales of electricity MWh

506,000 548,000


Long-term assets – netto

Amount of co-fired biomass

Production of electricity

Observance of statutory limits for air protectionconcentration (mg/m³)

0

100

200

300

400

500

600

2009 2010200820072006

values in CZK ’000

208,193 206,634

252,925270,636

283,453

0

5 000

10 000

15 000

20 000

25 000

30 000

35 000

40 000

2009200820072006

tonnes

1,671

9,978

17,693

34,301

28,710

20100

100

200

300

400

500

600

508

500

333

400

211

9

220

average ŠKO-ENERGO valueslegal limit for fluid boilers

TZL SO² NOx CO

0

100

200

300

400

500

600

2009200820072006

471 473440

467487

2010

values in MWh ’000

tonnes of biomass

28,710carbon oxide

9 mg/m³


Foreword by the Statutory RepresentativesDear Friends, In 2010 ŠKo‑eneRGo celebrated its fifteenth year in existence. Therefore, please allow us to briefly review the Company’s development during that time. The mission which the Company formulated in conjunction with the developing parent company ŠKoDA Auto is being fulfilled. The Company reliably supplies energy to its biggest customer, ŠKoDA Auto, which at this time has significantly increased both production as well as its offtake of energy. In the city of Mladá Boleslav, to which the Company supplies heat, many new customers have been added and the Company’s estimated share of heat offtake in the city is 90%. This is due to the long‑term stability of the heat price and cooperation with the municipal distribution company CentRotHeRM. The new heating plant, which began operation in 1998, has significantly improved air quality and reduced emissions. It is a pilot project in accordance with Joint Implementation (JI) mechanism set in the Kyoto protocol with annual emissions reduction in the amount of 272,000 tonnes of Co².

one of the founding companies, RWe poWeR AG, sold its shares in the Company on 1 october 2010. These shares were purchased by ŠKoDA Auto and VW KRAFtWeRK. The VW concern thus now owns 67% of the Company.

Also in 2010, ŠKo‑eneRGo succeeded in reliably supplying energy to its customers while maintaining the price of energy at the same level. This stability is the result of flawless operation of all facilities and risk management connected with the purchase of raw materials and energy.

The volume of electricity supplied to ŠKoDA Auto and to the public network was 548,000 MWh in 2010. The slight year‑on‑year growth (from 531,000 MWh

in 2009) was due to increased production at ŠKoDA Auto. Supplies of heat increased substantially from 446,000 MWh to 506,000 MWh of heat due to markedly below‑average annual temperatures.

The Company’s turnover grew year‑on‑year from CZK 2,090 million to CZK 2,228 million. Besides the growth in sales of heat, this was also due to growth in the prices of input raw materials. The Company’s total profit remained at the level of the previous year in the amount of CZK 2 million. For already the eighth year, the Company managed to maintain the price of heat not only for ŠKoDA Auto, but also for residents and businesses in Mladá Boleslav. This is mainly due to the long‑term contract on supplies of domestic brown coal and to further increase of the volume thereof in the mix as opposed to more expensive black coal, for which the heating plant was originally designed.

Thanks to regular preventive maintenance and inspections of the facilities, operation of the facilities proceeded in 2010 without any serious failures or interruptions. The fluid boilers, which represent the foundation for economical production of heat and electricity, were flawlessly operated on a mix of brown and black coal and on biomass, and in winter they were appropriately supplemented with a gas steam boiler.

The main task, which was successfully carried out, was replacement of ukrainian black coal with domestic brown coal. From March 2010 the supplier was not able to continue with supplies due to the changing political circumstances in ukraine. Additional measures were implemented in the area of energy distribution in order to ensure the reliability of supplies. After four years, the cementation of the internal surfaces of intake pipes for industrial water from the Bradlec water‑treatment plant was completed, thus


significantly extending the service life of the pipes and reducing the risk of failures. A range of measures was implemented in the area of high and low voltage and other areas of the mains and maintenance were taken over from ŠKoDA Auto. A breakdown in supplies of heat to the city of Mladá Boleslav was avoided in winter at the end of the year, following an accident involving a rail crane and damage to the hot‑water pipes leading to the city.

The training centre was completed in 2010 with aid from the european union. The Company’s management is aware that the basis of success and added value is and always will be loyal personnel and their ability to learn and innovate processes and facilities, and the Company therefore supports the employees’ development.

With regard to the number of customers in the city of Mladá Boleslav, the Company continued in its support for sporting and ecological activities within its CSR programme. Another modern ecological classroom was built with a donation from the Company, which also

further enhanced its cooperation with youth football, hockey and basketball organisations.

The Company faces a tremendous challenge connected with the european union’s policy on reducing greenhouse‑gas emissions. The Company owns modern facilities which have substantially restricted Co²

emissions and will continue with innovations in the area of emissions reduction. In order to ensure the stability of prices for the customer even during a period of significant volatility in raw materials and energy, it will be important to find suitable instruments for diversifying and managing risks.

In conclusion, we would like to thank all employees and business partners for their cooperation in 2010. We wish them many personal and professional successes, and we look forward to our continued cooperation.

31 March 2011

Miroslav Ždánský Vladimír HandlíkStatutory Representative Statutory Representative


Our VisionThe Company’s vision, as outlined by the founders

15 years ago, has become a reality. A brand new heating

plant equipped with modern technologies was built in

1998 and since then ŠKo‑eneRGo has been making

ecological and reliable deliveries of all the necessary

energies not only to the car factory ŠKoDA Auto but

also to the town of Mladá Boleslav. The supplies are being

extended to the historical and industrial parts of Mladá

Boleslav and at ŠKoDA Auto the Company’s operations

go beyond the scope of the original intention.

Company Profile

Basic InformationŠKo‑eneRGo is an operating company established in 1995 at the same time as the finance company ŠKo‑eneRGo FIn. ŠKo‑eneRGo FIn owns facilities, primarily a thermal power station, which is leased to ŠKo‑eneRGo.

ŠKo‑eneRGo ensures supplies of energy and a broad range of services for the company ŠKoDA Auto.

In addition to being a provider of services for ŠKoDA Auto, the Company is also a supplier of heat for the city of Mladá Boleslav. Via the municipal distribution company CentRotHeRM, heat is supplied to 12,000 households and more than 200 business entities and institutions in the city.

The impetus for establishing ŠKo‑eneRGo was a decision on the part of ŠKoDA Auto to spin off its energy business and provision of energy supplies with the assistance of a consortium comprising two important German energy companies, RWe AG and oBAG AG (which in 2002 merged with the holding company e.on). VW Kraftwerk and the regional power company Středočeská energetická a. s. (whose shares were transferred to ČeZ, a. s. in 2007) also became partners. In 2010, the RWe power AG sold its shares to ŠKoDA Auto and VW Kraftwerk GmbH.

Shareholders as at 31 December 2010

VOLKSWAGEN KRAFTWERK GmbH, Wolfsburg, Nmecko

EZ Prodej, s.r.o., Praha

E.ON Czech Holding AG, Mnichov, Nmecko

ŠKODA AUTO a.s., Mladá Boleslav1

2

3

4

1 ŠKODA AUTO a. s.,Mladá Boleslav

44.5%

2 E.ON Czech Holding AG,Munich, Germany

21%

3 ČEZ, a. s.,prague

12%

4VW Kraftwerk GmbH,Wolfsburg, Germany

22.5%


Shareholders

ŠKODA AUTO a. s.ŠKoDA Auto is a wholly‑owned subsidiary of Volkswagen AG. It occupies an exceptional position in the Czech economy and is the most important Czech exporter. The company has a tradition dating back more than a century. Its path to today’s prosperity began in 1895 with the manufacturing of bicycles and, later, motorcycles. The company’s first car rolled out of the factory gates in 1905.

E.ON Czech Holding AGThe energy company operating under the brand e.on supplies electricity, natural gas and related services to more than 25 million customers.Since the very beginning of liberalisation, the e.on group has been active in the countries of Central and eastern europe, where it uses its extensive experience with the privatisation of energy companies throughout europe. In addition to electricity, e.on has significant shares in companies trading in gas.e.on is a traditional partner of the Czech energy sector. The company operates primarily in South Moravia and South Bohemia.

Volkswagen Kraftwerk GmbHVW Kraftwerk GmbH is a wholly‑owned subsidiary of Volkswagen AG. The company provides services not only to the Volkswagen Group, but also to cities, industry and companies in the areas of energy trading and supply, power‑plant construction planning and facility management. The company’s main task is supplying the internationally operating Volkswagen Group with electricity, heat, cooling, natural gas, compressed air and water.

ČEZ, a. s.The main subject of the operations of ČeZ, a. s. is production and sale of electricity and related support for the electricity supply system. At the same time, the company is engaged in production, distribution and sale of heat.ČeZ Group is the largest producer of electricity and heat in the Czech Republic, an operator of distribution systems in most areas of the country, and the strongest entity on the wholesale and retail electricity markets.


Main Processes

Conclusion of contracts on the sale of energy and services

purchasing of strategic commodities(coal, gas, biomass, electricity)

Fuel, raw‑materials and energy logistic

Distribution, metering and billing

production of industrial water, cooling‑water and DeMI‑water

Waste‑water treatment

production of compressed air

production of electricity and heat


Facilities and technologies

Production of electricity and heatThe heating plant is the core of the Company. The main production units are two fluid boilers, K80 and K90, with steam output of 2×140 t/hour, burning a mixture of black and brown coal. Reserve capacity in the event of a breakdown of the fluid boilers is ensured by a K70 steam boiler with output of 60 t/hour and using natural gas as the primary fuel. The new facilities include two extraction condensation turbines supplied by Siemens. Cooling water is supplied to the heating plant from the cooling system with a tower cooler with a fan cooling system. In addition, three hot‑water boilers are used, serving as a reserve and for covering peak demand. The adjacent plant of ŠKoDA Auto in Česana and the plant in Vrchlabí are heated by gas boiler rooms.

Production of compressed airThe production of compressed air at 0.6 Mpa of pressure is ensured by two compressor stations with turbo‑compressors having output of 32,000 nm³/hour, 4×16,000 nm³/hour and 10,000 nm³/hour. ŠKoDA Auto uses compressed air for technical purposes, in particular in the welding shop, paint shop and in assembly. Screw compressors that produce compressed air at 1.2 Mpa are used for special workstations in the welding shop, particularly for robots.

Production of industrial water, cooling-water and DEMI-waterThe Bradlec source of industrial water uses water from the Jizera River which is treated by means of neutral purification and subsequent filtration for the needs of ŠKoDA Auto and the ŠKo‑eneRGo heating plant. Water in the volume of two million m³ per year is transported via gravitation pipes over a distance of six kilometres to the plant. The Z5 rainwater pumping station is used for pumping rainwater from the greater part of the plant to the Z29 treatment station and to the reservoirs and the Z22 station, and for pumping separated rainwater directly into the Zalužany water course.

The needs of the ŠKoDA Auto production plants and in particular its welding shop and paint shop are served by the Z24 cooling‑water station and also by the e14A and e14B cooling‑water stations with significantly lower parameters for the needs of cooling robots. Demineralised water is produced by means of chemical treatment of water, collected in storage tanks and then pumped to the heating plant and the paint shop. The Z17A neutralisation station treats wastewater from the body paint shop with ferrous‑salts coagulation and alkaline metal agglutination.

Waste-water treatmentThe Z25 station with vacuum‑based evaporation and multistage mechanical pre‑treatment is used for treating wastewater from mechanical metal processing (oil containing water and emulsions). The Z29 station treats water from storm drains in the new part of the ŠKoDA Auto plant. The main part of this station consists of two reservoirs with the aggregate volume of 19,000 m³ in which wastewater is biologically treated through intensive airing of the reservoirs.

Distribution, metering and billingThe Company operates and maintains all networks used within the ŠKoDA Auto complex for energy distribution.

A 110 kV distribution plant serves for connecting ŠKo‑eneRGo with the public network. In light of the fact that supplying ŠKoDA Auto is crucially important, independent supply lines from the ČeZ, a. s. were constructed. ŠKo‑eneRGo heating plant is connected to the distribution plant at the level of 110 kV. Three 110/22 kV transformers with output of 63 MVA are connected to the distribution system of ŠKoDA Auto with voltage of 22 kV. The 22 kV cable system supplies the production facilities of ŠKoDA Auto as well as some plants of ŠKo‑eneRGo via forty‑four 22/0.4 kV distribution points. Hot‑water networks covering the entire area of the plant serve for heat distribution.

The gas‑distribution system includes an e13 regulation station that regulates gas from the external Dn300, 4.0 Mpa high‑pressure distribution system to the required operating values.


Information on the Supervisory and Statutory Bodies

Supervisory BoardComposition of the Supervisory Board as at 31 December 2010:

Karlheinz Emil Hell (* 1963)Member of the Board of Directors of ŠKoDA Auto, appointed to the position of member of the Supervisory Board of ŠKo‑eneRGo on 12 June 2010

Michael Oeljeklaus (* 1963)Member of the Board of Directors of ŠKoDA Auto, appointed to the position of member of the Supervisory Board of ŠKo‑eneRGo on 1 november 2010

Jaroslav Kužel (* 1952)Head of the Department of energy Sales, operating economics and Chemical Regimes of ČeZ, a. s., appointed to the position of member of the Supervisory Board of ŠKo‑eneRGo on 1 May 2010

Gert Wölfel (* 1939)Advisor, appointed to the position of member of the Supervisory Board of ŠKo‑eneRGo on 30 June 1995

Raimund Wunder (* 1951)Statutory representative of VW Kraftwerk GmbH, appointed to the position of member of the Supervisory Board of ŠKo‑eneRGo on 1 January 2003


Statutory Representatives of the Company as at 31 December 2010

Vladimír Handlík(* 1947)

Statutory Representative of the Company for the technical area, appointed to the position on 30 June 1995.

Vladimír Handlík is a graduate of the Czech technical university (Ctu) in prague, where he specialised in the field of steam boilers and turbines. From 1977 to 1980 he expanded his professional education through post‑graduate study in the same field at Ctu.

He dedicated his professional life with power engineering at the Mladá Boleslav‑based carmaker. He left the position of chief power engineer at ŠKoDA Auto to join the Company in 1995. He has participated in the ŠKo‑eneRGo project from the very beginning and has played a very important role in its implementation.

Miroslav Žďánský(* 1958)

Statutory Representative of the Company for the commercial‑economic area, appointed to the position on 1 September 2000.

Miroslav Žďánský is a graduate of the Faculty of Chemical engineering at the Institute of Chemical technology in prague. In 1998 he completed his diploma work at the european Business School (private Wissenschaftliche Hochschule, Schloss Reichartshausen am Rhein, Germany), where he received the title of Master of International Management. In 2006 he received a professional Diploma in Management at The open university Business School, Milton Keynes (uK).

From 1989 to 1995 he worked in management positions in the financial section at the Mladá Boleslav‑based carmaker. From 1995 until joining the Company, he was the director of a Czech‑American firm engaged in the administration and development of privatised firms and real estate.


Our StrategyThe Company’s strategy reacted with flexibility to the

evolution of the business environment and customers’

needs. The core of the strategy is to achieve the goals

set by the owners and to constantly improve and expand

the customer services. The Company is successful

in making stable supplies of electricity and heat to

ŠKoDA Auto and to the town at advantageous prices.

Corporate StrategyGoals for owners and banking institutions

→ ensure the required profit, return on investments

and repayment of loans

Environmental goals → protect the environment on the basis of the

Company’s own sense of responsibility and initiative

→ Minimise harm to the environment through the

use of new processes and ecological behaviour.

use of modern technologies and standards in the

construction and operation of all facilities if this is

technically feasible and economically acceptable

→ Maintain a high standard in minimising airborne‑

emissions

→ Conduct an open dialogue with interest groups

and provide them with information serving for the

understanding of adopted goals and results of

environmental programmes

Mission → ŠKo‑eneRGo provides comprehensive care for its biggest customer, ŠKoDA Auto, in meeting its energy needs. The Company concurrently ensures heat supplies and thus comfort for the residents, businesses and institutions of the city of Mladá Boleslav, thereby ensuring good conditions for their work and private lives.

Vision → ŠKo‑eneRGo is a competitive, coveted and reliable energy supplier which responds in a timely manner to the needs of the market, invests appropriately, earns reasonable profits and minimises harmful impacts on the environment. The Company cares for its employees and is a good citizen of the region and partner of the city of Mladá Boleslav

Goals for customers → provide ŠKoDA Auto with favourably priced supplies of energy and services

→ provide all customers with safe and reliable supplies of energy

→ Gain new customers in Mladá Boleslav and increase sales of heat

→ offer residents and businesses in Mladá Boleslav supplies of heat below the level of prices of heat from gas

→ enable connection to remote heating in new areas of Mladá Boleslav

→ enhance the Company’s positive image among customers

Goals for employees and the surrounding community

→ Qualification, motivation and satisfaction of

employees

→ Corporate culture supporting innovation and

teamwork

→ The Company as a good and desirable employer

→ Good relations with institutions and authorities in

the region

→ targeted application of the principles of Corporate

Social Responsibility


Goals of management processes

Company management

→ Coordinate company processes, optimise the use of resources and control mechanisms → use process management and continually improve processes → proceed in accordance with the owners’ policy

Financial management

→ ensure return on investments and comply with the stipulated financial goals through effective cost management

→ Manage the effective use of facilities for production of electricity and heat and coordinate production with purchasing

→ Manage the Company’s pricing policy in accordance with the regulator’s directives → effectively use financial resources within the framework of the VW concern

Quality control and environmental management

→ Improve processes ensuring the quality of energy supplies and services agreed with customers → Assess the environmental impact of existing and new processes and facilities and adopt such measures that limit ecological and safety risks

→ Support employees’ responsibility for quality and the environment through training and information → Regularly inspect compliance with policies and goals in the areas of quality and the environment and the functionality of the Company’s integrated system of management

Human resources management

→ ensure that all positions are occupied by qualified and motivated employees → Increase the qualifications and development of employees for the purpose of long‑term enhancement of their abilities and gaining new knowledge and skills

→ Improve communication, involve employees in management and increase their awareness with the aim of sharing the Company’s vision and goals

→ Support a creative and positive approach to new ideas and use appropriate motivational tools for this purpose

Assets management

→ take care of entrusted facilities and maintain them in operable condition in order to ensure safe and uninterrupted operation

→ Invest in areas which ensure reduction of Co² emissions, reduction of costs, certainty of operation and increased sales of heat

Risk management → Qualify and quantify risks and have them continually updated and assessed by the responsible persons → effectively use financial instruments to reduce exchange‑rate risks and for sales and purchasing of Co² permits

→ ensure prices of purchased electricity and gas through appropriate derivatives on commodities markets and reduces the risks of price volatility through diversification of risks by gradual purchasing

→ cover operating risks with appropriate insurance

Innovation → Monitor the media and changes in technologies, regulatory measures and development of the market and in a timely manner provide information for decision‑making pertaining to possibilities for reducing Co² emissions and improving production of energy

→ Assess possible innovations of processes and facilities, select the most suitable solutions and resources for implementation

→ plan and implement innovations at the right time

Goals of main processes

Sales and marketing

→ Actively seek out new connections in the city of Mladá Boleslav and increase sales of heat → Support selected activities in the city of Mladá Boleslav → Favourably sell electricity not consumed by ŠKoDA Auto for its production

Strategic purchasing

→ Secure the certainty of supplies and prices of brown coal through long‑term contracts → Increase the amount of purchased biomass from existing and new customers → use the Company’s ownership structure for effective purchasing of electricity and gas

Production, services and distribution

→ optimally use the facilities’ capacity and reduce the number of unplanned interruptions of energy supplies

→ Reduce the share of expensive fuels and increase the share of biomass in the fuel mix → ensure ecological operation

Goals of supporting processes

Informatics → use modern information technologies and systems → Implement the concept based on SAp and energis systems supplemented with a suitable superstructure


Business Environment

Economic Development of the Czech RepublicThe year 2010 can be considered as a turning point when the period of unremitting negative reports came to an end and some areas of the domestic economy gradually began to show signs of recovery. of course, this favourable development was also reflected in the growth of the gross national product, which amounted to 2.2% (preliminary estimate of the Czech Statistical office), as well as in the unemployment rate, which declined to 7.0%.

The best‑performing sectors of Czech industry exhibited double‑digit growth in 2010. For example, production of motor vehicles increased by 22.2%, production of metal products by 17.5%, and production of machines and equipment by 13.5%. total industrial production grew by 10.5% year‑on‑year. However, in light of these figures it is necessary to point out the lower base of 2009.

Although food, motor‑fuel and housing prices rose during the course of the year, average annual inflation remained very low, amounting to only 1.5%, which is the third‑lowest result since 1989.

Development of the exchange rate of the Czech crown against the main world currencies was relatively unstable. The strongest values achieved by the Czech crown during the year were CZK 24.41/euR 1 and CZK 17.12/uSD 1, whereas the crown’s weakest levels against the euro and dollar were CZK 26.37/euR 1 and CZK 21.70/uSD 1.

In order to support the economy, the Czech national Bank proceeded to further reduce basic interest rates in May. The two‑week repo rate was thus newly set at 0.75%. Thanks to the gradual economic recovery, it can be expected in the coming periods that the Czech national Bank will adopt a reverse course and gradually raise these historically lowest rates.

Development in the Energy SectorThe subsiding impacts of the recession and financial crisis became apparent in the growth of energy prices. The price of oil climbed from uSD 60/barrel to uSD 85/barrel. Coal prices rose similarly, from uSD 90/tonne to uSD 120/tonne. The fading of the crisis was also reflected in commodity prices. last year, european industrial production was roughly at the level of 2005 and the prices of gas and electricity were also at or near that same level on spot markets.

Commodity prices in the Czech Republic mirrored the development of prices on the German and european markets. The price of electricity was slightly below the level of the German stock exchange. The liberalised gas market caused gas prices to fall in the Czech Republic as in the rest of europe as a result of lower offtakes and bigger supplies of lnG, and thus the dependence of gas prices on the development of oil prices was weakened. Therefore problems were incurred by suppliers of gas imported from Russia, the prices of which are contractually bound to the price of petroleum products, coal and the dollar exchange rate. The rising price of foreign black coal brought about the situation in which the domestic mining company oKD could offer more favourable prices in the Czech Republic and thus dominate the Czech market. However, most Czech power plants and heating plants are dependent on deliveries of brown coal. The Czech government did not allow the exceeding of limits on brown‑coal mining and therefore a shortage of brown coal is probable in the short‑ and medium‑term outlook. This is enabling domestic mining firms to raise their prices and is a reason for the further progressive development of the biomass market.

A fundamental issue for the energy sector in europe is the policy of reducing Co² emissions and trading with emissions‑allowances within the eu emissions trading System (etS). In the course of the year, the price of permits was in the range of euR 12–16 and


its further development is not clear. For the third etS trading period in 2013–2020, Directive 2009/29/eC was approved, pursuant to which Co² permits will be purchased at auction and the european union is continuing to consider the rate of emissions reductions by 2020 (20% or 30% against the level of 1990). The Czech Republic and some other newer members of the eu can request an exemption so that they do not have to purchase 100% of permits for electricity production from 2013, as will be valid for the eu. According to this exemption, these countries have the option of gradually purchasing permits from 30% in 2013 to 100% in 2020. However, they must fulfil the condition that they will invest the value of the permits, which they will receive free of charge, in clean technologies. As of March 2011, the Czech Republic had not yet decided whether it would apply for this exemption.

Due to eu subsidisation and high subsidies for electricity production, an unexpectedly large number of solar power plants were constructed in 2010, which significantly increased the fees for renewable sources and thus electricity prices for the coming period.

Development of the RegionThe financial crisis and recession in the automotive industry subsided and ŠKoDA Auto managed to further enhance its leading position on the Czech market. With 762,600 vehicles sold around the world, the company crossed the threshold of three‑quarters of a million sales for the first time and is continuing to expand to the east. The company’s share of the domestic market grew to 34.5% in 2010. ŠKoDA Auto sold a total of 58,000 vehicles in the Czech Republic last year. Its most popular models include the ŠKoDA octavia, Superb and Yeti. The company’s performance contributes not only to the region’s stability, but also to its further development.

Crude oil prices compared with the prices of natural gas

Fees for renewable sources

natural gas EUR/MWhcrude oil USD/bbl

80%

100%

120%

140%

160%

180%

XII.XI.X.IX.VIII.VII.VI.V.IV.III.II.I. 2011201020092004–2008*

40 52.18

166.34

370

CZK/MWh* average values


Cost-effectivenessGradual innovations of the equipment and improvements

of the internal processes have led to economic and

cost‑effective use of the resources. Making sound

investments, the Company has reached a position

where it can use domestic high‑calorific lignite in

combination with biomass. Dependable supplies of raw

materials and energies are underpinned by long‑term

contracts. The Company pays increasing attention to risk

management and maintenance of stable output prices.

Production and Supplies of EnergySupplies of all types of energy were consistent in 2010 and in accordance with contracts and the requirements of ŠKoDA Auto, CentRotHeRM and other customers. There were not any serious interruptions or failures of the boilers. In the area of ecology, there were no breaches of the laws or decrees in force.

The growth in the amount of generated and purchased energy in 2010 was caused primarily by the increased production at ŠKoDA Auto due to stronger demand on the vehicle market. temperatures in 2010 were significantly below average, which brought about a 13.5% year‑on‑year increase in sales of heat. Year‑on‑year shifts in consumption are summarised in the following overview:

Management’s Report on Activities in 2010

Volumes of supplies

unit 2010 20092010/2009

[%]

Electricity MWh ’000 548 531 3.2

– of which ŠKoDA Auto MWh ’000 494 479 3.1

– of which supplies to the network MWh ’000 54 52 3.8

Heat MWh ’000 506 446 13.5

– of which ŠKoDA Auto MWh ’000 319 274 16.4

– of which CentRotHeRM MWh ’000 178 164 8.5

– of which other MWh ’000 9 8 12.5

Compressed air m³ ’000 326,577 315,239 3.6

Natural gas GWh 151 151 0

DEMI water m³ ’000 164 159 3.1

Potable water m³ ’000 375 407 (7.9)

Industrial water m³ ’000 382 468 (18.4)

Wastewater m³ ’000 1,250 1,075 16.3


Economic Results

Income from operationsThe Company focuses on achieving stable profits and the lowest possible cost growth. Fixed costs are long‑term without growth, with the exception of personnel costs, in the case of which collective bargaining agreements and wage increases are respected. The costs of raw materials and energy rise in accordance with the development on the market and the Company employs standard instruments to guard against growth of these costs. The Company’s economic results are dependent primarily on cogeneration of electricity and heat. offtake of heat, which is dependent on the weather, thus has a significant effect on the results.

Revenues and costs rose proportionately year‑on‑year. The Company’s profit in the amount of CZK 2.2 million thus did not change year‑on‑year.

operating revenues amounted to CZK 2,255.9 million, an increase of CZK 128.3 million, i.e. 6.0%, in comparison with 2009. Increased sales of heat had a positive impact, increasing the efficiency of co‑generation.

The main cause of cost growth is the rise in prices of purchased commodities, particularly regulated items related to electricity (contributions for renewable resources and resumption of payments for reserve capacity amount electricity producers). Costs in the amount of CZK 2,248.4 million represented an increase of CZK 132.9 million, i.e. 6.3%, in comparison with 2009.

The price of purchased natural gas increased by 10.3% year‑on‑year. This factor has a decisive share in the growth of purchased energies by 14.0%.

The costs of the Company’s own energy production particularly due to the rise in prices of input raw materials (primarily coal, biomass and natural gas). The price of brown coal rose by 5.6% on the basis of a long‑term contract. Higher consumption of raw materials and energy, primarily due to higher demand for heat, accounted for a significant share of the cost growth. The Company’s own production of electricity increased by 4% year‑on‑year. The growth of condensation generation of electricity from natural gas is significant.

Comparison of outside temperatures in 2010 with the long-term average

−5°C

0°C

5°C

10°C

15°C

20°C

25°Caverage 2000–2009 2010

XII.XI.X.IX.VIII.VII.VI.V.IV.III.II.I.


The Company is endeavouring to eliminate the increase of costs of energy inputs primarily by optimising the fuel mix, particularly by increasing the share of combusted brown coal from 89.4% in 2009 to 97.7% in 2010. These factors are having a very positive impact and represent year‑on‑year cost savings in the total amount of approximately CZK 30 million.

The Company does not have any influence on annuity rent, which comprises 27.5% of all expenses.

The Company’s total financial result improved by CZK 4.7 million year‑on‑year as a result of improved liquidity in the course of the year.

1 Electricity 52.3%

2 Gas 5.3%

3 Water 3.5%

4 Services 9.9%

5 Heat 24.0%

6 Compressed air 5.0%

Structure of operating revenues

1 Production materials and energy 34.6%

2 Purchased energy 17.9%

3 Rent 27.5%

4 Other operating costs 20.0%

Structure of operating costs

Stlaený vzduch

Teplo

Služby

Voda

Plyn

Elektina

1

3

5

6

2

4

ostatní provozní náklady

nájemné

nakupované energie

výrobní materiál a energie

1

4

3

2


Economic results

In CZK ’000 2010 2009 Difference %

Revenues

operating revenues 2,255,858 2,127,588 128,270 6.0

Financial revenues 4,184 5,314 (1,130) (21.3)

Total 2,260,042 2,132,902 127,140 6.0

Expenses

operating expenses 2,248,412 2,115,473 132,939 6.3

– production materials and energy 777,583 681,969 95,614 14.0

– purchased energy 403,078 365,907 37,171 10.2

– rent 617,432 616,251 1,181 0.2

– other operating expenses 450,319 451,346 (1,027) (0.2)

Financial expenses 6,736 12,571 (5,835) (46.4)

Total 2,255,148 2,128,044 127,104 6.0

operating income before tax 4,894 4,858 36 0.7

tax (deferred) (2,724) (2,668) (56) 2.1

Economic result for the accounting period 2,170 2,190 (20) (0.9)

For the purpose of transparent year‑on‑year comparison, other operating expenses and revenues do not contain operations with emissions‑allowances, which do not have an impact on the amount of the economic result.


Development of the Asset and Capital Structure, FinancingThe balance‑sheet structure exhibits positive trends. The total balance sum as at 31 December 2010 amounted to CZK 657.1 million.

Fixed assets increased year‑on‑year from CZK 270.6 million to CZK 283.4 million. This growth is commented in detail in the Investment, technological Innovation and Facilities Management chapter. Amortisation as a source of financing increased year‑on‑year from CZK 24.2 million to CZK 29.2 million.

optimisation of purchased stocks was reflected in the reduced value of stocks from CZK 89.7 million to CZK 79.4 million. This reduced value was influenced by making a provision for low‑turnover supplies.

The decrease of the value of receivables from CZK 383.6 million in 2009 to CZK 250.0 million in 2010 was temporarily caused mainly by the slightly different scheduling of payments for energy on the part of the main customer, ŠKoDA Auto.

Cash on the current account and cash on hand in the amount of CZK 23.9 million covers the Company’s short‑term needs.

The status of equity capital as at 31 December 2010 reached the value of CZK 58.0 million. This amount comprises the economic result for 2010, the Company’s share capital and the statutory reserve fund. From its profits the Company also comprises the social fund, the fund for financing future investments and the fund for covering price risks.

The Company’s financial needs are covered by short‑term from its shareholders. The value of these loans decreased from CZK 540.0 million to CZK 337.0 million. This status is significantly reflected in the change in status of short‑term liabilities.

As of 31 December 2010, the Company had not drawn any bank credit.


Cash flow SummaryValues in CZK ’000

2010 2009

Status of cash at the beginning of the period 7,338 767

net cash flow from operations 240,473 4,423

net cash flow from investing activities (19,458) (16,362)

net cash flow from financing activities (204,471) 18,510

net increase in cash and cash equivalents 16,544 6,571

Cash and cash equivalents at the end of the year 23,882 7,338

Balance sheet structure as at 31 December 2010

TOTAL ASSETS100%, CZK 657.1 mil.

(2009: CZK 770.3 mil. )

TOTAL LIABILITIES100%, CZK 657.1 mil.(2009: CZK 770.3 mil.)

Inventory12.1%, CZK 79.4 mil.(2009: 11.6%, CZK 89.7 mil.)

Receivables38.1%, CZK 250.0 mil.(2009: 49.8%, CZK 383.6 mil.)

Accruals and deferrals3.1%, CZK 20.4 mil.(2009: 2.5%, CZK 19.1 mil.)

Financial assets3.6%, CZK 23.9 mil.(2009: 1.0%, CZK 7.3 mil.)

Long-term assets43.1%, CZK 283.4 mil.(2009: 35.1%, CZK 270.6 mil.)

Reserves1.6%, CZK 10.5 mil.

(2009: 1.6%, CZK 12.1 mil.)

Accruals and deferrals16.6%, CZK 109.0 mil.

(2009: 8.3%, CZK 64 mil.)

Short-term liabilities73.0%, CZK 479.6 mil.

(2009: 82.7%, CZK 636.9 mil.)

Equity8.8%, CZK 58.0 mil.

(2009: 7.4%, CZK 57.3 mil.)


Investment, Technological Innovation and Facilities ManagementIn 2010 the Company expended CZK 37.1 million on new investments. This primarily involved measures required by new legislation and related to operational safety. Investments in the heating plant were focused on measures aimed at increasing the share of brown coal in the mix with black coal. other investments involved expanding the functionality of the SAp accounting system and minor structural modifications. A successful project in 2010 was the opening of the training centre, for the construction of which aid was obtained from the european union. ŠKo‑eneRGo’s facilities were maintained throughout the year in uninterrupted operation.

Heating PlantIn the heating plant, modifications were carried out in the storage facility for biofuel, the co‑combustion of which is continually increasing. In connection with the gradual transition to combusting a larger amount of brown coal, the first phase of installing vacuum equipment in the entire process of coal handling through to the coal‑storage bins was implemented, as there will be a greater burden on the coal lines and to increased amounts of dust. Control ports were created in both blocks of the smokestack system in the section before the filters in order to enable cleaning of the smoke tract in the event that the filters become clogged due to the higher ash content of brown coal. Service platforms were installed for correct and safe performance of inspections of the stable pressure tanks in the area of the machine shop. Due to stricter legislative requirements pertaining to emissions trading, a new, more precise conveyor scale was installed in the coal‑handling area.

In cooperation with the ecology department of ŠKoDA Auto, an investment was implemented in the area of liquidating ecological burdens in the old heavy‑fuel station.

large repairs were focused on summer inspections, when the company‑wide vacation at ŠKoDA Auto was used for the gradual shutdown of both blocks. The most important repairs included measures taken in the combustion chambers and the fluid‑boiler flues, inspections of both steam turbines and generators and a full range of repairs in the area of pipes, armatures, regulation and electrical equipment and cooling towers.

Infrastructure – Other Equipment for Production and Distribution of EnergyIn the area of wastewater discharge, the largest part of financial resources was dedicated to refurbishing the equipment of the Z5 wastewater pumping station, where the 6kV mains were replaced with 0.4 kV including overhaul of the rainwater pumps.

Another large investment event consisted in starting the innovation of the SAIA technological control

1 Operational safety 29%

2 Environmental legislation 9%

3 Costs reduction 28%

4 Software 15%

5 Others 19%

Structure of investments in 2010

Ostatní

Software

Snížení nákladů

Legislativa životní prostředí

Bezpečnost provozu

1

2

4

3

5


systems in water‑management operations. The innovation is divided into two phases and this year it was carried out in the Z25 oily‑wastewater treatment station.

Fire protection of other buildings was increased with the installation of new fire‑safety equipment in the electrical substations.

The heating system for the Z25 oily‑wastewater treatment station, where 130°C hot water is produced year round for the purpose of drying separated oils, was also refurbished.

Repairs in the area of infrastructure were demanding in that these facilities and equipment cannot be shut down while limiting production at the ŠKoDA Auto plant, but rather must be performed gradually from March to october, mostly on weekends. During a shutdown of the ŠKoDA Auto plant, all types of energy, such as electricity, compressed air, potable and industrial water and others must be supplied for the purpose of maintenance in individual halls. During these gradual inspections, individual facilities and equipment were repaired with the aim of maintaining year‑round uninterrupted operation.

Risk ManagementRisk management is the part of the Company’s management processes that ensures the long‑term monitoring and minimisation of risks. The objective of managing all of the Company’s risks is to adopt measures that limit the scope of potential damage to an acceptable level and, at the same time, to ensure that the costs expended on limiting such risks are as effective as possible.

Operating Risksoperating risks are reduced through continual maintenance of production facilities, and systematic training and professional development of personnel.

Insurance is an important mean of managing the Company’s operating risks. The Company has concluded contracts on assets insurance and insurance against operational breakdowns. All of the Company’s assets are insured against natural disasters. In the case of operational breakdowns resulting from damaged equipment, the insurance companies pay additional costs arising due to the purchase of energy.

In the current period of intense volatility in the prices of raw materials and energy, the Company guards against shortages and cost increases thereof. Within the context of minimising risks associated with rising prices of black coal, whose price is much more significantly linked to the price of oil on world markets, the Company’s management adopted a long‑term strategy consisting in the limitation of burning black coal and its replacement with brown coal. The Company has concluded contracts on supplies of brown coal for the entire technical life span of the heating plant’s equipment. part of the contracts comprises securing prices against their volatility by using pricing formulas 2019.

Reduction of operating risks is also ensured by the Company’s integrated management system.

Market Risksturnover risks are covered by long‑term contracts. The Company is the exclusive supplier of energy for the main customer, ŠKoDA Auto, until 2019. ČeZ is obligated to purchase at the market price electricity not purchased by ŠKoDA Auto during the same period.

Therefore, in order for the Company to limit and diversify risks ensuing from the high volatility of the prices of electricity which ŠKoDA Auto purchases, the price of electricity is contractually guaranteed so that it is the average of the development of specific forward prices in Czech crowns in the course of several years prior to its validity.


Financial RisksThe Company manages financial risks caused by insufficient liquidity through long‑term planning and cash‑flow management. For financing, the Company uses loans provided internally within the VW concern and does not secure interest.

The Company uses standard forward contracts for managing risks ensuing from changes of the euR exchange in sales of emissions‑allowances.

Environmental RisksThe most significant monitored and continually evaluated risks are those ensuing from the european union’s environmental policy and related legislation of the Czech Republic.

A fundamental risk for the energy sector is the development of emissions‑allowance prices and the purchase thereof at auction after 2012. The Company will use banking and transfer surplus permits conserved by burning biomass until 2013. The Company is considering the purchase of permits or the use of forwards for securing prices after 2013. Risks can be limited with a greater share of combusted biomass.

Economic, political and legislative risksIn light of its commercial activities, the Company’s financial position is significantly influenced by framework economic conditions, such as the state of the economy and the related economic cycle, changes in legislation and the political situation.

Risks over which the Company has no influence and cannot guard itself against are connected with the state’s tax policy and the amount of fees for renewable resources. An ecology tax was introduced in 2008. For 2011, a gift tax has been imposed on allocated permits by the national Allocation plan. The strong growth of solar power plants has resulted in a year‑on‑year increase of fees for renewable energy from CZK 166/MWh to CZK 370 /MWh. This fee must be paid in the same extent by all end‑users of electricity. Due to support for renewable sources, the amount of this fee can continue to rise. The above‑mentioned risks are continually assessed and are reflected in long‑term plans.

Risks in the Area of Information Technologies (IT)In the area of information technologies, the Company focused on measures against risks involving the availability, confidentiality and integrity of data. The Company uses information systems and technologies

not only for administrative activities, but also for managing production facilities, in the operation of which the maximum possible level of security is taken into account. The security of systems is regularly inspected and improved in connection with technological development. The Company uses a central administration application and antivirus protection. technical measures for securing data networks are shared with ŠKoDA Auto, which uses the best available technologies, and the Company is progressively applying all of ŠKoDA Auto’s security standards. Despite the Company’s strong focus on It security, these risks cannot be completely eliminated because of the rapid development of information technologies and the rising global trend of computer crime. The Company’s objective is to minimize the consequences of these factors through the active use of the available technologies and improvement of company processes.

The Company’s Integrated Management SystemIn november 2008 the Company crowned its effort to harmonise its management with ISo 9000 (QMS) and 14000 (eMS) standards with certification of the integrated management system (IMS) according to these standards. The certification was conducted by the well‑known certification firm tÜV SÜD Czech. The Company received from this firm, which also verifies the Company’s declarations of greenhouse‑gas emissions, a certificate of exceptionality for the successful introduction and management of all three auditing systems.

In 2010, the second supervisory audit was conducted and demonstrated the correct direction is being taken in the application of the management system and its ability to improve and optimise existing processes.

Systemic improvements and support for process management include the introduction of software tools such as RISCon for occupational safety management, eISoRGnet for monitoring, management and declaration in the environmental area, and pAlStAt for the management of metrology within the Company.

Forecast and Goals for the Coming PeriodThe Company has a fully formed vision and set goals which are reflected in the internal processes. The most important task in the short‑ and medium‑term horizon will be to monitor the development of the energy sector and to appropriately respond to changes therein.


Further development in the energy sector, primarily prices of raw materials and Co² permits, will depend on governments’ approach to global warning and reduction of greenhouse gases. The price uncertainty of energy inputs and outputs, the level of Co² permit prices and, in the Czech Republic, vague legal regulations for supporting ecological investments and subsidisation of electricity production from renewable sources hinder decision‑making on investments in the energy sector. Conflicts in oil‑producing countries are increasing the volatility of prices.

Technological and process innovationA fundamental task for the coming period consists in implementing an appropriately selected strategy for reducing Co² and guarding against volatility in the prices of raw materials. The Company’s task is to continually monitor technological development, regulatory measures and development of the raw‑materials market so that it can select and implement the most suitable technical solutions and manage the most significant risks, particularly those connected with the volatility of Co² prices.

Financial and Business GoalsThe basis of savings for the coming period will be ongoing and rigorous inspection, cost management and optimum use of the capacity of the heating‑plant equipment. The Company will use the competitive environment for ensuring price‑advantageous purchasing of raw materials and energy, which are crucial cost items. This primarily concerns electricity and gas, in the case of which the Company, together with its shareholders, will seek out the most favourable means of purchasing. Surplus electricity unneeded by ŠKoDA Auto will be sold at a profit to the public network. purchase contracts for 2011 have been secured for this purpose.

Operating GoalsIn accordance with the Company’s strategy, attention will henceforth be dedicated to the optimum and faultless operation of the heating plant. Achievement of this goal will be ensured through ongoing preventive maintenance of the equipment and its further technical improvement.

The fuel mix will henceforth be optimised, which is important for operational efficiency. The Company is planning to reduce consumption of black coal to the minimum level and increase the amount of combusted biomass. The Company will endeavour to use these

technical merits and to operate the equipment in the necessary manner in order to prevent the release of undesirable combustion gases.

Satisfaction of Customers’ NeedsThe Company will respond to current developments and supply ŠKoDA Auto with energy under the most favourable conditions possible. one of the crucial goals is to provide consistent and uninterrupted supplies of energy. ŠKo‑eneRGo has built itself a very strong position on the regional market and will strive to maintain it. Thus, it will remain the Company’s goal to maintain the satisfaction of existing customers and to gain new ones in the city of Mladá Boleslav.

The basis of the communication strategy for customers consists in emphasising the competitive advantages inherent in low energy costs, ecological production, the Company’s behaviour and its beneficence for the Mladá Boleslav region.

Human Resources DevelopmentThe basis for achieving the Company’s goals in all areas is management of the employees’ productivity, development and education of personnel and their creative and motivated approach to their work. Therefore, emphasis will continue to be placed on development of the system of education and effective use of invested financial resources. employees will be offered courses in the areas of professional preparation, language instruction, communication and presentation skills, and computer technology.

IT DevelopmentIn all activities, the Company will increasingly exploit the possibilities of modern information technologies as a means of improving processes in all management, production and supporting processes.

The foundation for development of this area will be a concept based on the SAp system. The goal is to prepare the implementation of a maintenance programme with the task of improving the quality and effectiveness of equipment maintenance.


Social ResponsibilityThe Company employs modern technologies to prevent

air and water pollution. Since 2003 it has been increasing

the volume of the biomass it burns to reduce significantly

the emissions of Co². Reducing emissions of greenhouse

gases is one of the Company’s top priorities.

The Company endeavours be a good citizen of the region

with friendly approach to the environment. not only

does it supply the locality with heat on preferential

pricing terms but it also supports many sporting, cultural

and social activities contributing to the well‑being

of the population.

As a result of its approach to the employees the

Company has recruited a number of loyal and highly

qualified professionals.

Corporate Governance of the CompanyŠKo‑eneRGo considers it very important to achieve a balance of the interests of all shareholders. Honourable dealing, openness and transparent management practices and proper supervision of the management form the foundation of the corporate governance of ŠKo‑eneRGo.

Therefore, the Company applies, to the adequate extent corresponding to its legal form and structure, the Code of Corporate Governance based on oeCD principles of best practices and processes in management.

Important information on the Company’s ownership structure and statutory bodies and a description of their current composition can be found on pages 10, 14 a 15 of this Annual Report.

Observance of Shareholders’ Rights, Equal Treatment of ShareholdersŠKo‑eneRGo takes into account all applicable provisions of the Commercial Code and the Company’s rules of procedure relating to protection of shareholders’ rights. In particular, it provides all relevant information regarding the Company without delay, convenes and conducts its general meetings and ensures equal treatment of all shareholders.

Publication and Transparency of Essential InformationThe statutory representatives regularly inform – orally and in writing – the Supervisory Board of the Company’s business situation and position. Important business matters are communicated immediately. The statutory representatives inform the Supervisory Board in particular in the following respects:

→ Submission of the annual budget for the subsequent business year and draft plan for the medium term, including investments. → Quarterly presentation of basic information on the Company’s assets and financial situation.

The statutory representatives prepare annual financial statements in compliance with the applicable Czech legal regulations in the course of the statutory accounting period, no later than by the end of April of the subsequent accounting period.

Responsibilities of the Statutory Representatives and the Supervisory BoardThe statutory representatives manage the Company’s business affairs in accordance with the applicable laws, memorandum of association, decisions of the general meeting and the Supervisory Board and the rules of procedure. The rules of procedure, issued by the general meeting, stipulate what acts of the statutory representatives are subject to prior approval of the general meeting or the Supervisory Board.

Corporate Social Responsibility


The Role of Stakeholders in the Company’s Corporate GovernanceStakeholders include primarily employees, members of the local community, local businesses, schools, suppliers and creditors.

Considerations regarding the impact of its decisions on various stakeholders are part of the decision‑making process of the Company’s management. The Company’s management respects and observes the rights granted to stakeholders by the law.

Relations with EmployeesThe Company considers its employees to be a key part of its business. The Company’s success depends on, among other things, continual internal development and creation of positive working conditions for its employees. The Company supports its employees’ involvement in the running of the Company and enables them to express their concerns, if any, regarding any potential erroneous process which could lead to a breach of laws and other standards.

Relations with Business PartnersIn its relations with business partners, the Company exerts great effort to ensure for its key customers, ŠKoDA Auto and the residents of Mladá Boleslav,

reliable, safe and affordable supplies of energy. The Company acts honourably towards all its suppliers – the fundamental aspects of selecting suppliers are quality and price. The Company regularly and truthfully informs its creditors of its financial situation.

Relationship to the EnvironmentAs an energy firm, the Company is aware of its responsibility to protect the environment. Therefore, it monitors and complies with legislation concerning the environment and restricts its emissions to levels below the required limits.

Relations with Members of the Local CommunityWithin the local community, the Company wants to be a good corporate citizen and is aware of its corporate social responsibility, as is noted in the text below.


Relationship to the EnvironmentThe Company’s main principles in the area of the environment include the use of the best available technologies leading to improvement of production processes beyond the legislative requirements for protection of the environment.

The Company’s Ecological Conduct as Part of its Corporate Cultureecological conduct is an important part of the Company’s activities and culture and is stipulated within the Company’s policy.

The modern facilities of the heating plant that began operation in 1998 ensure a substantial decrease of emissions compared with the original equipment and current emissions are safely under the legal limit. The Company’s motto has become “Clean energy warms you”, which is now an important element in the Company’s logo. The Company thus emphasises its strategy of burning biomass and the gradual increase of its consumption in the production of electricity and heat. ecological conduct is an important element of communication with customers and residents of the region.

Since 2008, the Company has had in place a certified management system pursuant to the ČSn en ISo 14001 standards in order to provide to its main customer, ŠKoDA Auto, proof of reliable, safe and environmentally friendly provision of services within the treatment of wastewater.

ŠKo‑eneRGo has also focused its environmental policy on educating the upcoming generation of young people. The Company closely cooperates with the engineering vocational school of ŠKoDA Auto. It also organises ecological excursions to the heating‑plant and infrastructure facilities for students within the context of their studies. Students are familiarised with the generation of heat and electricity using state‑of‑the‑art

combustion technologies, which are both efficient and environmentally friendly.

Protection of Air QualityThe Company’s main goals in the protection of air quality include maintaining a high standard in the area of minimising gas and solid emissions released into the air as a result of generating heat and electricity. The continually high level of achieving low values of generated emissions is reached through the proper maintenance of equipment which, due to its parameters, is categorised as BAt technologies. Within the negotiations on the integrated permit, ŠKo‑eneRGo declared its commitment to reducing emissions of carbon monoxide (Co) to 220 mg/m³.

Within the framework of improving monitoring and compliance with airborne‑emissions limits, the system for continual measurement of sulphur and nitrogen oxides, carbon monoxide and solid pollutants, including the declaration module, was upgraded in 2009.

Saving in CO² emissions from co-fired biomass

0

10 000

20 000

30 000

40 000

50 000

60 000

70 000

20102009200820072006

tonnes

2,666

16,077

29,877

57,894

49,098


An important step in the protection of air quality consists in the replacement of the compressed‑air driers with driers using a suitable and permitted coolant that does not damage the ozone layer of the stratosphere.

Climate ProtectionAct no. 180/2005 Coll., on the promotion of electricity produced from Renewable Sources, was approved in 2005. This Act was prepared in accordance with Directive 2001/77/eC of the european parliament and the Council. The objective of this Act is to contribute to the protection the climate and the environment by promoting the production of power from renewable sources and creating conditions for increasing the proportion of consumption of electricity produced from renewable sources in the Czech Republic to 8% in 2010 and to further increase this proportion thereafter.

Combustion of biomass is one of the possibilities for reducing emissions of greenhouse gases from fossil fuels. Biomass used for power‑generation purposes is either purposefully obtained as a result of production activities or involves the use of waste from agricultural, timber and industrial production.

Due to the above‑mentioned reasons, the Company decided to burn biomass. Thanks to the type of installed boilers – i.e. atmospheric fluid‑bed boilers with circulating fluidised bed and steam output of 2×140 t/h – biomass can be burned in these boilers, which are currently used to burn brown coal with biomass or in a mixture with black coal. Coal is fed by two separate lines into the boilers separately from two bunkers, from both bunkers in the case of burning brown coal. Given the fuel basis of the boilers, space demands and requirements for the availability and output of the boilers, separate lines have been built for feeding pellets directly into the combustion chamber.

pellets are pure compressed biomass, which is characterised by a high calorific capacity (approx. 15 MJ/kg) with a low ash content. Combustion of brown coal is thus facilitated during full operation of the boilers. ŠKo‑eneRGo purchases pellets from manufacturers in the vicinity of Mladá Boleslav.

In view of the characteristic features of pellets, the equipment was designed to ensure its safe operation in order to fulfil requirements of strict regulations, particularly the safety of the environment in the case of a combustible‑dust explosion hazard. All electrical installations inside the discharge building are of explosion‑proof design. There is an active safety component, i.e. a detonation suppression system, installed on the service container.

trial operation was conducted in 2007, when the equipment was modified so that it would be possible to input biomass with parameters differing from the projected values. For example, today it is possible to also burn the by‑products of food production, so the installed equipment for inputting biomass must be more durable. These modifications also place higher demands on the control system.

The Company’s goal is to increase the amount of combusted biomass to 40,000 tonnes per year and to thus ensure reduced production of greenhouse‑gas emissions from fossil fuels by more than 10%.

Within the context of improving the accuracy of declaring amounts of greenhouse‑gas emissions, daily determination of the calorific content of coal was introduced by the Company’s laboratory, which demonstrates its ability to perform work in multi‑laboratory comparison tests.


Waste ManagementWithin the area of waste management, the Company strives to maximally use by‑products from energy generation. These include ash from the coal‑fire boilers in the amount of approximately 35,000 tonnes, which in cooperation with specialist firms was certified as a construction material, thereby substantially reducing the production of waste within the Company. This product is thus subject to new european Community legislation in the area of chemical substances pursuant to Commission Regulation eC no. 1907/2006 under the acronym ReACH. In accordance with this legislation, the Company completed registration within the ASVep consortium on 30 november 2010.

In 2007, the Company began sorting produced mixed waste, which comprises 14% of all waste within the “other” category generated within the Company. In the course of that year, the previously introduced collection of used toner cartridges for recycling was supplemented with the collection of monocells and used fluorescent tubes for recycling. A range of legislative amendments are being prepared for waste management. The prepared amendment to the Act on Waste Management will gradually lead to incentives for sorting and recycling waste.

In 2008, the Company also became involved in a programme for recycling electronic waste (mainly computer technology and related devices) within the “Green Company” project implemented by the company ReMA. Within this project, the Company’s employees can also return electronic devices for recycling.

Company separates the oils, which are further processed into technical fuel usable in one of the fluid boilers. In 2010, 799 tonnes of “ŠKo‑eneRGo oil emulsion” fuel was used for this purpose.

Water ManagementIn the area of water management, the Company’s goal is to provide services for ŠKoDA Auto in accordance with strict limits stipulated by the environmental legislation. After 12 years of the wastewater treatment plant’s operation, it is important to conduct preventive maintenance of the equipment, which fulfils the requirements of the best available technologies. Repairs of the sedimentation tanks were carried out in the plant for treating wastewater from the operations of the ŠKoDA Auto paint shops. In the oily‑water treatment plant, an inspection of the key equipment – vacuum evaporators – was carried out. For example, ten kilometres of titanium pipes comprising the heat‑transfer surface of the evaporators were cleaned during this inspection.

After transferring wastewater from the metallurgical operations of ŠKoDA Auto in 2007, nearly 100% usage of the Z25 station’s technology was achieved and treatment at the obsolete de‑emulsification station, which no longer fulfilled the strict emissions limits for drainage into the sewer system, was discontinued.

The systems of cooling circuits equipped with a tRASAR 3D automated chemical‑dosing system, which ensures control of the optimum chemical doses in the cooling circuits of the heating plant and compressor stations, were further equipped with remote transmission for immediate inspection of the set parameters. In the case of both cooling circuits, the efficiency of treating cooling water is thus significantly enhanced (reduced consumption of chemicals) and the wastewater load is concurrently reduced (possibility of precisely maintaining effective concentrations).


Principles of ŠKO-ENERGO’s Environmental ConductŠKo‑eneRGo understands environmental protection as a common task in which every employee must engage according to his or her duties, knowledge and abilities. Within the framework of the environmental policy, ŠKo‑eneRGo has undertaken to perform the following tasks:

1. to engage in environmental protection on the basis of its own sense of responsibility and its own initiative.

2. to reduce ecological burdens caused by the Company’s activities through the use of new processes and ecological conduct.

3. During the construction and operation of all facilities, to use modern technologies and standards if such technologies are technically feasible and economically acceptable.

4. to reduce the amount of emissions released into the air and to use natural resources economically.

5. to perform all routine planned activities in accordance with ecological regulations and other requirements for environmental protection.

6. to ensure occupational safety and the safety of facilities at ŠKo‑eneRGo at the achieved high level and continual improvement thereof.

7. prior to the introduction of new processes and installation of new equipment, to evaluate their impact on the environment in order to limit environmental risks and safety hazards.

8. to promote, through training and dissemination of information, the responsibility of the Company’s employees for the environment.

9. to regularly verify compliance with policies and goals in the area of the environment and effectiveness of the Company’s environmental management.

10. to carry on an open dialogue with interest groups and to provide information serving for the understanding of adopted goals and results of environmental programmes.


Employees

Development of the Structure and Size of the WorkforceAs at 31 December 2010, the Company employed 252 workers, of which 193 were labourers, 57 technical‑economic employees, and two in management. The proportion of women in the total workforce amounted to 8%. The average age of the Company’s workforce is 46.9 years.

The Company has a stable skill structure and number of employees. In 2010 the Company hired ten employees from ŠKoDA Auto a. s. to maintain power‑generation equipment. Fluctuation within the Company has been low over the long term.

Employee DevelopmentWithin its corporate strategy, the Company places emphasis on improving and enhancing the skills of its employees. education pertains to all groups of employees. The requirements for training

technical‑economic employees are set during regularly held evaluation interviews.

The mandatory area of education comprises legally mandated periodic trainings implemented for individual employees who perform, within their work duties, such activities for which periodic testing is required by law.

other areas of employee development are enhancement of professional knowledge, soft skills, It skills and language skills. The requirements of employee training are set in accordance with their work duties and the Company’s goals.

A training centre intended for educating employees was built in 2010 with financial assistance from eu funds.

Internal CommunicationThe employees are regularly informed of events within the Company via regularly meetings and the Company’s newsletter.

Age structure of the workforce

Education structure of the workforce

1 18 to 30 8.2%

2 31 to 40 18.5%

3 41 to 50 31.3%

4 51 to 60 32.9%

5 over 60 9.1%

1 basic education 1.7%

2 vocational training / skilled worker 59.3%

3 secondary vocational training / GCE-level vocational training / GCE-level skilled worker

27.4%

4 university 11.6%

nad 60 let

od 51 do 60 let

od 41 do 50 let

od 31 do 40 let

od 18 do 30 let

vysokoškolské vzdlání

kvalifikovaný dlník s maturitou

kvalifikovaný dlník

základní vzdlání

1

1

2

2

3

34

45


Number of employees able to work

year employees able to work (in %)

2006 98.0

2007 97.9

2008 98.8

2009 98.7

2010 98.3

Work-related injuries

year number of work‑related injuries

2006 2

2007 0

2008 2

2009 0

2010 0

In the course of 2010 the Company began using the corporate intranet in order to improve employees’ access to information.

Involvement of Employees in Management and Cooperation with UnionsThe Company welcomes the initiative of employees and their involvement in the improvement process. At the same time, employees have the possibility to submit proposals for simplifying, accelerating and improving conditions within the Company through participation in the Sbírejte Wattíky (Collect Watts) programme.

A labour‑union organisation operates within the Company; 67% of all employees were organised in the union in 2009. This organisation is part of oS KoVo ŠKoDA Auto, which represents employees in collective bargaining. The Company proceeds in relation to unions in accordance with the relevant legal regulation and personnel policy. The result of concurrence between the Company and unions is the conclusion of a collective bargaining agreement.

Wage and Social PoliciesThe remuneration of employees is governed by the collective bargaining agreement. employees have a range of employee benefits and working conditions beyond the legal framework which are guaranteed to them by the collective bargaining agreement.

The Company has long supported particularly cultural, educational, health, sporting and recreation activities of the employees and contributes to pension insurance. Within its social policy, the Company provides loans for employee housing, transport to the workplaces and meal allowances, and supports employees and their families. This area involves primarily rewards for employment anniversaries, rewards for retirement, support for families on the occasion of a birth and paid parental leave.

Occupational Health and SafetyIn cooperation with leading specialists in the area of occupational health and safety in the Czech Republic, the Company sets up and evaluates processes for improving the health and safety of all employees. This is aided by the RISCon software that the Company uses for analysing and assessing risks, keeping records of work‑related injuries, and keeping a catalogue of protective aids and hazardous chemical substances, and for keeping records of legally mandated testing.

In 2010 the Company also expanded into the area of planning and management of preventive medical care.

Thanks to comprehensive employee care, we continually achieve a high number of employees able to work. The injury rate within the Company has been low over the long term.


Support for the RegionIn accordance with its long‑term strategy and principles of conduct toward stakeholders, the Company strives to be a good citizen of the region and partner of the city of Mladá Boleslav. The Company is fulfilling this vision in several areas: sponsoring activities for children and youths; promotion of sporting and cultural events; environmentally friendly conduct and the pricing policy of sold heat.

Sponsoring Activities for Children and YouthsMladá Boleslav has become a large industrial city with above‑average incomes, which brings the risk of drug abuse among young people. Therefore, the Company considers it beneficial to contribute to activities for children and youths that ensure sensible use of their free time. At the same time, the Company supports events with an environmental focus that serve to instruct young people and to build a positive relationship to the environment.

The above‑mentioned sponsorship programme serves to fulfil this goal. ŠKo‑eneRGo and ŠKo‑eneRGo FIn provide, as part of a joint project, sponsorship donations focused on supporting activities for children and youths. The aim of all these sponsorship donations is to give children and youths an opportunity to spend their leisure time in a meaningful way, thus contributing to their development. A total of CZK 1.8 million was provided from the resources of ŠKo‑eneRGo FIn in 2010. A sponsorship committee is appointed for the purpose of granting donations and assessing applications for financial support. These activities are coordinated with similar activities of ŠKoDA Auto.

Environmental Projects and Cooperation with SchoolsIn 2010 the Company sponsored one new project focused on educating youths in secondary school. At the secondary vocational school and learning centre (former agricultural school) a new multimedia classroom was created and equipped with modern computer and audio‑visual technology. part of the funding was expended on the second phase of equipping the ecology classrooms at the eight‑year high school in Mladá Boleslav. In this endeavour the Company

Sponsoring

1 Anti-drug prevention 9%

2 Ecology 14%

3 Schools 23%

4 Sport 43%

5 Other spare-time activities 11%

ost. zájm. činnost

sport

školy

ekologie

protidrogová prevence

1

2

3

5

4


cooperated with the Zahrada (Garden) Home for Children and Youths, where for several years already it has supported activities focused on educating children and youths in the area of ecology during their free time. Within the one World documentary film festival, the Company assisted with the organisation of environmental scenes in the eco‑Centre of the Zahrada Home.

Youth Sports ClubsIn 2010 the Company continued in supporting clubs offering possibilities for girls to participate. The Company supported the MB girls’ floorball academy and provided additional financing to the Slovanka women basketball team and the Billy Boy floorball team. These sport clubs have recently gained ever increasing popularity in Mladá Boleslav and their matches are attended by more and more spectators. Another area of sponsorship comprises modern dance clubs and choirs. Support is also focused on other sports and activities such as athletics, tennis, swimming, martial arts, handball, cycling, archery, chess and photography.

The Nová šance (New Chance) Foundation of the City of Mladá Boleslav (anti-drug activities)The Company has long cooperated with the nová šance (new Chance) Foundation of the City of Mladá Boleslav, which is engaged in anti‑drug activities and prevention in the Mladá Boleslav region.

Support for Sport and CultureŠKo‑eneRGo supports the Mladá Boleslav premier‑league football team and extra‑league ice‑hockey team, and thus acts jointly with ŠKoDA Auto, which is the biggest sponsor of both teams. top‑level football and hockey significantly contribute to the entertainment of the residents of the city and surrounding region.

The Company is also a sponsor of the theatrical performance “Dědeček automobil” (“Vintage Car”), which in the previous year was staged on the occasion of the one hundredth anniversary of the Mladá Boleslav Theatre and remains in the theatre’s repertoire.

Affordable Supplies of HeatŠKo‑eneRGo has maintained the price of heat at the same level for eight years.

Via the distribution company CentRotHeRM, the Company supplies heat to 12,000 families and approximately 200 small and medium‑size businesses. The Company has had and continues to have the view that its customers are primarily employees of the parent company ŠKoDA Auto. Maintaining acceptable and stable prices is thus an important benefit for residents of the region. CentRotHeRM, which is 100% owned by the city, holds the same interest.

Ecological BehaviourConstruction of the new heating plant has significantly contributed to improving the air quality in the city of Mladá Boleslav. The Company adheres to its high standard relating to discharged emissions and every citizen of Mladá Boleslav can verify this through metering data available online.


Report of the Independent Auditor on the Annual Report

Independent auditor’s report

to the shareholders of ŠKO-ENERGO, s.r.o.

We have audited the financial statements of ŠKO-ENERGO, s.r.o., identification number 616 75 938, with registered office at Tř. Václava Klementa 869, Mladá Boleslav (“the Company”) for the year ended 31 December 2010 disclosed in the annual report on pages 49–74 and issued the opinion dated 31 March 2011 and disclosed on page 50.

Report on the Annual Report

We have verified that the other information included in the annual report of the Company for the year ended 31 December 2010 is consistent with the financial statements referred to above. The Statutory Representatives are responsible for the accuracy of the annual report. Our responsibility is to express an opinion on the consistency of the annual report with the financial statements based on our verification procedures.

Auditor’s Responsibility

We conducted our verification procedures in accordance with the International Standards on Auditing and the related application guidance of the Chamber of Auditors of the Czech Republic. Those standards require that we plan and perform the verification procedures to obtain reasonable assurance about whether the other information included in the annual report which describes matters that are also presented in the financial statements is, in all material respects, consistent with the relevant financial statements. We believe that the verification procedures performed provide a reasonable basis for our opinion.

Opinion

In our opinion, the other information included in the annual report of the Company for the year ended 31 December 2010 is consistent, in all material respects, with the financial statements.

PricewaterhouseCoopers Audit, s.r.o., Kateřinská 40/466, 120 00 Prague 2, Czech RepublicPhone: +420 251 151 111, fax:+420 251 156 111, www.pwc.com/cz

PricewaterhouseCoopers Audit, s.r.o., registered seat Kateřinská 40/466, 120 00 Prague 2, Czech Republic, Identification Number: 40765521, registered with the Commercial Register kept by the Municipal Court in Prague, Section C, Insert 3637, and in the Register of Audit Companies with the Chamber of Auditors of the Czech Republic under Licence No 021.

© 2011 PricewaterhouseCoopers Audit, s.r.o. All rights reserved. “PwC” is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.

Shareholders of ŠKO-ENERGO, s.r.o.


Report on review of the Report on Relations

In addition we have also reviewed the accompanying report on relations between the Company and its controlling party and between the Company and the other persons controlled by the same controlling party for the year ended 31 December 2010 (the “Report”). The completeness and accuracy of the Report is the responsibility of the Statutory Representatives of the Company. Our responsibility is to express our opinion on the Report based on performed review.

Scope of Review

We conducted our review in accordance with Audit standard 56 of the Chamber of Auditors of the Czech Republic. This standard requires that we plan and perform the review to obtain limited assurance as to whether the Report is free of material factual misstatement. A review is limited primarily to inquiries of Company personnel, analytical procedures and examination, on a test basis, of factual accuracy of data. A review therefore provides less assurance than an audit. We have not performed an audit and, accordingly, we do not express an audit opinion.

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the accompanying Report has not been properly prepared, in all material respects, in accordance with the requirements of Article 66a of the Commercial Code.

31 March 2011

PricewaterhouseCoopers Audit, s.r.o.represented by

Václav Prýmek Jitka ŽaloudkováPartner Statutory auditor, Licence No. 1802

Translation noteThis version of our report is a translation from the original, which was prepared in the Czech language. All possible care has been taken to ensure that the translation is an accurate representation of the original. However, in all matters of interpretation of information, views or opinions, the Czech version of our report takes precedence over this translation.

Independent Auditor’s Report and the Financial Statements

Translation noteThe financial statements have been prepared in Czech language and english language. In all matters of interpretation of information, views or opinions, the Czech version of the financial statements takes precedence over the english version.


to the shareholders of ŠKO-ENERGO, s.r.o.

We have audited the accompanying financial statements of ŠKO-ENERGO, s.r.o., identification number 616 75 938 , with registered office at Tř. Václava Klementa 869, Mladá Boleslav (“the Company”), which comprise the balance sheet as at 31 December 2010, the income statement, statement of changes in equity and cash flow statement for the year then ended and notes, including a summary of significant accounting policies (“the financial statements”).

Statutory Representative’s Responsibility for the Financial Statements

The Statutory Representative is responsible for the preparation of the financial statements that give a true and fair view in accordance with Czech accounting legislation, and for such internal controls as the Statutory Representative determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

Auditor’s Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with the Act on Auditors of the Czech Republic, International Standards on Auditing and the related application guidance of the Chamber of Auditors of the Czech Republic. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement.

PricewaterhouseCoopers Audit, s.r.o., Kateřinská 40/466, 120 00 Prague 2, Czech RepublicPhone: +420 251 151 111, fax:+420 251 156 111, www.pwc.com/cz

PricewaterhouseCoopers Audit, s.r.o., registered seat Kateřinská 40/466, 120 00 Prague 2, Czech Republic, Identification Number: 40765521, registered with the Commercial Register kept by the Municipal Court in Prague, Section C, Insert 3637, and in the Register of Audit Companies with the Chamber of Auditors of the Czech Republic under Licence No 021.

© 2011 PricewaterhouseCoopers Audit, s.r.o. All rights reserved. “PwC” is the brand under which member firms of PricewaterhouseCoopers International Limited (PwCIL) operate and provide services. Together, these firms form the PwC network. Each firm in the network is a separate legal entity and does not act as agent of PwCIL or any other member firm. PwCIL does not provide any services to clients. PwCIL is not responsible or liable for the acts or omissions of any of its member firms nor can it control the exercise of their professional judgment or bind them in any way.

Shareholders of ŠKO-ENERGO, s.r.o.


Auditor’s Responsibility (continued)

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the Company’s preparation of the financial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the Company as at 31 December 2010, its financial performance and its cash flows for the year then ended in accordance with Czech accounting legislation.

31 March 2011

PricewaterhouseCoopers Audit, s.r.o.represented by

Václav Prýmek Jitka ŽaloudkováPartner Statutory Auditor, Licence No. 1802

NoteOur report has been prepared in the Czech language and in English. In all matters of interpretation of information, views or opinions, the Czech version of our report takes precedence over the English version.


Balance sheet(in thousand Czech crowns)

Ref. ASSetS 31.12.2010 31.12.2009

Gross provision net net

a b 1 2 3 4

TOTAL ASSETS 844,499 (187,394) 657,105 770,349

B. Fixed assets 406,672 (123,219) 283,453 270,636

B. I. Intangible fixed assets 26,523 (12,892) 13,631 8,240

B. I. 1. Software 13,520 (9,409) 4,111 1,209

2. other intangible fixed assets 10,760 (3,483) 7,277 2,362

3. Intangible fixed assets in the course of construction 2,243 – 2,243 4,669

B. II. Tangible fixed assets 380,149 (110,327) 269,822 262,396

B. II. 1. Constructions 114,641 (13,778) 100,863 97,722

2. equipment 255,178 (96,549) 158,629 152,835

3. tangible fixed assets in the course of construction 10,330 – 10,330 11,839

C. Current assets 417,469 (64,175) 353,294 480,615

C. I. Inventories 143,612 (64,175) 79,437 89,728

C. I. 1. Raw materials 143,612 (64,175) 79,437 89,728

C. II. Long-term receivables 6,009 – 6,009 9,672

C. II. 1. other receivables 4,054 – 4,054 4,993

2. Deferred tax asset 1,955 – 1,955 4,679

C. III. Short-term receivables 243,966 – 243,966 373,877

C. III. 1. trade receivables 208,898 – 208,898 337,184

2. taxes and state subsidies receivable 11,663 – 11,663 3,343

3. Short‑term advances paid 17,255 – 17,255 15,613

4. Anticipated assets 222 – 222 –

5. other receivables 5,928 – 5,928 17,737

C. IV. Financial assets 23,882 – 23,882 7,338

C. IV. 1. Cash in hand 33 – 33 52

2. Cash at bank 23,849 – 23,849 7,286

D. I. Accruals and deferrals 20,358 – 20,358 19,098

D. I. 1. prepaid expenses 3,823 – 3,823 2,572

2. Accrued revenue 16,535 – 16,535 16,526


Ref. lIABIlItIeS AnD eQuItY 31.12.2010 31.12.2009

a b 6 7

TOTAL LIABILITIES AND EQUITY 657,105 770,349

A. Equity 58,037 57,338

A. I. Share capital 10,000 10,000

A. I. 1. Share capital 10,000 10,000

A. III. Reserve fund and other reserves 45,867 45,148

A. III. 1. Statutory reserve fund 1,094 1,094

2. Statutory and other reserves 44,773 44,054

A. V. Profit (loss) for the current period (+/−) 2,170 2,190

B. Liabilities 490,051 649,005

B. I. Provisions 10,508 12,097

B. I. 1. other provisions 10,508 12,097

B. III. Short-term liabilities 479,543 636,908

B. III. 1. trade payables 136,351 93,806

2. liabilities to shareholders and co‑ventures 337,000 540,000

3. taxes and state subsidies payable 5,414 2,894

4. Anticipated liabilities 771 202

5. other payables 7 6

C. I. Accruals and deferrals 109,017 64,006

C. I. 1. Accruals 109,017 64,006


Income statement(in thousand Czech crowns)

Ref. DeSCRIptIon Accounting period

2010 2009

a b 1 2

I. Sales of goods 402,640 365,915

A. Cost of goods sold 403,078 365,907

+ Gross profit (438) 8

II. Sales of production 1,825,159 1,723,586

II. 1. Sales of own products and services 1,825,159 1,723,586

B. Cost of sales 1,602,566 1,521,318

B. 1. Raw materials and consumables 777,583 681,969

2. Services 824,983 839,349

+ Added value 222,155 202,276

C. Staff costs 166,983 155,696

C. 1. Wages and salaries 119,876 112,091

2. Social security and health insurance costs 40,874 37,880

3. other social costs 6,233 5,725

D. taxes and charges 2,187 1,704

e. Depreciation of long‑term assets 29,246 24,216

III. Sale of long‑term assets and raw materials 27,837 37,664

III. 1. Sale of long‑term assets 27,828 37,617

2. Sale of raw materials 9 47

G. Increase / (decrease) in operating provisions 5,236 8,449

IV. other operating income 170,284 158,210

H. other operating charges 209,178 195,970

* Operating result 7,446 12,115

IX. Gain on revaluation of securities and derivatives 770 903

l. loss on revaluation of securities and derivatives 34 307

X. Interest income 180 236

n. Interest expense 4,236 9,150

XI. other financial income 3,234 4,175

o. other financial expense 2,466 3,114

* Financial result (2,552) (7,257)

Q. tax on profit or loss on ordinary activities 2,724 2,668

Q. 1. – deferred 2,724 2,668

** Profit or loss on ordinary activities after taxation 2,170 2,190

*** Net profit (loss) for the financial period 2,170 2,190

*** Net profit (loss) before taxation 4,894 4,858


Statement of changes in equityYear ended 31 December 2010

Share capital

CZK ’000

Statutory reserve fund

CZK ’000

Statutory and other funds

CZK ’000

Retained earnings

CZK ’000

total

CZK ’000

Balance as at 1 January 2009 10,000 1,094 43,333 2,211 56,638

Distribution of profit – – 721 (721) –

Shares on profit paid – – – (1,490) (1,490)

net profit for 2009 – – – 2,190 2,190

Balance as at 31 December 2009 10,000 1,094 44,054 2,190 57,338

Distribution of profit – – 719 (719) –

Shares on profit paid – – – (1,471) (1,471)

net profit for 2010 – – – 2,170 2,170

Balance as at 31 December 2010 10,000 1,094 44,773 2,170 58,037


Cash flow statementYear ended 31 December 2010

2010 CZK ’000

2009 CZK ’000

Cash flows from operating activities

Net profit on ordinary activities before tax 4,894 4,858

A.1 Adjustment for non-cash movements:

A.1.1 Depreciation and amortisation of fixed assets 29,246 24,216

A.1.2 Change in provisions 5,237 8,449

A.1.3 profit from disposal of fixed assets (5,296) (16,659)

A.1.4 net interest income 4,056 8,914

A.1.5. other non‑cash movements (736) (596)

A * Net cash flow from ordinary activities before tax and changes in current assets 37,401 29,182

A.2 Changes in working capital:

A.2.1 Change in receivables and prepayments 117,987 (28,708)

A.2.2 Change in short‑term payables and accruals 85,676 9,904

A.2.3 Change in inventories 3,465 2,959

A ** Net cash flow from ordinary activities before tax 244,529 13,337

A.3 Interest paid (4,236) (9,150)

A.4 Interest received 180 236

A *** Net cash flow from ordinary activities 240,473 4,423

Cash flow from investing activities

B.1 Acquisition of fixed assets (59,625) (60,678)

B.2 proceeds from sale of fixed assets 40,167 44,316

B *** Net cash flow from investing activities (19,458) (16,362)

Cash flow from financing activities

C.1 Increase in long and short‑term liabilities (203,000) 20,000

C.2 Change in equity:

C.2.1 Shares on profit paid (1,471) (1,490)

C *** Net cash flow from financing activities (204,471) 18,510

Net increase in cash and cash equivalents 16,544 6,571

Cash and cash equivalents at the beginning of the year 7,338 767

Cash and cash equivalents at the end of the year 23,882 7,338


Notes to the financial statementsYear ended 31 December 2010

1 GENERAL INFORMATION

a) Introductory information about the CompanyŠKo‑eneRGo, s. r. o. (“the Company” or “ŠKo‑eneRGo”) was entered into the Commercial Register on 30 June 1995 under the file mark of section C, insert 38550 with registration no. 61675938. The registered office of the Company is Mladá Boleslav 1, tř. Václava Klementa 869, postal code 293 60. The Company’s business activities according to the Articles of Incorporation are especially production and distribution of heat energy, production and sale of electricity, sale of gas, installation, revision and testing of electrical, pressure, gas equipment etc.

The registered capital of CZK 10,000,000 was fully repaid.

> Share of individual shareholders on the share capital as at 31 December 2010:

Shareholder %

e.on Czech Holding AG, Munich (Germany) 21.0

ŠKoDA Auto a. s., Mladá Boleslav 44.5

ČeZ, a. s., prague 12.0

VolKSWAGen KRAFtWeRK GmbH, Wolfsburg (Germany) 22.5

> Share of individual shareholders on the share capital as at 31 December 2009:

Shareholder %

e.on Czech Holding AG, Munich (Germany) 21

RWe power Aktiengesellschaft, essen (Germany) 21

ŠKoDA Auto a. s., Mladá Boleslav 34

ČeZ, a. s., prague 12

VolKSWAGen KRAFtWeRK GmbH, Wolfsburg (Germany) 12

> Statutory Representatives of the Company in 2010 and 2009 were as follows:

name and surname period in charge

Vladimír Handlík since 30 June 1995

Miroslav Žďánský since 1 September 2000


> Members of the Supervisory Board as at 31 December 2010 were as follows:


Gert Wölfel since 30 June 1995

Raimund Wunder since 1 January 2003

Jaroslav Kužel since 1 May 2010

Karlheinz emil Hell since 12 June 2010

Michael oeljeklaus since 1 november 2010

Appointment of Mr Michael oeljeklaus as a member of Supervisory Board of the Company has not been registered in the Commercial Register as at the date of the approval of the financial statements.

> Members of the Supervisory Board as at 31 December 2009 were as follows:


Gert Wölfel since 30 June 1995

Raimund Wunder since 1 January 2003

Armin eichholz since 20 September 2004 to 1 october 2010

Horst Mühl since 9 June 2005 to 12 May 2010

Reinhard Jung since 1 January 2008 to 31 october 2010

Vladimír Schmalz since 1 January 2008 to 30 April 2010

The Company’s management is functionally divided into technical and business management. The business management is represented by the business Statutory Representative. Besides the technical Statutory Representative, the technical management is also represented by a manager for the area of infrastructure and other energies and the heating plant operations manager.

2 ACCOUNTING POLICIES

(a) Basis of preparationThe financial statements have been prepared in accordance with the Generally Accepted Accounting principles in the Czech Republic. The financial statements have been prepared under the historical cost convention.

(b) Intangible fixed assetsIntangible assets with useful lives longer than 1 year and a unit cost less than CZK 60,000 are considered to be a service and are expensed when put in use.

purchased intangible fixed assets are originally recorded at cost, which includes all costs incurred in bringing the assets to their present location and condition.

> Intangible fixed assets are amortised applying the straight-line basis over their estimated useful lives as follows:

Software 3–4 years

other intangible fixed assets 5–8 years

A provision for impairment is established when the carrying value of an asset is greater than its estimated recoverable amount.


emission allowances allocated by the national Allocation plan free of charge to the Company are recorded in the other intangible fixed assets account and taxes and state subsidies payable as at the date of their registration in the Register of emission rights in the Czech Republic. The emission allowances allocated are recorded at replacement cost.

The emission allowances liability recorded in the taxes and state subsidies payable account are recognised under Short‑term liabilities and released to other operating income based on matching with relevant expenses.

Consumption of emission allowances is recorded in other operating expenses as at the balance sheet date on the basis of actual Co² emissions for the period. Disposed emission allowances are released to costs individually.

Sales of emission allowances are recorded as other operating income and are stated with reference to the selling prices.

(c) Tangible fixed assetstangible assets with useful lives longer than one year and a unit cost higher than CZK 40,000 are considered to be tangible fixed assets.

Acquired tangible fixed assets are originally recorded at cost, which includes costs incurred in bringing the assets to their present location and condition.

> Tangible fixed assets are depreciated applying the straight-line basis over their estimated useful lives as follows:

Buildings and constructions 30–45 years

plant, machinery and equipment 3–30 years

Motor vehicles 5–8 years

A provision for impairment is established when the carrying value of an asset is greater than its estimated recoverable amount.

Repairs and maintenance expenditures relating to tangible fixed assets are expensed as incurred. technical enhancements of tangible fixed assets exceeding CZK 40,000 per item per year are capitalised.

tangible assets with useful lives longer than one year and a unit cost less than CZK 40,000 are considered to be inventories and are expensed at consumption.

(d) InventoriesInventories are stated at the lower of cost and net realisable amount. Cost includes the appropriate overheads incurred to bring inventory to its present state and location (mainly transport costs, customs duty, etc.). The weighted average cost method is applied for all disposals.

For the purposes of calculation of provision to inventory inventories have been divided between the emergency inventory of spare parts held to secure uninterrupted operation of the fixed assets under lease and other inventories.


The provision for the emergency inventory of spare parts is calculated as a percentage from the value of these inventories at the end of each year over the fixed assets finance lease period. The value of the emergency inventory of spare parts will thus decrease on a straight‑line basis, and at the end of the finance lease period, the impairment of inventories will be consistent with the decrease in value of the relevant leased assets.

The provision for other inventories is created on the basis of an analysis of slow‑moving and obsolete inventories and individual evaluation of inventories.

(e) ReceivablesReceivables are stated at nominal value less a provision for doubtful amounts. A provision for bad debts is created on the basis of an ageing analysis and individual evaluation of the recoverability of the receivables.

(f ) Cash and cash equivalentsCash and cash equivalents include cash in hand, stamps and vouchers and cash in banks, including bank overdrafts.

Cash equivalents are short‑term highly liquid investments that can be exchanged for a predictable amount of cash and no significant changes of value over time are expected. Cash equivalents are, for example, deposits with a maturity of less than 3 months from the date of acquisition and liquid commercial paper traded in public markets.

(g) Foreign currency translationtransactions denominated in foreign currencies are translated and recorded at the exchange rate of the Czech national Bank stipulated as the exchange rate valid on the day following the date of its announcement by the Czech national Bank.

Cash, receivables and liabilities balances denominated in foreign currencies have been translated at the exchange rate published by the Czech national Bank as at the balance sheet date. All exchange gains and losses on cash, receivables and liabilities balances are recorded in the income statement.

(h) Cash flow statementThe Company has prepared a cash flow statement following the indirect method.

(i) Financial derivative instrumentsThe overall strategy of risk management of the Company concentrates on unpredictability of financial markets and the main aim is to minimize its potential negative impacts on financial results of the Company. The company uses financial derivative instruments – forward rate agreements for foreign currency instability risks. The company does not carry any speculative transactions.

Derivative financial instruments are initially recognised in the balance sheet at cost and are subsequently re‑measured at their fair value. Fair value of forward currency agreements is calculated as discounted value of estimated future cash flows. The Company uses fair value stated by a bank for determination of fair value.

All derivatives are presented in other receivables or in other liabilities when their fair value is positive or negative, respectively.

Changes in the fair value of derivatives are included in net profit or loss from financial transactions.

( j) Revenue recognitionSales are recognised upon the performance of services and upon the delivery of goods from the warehouse and the transfer of their ownership to the customer and they are stated net of discounts and Value Added tax.

(k) LeasesThe costs of assets held under both finance and operating leases are not capitalised to fixed assets. lease payments are expensed evenly over the life of the lease. Future lease payments not yet due are disclosed in the notes but not recognised in the balance sheet.


on the basis of the operating lease contracts entered into by the Company, the Company was provided with cars, equipment and premises by ŠKoDA Auto a. s. and on the basis of the finance lease contract, it was provided with all fixed assets of ŠKo eneRGo FIn, s. r. o. (hereinafter “ŠKo‑eneRGo FIn”). The lease contracts and the finance lease contracts do not result, in the case of the Company, in the capitalisation of the leased assets; the relevant lease payments therefore influence the profit / (loss) for the current period. Any assets under finance lease shall be purchased after the termination of the lease contract.

(l) Provisionsprovisions are recognised when the Company has a present obligation, it is probable that an outflow or resources will be required to settle the obligation, and a reliable estimate of the amount can be made.

(m) Employees benefitsThe Company recognises a provision relating to unpaid holidays.

The Company recognises a provision relating to rewards and bonuses of employees. The Company takes into account an expected average ratio of payments for social and health insurance and payroll expenses when creating the estimated payable.

Regular contributions are made to the state to fund the national pension plan. The Company also provides contributions to defined contribution plans operated by third parties.

(n) Interest costInterest costs on borrowings to finance the acquisition of intangible and tangible fixed assets are capitalised during the period of completion and preparation of the asset for its intended use. other borrowing costs are expensed.

(o) Deferred taxationDeferred tax is recognised on all temporary differences between the carrying amount of an asset or liability in the balance sheet and its tax base. Deferred tax assets are recognised if it is probable that sufficient future taxable profit will be available against which the assets can be utilised.

(p) Related partiesThe Company’s related parties are considered to be the following:

→ shareholders, of which the Company is a subsidiary or an associate, directly or indirectly, and subsidiaries and associates of these shareholders; → members of the Company’s or parent company’s statutory and supervisory bodies and management and parties close to such members, including entities in which they have a controlling or significant influence; and/or → subsidiaries or associates.

Material transactions and outstanding balances with related parties are disclosed in note 14 Related party transactions and balances.

(q) Subsequent eventsThe effects of events which occurred between the balance sheet date and the date of preparation of the financial statements are recognised in the financial statements in the case that these events provide further evidence on the conditions existing at the balance sheet date.

Where significant events occur subsequent to the balance sheet date but prior to the preparation of the financial statements, which are indicative of conditions that arose subsequent to the balance sheet date, the effects of these events are disclosed, but are not themselves recognised in the financial statements.


3 INTANGIBLE AND TANGIBLE FIxED ASSETS

> Cost

1 January 2010

CZK ‘000

Additions/ transfers

CZK ‘000

Disposals

CZK ‘000

31 December 2010

CZK ‘000

Software 8,134 5,386 – 13,520

other intangible fixed assets 5,790 197,565 (192,595) 10,760

Intangible fixed assets in the course of construction 4,669 (2,426) – 2,243

Buildings and constructions 107,643 6,998 – 114,641

equipment 227,437 28,643 (902) 255,178

tangible fixed assets in the course of construction 11,839 (1,509) – 10,330

Total 365,512 234,657 (193,497) 406,672

> Accumulated amortisation / depreciation

1 January 2010

CZK ‘000

Additions

CZK ‘000

Disposals

CZK ‘000

31 December 2010

CZK ‘000

Software 6,925 2,484 – 9,409

other intangible fixed assets 3,428 55 – 3,483


equipment 74,602 22,849 (902) 96,549

Total 94,876 29,245 (902) 123,219

Net book value 270,636 283,453


> Cost

1 January 2009

CZK ‘000

Additions/ transfers

CZK ‘000

Disposals

CZK ‘000

31 December 2009

CZK ‘000

Software 7,211 923 – 8,134

other intangible fixed assets 3,583 180,952 (178,745) 5,790

Intangible fixed assets in the course of construction 2,477 2,192 – 4,669


equipment 183,326 44,457 (346) 227,437

tangible fixed assets in the course of construction 50,453 (38,614) – 11,839

Total 323,931 220,672 (179,091) 365,512

> Accumulated amortisation / depreciation

1 January 2009

CZK ‘000

Additions

CZK ‘000

Disposals

CZK ‘000

31 December 2009

CZK ‘000

Software 6,089 836 – 6,925

other intangible fixed assets 3,336 92 – 3,428


equipment 55,309 19,639 (346) 74,602

Total 71,006 24,216 (346) 94,876


As at 31 December 2010 the item other intangible fixed assets included emission allowances in the amount of CZK 7,177,000 (31 December 2009: CZK 2,207,000).

The Company uses assets under finance lease contracts that are recorded as tangible fixed assets in the financial statements after the expiration of the lease and after the ownership transfer.


> The finance leases can be analysed as follows:

31 December 2010

CZK mil.

31 December 2009

CZK mil.

Amounts paid on current lease contracts 7,813 7,198

outstanding lease amounts payable after one year 615 615

Amounts payable after more than one year 4,765 5,380

Total amounts paid and payable on current contracts 13,193 13,193

As at 31 December 2010 and 2009, no assets acquired upon the expiration of leases were recognised in the balance sheet.

4 INVENTORIES

31 December 2010

CZK ‘000

31 December 2009

CZK ‘000

Raw materials 143,612 147,077

provision (64,175) (57,349)


> The change in the provision for obsolete and slow-moving inventories can be analysed as follows:

2010

CZK ‘000

2009

CZK ‘000

opening balance as at 1 January 57,349 48,932

Charge for the year 6,826 8,417

Closing balance as at 31 December 64,175 57,349


5 RECEIVABLES

31 December 2010

CZK ‘000

31 December 2009

CZK ‘000

trade receivables – current 208,898 337,184

other receivables – current 35,068 36,693

Net book value of short-term receivables 243,966 373,877

long‑term receivables – current 4,054 4,993

Deferred tax asset 1,955 4,679

total long‑term receivables 6,009 9,672

Net book value of total receivables 249,975 383,549

Receivables outstanding have not been secured and none of them are due after more than 5 years.

other receivables include mainly receivables from sold emission allowances in the amount of CZK 2,075,000 (31 December 2009: CZK 14,599,000), Value Added tax receivable in the amount of CZK 11,364,000 (31 December 2009: CZK 3,291,000), and advance payments paid in the amount of CZK 17,255,000 (31 December 2009: CZK 15,613,000).

long‑term receivables include loans to employees amounting to CZK 4,033,000 (31 December 2009: CZK 4,325,000) and long‑term portion of the loan provided to ŠKo‑eneRGo FIn, s. r. o. amounting to CZK 0 (31 December 2009: CZK 453,000) see note 14 Related party transactions and balances.


6 EQUITYThe statutory reserve fund is created from the profit of the Company according to law and may not be distributed to shareholders, but may be used to offset losses. In compliance with the relevant provisions of the Commercial Code, the Company contributes 5% of its annual net profits to the statutory reserve fund until the balance of this reserve reaches 10% of the registered share capital. The statutory reserve fund reached 10% of the issued share capital in 2004.

> Allocation of the net profit of CZK 2,190,000 for 2009 was approved by the shareholders on 26 May 2010 as follows:

2009

CZK ’000

Contribution to the social fund 500

Contribution to the price risk fund 219

Shares on profit paid 1,471

Net profit after tax 2,190

Allocation of the net profit of CZK 2,170,000 for 2010 has not been approved by the date of preparation of the financial statements.

7 PROVISIONS

other provisions

CZK ’000

Opening balance as at 1 January 2009 12,044

Charge for the year 10,165

used in the year (10,112)

Closing balance as at 31 December 2009 12,097

Charge for the year 8,549

used in the year (10,138)

Closing balance as at 31 December 2010 10,508

other provisions include mainly provisions for employees’ bonuses, outstanding components of wages and salaries relating to 2010 and for damages arising from pollution which cover anticipated risks of environmental impact on surrounding forestry and agricultural entities.

Corporate income tax and deffered tax calculation is disclosed in note 11 Income tax.


8 LIABILITIES AND ACCRUALS

31 December 2010

CZK ’000

31 December 2009

CZK ’000

trade payables – current 136,351 93,806

liabilities to shareholders – current 337,000 540,000

other payables – current 6,192 3,102

Total short-term liabilities 479,543 636,908

trade payables have not been secured over any assets of the Company and are due within 5 years.

liabilities to related parties are disclosed in note 14 Related party transactions and balances.

The Company has no overdue liabilities for social insurance and contribution to the state employment policy, liabilities for health insurance and tax liabilities payable to relevant tax authority.

Accrued expenses in the amount of CZK 109,017,000 (31 December 2009: CZK 64,006,000) include a credit note in the amount of CZK 78,299,000 for the final settlement of services provided to the Company’s shareholder (31 December 2009: CZK 48,165,000) and cost of natural gas consumed during the current accounting period, but invoiced in the following period.

9 LOANSCredit line of CZK 20,000,000 has been provided by uniCredit Bank Czech Republic a. s. (as at 31 December 2009: 20,000,000) to the Company to finance current assets. As at 31 December 2010 and 2009, the Company has not drawn the credit line.

The bank consortium consisting of Commerzbank AG, prague office, as the head of the group, and uniCredit Bank Czech Republic a. s. as a group partner provided to ŠKo‑eneRGo FIn a loan agreement amounting to DeM 220,000,000 (euR 112,483,000). The purpose of the loan is to finance the construction of heating plant and other infrastructure facilities, held by the Company under finance lease with ŠKo‑eneRGo FIn, and to provide operating loans to the Company and to ŠKo‑eneRGo FIn.

Besides ŠKo‑eneRGo FIn, the loan is also guaranteed by the Company and by the shareholders of ŠKo‑eneRGo FIn.

to secure the claims of the bank resulting from the loan agreements, the Company assigns to the banks in compliance with Section 554 of the Civil Code all its current and future receivables and other rights ensuing from the contractual relationships of the Company. For the guarantee purposes, in compliance with Section 553 of the Civil Code, the Company assigns to the bank its ownership to all its existing coal supplies and to the coal supplies to which the Company acquires an ownership right by 30 June 2015 or until the termination of the contractual relationship. Besides the above, the Company pledges to the banks its receivable from uniCredit Bank Czech Republic a. s. relating to the payment of the balances from the operating funds account and from the transfer account, and its requirement from Komerční banka, a. s. to pay balances from the accounts.


10 FINANCIAL DERIVATIVE INSTRUMENTSFinancial derivative instruments are recorded as trading financial derivative instruments.

Fair value of financial derivative instruments is presented in other receivables.

31 December 2010 31 December 2009

Fair valuenominal value

CZK ‘000

Fair valuenominal

value

CZK ‘000

positive

CZK ‘000

negative

CZK ‘000

positive

CZK ‘000

negative

CZK ‘000

trading agreements

Forward rate agreements 770 34 48,099 903 307 52,040

Change in real value of financial derivative instruments is recorded in Income Statement.

11 INCOME TAx

> The income tax expense consists of the following:

2010

CZK ‘000

2009

CZK ‘000

Deferred tax expense 2,724 2,668

> Current income tax can be analysed as follows:

2010

CZK ‘000

2009

CZK ‘000

profit before tax 4,894 4,858

tax‑non deductible expenses 12,534 11,124

Difference between tax and accounting depreciation (13,748) (15,945)

non‑taxable income (55) –

utilised investment relief (3,625) (37)

Tax base – –

Corporate income tax at 19% (2009: 20%) – –

The deferred tax was calculated at 19% (the rate enacted for 2010 and subsequent years).


> The deferred tax asset can be analysed as follows:

2010

CZK ‘000

2009

CZK ‘000

Deferred tax asset:

provisions 1,997 2,298

Difference between the accounting and tax net book values of fixed assets (14,230) (11,651)

unrealised 10% investment relief for acquired fixed assets 1,995 3,135

provision to inventories 12,193 10,897

Net deferred tax asset 1,955 4,679

12 REVENUE ANALYSIS

> Revenue from ordinary activities has been generated as follows:

2010

CZK ‘000

2009

CZK ‘000

Sale of own products and services:

electric power 908,252 860,638

Heat 521,238 462,397

Compressed air 110,826 99,770

technical gases and services related to energy supplies 216,524 235,909

Water 64,630 61,961

other 3,689 2,911

Total sale of own products and services 1,825,159 1,723,586

Sale of goods:

electric power 271,578 244,726

Heat 5,110 4,557

Drinking water 12,005 12,779

Gas 113,947 103,853

Total sale of goods 402,640 365,915

Total 2,227,799 2,089,501

All revenues in 2010 and 2009 realized on local market.


13 EMPLOYEE ANALYSIS

employee numbers 2010 2009

Members of management 4 4

Average number of other staff 247 236

Total 251 240

The management includes two Statutory Representatives, the Head of Infrastructure and other energies and the Head of the Heating plant operations.

Management

CZK ’000

other staff

CZK ’000

total

CZK ’000

2010

Wages and salaries 9,394 110,482 119,876

Social security costs 2,178 38,696 40,874

other social costs 1,560 4,673 6,233

Total 13,132 153,851 166,983

2009

Wages and salaries 8,102 103,989 112,091

Social security costs 1,459 36,421 37,880

other social costs 1,380 4,345 5,725

Total 10,941 144,755 155,696

other transactions with management of the Company are described in note 14 Related party transactions and balances.


14 RELATED PARTY TRANSACTIONS AND BALANCES

> The Company was involved in the following related party transactions:

2010

CZK ‘000

2009

CZK ‘000

Revenues:

ŠKoDA Auto a. s. 1,893,135 1,782,424

ČeZ prodej, s. r. o. 54,502 56,949

ČeZ Distribuce, a. s. 111,221 80,380

ŠKo‑eneRGo FIn, s. r. o. 376 389

RWe power AG – 14,414

Total revenues 2,059,234 1,934,556

Costs:

ŠKo‑eneRGo FIn, s. r. o. 617,432 616,251

ŠKoDA Auto a. s. 7,985 8,029

ČeZ prodej, s. r. o. 429,176 394,317


Středočeská plynárenská, a. s. – 74,154

Východočeská plynárenská, a. s. – 2,986

RWe energie, a. s. 141,546 90,860

e.on energie, a. s. 19,369 –

Total costs 1,194,460 1,227,682

All transactions were realized under standard market conditions.

RWe power AG and its subsidiaries (Středočeská plynárenská, a. s., Východočeská plynárenská, a. s., RWe energie, a. s.) were not related parties since 1 october 2010, therefore transactions with these companies are disclosed only for the period 1 January 2010–30 September 2010.


> The following related party balances were outstanding as at:

31 December 2010

CZK ‘000

31 December 2009

CZK ‘000

Receivables

– trade receivables

ŠKoDA Auto a. s. 132,223 243,245

ČeZ prodej, s. r. o. 11,042 25,179


RWe energie, a. s. – 14,689

ŠKo‑eneRGo FIn, s. r. o. 450 463

– other receivables

ŠKo‑eneRGo FIn, s. r. o. 880 1,734

RWe power AG – 14,414

– accruals, deferrals and estimated receivables

ŠKo‑eneRGo FIn, s. r. o. 16,171 16,481

ČeZ prodej, s. r. o. – 12

Total receivables and accruals 168,761 337,694


31 December 2010

CZK ‘000

31 December 2009

CZK ‘000

Liabilities

– trade payables

ŠKoDA Auto a. s. 14,906 15,221

ČeZ prodej, s. r. o. 18,919 ‑


e.on energie, a. s. 2,196 ‑

– other liabilities to shareholders

ŠKoDA Auto a. s. – 540,000

Volkswagen International Finance nV 337,000 ‑

– accruals, deferrals and estimated liabilities

ŠKoDA Auto a. s. 79,158 49,356

RWe energie, a. s. – 12,394

Total liabilities and accruals 462,609 620,663

RWe power AG and its subsidiaries (Středočeská plynárenská, a. s., Východočeská plynárenská, a. s., RWe energie, a. s.) were not related parties since 1 october 2010, therefore as at 31 December 2010, listed with zero balances.

other liabilities to shareholders represent short‑term loans received from ŠKoDA Auto. These loans were paid as at 4 october 2010 and since that date, the provider of short‑term loans is Volkswagen International Finance nV.

The loans payable bear interest at market interest rates.

The Company gives the management the possibility to conclude a life insurance to secure themselves in old age.

no remuneration was paid to the members of the Supervisory Board for their activities in 2010 and 2009, nor did they receive any guarantees, loans or other advantages.


15 COMMITMENTSAs at 31 December 2010 the Company has concluded contracts for capital expenditures in the total amount of CZK 5,472,000 (as at 31 December 2009: CZK 10,952,000). The Company had no material capital commitments other than the above mentioned and future commitments resulting from the finance lease (see note 3).

16 CONTINGENT LIABILITIESThe management of the Company is not aware of any significant contingent liabilities as at 31 December 2010.

17 FEES PAID AND PAYABLE TO THE AUDIT COMPANY

> The total fees paid and payable for services performed by the audit company PricewaterhouseCoopers Audit, s. r. o. can be analysed as follows:

2010

CZK ‘000

2009

CZK ‘000

Statutory audit of financial statements 995 995

18 SUBSEQUENT EVENTSno events have occurred subsequent to the balance sheet date that would have a material impact on the financial statements as at 31 December 2010.

31 March 2011

Miroslav Žďánský Statutory Representative

Vladimír Handlík Statutory Representative

Milena Vávrová Chief accountant


Report on Relations between Related Parties

Report on Relations between ŠKO-ENERGO, s. r. o. as the Controlled Entity and its parent companies as the Controlling Entities, and other entities controlled by them, in the financial year commencing on 1 January 2010 and ending on 31 December 2010.

> This Report on Relations between Related Parties concerning the following companies was drawn up pursuant to section 66a(9) of the Commercial Code no. 513/1991 Collection of Laws (“CC”):

VOLKSWAGEN Aktiengesellschaft (Germany), through holdings in ŠKoDA Auto a. s., Mladá Boleslav and Volkswagen Kraftwerk GmbH (Germany)

E.ON ENERGIE AG (Germany), through holdings in e.on Czech Holding AG (Germany)

ČEZ, a. s., prague

RWE AG (Germany), through holdings in RWe power Aktiengesellschaft (Germany)

(hereinafter the “Controlling entities” or “Related entities”) as the controlling entities, and ŠKo‑eneRGo, s. r. o. Mladá Boleslav (hereinafter the “Controlled entity” or “Related entity”) as the controlled entity, and concerning the Controlled entity and other entities controlled by the Controlling entities (hereinafter also the “Related entities”) in the financial year commencing on 1 January 2010 and ending on 31 December 2010 (hereinafter the “financial year”).

pursuant to the relevant legislation (s.§66a and s.66b of Act no. 513/1991 Coll., as amended), all members shall be deemed the Controlling entities so long as they act in concert, such as in the case of ŠKo‑eneRGo, s. r. o.

This report was drawn up in order to comply with the information duty pursuant to section 66a (9) of the Commercial Code no. 513/1991 Coll., as amended.

> The Controlling Entities held the following shares in the Controlled Entity In the period from 1 October to 31 December 2010:

Shareholder Share in %Contribution in CZK ’000

ŠKoDA Auto a. s., Mladá Boleslav 44.5 4,450

e.on Czech Holding AG (Germany) 21 2,100

ČeZ, a. s., prague 12 1,200

Volkswagen Kraftwerk GmbH (Germany) 22.5 2,250

> The Controlling Entities held the following shares in the Controlled Entity In the period from 1 January to 30 September 2010:

Shareholder Share in %Contribution in CZK ’000

ŠKoDA Auto a. s., Mladá Boleslav 34 3,400

RWe power Aktiengesellschaft (Germany) 21 2,100

e.on Czech Holding AG (Germany) 21 2,100

ČeZ, a. s., prague 12 1,200

Volkswagen Kraftwerk GmbH (Germany) 12 1,200

The distribution of the votes of the shareholders is described in the Memorandum of Association as follows: “each CZK 1,000 of the contribution of a shareholder equals a vote.”


The following contracts were executed, measures taken and other legal acts performed by and among the Related entities pursuant to section 66a(9) of the Commercial Code no. 513/1991 Coll., in the financial year:

Contracts Executed

> In the financial year, following contracts were executed by and between the Controlled Entity and the Controlling Entities, and by and between the Controlled Entity and any other entities controlled by the Controlling Entities:

Purchase of goods and services

ŠKoDA Auto a. s.

ČeZ prodej, s. r. o.

Sale goods and services

ŠKoDA Auto a. s.

Financial services

VW AG

VW International Finance nV

Other Legal Actionsno legal actions were performed in the financial year to the benefit of the Controlling entities, and/or the Controlled entities by the Controlling entities, over and above any regular legal acts performed by the Controlling entities while exercising their rights of the members of the Controlled entity.

Other Measures, Benefits and Disadvantagesno other measures were adopted or taken in the financial year in the interest of or inspired by the Controlling entities, and/or any other entities controlled by the Controlling entities, by the Controlled entity, over and above any regular measures taken by the Controlled entity in relation to the Controlling entities in their capacity of the shareholders of the Controlled entity.

Considerations Paid and Receivedno considerations were paid or received in the financial year in the interest of or inspired by the Controlling entities, and/or other entities controlled by the Controlling entities, by the Controlled entity, over and above any regular considerations paid or received by the Controlled entity in relation to its Controlling entities in their capacity of the shareholders of the Controlled entity.

The overall value of any transactions involving Related entities in the financial year is disclosed in the note 14 in the notes to financial statements.

The Controlled entity did not incur any loss or damage due to the execution of any contracts, any other legal actions, and other measures or considerations paid or received.

Mladá Boleslav, on 31 March 2011

Miroslav Žďánský Statutory Representative ŠKo‑eneRGo, s. r. o.

Vladimír HandlíkStatutory Representative ŠKo‑eneRGo, s. r. o.


Abbreviations used

ŠKo‑eneRGo or the Company ŠKo‑eneRGo, s. r. o.ŠKo‑eneRGo FIn ŠKo‑eneRGo FIn, s. r. o.ŠKoDA Auto ŠKoDA Auto a. s.CentRotHeRM CentRotHeRM Mladá Boleslav, a. s.VW Kraftwerk VW Kraftwerk GmbHCSR Corporate Social ResponsibilityoeCD organisation for economic Co‑operation and Development

ŠKO-ENERGO, s. r. o.

tř. Václava Klementa 869, 293 60 Mladá Boleslav, Czech Republicphone: +420 326 817 477–8, fax: 326 814 777, www.sko‑energo.cz

clean energy warms you - Ško-energo

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