the consolidated annual report 2017 - vecr.cz...business environment of european energy and...

The consolidatedAnnual Report

2017

Veolia Energie ČR, a.s.


28. října 3337/7, 702 00 Ostrava www.vecr.cz

CONTENT

1. CORPORATE AND GENERAL INFORMATION ABOUT THE COMPANY . . . . . . . . . . . . . . . . . 21.1. Basic Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.2. Company Description. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.3. Key Figures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51.4. Corporate Governance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61.5. Organisational Structure. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 71.6. Other Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

2. MANAGEMENT REPORT . . . . . . . . . . . . . . . 10Production and services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12Innovation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17Environmental protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18Human Resources . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Corporate Social Responsibility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Results. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28

3. FINANCIAL PART . . . . . . . . . . . . . . . . . . . . . 293.1. General Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303.2. Non-consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 323.3. Consolidated Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63

4. REPORT ON RELATED PARTIES . . . . . . . . . . 985. AUDITOR’S REPORTS . . . . . . . . . . . . . . . . . 116

2 Annual Report 2017

Liberec

Krnov

Osoblaha

Albrechtice

Opava

Olomouc

PřerovTovačov

Brodek u Přerova

Hradec nad Moravicí

Nový Jičín

Šenov

OSTRAVAHavířov

Hlučín

Rychvald KarvináOrlová

Horní SucháPetřvald Český Těšín

Frýdek-Místek

Kladno

Mělník

PRAHA

Kolín

Vlašim

Český KrumlovHorní Planá

Plzeň

Roudnicenad Labem

Karlovy Vary

MariánskéLázně

Lázně Kynžvart

Beroun

Brandýs nad Labem

Stránčice

Roztoky

Horoměřice

Company nameVeolia Energie ČR, a.s.

Registered office28. října 3337/7, Moravská Ostrava,

702 00, Ostrava, Czech Republic

Legal formPublic limited company, subject to the Act on Commercial Companies

and Cooperatives

Company No.451 93 410

The Company is incorporated by entry in the Companies Register kept by the Ostrava Regional Court under number B 318.

Date incorporated24 April 1992

Share capitalCZK 3,146,446,440

Shares78,661,161 unlisted dematerialised registered shares

with a nominal value of CZK 40.00 per share

ISIN CZ0009105904

1. CORPORATE AND GENERAL

INFORMATION ABOUT THE COMPANY

1.1. BASIC INFORMATION

Veolia Energie ČR, a.s. 3

Liberec

Krnov

Osoblaha

Albrechtice

Opava

Olomouc

PřerovTovačov

Brodek u Přerova

Hradec nad Moravicí

Nový Jičín

Šenov

OSTRAVAHavířov

Hlučín

Rychvald KarvináOrlová

Horní SucháPetřvald Český Těšín

Frýdek-Místek

Kladno

Mělník

PRAHA

Kolín

Vlašim

Český KrumlovHorní Planá

Plzeň

Roudnicenad Labem

Karlovy Vary

MariánskéLázně

Lázně Kynžvart

Beroun

Brandýs nad Labem

Stránčice

Roztoky

Horoměřice

1.2. COMPANY DESCRIPTION

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

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

The core business of the Veolia Energie Group in the Czech Republic is the supply of heat, electricity, cooling, nitrogen and compressed air, organised into three strategic areas: heating and cooling networks, industrial utilities and energy services for buildings. The Group also focuses on environmentally friendly cogeneration and trigeneration, offers comprehensive energy services and operates energy infrastructure and facilities for municipalities. The entire Group is constantly working towards the enhanced performance of its facilities, thus helping to control energy use and to cut down on CO2 emissions. Veolia Energie ČR is the first ever independent operator of a separate cooling network in the country. As one of the largest providers of ancillary services for the Czech transmission system, the Company does its part to ensure a balance between electricity consumption and generation in the Czech Republic.

CORE VALUESIn its work Veolia Energie ČR relies on core values shared across the Veolia Group, which are customer focus, innovation, responsibility, respect and solidarity.

RESPONSIBILITYVeolia’s objective is to take an active part in the shaping of a society committed to sustainable development. It is a key player in the environmental services market and as such it assumes, daily, the responsibility for the meeting of general interests such as, in particular:- Supporting harmonious development of regions;- Improving the living conditions of the people

affected by its operations, and environmental protection;

- Promoting the business skills of our employees, improving personal safety at work (occupational injury prevention) and creating a sound working environment.

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

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

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

SOLIDARITYAs through its business activity Veolia serves common and shared interests, solidarity is one of its core values in its relationships with all stakeholders.Concretely, this value is expressed by developing solutions which enable the Veolia Group to provide essential services for everyone, which we consider to be one of our major social responsibilities.


1.3. KEY FIGURES

NON-CONSOLIDATED

COMPANY TURNOVER

CZK 7,250.6 millionPROFIT

CZK 1,016.7 millionINVESTMENT

CZK 885.3 millionELECTRICITY SALES

2,175 GWhBOILER-GENERATED HEAT

24,083 TJ

HEATING NETWORK LENGTH

756.1 kmBIOMASS-BASED GENERATION

28.4 GWh of electricity and 341,723 GJ of heat from

88,413 tonnes of biomassNUMBER OF EMPLOYEES

1,596

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

• Veolia Energie Praha, a.s. • Veolia Energie Kolín, a.s.• Veolia Energie Mariánské Lázně, s.r.o.• Olterm & TD Olomouc, a.s.• AmpluServis, a.s.• Veolia Průmyslové služby ČR, a.s. and its two

subsidiaries ‒ Veolia Komodity ČR, s.r.o. and Veolia Powerline Kaczyce Sp. z o.o. which operates in Poland


1.4.CORPORATE GOVERNANCE

AS AT 31 DECEMBER

2017

BOARD OF DIRECTORS

Philippe Guitard Chairman Josef Novák Vice-Chairman Reda Rahma Member Daniel Marie Melin Member Jan Hrabák Member

SUPERVISORY BOARD

Zdeněk Duba Member, Chairman from 10 May 2017 Malika Ghendouri Vice-Chairwoman Renaud Capris Member Martin Bernard Member Zdeněk Krakovský Member until 28 June 2017 Pavel Baránek Member from 29 June 2017 Martin Jašek Member until 31 August 2017 Bohdan Malaniuk Member from 1 September 2017

Please note: Member of the Board of Directors, Mr Daniel Marie Melin resigned from his position as a Member of the Board of Directors with effect from 28 February 2018 by means of his written declaration dated 26 February 2018. The Board of Directors discussed and approved Mr Daniel Marie Melin’s resignation at its meeting on 28 February 2018 and appointed Mr Pavel Míčka a substitute member of the Supervisory Board until the next meeting of the

Supervisory Board in accordance with the Company’s Articles of Association with effect from 1 March 2018.


1.5.ORGANISATIONAL

STRUCTURE

Chief Executive Officer’sSection

North Moravia Region

Central Moravia Region

East Moravia Region

Bohemia Region

Finance and Administration

Officer’s Section

Chief Technical Officer’sSection

Business Manager’s

Section

AS AT 31 DECEMBER

2017


1.6.OTHER

INFORMATION

Veolia Energie ČR, a.s. has no subsidiaries or other parts of its enterprise abroad and does not engage in any research and development. After the balance sheet date, no significant events affecting its results occurred in 2018 until the date of publication of this annual report. The Company holds none of its own shares as of 31 December 2017.

EVENTS IN 2017

February• The discussions on an amendment to the Collective

Agreement laying down the rules for Veolia Energie ČR in particular in the payroll area for 2017 and 2018 ended with an arrangement.

March• Veolia Energie ČR and ČEZ Energetické služby

entered into an agreement on heat supply from Veolia’s district heating network to ČEZ’s networks in Ostrava - Vítkovice. Combined with further refurbishment and development of peak-shaving plants, this will allow for shutting down the Vítkovice CHP Plant, a major coal-fired installation.

April • Veolia Energie ČR organised the 8th edition of the

Boiler Day 2017 expert seminar at the Třebovice Power Station in Ostrava. The primary topic was the upgrades, operation and maintenance of energy facilities and materials for the energy sector.

• Veolia Energie ČR was the main partner to the District Heating and Energy Days conference in Hradec Králové. The biggest convention of experts in the field discussed, among other topics, the paths for waste management and waste recovery.

• Volunteers from Veolia Energie ČR and Olterm TD did the spring cleaning as part of the Clean up the World, Clean up Czechia! initiative.

June• Forty-two Veolia Energie ČR employees successfully

completed the Energy Machines educational curriculum organised as part of the Support for Professional Employee Education II project. VŠB - Technical University of Ostrava’s Faculty of Mechanical Engineering provided the nine-month series of technical seminars.

July• We launched OUR ENERGY, a project that gives

our employees the opportunity to sign up for discounted electricity supply from Veolia. This employee benefit has been extended to the entire Veolia Group in the Czech Republic and offers new features.

September• Veolia Energie ČR started a new heating season one

by one in all regions

• Třebovice Power Station in Ostrava hosted the official ceremony of handing over the MiNiGRANTS to Veolia Energie ČR employees. The successful applicants under the MiNiGRANTS programme of the Veolia Foundation received half a million crowns for activities they pursue in their spare time.

• Veolia Energie ČR took part in the International Occupational Safety Week held by Veolia Group.

October• Přerov CHP Plant organised an open house event.

Five hundred people, including 150 children, came to see how they generate heat and electricity in Přerov.

• Veolia Group won the TOP RESPONSIBLE COMPANY for its programme, “STARTér, Trust Yourself and Do Business!” that helps create new jobs in the Moravia-Silesia and Olomouc Regions.

• The representatives of Havířov, Karviná and Veolia signed a memorandum on future recovery of waste for environmental and energy purposes.

November• The Karviná CHP Plant completed the last stage of

denitrification, thus completing its comprehensive greening started in 2013. The amount of emissions into the atmosphere was reduced significantly.

December• We conducted a survey into customer satisfaction

with the supply of heat and hot water, the employees’ work and other services. The resultant ‘grade’ from our customers was 1.35.

• The “STARTér, Trust Yourself and Do Business!” programme was rounded off with the official handing over of symbolical cheques. A total of 73 applicants who created 120 new jobs, including 29 for disadvantaged people, received their cheques in Ostrava and Olomouc.


Foreword

Dear Shareholders, Trade Partners, and Colleagues,

We can say the year 2017 was a successful one. In the difficult business environment of European energy and legislation, we are trying to keep up with the developments, avoid pitfalls and withstand pressure, focus on modern trends, protect the environment and, most importantly, reliably supply heat and electricity to hundreds of thousands of customers. Veolia Energie generated 24,083 TJ of thermal energy last year; while this is less than in the preceding year, the sales of our primary commodity - heat - grew and we achieved highly satisfactory results. Revenue amounted to 7,251 billion crowns and profit exceeded 1 billion crowns.

The 2016/2017 heating season was average in terms of temperature, following three below-average seasons. This was mainly due to the frosty January and April, which was rough for fruit and wine growers. Regular checks, inspections and repairs of equipment, both heating networks and plants, followed throughout the summer. We were well prepared for the new heating season, and the start of all equipment needed for the generation and distribution of heat was smooth. The next heating season of 2017/2018 started following an about four-month pause in September, a few days earlier - and in some areas in Bohemia as much as two weeks earlier - than in the preceding year.

The slight increase in heat supply was due primarily to the weather but also the winning of new customers. They included newly built facilities in industrial zones in the Ostrava area, new residential buildings in Olomouc and development and hospitality projects in Prague. The revenue for heat and related products increased to CZK 5,042 billion compared with 2016.

We sold 2,175 GWh of electricity, approximately seven per cent less in year-on-year terms. The cooling production exceeded 15,000 MWh, remaining on roughly the same

2. MANAGEMENT REPORT


level as in 2016. The popularity of cooling supply is growing, however. Our biggest customers who use cooling include large shopping centres and medical facilities, and we have been successful offering this service to residential projects. Our new clients include the luxury V Tower building in Prague-Pankrác.

Hard coal remains the primary fuel for our boilers, and OKD is our key supplier. The ongoing process of OKD’s restructuring should lead to a gradual and controlled discontinuation of coal production with government involvement, but there were some issues in 2017. We had to tackle reduced supply from OKD and respond by sourcing coal from Russia and Poland. We managed the situation and households were not affected. We are gradually increasing the share of biomass we use in pursuit of reducing environmental impact. Last year, we used 88,000 tonnes of biomass in our plants to generate 28 GWh of electricity and 342 TJ of heat.

For the future, we also plan on using solid alternative fuel produced from recycled communal and other waste that cannot be recycled or deposited any more. We signed a memorandum on cooperation with the municipalities of Havířov and Karviná in 2017. Work groups have started seeking the best solutions and technologies for the treatment of mixed communal waste and its recovery for energy purposes to benefit the region’s citizens.

Our plants and networks did not exhibit any serious defects in 2017 so we could seamlessly continue rehabilitating and developing our process equipment, aiming to improve service quality, production efficiency and reliability and safety of supply while reducing environmental impact. The total amount invested was CZK 885.3 million, almost twice as much as in the preceding year. A substantial part of this was spent on implementing projects reducing the emissions of nitrogen and sulphur oxides and particulates. The largest projects include the completion of the comprehensive greening of the Karviná CHP Plant and the ongoing greening of the Třebovice Power Station in Ostrava and the Olomouc CHP Plant. For example, the investments in the greening of

its operation enabled Karviná CHP to reduce the amount of sulphur oxides issued into the atmosphere by about three quarters and the amount of nitrogen oxides and solids by about one half compared with the average figures for 2008 - 2010.

Of course, our priorities included care for our customers - both the smaller ones who we serve through our Customer Centre operated non-stop and the larger ones including hospitals, schools, shopping centres and a variety of businesses. A customer satisfaction survey took place at the close of 2017 and we can say we fared very well. Ninety-six per cent of respondents are happy with our services and the overall grade was 1.35. The company owes its good results to employees; there were 1,590 employees last year, roughly the same number as in the previous years.

Once again, we placed great emphasis on corporate social responsibility and continued the Veolia Foundation projects. In 2017 Veolia Group won the TOP RESPONSIBLE COMPANY for its programme, “STARTér, Trust Yourself and Do Business!” that has been helping create new jobs in the Moravia-Silesia and Olomouc Regions for 18 years.

In conclusion, we would like to thank our employees for their responsible approach and both our trade partners and shareholders for their trust and assistance in creating value and developing the Czech energy sector.

Philippe GuitardChairman, Board of Directors

Ing. Josef NovákVice-Chairman, Board of Directorsand CEO


PRODUCTION AND SERVICESNON-CONSOLIDATED FIGURES

Heat Production

In 2017, heat was generated using 1,500 boilers, of which 50 were steam boilers and 1,450 were hot and superheated water boilers. Their total installed thermal capacity is 2,670 MW. In all, the boilers generated 24,083 TJ of thermal energy for the production of electricity and supply of heat, which was 1,966 TJ less than in 2016.

Of the fuels used to fire the boilers, 84.2% was coal (73.5% hard coal and 10.7% brown coal). Gaseous fuels accounted for 12.2% (6.3% coke-oven gas, 5.0% natural gas and 0.9% drained (mine) gas). Of the fuel consumed, 3.4% took the form of various types of biomass and 0.2% heavy fuel oil and gas oil, which are used primarily to start up the boilers.

The heating networks were

756.1 km long in 2017.

In 2017 the sales of heat grew by 202 TJ over 2016 to 11,893 TJ. The amount of heat sourced from external providers decreased by 71 TJ year-on-year to 823 TJ.

Thermal energy was supplied either directly or through distribution companies to 253,179 households.

Revenue from heat and related products increased by CZK 36 million compared with 2016 and amounted to CZK 5,076 million in 2017.

Production of Cooling

The total cooling capacity of cooling installations is 27.97 MW. The annual cooling supply amounted to 15,358 MWh. The cooling networks were 1,108 m long in 2017.

The cooling revenue amounted to

CZK 35 million in 2017.

Electricity Production

Electricity was produced in 14 steam turbines, 8 cogeneration units and 4 steam micro-turbines, with a total electrical capacity of 377.2 MW.

Electricity was mostly supplied to electricity traders. In 2017, the Group sold 2,175 GWh of electrical energy, down by 144 GWh on 2016.

Revenue from sales of electricity and other services related to electricity generation amounted to CZK 2,061 million in 2017, a drop of CZK 339 million compared with 2016. Revenues from electricity account for 28% of Veolia Energie ČR’s total revenues.

Veolia Energie ČR is a cleared entity on the Czech electricity market, and in 2017 again provided ancillary services to ČEPS, a.s., the operator of the Czech Republic’s electricity transmission system.

Use of biomass

Veolia Energie ČR fires biomass in its boiler plants in an attempt to help mitigate the environmental impacts of its operations in all regions where it maintains a presence. In 2017, biomass generated 28.413 GWh of electricity and 341.7 TJ of heat. This supply required 88,413 tonnes of biomass in the Company’s plants.


INNOVATION NON-CONSOLIDATED FIGURES

Investment

The Company’s investments focus on rehabilitating and developing process equipment. The primary objective is improving the quality of service, production efficiency, dependability of supply and safety.

The Company’s investment policy involves seeking modern and innovative technological solutions. Our investment programme relies on the Company’s medium-term plan.

In 2017 our Company invested a total of CZK 885.3 million in capital projects. Tangible and intangible assets or parts of assets were completed and handed over in a total value of CZK 905.1 million with the structure as follows:

Greening projects

CZK 454.9 millionProjects focused on safety and compliance

CZK 11.3 millionFacility rehabilitation projects, including components (IFRS)

CZK 323.6 millionDevelopment projects to increase production

or efficiency

CZK 3.2 millionCommercial and heat-supply projects

CZK 71.5 millionOther investments

CZK 40.6 million

As in the previous years, the investments in 2017 were focused primarily on the projects of upgrading and rehabilitating the existing equipment. A major part is used in projects reducing the emissions of nitrogen oxides and particulates and other projects aimed at reducing the sulphur oxide content emitted by our installations. Our investments will target these areas in the years to come.

Description of the most important capital projects of 2017 by nature

• Commercial and Heat Supply ProjectsIn 2017, we erected 21 new district heating network connections with an estimated 45 TJ annual increase in heat supply. In Ostrava, among other things, connections to the district heating network continued, including the new buildings in the Hrabová industrial zone and the Poruba industrial zone. In Olomouc, predominantly new residential buildings such as the Dutch Quarter and Slavonín areas were connected to the district heating network. We were also successful in connecting development projects to district heat in Prague where the most prominent projects are residential ones such as the Wassermanova, Jeremiášova and Podbaba.

Our successful development in services is borne out by the 35 new business cases with impacts in 2017 – we will now supply our trade partners with 152 TJ of heat.

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


Thanks to our high-quality services and professional approach, in 2017 we won a tendering procedure for supply of thermal energy and services at the expected amount of 12 TJ in the town of Lázně Kynžvart.

• Facility Rehabilitation Projects, Including Component Replacement

In 2017, projects continued for the upgrading and replacement of existing equipment and components at generating plants and in district heating networks.

For example, the electrostatic filter on Boiler K3 at the Třebovice Power Station in Ostrava was overhauled to the tune of more than CZK 30 million. The work on the overhaul of the Boiler K13 electrostatic filter began towards the end of the year.

The replacement of pipes of various dimensions continued at district heating networks in Havířov, Karviná and Frýdek-Místek. For example, a 105-metre long section of the DN 600 system was replaced at the entry to Karviná, and in Frýdek-Místek, two sections of hot water piping were replaced - 384 metres of a DN 350 pipe and 512 metres of a DN 300 pipe.

The R22 kV distribution board control system was upgraded at the Olomouc CHP Plant, and flue gas ducts for Boilers K1 and K2 were refurbished at the Přerov CHP Plant.

The return pipe was replaced in the Olomouc district heating system in the Skupova and Werichova Streets. This activity was part of the grant application as part of the Energy Savings in District Heating measure under the Operational Programme Enterprise and Innovations.

2017 also marked the commencement of important work in information technologies, in particular the intensive work associated with the implementation of the Helios harmonised ERP system. This work will continue in the years to come.

• Strategic ProjectsVeolia Energie ČR, a.s. continues to focus on environmentally friendly heat and electricity generation, and prepares to increase the share of alternative fuels in the generation of both commodities.

Modern and innovative technical measures are used based on the Veolia Energie ČR Group’s long-term objectives, chiefly as regards sustainable development. The strategy focuses primarily on mitigating the environmental impacts of the Company’s operations in line with the technology plans and schedules that we

have adopted. This investment policy is associated with identifying the best technical solutions.

Last year, the comprehensive greening of the Karviná CHP Plant was completed with the last project focused on reducing emissions, the Denitrification of Boiler K3 at the Karviná CHP Plant.

The optimisation of greened installations in Karviná and Ostrava for firing Polish fuel continued.

Other major projects for reducing emissions were commenced, including:

• Desulphurisation of Boiler K13 at the Třebovice Power Station

• Denitrification of Boiler K13 at the Třebovice Power Station

• Greening the Olomouc CHP Plant

At the same time, preparatory work was underway on projects aiming to satisfy the EU requirements regarding the rehabilitation of installations, such as

• Greening the Přívoz CHP Plant

• Upgrading the Karviná CHP Plant

• Upgrading the Přerov CHP Plant

The primary objective of these projects is the further reduction of nitrogen and sulphur oxide, particulates and other emissions to the level required by Commission Implementing Decision (EU) 2017/1442 of 31 July 2017, establishing best available techniques (BAT) conclusions, under Directive 2010/75/EU of the European Parliament and of the Council, for large combustion plants.

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


CUSTOMERS

Customer Centre

Veolia Energie ČR provides services of a high standard to its customers, including non-stop operation of the Customer Centre, which clients may contact via telephone on a toll-free line 800 800 860, as well as by e-mail at [email protected] or via the customer portal. Useful information is also regularly updated on the Company’s website at www.vecr.cz, a section of which provides customers with convenient and useful information such as on the ongoing or planned repairs of installations, which the Customer Centre operators enter on the basis of information from the operations. With effect from 2018, this information will be displayed in a map form in order to facilitate searching.

All these communication channels are intended to improve information for clients and offer a convenient access to information regarding heat and hot water supply. The Company will continue developing its innovative approach and smart solutions for its partners.

Veolia Energie ČR’s customer centre line handled a total of 41,370 calls in 2017. Our operators received 32,269 customer requests, almost 20% more than in 2016. The increase is related to the take-over of a new subsidiary, Veolia Energie Praha, which increased the number of clients in the portfolio and the number of e-mail messages sent. The most frequent questions concerned heat and hot water supply.

Almost one half of the customers who contact the Customer Centre are from Ostrava and around, and the next 33% are clients in Prague. Other areas follow (Karviná, Krnov, Mariánské Lázně, Kolín, Olomouc, Přerov and Nový Jičín).

Aside from addressing clients’ telephone and e-mail inquiries, operators also participate in information campaigns, register customers in the customer portal,

communicate with technicians and supervisors at operating sites and monitor alarm messages coming from selected devices, which they forward to technicians for resolution.

Customer portal

Our D-line portal used for downloading invoices, monitoring consumption and addressing requests is constantly popular among customers. The Customer Centre registered 142 new users in 2017. Of all the options offered, customers mostly download invoices using D-line. For the future, we are planning the connection of the portal to the single MyVeolia platform and offer customers more information in a more convenient form and with a new design.

Satisfaction survey

The regular customer satisfaction survey took place in November and December 2017. It was carried out electronically, and via telephone during the second phase when the Customer Centre operators completed forms with clients during telephone conversations.

The survey was focused on the satisfaction of the customers to whom Veolia Energie ČR supplies thermal energy and its goal was to determine:

• Satisfaction with thermal energy supply (heat and hot water in terms of quality, continuity, regulation and price);

• Satisfaction with the work of our employees (technicians, salespeople and the Customer Centre);

• Satisfaction with the services provided (information exchange, request resolution);

• Satisfaction with and the utilisation of the


customer portal;

• Preferred method of informing (method of communication);

• Our clients’ suggestions and comments.

The survey involved a total of 245 respondents from all regions of Veolia Energie ČR and the subsidiaries Veolia Energie Mariánské Lázně, Veolia Energie Kolín and Veolia Energie Praha. Respondents were the customers from among residential property owners and managers, housing cooperatives and associations, industrial customers and the tertiary sector (schools, dormitories, shopping centres, hospitals, and cultural and sports facilities…).

A total of 96% respondents are satisfied with the services offered by Veolia Energie. On a scale from 1 to 4 where 1 is fully satisfied and 4 is fully dissatisfied, the overall rating was 1.35.

The satisfaction with employees has remained on a very good level in the long-term perspective, as 95% of respondents rated our employees 1 or 2. The satisfaction with supply has improved too.

The next survey will take place two years later, i.e., in 2019.


RESPONSIBILITY

Sustainable developmentIntegrated Management System

A surveillance audit was conducted by Bureau Veritas Czech Republic, spol. s r.o. in the latter half of March 2017, aiming to verify the current status of the integrated management system (QMS, EMS, OHSAS and EnMS) at Veolia Energie in the Czech Republic. The audit did not reveal any non-compliances. Identified observations were accepted and the addressing thereof has helped to further improve our IMS.

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

A fundamental common element of the Group’s Integrated Management Systems is the Sustainable Development Policy of Veolia Energie ČR, approved by Philippe Guitard, Director, Central and Eastern Europe, on 1 July 2016. The policy has been published at http://www.vecr.cz

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

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

We maintain sound relationships with our customers not only through our respect for contract terms and

conditions, but also by listening to our customers and, wherever possible, meeting any additional requirements they may have.

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

We continuously improve the IMS by periodically declaring and then pursuing targets aimed at specific areas of the integrated system. The targets are announced for the individual organisational units and monitored, completed and evaluated on an ongoing basis. Another area where we are making improvements is the active elimination of any non-conformities that we identify and the adoption of corrective actions. Recommendations stemming from internal and external audits are an essential driver of improvements and are handled as suggestions aimed at making the system better.

The modifications of the existing IMS started in 2017 with a view to making it compliant with the requirements of the new standards, ČSN EN ISO 9001 and ČSN EN ISO 14001, whose application in practice will be verified by Bureau Veritas Czech Republic, spol. s r.o. during a third-party audit in 2018.


Emission Trends and the Impact of Biomass Firing

2017 saw a major decrease in SO2 and NOx emissions compared with 2016. This is attributable to more extensive use of new emission reducing technologies, i.e., desulphurisation and denitrification on Boilers K3, K4 and K14 at the Třebovice Power Station and Boilers K1 to K4 at the Karviná CHP Plant. The slight overall decrease in heat generation partially contributed to the reduction of emissions as well.

In 2017 the installations of Veolia Energie ČR used 88,413 tonnes of biomass. Another 56,106 tonnes of biomass was used in an EnergoFuture, a.s. installation, which we operate on the premises of the Frýdek-Místek CHP Plant under an Operating Agreement. Thanks to the replacement of coal and, in part, natural gas, we succeeded in reducing CO2 emissions by 223,267 tonnes in 2017.

Groundwater Consumption

In 2017, Špičková výtopna Olomouc (the Olomouc peak-shaving heating plant) reduced its groundwater consumption for heat generation in comparison with the preceding year; the Frýdek-Místek CHP Plant also reduced its groundwater consumption compared with the previous year, primarily due to drought.

Surface Water Consumption

In 2017, there was a slight year-on-year drop in surface water consumption again, hitting its all-time low. It can be said that the reduction in surface water consumption is attributable to using return condensate, reducing the need for ash transport water as a result of switching over to dry removal of ash and optimising the consumption of water used for the cooling of process units.

Legionella bacteria

The Company has entered into contracts with certain customers on the prevention of Legionella outbreaks

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

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

Utilisation of Ash

In recent years, the Company has been reusing all the ash that it produces, especially in backfilling after mining activities, in the clean-up and reclamation of former mining sites and other land, in the production of building materials, and as a replacement for the silica sand used in sandblasting. The main customers for ash from the Company’s plants in 2017 were OKD, HBZS, a.s., GEMEC – UNION a.s., TRYMAT, spol. s r.o. and Cement Hranice, akciová společnost.

REACH

In accordance with the requirements of Regulation (EC) No 1907/2006 of the European Parliament and of the Council concerning the Registration, Evaluation, Authorisation and Restriction of Chemicals (REACH), the Company has the following substances registered since 2010: ash (residue), coal (ash and slag) and ash from fluidised bed combustion. Based on this registration certain ash products are now certified products that are offered as such to customers for various uses. Currently, the Třebovice Power Station and the Přerov CHP Plant are involved in ash certification. SDA - a product of desulphurisation generated at the Třebovice Power Station and Karviná CHP Plant - was registered in 2017.

ENVIRONMENTAL PROTECTION

Emission trend

9 0008 0007 0006 0005 0004 0003 0002 0001 000

02011 2012 2013 2014 2015 2016 2017

Particles (t) SO2(t) NOx(t) CO2(‘000s t)

Ash Production and Disposal, 2012–2017

Production Use

390 000

370 000

350 000

330 000

310 000

290 000

270 000

250 0002012 2013 2014 2015 2016 2017

329

131

329

131

327

523

327

523

350

779

350

779

368

269

368

269

333

075

333

075

288

065

288

065


Veolia Energie ČR consistently complies with all labour legislation, the current Collective Agreement, the rules of work and all internal regulations. It has maintained a very low level of employee turnover for a long time, which reflects employees’ loyalty and is one of the key priorities in personnel management. Employees’ satisfaction and loyalty testify to the high quality of personnel management on a long-term basis and the remarkable attitude to employees, who are the Company’s most valuable asset.

Employee Structure

In 2017, Veolia Energie ČR continued implementing changes in its internal organisational structure, aimed at optimising the management activities, developing the strategic, coordination and support functions and strengthening the operation line as part of the unified Veolia Group organisation.

The average FTE number of employees was 1,590, up by 8 employees compared with 2016. The headcount as at 31 December 2017 was 1,596 employees, of whom 1,329 were male and 267 were female. Broken down by type of business, there were 1,459 employees in the production, distribution, purchase and sale of heat and electricity and 137 employees providing technical services.

The share of employees holding a university degree is 19.2% (220 men and 86 women), while employees who completed secondary school with a maturita (school leaving certificate) account for 41.2% (522 men and 135 women). The average age in 2017 was 47 years. As at 31 December 2017, 95 persons were aged up to 29 years, 211 were in the 30-39 bracket, 553 in the 40-49 bracket, 608 were aged 50-59, and 129 were over 59 years.

As at 31 December 2017, in terms of the total years of service at Veolia Energie ČR, 306 persons had been employed for up to 5 years, 188 for 6-10 years, 149 for 11-15 years, 120 for 16-20 years, 257 for 21-25 years and 576 for over 25 years.

In 2017, Veolia Energie ČR hired 78 new employees, of whom 73 were external hires. The recruitment related mostly to operation, where the replacement of retiring employees has become a key priority, and also to business development.

Employee Incentives

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

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

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

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

Education

The corporate training system ensures not only that the skills needed to pursue particular professions are

HUMAN RESOURCES

6 %Up to 29 years

13,2 %30 to 39 years

34,6 %40 to 49 years

38,1 %50 to 59 years

8,1 %60 years or

older

Employee Structure by Age 2017

19,2 %University

1,4 %Lower secondary

38 %Secondary (no school leaving certificate)

41,2 %Secondary (school

leaving certificate)

0,3 %Post secondary

vocational

Employee Structure by Education 2017

19,2 %Up to 5 years

11,8 %Up to 10 years

9,3 %Up to 15 years

7,5 %Up to 20 years

16,1 %Up to 25

years

36,1 %Over 25 years

Employee Structure by Seniority 2017


maintained, but is also a means for improving and increasing employee skills and qualifications.

In 2017, Veolia Energie ČR continued to collaborate with Institut environmentálních služeb (the Institute of Environmental Services ‒ IES), in which it holds a 30% stake alongside the France-based Campus Veolia and Veolia ČR.

In 2017, Veolia Energie ČR provided its staff with 44,005 hours of training, equivalent to 9,797 trained employees. Training costs amounted to nearly CZK 10.9 million, with total costs (after factoring in logistics and payroll expenses) standing at CZK 31.2 million, or 1.24% of payroll expenses.

A major achievement was completion of the Support for Employees’ Technical Education II project and obtaining subsidies from EU funds under Operational Programme Employment. The subsidy is used for an extensive educational project called Energy Machines. It was a two-semester specialised course. In this project we followed up on highly successful cooperation with VŠB – Technical University of Ostrava, which provided the teaching. The project included 18 seminars on electricity and heat supply issues. The principal topics were: thermomechanics, renewable resources, energy sources, compressors, pumping equipment, steam boilers, heat exchangers, energy use of biomass and waste, steam circulation, heat turbines, cooling, chemistry in the energy sector, combustion engines, and enterprise economy. Forty two of our employees completed the specialised course successfully in June 2017 and officially received certificates in the presence of the Company’s executives and the representatives of the Faculty of Mechanical Engineering of VŠB – Technical University of Ostrava.

Important educational projects undertaken last year include the “Changes in the Construction Act” course for more than 50 participants, the “V.I.P (Veolia Induction Programme)” four-day workshop that 24 employees took in order to enhance the awareness of shared corporate culture, training for internal auditors, a first aid course, a crisis management seminar, a course to improve the awareness of financial indicators for the employees of non-financial sections, IT courses focused on the MS Word and Excel in various stages of maturity, and a workshop for employees in charge of sourcing with a focus on negotiation tactics. “Emotional Intelligence”, attended by 20 employees, mainly from senior management, also received a very good rating. French and English language courses – 77 individual and 29 group courses – were running in 2017.

In 2017, selected employees also attended an international integration workshop called JIVE in France.

Veolia Energie ČR staff can use the IES e-learning portal,

which keeps extending its range to include new courses, some of which are also available in English or French versions. In 2017 all our employees took the “Compliance Program – Preventing Criminal Responsibility” electronic course whereby our Company responded to the changes in the legal provisions on criminal responsibility of legal entities, and more than 90 employees were instructed on-line about healthy diet and prevention of cancer. The “Induction Training” is beneficial primarily for new employees, though not only for them. It contains important information about the Veolia Group in the Czech Republic. The e-learning portal also includes computer literacy courses and English and French language courses.

Evaluation

Veolia Energie ČR consistently applies a system of employee management via defined targets (landmarks). A regular part of its outreach is appraisal interviews, which line managers conduct with their subordinates. In these interviews, all evaluated employees are given annual targets. The findings from interviews form a basis for the employees’ personal training programmes and for directing their careers. All staff ranked as professionals undertake the appraisal interview in electronic form based on the uniform methodology applied by the parent Veolia Group.

Cooperation with Schools

We are constantly fostering cooperation with secondary schools and universities. Nine university students prepared their student projects and diploma or bachelor theses with Veolia Energie ČR during the year. The Company was an exhibitor at the Kariéra Plus 2017 student job fair hosted by VŠB – Technical University of Ostrava. The Company organises excursions and technical training for secondary school students. Cooperation with universities is supported by framework contracts with VŠB – Technical University of Ostrava, Brno University of Technology and the Czech Technical University in Prague.

In 2017, the Company continued its successful involvement in the seventh edition of the Veolia Summer School project, held in France. Veolia Energie ČR sent one university student as its representative selected on the basis of the willing cooperation he had shown in summer internships, in the preparation of diplomas and bachelor theses, and in personal interviews. The aim of the Veolia Summer School was to give the students an insight into Veolia as a company and to involve them in tackling challenging tasks related to Veolia’s activities.

In 2017, we also continued to work with seven secondary schools by arranging excursions and mandatory work experience for students.


Occupational Safety

In 2017, we again paid attention to accident prevention, awareness, and improved working conditions. Employees are kept informed of emergencies and preventive action taken in response to incidents (minor injuries, work-related injuries, near misses or fires). More detailed information about the results achieved in occupational safety, including the specific causes of injuries and associated preventive measures, was also reported at the International Occupational Safety Day organised by the Veolia Group in September 2017.

In 2017, the number of days missed decreased, and four work-related injuries with sick leave occurred at Veolia Energie ČR, a.s. Two work-related injuries with sick leave occurred during activities related to the handling of equipment. The other two work-related injuries resulting in sick leave involved a slipping foot and falling down (the slipping of a foot on a staircase and the slipping of a foot outdoors).

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

2010 2011 2012 2013 2014 2015 2016 2017

Days of absence Number of accidents

800

700

600

500

400

300

200

100

0

302724211815129630


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

Information about the Company’s Involvement in Foundations

Veolia Energie ČR, a.s. pursues a policy of corporate social responsibility with its strong involvement in social initiatives and the environment through its three foundations (‘endowment funds’): Veolia Foundation (Nadační fond Veolia), Veolia Energie Humain ČR Foundation (Nadační fond Veolia Energie Humain ČR) and Veolia Energie Environment ČR Foundation (Nadační fond Veolia Energie pro životní prostředí ČR). These foundations design their own projects, take part in projects of other organisations and in Veolia employees’ voluntary work, and assist employees faced with hardship.

Veolia Foundation

2017 was the fifteenth year in which the Veolia Foundation pursued its mission expressed by its slogan “Caring for the Environment and Community”.

Our traditional programme supporting the creation of new jobs, which supports micro and small start-ups, got a new name this year - “STARTér, Trust Yourself and Do Business!” The popular MiNiGRANTY VEOLIA programme, intended for our employees’ volunteer activities, also continued. Keep Smiling - Active for All Life, our latest programme aimed at promoting the active life of elderly people in a community environment, continued for the third year in 2017. Veolia Foundation’s other traditional programmes, Water for Africa, The Trout Way and Clean Up the World! also continued to run.

Veolia Foundation’s Major Programmes

STARTér, Trust Yourself and Do Business!

The STARTér, Trust Yourself and Do Business! programme encourages micro and small start-ups in the Moravia-Silesia and Olomouc Regions. The Foundation channels assistance primarily into community projects in areas such as traditional or unconventional crafts and production, the organisation of leisure time activities for children, young people and the elderly, services for the local population and households, social services for the disabled, and environmental care.

2017 was the eighteenth year in which the Foundation helped to turn new business ideas into reality.

Thanks to the Foundation’s grants, which totalled CZK 5,513,700, as many as 73 business plans were implemented in 2017, creating 120 new durable jobs in the process, 29 of which were for persons with disabilities. Since the Foundation’s formation 1,317 projects have enjoyed support and have created 2,198 new jobs (of which 322 have been for persons with disabilities).

In 2017 the STARTér, Trust Yourself and Do Business! programme won one of the most prestigious sustainable business awards in the Czech Republic - the first position in the TOP Responsible Company in the Social Entrepreneurship Project of 2017 category.

Most interesting projects supported in 2017:

Projects employing persons with disabilities:

• Dobrý domov is a sheltered workshop producing wooden components for original play walls used in preschools and in hospitals during regeneration after

CORPORATE SOCIAL RESPONSIBILITY


cerebrovascular accidents. As a result, 10 disabled citizens will find new jobs in Uničov.

• Handicap centrum Škola života Frýdek-Místek is a day care facility where clients can newly try what it is like to earn your own money and feel useful for society. The result is 8 new jobs for handicapped people who hand produce paper, candles, ceramics and woven products.

Projects in alternative pre-school and school education:

• The association Duhové děti Vlčice (Vlčice Rainbow Children) newly operates the Duhovka Forest Kindergarten in Vlčice near Javorník. Children are educated in a natural and spontaneous way in close contact with nature. They can use an original Mongolian yurt in a beautiful garden by an old mill for amenities.

• The newly opened primary ScioŠkola in Frýdek – Místek, the only Scio School in the Moravia-Silesia Region, responds to the great demand for alternative educational approaches. It is designed for children to look forward to it and enjoy the instruction. Students are motivated to lifelong education and tackling changes so that they can live a happy life in the current rapidly changing world.

Projects creating business value while attempting to achieve harmony with nature and environmental balance, and projects in the area of traditional handicrafts and manufacturing as well as services for citizens. We are sincerely happy to have supported up-and-coming sweet shops, nutritional consultants, alternative medicine centres as well as cabinet makers, plumbers, bricklayers and car mechanics.

VEOLIA MiNiGRANTS ®

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

In 2017, 144 Veolia employees participated in such volunteering in their free time and for that they obtained grants totalling nearly CZK 3.8 million.

In total, between 2008 and 2017, grants amounting to nearly CZK 30 million helped 1,161 projects.

Keep Smiling – Active for All Life

Keep Smiling, a programme aimed at promoting the active life of elderly people in a community environment, continued for the third year in 2017. Twenty-seven entities received funding of more than CZK 2.1 million as a result of a closed call for applications.

In the three years of our latest Foundation programme, we have supported organisations and projects to the tune of more than four million crowns.

Water for Africa

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

In addition to an entirely new, limited edition designer water carafe, we also offered a limited run of porcelains cups and saucers with an African gazelle motif and African tea for sale in 2017.

The proceeds of the fund-raising initiative (CZK 811,888) were donated to People in Need, a non-profit organisation that implements water projects in Ethiopia with the funds. We have donated 4.8 million crowns for these purposes over the eight years of running this scheme.

The Trout Way

Since 2011, the Foundation has been helping to return original species of salmonids into Czech rivers (in particular the brown trout and the greyling) that used to live in them in the past. Working with Jakub Vágner, approximately 12 tonnes of this fish were released into the natural environment between 2011 and 2017.

Clean Up the World!

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

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

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

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


Veolia Energie Humain ČR Foundation

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

The general purpose of the Veolia Energie Humain ČR Foundation is specifically pursued by the provision of assistance:

• to employees and their family members in difficult personal circumstances,

• in care for physically or mentally disabled children,

• upon childbirth.

In 2017, the Veolia Energie Humain ČR Foundation received donations totalling CZK 2,768,560 from the founder, subsidiaries and staff of the Veolia Energie Group companies in the Czech Republic and awarded grants amounting to CZK 1,927,320.

Veolia Energie Environment ČR Foundation

The Veolia Energie Environment ČR Foundation was created in 2006 to help finance projects that have positive environmental impacts.

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

The Foundation supports the following:

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

• Projects for the use of renewables in energy production;

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

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

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

• Suppliers of renewable sources.

Biodiversity

To conserve and restore biodiversity is one of our key sustainability commitments. The Veolia Group companies in the Czech Republic have been involved in environmental protection and biodiversity fostering for several years. We have been cooperating with the Czech Union for Nature Conservation (ČSOP) to enhance biodiversity on our sites for a long time. We have focused primarily on monitoring and assessing the impacts of our activities on local ecosystems and on implementing measures to preserve biodiversity. We are gradually implementing measures stemming from audits and fostering biodiversity in various ways.

Sponsorship

In 2017, we paid attention primarily to projects that were non-commercial in nature or were geared towards helping children, persons in distress or with a disability, or in developing the community life in towns and villages.

We have provided financial support e.g. to Safety Line Association, ONKO Niké Krnov, Union of the Disabled in Přerov, SONS Association of the Blind and Partially Blind in Karviná, Prague Sports Club of the Hearing-Impaired, Art Against Cancer, and DEBRA Czech Republic helping patients suffering from the “butterfly disease”.

In schools and education we again supported all levels of the education system. We contributed funds to preschools and primary schools to buy educational equipment, and we were a partner to universities in organising specialised conferences such as Protecting Citizens 2017 organised by VŠB - Technical University of Ostrava and an international conference organised by the Opava Silesian University’s School of Business Administration in Karviná for small and medium-sized enterprises.

As has become a tradition, we also supported culture in 2017. We became partners to the Janáček May and St. Wenceslas Music Festival classical music events, the Jeden svět/One World human rights film festival, and we continued cooperating with the Janáček Philharmonic Ostrava.

In 2017, we also continued to support our sports partners such as, primarily, HC Vítkovice Ridera, FBC Ostrava, Volejbal Přerov, SK Sigma Olomouc, MFK OKD Karviná and HC Zubr Přerov, as well as smaller sports clubs for children and young people.


RESULTS

In 2017, Veolia Energie ČR posted a pre-tax profit of CZK 1,172,597,000, up by 123.51% compared with the previous year, namely due to higher financial income from dividends received and lower financial costs, especially due to the provisions for financial investments.

Total costs net of income tax amounted to CZK 6,690,231,000 which, compared with 2016, is a 7.67% decrease; total turnover amounted to CZK 7,862,828,000, up by 1.19% compared with 2016.

The operating profit came to CZK 790,105,000, which was 28.49% lower than in the previous year, mainly because of the lower revenue from electricity sales.

Financial operations reported a profit of CZK 382,492,000 in 2017 compared with a loss of CZK 580,183,000 in 2016. The profit from financial operations increased over 2016 primarily because no reasons for changing (increasing) provisions for financial investments were identified, and the dividends received from the subsidiaries increased.

Income tax, including the deferred tax liability, amounted to CZK 155,860,000 and the profit for the accounting period was CZK 1,016,737,000.

The financial situation of Veolia Energie ČR was stable and balanced throughout the year. The Company’s financing was based on the use of its own resources of CZK 2,068 million, generated by operating and investing activities, resources from the Group’s cash pooling system and a long-term loan. These funds were used to acquire non-current assets worth CZK 885 million and, further to a resolution of the General Meeting, in 2017 the Company paid out dividends totalling CZK 1,322 million.

Year-end financial assets stood at CZK 9 million and included cash in hand and cash in current accounts.

Including receivables from cash pooling, the balance of cash and cash equivalents was CZK 680 million.

The Company’s total assets at the end of 2017 were CZK 15,633 million, a rise by 2.25% compared with 2016.

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

Non-current assets at the end of 2017 came to CZK 13,148 million, accounting for 84.1% of total assets. This was an increase by CZK 165 million (1.3%) year on year.

Current assets at the end of 2017 were CZK 2,485 million, accounting for 15.9% of total assets. The value of current assets increased by CZK 179 million on 2016, mainly due to the rise in cash and cash equivalents.

Year-end equity in 2017 was CZK 7,271 million, i.e. 46.5% of the Company’s total equity and liabilities. Equity recorded a decrease by CZK 265 million (3.5%) compared with 1 January 2017.

The total value of liabilities at the end of 2017 was CZK 8,363 million, up by CZK 609 million (7.9%) on the previous year.

A profit before tax of CZK 840.9 million is projected for 2018. Revenues are forecast to total CZK 6,687.1 million. In 2018, the Company expects a stable financial situation without any problems in debt repayment.


Revenue (CZK thousands)2017 2016

Veolia Energie ČR, a.s. 7,250,582 7,547,225OLTERM & TD Olomouc, a.s. 400,087 388,499AmpluServis, a.s. 337,596 303,440Veolia Energie Kolín, a.s. 398,256 395,652Veolia Energie Mariánské Lázně, s.r.o.

168,730 170,067

Veolia Průmyslové služby ČR, a.s. 1,009,523 1,236,653Veolia Komodity ČR, s.r.o. 2,640,070 2,463,474Veolia Powerline Kaczyce Sp. z o.o. 12,705 231,769Veolia Energie Praha, a.s. 1,022,316 468,933

Profit / (Loss) for the period (CZK thousands)2017 2016

Veolia Energie ČR, a.s. 1,016,737 321,921OLTERM & TD Olomouc, a.s. 20,479 24,222AmpluServis, a.s. 14,616 17,973Veolia Energie Kolín, a.s. 109,652 26,980Veolia Energie Mariánské Lázně, s.r.o.

19,446 24,586

Veolia Průmyslové služby ČR, a.s. 278,480 -239,460Veolia Komodity ČR, s.r.o. -30,851 -9,245Veolia Powerline Kaczyce Sp. z o.o. 649 70Veolia Energie Praha, a.s. 156,530 11,386*)

*) The above result applies to the period from 1 June to 31 December 2016 in accordance with IFRS. The individual financial statements for Veolia Energie Praha, a.s. for 2016 are compiled in accordance with the Czech Accounting Standards.

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

2017 2016Veolia Energie ČR, a.s. 5,076,458 5,040,456OLTERM & TD Olomouc, a.s. 351,346 346,321AmpluServis, a.s. – –Veolia Energie Kolín, a.s. 331,054 339,670Veolia Energie Mariánské Lázně, s.r.o.

156,228 156,821

Veolia Průmyslové služby ČR, a.s. 176,235 247,441Veolia Komodity ČR, s.r.o. – –Veolia Powerline Kaczyce Sp. z o.o. – –Veolia Energie Praha, a.s. 1,009,722 466,939

Revenue from the sale and re-sale of electricity and ancillary services (CZK thousands)

2017 2016Veolia Energie ČR, a.s. 2,060,993 2,399,984OLTERM & TD Olomouc, a.s. – –AmpluServis, a.s. – –Veolia Energie Kolín, a.s. 64,858 53,889Veolia Energie Mariánské Lázně, s.r.o.

12,114 12,866

Veolia Průmyslové služby ČR, a.s. 552,363 601,159Veolia Komodity ČR, s.r.o. 2,411,906 2,177,718Veolia Powerline Kaczyce Sp. z o.o. 4,908 227,930Veolia Energie Praha, a.s. 5,578 1,368

Total assets (CZK thousands)2017 2016

Veolia Energie ČR, a.s. 15,633,316 15,289,391OLTERM & TD Olomouc, a.s. 526,537 532,572AmpluServis, a.s. 223,835 214,756Veolia Energie Kolín, a.s. 855,251 870,403Veolia Energie Mariánské Lázně, s.r.o.

244,632 237,298

Veolia Průmyslové služby ČR, a.s. 1,970,548 1,469,778Veolia Komodity ČR, s.r.o. 734,806 908,935Veolia Powerline Kaczyce Sp. z o.o. 88,538 116,617Veolia Energie Praha, a.s. 1,047,851 1 241 187

The consolidated profit after taxation for the 2017 accounting period was CZK 1,145,634,000, compared with CZK (70,762,000) in 2016.

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

Subsidiaries

At the end of 2017, Veolia Energie ČR held controlling interests in six companies: OLTERM & TD Olomouc, a.s. (a 66% shareholding), AmpluServis, a.s. (a 100% shareholding), Veolia Energie Kolín, a.s. (a 100% shareholding), Veolia Energie Mariánské Lázně, s.r.o. (a 100% shareholding), Veolia Energie Praha, a.s. (a 100% shareholding), and Veolia Průmyslové služby ČR, a.s. (a 100% shareholding). Veolia Průmyslové služby ČR, a.s. has a 100% shareholding in Veolia Komodity ČR, s.r.o. and Veolia Powerline Kaczyce Sp. z.o.o. All companies are domiciled in the Czech Republic, apart from Veolia Powerline Kaczyce, Sp. z o.o., which is based in Poland. The registered offices and core business of the subsidiaries are set out in Veolia Energie ČR’s consolidated financial statements. The parent company and the subsidiaries keep accounts under the International Accounting Standards.


3. FINANCIAL PART

3.1. GENERAL INFORMATION

Selected financial data from the unconsolidated financial statements for the last two years (in CZK thousands)

In accordance with Section 19a of the Accounting Act, the financial statements for 2017 and comparable indicators for the previous period were prepared under International Financial Reporting Standards (IFRS). The Company also prepared its consolidated financial statements in accordance with International Accounting Standard IAS 27.

The consolidation scope in 2017 encompassed the parent, i.e. Veolia Energie ČR, a.s., and its subsidiaries OLTERM & TD Olomouc, a.s., AmpluServis, a.s., Veolia Energie Kolín, a.s., Veolia Energie Mariánské Lázně, s.r.o., Veolia Průmyslové služby ČR, a.s., Veolia Komodity ČR, s.r.o., Veolia Powerline Kaczyce Sp. z o.o., Veolia Energie Praha, a.s. and Nadační fond Veolia Energie pro životní prostředí ČR (Veolia Energie Environment ČR Foundation).

The consolidation scope in 2016 encompassed Veolia Energie ČR, a.s., OLTERM & TD Olomouc, a.s., AmpluServis, a.s., Veolia Energie Kolín, a.s., Veolia Energie Mariánské Lázně, s.r.o., Veolia Průmyslové služby ČR, a.s., Veolia Komodity ČR, s.r.o., Veolia Powerline Kaczyce Sp. z o.o. Veolia Energie Praha, a.s. and Nadační fond Veolia Energie pro životni prostředí ČR.

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

Selected financial data 2017 2016Overall debt (%) 53.49 50.71Return on assets (%) 6.50 2.11Current liquidity 0.9 0.35

Information about share capital

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

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

Information about the parent company and the position within the Group

The person holding 20 or more percent of the Company’s share capital as at 31 December 2016 is Veolia Energie International, holding a majority stake of 73.06%.

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

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

Veolia Energie International’s parent company is Veolia Environnement.

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


General company information:

Veolia Energie ČR, a.s. (a public limited company), having its registered office at 28. října 3337/7, Moravská Ostrava, 702 00 Ostrava (the “Company“), as established under the name Moravskoslezské teplárny a.s. by a sole founder, the National Property Fund of the Czech Republic, seated at Praha 1, Gorkého nám. 32 (the “Founder”), pursuant to a Memorandum of Association (containing the Founder’s decision within the meaning of Section 172(2), (3) and Section 171(1) of Act No 513/1991, the Commercial Code) of 24 April 1992 in the form of a notarial deed. As of 7 January 2002, the Company’s name was changed to Dalkia Morava, a.s., then, as of 1 January 2004, it was changed to Dalkia Česká republika, a.s. and as of 1 January 2015 it was changed again to the present name. The Company was incorporated on 1 May 1992 by entry in the Companies Register on 27 April 1992; it is registered in the Companies Register kept by the Regional Court in Ostrava, File B 318. According to the certificate of incorporation, its core business is the generation and distribution of heat and electricity. The Company’s website is at www.vecr.cz; the telephone number for the registered office is +420 596 609 111.

Changes in the Company’s structure and in the Companies Register in 2017

At the end of term of office of Mr Zdeněk Krakovský, a member of the Supervisory Board on 28 June 2017, the Company’s General Meeting of 22 June 2017 elected Mr Pavel Baránek a new member of the Supervisory Board with effect from 29 June 2017 in accordance with the Company’s Articles of Association based on a proposal from the Board of Directors or, as the case may be, based on a proposal of the employees.

The Supervisory Board elected Mr Zdeněk Duba the Chairman of the Supervisory Board at its meeting on 10 May 2017.

On 22 August 2017 the Supervisory Board discussed per rollam a letter of resignation from a member of the Supervisory Board, Mr Martin Jašek regarding his position as a member of the Supervisory Board as of 31 August 2017 and, in accordance with the Articles of Association, it appointed Mr Bohdan Malaniuk a substitute member of the Supervisory Board until the next General Meeting with effect from 1 September 2017.

Corporate Management and Governance

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

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

Persons responsible for auditing the financial statements

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

Availability of documents and materials contained in the Annual Report

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


3.2. NON-CONSOLIDATED

FINANCIAL STATEMENTS


1

Non-consolidated income statement For the year ended 31 December In thousands of CZK Note 2017 2016 Revenue 6 7,250,582 7,547,225 Cost of sales 7 (5,725,920) (5,897,866) Gross profit 1,524,662 1,649,359 Distribution expenses / revenue 8 (124,880) 24,067 Administrative expenses 9 (609,677) (568,609) Results from operating activities 790,105 1,104,817 Finance income 10 474,729 93,200 Finance costs 10 (92,237) (673,383) Profit before income tax 1,172,597 524,634 Income tax expense 11 (155,860) (202,713) Profit for the period 1,016,737 321,921

The notes are an integral part of the financial statements.



2

Non-consolidated statement of comprehensive income For the year ended 31 December In thousands of CZK 2017 2016 Profit for the period 1,016,737 321,921 Employee benefits – actuarial gains / (losses) (not reclassified to profit or loss)*

27,085 (10,398)

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

12,473 (2,753)

Other comprehensive income after tax

39,558 (13,151)

Total comprehensive income for the period 1,056,295 308,770

*Taxation is described in Note 11.




3

Non-consolidated statement of financial position As at 31 December In thousands of CZK Note 2017 2016 Assets Property, plant and equipment 12 7,138,769 6,950,562 Intangible assets 13 183,952 207,862 Financial interests 14 5,811,933 5,811,933 Other financial investments 15 13,246 13,039 Total non-current assets 13,147,900 12,983,396 Inventories 17 413,685 486,500 Other financial investments 15 2,013 2,471 Derivatives 15 10,165 -- Current tax assets 18 81,929 82,610 Trade and other receivables 19 1,297,789 1,407,569 Cash and cash equivalents 20 679,835 326,845 Total current assets 2,485,416 2,305,995 Total assets 15,633,316 15,289,391 Equity Registered capital 3,146,447 3,146,447 Reserves and other capital contributions 1,974,979 1,962,506 Retained earnings 2,149,150 2,426,835 Total equity 7,270,576 7,535,788 Liabilities Employee benefits 23 532,974 581,369 Loans and borrowings 22 4,500,000 -- Provisions 24 59,686 62,179 Deferred tax liabilities 16 493,565 462,187 Derivatives 26 1,037 2,870 Total non-current liabilities 5,587,262 1,108,605 Loans and borrowings 22 966,481 4,926,162 Trade and other payables 25 1,724,091 1,670,544 Employee benefits 23 60,596 27,795 Provisions 24 24,310 17,096 Derivatives 26 -- 3,401 Total current liabilities 2,775,478 6,644,998 Total liabilities 8,362,740 7,753,603 Total equities and liabilities 15,633,316 15,289,391

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

Josef Novák

Reda Rahma Date: 25 April 2018



4

Non-consolidated statement of changes in equity

In thousands of CZK Registered capital

Statutory reserves

Other capital

contributions

Cash flow hedges

Retained earnings

Total

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

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

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

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

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

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

Balance at 31 December 2016 3,146,447 -- 1,967,586 (5,080) 2,426,835 7,535,788

Profit for the period -- -- -- -- 1,016,737 1,016,737 Other comprehensive income Employee benefits – actuarial gains (losses) -- -- -- -- 27,085 27,085

Changes in fair value of cash flow hedge -- -- -- 12,473 -- 12,473

Total other comprehensive income -- -- -- 12,473 27,085 39,558

Total comprehensive income for the period -- -- -- 12,473 1,043,822 1,056,295

Transactions with owners, recorded directly in equity Dividends paid to shareholders -- -- -- -- (1,321,507) (1,321,507)

Balance at 31 December 2017 3,146,447 -- 1,967,586 7,393 2,149,150 7,270,576




5

Non-consolidated statement of cash flows For the year ended 31 December In thousands of CZK Note 2017 2016

Cash flow from operating activities

Profit before income tax for the period 1,172,597 524,634 Depreciation and amortisation of non-current assets 12, 13 764,082 712,577 Change in provisions 21,411 656,517 Gain (loss) on sale of property, plant and equipment (32) 1,728 Proceeds from dividends 10 (453,157) (85,464) Net interest income and expense 10 49,134 27,319 Non-realized FX differences (136) 104 Cash flow from operating activities 1,553,899 1,837,415 Change in receivables 109,732 (123,356) Change in current liabilities 3,804 (319,444) Change in inventories 72,815 43,221 Income tax paid and tax assessments for previous periods (131,926) (202,556) Net cash flow from operating activities 1,608,324 1,235,280

Cash flow from investing activities

Acquisition of property, plant and equipment (885,333) (523,391) Proceeds from the sale of property, plant and equipment 6,888 25,123 Acquisition of financial investments - (2,225,411) Dividends received 10 453,157 85,464 Net cash flow from (used in) investing activities (425,288) (2,638,215) Free operating cash and cash equivalents 1,183,036 (1,402,935)

Cash flow from financing activities

Loans received 22 4,500,000 1,370,000 Unpaid dividends 22 (9,864) 1,434 Unpaid interest on loans -- 5,956 Instalments on loans 22 (1,370,000) -- Interest received 10 3,999 4,010 Interest paid 10 (59,089) (35,926) Dividends paid (1,321,507) (1,320,721) Net cash flow from (used in) financing activities 1,743,539 24,753 Net increase (decrease) in cash and cash equivalents 2,926,575 (1,378,182) Cash and cash equivalents at 1 January (3,192,864) (1,814,682) Cash and cash equivalents at 31 December 20 (266,289) (3,192,864)



Veolia Energie ČR, a.s. NOTES TO THE NON-CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 DECEMBER 2017

6

1. General information

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

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

There was no change in the shareholding structure in 2017. Veolia Energie International SA holds 73.056%, ČEZ, a.s. holds 15%, DCR INVESTMENT a.s. holds 10%, and minority shareholders hold the balance. The Company does not prepare an annual report as at 31 December 2017, because it intends to include the relevant information in the consolidated annual report.

2. Basis of preparation

a) Statement of compliance The financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as adopted by the EU and the Act on Accounting and relevant legislation of the Czech Republic in force as at 31 December 2017. In accordance with Section 19a (1) of the Act on Accounting, No 563/1991, the Company applies IFRS as adopted by the EU in the preparation of its non-consolidated financial statements. The financial statements were approved for release by the Company’s Board of Directors on 25 April

2018.

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

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



7

d) Changes in accounting policies (i) Standards not applied For the accounting period beginning on 1 January 2018 and further, a number of new standards, amended standards and interpretations come into effect, which may be relevant for the Company but have not been applied earlier in the preparation of these unconsolidated financial statements for 2017. These mainly include the following: IFRS 9 Financial Instruments, published in July 2014, will replace the current requirements in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidelines for the classification and measurement of financial instruments, including a new forward-looking expected loss impairment model, and a substantially reformed approach to hedge accounting. It also provides guidance for recognising and derecognising financial instruments from IAS 39. IFRS 9 applies to annual reporting periods on or after 1 January 2018; the Standard is available for earlier application. The Company has not found any impacts of IFRS 9 application on its accounting. IFRS 15 Revenue from Contracts with Customers provides a comprehensive framework for specifying how, how much and when an IFRS reporter will recognise revenue. This will replace the current guidelines for revenue recognition, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 applies to annual reporting periods on or after 1 January 2018; the Standard is available for earlier application. The Company has not found any impacts of IFRS 15 application on its accounting. IFRS 16 Leases, published in January 2016, specifies rules for leases. It will replace existing IAS 17, IFRIC 4 and SIC-15. IFRS 16 sets out new principles for the recognition, measurement, presentation and disclosure of leases. IFRS 16 is only effective from 1 January 2019; it is available for earlier application, but only if the entity also applies IFRS 15. The Company evaluates the potential impacts of IFRS 16 application on its accounting. The following amended standards are not expected to have a significant impact on the Company’s non-consolidated financial statements. IFRS 1 – The first adoption of IFRS, removal of exceptions IAS 28 – Investments in Associates and Joint Ventures, venture capital reporting IFRS 2 – Share-based Payment IFRS 4 – Adjustment due to IFRS 9 IAS 40 – Investment Property IFRIC 22 – Foreign Currency Transactions IFRIC 23 – Uncertainty over Income Tax Treatments IFRS 17 – Insurance Contracts (ii) Applied standards The following new or amended standards, applicable as of 1 January 2017, did not have a significant impact on the Company’s non-consolidated financial statements. IAS 12 – Recognition of Deferred Tax Assets for Unrealised Losses IAS 7 – New requirements for disclosing liabilities from financing activities

3. Accounting policies

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

a) Foreign currency Foreign currency transactions At the beginning of each month, the Company sets a fixed exchange rate based on the Czech National Bank official rate for the first day of the month, which is applied to transactions recorded during that month. At the date of the statement of financial position, foreign currency monetary assets and liabilities



8

are translated at the Czech National Bank official rates for that date. Foreign exchange differences arising on translation of foreign currency monetary assets and liabilities are recognised in the income statement.

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

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

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

Other derivatives

When a derivative financial instrument is not held for trading and is not designated in a qualifying hedge



9

relationship, all changes in its fair value are recognised in costs or revenues. (iii) Equity The registered capital comprises fully paid-up shareholders’ contributions. Dividends are recognised as liabilities in the period in which they are declared.

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

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

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

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

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

Amortisation Amortisation is recognised in profit or loss on a straight-line basis over the estimated useful lives of intangible assets from the date the assets are available for use. The estimated useful lives are as follows: Software 4–5 years Other 4‒10 years



10

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

Emission allowances

Allowances for greenhouse gas emissions (“emission allowances” or “EUAs”), are presented as inventory and represent the right of the operator of a facility which generates greenhouse gas emissions to release an equivalent of a tonne of CO2 into the air in a given calendar year. In the financial statements, the granted emission allowances are stated at an acquisition cost of zero. Purchased allowances are stated at acquisition cost. Consumption of emission allowances is recognised using the weighted average method. As at the date of the statement of financial position the Company determines whether there is an indication of impairment of emission allowances. If any such indications exist, the Company assesses whether the recoverable amount of the emission allowances is lower than their book value. Any impairment loss is recognised in profit or loss. If the utilisation of emission allowances in the accounting period is higher than the number of allowances available at the date of the statement of financial position, a provision is established based on the value of allowances that will have to be purchased on the public market in the following period. This provision is measured at the average value of the emission allowances as at the date of the statement of financial position. In 2017, the Company purchased EUA units issued according to the Kyoto protocol that it expects to use in 2017 and beyond. The use of emission allowances and the income from their sale are presented in the non-consolidated income statement in the position “cost of sales”.

f) Impairment (i) Financial assets

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

(ii) Non-financial assets

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



11

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

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

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

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

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

i) Revenue Sale of heat, electricity and goods

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

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



12

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

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

4. Fair value

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

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

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

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

5. Financial risk management

The Company has exposure to the following risks:



13

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

Trade and other receivables

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

Investments The Company limits its exposure to credit risk by only investing in liquid securities. The management does not expect any losses from these investments. As at 31 December 2017, the Company holds cash and cash equivalents in the amount of CZK 680 million (2016: CZK 327 million). Cash and cash equivalents are deposited with banks with high ratings and in cash pooling with the parent company. Guarantees The Company’s policy is to provide financial guarantees only on an exceptional basis, where required for the purpose of a tender procedure or where the law provides so. As at 31 December 2017, guarantees of CZK 277 million (2016: CZK 193 million) were outstanding, of which a guarantee of CZK 255 million (2016: CZK 162 million) was provided by the parent company to the subsidiary Veolia Komodity ČR, s.r.o. to secure gas trades. Liquidity risk Liquidity risk is the risk that the Company will not be able to meet its financial obligations as they fall due. The Company’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, not risking damage to its reputation. The Company uses activity-based costing to cost its products and services, which assists it in monitoring cash flow requirements and optimising its cash return on investments. The Company ensures that it has sufficient cash on demand to meet expected operational expenses through participation in cash pooling within the Veolia Group. Within the cash pooling, the Company may draw funds of up to CZK 3,000 million. By this approach, the Company limits the possible impacts of unforeseeable events.



14

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

Interest rate risk The Company partly covers its exposure to movement in interest rates by obtaining financing mainly from its parent company. This financing is exposed to market risk from movements in interest rates. Other market price risks In 2017 the Company entered into forward contracts with Veolia Environnement Finance, a Veolia Environnement – VE SA group company, for the purchase and sale of emission allowances and certificates at a contractual price.

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

In thousands of CZK

2017

2016

Total liabilities 8,362,740 7,753,603 Cash and cash equivalents (679,835) (326,845) Net debt 7,682,905 7,426,758



15

Total equity 7,270,576 7,535,788 Cash flow from hedges (7,393) 5,080 Adjusted equity 7,263,183 7,540,868 Debt to adjusted equity 1.06 0.98

6. Revenue

In thousands of CZK 2017 2016 Revenues from sale of heat and related products 5,076,458 5,040,456 Revenues from sale and re-sale of electricity and ancillary services 2,060,993 2,399,984

Other operating revenues 113,131 106,785 Total 7,250,582 7,547,225

The drop in revenues from the sale and re-sale of electricity in 2017 was mainly caused by the drop in electricity prices on the market.

7. Cost of sales

In thousands of CZK 2017 2016 Personnel expenses (908,066) (845,388) Depreciation expense (745,511) (700,271) Costs of goods sold excluding electricity (292,152) (303,374) Cost of purchased electricity (831,313) (822,478) Consumption of fuel (1,945,424) (2,044,662) Consumption of raw materials, energy and services (779,412) (877,919) Change in provisions 4,031 (55,029) Consumption of emission allowances and change in provision for emission allowances

(228,073) (248,745)

Total (5,725,920) (5,897,866)

Release of provisions for and provisioning for employee benefits had the most important effect on the level of provisions.

8. Distribution expenses

In thousands of CZK 2017 2016 Personnel expenses (60,757) (50,463) Depreciation expense (9) (8) Change in provisions (219) (1,832) Other expenses / revenue (63,895) 76,370 Total (124,880) 24,067

Release in 2016 of estimated assets and liabilities related to the Company’s investment activities and sponsorship provided in 2017 had the most important effect on the year-on-year change in other expenses/revenue.

9. Administrative expenses In thousands of CZK

2017 2016 Personnel expenses (304,036) (280,751) Depreciation expense (18,562) (12,298) Change in provisions (5,492) (5,712)



16

Management costs (135,213) (99,751) Cost of raw materials, services and other expenses (146,374) (170,097)

Total (609,677) (568,609)

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

10. Finance income and expenses

In thousands of CZK 2017 2016

Interest income 3,999 4,010 Dividend income 453,157 85,464 Foreign exchange gain 4,346 866 Other finance income 13,227 2,860 Total finance income 474,729 93,200

Interest expense (53,133) (31,329) Foreign exchange loss (7,133) (1,141) Discount of provisions (11,646) (7,446) Other finance expenses (20,325) (20,704) Provisions for financial investments - (612,763) Total finance expenses (92,237) (673,383)

Dividend income in 2017 included mainly dividends from Veolia Energie Praha, a.s., amounting to CZK 357 million (in 2016, it was mainly dividends from Veolia Energie Kolín, a.s. amounting to CZK 26 million).

11. Income tax

Recognised in the income statement

In thousands of CZK Current tax 2017 2016

Current year (131,427) (181,450) Adjustments for prior years (1,180) (3,140) (132,607) (184,590)

Deferred tax Effect of the change in temporary differences and the lower tax rate (23,253) (18,123)

Total income tax expense in income statement (155,860) (202,713)

Reconciliation of effective tax rate In thousands of CZK

2017 2016

Profit before tax 1,172,597 524,634 Income tax calculated using the domestic corporate income tax rate

(222,793) (99,680)

Effect of non-deductible expenses (107,739) (282,280) Effect of tax exempt income 198,607 200,027 Effect of change in the deferred tax rate -- -- Effect of tax credits 498 483 Adjustments for prior years (1,180) (3,140) Total tax payable (132,607) (184,590) Total deferred tax (23,253) (18,123) Total income tax expense in income statement (155,860) (202,713)



17

Tax overpayment of CZK 82 million is reported as the Current tax assets (2016: CZK 83 million) and represents a corporate income tax estimate of CZK 131 million (2016: CZK 181 million), reduced by tax advances in an amount of CZK 213 million (2016: CZK 264 million). Deferred tax is based on all temporary differences between the carrying and tax value of assets and liabilities, and other temporary differences (tax losses carried forward, if any), multiplied by the tax rate expected to be valid for the period in which the tax asset/liability will be utilised. Tax impact on items of other comprehensive income on deferred tax: Employee benefits – actuarial gains / (losses): before taxation CZK 33 million (2016: CZK (12) million); tax CZK (6) million (2016: CZK 2 million); after taxation CZK 27 million (2016: CZK (10) million). Changes in the fair value of hedging instruments: before taxation CZK 15 million (2016: CZK (3.3) million); tax CZK (3) million (2016: CZK 0.6 million); after taxation CZK 12 million (2016: CZK(2.7) million). The Company conducted a legal dispute with the Czech Republic, as did other energy companies that did not agree with the specific gift tax imposed on emission allowances in 2011 and 2012 by the Ministry of Finance. The Company estimated its position at CZK 175 million, which, however, was not recognised as a contingent asset. In December 2015, a decision on this matter was taken and the Company received from the Appeal Financial Directorate a decision that a part of the gift tax, amounting to CZK 22 million, would be refunded. The Company disagrees with the decision, however, and has therefore initiated court proceedings on this matter. No decision was delivered on this matter in 2017.

12. Property, plant and equipment

In thousands of CZK Acquisition cost Land Buildings

and constructi

ons

Plant and equipment

Under construction

and advances

Total

Balance at 1 January 2016

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

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

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


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

Additions/transfers 1,459 226,807 337,709 326,386 892,361 Disposals -- (47,093) (105,588) -- (152,681) Balance at 31 December 2017

447,918 9,621,924 13,810,639 632,024 24,512,505

Depreciation and impairment losses

Land Buildings and

constructions

Plant and equipment Under

construction and advances

Total

Balance at 1 January 2016 -- 5,771,772 10,470,225 -- 16,241,997 Current year depreciation -- 245,155 418,583 -- 663,738 Impairment losses -- -- -- -- -- Disposals -- (11,222) (72,250) -- (83,472) Balance at 31 December 2016

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

Balance at 1 January 2017 -- 6,005,705 10,816,558 -- 16,822,263 Current year depreciation -- 262,835 444,617 -- 707,452



18

Impairment losses -- -- -- -- -- Disposals -- (51,088) (104,891) -- (155,979) Balance at 31 December 2017

-- 6,217,452 11,156,284 -- 17,373,736

Carrying amount Land Buildings and

constructions Plant and

equipment Under


Total

At 1 January 2016 434,238 3,517,113 2,566,392 621,081 7,138,824 At 31 December 2016 446,459 3,436,505 2,761,960 305,638 6,950,562 At 31 December 2017 447,918 3,404,472 2,654,355 632,024 7,138,769

Leased assets The Company leases production equipment under a number of finance lease agreements. As at 31 December 2017, the net carrying amount of leased machinery was CZK 20.7 million (2016: CZK 22.4 million). On 16 June 2011, the Company signed a contract on the lease of part of the business with its subsidiary, Veolia Průmyslové služby ČR, a.s. The contract became effective on 1 September 2011 and was concluded for a definite period until 31 December 2029. Based on this contract, Veolia Průmyslové služby ČR, a.s. leases to its parent company, Veolia Energie ČR, a.s. a set of movables, rights and other property that within Veolia Průmyslové služby ČR, a.s. had its own separate structure and was identified as “TEPLO OBYVATELSTVO” (Heat for households). As at 31 December 2017, the net carrying amount of leased assets was CZK 156 million (2016: CZK 159 million). The Company capitalised the assets at the lower of the present value and net present value of the minimum lease payments as at the start of the leasing. The lease payments are due over the following periods:

2017 Paid at

31 December 2017

Future lease payments

Due within 1 year

Due in 1 to 5 years

Due in subsequent

years Heat for households 134,752 297,753 22,200 93,332 182,221

Total 134,752 297,753 22,200 93,332 182,221 2016 Paid at

31 December 2016

Future lease payments

Due within 1 year

Due in 1 to 5 years

Due in subsequent

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

Total 112,987 323,643 22,046 92,682 208,915 Based on the contractual conditions, the Company is obliged to purchase the performed improvements after the leasing period. Assets pledged as security The Company had no pledged assets as at 31 December 2017 and 31 December 2016. Grants In 2017, the Company received grants of CZK 0 million (2016: CZK 34 million) under the Operational Programme Environment.

13. Intangible assets

In thousands of CZK



19

Acquisition cost Software Other* Total Balance at 1 January 2016 409,309 418,374 827,683 Additions/transfers 4,205 21,579 25,784 Disposals (3,562) -- (3,562) Balance at 31 December 2016 409,952 439,953 849,905 Balance at 1 January 2017 409,952 439,953 849,905 Additions/transfers 47,380 (14,660) 32,720 Disposals (11,542) -- (11,542) Balance at 31 December 2017 445,790 425,293 871,083 Amortisation expense Software Other* Total Balance at 1 January 2016 386,784 209,982 596,766 Current year amortisation 10,143 38,696 48,839 Disposals (3,562) -- (3,562) Balance at 31 December 2016 393,365 248,678 642,043 Balance at 1 January 2017 393,365 248,678 642,043 Current year amortisation 18,047 38,583 56,630 Disposals (11,542) -- (11,542) Balance at 31 December 2017 399,870 287,261 687,131 Carrying amount Software Other* Total At 1 January 2016 22,525 208,392 230,917 At 31 December 2016 16,587 191,275 207,862 At 31 December 2017 45,920 138,032 183,952

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

14. Financial interests

The Company has investments in the following companies: Country Participating

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

In thousands of CZK 2017 2016 AmpluServis, a.s. 18,988 18,988 OLTERM & TD Olomouc, a.s. 64,040 64,040 Veolia Energie Kolín, a.s. 981,040 981,040 Veolie Energie Mariánské Lázně, s.r.o. 87,962 87,962 Veolia Průmyslové služby ČR, a.s. 3,203,439 3,203,439 Institut environmentálních služeb, a.s. 3,069 3,069 Veolia Energie Praha, a.s. 2,225,108 2,225,108 Provisions for financial investments (842,705) (842,705) Total in subsidiaries 5,740,941 5,740,941 Other financial investments held for trading 70,992 70,992 Total long-term financial investments 5,811,933 5,811,933

As at 1 June 2016, the Company acquired a 100% stake in Pražská teplárenská LPZ, a.s. On 3 June 2016, the company was renamed Veolia Energie Praha, a.s.



20

On 28 December 2017, a Settlement Agreement between OKD and VPS was signed. This Agreement addresses the two parties’ claims and their settlement between the parties (with the exception of VPS’s outstanding receivables registered in insolvency proceedings).

15. Other financial investments including derivatives

In thousands of CZK Long-term financial investments 2017 2016 Other financial investments 13,246 13,039 Short-term financial investments including derivatives

2017 2016

Financial derivatives 10,165 -- Other financial investments 2,013 2,471

16. Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

In thousands of CZK Receivables Liabilities Difference 2017 2016 2017 2016 2017 2016

Property, plant and equipment -- -- (624,573) (607,447) (624,573) (607,447)

Inventories 17,156 17,455 -- -- 17,156 17,455 Emission allowances including provision 43,899 47,201 (44,889) (47,201) (990) --

Provisions 119,272 120,946 -- -- 119,272 120,946 Other items 10,347 10,988 (14,777) (4,129) (4,430) 6,859 Deferred tax assets / (liabilities) 190,674 196,590 (684,239) (658,777) (493,565) (462,187)

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

Balance at

1 January 2017 Recognised in

income statement

Recognised in equity

Balance at 31 December

2017 Property, plant and equipment (607,447) (17,126) -- (624,573)

Inventories 17,455 (299) -- 17,156 Emission allowances including provision -- (990) -- (990)

Provisions 120,946 3,525 (5,199) 119,272 Other items 6,859 (8,363) (2,926) (4,430) Total (462,187) (23,253) (8,125) (493,565)

In thousands of CZK


Recognised in income

statement



2016 Property, plant and equipment (586,568) (20,879) -- (607,447)

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

Provisions 115,667 1,978 3,301 120,946



21

Other items 944 5,270 645 6,859 Total (448,010) (18,123) 3,946 (462,187)

17. Inventories

In thousands of CZK 2017 2016 Material and fuel 408,066 486,074 Work in progress 408 426 Emission allowances 5,211 0 Total 413,685 486,500

In 2017, materials and fuels recorded in cost of sales amounted to CZK 2,156 million (2016: CZK 2,254 million). As at 31 December 2017, the Company posted a provision reducing the value of inventories by CZK 90 million (2016: CZK 92 million) and a provision for the consumption of emission allowances reducing the value of emission allowances by CZK 231 million (2016: CZK 248 million). Emission allowances In 2005 the emission trading scheme was introduced in the European Union. The following table summarises movements in the quantity (in thousands of units). Emission allowances are represented by EUA and CER. As described in Note 3 e), emission allowances allocated in accordance with the National Allocation Plan and purchased emission allowances are recognised in assets as inventory.

The Company has bought forwards for CO2 emission allowances for consumption in the following years; the change in their fair value, amounting to CZK 194 million (2016: CZK 129 million), was not posted in the statement of financial position in accordance with the exception under IAS 39 (see Note 3 b ii).

In thousands of tonnes Quantity Emission allowances available at 1 January 2016 282 Correction of emission allowance consumption in 2015 (2) Emission allowances allocated in 2016 1,095 Emission allowances sold in 2016 -- Emission allowances purchased in 2016 931 Emission allowances utilised in 2016 against CO2 emissions (2,473) Provision for purchasing missing emission allowances 167 Emission allowances available at 31 December 2016 0 Emission allowances available at 1 January 2017 0 Correction of emission allowance consumption in 2016 16 Emission allowances allocated in 2017 859 Emission allowances sold in 2017 -- Emission allowances purchased in 2017 1,611 Emission allowances utilised in 2017 against CO2 emissions (2,268) Release of the provision for purchasing missing emission allowances (167)

Emission allowances available at 31 December 2017 51 Actual emissions in 2017 were higher than the emission allowances allocated under the National Allocation Plan as at the date of the statement of financial position. The Company has therefore bought allowances for use in 2017 and the following years.

18. Current tax assets

In thousands of CZK 2017 2016 Income tax 81,929 82,610



22

Total 81,929 82,610

19. Trade and other receivables

In thousands of CZK 2017 2016 Trade receivables due from related parties (Note 30) 159,878 299,757

Trade receivables due from third parties 982,081 949,286 Other receivables 155,830 158,526 Total 1,297,789 1,407,569

At 31 December 2017 trade receivables are shown net of provisions for doubtful debts of CZK 153 million (2016: CZK 159 million) arising from the likely impairment of receivables from the individual debtors.

20. Cash and cash equivalents


Current bank accounts 7,921 8,768 Bank deposits -- -- Cash in hand 867 1,521 Total cash 8,788 10,289 Cash pooling with subsidiaries – receivable 671,047 316,556

Total cash and cash equivalents 679,835 326,845 Cash pooling payables (946,124) (3,519,709) Total cash in compliance with statement of cash flows

(266,289) (3,192,864)

Since 2007, the Company has been involved in a cash pool between Veolia and Société Générale through a contract with Komerční banka, a.s. The Company is also involved in a cash pool arrangement with its subsidiaries. As at 31 December 2017, the net payable from the cash pool with subsidiaries is CZK 742 million (2016: a payable of CZK 654 million).

21. Capital and reserves

Reconciliation of movement in capital and reserves

As at 31 December 2017, the authorised registered capital comprised 78,661,161 ordinary registered shares with a par value of CZK 40 (2016: 78,661,161 ordinary registered shares with a par value of CZK 40). The holders of ordinary shares are entitled to dividends if these are approved by the General Meeting. Each ordinary share carries one voting right, to be exercised at General Meetings. All shares carry the same rights in respect of the surplus assets upon the Company’s liquidation.

Other capital contributions

Other capital contributions primarily include the recorded effect of mergers in the 2001–2007 period with companies fully controlled by the same entity, TEPLÁRNY Karviná, a.s., EKOTERM ČESKÁ REPUBLIKA a.s., Teplárna Ústí nad Labem, a.s., PPC Trmice a.s. and Dalkia Ostrava, a.s. In connection with the adoption of the new Act No 90/2012 on Business Corporations, which has fully superseded the Commercial Code with effect as of 1 January 2014, the Company’s General Meeting decided to dissolve statutory reserves.



23

Dividend per share In the profit distribution decision, the Company announced dividends of CZK 1,322 million (2016: CZK 1,321 million). Dividend per share for 2017 amounts to CZK 16.80 (2016: CZK 16.79).

22. Loans and borrowings

This note contains an overview of contractual conditions applicable to the Company’s interest-bearing loans and borrowings. Note 27 contains more detailed information about the credit risk and the interest rate risk to which the Company is exposed. In 2017, the Company entered into an agreement on a long-term loan from Veolia Environnement Finance SA, totalling CZK 7,450 million. As at 31 December 2017, CZK 4,500 million was drawn on the total credit facility.

Current liabilities

In thousands of CZK 2017 2016 Unsecured bond issues -- -- Interest payable on loan and cash pool 12,360 6,232 Unpaid dividends 20,357 30,221 Cash pooling with parent company and subsidiaries 933,764 3,519,709 Short-term loan from Veolia Energie International - 1,370,000 Total short-term loans and borrowings 966,481 4,926,162

As at 31 December 2017, the Company had a net payable resulting from the cash pool with Veolia Energie International SA and with subsidiaries of CZK 263 million (2016: CZK 3,203 million). In 2017, the Company paid up a short-term loan from Veolia Energie International SA, amounting to CZK 1,370 million. As at 31 December 2017, the balance is CZK 0 million (2016: CZK 1,370 million).

Terms and debt payment schedule

Secured bank loans Veolia Energie ČR, a.s. had no secured bank loans as at 31 December 2017 and 31 December 2016. The Company may utilise bank credit lines of CZK 350 million and EUR 2.5 million. None of these lines has been drawn down as at 31 December 2017.

23. Employee benefits

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

Movements in the liability for defined benefit obligations In thousands of CZK 2017 2016

Liability for defined benefit obligations as at 1 January 609,164 528,918 Adjustment of opening balances under amended IAS 19 -- -- Benefits paid (28,003) (17,499) Current service costs 32,147 34,976 Amortisation of past service costs -- -- Interest 11,646 7,446 Actuarial (gains) losses recognised in equity (32,284) 13,699 Actuarial (gains) losses recognised in profit and loss 900 2,419 Decrease in liability as a result of organisational changes -- -- Other (changes in the Collective Agreement) - 39,205 Liability for defined benefit obligations as at 31 December 593,570 609,164 Non-current 532,974 581,369



24

Current 60,596 27,795

Actuarial assumptions 2017 2016 Discount rate at 31 December 2.10% 1.30% Salary increase rate 2% 2% Employee turnover assumption Average 1.03% Average 0.87%

Social security and health insurance contributions recognised in the income statement in 2017 amount to CZK 300 million (2016: CZK 276 million). Defined benefit liabilities are calculated on the basis of actuarial valuation under IAS 19. This standard requires the use of the “projected unit credit method” and unbiased and mutually compatible actuarial assumptions. The projected unit credit method was used to determine the present value of liability and current service costs. Demographic assumptions: assumptions about mortality were taken from the 2016 mortality charts for males and females issued by the Czech Statistical Office. The disability assumption was taken from the charts of disabilities monitored by the Company. The assumed number of employees leaving the Company before reaching retirement age is based on expected departures of employees. The same assumptions were used to compute the provision for 2016. Specific assumptions: the Company assumes that there is an 80% probability that agreements executed for a fixed term will be converted into agreements for an indefinite term. The amount of defined benefit liabilities as at 31 December 2017 takes into account social security contributions and health insurance. Description of risks: the Company does not have a separate plan for assets to cover employee benefit liabilities. Taking into account the annual payments from the plan and the nature of the Company’s business this does not constitute a material risk for the Company. Sensitivity analysis The Company carried out a sensitivity analysis of the size of the provision for changes in the actuarial assumptions that influence the defined benefit liabilities. In the event of a change in one of the relevant actuarial assumptions, with other assumptions remaining constant, the defined benefit liabilities would change to the following amounts – based on a sensitivity analysis for assumptions with the most significant impact: In thousands of CZK Discount rate

increase + 0.25% Inflation rate increase

+ 0.25% Defined benefit liabilities as at 31 December 2017 579,979 606,661

Current service costs next year 34,779 36,356

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

24. Provisions

In thousands of CZK Site restoration

Other provisions

Total

Balance at 1 January 2017 46,101 33,174 79,275 Provisions created during the year 21 17,759 17,780 Provisions used during the year -- (10,382) (10,382) Provisions unused during the year -- (2,677) (2,677) Unwinding of discount -- -- -- Balance at 31 December 2017 46,122 37,874 83,996 Non-current 46,122 13,564 59,686



25

Current -- 24,310 24,310

Site restoration The provision for site restoration was reviewed and adjusted so as to represent the best estimate in the light of the change in the use of land and of restoration techniques used. Other provisions Other provisions include provisions established in connection with the risks related to the Company’s principal activities. In December 2015, the Energy Regulatory Office completed an inspection of heat prices for 2010. The Company did not agree with the outcome of the inspection, and has lodged an appeal. The Energy Regulatory Office did not complete the procedure within five years, and the case was therefore time-barred in 2016 and the provision was released. In 2016, the Energy Regulatory Office (ERO) started price-related checks in the Company and subsequent administrative proceedings related to the validation of one item in the calculation of thermal energy prices in several price locations in 2014 and 2015. These investigations are still under way and according to the ERO’s preliminary opinion, the quantification of the Company’s alleged mistake may climb to a significant amount of up to CZK 580 million. According to the Company’s own opinion and that of its external legal advisers, these allegations of mistakes are not supported by price regulations, for (1) as part of the above-mentioned proceedings, the ERO is reviewing a single item in the calculation of thermal energy prices rather than reviewing thermal energy prices (as required of the ERO under Act No 526/1990 on Prices, as amended, and the ERO’s Price Decisions), (2) the Company’s alleged mistake is not expressly regarded as a breach of pricing regulations in such pricing regulations, and (3) the price-related checks and administrative proceedings are burdened by additional material defects in the application of both substantive and procedural law. The final conclusions will only be clear once the administrative proceedings, which are still under way and the conclusions of which cannot be prejudged at this moment, have been concluded with finality.

25. Trade and other payables

In thousands of CZK 2017 2016 Trade payables to related parties (Note 30) 367,626 358,026

Trade payables to third parties 1,214,700 1,117,174

Other payables 141,765 195,344 Total 1,724,091 1,670,544

Trade payables to related parties include a leasing liability (see Note 12) of CZK 153 million (2016: CZK 155 million). In 2016, other payables included a value added tax liability of CZK 55 million.

26. Derivatives

In thousands of CZK 2017 2016 Short-term derivatives - 3,401 Long-term derivatives 1,037 2,870 Total 1,037 6,271

Derivative financial instruments represent the fair value of forward contracts to ensure exchange rate risk in the amount of CZK (1) million (2016: CZK (6) million) and are shown in short-term and long-term liabilities.

27. Financial instruments



26

Credit risk Maximum exposure to credit risk as at the date of the statement of financial position was: In thousands of CZK Note Carrying amount 2017 Carrying amount 2016

Trade and other receivables 19 1,297,789 1,407,569 Cash and cash equivalents 20 679,835 326,845 Total 1,977,624 1,734,414

Impairment loss Fair value of trade and other receivables as at the date of the statement of financial position was:

In thousands of CZK Nominal

value 2017 Impairment

2017 Nominal value

2016 Impairment

2016 Not yet due 1,253,083 -- 1,381,226 -- 0–90 days overdue 31,584 -- 28,960 4,840 90–180 days overdue 116 -- 910 672 180–360 days overdue 14,596 1,590 3,106 2,249 More than 1 year overdue 150,968 150,968 152,436 151,308 Total 1,450,347 152,558 1,566,638 159,069

Movement in impairment provisions in respect of trade receivables in the course of the year was: In thousands of CZK 2017 2016

Balance at 1 January (159,069) (134,512) Use, release and establishment 6,511 (24,557)

Balance at 31 December (152,558) (159,069) Liquidity risk The following are payments of liabilities by the contractual maturities of financial liabilities, including estimated interest payments: At 31 December 2017 In thousands of CZK Book

value Contractu

al cash flow

Within 6 months

6–12 months

1–2 years

2–5 years

More than 5 years

Cash pooling with parent company and subsidiaries

933,764 933,764 933,764 -- -- -- --

Trade, tax and other payables 1,724,091 1,724,091 1,724,091 -- -- -- --

Total 2,657,855 2,657,855 657,855 -- -- -- --

At 31 December 2016

In thousands of CZK Book value

Contractual cash

flow

Within 6 months

6–12 months

1–2 years

2–5 years

More than 5 years

Cash pooling with parent company and subsidiaries

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

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

Total 5,190,253 5,190,253 5,190,253 -- -- -- -- Currency risk



27

To hedge purchases and sales of electricity in foreign currencies (EUR), forward contracts were concluded with Veolia Environnement Finance – VE SA (see Note 5). Interest rate risk As at 31 December 2017, the Company has the following interest-bearing financial instruments:

Variable-rate financial instruments In thousands of CZK Balance at 31 December 2017 2016

Long-term loan (4,500,000) - Short-term loan Financial liabilities (Note 22)

- (966,481)

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

Total (5,466,481) (6,296,162)

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

Sensitivity analysis of variable-rate financial instruments As at 31 December 2017 and 31 December 2016 the Company had no variable-rate financial instruments. Effective interest rate and re-measurement analysis The table below shows the effective interest rates of interest-bearing financial assets and liabilities at the date of the statement of financial position and the periods in which they are re-measured. In thousands of CZK

Average interest rate in 2017 (%)

Liability at 31 December 2017

Next re-pricing date

Due date

Long-term loan from Veolia Environnement Finance

3.14

(4,500,000)

3/2018

10/2027

Total (4,500,000)

Fair values

In thousands of CZK Note Carrying amount

Fair value Carrying amount

Fair value

2017 2017 2016 2016 Trade and other receivables 19 1,297,789 1,297,789 1,407,569 1,407,569 Tax assets 18 81,929 81,929 82,610 82,610 Cash and cash equivalents 20 679,835 679,835 326,845 326,845 Short-term loan 22 - - (1,370,000) (1,370,000) Long-term loan 22 (4,500,000) (4,500,000) - - Unpaid interest on cash pool 22 (12,360) (12,360) (6,232) (6,232) Unpaid dividends 22 (20,357) (20,357) (30,221) (30,221) Cash pooling with Veolia Energie International SA 22 - - (2,548,631) (2,548,631)

Cash pooling with subsidiaries 20, 22 (933,764) (933,764) (971,078) (971,078) Trade, tax and other payables 11, 25 (1,724,091) (1,724,091) (1,670,544) (1,670,544) Total (5,131,019) (5,131,019) (4,779,682) (4,779,682)

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



28

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

Interest rates used to calculate fair values

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

In thousands of CZK 2017 2016 Derivatives 1.50% 0.53%

28. Operating leases

Major operating lease agreements include an agreement on operating equipment with the municipality of Krnov until 2026, a sublease agreement with Teplo ‒ byty, s.r.o. until 2021, a lease agreement with Fakultní nemocnice Ostrava until 2022, a lease agreement with RPG Byty for an indefinite period of time and a lease agreement with Sneo, a.s. until 2021. The Company has also operating lease agreements on some non-residential space, sections of ducts, automobiles and IT equipment. The rent for the lease terms that cannot be terminated totals CZK 235 million (2016: CZK 340 million). The lease payments under the most important operating lease agreements are due over the following periods: At 31 December 2017 in thousands of CZK Total Within 1 year 1–5 years More than

5 years Lease – Fakultní nemocnice Ostrava 12,122 2,424 9,698 - Lease – Krnov 22,595 2,511 10,042 10,042 Lease – RPG Byty 32,080 6,416 25,664 * Sublease – Sneo a.s., Praha 6 6,643 1,661 4,982 -- Sublease – Teplo – byty, s.r.o. Roudnice 6,000 1,500 4,500 -- Total 79,440 14,512 54,886 10,042

* The lease agreement has been concluded for an indefinite period of time with a six-month notice period. At 31 December 2016 in thousands of CZK

Total

Within 1 year

1–5 years

More than 5 years

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

18,246 25,105

3,041 2,511

12,164 10,042

3,041 12,552

Lease – RPG Byty 32,080 6,416 25,664 * Sublease – Sneo a.s., Praha 6 8,305 1,661 6,644 -- Sublease – Teplo – byty, s.r.o. Roudnice 7,500 1,500 6,000 -- Total 103,335 27,228 60,514 15,593 * The lease agreement has been concluded for an indefinite period of time with a six-month notice period.

29. Related parties

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

Transactions with management personnel

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



29

In thousands of CZK 2017 2016 Employee compensation 63,633 59,372 Long-term benefits 4,463 4,956 Total employee compensation 68,096 64,328

30. Companies in the Group

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

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

Purchase transactions:

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

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

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


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

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


Purchases Sales Purchases Sales Veolia Environnement Finance (Veetra)** 252,453 -- 204,628 -- Veolia Energie International SA -- -- 98 -- Veolia Environnement - VE SA 130,874 1,095 90,787 2,368 Veolia Energie Mariánské Lázně, s.r.o. 2,495 9,190 2,547 10,936 OLTERM & TD Olomouc, a.s. 500 240,637 489 235,804 AmpluServis, a.s.* 262,099 6,752 248,420 6,657 Veolia Energie Kolín, a.s. 30,745 22,576 22,214 36,600



30

Receivables and payables also include advance payments provided and accepted and estimated assets and, as applicable, estimated liabilities. The Company participates in cash pool arrangements with Veolia Energie International SA and also with its subsidiaries (see Notes 20 and 22).

Veolia Průmyslové služby ČR, a.s.** 2,866, 46,504 3,528 48,401 Veolia Komodity ČR, s.r.o. 362,254 569,372 276,384 779,357 Institut environmentálních služeb, a.s. 10,162 -- 8,546 -- Veolia Energia Slovensko, a. s. -- 130 221 -- Veolia Energie Services 8,064 -- -- -- VWS Memsep 400 -- -- -- Solution and Services, a.s.* 56,074 16 42,594 -- Veolia Vedlejší Produkty -- 130 -- -- Česká voda 10 394 -- -- Veolia Centrum Uslug Wspólnych Sp z o -- -- 6,791 -- MORAVSKÁ VODÁRENSKÁ, a.s. 2,078 -- 2,309 -- Pražské vodovody a kanalizace, a.s. Veolia Voda Česká republika Veolia Energie Praha, a.s

2,252 1,158

15,196

1,921 --

47,840

2,951 1,936 5,896

2,216 --

7,108 Total 1,139,680 946,557 920,339 1,129,447 *Total purchases also include those of fixed assets **Total purchases do not include financial costs

2017

2016

Receivables Payables Receivables Payables Veolia Environnement Finance (Veetra) -- 598 -- 158 Veolia Energie International SA 17 -- 231 -- Veolia Environnement - VE SA 14,028 18,200 17 5,637 Veolia Energie Mariánské Lázně, s.r.o. 1,596 392 2,909 328 OLTERM & TD Olomouc, a.s. 5,000 3,500 45,795 38,985 AmpluServis, a.s. 33,691 76,701 42,633 20,248 Veolia Energie Kolín, a.s. 3,759 4,088 6,543 4,433 SPID2 -- -- 254 -- Veolia Průmyslové služby ČR, a.s. 4,291 155,736 7,015 160,831 Veolia Komodity ČR, s.r.o. 81,925 92,437 186,488 111,100 Institut environmentálních služeb, a.s. -- 252 -- 293 Veolia Energia Slovensko, a. s. 102 -- 81 -- Veolia Energie Services -- 1,953 -- -- VWS Memsep -- 81 -- -- Solution and Services, a.s. 5 11,623 204 11,741 Veolia Vedlejší Produkty 12 -- -- -- Česká voda 18 -- -- -- Veolia Centrum Uslug Wspólnych Sp z o -- -- -- 1,697 MORAVSKÁ VODÁRENSKÁ, a.s. Pražské vodovody a kanalizace Veolia Voda Česká republika Veolia Energie Praha

-- 194

-- 15,240

174 16 78

2,397

-- 267

-- 7,320

256 --

327 1,992

Total 159,878 367,626 299,757 358,026



31

The Company has in place an agreement on the lease of an enterprise with its subsidiary Veolia Průmyslové služby ČR, a.s. (see Note 12).

31. Capital commitments

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

32. Fees for statutory auditors

This information is disclosed in notes to the consolidated financial statements prepared for the broadest consolidation Group in which the Company is included.

33. Subsequent events

On 24 August 2017, creditors approved the OKD Reorganisation Plan. The Ostrava Regional Court then approved the plan on 11 October 2017. Citibank and NWR Holding B.V. appealed against this approval. On 6 February 2018, the Olomouc High Court dismissed the appeal and upheld the approval of the reorganisation plan, which became final on that day. No other events occurred between the date of the statement of financial position and the date of preparation of the financial statements that would have any material impact on the 2017 financial statements, or that should be disclosed in the financial statements.


3.3. CONSOLIDATED FINANCIAL

STATEMENTS


1

Consolidated income statement For the year ended 31 December In thousands of CZK Note 2017 2016 Revenue 6 11,547,401 11,250,853 Cost of sales 7 (9,133,030) (10,416,694) Gross profit 2,414,371 834,159 Distribution expenses 8 (130,747) 18,910 Administrative expenses 9 (789,557) (732,204) Results from operating activities 1,494,067 120,865 Finance income 10 39,424 20,856 Finance costs 10 (92,650) (47,187) Net finance income and costs (53,226) (26,331) Profit before income tax 1,440,841 94,534 Income tax expense 11 (295,207) (165,296) Profit / (loss) for the period 1,145,634 (70,762) Attributable to: Interest of parent company shareholders 1,138,671 (78,997) Non-controlling interests 6,963 8,235 Profit / (loss) for the period 1,145,634 (70,762)

The notes are an integral part of the consolidated financial statements.



2

Consolidated statement of comprehensive income For the year ended 31 December In thousands of CZK 2017 2016 Profit / (loss) for the period 1,145,634 (70,762) Employee benefits – actuarial gains (losses) (not reclassified to profit or loss) *

31,259 (12,352)

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

913 (17,103)

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

2,894 (10,196)

Other comprehensive income after tax 35,066 (39,651) Total comprehensive income for the period 1,180,700 (110,413) Attributable to: Interest of parent company shareholders 1,173,538 (118,819) Non-controlling interests 7,162 8,406 Total comprehensive income for the period 1,180,700 (110,413) *Taxation is described in Note 11.




3

Consolidated statement of financial position

As at 31 December In thousands of CZK Note 2017 2016 Assets Property, plant and equipment 12 9,259,184 9,187,908 Intangible assets 13 1,753,390 1,793,097 Financial interests 14 74,061 74,061 Other financial investments 14 203,240 261,550 Derivatives 14 - - Deferred tax assets 15 18,219 11,235 Total non-current assets 11,308,094 11,327,851 Inventories 16 443,128 505,584 Other financial investments 14 47,674 45,105 Derivatives 14 10,165 851 Current tax assets 17 102,059 161,307 Trade and other receivables 18 2,515,505 2,207,070 Cash and cash equivalents 19 613,115 146,719 Total current assets 3,731,646 3,066,636 Total assets 15,039,740 14,394,487 Equity Registered capital 3,146,447 3,146,447 Reserves and other capital contributions 1,690,322 1,689,408 Retained earnings 1,105,373 1,254,257 Equity excl. minority interests 5,942,142 6,090,112 Non-controlling interests 67,909 68,982 Total equity 6,010,051 6,159,094 Liabilities Loans and borrowings 21 4,625,000 -- Employee benefits 22 584,960 638,140 Provisions 23 71,274 83,035 Derivatives 25 2,775 3,781 Deferred tax liabilities 15 708,947 665,746 Other payables 24 166,645 163,755 Total non-current liabilities 6,159,601 1,554,457 Loans and borrowings 21 34,361 3,956,506 Trade and other payables 24 2,707,745 2,620,384 Current tax payable 11 11,389 22,983 Employee benefits 22 65,226 32,562 Provisions 23 29,110 35,437 Derivatives 25 22,257 13,064 Total current liabilities 2,870,088 6,680,936 Total equities and liabilities 15,039,740 14,394,487


On behalf of the Board of Directors of the Company:

Josef Novák

Reda Rahma Date: 25 April 2018



4

Consolidated statement of changes in equity

Attributable to majority shareholder In thousands of CZK

Registered capital

Statutory reserves

Other capital

contributions

Cash flow hedges

Retained earnings

Total Non-controlling

interests

Total

Balance at 1 January 2016 3,146,447 21,416 1,686,383 4,147 2,671,259 7,529,652 68,016 7,597,668

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

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

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

Exchange differences on translation of overseas entities

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

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

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

Transactions with owners, recorded directly in equity

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

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

Profit / (loss) for the period -- -- -- -- 1,138,671 1,138,671 6,963 1,145,634

Other comprehensive income Employee benefits – actuarial gains (losses) -- -- -- -- 31,060 31,060 199 31,259

Changes in fair value of cash flow hedge -- -- -- 913 -- 913 -- 913

Exchange differences on translation of overseas entities

-- -- 1 -- 2,893 2,894 -- 2,894

Other comprehensive income -- -- 1 913 33,953 34,867 199 35,066

Total comprehensive income for the period -- -- 1 913 1,172,624 1,173,538 7,162 1,180,700

Transactions with owners, recorded directly in equity

Dividends paid to shareholders -- -- -- -- (1,321,508) (1,321,508) (8,235) (1,329,743)

Balance at 31 December 2017 3,146,447 21,416 1,680,949 (12,043) 1,105,373 5,942,142 67,909 6,010,051




5

Consolidated statement of cash flows For the year ended 31 December In thousands of CZK Note 2017 2016

Cash flow from operating activities

Profit before income tax 11 1,440,841 94,534 Depreciation and amortisation of non-current assets 12,13,14 1,067,205 975,121 Change in provisions (34,504) (1,093,240) Gain (loss) on sale of property, plant and equipment (536) 1,481 Proceeds from dividends and profit shares 10 (13,134) (14,281) Net interest income and expense 10 51,318 30,444 Non-realized FX differences (1,547) (121) Cash flow from operating activities 2,509,643 2,319,740 Change in receivables (306,393) (45,595) Change in current liabilities 38,117 (153,826) Change in inventories 62,455 48,783 Income tax paid and tax assessments for previous periods (251,459) (334,263) Net cash flow from operating activities 2,052,363 1,834,839

Cash flows from investing activities

Acquisition of property, plant and equipment (1,018,938) (617,346) Proceeds from the sale of property, plant and equipment 87,740 72,048 Change in receivables and other financial assets 11,370 215 Acquisition of a subsidiary - (1,885,829) Dividends received 10 13,134 14,281 Net cash flow from (used in) investing activities (906,694) (2,416,631) Free operating cash and cash equivalents 1,145,669 (581,792)

Cash flow from financing activities

Unpaid dividends (9,863) 1,434 Repayments of loans, borrowings and finance leases (1,370,909) (909) Loans and borrowings received 4,625,000 1,370,000 Interest received 10 7,443 1,027 Interest paid 10 (64,802) (36,432) Unpaid interest on loans 21 11,876 6,045 Foreign exchange translation difference 356 (1,434) Dividends paid (1,329,743) (1,328,161) Net cash flow from (used in) financing activities 1,869,358 11,570 Net increase (decrease) in cash and cash equivalents 3,015,027 (570,222) Cash and cash equivalents at 1 January (2,401,912) (1,831,690) Cash and cash equivalents at 31 December 19 613,115 (2,401,912)



Veolia Energie ČR, a.s. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT 31 DECEMBER 2017

6

1. General information

Veolia Energie ČR, a.s. (“the Company”) is registered in the Czech Republic. The original name of the company, i.e. Dalkia Česká republika, a.s., was changed as of 1 January 2015 due to Veolia Environnement – VE SA acquiring a 100% stake in Dalkia International. The registered office of the Company is at 28. října 3337/7, Moravská Ostrava, 702 00 Ostrava, Company No. 45193410. The consolidated financial statements for the year ended 31 December 2017 include the Company and its subsidiaries (together referred to as “the Group”). There was no change in the shareholding structure in 2017. Veolia Energie International SA holds 73.056%, ČEZ, a.s. holds 15%, DCR INVESTMENT a.s. holds 10%, and minority shareholders hold the balance. The Company is controlled by the multinational company Veolia Energie International SA and its ultimate parent company is Veolia Environnement, VE SA. All the companies in the Group have their registered offices in the Czech Republic except Veolia Powerline Kaczyce Sp. z o.o. The principal business activity is the production and distribution of heat and the generation of electricity. The subsidiaries within the Group are as follows:

OLTERM & TD Olomouc, a.s., Olomouc, Janského 469/8, postcode: 779 00. The principal business activity is the distribution of thermal energy and hot water. AmpluServis, a.s., Ostrava, ul. Elektrárenská 5558, postcode: 709 74. The principal business activities are repairs, production and maintenance of power engineering equipment. Veolia Energie Kolín, a.s. (formerly Dalkia Kolín, a.s.), Kolín, Tovární 21, postcode: 280 63. The principal business activity is the production and distribution of heat and the generation of electricity. Veolia Energie Mariánské Lázně, s.r.o. (formerly Dalkia Mariánské Lázně, s.r.o.), Mariánské Lázně, Nádražní náměstí 294, postcode: 353 01. The principal business activity is the production and distribution of heat. Nadační fond Veolia Energie pro životní prostředí ČR (formerly Nadační fond Dalkia pro životní prostředí), Ostrava, 28. října 3337/7, postcode: 702 00. It has been established to support projects for environmental improvement. Veolia Průmyslové služby ČR, a.s. (formerly Dalkia Industry CZ, a.s.), Ostrava, Zelená 2061/88a, postcode: 709 74. The principal business activity is the production and distribution of heat and the generation and distribution of electricity. Veolia Komodity ČR, s.r.o. (formerly Dalkia Commodities CZ, s.r.o.), Ostrava, 28. října 3337/7, postcode: 702 00. The principal business activity is trading in electric power and gas. Veolia Powerline Kaczyce Sp. z o.o. (formerly Dalkia Powerline Sp. z o.o.), 43-417 Kaczyce, ul. Morcinka 17, Poland. The principal business activity is trading in electric power. Veolia Energie Praha, a.s., Na Florenci 2116/15, Nové Město, 110 00 Praha 1. The principal business activity is the production and distribution of heat and the generation of electricity. Veolia Environnement – VE SA, having its registered office situated at 21 rue La Boétie, 75008 Paris, France, prepares the consolidated financial statements for the broadest group of accounting entities, which includes the Company as a consolidated accounting entity. These consolidated financial statements can be obtained at the consolidating company’s registered office.



7

Veolia Energie ČR, a.s., having its registered office situated at 28. října 3337/7, Moravská Ostrava, 702 00 Ostrava, Czech Republic, prepares the consolidated financial statements for the smallest group of accounting entities, which includes the Company as a consolidated accounting entity. These consolidated financial statements can be obtained at the consolidating company’s registered office.

2. Basis of preparation

a) Statement of compliance The consolidated financial statements have been prepared in accordance with the International Financial Reporting Standards (“IFRS”) as adopted by the EU and the Act on Accounting and relevant legislation of the Czech Republic in force as at 31 December 2017. In accordance with Section 19a(1) of Act on Accounting, No 563/1991, the parent company, Veolia Energie ČR, a.s., applies IFRS as adopted by the EU in the preparation of its financial statements and consolidated financial statements. The consolidated financial statements were approved for release by the Company’s Board of Directors on 25 April 2018.

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

c) Use of estimates and judgements The preparation of consolidated financial statements in conformity with IFRS requires the Group’s management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised if the revision affects only that period and in any future periods affected. In particular, information about significant areas of estimation, uncertainty and critical judgement in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are described in Notes 3 h, 3 i, 22 and 23.

d) Changes in accounting policies (i) Standards not applied For the accounting period beginning on 1 January 2018 and beyond, a number of new standards, amended standards and interpretations come into effect, which may be relevant for the Group but have not been applied earlier in the preparation of these consolidated financial statements for 2017. These mainly include the following: IFRS 9 Financial Instruments, published in July 2014, will replace the current requirements in IAS 39 Financial Instruments: Recognition and Measurement. IFRS 9 includes revised guidelines for the classification and measurement of financial instruments, including a new forward-looking expected loss impairment model, and a substantially reformed approach to hedge accounting. It also provides guidance for recognising and derecognising financial instruments from IAS 39. IFRS 9 applies to annual reporting periods on or after 1 January 2018; the Standard is available for earlier application.



8

The Group has not found any impacts of IFRS 9 application on its accounting. IFRS 15 Revenue from Contracts with Customers provides a comprehensive framework for specifying how, how much and when an IFRS reporter will recognise revenue. This will replace the current guidelines for revenue recognition, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 applies to annual reporting periods on or after 1 January 2018; the Standard is available for earlier application. The Group has not found any impacts of IFRS 15 application on its accounting. IFRS 16 Leases, published in January 2016, specifies rules for leases. It will replace existing IAS 17, IFRIC 4 and SIC-15. IFRS 16 sets out new principles for the recognition, measurement, presentation and disclosure of leases. IFRS 16 is only effective from 1 January 2019; it is available for earlier application, but only if the entity also applies IFRS 15. The Group evaluates the potential impacts of IFRS 16 application on its accounting. The following amended standards are not expected to have a significant impact on the consolidated financial statements. IFRS 1 – The first adoption of IFRS, removal of exceptions IAS 28 – Investments in Associates and Joint Ventures, venture capital reporting IFRS 2 – Share-based Payment IFRS 4 – Adjustment due to IFRS 9 IAS 40 – Investment Property IFRIC 22 – Foreign Currency Transactions IFRIC 23 – Uncertainty over Income Tax Treatments IFRS 17 – Insurance Contracts (ii) Applied standards The following new or amended standards, applicable as of 1 January 2017, did not have a significant impact on the Group’s consolidated financial statements. IAS 12 ‒ Recognition of Deferred Tax Assets for Unrealised Losses IAS 7 ‒ New requirements for disclosing liabilities from financing activities

3. Accounting policies

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

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



9

and a consideration acquired for the transfer of the controlling interest is recognised in the consolidated income statement. If the Group maintains an interest in its former subsidiary after losing control over it then such interest is measured at fair value as of the date when control was lost. (iv) Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised gains arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with affiliates and jointly controlled entities are eliminated to the extent of the Group’s interest in the entity. Unrealised gains arising from transactions with affiliates are eliminated against the investment in the affiliate to the extent of the Group’s interest in the entity. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that the asset’s recoverable amount is not exceeded.

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

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



10

Derivatives are initially recognised at fair value; attributable transaction costs are recognised in the income statement when incurred. Subsequent to initial recognition, derivatives are measured at fair value, and changes therein are then charged to costs or revenues.

Cash flow hedging

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

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

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

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



11

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

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

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

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

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

Emission allowances



12

Allowances for emissions of greenhouse gases (“emission allowances” or EUAs) are presented as inventory and represent the right of the operator of a facility which generates greenhouse gas emissions to release an equivalent of a tonne of CO2 into the air in a given calendar year. In the financial statements, the granted emission allowances are stated at an acquisition cost of zero. Purchased allowances are stated at acquisition cost. Consumption of emission allowances is recognised using the weighted average method. As at the date of the statement of financial position the Group determines whether there is an indication of impairment of emission allowances. If any such indications exist, the Group assesses whether the recoverable value of the emission allowances is lower than their residual value. Any impairment loss is recognised in consolidated profit or loss. If the consumption of emission allowances in the accounting period is higher than the number of allowances available at the date of the statement of financial position, a provision is established based on the value of allowances that will have to be purchased on the public market in the following period. This provision is based on the average price of allowances as at the date of the statement of financial position. In 2017, the Group purchased EUA units issued under the Kyoto protocol that it expected to use in 2017 and beyond. The use of emission allowances and the income from their sale are presented in the consolidated income statement in the position “cost of sales”.

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

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

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



13

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

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

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

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

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

k) Expenses (i) Operating lease payments



14

Payments made under operating leases are recognised in consolidated profit or loss on a straight-line basis over the term of the lease.

(ii) Finance income and expenses

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

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

4. Fair value

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

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

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

5. Financial risk management

The Group has exposure to the following risks:



15

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

Trade and other receivables

The exposure to credit risk is influenced mainly by the individual characteristics of each customer, and the Group endeavours to manage and limit this risk. The Group has established a credit policy under which each major customer is analysed individually for creditworthiness before the standard payment and delivery terms and conditions are offered. The review includes external ratings when available, and in some cases references obtained from a specialised firm. Credit limits are established for each customer. Customer analysis and monitoring of observance of the credit limits is carried out by the Collections Department. Customers that fail to keep within the credit limit may have their deliveries suspended, subject to case-by-case assessment. More than 80 percent of customers have been transacting with the Group for over four years, and losses have occurred infrequently. In monitoring customer credit risk, customers are grouped according to their credit characteristics, including whether they are an individual or legal entity, their industry and payment history. Deliveries are made on a prepayment basis, with advances reviewed on a continuous basis. Customers that are graded as “high risk” are monitored separately, and sometimes a payment schedule is offered to secure debt recovery. Credit risk related to receivables is covered by provisions that are established on an individual basis for receivables with a specific risk of loss, and on a portfolio basis for groups of receivables with similar risks. For more information see Note 26.

Investments The Group limits its exposure to credit risk by only investing in securities of liquid companies. The management of the Group does not expect any losses from these investments. As at 31 December 2017, the Group holds cash and cash equivalents in the amount of CZK 613 million (2016: 147 million). Cash and cash equivalents are deposited with banks with high ratings and in cash pooling with the parent company. Guarantees The Group’s policy is to provide financial guarantees only on an exceptional basis, where required for the purpose of a tender procedure or where the law provides so. As at 31 December 2017, bank guarantees of CZK 398 million (2016: CZK 250 million) and long-term principal of CZK 17 million (2016: CZK 27 million) were outstanding. Liquidity risk Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group’s approach to managing liquidity is to ensure that it will always have sufficient liquidity to meet its liabilities when due, not risking damage to its reputation. The Group uses activity-based costing to cost its products and services, which assists it in monitoring cash flow requirements and optimising its cash return on investments. The Group ensures that it has sufficient cash on demand to meet expected operational expense through participation in cash pooling within Veolia



16

Group. Within the cash pooling, the Group may draw funds of up to CZK 3,000 million. By this approach, the Group limits the possible impacts of unforeseeable events. Market risk Market risk is the risk that changes in market prices, foreign exchange rates, interest rates, equity prices or prices of emission allowances will affect the Group’s income or the value of financial instruments in its possession. Currency risk The Group is not exposed to significant currency risk on sales, purchases and borrowings, as the major portion of these are negotiated in Czech currency. For electricity, fuel and CO2 allowance payment in foreign currencies (EUR, PLN) the Group concludes forward contracts to hedge the foreign exchange risk.

Interest rate risk

The Group partly covers its exposure to movement in interest rates by obtaining financing mainly from its parent company. This financing is exposed to market risk from movements in interest rates. Other market price risks In 2017 the Group entered into forward contracts with Veolia Environnement Finance, a Veolia Environnement – VE SA group company, for the purchase and sale of emission allowances and certificates at a contractual price. Operating risk The Group manages production risk with a view to avoiding financial losses and damage. This involves, in particular, the gradual wear and tear of equipment and components of its power plants, risks related to shutdowns and risks related to insurance. Gradual wear and tear of equipment and components The influence of operations, as well as of natural processes (e.g. erosion and corrosion), on the technical condition of some equipment and certain components of the production plant constantly increases over time. At the same time, the Group implements a continual major production plant renewal programme in its facilities in order to modernise its production portfolio with a view to realising the Veolia Group’s business vision. The Group has prepared a plant renewal programme aimed at reducing energy consumption. Apart from the preparations for renewing its fossil fuel-fired facilities, the Group provides for the firing of biomass. The Group endeavours to adhere to its practices in terms of preventive inspections and maintenance of the equipment and components of its plants, including repairs and replacements, in order to prevent failures and losses. Risks related to shutdowns Despite the complexity of its production plants, the Group endeavours to eliminate the risk of unscheduled shutdowns or to anticipate exactly their frequency or effects, in particular by means of preventive inspections and repairs. Insurance of risks The Group has concluded insurance arrangements (e.g. property, plant and machinery insurance; third party liability insurance) for its major assets and believes that it has covered the risk of all significant losses. Capital management The Board of Directors of Veolia Energie ČR, a.s. manages the Group’s capital structure in compliance with investor’s requirements, focusing on appropriate indebtedness and dividend policy monitoring. The objective is to achieve the right proportion of debt to total assets, and to meet the planned dividend targets. This involves looking for an adequate level of debt, which depends on profit (cash flow) generation, and meeting the average cost of capital and working capital targets planned by the Group.

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




17

Total liabilities 9,029,689 8,235,393 Cash and cash equivalents (613,115) (146,719) Net debt 8,416,574 8,088,674 Total equity 6,010,051 6,159,094 Cash flow from hedges 12,043 12,956 Adjusted equity 6,022,094 6,172,050 Debt to adjusted equity 1.40 1.31

6. Revenue

In thousands of CZK 2017 2016 Revenues from sale of heat and related products 6,838,323 6,346,329 Revenues from sale and re-sale of electricity and ancillary services

4,242,833 4,349,592

Revenues from sale of compressed air 235,370 339,699 Other operating revenues 230,875 215,233 Total 11,547,401 11,250,853

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

7. Cost of sales

In thousands of CZK 2017 2016 Personnel expenses (1,257,668) (1,180,419) Depreciation expense (1,044,524) (958,825) Impairment to non-current assets 33,031 (425,677) Impairment to goodwill -- (737,224) Costs of goods sold excluding electricity (309,919) (366,538) Cost of purchased electricity (2,432,160) (2,096,112) Consumption of fuel (2,663,369) (2,508,490) Consumption of raw materials, energy and services, contract penalties and compensations

(1,345,406) (1,712,779)

Change in provisions 137,818 (163,446) Consumption of emission allowances and change in provision for emission allowances (250,833) (267,184)

Total (9,133,030) (10,416,694)

The position Consumption of raw materials, energy and services, contract penalties and compensations also includes compensations from an insurance company and proceeds from contract penalties, see Note 23. In 2015 and 2016, under the rules for preparing consolidated financial statements (see Note 3 g), the Group identified objective indications constituting an adverse impact on the value of tangible and intangible assets and the value of other financial investments. As a result, it has tested some assets for impairment. The testing confirmed that the recoverable value of these assets was lower than the carrying value. On the basis of this finding, in 2015 and 2016 the Group established a provision of CZK 1,475 million. In 2017, following a new test, the Group did not find any reason for changing the value of this provision, with the exception of releasing a part thereof, amounting to CZK 33 million and relating to other financial investments on account of disposals/sale. The provision is allocated as follows: Buildings, plant and equipment (see Note 12): CZK 426 million, Other intangible assets (see Note 13): CZK 479 million, and Other financial investments (see Note 14): CZK 570 million. In 2016, based on systematic goodwill impairment testing (see Note 3 g), the Group identified objective indications of impairment. On the basis of these indications the effective interest rate was used to calculate the impairment as the difference between their carrying value and their recoverable value calculated as the present value of the estimated future cash flows discounted at the original effective interest rate. In 2016, the goodwill impairment was recognised in the income statement for 2016, in an



18

amount of CZK 737 million, i.e. as the difference between the recoverable value and the carrying value as at 31 December 2016. When testing goodwill for impairment as at 31 December 2017, no new indications of impairment were identified and therefore no additional goodwill impairment was recognised.

Goodwill

In thousands of CZK Veolia Energie

Kolín, a.s.

Veolia Energie Mariánské

Lázně, s.r.o.

Veolia Průmyslové

služby ČR, a.s.

Veolia Energie Praha, a.s. Total

Balance at 1 January 2016 170,702 45,218 737,224 -- 953,144 Additions -- -- -- 1,210,610 1,210,610 Impairment losses -- -- (737,224) -- (737,224) Balance at 31 December 2016

170,702 45,218 -- 1,210,610 1,426,530

Balance at 1 January 2017 170,702 45,218 -- 1,210,610 1,426,530 Additions -- -- -- 33,733 33,733 Impairment losses -- -- -- -- -- Balance at 31 December 2017

170,702 45,218 -- 1,244,343 1,460,263

The increase in goodwill in Veolia Energie Praha, a.s. in 2017 was due to identifying a higher income tax liability as at the acquisition date.

8. Distribution expenses

In thousands of CZK 2017 2016 Personnel expenses (65,832) (55,017) Depreciation expense (9) (8) Other expenses / revenue (64,906) 73,935 Total (130,747) 18,910

Release in 2016 of estimated assets and liabilities related to the Company’s investment activities and its sponsorship provided in 2017 had the most important effect on the year-on-year change in other expenses/revenue.

9. Administrative expenses

In thousands of CZK 2017 2016 Personnel expenses (358,035) (327,099) Depreciation expense (22,672) (16,288) Change in provisions 4,433 (14,133) Management costs (135,250) (105,986) Cost of raw materials, services and other expenses (278,033) (268,698) Total (789,557) (732,204)

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

10. Finance income and expenses

In thousands of CZK 2017 2016 Interest income 1,636 1,027 Dividend income 13,134 14,281 Foreign exchange gain 11,470 2,699 Other finance income 13,184 2,849 Total finance income 39,424 20,856



19

Interest expense

(52,954)

(31,471)

Foreign exchange loss (23,783) (4,420) Discount of provisions (12,746) (8,151) Other finance expenses (3,167) (3,145) Total finance expenses (92,650) (47,187)

11. Income tax

In thousands of CZK Current tax 2017 2016 Current year (260,684) (275,490) Adjustments for prior years (4,696) (5,536) (265,380) (281,026)

Deferred tax expense Effect of the change in temporary differences (29,827) 115,730 Total income tax expense in income statement (295,207) (165,296) Reconciliation of effective tax rate 2017 2016 Profit before income tax 1,440,841 94,534 Income tax calculated using the domestic corporate income tax rate (273,760) (17,961)

Effect of non-deductible expenses (88,932) (458,326) Effect of tax exempt income 101,474 200,296 Effect of tax credits 534 501 Adjustments for prior years (4,696) (5,536) Total tax payable (265,380) (281,026) Total deferred tax (29,827) 115,730 Total income tax expense in income statement (295,207) (165,296)

The Group recorded a corporate income tax receivable of CZK 102 million and a corporate income tax payable of CZK 11 million (2016: tax receivable of CZK 161 million and tax payable of CZK 23 million). Deferred tax is based on all temporary differences between the carrying and tax value of assets and liabilities, and other temporary differences (tax losses carried forward, if any), multiplied by a uniform tax rate of 19%. Tax impact on items of comprehensive income on deferred tax: Employee benefits – actuarial gains / (losses) before taxation CZK 38 million (2016: CZK (15) million), tax CZK (7) million (2016: CZK 3 million), after taxation CZK 31 million (2016: CZK (12) million); changes in the fair value of hedging instruments: before taxation CZK 1.1 million (2016: CZK (20) million), tax CZK (0.2) million (2016: CZK 3 million); after taxation CZK 0.9 million (2016: CZK (17) million).

The Group conducted a legal dispute with the Czech Republic, as did other energy companies that did not agree with the specific gift tax imposed on emission allowances in 2011 and 2012 by the Ministry of Finance. The Group estimated its position at CZK 175 million, which, however, was not recognised as a contingent asset. In December 2015, a decision on this matter was taken and the Group received from the Appeal Financial Directorate a decision that a part of the gift tax, amounting to CZK 22 million, would be refunded. The Group disagrees with the decision, however, and has therefore initiated court proceedings on this matter. No decision was delivered on this matter in 2017.

12. Property, plant and equipment

In thousands of CZK Acquisition cost Land Buildings

and constructions

Plant and equipment

Under construction

and advances

Total



20

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

Additions related to the acquisition

175,469

274,679

349,396

4,319 803,863

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

Balance at 1 January 2017 649,914 11,314,836 15,615,998 343,710 27,924,458

Additions/transfers 1,526 264,506 391,955 374,231 1,032,218 Disposals (28) (54,191) (112,970) -- (167,189) Balance at 31 December 2017 651,412 11,525,151 15,894,983 717,941 28,789,487

Amortisation and impairment losses

Land

Buildings

and constructions

Plant and

equipment

Under


Total

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

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

Balance at 1 January 2017 -- 6,793,927 11,942,387 236 18,736,550

Impairment losses 2,703 177 (4,253) -- (1,373) Current year depreciation 353,005 606,193 -- 959,198 Disposals -- (52,430) (111,642) -- (164,072) Balance at 31 December 2017 2,703 7,094,679 12,432,685 236 19,530,303

Carrying amount Land Buildings

and construction

s

Plant and equipment

Under construction

and advances

Total

At 1 January 2016 461,618 4,425,916 3,263,623 654,833 8,805,990 At 31 December 2016

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

At 31 December 2017

648,709 4,430,472 3,462,298 717,705 9,259,184

In 2017, an adjustment of CZK 0 (2016: CZK 87 million) decreased the value of tangible assets as a result of impairment testing (see Note 7).

Leased assets The Group leases production equipment under a number of finance lease agreements. At 31 December 2017, the net carrying amount of leased machinery, thermal equipment and constructions was CZK 34,129 million (2016: CZK 31 million).



21

The Group uses a production facility under a lease agreement with the municipality of Mariánské Lázně, which was valid until 2024. In 2013, it concluded an amendment extending the term of lease until 2039, which became effective on 1 January 2015, provided that by 31 December 2014 the lessee modernises the heat production facility in Mariánské Lázně connected to the construction of a cogeneration plant which is to produce heat and electricity from renewable sources. This condition was fulfilled in 2014. The Group capitalised the assets at the lower of the present value and net present value of the minimum lease payments as at the start of the leasing. The interest rate on the lease has been set at 11.01%. The tables below show anticipated lease payments due. 2017 Leasing liability

at 31 December 2017

Paid at 31 December

2017

Due within 1 year

Due in 1 to 5 years

Due in subsequent years

Production facility 15,038 17,113 1,609 6,436 31,606

Total 15,038 17,113 1,609 6,436 31,606

2016 Leasing liability at 31 December

2016

Paid at 31 December

2016

Due within 1 year

Due in 1 to 5 years

Due in subsequent years

Production facility 15,117 15,503 1,609 6,436 33,215

Total 15,117 15,503 1,609 6,436 33,215 Assets pledged as security

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

Grants In 2017, the Group received grants of CZK 0 (2016: CZK 42 million) for the upgrade and greening of CHP installations under the Operational Programme Environment.

13. Intangible assets

In thousands of CZK Acquisition cost Software Other* Goodwill Total Balance at 1 January 2016 428,145 1,433,548 1,183,086 3,044,779 Additions related to the acquisition

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

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

Balance at 1 January 2017 430,182 1,455,538 2,393,696 4,279,416 Additions 48,230 -- 33,733 81,963 Disposals (11,542) (13,830) -- (25,372) Balance at 31 December 2017 466,870 1,441,708 2,427,429 4,336,007

Amortisation and impairment losses

Software Other* Goodwill Total

Balance at 1 January 2016 403,513

809,608

229,942

1,443,063

Impairment losses -- 208,844 737,224 946,068 Current year amortisation 11,719 89,031 -- 100,750



22

Disposals (3,562) -- -- (3,562) Balance at 31 December 2016 411,670 1,107,483 967,166 2,486,319 Balance at 1 January 2017

411,670

1,107,483

967,166

2,486,319 Impairment losses -- -- -- -- Current year amortisation 19,793 88,047 -- 107,840 Disposals (11,542) -- -- (11,542) Balance at 31 December 2017 419,921 1,195,530 967,166 2,582,617 Carrying amount

Software

Other*

Goodwill

Total

At 1 January 2016 24,632 623,940 953,144 1,601,716 At 31 December 2016 18,512 348,055 1,426,530 1,793,097 At 31 December 2017 46,949 246,178 1,460,263 1,753,390

*The balance consists mainly of intangible assets recognised upon the acquisition of NWR Energy, a.s. (Veolia Průmyslové služby ČR, a.s.). In particular, this includes the value of the contract with: OKK Koksovny, a.s. for the purchase of coke oven gas until 2020; and the value of the framework agreement with OKD, a.s. for deliveries of utilities, such as compressed air and heat, until 2029; and other contracts for the sale of electricity. In 2017, an adjustment of CZK 0 (2016: CZK 209 million) decreased the value of other intangible assets as the result of impairment testing (see Note 7). The adjustment to goodwill increased by CZK 0 (2016: CZK 737 million) and is described in Note 7.

14. Other financial investments including derivatives

In thousands of CZK Long-term financial investments including derivatives

2017 2016

Financial interests 74,061 74,061 Other financial investments 203,240 261,550

In thousands of CZK

Short-term financial investments including derivatives

2017 2016

Derivatives 10,165 851 Other financial investments 47,674 45,105

In 2017, the adjustment to the value of other financial investments was decreased by CZK 33 million (2016: it was increased by CZK 129 million) as the result of impairment testing (see Note 7). The Group does not own any financial investments held for trading. As at 31 December 2017, short-term derivatives represent the fair value of forward contracts to hedge a foreign exchange risk.

15. Deferred tax assets and liabilities

Deferred tax assets and liabilities are attributable to the following:

In thousands of CZK Receivables Liabilities Difference 2017 2016 2017 2016 2017 2016

Property, plant and equipment 269,786 276,095 (1,132,695) (1,144,037) (862,909) (867,942)

Other investments -- -- -- -- -- -- Inventories 18,904 19,543 -- -- 18,904 19,543



23

Emission allowances including provision 47,630 50,186 (48,376) (48,782) (746) 1,404

Provisions 133,518 138,349 (683) (132) 132,835 138,217 Other items 37,782 58,866 (16,594) (4,599) 21,188 54,267 Deferred tax assets / (liabilities) 507,620 543,039 (1,198,348) (1,197,550) (690,728) (654,511)

Movement in deferred tax assets and liabilities during the year

In thousands of CZK

Balance at 1 January

2017



Impact of the rate


2017 Property, plant and equipment

(867,942)

5,031 -- 2 (862,909)

Other investments -- -- -- -- -- Inventories 19,543 (639) -- -- 18,904 Emission allowances including provision

1,404 (2,150) -- -- (746)

Provisions 138,217 796 (6,178) -- 132,835 Other items 54,267 (32,865) (214) -- 21,188 Total (654,511) (29,827) (6,392) 2 (690,728)

In thousands of CZK

Balance at 1 January

2016



Impact of the acquisition


2016 Property, plant and equipment

(828,869)

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

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

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

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

16. Inventories

In thousands of CZK 2017 2016 Material and fuel 434,845 503,203 Work in progress 408 426 Products 336 379 Emission allowances 7,539 1,576 Total 443,128 505,584

In 2017, materials and fuel recorded in cost of sales amounted to CZK 2,879 million (2016: CZK 2,922 million). At 31 December 2017, a provision was recognised which reduces the value of inventories by CZK 104 million (2016: CZK 101 million).



24

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

In thousands of tonnes Quantity

Correction of emission allowance consumption in 2015

(65)

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

(4)

Emission allowances allocated in 2017 992 Emission allowances sold in 2017 -- Emission allowances purchased in 2017 1,783 Release of provisions for missing emission allowances (167) Emission allowances utilised in 2017 against CO2 emissions (2,541) Emission allowances available at 31 December 2017 97

Actual emissions in 2017 were higher than the emission allowances allocated under the National Allocation Plan as at the date of the statement of financial position. The Group therefore used allowances from previous years and bought allowances for 2017 and beyond (in 2016, actual emissions were higher than allocated allowances).

17. Current tax assets

In thousands of CZK 2017 2016 Income tax 102,059 161,307 Total 102,059 161,307

18. Trade and other receivables

In thousands of CZK 2017 2016 Trade receivables due from related parties (Note 29) 100,791 62,076

Trade receivables 2,212,814 1,946,448 Other receivables 201,900 198,546 Total 2,515,505 2,207,070

On 28 December 2017, a Settlement Agreement between OKD and Veolia Průmyslové služby ČR, a.s. (VPS) was signed. This Agreement addresses the two parties’ claims and their settlement between the parties (with the exception of VPS’s outstanding receivables registered in insolvency proceedings). At 31 December 2017, trade receivables are shown net of provisions for doubtful debts of CZK 279 million (2016: CZK 405 million) arising from the likely impairment of receivables from the individual debtors. The reason for decreasing the provisions is the signing of a settlement agreement with OKD.

19. Cash and cash equivalents




25

Current bank accounts 80,951 96,053 Bank deposits 51,969 48,469 Cash in hand 1,494 2,197 Total cash 134,414 146,719 Cash pooling with Veolia Energie International SA – receivable 478,701 -- Total cash and cash equivalents 613,115 146,719 Cash pooling with Veolia Energie International SA – payable -- (2,548,631) Total cash in compliance with statement of cash flows 613,115 (2,401,912)

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

20. Capital and reserves

As at 31 December 2017, the authorised registered capital comprised 78,661,161 ordinary registered shares with a par value of CZK 40 (2016: 78,661,161 ordinary registered shares with a par value of CZK 40). The holders of ordinary shares are entitled to dividends if these are approved by the General Meeting. Each ordinary share bears one voting right to be exercised at General Meetings of entities. All shares bear the same rights in respect of the surplus assets upon the liquidation of subsidiaries.

Cash flow hedging

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

Other capital contributions

Other capital contributions primarily include the recorded effect of mergers in the 2001–2007 period with companies fully controlled by the entity, TEPLÁRNY Karviná, a.s., EKOTERM ČESKÁ REPUBLIKA a.s., Teplárna Ústí nad Labem, a.s., PPC Trmice a.s. and Dalkia Ostrava, a.s. Dividend per share Under its profit distribution decision the Group paid out dividends of CZK 1,330 million (2016: CZK 1,328 million). Dividend per share for 2017 amounts to CZK 16.88 (2016: CZK 16.88).

21. Loans and borrowings

This note provides information about the contract terms applicable to the Group’s interest-bearing loans and borrowings. For more information about the Group’s exposure to credit and interest rate risks see Note 26. Non-current

In thousands of CZK 2017 2016 Long-term loan from Veolia Environnement Finance SA 4,625,000 -- Total non-current liabilities 4,625,000 --

In 2017, Veolia Energie ČR, a.s. entered into an agreement on a long-term loan from Veolia Environnement Finance SA, totalling CZK 7,450 million. CZK 4,500 million was drawn on the total credit facility as at 31 December 2017. As at 31 December 2017, Veolia Energie Mariánské Lázně, s.r.o. recorded a long-term loan of CZK 125 million from a related party, Veolia Environnement Finance SA (2016: CZK 0).



26

Current liabilities

In thousands of CZK 2017 2016 Interest payable on loan from Veolia International SA 12,395 6,045 Cash pooling with Veolia International SA -- 2,548,631 Short-term loan from Veolia International SA -- 1,370,000 Other financial liabilities 21,966 31,830 Total current liabilities 34,361 3,956,506

In 2017, Veolia Energie ČR, a.s. repaid a short-term loan from Veolia Energie International SA, amounting to CZK 1,370 million. As at 31 December 2017, the balance is CZK 0 (2016: CZK 1,370 million).

Terms and debt payment schedule

Secured bank loans The Group had no secured bank loans as at 31 December 2017 and 31 December 2016. The Group may utilise bank credit lines of CZK 570 million and EUR 2.5 million. None of these lines has been drawn down as at 31 December 2017.

22. Employee benefits

Under the collective agreement, the Group is obliged to pay benefits to employees who have worked for the Group for a certain fixed period of time. The Group changed its collective agreement effective from 2016. Based on this change, it simplified the structure of employee benefits and changed some of them. Movements in the liability for defined benefit obligations In thousands of CZK 2017 2016

Liability for defined benefit obligations as at 1 January 670,702 573,480 Additions related to the acquisition -- 7,874 Benefits paid (30,943) (19,485) Current service costs 35,180 38,243 Amortisation of past service costs -- -- Interest 12,748 8,151 Actuarial (gains) losses recognised in equity (37,437) 16,112 Actuarial (gains) losses recognised in profit and loss (64) 2,728 Other (changes in the Collective Agreement) -- 43,599 Adjustment of liability as a result of organisational changes -- -- Liability for defined benefit obligations as at 31 December 650,186 670,702 Short-term portion of liability for defined benefit obligations 65,226 32,562 Long-term portion of liability for defined benefit obligations 584,960 638,140

Actuarial assumptions

2017 2016 Discount rate at 31 December 2.10% 1.30% Salary increase rate 2% 2% Employee turnover assumption Average 1.03% Average 0.87% p.a.

Social security and health insurance expenses recognised in the income statement in 2017 amount to CZK 397 million (2016: CZK 378 million). Defined benefit liabilities are calculated on the basis of actuarial valuation under IAS 19. This standard requires the use of the “projected unit credit method” and unbiased and mutually compatible actuarial assumptions. The projected unit credit method was used to determine the present value of liability and current service costs.



27

Demographic assumptions: assumptions about mortality were taken from the 2016 mortality charts for males and females issued by the Czech Statistical Office. The disability assumption was taken from the charts of disabilities monitored by the Group. The assumed number of employees leaving the Group before reaching retirement age is based on expected departures of employees on the basis of the Group’s historical experience from preceding years. Specific assumptions: the Group assumes that there is an 80% probability that agreements executed for a fixed term will be converted into agreements for an indefinite term. The amount of defined benefit liabilities as at 31 December 2017 takes into account social security contributions and health insurance. Description of risks: the Group does not have a separate plan for assets to cover employee benefit liabilities. Taking into account the annual payments from the plan and the nature of the Group’s business this does not constitute a material risk for the Group. Sensitivity analysis The Group carried out a sensitivity analysis of the size of the provision for changes in the actuarial assumptions that influence the defined benefit liabilities. In the event of a change in one of the relevant actuarial assumptions, with other assumptions remaining constant, the defined benefit liabilities would change to the following amounts – based on a sensitivity analysis for assumptions with the most significant impact:

In thousands of CZK Discount rate increase +0.25%

Inflation rate increase +0.25%

Defined benefit liabilities as at 31 December 2017 635,426 664,447

Current service costs next year 38,021 39,745 Although this analysis does not take into account the timing of the cash flows that are expected under the plan, it provides information about the size of the liability upon a change in the various assumptions.

23. Provisions

In thousands of CZK Site restoration Other provisions Total

Balance at 1 January 2016 46,101 75,963 122,064 Provisions created during the year -- 46,074 46,074 Additions related to the acquisition -- 148 148 Provisions used during the year -- (23,242) (23,242) Provisions unused during the year -- (26,572) (26,572) Unwinding of discount -- -- -- Balance at 31 December 2016 46,101 72,371 118,472 Non-current 46,101 36,934 83,035 Current -- 35,437 35,437 Balance at 1 January 2017 46,101 72,371 118,472 Provisions created during the year 21 25,251 25,272 Additions related to the acquisition -- -- -- Provisions used during the year -- (35,879) (37,879) Provisions unused during the year -- (7,481) (7,481) Unwinding of discount -- -- -- Balance at 31 December 2017 46,122 54,262 100,384 Non-current 46,122 25,152 71,274 Current -- 29,110 29,110

Site restoration The provision for site restoration was reviewed and adjusted so as to represent the best estimate in the light of the change in the use of land and of restoration techniques used.



28

Other provisions Other provisions include provisions established in connection with the risks related to the Company’s principal activities. In December 2015, the Energy Regulatory Office completed an inspection of heat prices for 2010. The Group did not agree with the outcome of the inspection, and has lodged an appeal. The Energy Regulatory Office did not complete the procedure within five years, and the case was therefore time-barred in 2016 and the provision was released. In 2016, the Energy Regulatory Office (ERO) started price-related checks in Veolia Energie ČR, a.s. and subsequent administrative proceedings related to the validation of one item in the calculation of thermal energy prices in several price locations in 2014 and 2015. These investigations are still under way and according to the ERO’s preliminary opinion, the quantification of the Company’s alleged mistake may climb to a significant amount of up to CZK 580 million. According to the Company’s own opinion and that of its external legal advisers, these allegations of mistakes are not supported by price regulations, for (1) as part of the above-mentioned proceedings, the ERO is reviewing a single item in the calculation of thermal energy prices rather than reviewing thermal energy prices (as required of the ERO under Act No 526/1990 on Prices, as amended, and the ERO’s Price Decisions), (2) the Company’s alleged mistake is not expressly regarded as a breach of pricing regulations in such pricing regulations, and (3) the price-related checks and administrative proceedings are burdened by additional material defects in the application of both substantive and procedural law. The final conclusions will only be clear once the administrative proceedings, which are still under way and the conclusions of which cannot be prejudged at this moment, have been concluded with finality. Veolia Energie Kolín, a.s. conducted a legal dispute with Ředitelství vodních cest České republiky (ŘVC) over pecuniary damage related to the refurbishment of a railway bridge on the Kolín – Nymburk railway line. In 2017, the Supreme Court of the Czech Republic rejected ŘVC’s appeal on a point of law. Subsequently, the Company and Ředitelství vodních cest České republiky signed a settlement agreement. In 2017, the proceeds from this dispute totalled CZK 80,406,000 and are included in the position Cost of sales in the consolidated income statement. AmpluServis, a.s. is a party to two legal disputes with its suppliers. In one case, the appellate court has upheld the judgment of the court of first instance. In compliance with the judgment, the company has paid EUR 446,000 plus incidentals and lodged an appeal on a point of law. In the other case, the company is being sued for CZK 19 million; the result of the court hearing is not known to date.

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

Non-current

In thousands of CZK 2017 2016 Other payables 166,645 163,755 Total 166,645 163,755

Current liabilities

In thousands of CZK 2017 2016 Trade payables to related parties (Note 29) 48,472 20,317

Trade payables to third parties 2,382,762 2,151,834 Other payables 276,511 448,233 Total 2,707,745 2,620,384

25. Derivatives

In thousands of CZK 2017 2016 Short-term derivatives 22,257 13,064 Long-term derivatives 2,775 3,781



29

Total 25,032 16,845 Financial derivatives represent the fair value of forward contracts to secure a foreign exchange risk of CZK 25 million (2016: CZK 17 million) and are recorded as current and non-current liabilities.

26. Financial instruments

Credit risk Maximum exposure to credit risk as at the date of the financial statements was: In thousands of CZK Note Carrying amount 2017 Carrying amount 2016

Trade and other receivables 18 2,515,505 2,207,070

Cash and cash equivalents 19 613,115 146,719 Total 3,128,620 2,353,789

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


2017 Nominal


2016 Not yet due 2,100,603 17,878 2,109,198 -- 0–90 days overdue 124,654 -- 130,633 64,115 90–180 days overdue 50,228 6 89,379 61,480 180–360 days overdue 122,124 1,744 103,763 101,466 More than 1 year overdue 396,851 259,328 179,122 177,964 Total 2,794,461 278,956 2,612,095 405,025

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

2017 2016

Balance at 1 January (405,025) (166,916) Impact of the acquisition -- (4,424) Recognised impairment loss / gain 126,069 (233,685) Balance at 31 December (278,956) (405,025)

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

At 31 December 2017

In thousands of CZK

Book value

Contractual cash

flow

Within 6 months

6–12 months

1–2 years

2–5 years

More than 5 years

Long-term loan 4,625,000 6,109,279 84,083 76,590 149,850 449,550 5,349,206 Trade and other payables 2,874,390 3,094,600 2,677,067 30,679 4,000 159,733 223,121

Total 7,499,390 9,203,879 2,761,150 107,269 153,850 609,283 5,572,327



30

At 31 December 2016

In thousands of CZK

Book value

Contractual cash

flow

Within 6 months

6–12 months

1–2 years

2–5 years

More than

5 years Short-term loan from Veolia Energie International

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

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

Total 4,154,139 4,159,345 3,895,511 250 4,000 15,864 243,720 Currency risk To hedge purchases and sales of electricity in EUR and PLN, forward contracts were concluded with Veolia Environnement Finance (see Note 5). Interest rate risk As at the reporting date, the Group has the following interest-bearing financial instruments: (i) Fixed-rate financial instruments

In thousands of CZK

Balance at 31 December 2017 2016 Financial liabilities -- --

(ii) Variable-rate financial instruments

In thousands of CZK

Balance at 31 December 2017 2016 Long-term loan (4,625,000) -- Short-term loan -- (1,370,000) Financial liabilities (34,361) (37,875) Total (4,659,361) (1,407,875)

Sensitivity analysis of fixed-rate financial instruments

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

Sensitivity analysis of variable-rate financial instruments As at 31 December 2017 the Group reported the following variable-rate financial instruments. Effective interest rate and re-measurement analysis The table below shows the effective interest rates of interest-bearing financial assets and liabilities at the date of the statement of financial position and the periods in which they are re-measured. In thousands of CZK

Average interest rate in 2017 (%)

Liability at 31 December 2017

Next re-pricing date

Due date

Long-term loan

3.14

(4,625,000)

3/2018

10/2027

Total (4,625,000)



31

Fair values

In thousands of CZK Note Carrying amount

Fair value Carrying amount

Fair value

2017 2017 2016 2016 Trade and other receivables 18 2,515,505 2,515,505 2,207,070 2,207,070 Tax assets 17 102,059 102,059 161,307 161,307 Cash and cash equivalents 19 134,414 134,414 146,719 146,719 Cash pooling with Veolia International SA 19 478,701 478,701 -- --

Short-term loan from Veolia Energie International

21 -- -- (1,370,000) (1,370,000)

Long-term loan from Veolia Energie Finance 21 (4,625,000) (4,625,000) -- --

Interest payable on loan from Veolia International SA 21 (12,395) (12,395) (6,045) (6,045)

Cash pooling with Veolia International SA 21 -- -- (2,548,631) (2,548,631)

Other financial liabilities 21 (21,966) (21,966) (31,830) (31,830) Trade, tax and other payables 24.11 (2,885,779) (2,885,779) (2,807,122) (2,807,122) Total (4,314,461) (4,314,461) (4,248,532) (4,248,532)

Note: The above figures do not include derivatives.

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


Derivatives 1.50% 0.53% 27. Operating leases

Major operating lease agreements include the following: an agreement with the municipality of Krnov until 2026, an agreement with the municipality of Mariánské Lázně until 2039, an agreement with the municipality of Olomouc until 2019, an agreement on the lease and operation of hydroelectric power plant equipment and sub-lease of the hydroelectric power plant building with MVE Kolín s.r.o., an agreement on the heating system of the municipality of Nový Jičín until 2017, an agreement with Teplo – byty Roudnice until 2021, an agreement with Sneo, a.s., Praha 6 until 2021, an agreement with RPG Byty for an indefinite term and an agreement with Fakultní nemocnice Ostrava until 2022. The rent for the lease terms that cannot be terminated totals CZK 507 million (2016: CZK 530 million). The lease payments for plant and machinery are due over the following periods. The Group also rents non-residential space, utility tunnels, vehicles and IT equipment.



32

At 31 December 2017 in thousands of CZK Total Within 1 year

1–5 years More than 5 years

Lease – Fakultní nemocnice Ostrava 12,122 2,424 9,698 -- Lease – Krnov 22,595 2,511 10,042 10,042 Lease – RPG Byty 32,080 6,416 25,664 * Lease – Hydroelectric power plant MVE Kolín s.r.o.** 84,399 8,731 34,924 40,744

Sublease – Sneo a.s., Praha 6 6,643 1,661 4,982 -- Sublease – Teplo-byty Roudnice 6,000 1,500 4,500 -- Lease – Olomouc 6,119 3,075 3,044 -- Lease – Mariánské Lázně - Bytov 26,400 1,200 4,800 20,400 Lease – Mariánské Lázně 46,585 1,891 7,563 37,131 Lease of plant and equipment – OKD*** 43,030 10,960 26,149 5,921 Total 285,973 40,369 131,366 114,238 * The lease agreements have been concluded for an indefinite period of time with a six-month notice period. ** The lease payment is comprised of a fixed rent amount and a variable component based on electricity generation. *** The calculated lease payments are shown until 2023.

At 31 December 2016 in thousands of CZK

Total

Within 1 year

1–5 years

More than

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

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

28. Related parties

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

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



33


Employee compensation 98,595 90,454 Long-term benefits 7,309 6,291 Total employee compensation 105,904 96,745

29. Companies in the Group

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

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


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

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

In thousands of CZK 2017 2016 Purchase Sale Purchase Sale Veolia Environnement Finance / Veetra 266,986 -- 222,133 -- Veolia Energie International SA -- -- 98 -- Veolia Environnement – VE SA 130,874 1,095 97,867 2,368 Veolia Energia Polska SA -- -- 171,177 -- Veolia Energia Slovensko -- 130 221 -- VWS MEMSEP 9,010 -- -- -- Institut environmentálních služeb 10,647 -- 8,802 -- Solution and Services, a.s. 56,074 16 42,594 -- Pražské vodovody a kanalizace, a.s. 51,443 54,081 2,951 56,888 MORAVSKÁ VODÁRENSKÁ, a.s. 20,240 20,507 2,309 22,581 Severočeské vodovody a kanalizace, a.s. -- 63,981 -- 76,092 Veolia Energie Services 8,064 -- -- -- Středočeské vodárny, a.s. -- 20,116 -- 19,966 Královéhradecká provozní, a.s. -- 7,426 -- 7,761 Vodohospodářská společnost Sokolov 133 5,202 -- 6,106 1. SčV, a.s. -- 6,993 -- 7,849 Vodospol, s.r.o. -- 603 -- 1,234 Ravos, s.r.o. -- 2,194 -- 2,459 Veolia Vedlejší produkty -- 130 -- -- Česká voda -- 398 -- -- Veolia Voda Česká republika 1,158 -- 1,936 -- Total 554,629 182,872 550,088 203,304

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



34

In thousands of CZK 2017 2016 Receivables Liabilities Receivables Liabilities Veolia Environnement Finance / Veetra -- 598 -- 158 Veolia Energie International SA 17 -- 231 -- Veolia Environnement – VE SA 14,028 18,200 17 5,637 Veolia Energia Polska SA -- -- -- 208 Veolia Energia Slovensko 102 -- 81 -- SPID2 -- -- 220 -- VWS MEMSEP -- 3,617 -- -- Institut environmentálních služeb -- 252 -- 293 Solution and Services, a.s. 5 11,623 204 11,741 Veolia Centrum Uslug Wspólnych Sp z o -- 1,953 -- 1,697 Pražské vodovody a kanalizace, a.s. 23,218 11,499 16,853 -- MORAVSKÁ VODÁRENSKÁ, a.s. 14,140 637 12,377 256 Severočeské vodovody a kanalizace, a.s. 30,509 -- 11,069 -- VODÁRNA PLZEŇ a.s. -- -- -- -- Středočeské vodárny, a.s. 7,828 -- 5,532 -- Královéhradecká provozní, a.s. 3,535 -- 5,081 -- Vodohospodářská společnost Sokolov, s.r.o.

1,976 15 1,815 --

1. SčV, a.s. 4,536 -- 6,613 -- Vodospol, s.r.o. -- -- 752 -- Ravos, s.r.o. 867 -- 1,231 -- Veolia Vedlejší produkty 12 -- -- -- Česká voda 18 -- -- -- Veolia Voda Česká republika -- 78 -- 327 Total 100,791 48,472 62,076 20,317

30. Capital commitments

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

31. Fees for statutory auditors

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

32. Subsequent events

On 24 August 2017, creditors approved the OKD Reorganisation Plan. The Ostrava Regional Court then approved the plan on 11 October 2017. Citibank and NWR Holding B.V. appealed against this approval. On 6 February 2018, the Olomouc High Court dismissed the appeal and upheld the approval of the reorganisation plan, which became final on that day. No events occurred between the date of the statement of financial position and the date of preparation of the financial statements that would have any material impact on the financial statements as at 31 December 2017, or that should be disclosed in the financial statements.



1

Consolidated income statement For the year ended 31 December In thousands of CZK Note 2017 2016 Revenue 6 11,547,401 11,250,853 Cost of sales 7 (9,133,030) (10,416,694) Gross profit 2,414,371 834,159 Distribution expenses 8 (130,747) 18,910 Administrative expenses 9 (789,557) (732,204) Results from operating activities 1,494,067 120,865 Finance income 10 39,424 20,856 Finance costs 10 (92,650) (47,187) Net finance income and costs (53,226) (26,331) Profit before income tax 1,440,841 94,534 Income tax expense 11 (295,207) (165,296) Profit / (loss) for the period 1,145,634 (70,762) Attributable to: Interest of parent company shareholders 1,138,671 (78,997) Non-controlling interests 6,963 8,235 Profit / (loss) for the period 1,145,634 (70,762)


4. Report on Related Parties between the controlling and controlled entities and between the controlled entity and other entities under common control (related parties)

for the accounting period of 2017

prepared

under Section 82 of Act No 90/2012 on commercial companies and cooperatives

(the Business Corporations Act), as amended,

by the Board of Directors of Veolia Energie ČR, a.s. having its registered office at 28. října 3337/7, Moravská Ostrava, 702 00 Ostrava

Company No.: 451 93 410,

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

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

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

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

5. Conclusion


4. REPORT ON RELATED PARTIES

I. Preamble

The Report has been prepared by the Company’s governing body under Section 82 of Act No 90/2012 on commercial companies and cooperatives (the Business Corporations Act – BCA), as amended, on 28 February 2018. The accuracy of the disclosures contained herein was reviewed by the auditors, KPMG Česká republika Audit, s.r.o. The Report has been prepared for the accounting period of 2017.

II.

Specification and description of related parties

The list of related parties provides an overview of all related companies in the Czech Republic regardless of whether or not the Company had in place, or performed under, any contract with them in 2017, including their respective controlling entities. Furthermore, the list of related parties also includes those international entities with which the Company had in place, or performed under, a contract in the year reviewed.

Controlled company

Name: Veolia Energie ČR, a.s.

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

Register entry: B 318, Companies Register maintained by the Ostrava Regional Court

Company No.: 451 93 410

Legal form: Public limited company

Hereinafter also referred to as Veolia Energie ČR, or the controlled/dependent company/entity, or the Company. Controlling companies and entities controlling the controlling companies

Name: VEOLIA ENERGIE INTERNATIONAL Registered office: 21 rue La Boétie, 75008 Paris, France

Company No.: 433 539 566 R.C.S. Paris


Name: VEOLIA ENVIRONNEMENT-VE Registered office: 21 rue La Boétie, 75008 Paris, France




Hereinafter VEOLIA ENVIRONNEMENT. Related parties

Name: VEOLIA ENVIRONNEMENT ENERGIE ET VALORISATION Registered office: 21 rue La Boétie, 75008 Paris, France


Legal form: Simplified public limited company

Name: VEOLIA ENVIRONNEMENT FINANCE Registered office: 21 rue La Boétie, 75008 Paris, France



Name: CAMPUS VEOLIA ENVIRONNEMENT Registered office: Château d’Ecancourt, Rue d’Ecancourt, 95280 Jouy-Le-

Moutier, France

Company No.: 440 234 953 R.C.S. Pontoise


Name:

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

Registered office: Praha 2, Americká 415

Company No.: 257 06 969

Register entry: C 62955, Companies Register maintained by the Prague Municipal Court

Legal form: Private limited company

Name: JVCD, a.s.

Registered office: Praha 2, Americká 36/415, postcode 120 00

Company No.: 601 93 204


Register entry: B 2321, Companies Register maintained by the Prague Municipal Court


Name: OLTERM & TD Olomouc, a.s.

Registered office: Janského 469/8, Povel, 779 00 Olomouc

Company No.: 476 77 511



Name: AmpluServis, a.s.

Registered office: Ostrava-Třebovice, ul. Elektrárenská 5558, postcode 70974

Company No.: 651 38 317



Name: Veolia Energie Kolín, a.s.

Registered office: Kolín V., Tovární 21, postcode 280 63

Company No.: 451 48 091



Name:

Veolia Energie Mariánské Lázně, s.r.o.

Registered office: Nádražní náměstí 294, Úšovice, 353 01 Mariánské Lázně

Company No.: 497 90 676

Register entry: C 4776, Companies Register maintained by the Plzeň Regional Court



Name: Veolia Průmyslové služby ČR, a.s.

Registered office: Zelená 2061/88a, Mariánské Hory, 709 00 Ostrava

Doručovací číslo: 709 74

Company No.: 278 26 554



Name:

Veolia Komodity ČR, s.r.o.

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

Company No.: 258 46 159

Register entry: C 21431, Companies Register maintained by the Ostrava Regional Court


Name:

Veolia Energie Praha, a.s.

Registered office: Na Florenci 2116/15, Nové Město, 110 00 Praha 1

Company No.: 036 69 564



Name: Veolia Powerline Kaczyce Sp. z o.o.

Registered office: Morcinka 17, 43-417 Kaczyce, Poland

Company No.: 141 89 229, Regional Registry Court in Bielsko Biala



Name: Institut environmentálních služeb, a.s. Registered office: Podolská 15/17, Podolí, 147 00 Praha 4

Company No.: 629 54 865



Name: Veolia Eau - Compagnie Générale des Eaux Registered office: 21 rue La Boétie, 75008 Paris, France


Legal form: Partnership limited by shares

Name: VEOLIA CENTRAL & EASTERN EUROPE

Registered office: 21 rue La Boétie, 75008 Paris, France

Company No.: RCS PARIS B 433 934 809


Name: VEOLIA ČESKÁ REPUBLIKA, a.s.

Registered office: Na Florenci 2116/15, Nové Město, 110 00 Praha 1

Company No.: 492 41 214



Name: Pražské vodovody a kanalizace, a.s.

Registered office: Ke Kablu 971/1, Hostivař, 102 00 Praha 10

Company No.: 256 56 635




Name: MORAVSKÁ VODÁRENSKÁ, a.s.

Registered office: Tovární 1059/41, Hodolany, 779 00 Olomouc

Company No.: 618 59 575



Name: VODOSPOL s.r.o.

Registered office: Ostravská 169, Klatovy IV, 339 01 Klatovy

Company No.: 483 65 351



The company exited the Group on 27 September 2017.

Name: Středočeské vodárny, a.s. Registered office: Kladno, U Vodojemu 3085, postcode 272 80

Company No.: 261 96 620



Name: Severočeské vodovody a kanalizace, a.s. Registered office: Teplice, Přítkovská 1689, postcode 415 50

Company No.: 490 99 451

Register entry: B 465, Companies Register maintained by the Ústí nad Labem Regional Court



Name: RAVOS, s.r.o.

Registered office: Frant. Diepolta 1870, Rakovník II, 269 01 Rakovník

Company No.: 475 46 662



Name: Vodohospodářská společnost Sokolov, s.r.o. Registered office: Jiřího Dimitrova 1619, 356 01 Sokolov

Company No.: 453 51 325


Legal form: Private limited company Name:

Královéhradecká provozní, a.s.

Registered office: Víta Nejedlého 893/6, Slezské Předměstí, 500 03 Hradec Králové

Company No.: 274 61 211

Register entry: B 2383, Companies Register maintained by the Hradec Králové Regional Court


Name: 1. SčV, a.s. Registered office: Praha 10, Ke Kablu 971, postcode 100 00

Company No.: 475 49 793




Name: Česká voda – Czech Water, a.s. Registered office: Ke Kablu 971/1, Hostivař, 102 00 Praha 10

Company No.: 250 35 070



Name: Solutions and Services, a.s. Registered office: Na Florenci 2116/15, Nové Město, 110 00 Praha 1

Company No.: 272 08 320



Name: Veolia Support Services Česká republika, a.s. Registered office: Na Florenci 2116/15, Nové Město, 110 00 Praha 1

Company No.: 290 60 770



Name:

Veolia Vedlejší produkty ČR, s.r.o.

Registered office: Dělnická 6082/34, Poruba, 708 00 Ostrava

Company No.: 247 15 964

Register entry: C 63276, Companies Register maintained by the Ostrava Regional Court


Name:

Veolia Využití odpadů ČR, s.r.o. (earlier TEGAMO Waste, s.r.o.)


Registered office: Huťská 1379, 272 01 Kladno

Company No.: 056 47 550



The company became part of the Group on 1 February 2017 and changed its name on 1 June 2017.

Name:

Registered office:

EKOSEV, s.r.o.

Huťská 1379, 272 01 Kladno

Company No.: 259 15 819



The company became part of the Group on 1 February 2017.

Name:

Envir s.r.o.

Registered office: Huťská 1379, 272 01 Kladno

Company No.: 287 71 419



The company became part of the Group on 1 February 2017.

Name:

Severočeská servisní a.s.

Registered office: Pražská 150/34, Liberec II-Nové Město, 460 01 Liberec

Company No.: 051 75 917

Register entry: B 2659, Companies Register maintained by the Ústí nad Labem Regional Court



The company became part of the Group on 8 December 2017.

Name: Veolia Energia Slovensko, a.s.

Registered office: Einsteinova 25, Bratislava 851 01, Slovakia

Company No.: 357 02 257

Register entry: 1188/B, Companies Register maintained by the Bratislava District Court


Name: Veolia Centrum Usług Wspólnych Sp. z o.o.

Registered office: Al. Solidarności 46, 61-696 Poznań, Poland

Company No.: 701 00 29 635

Register entry: 0000261026 maintained by the Poznań District Court


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

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

Within the meaning of Section 79 of Act No 90/2012 on commercial companies and cooperatives, the Business Corporations Act (BCA), Veolia Energie ČR, a.s. is a dependent entity within the Group and is subject to joint management under a common policy of strategic management of the Group; for the dependent entity, the above primarily generates advantages from the know-how provided within the Group for performing the controlled entity’s business. The dependent entity is controlled through the exercise of the shareholders’ rights at the Company’s general meetings by the majority representation of one shareholder, who thanks to their shares of voting rights has the influence to appoint their representatives to the Company’s bodies and so can influence the business management of the Company. On the other hand, however, under the Company’s Articles of Association all important essential decisions of the general meeting are subject to approval by a qualified percentage of the shareholders, when the general meeting decides on matters under Article 13 (1) (a), (b), (c), (j), (k), (l), (m), (o), (p), (q), (r) a (s) of the Articles of Association by at least 87% of the votes of all shareholders. The Company is not exposed to any future or long-term risks as a result of its membership of the Veolia Group and the governing body is not aware of any material future developments that may jeopardise the Company as a result of its belonging to the Group.


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

IV. Overview of agreements between related parties, assessment of damage and compensation for damage under Sections 71 and 72 BCA, and overview of acts made at the instigation or in the interest of the controlling entity or entities controlled by the controlling entity

A. Relations with controlling companies and entities controlling the controlling companies A1. VEOLIA ENERGIE INTERNATIONAL

A Group Cash Pool Agreement has been concluded between Veolia Energie ČR, a.s. and VEOLIA ENERGIE INTERNATIONAL on an arm’s length basis. A2. VEOLIA ENVIRONNEMENT-VE

A Service Agreement, an Employee Secondment Agreement and an International Cash Pooling Agreement are in place between Veolia Energie ČR, a.s. and VEOLIA ENVIRONNEMENT, all on an arm’s length basis. VEOLIA ENVIRONNEMENT re-invoiced costs equalling the actually facilitated expenditure for pension plans and IT services (Mona, Ember and Maximo support). Veolia Energie ČR, a.s. re-invoiced costs for an employee posted by VEOLIA ENVIRONNEMENT, which equalled the actual expenditure.

B. Relations to related parties

B1. VEOLIA ENVIRONNEMENT FINANCE

VEOLIA ENVIRONNEMENT FINANCE and Veolia Energie ČR, a.s. have in place an Agreement on CO2 Allowance Trading and a Long Term Loan Security Agreement on an arm’s length basis. No other contracts between VEOLIA ENVIRONNEMENT FINANCE and Veolia Energie ČR, a.s. were concluded or performed.

B2. Energie Projekt ČR, s.r.o. ‘in liquidation’

A Service Agreement was concluded between Energie Projekt ČR, s.r.o. and Veolia Energie ČR, a.s. on an arm’s length basis; the agreement was not performed in 2017. No other contracts between Energie Projekt ČR, s.r.o. and Veolia Energie ČR, a.s. were concluded or performed. B3. JVCD, a.s.

A Service Agreement was concluded between Veolia Energie ČR, a.s. and JVCD, a.s. on an arm’s length basis; the agreement was not performed in 2017. No other contracts between JVCD, a.s. and Veolia Energie ČR, a.s. were concluded or performed. B4. OLTERM & TD Olomouc, a.s. The following agreements are in place between OLTERM & TD Olomouc, a.s. and Veolia Energie ČR, a.s.: Agreements where Veolia Energie ČR, a.s. is the supplier: - Agreement on Thermal Energy (steam, hot water) Supply, Including Make-up Water for

Heat Producing Installations; - Agreement on Heat Supply for the Olomouc Swimming Pool; - Agreement on Information System Support; - Lease Agreement on a Connecting Steam Pipe; - Agreement on Wage Processing; - Agreement on Regular Management Advice;


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

all of them on an arm’s length basis.

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

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

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

They also have an agreement on the installation of a telecommunications cable as part of the laying of a connecting steam pipeline, free of charge throughout the life of the buried cable.

Veolia Energie ČR, a.s. is a member of the Board of Directors of OLTERM & TD Olomouc, a.s. and has an agreement on exercising this office in place in accordance with Section 59 et seq. of Act No. 90/2012.

B5. AmpluServis, a.s. Veolia Energie ČR, a.s. and AmpluServis, a.s. have the following in place:

Agreements where Veolia Energie ČR, a.s. is the supplier:

- Agreement on Heat and Electricity Provision; - Service Agreements; - Agreement on Fund Management in the Group, including implementing addenda; - Commercial Space Lease Agreements; - Agreements on Changing Room Use; - Agreement on Industrial Gas Supply; - Agreement on Liabilities Settlement – provision of bank guarantees by KB, a.s.; Agreements where Veolia Energie ČR, a.s. is the customer:

- Agreements on Installation and Repair; - Agreements on Chemical Services; - Agreements on Expert Services; - Vehicle Lease Agreement;


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


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

B6. Veolia Energie Kolín, a.s. Veolia Energie ČR, a.s. and Veolia Energie Kolín, a.s. have the following in place:


- Agreement on Electricity Supply; - Service Agreements; - Agreement on Fund Management in the Group, including implementing addenda; Agreements where Veolia Energie ČR, a.s. is the customer:

- Agreement on Electricity Supply and Agreement on Imbalance Clearing;


Veolia Energie ČR, a.s. takes out insurance policies for Veolia Energie Kolín, a.s. and then re-invoices the costs.

B7. Veolia Energie Mariánské Lázně, s.r.o. Veolia Energie ČR, a.s. and Veolia Energie Mariánské Lázně, s.r.o. have the following in place:


- Agreement on Electricity Supply; - Agreement on Abstraction Well Lease; - Agreement on o a steam micro-turbine lease; - Service Agreements; - Agreement on Fund Management in the Group, including implementing addenda; Agreements where Veolia Energie ČR, a.s. is the customer:

- Agreement on Electricity Supply;


Veolia Energie ČR, a.s. takes out insurance policies for Veolia Energie Mariánské Lázně, s.r.o. and then re-invoices the costs.

B8. Veolia Průmyslové služby ČR, a.s. Veolia Energie ČR, a.s. and Veolia Průmyslové služby ČR, a.s. have the following in place:


- Agreement on Thermal Energy Sale, the ČSA site; - Agreement on Thermal Energy Sale, the LAZY Site; - Agreement on Treated Water Supply for Cold Production, the ČSA Site; - Agreement on the Connection of Producers TKV and TČA; - Agreement on Fixed Prices for Distributed Generation and Re-invoicing of Costs

Related to ČEZ Distribuce’s Consumption, - Agreement on Services and on the Use of Substations of Teplárny Karviná;


- Agreement on Services and on the Use of Substations of Teplárny Ostrava; - Agreement on Commercial Space Lease, a warehouse at Veolie Energie ČR,

Karviná-Doly, Svobody 5; - Agreement on Commercial Space Lease at Zelená 2061, Ostrava-Mariánské Hory; - Mandate for the Handling of and Trading in Greenhouse Gas Emission Allowances, - Agreement on Investment Acquisition Services and Advisory; - Agreement on Fund Management in the Group, including implementing addenda; - Service Agreement (IT, sales, invoicing, etc.); - Service Agreement – Consulting for Turkey; - Decision on Accession to the Terms and Conditions for Investments in the Sequoia

Employee Unit Trusts. Agreements where Veolia Energie ČR, a.s. is the customer:

- Agreement on Capacity Booking and Heat Supply in Emergencies and Outages for the Lazy Site;

- Lease Agreement on a 22 kV Line, designated D 641, at the Karviná CHP Plant (interconnection between ČSA and TKV);

- Agreement for the Servicing of Compressors for ETB and TKR; - Agreement for the Servicing of Compressors for TKV; - Agreement for the Servicing of BOGE SF 150II Compressors for ETB; - Agreement for the Servicing of Compressors in 2017-2020; - Servicing Agreement for Dryers, Blowers and Fans for ETB; - Contract for Work – ZKR Condensate Pump; - Contract for Work – Air Dryer Repair; - Contract for Work for a Cable Repair; - Agreement on the Lease of a Part of the Enterprise;

all of them on an arm’s length basis. Veolia Energie ČR, a.s. takes out insurance policies for Veolia Průmyslové služby ČR, a.s. and then re-invoices the costs, equalling the actually incurred costs. B9. Veolia Komodity ČR, s.r.o. Veolia Energie ČR, a.s. and Veolia Komodity ČR, s.r.o. have the following in place: Agreements where Veolia Energie ČR, a.s. is the supplier:

- Service Agreement; - Agreement on Fund Management in the Group, including implementing addenda; - Commercial Space Sublease Agreement and Personal Property Lease Agreement; - EFET Bilateral Electricity Trading Agreement; Agreements where Veolia Energie ČR, a.s. is the customer:

- Agreement on Bundled Gas Supply;

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

- Agreement on Electricity Supply; - Service Agreement; - Agreement on Fund Management in the Group;


Agreements where Veolia Energie ČR, a.s. is the customer:

- Agreement on Heat Supply; - Agreement on Imbalance Clearing;


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

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

B12. Pražské vodovody a kanalizace, a.s. Veolia Energie ČR, a.s. and Pražské vodovody a kanalizace, a.s. have in place an Agreement on Comprehensive Services and Maintenance of Heating and Cooling Plants on an arm’s length basis. In 2017, Pražské vodovody a kanalizace, a.s. and Veolia Energie ČR, a.s. performed under agreements on water supply and wastewater drainage; the performance in 2017 included water supply from the drinking water system and the drainage of wastewater through the sewerage system on an arm’s length basis.

B13. VEOLIA ČESKÁ REPUBLIKA, a.s. No written agreements in documentary form are in place. In 2017, VEOLIA ČESKÁ REPUBLIKA, a.s. re-invoiced Veolia Energie ČR, a.s. for the costs of conference organisation, public relations services, production of promotional materials and translations. Costs equalling the actually facilitated expenditure were re-invoiced. Veolia Energie ČR, a.s. made a financial donation to the Veolia Foundation set up by VEOLIA ČESKÁ REPUBLIKA, a.s.

B14. Česká voda - Czech Water, a.s. Veolia Energie ČR, a.s. and Česká voda – Czech Water, a.s. have in place an Agreement on the Facilitation of Sales and Purchase of Fuel for Vehicles of Veolia Energie ČR. In addition, an Agreement on Water Supply was performed on an arm’s length basis in 2017. Based on Česká voda – Czech Water, a.s.’s service orders, Veolia Energie ČR, a.s. carries out repairs in the boiler rooms of operating buildings. B15. MORAVSKÁ VODÁRENSKÁ, a.s. In 2017, Veolia Energie ČR, a.s. and MORAVSKÁ VODÁRENSKÁ, a.s. performed under agreements on water supply and wastewater drainage; the performance in 2017 included water supply from the drinking water system and the drainage of wastewater through the sewerage system on an arm’s length basis.

B16. Solutions and Services, a.s.


Veolia Energie ČR, a.s. and Solutions and Services, a.s. have in place a Service Agreement, a Cooperation Agreement – Contact Centre, an Agreement on IT Services and Advisory, an IT Management Agreement, an Agreement on Consulting Service Coordination, an IS Implementation Agreement, and an Agreement on Non-disclosure and Protection of Information and Ban on its Misuse on an arm’s length basis. In 2017 the companies re-invoiced each other for amounts that equalled the actually facilitated expenditure. B17. Veolia Vedlejší produkty ČR, s.r.o. In 2017 Veolia Energie ČR, a.s. and Veolia Vedlejší produkty ČR, s.r.o. performed under the Business Premises Lease Agreement and Heat Supply Agreement on an arm’s length basis. B18. CAMPUS VEOLIA ENVIRONNEMENT No written agreements in documentary form are in place. In 2017 CAMPUS VEOLIA ENVIRONNEMENT invoiced Veolia Energie ČR, a.s. for costs related to the organisation of training and courses, according to actual expenditure facilitated. B19. Veolia Energia Slovensko, a.s. Veolia Energie ČR, a.s. and Veolia Energia Slovensko, a.s. have in place a Service Agreement on an arm’s length basis. B20. Veolia Centrum Usług Wspólnych Sp. z o.o.

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

B21. Other related parties No contracts were concluded or performed, no legal acts were made, and no deliveries or considerations were provided between the other related companies within the Group. C. Overview of acts carried out at the instigation or in the interest of controlling entities

In 2017 no acts were carried out at the instigation or in the interest of the controlling entity or entities controlled by the controlling entity concerning assets in excess of 10% of the controlled entity’s equity and the controlled entity was not inhibited from making certain acts or strategic decisions due to control over the Company and due to controlling entities’ interest or instigation.

V. Conclusion

On the basis of the information available to the Board of Directors and its individual members, and in view of the information above, the Board of Directors states that in the period under review, the controlled company suffered no damage in its relations with the controlling entity or in relations between Related Parties. Furthermore, the Board of Directors notes that the Report is complete and that the disclosure of any additional information, in particular such as would extend the scope or depth of the disclosures made herein, is subject to trade secrecy under Section 504 of Act No 89/2012, the Civil Code. Prague, 28 March 2018 Philippe Guitard Josef Novák Chairman of the Board of Directors Vice-Chairman of the Board of Directors



VEOLIA ENERGIE INTERNATIONAL

Institut environmentálních

služeb, a.s.

AmpluServis, a.s.

Veolia Energie Mariánské Lázně,

s.r.o.

OLTERM & TD Olomouc, a.s.

Veolia Energie Kolín, a.s.

Energie Projekt ČR, s.r.o.

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

služby ČR, a.s.


JVCD, a.s. 100%

30%

100%

100%

100%

73.06%

100%

100%

100%

100%

99.95%

Veolia Komodity ČR, s.r.o.

VEOLIA ENVIRONNEMENT

66%

Lines of control

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

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

parties)

Veolia Energie Praha, a.s.

100%

99.99%

99.99%

100%

VEOLIA CENTRAL & EASTERN EUROPE

MORAVSKÁ VODÁRENSKÁ, a.s.

Severočeské vodovody a

kanalizace, a.s.

Královehradecká provozní, a.s.

Pražské vodovody a kanalizace, a.s.

Institut environmentálních

služeb, a.s.

Středočeské vodárny, a.s.

1. SčV, a.s.

Vodohospodářská společnost

Sokolov s. r. o.

Veolia Využití odpadů ČR, s.r.o.

VEOLIA ČESKÁ REPUBLIKA, a.s.

Solutions and Services, a.s.

100%

100%

100%

100%

30%

32%

34% 100% 100%

66%

50.1%

100%

RAVOS s.r.o.

100%

100%

Veolia Support Services Česká republika, a.s.

Notes: - TEGAMO Waste, s.r.o., EKOSEV, s.r.o. and Envir s.r.o.

became a part of the Group on 1 February 2017. - TEGAMO Waste, s.r.o. changed its business name to

Veolia Využití odpadů ČR, s.r.o. on 1 June 2017. - Vodospol s. r. o. left the Group on 27 September 2017. - Severočeská servisní a.s. became a part of the Group on

8 December 2017.

Lines of control

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

relations between the controlling and controlled entities and between the

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

VEOLIA EAU – COMPAGNIE GENERALE DES EAUX

VEOLIA ENVIRONNEMENT

Veolia Vedlejší produkty ČR, s.r.o.

100% Česká voda -

Czech Water, a.s.

100%

EKOSEV, s.r.o.

Envir s.r.o.

100%

100%

Severočeská servisní a.s.


5. AUDITOR’S REPORTS

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

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

Registered Office:Veolia Energie ČR, a.s.

28. října 3337/7Moravská Ostrava

702 00 OstravaCzech Republic

Customer service800 800 860

www.vecr.czwww.veolia.cz

Consolidated Annual Report prepared on April 25, 2018

the consolidated annual report 2017 - vecr.cz...business environment of european energy and...

Documents