ANNUAL REPORT 2017 www.smvak.cz Severomoravské vodovody a|kanalizace Ostrava a.s. ANNUAL REPORT FOR 2017 PURSUANT TO Act No. 256/2004 Coll., on Capital Market Undertakings, as amended Act No. 563/1991 Coll., on Accounting, as amended Act No. 90/2012 Coll., on Business Corporations Severomoravské vodovody a kanalizace Ostrava a.s. Having its registered offi ce at: 28. října 1235/169, Mariánské Hory, 709 00 Ostrava The Company is incorporated in the Register of Companies maintained by the Regional Court in Ostrava, File B, Insert 347 Date of Incorporation 1 May 1992 Company ID No. 45193665 Tax ID No. CZ45193665 Telephone 800 292 400 E-mail [email protected] Website www.smvak.cz, www.smvak.eu CONTENT 1. INTRODUCTION 6 2. SCOPE OF BUSINESS 8 3. COMPANY PROFILE 12 4. ORGANISATION STRUCTURE 18 5. DEVELOPMENT OF THE COMPANY’S REGISTERED CAPITAL AND EQUITY 26 6. SECURITIES 28 7. RIGHTS ARISING FROM OWNERSHIP OF SECURITIES 32 Corporate Control Instruments 37 Company Code of Corporate Governance 38 Decision-Making Process and Scope of Powers of the General Meeting 39 8. MANDATORY INFORMATION PURSUANT TO THE ACT ON CAPITAL MARKET UNDERTAKINGS 36 9. ACCESS TO THE ANNUAL REPORT 40 10. THE CONTROLLED AND CONTROLLING PARTIES 42 11. THE BOARD OF DIRECTORS REPORT ON BUSINESS OPERATIONS AND THE STATE OF ITS ASSETS Key Financial Results for 2017 47 Revenues 47 Expenses 47 Profi t/loss 48 Financing 48 Loans 48 Organisational Matters and Human Resources 50 Profi t/loss, Dividend per Share 50 Court, Administrative and Arbitration Proceedings 50 Distribution of the Company’s Accounting Profi t for 2017 52 Projected Business Development and Financial Position in 2018 53 Water Resources 57 Drinking Water Production 57 Water quality in central water treatment plants 57 12. INFORMATION TECHNOLOGIES 68 13. SUSTAINABLE DEVELOPMENT 72 Corporate Governance 73 Human Resources 73 Environment 75 Region 75 14. REPORT OF THE SUPERVISORY BOARD 78 15. AUDITOR’S REPORT 80 16. POST BALANCE SHEET EVENTS 86 17. APPROVAL OF THE FINANCIAL STATEMENTS 90 3 Severomoravské vodovody a kanalizace Ostrava a. s. is the leading water supply company in the Moravian-Silesian Region. More than one million of people from the Moravian-Silesian Region, Region of Olomouc and border territories in Poland drink the water produced in Company’s water treatment plants. 4 5 1 Introduction I. 6 Dear Shareholders, Ladies and Gentlemen, We hereby present a report that comprehensively docu- Company has extended the operating hours of its customer ments the activities and operations of our company in 2017. service line. Moreover, an automated tool was launched, generating opinions concerning the existence of networks I can state that the Company successfully met all of its as of the date of fi ling a request. The 2017 data indicate that planned key objectives in the area of fi nance/economy, the Company’s customers clearly prefer modern technol- operation and organisation/human resources. Throughout ogy which may be operated at home to visiting client cen- the year, the Company secured reliable supplies of high- tres in person. quality drinking water in all locations of its operation, as well as drainage and treatment of waste water. On those grounds, the Company developed a new online tool for an unregulated business area whereby potential cli- Two investment projects were successfully completed in ents may demand services in a user-friendly manner, ie via early 2017. The Company invested CZK 130 million in ren- the Internet. The fi rst months of operation indicated that ovating the engineering and technologic facilities of the it was the right decision to make; therefore, the Company largest water treatment plant in Podhradí. The plant went will further develop this new way of addressing customers. through the fi rst major renovation of this type after 60 years of reliable operation. Furthermore, over CZK 50 mil- What is more, the Company also gives attention to its lion was invested to increase the effi ciency of and mod- employees and the region in which it operates. Throughout ernise the sludge management of the second largest 2017, the Company continued its unique educational pro- water treatment plant in Opava. In the backbone produc- gramme entitled Strom života (“Tree of Life”) focusing on tion and distribution system of the Ostrava Area Water water and its signifi cance for humans and the environ- Supply System, renovation was commenced in respect of ment. In 2017, a total of 25 primary schools participated in the Záhumenice – Bělá DN 500 feeder main, relocating the the programme, including 800 pupils at the upper-primary feeder main at the intersection with the Odra River. This level. The project gained such popularity among children, key structure amounting to more than CZK 40 million, which teachers and their parents that the capacity for 2018 has aims to ensure reliable supplies to a part of the region, will already been fi lled. The Company will continue and develop be completed in 2018. the project in further aspects. Moreover, the Company has enhanced cooperation with the Faculty of Mining and Furthermore, the Company allocated CZK 526 million to Geology of the VŠB - Technical University of Ostrava and dozens of minor and major investments structures in 2017. will continue to do so by way of individual projects. The volume of resources invested in repairing infrastruc- ture, technology and facilities amounted to CZK 212 mil- The employees who are actively engaged in non-profi t lion, which is a signifi cant increase. In 2017, a total of CZK organisations became the focus of our third round of the 750 million was also invested in the water management grant programme entitled Plaveme v tom spolu! (“We are infrastructure. in this together!”), announced at the turn of 2017 and 2018. In the previous two years, the Company provided CZK 400 In 2018, the Company will commence a series of signifi cant thousand to 34 projects of non-profi t organisations in investments as well as small-scale projects which are, how- which the Company’s employees work in their free time, ever, of major importance for people living in the respective free of charge. We appreciate that our employees are inter- (often remote) areas, being aimed at reliable operation of ested in the living standards of people in their region and infrastructure in the long-term. engaged in activities bringing benefi t and joy to others. The Company is convinced that the projects deserve its sup- As in the prior periods, the Company was actively engaged port. The Project indicates that even small amounts of help in licence proceedings, operating (since the beginning of realise big things, provided that the people’s hearts are in 2018) a sewage system and water treatment plants in Mosty the right place. u Jablunkova, which is the most Eastern part of the Czech Republic. The Company will continue to perform the devel- In 2017, Severomoravské vodovody a kanalizace Ostrava opment activities and seek new opportunities, both in our celebrated a quarter-century from the establishment of region and abroad. We are convinced that a combination the joint-stock company in 1992. Another signifi cant mile- of an appropriate pricing strategy and fi rst class know-how stone will come about in late 2018 when the Company will enables us to stand up to the competition. commemorate 60 years from the fi rst transport of drinking water from Kružberk through our water treatment plant in In 2017, the volume of drinking water production decreased Podhradí to Ostrava using the Ostrava Area Water Supply by approximately 1.6 million cubic meters to 60.4 million System. The backbone production and distribution system, which proved the trend set in prior years. The volume of which has operated smoothly ever since, has been devel- water supplier to households, business entities and external oped, renovated and modernised to secure reliable supplies water management companies saw a decrease. The volume of drinking water to customers. The company is proud of of unbilled water remained similar as in the prior period. this achievement as well as of its operation in other areas, The average daily consumption of drinking water per one at both local and European levels. inhabitant in our region remained similar as in prior years (87 litres). I believe that we should also be proud of SmVak Ostrava as a whole, entering 2018 as a strong, stable and reliable In a year-on-year comparison, the Company’s revenue company providing its customers with high-quality ser- moderately increased to CZK 2,422 billion. The Company vices at reasonable prices, having a clear vision of its future increased its revenue generated by construction and prospects and not being indiff erent to the quality of life of assembly activities by more than CZK 8 million to an amount the people living in the region of its operation. Things that exceeding CZK 54 million. The Company will continue to we take for granted do not have to be so obvious in other seek business opportunities in this area as well as in other regions or in the areas close to the border. market segments. The 2017 profi t before tax amounted to CZK 373 million. The Company makes every eff ort to develop a customer approach which would be most effi cient, eff ective and con- venient for both parties. Since the beginning of 2017, the Anatol Pšenička 7 Scope of business II. 8 Managing Director Scope of business of Severomoravské vodovody a kanalizace Ostrava a.s.: Design work for capital construction Offi cial metering Inspections of power installations (according to the authorisation of IBP Ostrava of 25 March 1991, registration No.: 1841/10.00/91-EZ-R-S) Civil engineering construction projects, including residential compounds Business management services excl.