ANNUAL REPORT 2016 ANNUAL REPORT 2016 Contents

5 Introduction by the Managing Director 8 Independent Auditor’s Report to the Shareholder of EP Commodities, a. s. 13 Company Background 15 Company Profile 16 Report of the Board of Directors on the Company’s Business Activities and the State of its Assets 19 Report of the Supervisory Board on the Results of its Supervisory Activities 21 Report on Relations Between Related Parties 27 Statutory Financial Statements and Notes to the Financial Statements

28 Balance Sheet 30 Income Statement 31 Cash Flow Statement 32 Statement of Changes in Equity 33 Notes to the Financial Statements (non-consolidated, translated from the Czech original) 33 1. Description and Principal Activities 35 2. Significant Accounting Policies Applied by the Company 35 A Tangible and Intangible Fixed Assets 35 B Establishment of Adjustments and Provisions 36 C Foreign Currency Translation 36 D Commodity Derivatives 36 E Income Tax 37 F Classification of Liabilities 37 G Recognition of Revenues and Expenses 37 3. Fixed Assets 37 A Intangible Fixed Assets for 2016 38 B Tangible Fixed Assets for 2016 39 4. Cash 39 5. Trade Receivables and Payables 40 6. Tax Receivables 40 7. Advance Payments 41 8. Registered Capital 41 9. Equity 42 10. Derivatives 42 11. Provisions 43 12. Revenues from and Expenses on Ordinary Activities 43 13. Other Financial Revenues and Expenses 44 14. Employees 44 15. Social Security and Health Insurance Liabilities 45 16. Tax Liabilities and Subsidies 45 17. Estimated Payables

45 18. Accrued Expenses 45 19. Income Tax 45 A Current Tax 45 B Deferred Tax 46 20. Related Parties 46 A Trade Receivables and Payables 47 B Transactions with Related Parties 47 C Loans Received 47 D Loans Provided 48 21. Fees Payable to Statutory Auditors 48 22. Contingencies and Commitments 48 23. Cash Flow Statement 49 24. Material Subsequent Event Introduction by the Managing Director

ANNUAL REPORT 2016 Introduction by the Managing Director

Dear shareholders, business partners, colleagues and friends,

2016 was another successful year for EP Commodities, a.s. (“the Company”). We managed to further develop trading with natural gas and prepare for the trade with other energy commodities.

Owing to the dynamic development of the Company’s sole ultimate owner, Energetický a průmyslový holding, a.s. (EPH), significant changes occurred in the Company, primarily the rapid development of trading in electricity and preparations for the operation of an energy dispatching centre in .

EP Commodities ought to fulfil the function of a trading centre for the entire EPH group in the future.

Trading in gas is EP Commodities’ primary and historically oldest activity associated with the EPH group’s profile. Last year, EP Commodities traded in gas in , the (OTE), (NCG and Gaspool), Holland (TTF), Austria (CEGH) and (PSV). It also acquired a trading licence in and expects to perform deals on this market in 2017.

In addition to wholesale in gas, EP Commodities again supplied gas to a fleet of gas power stations controlled by EPH in Italy (EP Produzione) and to the portfolio of end customers of EP ENERGY TRADING, a member of the EPH group.

Trading in electricity is a fast growing segment of our business. This product is currently financially traded at EEX and PXE. In 2016, we commenced our preparations for the physical trading in electricity in Germany, the Czech Republic, Slovakia, Hungary and UK.

6 Introduction by the Managing Director

In 2016, we commenced our project of establishing an energy management and dispatching centre in Prague, which mostly contributed to an increase in the number of the Company’s employees.

We achieved excellent results primarily due to the work of our people. We managed to maintain the trading profitability of existing products and prepare the base for further growth in a number of other products in other European countries.

I would like to thank all employees for their performance and our partners for our successful cooperation in 2016.

Prague, 19 June 2017

Daniel Pexidr

7 Independent Auditor’s Report to the Shareholder of EP Commodities, a. s.

ANNUAL REPORT 2016 9 10 11 12 Company Background

ANNUAL REPORT 2016 Company Background

Company name: EP Commodities, a.s. Registered office: Prague 1, Klimentská 1216/46, 110 02 Identification number: 034 37 680 Tax identification number: CZ03437680 Entry in the Commercial Register: Municipal Court in Prague, section B, file number 19973 Tel.: +420 255 707 090 E-mail: [email protected] Website: www.epcommodities.cz

Sole shareholder: Energetický a průmyslový holding, a.s. Registered office: Pařížská 130/26, Josefov, 110 00 Prague 1 Identification number: 283 56 250

14 Company Profile

EP Commodities, a.s. is a joint-stock company specialising in trading in energy commodities, which mainly involves whole-sale transactions with natural gas, electricity, emission allowances, coal (financially) and other products (e.g. dark and spark spreads) throughout the European regions.

The Company is part of the Energetický a průmyslový holding, a.s. (EPH) group, which is a leading Central European energy group that owns and operates facilities in the Czech Republic, Slovakia, Germany, Italy, Great Britain and Hungary.

EP Commodities, a.s. primarily focuses on countries in which the EPH group has its own assets or whose liquidity enables effective trading. In addition to the physical and financial securing of assets for the EPH group, it also performs sourcing of the end customer portfolios in selected countries.

15 Report of the Board of Directors on the Company’s Business Activities and the State of its Assets

ANNUAL REPORT 2016 Report of the Board of Directors on the Company’s Business Activities and the State of its Assets

All presented data have been prepared in compliance with Czech Accounting Standards.

ECONOMIC RESULTS FOR 2016

For the 2016 accounting period, EP Commodities, a.s. recognised revenues of CZK 18.8 billion. The profit before tax was CZK 62.9 million.

PRINCIPAL BUSINESS ACTIVITIES IN 2016

The Company’s principal business activity is the wholesale of natural gas on European markets.

Total trading in natural gas in all markets amounted to 57 TWh in 2016.

FURTHER DEVELOPMENT

In 2017, the Company primarily aims to complete the building of its business infrastructure and preparations for the operation of an energy dispatching centre in Prague.

The Company also plans to increase the number of employees and expand the entire corporate team.

RESEARCH AND DEVELOPMENT

The Company does not carry out any research and development activities.

ENVIRONMENTAL PROTECTION AND LABOUR-LAW RELATIONS

In handling consumable materials the Company always adopts an approach friendly to the environment.

Employment relations are governed by the Labour Code.

17 Report of the Board of Directors on the Company’s Business Activities and the State of its Assets

RISK MANAGEMENT OBJECTIVES AND METHODS

The Company is exposed to market risk as a part of its common business activity. The Company’s management in cooperation with its Risk Management department monitors and assesses the risks on regular basis. The management’s objective is to reduce any possible negative effects of the risks, which is done through commodity derivatives.

MATERIAL SUBSEQUENT EVENTS

On 3 February 2017, the following change in the ownership structure was recorded in the Commercial Register – EP Power , a.s., with its registered office at Pařížská 130/26, Josefov, 110 00 Prague 1 became the sole shareholder.

In 2017, the principal activities of the Company expanded by trading in electricity.

No other material subsequent events occurred as at the date of signing the Annual Report.

Prague, 19 June 2017

Miroslav Haško Daniel Pexidr

Chairman of the Board of Directors Member of the Board of Directors

18 Report of the Supervisory Board on the Results of its Supervisory Activities

ANNUAL REPORT 2016 Report of the Supervisory Board on the Results of its Supervisory Activities

In 2016, the Supervisory Board of EP Commodities, a.s. performed tasks in compliance with the Business Corporations Act and the Company’s statutes.

At its meetings, the Supervisory Board regularly monitored the Company’s economic results, the state of its assets and reviewed economic analyses. It checked and verified the fulfilment of tasks given to the Board of Directors by the General Meeting, resp. the decision of the sole shareholder during the exercise of powers of the General Meeting, as well as the observance of generally binding legal regulations and the Company’s statutes.

During 2016, when exercising its right to supervise, the Supervisory Board followed the Company’s statutes and generally binding legal regulations valid for the activities of joint stock companies. In the mentioned period, the Supervisory Board focussed primarily on its main task, i.e. the supervision over the exercise of powers of the Board of Directors and the examination of the annual financial statements and the proposal for the settlement of the financial result.

In the shareholder’s interest, the Supervisory Board also concentrated, among other things, on the continuous monitoring of economic results, the performance of the business plan and the resolutions adopted by the regular General Meeting. It simultaneously aided the Board of Directors in fulfilling the joint stock company’s development strategy.

The Board of Directors has provided the Supervisory Board with all necessary background materials, information and explanations. The Supervisory Board did not discover any shortcomings or violations of the Company’s statutes or applicable legal regulations in the activities of the Board of Directors.

20 Report on Relations between Related Parties

pursuant to Act No. 90/2012 Coll., on Corporations and Cooperatives for the accounting period from 1 January 2016 to 31 December 2016

ANNUAL REPORT 2016 Report on Relations between Related Parties

The Board of Directors of EP Commodities, a.s., (“the Company”), with its registered office in Prague 1, Klimentská 1216/46, 110 00, has prepared this report on relations between the controlled entity, companies exercising direct or indirect control and other entities controlled by the same controlling entity for the period from 1 January 2016 to 31 December 2016 in compliance with Section 82 of Act No. 90/2012 Coll., on Corporations and Cooperatives, as amended.

The entity directly controlling the Company in the period from 1 January 2016 to 31 December 2016 was Energetický a průmyslový holding, a.s., with its registered office in Pařížská 130/26, Josefov, 110 00 Prague 1.

In the respective period, Energetický a průmyslový holding, a.s., as the direct controlling entity owned 10 shares of the controlled entity, representing 100% of the Company’s registered capital and 100% of its voting rights.

I. CONTROLLED ENTITY III. THE CONTROLLED ENTITY’S ROLE, METHOD AND MEANS OF CONTROL EP Commodities, a.s., with its registered office in Prague 1, Klimentská 1216/46, 110 00, The controlled entity’s role within the group of companies ident. no. 034 37 680, recorded in the Commercial is trading with commodities on a wholesale market. Register maintained by the Municipal Court in Prague, To fulfil this role, the controlled entity enters into business section B, insert 19973 on 29 September 2014. relations with related parties. All contractual relationships with related parties were established under the arm’s length principle. All supplies and related consideration have been agreed based on the arm’s length principle. II. CONTROLLING ENTITY The controlling entity exercises its controlling influence Energetický a průmyslový holding, a.s., with its registered through the appointment and recalling of Statutory Board office in Pařížská 130/26, Josefov, 110 00 Prague 1, and Supervisory Board members in compliance with identification number: 283 56 250, recorded in the effective legislation and the controlled entity’s articles Commercial Register maintained by the Municipal Court of association. in Prague, section B, insert 21747 on 10 August 2009.

22 Report on Relations between Related Parties

IV. CONTRACTS WITH RELATED PARTIES IN (11) Emission Allowances Single Trade Agreement for EFFECT IN THE LAST ACCOUNTING PERIOD the EU ETS with EP Produzione S.p.A. (a total of 77 agreements concluded in 2016) In 2016, the contracts in effect between the controlled entity and the direct and indirect controlling entities and (12) Agreement for flexible gas supplies and other entities controlled by the same controlling entities withdrawals with eustream, a.s. dated were as follows: 15 December 2015.

(1) EFET-type framework agreement with (13) Framework agreement on balancing platform EP ENERGY TRADING, a.s. dated access of 23 October 2015 with eustream, a.s. 1 December 2014 (14) Contract for title transfer services of 27 April 2016 (2) Contract for the sub-lease of business premises with eustream, a.s. and for the provision of services with EP ENERGY TRADING, a.s. dated 1 October 2014 (15) Framework contract on access to the transmission network and gas transmission of 25 May 2016 (3) Loan agreement with Energetický a průmyslový with eustream, a.s. holding, a.s. dated 24 August 2015 (16) Agreement for the provision of data reporting (4) Loan agreement with Energetický a průmyslový under Article 9 (9) of REMIT Implementing Acts holding, a.s. dated 12 May 2016 of 31 March 2016 with NAFTA, a.s.

(5) Framework agreement to provide guarantees (17) Contract for the supply of natural gas with Energetický a průmyslový holding, a.s. dated of 2 December 2015 with NAFTA, a.s. 2 February 2015 (18) Contract for the supply of natural gas (6) Agreement for the supply of natural gas of 2 March of 16 November 2015 with NAFTA, a.s. 2016 with EP Produzione Centrale Livorno Ferraris S.p.A. (19) Contract on Future Gas Storage Agreement – the Inverse Storage of 25 September 2015 (7) Agreement for the supply of natural gas with NAFTA, a.s. of 10 October 2016 with EP Produzione Centrale Livorno Ferraris S.p.A. (20) Gas Storage Agreement – the Inverse Storage of 29 October 2015 with NAFTA, a.s. (8) Agreement for the supply of natural gas with EP Produzione S.p.A. (21) Purchase Agreement (Annex No. 2 to the Gas Storage Agreement – the Inverse Storage) (9) Agreement for the supply of natural gas of 29 October 2015 with NAFTA, a.s. of 10 October 2016 with EP Produzione S.p.A. (22) Gas Storage Agreement – the Inverse Storage (10) Amendment to the contract: agreement for of 28 January 2016 with NAFTA, a.s. the supply of natural gas of 30 November 2016 with EP Produzione S.p.A.

23 Report on Relations between Related Parties

(23) Purchase Agreement (Annex No. 2 to the Gas V. OTHER JURIDICAL ACTS PERFORMED IN THE Storage Agreement – the Inverse Storage) INTEREST OF RELATED PARTIES of 28 January 2016 with NAFTA, a.s. During the respective accounting period, no juridical (24) Gas Storage Agreement of 28 January 2016 with acts – other than those performed within the execution NAFTA, a.s. of rights pertaining to the controlled entity’s shareholder – were performed in the interest of the direct and indirect (25) Gas Storage Agreement – the Inverse Storage controlling entity or other entities controlled by the same of 1 December 2016 with NAFTA, a.s. controlling entity.

(26) Purchase Agreement (Annex No. 2 to the Gas Storage Agreement – the Inverse Storag