2019 Annual Report...2019 Annual Report GasNet, s.r.o. Following the European Commission’s approval of the transaction, the contractual pre-emption right was exercised and on 30

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2019 Annual Report GasNet, s.r.o.

Key Ratios (CAS) 2019 Total sales (CZK m) 14 197

EBITDA (CZK m) 8 372

Operating result (CZK m) 19 525

Profit before taxation (CZK m) 18 498

Profit after taxation (CZK m) 14 987

Investments (CZK m) 3 791

Number of employees (FTE) 144 Wherever used in the text, the term Company refers to GasNet, s.r.o. Abbreviations a.s. Joint-stock company OHS Occupational health and safety CNG Compressed natural gas DN Diamètre nominal (nominal diameter) ERO Energy Regulatory Office GDPR General Data Protection Regulation GPRS General Packet Radio Service (data transmission and Internet connection) GRID GasNet s.r.o. and GridServices companies GSM Groupe Spécial Mobile (global mobile communication system) HR Human Resources Department IoT Internet of Things (interconnection of devices) k.ú. Cadastral community MF CR Ministry of Finance of the Czech Republic MO/DOM Small business and residential customers DSO Distribution system operator TRS Transfer regulating station Reko Reconstruction RS Regulating station SAP Systems, Applications, and Products in Data Processing SCADA Supervisory control and data acquisition SLA Service level agreement SMART Energy metering technology using smart meters. Smart Meter is an electronic device that records the consumption of electricity, gas, or water SMS Short message service SO Business customers s.r.o. Limited liability company STL Medium pressure (pressures up to 0.4 MPa) SW Software TSA (Transitional Service Agreement) TU Line valve station VO Key account customers TWh Terawatt hour VTL High pressure (pressures up to 4 MPa) VVTL Very high pressure (pressures over 4 MPa)

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2019 Annual Report GasNet, s.r.o.

Contents 1. Introduction ................................................................................................................................ 4

2. Corporate Information ................................................................................................................ 5

2.1 General Information .......................................................................................................................... 5

2.2 Governing Bodies............................................................................................................................... 7

2.3 Persons Responsible for the Annual Report and Audit of the Financial Statements ..................... 9

3. 2019 Management Report ......................................................................................................... 10

3.1 Results .............................................................................................................................................. 10

3.2 Investments ..................................................................................................................................... 10

3.3 Distribution System ......................................................................................................................... 12

3.4 Business and Communication ......................................................................................................... 13

3.5 Human Resources ............................................................................................................................ 15

3.6 OHS and Environmental Protection ................................................................................................ 16

3.7 Outlook ............................................................................................................................................. 16

3.8 Science and research ....................................................................................................................... 17

3.9 Subsequent events .......................................................................................................................... 18

4. Financial section ........................................................................................................................ 19

4.1 Financial statements ....................................................................................................................... 19

4.2 Notes to financial statements ......................................................................................................... 24

5. Independent Auditor’s Report.................................................................................................... 39

5.1 Auditor’s Report on the Financial Statements ............................................................................... 39

6. GasNet, s.r.o. Report on Related Party Transactions in the Year Ended 31 December 2019........... 42

6.1 Report of Related Party Transactions in 2019 ............................................................................... 42

6.2 Structure of relations ...................................................................................................................... 42

6.3 Overview of Transactions ................................................................................................................ 44

6.7 Confidentiality.................................................................................................................................. 45

6.8 Summary .......................................................................................................................................... 46

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GasNet, s.r.o. 2019 Annual Report

1. Introduction Ladies and Gentlemen, In looking back on 2019, I must begin with an important milestone – a change in the Company's ownership structure. A consortium of investors lead by Macquarie Infrastructure and Real Assets (MIRA), which includes British Columbia Investment Management Corporation (BCI) and Allianz Capital Partners, representing Allianz Group insurance companies, increased its stake in innogy Grid Holding, a.s. (currently Czech Grid Holding, a.s.), including its subsidiary GasNet, s.r.o. to 100%. Following this transaction, we ceased to be part of the innogy Group, and began the process of building a strong, autonomous, and fully independent distribution company on the domestic market. The consortium's interest in investing in our Company testifies to the fact that our business is highly attractive to strong global investors. Likewise, the transaction guarantees continuity and symbolizes the culmination of a partnership that has lasted more than six years. Our shareholders are well familiar with the energy sector and the gas distribution segment. Absolute priority is given to the reliable, safe, and efficient operation of the gas supply network. That is our mission. I am therefore very pleased that we were able to fulfill this task in 2019 and secure the operation of the gas supply infrastructure in a professional manner. One of the areas where our focus concentrated was occupational safety. A fundamental pillar of our business, employees' health is our primary concern. We mainly placed emphasis on preventing workplace accidents, on reducing the risk of traffic accidents, and on deepening cooperation with contractors with regard to occupational safety. A key area for securing natural gas supplies is the supervisory control of our gas supply network. In this area, 2019 saw us begin the replacement of the SCADA system with a new solution that meets the highest security requirements in accordance with the Cybersecurity Act. Being the biggest domestic distributor of ecological natural gas, protecting the environment is one of our highest long-term priorities. We continued a project aimed at optimizing gas preheating units to reduce emissions to a maximum possible extent. In 2019, we installed 190 new low-emission boilers at the Company's regulating and transfer stations. To conclude, I want to thank all employees whose proactive attitude has been crucial in the fulfillment of our tasks. Thanks also go to our business partners and contractors for lasting, prosperous partnerships. I believe that like in the previous year, we will together secure safe and reliable natural gas supplies in 2020. Martin Gebauer Chairman of the Executive Directors

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2. Corporate Information

2.1 General Information Business name: GasNet, s.r.o. Registered office: Klíšská 940/96

Klíše, Ústí nad Labem Postal Code 400 01

Company No.: 27295567 Legal form: Limited liability company Establishment and Inception The innogy Group's1 distribution companies were established on 1 January 2007 to comply with the European Union's laws and with the ensuing amendment to the Energy Act requiring the unbundling of licensed gas distribution companies from licensed trading companies. At establishment time, the innogy Group consisted of six regional distribution companies – STP Net, s.r.o., SČP Net, s.r.o., ZČP Net, s.r.o., VČP Net, s.r.o., SMP Net s.r.o., and JMP Net, s.r.o. To streamline the corporate structure, STP Net, s.r.o. and ZČP Net, s.r.o. merged in October 2009 into SČP Net, s.r.o., which was subsequently rebranded as RWE GasNet, s.r.o. In November 2013, the net assets of the dissolved companies VČP Net s.r.o., SMP Net s.r.o., and JMP Net s.r.o. were transferred to the successor company RWE GasNet, s.r.o. The gas distribution in the innogy Group has been carried out by a single entity, RWE GasNet, s.r.o., whose business name changed to GasNet, s.r.o. effective as of 1 October 2016. Transactions between RWE and E.ON Further to the announcement of RWE AG and E.ON SE, released on 11 March 2018, regarding an agreement on the basis of which RWE AG would sell its 76.79% stake in innogy SE to the E.ON Group and the companies would also exchange some other parts of their assets, the European Commission approved the transaction on 17 September 2019. E.ON SE has therefore become the owner of innogy SE and in turn the owner of innogy companies in the Czech Republic. As part of ‘the remedies’, i.e. the remedial measures intended to preserve a competitive environment, E.ON SE has however offered innogy’s entire retail business (natural gas and electricity) in the Czech Republic for sale. GasNet, s.r.o. has a registered capital of CZK 4,462,720,000. Company Profile GasNet, s.r.o. distributes gas in the entire territory of the Czech Republic with the exception of Prague and South Bohemia. Foreign Branch or Division In the year ended 31 December 2019, the Company had no branch or division abroad.

1 For the purposes of this Annual Report, the innogy Group in the Czech Republic includes innogy Česká republika a.s., innogy Energie, s.r.o., innogy Gas Storage, s.r.o., innogy Energo, s.r.o., innogy Grid Holding, a.s., GasNet, s.r.o., GridServices, s.r.o., innogy Zákaznické služby, s.r.o., and innogy TelNet Holding, s.r.o.

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Following the European Commission’s approval of the transaction, the contractual pre-emption right was exercised and on 30 September 2019 the companies in the Grid Group were sold to a consortium of investors lead by Macquarie Infrastructure and Real Assets (MIRA), which includes British Columbia Investment Management Corporation (BCI) and Allianz Capital Partners representing Allianz insurance companies. The last step will be the sale of innogy Gas Storage, s.r.o. back to the RWE Group, which will take place in 2020.

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2.2 Governing Bodies Statutory Directors of GasNet, s.r.o. in the Year Ended 31 December 2019

Ing. Martin Gebauer Chairman of the Statutory Directors Date of birth: 4 November 1969 Education: Brno University of Technology, Faculty of Civil Engineering City University in London Membership in the bodies of other companies: Communications Investments Holdings s.r.o. Chairman of the Board of Statutory Directors Czech Grid Holding, a.s. Chairman of the Board of Directors GridServices, s.r.o. Chairman of the Executive Directors Czech Difital Group, a.s. Member of the Board of Directors České Radiokomunikace, a.s. Chairman of the Board of Directors GeFin, s.r.o. Shareholder and Statutory Director The Duke of Edinburghs International Award Member of the Supervisory Board Czech Republic Foundation, o.p.s. Other business activities: None RNDr. Jan Valenta Statutory Director Date of birth: 22 November 1965 Education: Charles University, Prague, Czech Republic Faculty of Mathematics and Physics, Ph.D. in Software Systems Membership in the bodies of other companies: Společenství vlastníků domu č.p. 295, Špindlerův Mlýn Committee Member Sportovní klub SJ SKI, z.s. Committee Member „Český plynárenský svaz” Board Vice-Chairman Other business activities: None Thomas Merker Statutory Director Date of birth: 28 November 1971 Education: Friedrich Schiller University, Jena Membership in the bodies of other companies: M I P, Merker Immobiliengesellschaft, s.r.o. Shareholder and Statutory Director Other business activities: None

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Changes in the Company's Governing Body in 2019 The sole shareholder, Czech Grid Holding a.s., appointed Martin Gebauer as the Company's Executive Director as of 30 September 2019 and dismissed Dušan Malý. The Executive Directors elected Martin Gebauer as the Chairman of the Executive Directors effective as of 7 October 2019.

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2.3 Persons Responsible for the Annual Report and Audit of the Financial Statements

Auditor and Audit Firm Responsible for Auditing the Financial Statements for 2019 Audit firm: Auditor in charge: PricewaterhouseCoopers Audit, s.r.o. Ing. Soňa Hoblová Hvězdova 1734/2c, 140 00 Prague 4 Statutory Auditor, Registration No. 2470 Registered in the Register of Audit Firms of the Czech Chamber of Auditors, Registration No. 021 Prague, dated 17 March 2020 Person responsible for accounting Lucie Čejková Chief Accountant Executive Directors Responsible for the 2019 Annual Report We, the undersigned, hereby certify that information disclosed in this Annual Report is true and that no facts of material importance have been omitted or misrepresented.

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3. 2019 Management Report

3.1 Results Revenues, Expenses, Profit The Company's financial performance in 2019 was significantly affected by climatic conditions, as temperatures remained above the long-term average, and by decreased pricelist prices. The sale of services, mainly proceeds from natural gas distribution, amounted to CZK 14,197 million and accounted for the most important part of revenues. Last year's earnings after taxes amounted to CZK 14 987 million. Assets Disregarding provisions for tangible fixed assets, fixed assets as at 31 December 2019 amounted to CZK 66,487 million, which represents a CZK 181 million increase from the balance of fixed assets on 1 January 2019. The total value of the Company's assets as at 31 December 2019 amounted to CZK 72,440 million. Investments into the reconstruction of gas assets accounted for the highest share of the value of fixed assets. Liabilities On the side of liabilities, equity increased by CZK 11 784 million year-over-year. Long-term liabilities included a CZK 8 173 million deferred taxe liability. Received prepayments for natural gas distribution accounted for a significant share of total liabilities, amounting to CZK 5,122 million as at 31 December 2019, a year-over-year increase by CZK 40 million.

3.2 Investments Investments made by GasNet, s.r.o. totaled CZK 3,790 million, CZK 124 million more than in 2018. The highest increase was recorded in investments into metering and distribution system renovation. Investments into tangible and intangible assets amounted to CZK 3,713 million and CZK 77 million, respectively. Investments (CZK m) 2019

Investments into intangible assets 77Investments into tangible assets 3,714 Including:

Distribution system renovation 3,240

Pipeline acquisition 65

Distribution system enlargement 2

Investments into metering 262

Easements 92

Other investments 53

Total investments 3,791 * Considered investments are accretions in the balance of tangible and intangible fixed asset accounts, save for accounts of paid prepayments for fixed assets and fixed assets in progress during 2019.

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The largest part of these funds were invested into distribution system renovation (CZK 3,240 million), a fact that stems from the size of the distribution system and the time when it was built, as the construction of a part of the network began in the 1940s. Investment plans aimed at network renewal are subject to a multi-criteria assessment that mainly targets the overall optimization concept, taking into account specific needs for gas supply in a given locality. During the execution of investment projects, construction work is coordinated with the operators of other infrastructure networks, which helps reduce costs and mitigates negative impact on residents in affected communities. A total of CZK 65 million was spent on the acquisition of new pipelines. Hence, the decreasing acquisition trend from previous years continued in view of the high density of the gas supply system in our distribution territory combined with the fact that we prefer lease agreements with the subsequent option to buy already leased profitable pipelines. The establishment of easements for operated gas assets accounted for a large part of investment costs, a figure that increases significantly every year. In 2019, these costs amounted to CZK 92 million. Important investments into gas asset reconstruction projects:

• Reconstruction of the DN 500 Brodské – Velké Němčice VIII high-pressure pipeline • Reconstruction of DN 200 Ladná - Břeclav II high-pressure pipeline • Reconstruction of Kojetice – Neratovice TU High-pressure pipeline • Reconstruction of PRS 20693 Bezměrov – Boiler unit • Reconstruction of DN 500 Brodské – Velké Němčice IX high-pressure pipeline • Reconstruction of Mirošovice – Lahovice V10119 Stage II high-pressure pipeline • Reconstruction of Blansko – Gellhornova ČKD medium-pressure pipeline • Reconstruction of DN 200 Ladná – Břeclav I high-pressure pipeline • Reconstruction of PRS 2036 Bukovany – Boiler unit • Reconstruction of TU Šanov – RS Králíky I high-pressure pipeline

As to intangible assets, investments were mainly made into information system security, complying with the Cybersecurity Act, completing measures for ensuring conformity to the GDPR, and providing SW support to employees in charge of investment construction in the field. Moreover, investments were made into the preparation of master plans for areas of interest. During the reported year, the Company had to respond to several accidents, none of which jeopardized the security of operations. Important operations-related events included the shutdown of the Kostelec na Hané RS caused by internal activities during gas meter replacement (gas supply to 1,030 consumers was interrupted) and two cases of third party-caused pipeline damage (Rosnice, District of Hradec Králové and Dobrovice, District of Mladá Boleslav where 500 and 646 consumers were without gas supplies, respectively). None of these incidents jeopardized the safety of operations, and natural gas supply was restored within a short time. Metering We continued to fine-tune metering systems at customer's offtake points in response to legislative requirements, developments on the fully liberalized natural gas market, and changes in consumption patterns.

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In the reported year, 934 online metering units were installed for customers from the Key Account and Business segments, including 842 non-continuous metering devices and 92 continuous metering devices with online data transfer. Consumers equipped with these devices have real-time access to information on natural gas consumption via the AVE Internet application. In the Key Account and Business segments, we launched a process to change the long-distance meter reading method from the GSM system to the GPRS system in 2019. The reported year saw us replace 4,631 GSM devices with GPRS units out of a total of 9,377 online metering devices. GPRS units therefore account for 49 % of the total number of online metering devices. The replacement resulted in a more modern, more accessible, and guaranteed technology, a significant reduction of meter reading time, increased system reliability, and the option to increase the capacity and frequency of online meter readings. In 2019, 2,993 SMART diaphragm gas meters with remote-controlled valves and online data transmission were installed at regulating stations and at offtake points in the Small Business and Household segments. Where installed at regulating stations, these devices will provide online self-consumption data. On customers' premises, the units are installed in locations where disconnection frequently took place in the past. Furthermore, we continued testing new metering devices, GPRS data transmission, and options offered by the IoT. Gas Meter Replacement 2019 Plan Installed Replaced Units Units %

Total 93,332 88,087 94.4 %

Diaphragm gas meters 89,881 84,636 94.2 %

Other 2,518 2,518 100 %

Converters 933 933 100 %

3.3 Distribution System The distribution system of GasNet, s.r.o. is operated based on Gas Distribution License No. 220604925 granted on 1 January 2007 and updated under Annex 032 issued by the Energy Regulatory Office on 1 October 2019 in accordance with the Energy Act (Act No. 458/200), as in effect. There were 2,292,090 offtake points with a distribution contract in force as at 31 December 2019. The quantity of gas distributed in the reported year amounted to 70.1 TWh. The operation of the distribution system was managed with close attention to the security and reliability of gas supplies.

Overview of Gas Assets 2019 2018 2017 2016 Length of operated pipelines Local networks km 42,661 42,647 42,591 42,529 Service lines km 11,119 11,110 11,092 11,089 Long-distance pipelines km 11,205 11,236 11,277 11,284 Transfer and very-high-pressure regulating stations Units 55 55 53 57 High-pressure regulating stations Units 2,763 2,767 2,751 2,771 Medium-pressure regulating stations Units 781 787 801 812 Cadastral communities with a distribution license Units 6,888 6,895 6,895 6,894

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Changes in the balance of gas assets were mainly due to organizational measures aimed at increasing network use and, consequently, improving the efficiency of distribution. Optimizing the distribution system with regard to the efficiency, safety, and reliability of operation resulted in a decrease in the length of high-pressure pipelines, a fact mainly due to a switch from high to lower pressure levels. Corrosion Protection The Company pays close attention to protecting very high-pressure and high-pressure steel pipelines from corrosion using active anti-corrosion systems. Active anti-corrosion systems protect 11,205 km (99.21 %) of the total length of 11,117 km of high-pressure and very-high-pressure pipelines.

3.4 Business and Communication Business In 2019, growth on the liberalized gas market slowed down vis-à-vis the dynamic development in previous years. The extent of supplier switching was below the levels achieved in 2017 and 2018, when over 200 thousand supplier switches were made annually. Still, the 186 thousand supplier switches in 2019 show that a large number of consumers continue to monitor changes in prices and the level of services offered by individual gas suppliers. The development of the gas market can be demonstrated by the number of contracts for distribution system services entered into between the Company and gas traders. In 2019, the number of contracts increased by seven up to 131, while 14 new contracts were entered into and seven expired, including three contracts that were terminated following a merger of traders. Data on the use of the DOS Online Service application, the main communication channel between the distribution system operator and network users, confirm a decrease in the number of supplier switches compared to previous years. In 2019, logins to the application reached nearly 136 thousand, which translates into 372 logins per day on average. The interface was used to submit 342 thousand distribution capacity booking requests, which corresponds to 937 requests per day, an approximately 11 % year-over-year decrease. Although the number of supplier switch applications decreased year-over-year, supplier switching remains at a relatively high level, above 300 thousand supplier switches annually. This fact indicates that the decrease in supplier switch applications is increasingly compensated by other types of requests, most importantly utility account transfers without supplier change. The number of meter readings submitted through the DOS Online Service application has followed a path of continuous growth, which has not slowed down since its deployment in 2009. In the year under review, this communication channel was used to submit nearly 210 thousand meter readings, which translates into 574 submissions per day on average. The growing number of meter readings submitted by customers has had a favorable effect on the number of received claims, reducing their number by 16 % year-over-year. The number of offtake points connected to the distribution system as at 31 December 2019 decreased by 4,003 year-over-year. There were 2,292,090 offtake points connected to the distribution system at the end of the reported year. Compared to 2018, the quantity of distributed gas increased slightly by approximately 0.4 % to 70 TWh. The average annual temperature dropped by 0.1 °C from 2018 to 9.8 °C, a value that is 1.8 °C above the long-term annual average.

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The change in the ownership structure that took place in September 2019 necessitated changes in our business operations. Work began on dividing the single customer information system, which we had shared in the framework of the former corporate arrangement into two separate applications, and on related modifications of customer service processes, including the insourcing of support services up to now provided by innogy Zákaznické služby, a.s. and innogy Česká republika, a.s. Another prerequisite for dividing the customer information system is the registration of the offtake point of the trader innogy Energie, a.s. in the system of the market operator. Yet another task completed immediately after the announcement of the acquisition was modifying business correspondence, which consisted of removing the most visible branding elements that were no longer applicable, as they associated the Company with the former owner, innogy. At the same time, work began on the creation of the Company's new brand design. In preparation for forthcoming changes, a stress test of the DOS Online Service application was carried out in September 2019 with a favorable outcome. Following the division of the customer information system, the application will serve as the key communication channel for the trading business of innogy Energie, a.s. No amendments to gas supply sector laws, which would require major changes in processes, were adopted in 2019. The reported year saw the continuation of work on the processing of customer personal data and fulfillment of requirements laid down under Regulation of the European Parliament and of the Council 2016/679 (GDPR), which defines rules for the protection of personal data. A significant achievement was the termination of the use of biometric signature, thanks to which it is no longer necessary to obtain customers' consent to storing and processing their biometric data. Customer consent to that effect was the only GDPR requirement we formerly had to comply with. This change has considerably simplified workflow and reduced workload relating to the signing of documents. Communication The most important event, which was highly demanding as regards clear communication toward business partners, was the abovementioned change in the Company's ownership. Most importantly, business partners were assured that the parameters of existing partnerships would not change and that all hitherto used communication channels would remain operational, including our website, portal, customer service line, e-mail addresses, and contact points. We also emphasized the fact that Company has separated itself from the innogy brand. The year 2019 saw a high use of our mobile self-reading application that allows residential and small business customers to conveniently submit data on gas consumption at offtake points, including meter readings taken for regular and exceptional billing purposes. This comfortable, user-friendly communication channel was used by approximately 20 thousand customers. A big role in the large number of readings submitted this way was played by a function that sends e-mails and SMS text messages informing customers who switch suppliers of the option to use this application. Another effort aimed at streamlining operations targeted the Gas Distribution Online application, which is mainly intended to allow customers in all segments to file demands for distribution system connection, consent to the construction of structures other than gas assets, vector data, and demarcation services. The application was used to file 21,534 demands for new connections to the distribution system. Where applicable, demands and connection agreements were processed automatically within 15 seconds.

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3.5 Human Resources Employees In 2019, employee headcount (FTE) in the Company was 144. Wages In 2019, wages developed in accordance with the Company's business strategy and the remuneration rules and wage increase principles agreed in the Collective Agreement signed for the years 2018-2020, including amendments. Employee Structure by Education in the Year Ended 31 December 2019

Education Post-secondary Secondary University Total (%) 1.3% 36.6% 62.1% 100.0% Employee headcount as at 31 December 2019 2 56 95 153

Legend: Post-secondary / Secondary / University Social Policy The Company fulfilled obligations arising under the Collective Agreement for the years 2018-2020 and all its annexes. Employee Benefits The Company creates provision for unused vacation, extra pay, and bonuses provided to employees as well as for employee benefits to which employees are entitled under the Collective Agreement. The Company makes regular contributions to the government-run pension scheme. Moreover, the Company makes contributions for employee supplementary retirement savings through payments to independent pension funds.

1.3%

36.6%

62.1%

Employee Structure by Education in the Year Ended 31 December 2019

Vyšší odborné Středoškolské Vysokoškolské

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3.6 OHS and Environmental Protection One of the highest priorities of GasNet, s.r.o., environmental protection is reflected in all aspects of the Company's operations, processes, and decisions. In line with our commitment to comply with legislative requirements, the Company continually improves employees' awareness of environmental issues to motivate responsible comportment on their part, to prevent emergencies, and to minimize the adverse impact of the Company's operations. The implemented environmental management system is the most important instrument for managing all operations from the viewpoint of environmental protection. As in previous years, we worked hard to fulfill the long-term target (2014 - 2019) of reducing emissions of nitrogen oxides and carbon monoxide, which consisted of optimizing the efficiency of preheating technology in regulating stations. In 2019, work continued on upgrading technologies, where investments amounted to almost CZK 50 million. In addition, CZK 936 thousand was invested into structural modifications aimed at reducing noise levels at 36 regulating stations. The Company is subject to ecology-related commitments under agreements with the Czech Ministry of Finance negotiated to cover the cost of remediation of environmental issues originating prior to the Company's privatization. In the framework of the remediation of pollution caused by coal gas production by the Company's state-owned predecessor, cleanup of a saturated zone began on a site in Uherské Hradiště in November 2019, following the completion of work in a non-saturated zone in the locality. In the reported year, the remediation of a non-saturated zone was completed on land owned by GasNet in the Javorník cadastral community, where the obligation to clean environmental pollution originating in the past lies with a different legal entity. Post-remediation monitoring on the site began in February 2019. Environmental pollution originating in the past is removed at the expense of the government. There was no serious incident in the Company's operations with an adverse impact on the environment in 2019. Likewise, contractors were required to perform work in an environmentally responsible manner. Environmental protection is enforced through contractual provisions to that effect in the procurement of both goods and services.

3.7 Outlook All of the Company's activities will mainly focus on improving the safety and reliability of natural gas supply to customers, taking into account financial considerations. In the next year, approximately CZK 3,340 million is planned to be invested into network renovation projects. All reconstruction projects are planned based on an assessment of the technical condition of pipelines in accordance with network capacity calculations and long-term forecasts pertaining to the development of gas consumption in given localities. A high standard of operational safety will be maintained through the ongoing elimination of technical risks during planned network renewal projects, such as spirally welded and LITEN pipes. A contribution in this regard will be made by a predictive model that selects gas assets to be reconstructed based on experience with the incidence of defects in specific facilities and helps allocate funds in an effective manner with the aim of reducing the incidence of leaks to a minimum. As regards the development of the distribution system, the main goal is to support projects aimed at increasing efficiency and reducing costs in individual localities, including residential buildings and industrial facilities, and to support ventures of strategic importance, such as building CNG stations, converting coal-fired heating plants for the use of gas, and installing cogeneration units. Likewise, strong

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emphasis will be placed on dormant service lines, where the objective is to slow down their increasing trend and to gradually restore service. GasNet will continue optimizing the customer information system and adapt it to the new conditions of our business operations. Throughout the next year, work will continue on the division of the system and on the implementation of the Company's new visual presentation. In addition, we are preparing another increase in the degree of routine task automation, particularly as regards entering into connection agreements and processing requests and complaints. An important milestone planned for 2020 will be the deployment of a new Call Center technology, a modern, cost-effective solution that will allow us to respond to changes in requirements for customer service in a flexible manner.

3.8 Science and research In research and development (R&D), primarily projects focused on natural gas greening, methane emission reductions, and the testing of new applications and approaches in the operation and maintenance of the distribution system installations continued in 2019. Methane emissions continue to be a very hot issue; as part of R&D, we were part of an international group, headed by GERG, representing major distribution system operators. The role of natural gas as one of the fossil fuels having an impact on climate changes, through direct methane emissions into the air, is being increasingly analysed and evaluated in detail; see the Madrid Forum conclusions of June 2019. One of the explored criteria was the emission factor, which was assessed and tested in detail. Our direct involvement in the development of the strategy for reducing these emissions was an important part of our R&D. The issue of new gases has a direct impact on us in respect of the connection of biogas/methanation plants, and also in terms of the interconnection of electricity and gas markets (which is referred to as Market Coupling). In this context, in cooperation with a foreign company, we have prepared a feasibility study for the construction of a methanation station; the purpose of this station would be to produce hydrogen through electrolysis and use it for upgrading biogas to biomethane, and to utilise available biogas capacities even more efficiently. Equally importantly, such installation would help us to test as many as three new gases: hydrogen, biomethane, and synthetic methane. The feasibility study is being completed in 2020. The digitalisation strategy and the gradual penetration of new technologies and approaches into everyday practice in operation and maintenance was another important area that we explored and where we tested the options and opportunities. This included the CoSMiC Eye international project, in which we were directly involved and as part of which we tested a technology for satellite sensing of the Earth at selected GasNet locations in 2019. Our colleagues in the Netherlands and Germany highly appreciated the results of these tests, which also open for the future an important path of deploying digitalisation and technologies for the remote monitoring of pipelines and their installations. Satellite technologies accompanied by drones have very promising prospects for the future modifications of the operating models used by operators of gas and electricity systems, in particular as regards the post-process evaluation of the condition of the installations and the monitoring of their protection in the closest vicinity of such installations (safety and protection zones). The process, now already organised on a regular basis, of monitoring new technologies and energy market developments and also the target areas for preparing and awarding new research projects continued in 2019. International cooperation in the European energy area (ERIG) was also continuously

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being intensified. Major international activities managed at the R & D level also included specific direct cooperation with colleagues in Germany and France (GRTGaz) on issues that are important for the gas industry, such as, in particular, natural gas greening, injection of alternative (renewable) gases, changes of operating models, and deployment of smart tools and approaches in operating data collection and evaluation.

3.9 Subsequent events As a result of demerger of the innogy group in the Czech Republic, the agreements (SLAs) for the provision of services by the Company to the Czech Grid Holding group shall be terminated under agreed terms and conditions. In this context, associated agreement, the Transitional Service Agreement, was concluded on 25 February 2020. Under this Agreement, approximately 70 employees from support positions at the Company are expected to be migrated to the Czech Grid Holding group as at the end of 2020 . The public consultation process on the proposal for the price regulation principles for the fifth regulatory period (2021-2025) continued in 2020. At the end of February 2020, the Energy Regulatory Office (ERO) published the settlement of the comments on the proposal for the price regulation principles, which it had received during the public consultation process. The ERO will not approve and publish the price regulation principles before the end of April 2020. No other events with a major impact on the assessment of the Company’s business had occurred by the date of this Annual Report.

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4. Financial section

4.1 Financial statements

BALANCE SHEET (in thousand Czech crowns)

Row 31.12.2018

Gross Provision Net Net

c 1 2 3 4

001 119 092 488 (46 651 989) 72 440 499 57 804 924B. 003 112 951 993 (46 464 673) 66 487 320 51 440 392B. I. 004 1 003 006 (783 160) 219 846 200 896B. I. 2. 006 747 191 (622 097) 125 094 144 835B. I. 2. 1. 007 744 997 (620 353) 124 644 144 738B. I. 2. 2. 008 2 194 (1 744) 450 97

B. I. 4. 010 210 073 (161 063) 49 010 55 654

B. I. 5. 011 45 742 - 45 742 407B. I. 5. 2. 013 45 742 - 45 742 407B. II. 014 111 948 987 (45 681 513) 66 267 474 51 239 496B. II. 1. 015 103 701 785 (40 558 440) 63 143 345 48 277 516B. II. 1. 1. 016 139 680 - 139 680 132 011B. II. 1. 2. 017 103 562 105 (40 558 440) 63 003 665 48 145 505

B. II. 2. 018 7 523 110 (5 123 073) 2 400 037 2 297 848B. II. 5. 024 724 092 - 724 092 664 132B. II. 5. 1. 025 16 045 - 16 045 15 692

B. II. 5. 2. 026 708 047 - 708 047 648 440

C. 037 6 139 500 (187 316) 5 952 184 6 358 249C. I. 038 1 406 - 1 406 1 683C. I. 1. 039 1 406 - 1 406 1 683

C. II. 046 5 317 224 (187 316) 5 129 908 6 356 306C. II. 2. 057 5 317 224 (187 316) 5 129 908 6 356 306C. II. 2. 1. 058 210 319 (187 316) 23 003 67 199

C. II. 2. 2. 059 10 395 - 10 395 754 104

C. II. 2. 3. 060 - - - 664 804C. II. 2. 4. 061 5 096 510 - 5 096 510 4 870 199C. II. 2. 4. 3. 064 37 692 - 37 692 -

C. II. 2. 4. 4. 065 368 265 - 368 265 139 471C. II. 2. 4. 5. 066 4 690 204 - 4 690 204 4 730 223C. II. 2. 4. 6. 067 349 - 349 505

C. IV. 075 820 870 - 820 870 260C. IV. 1. 076 5 - 5 -C. IV. 2. 077 820 865 - 820 865 260D. 078 995 - 995 6 283D. 1. 079 966 - 966 6 256D. 3. 081 29 - 29 27

Prepaid expensesAccrued income

Estimated receivablesOther receivables

CashCash in handCash at bankPrepayments and accrued income

Trade receivablesReceivables - subsidiaries and controlling party

Receivables - associatesReceivables - other

Taxes - receivables from the state

Short-term advances paid

Tangible fixed assets in the course of construction

Current assetsInventoriesRaw materials

Receivables Short-term receivables

Advances paid for tangible fixed assets

SoftwareOther royalties

Other intangible fixed assets

Advances paid and intangible fixed assets in the course of constructionIntangible fixed assets in the course of construction

Tangible fixed assetsLand and constructions

LandConstructions

EquipmentAdvances paid and tangible fixed assets in the course of construction

Royalties

Ref. ASSETS 31.12.2019

a b

TOTAL ASSETSFixed assetsIntangible fixed assets

20


BALANCE SHEET - continued (in thousand Czech crowns)

LIABILITIES AND EQUITY Row 31.12.2019 31.12.2018

082 72 440 499 57 804 924A. 083 35 165 287 23 381 568A. I. 084 4 462 720 4 462 720A. I. 1. 085 4 462 720 4 462 720A. II. 088 714 686 714 686A. II. 2. 090 714 686 714 686A. II. 2. 1. 091 714 686 714 686A. III. 096 13 166 963 13 166 963A. III. 2. 098 13 166 963 13 166 963A. IV. 099 1 833 686 468 771A. IV. 1. 100 1 833 686 468 771A. V. 102 14 987 232 4 568 428B. + C. 104 37 256 119 34 308 218B. 105 30 336 151 926B. 2. 107 - 67 801B. 4. 109 30 336 84 125C. 110 37 225 783 34 156 292C. I. 111 29 299 292 26 104 302C. I. 4. 117 654 523C. I. 6. 119 20 709 500 10 068 298C. I. 7. 120 - 10 052 202C. I. 8. 121 8 173 288 5 371 304C. I. 9. 122 415 850 611 975C. I. 9. 3. 125 415 850 611 975C. II. 126 7 926 491 8 051 990C. II. 3. 131 5 121 643 5 081 592C. II. 4. 132 843 500 970 621C. II. 6. 134 1 570 912 1 030 118C. II. 7. 135 - 399 680C. II. 8. 136 390 436 569 979C. II. 8. 3. 139 5 898 5 032C. II. 8. 4. 140 3 138 2 667C. II. 8. 5. 141 177 996 396 656C. II. 8. 6. 142 203 106 165 365C. II. 8. 7. 143 298 259D. 147 19 093 115 138D. 1. 148 630 90 373D. 2. 149 18 463 24 765

Accrued expenses

Deferred income

Liabilities to employeesLiabilities for social security and health insurance

Taxes and state subsidies payableEstimated payables

Other liabilitiesAccruals and deferred income

Liabilities - other

Trade payablesLiabilities - subsidiaries and controlling party

Liabilities - associatesDeferred tax liability

Liabilities - otherOther liabilities

Short-term liabilitiesShort-term advances receivedTrade payables

Liabilities - subsidiaries and controlling partyLiabilities - associates

Long-term liabilities

Other capital contributionsOther reservesStatutory and other reservesRetained earnings / Accumulated lossesRetained earnings or accumulated losses (+/-)

Profit / (loss) for the current periodLiabilitiesProvisionsIncome tax provision

Other provisionsLiabilities

5 6

Capital contributions

Ref.

a b c

TOTAL LIABILITIES AND EQUITYEquityShare capitalShare capitalShare premium and capital contributions

21


INCOME STATEMENT (in thousand Czech crowns)

Row

2019 2018

b c 1 2

I. 01 14 196 717 14 597 553A. 03 5 785 505 5 164 345A. 2. 05 1 722 993 1 211 541A. 3. 06 4 062 512 3 952 804C. 08 (27 555) (21 844)D. 09 139 418 134 579D. 1. 10 101 434 97 579D. 2. 11 37 984 37 000D. 2. 1. 12 33 724 32 280D. 2. 2. 13 4 260 4 720E. 14 (11 166 558) 2 672 993E. 1. 15 (11 153 012) 2 680 587E. 1. 1. 16 3 712 988 3 671 587E. 1. 2. 17 (14 866 000) (991 000)E. 3. 19 (13 546) (7 594)III. 20 40 001 54 796III. 1. 21 2 056 7 013III. 2. 22 90 73III. 3. 23 37 855 47 710F. 24 (18 750) 49 280F. 1. 25 2 479 3 975F. 3. 27 5 425 5 220F. 4. 28 (53 789) 18 742F. 5. 29 27 135 21 343

30 19 524 658 6 652 996VI. 39 9 456 2 844VI. 1. 40 1 789 1 617VI. 2. 41 7 667 1 227J. 43 1 036 499 1 009 373J. 1. 44 649 012 505 611

J. 2. 45 387 487 503 762VII. 46 368 3K. 47 461 409

48 (1 027 136) (1 006 935)49 18 497 522 5 646 061

L. 50 3 510 290 1 077 633L. 1. 51 708 306 928 567L. 2. 52 2 801 984 149 066

53 14 987 232 4 568 42855 14 987 232 4 568 42856 14 246 542 14 655 196

Tax on profit or loss - deferred** Net profit / (loss) after taxation

Other interest and similar income Interest and similar expenses

Interest and similar expenses - subsidiaries or controlling party

Other interest and similar expensesOther financial incomeOther financial expenses

Operating provisions and complex prepaid expensesOther operating expenses

* Operating resultInterest and similar income

*** Net profit / (loss) for the financial periodNet turnover for the financial period

* Financial result** Net profit / (loss) before taxation

Tax on profit or loss Tax on profit or loss - current

Interest and similar income - subsidiaries or controlling party

Sales of fixed assets Sales of raw materialsOther operating incomeOperating expenses - otherNet book value of fixed assets soldTaxes and charges from operating activities

Operating income - other

Own work capitalisedStaff costsWages and salariesSocial security, health insurance and other social costs

Social security and health insurance costsOther social costs

Value adjustments in operating activitiesValue adjustments of fixed assets

Depreciation, amortisation and write off of fixed assets Provision for impairment of fixed assets

Provision for impairment of receivables

Services

Ref. TEXT Accounting period

a

Sales of products and servicesCost of salesRaw materials and consumables used

22


Statement of changes in equity For the year ended 31 December 2019

Note Share capitalOther capital

funds

Statutory and other reserves

Retained earnings Total

4 462 720 714 686 13 166 963 4 678 210 23 022 5790 0 0 -4 209 439 -4 209 4390 0 0 4 568 428 4 568 428

4 462 720 714 686 13 166 963 5 037 199 23 381 5680 0 0 -3 203 513 -3 203 5130 0 0 14 987 232 14 987 232

4 462 720 714 686 13 166 963 16 820 918 35 165 287As at 31 December 2019

Dividends/profit distribution paidNet profit/(loss) for the current period

As at 31 December 2018Net profit/(loss) for the current periodDividends/profit distribution paidAs at 1 January 2018

23


Cash-flow statement For the year ended 31 December 2019

* Other non-cash movements within cash flow from operating activities include mainly accounts receivable write-offs. ** Based on the Netting Agreement between the Company and the Shareholder dated 31 May 2019 the liability towards the sole Shareholder resulting from dividends paid for 2018 in the amount of CZK 589,000 thousand was netted off with a loan received from innogy Česká republika a.s.,CGN Holdings S.a.r.l. and CGN Holdings 2 S.a.r.l. (see also Notes to financial statements, Note 7 Equity). *** Loans to related parties includes payment of short term loans disclosed in the Note 6 Receivables.

2019 2018

1 2

18 497 522 5 646 061A. 1. (10 192 798) 3 704 397A. 1. 1. 3 712 988 3 671 587A. 1. 2. (14 933 335) (979 852)A. 1. 3. 423 (3 038)A. 1. 5. 1 027 043 1 006 529A. 1. 6. 83 9 171A * 8 304 724 9 350 458A. 2. (114 180) 913 152A. 2. 1. (47 747) 455 777A. 2. 2. (66 710) 457 236A. 2. 3. 277 139A ** 8 190 544 10 263 610A. 3. (1 147 478) (1 007 046)A. 4. 9 454 2 858A. 5. (813 799) (1 206 366)A *** 6 238 721 8 053 056B. 1. (3 940 334) (4 196 970)B. 2. 2 056 7 013B. 3. 1 330 673 (151 091)B *** (2 607 605) (4 341 048)C. 1. (195 993) 82 655C. 2. (2 614 513) (3 795 439)C. 2. 6. (2 614 513) (3 795 439)C *** (2 810 506) (3 712 784) 820 610 (776) 260 1 036 820 870 260

Dividends paidNet cash flow from financing activitiesNet increase/(decrease) in cash and cash equivalentsCash and cash equivalents at the beginning of the year

Working capital changes:Change in receivables and prepaymentsChange in short-term payables and accrualsChange in inventories

Net cash flow from operating activities before tax

Change in provisions(Profit)/loss from disposal of fixed assetsNet interest expense/(income)Other non-cash movements

Net cash flow from operating activities before tax and changes in working capital

a

Cash and cash equivalents at the end of the year

Changes in equity:

Acquisition of fixed assetsProceeds from sale of fixed assetsLoans to related partiesNet cash flow from investing activitiesChange in long- and short-term liabilities

Interest paidInterest receivedIncome tax paidNet cash flow from operating activities

b

Cash flows from operating activitiesNet profit /(loss) before taxAdjustments for non-cash movements:

Depreciation and amortisation of fixed assets

Ref. TEXT Accounting period

24


4.2 Notes to financial statements

1. General information

1.1 Introductory information about the Company GasNet, s.r.o. (“the Company”) was incorporated on 2 June 2006 by the Regional Court in Ústí nad Labem, Section C, Insert 23083 and has its registered office at Klíšská 940/96, 400 01 Ústí nad Labem, the Czech Republic. The Company’s primary business activity is gas distribution. The identification number of the Company is 272 95 567. The sole shareholder of the Company is Czech Grid Holding, a.s. (previously as innogy Grid Holding, a.s.) (further referred to as the “Shareholder”). The Company is not a shareholder having unlimited liability in any undertaking. The Statutory Directors as at 31 December 2019 were as follows:

Name Position Date of appointment Martin Gebauer Jan Valenta

Chairman of the Statutory Directors Statutory Director

7 October 2019 1 July 2015

Thomas Merker Statutory Director 30 September 2019 The Statutory Directors as at 31 December 2018 were as follows:

Name Position Date of appointment Jan Valenta Chairman of the Statutory Directors 1 July 2015 Dušan Malý Statutory Director 1 December 2016

On 30 September 2019 Dušan Malý resigned from the position of the Statutory Director and Martin Gebauer was elected as the Statutory Director on the same date. Martin Gebauer was elected Chairman of the Statutory Directors effective from 7 October 2019.

1.2 Other Information On 11 March 2018, the companies RWE AG and E.ON SE made an announcement about the agreement, by which the Group RWE AG would sell its 76.79 % share in innogy SE to the E.ON Group and exchange some other parts of assets. On 17 September 2019, the European Commision authorised this transaction. E.ON SE has become the shareholder of innogy SE and therefore indirectly of innogy Česká republika a.s., which represents, together with its subsidiaries, innogy group in the Czech Republic. At the same time the condition was set for completion of the takeover of the shareholding of innogy SE that stated that a part of the assets of the innogy group, among others also in the Czech Republic, needs to be sold to third parties. The consortium of investors led by Macquarie Infrastructure and Real Assets, which had previously held a 49.96% stake in Czech Grid Holdings, a.s. (previously as innogy Grid Holding, a.s.), exercised the contractual pre-emption right for the remaining 50.04% and as of 30 September 2019 it became its sole shareholder. This consortium also includes British Columbia Investment Management Corporation (BCI) and Allianz Capital Partners representing Allianz Group insurance companies.

25


The Company and its subsidiaries (together the Czech Grid Holding Group) continue in receiving of services provided by innogy Česká republika a.s. and innogy Zákaznické služby, s.r.o. Relating contracts will be terminated gradually and under certain conditions.

On 25 February 2020, the companies of the Czech Grid Holding Group concluded a so called Transitional Service Agreement with innogy Česká republika a.s. and innogy Zákaznické služby, s.r.o. The purpose of the TSA is to provide a framework for the operational separation of the Czech Grid Holding Group from the innogy group in the Czech Republic. The TSA foresees a separation in 2020 of over 60 software applications, so far being used or managed by innogy Česká republika a.s. for the former integrated innogy group in the Czech Republic. Up to 230 employees (FTE) will be transferred from innogy group in the Czech Republic to the Czech Grid Holding Group and another up to 125 employees (FTE) will be transferred from innogy Zákaznické služby, s.r.o. (Customer Care) to the Czech Grid Holding Group. The plan considers also a purchase of 25 selected buildings by GasNet, s.r.o. from innogy Česká republika a.s. by Czech Grid Holding Group as well as movable assets being purchased by the Czech Grid Holding Group. Moreover, around 500 commercial contracts with relevance to the Czech Grid Holding Group’s activities have to be split and negotiated on a bilateral basis with contractors. The effective allocation of employees, assets and contracts among the Czech Grid Holding Group entities will be analysed and decided in the course of 2020.

2. Regulatory framework GasNet, s.r.o. operates a regional distribution system in most of the Czech Republic. Due to the nature of this business activity, it creates a natural monopoly in its area where the business activity is performed. The Company`s business is regulated by the Energy Act, in particular by the Energy Regulatory Office. The regulation of the Company is conducted by determining the, so called, adjusted allowed revenues (the Revenue Cap method), these rules are set for certain regulatory periods.

The year 2019 can certainly be described as very important in terms of economic regulation. It was the fourth year of the extended IV. regulatory period, which was originally set as three year period in 2015 (2016-2018) but was subsequently extended by two years until 31 December 2020.

At the same time communication intensified with the Energy Regulatory Office, which is responsible for setting the rules for the regulation of the 5th regulatory period. At the end of August, this communication resulted in a Public Consultation Process on the draft Price Regulation Principles for the regulatory period 2021-2025 for the electricity and gas industry, electricity and gas market operators and obligatory buyers. This document will define the key rules for determining the adjusted allowed revenues of the Company. The consultation process was ongoing till the end of December 2019. In February 2020, the Energy Regulatory Office organised a public hearing during which all those who sent comments could participate. In February 2020, the Energy Regulatory Office addressed all the submitted comments and suggestions and closed the consultation process by publishing the results of the consultations on its website. However, the final parameters of the methodology for price regulation for the fifth regulatory period (2021-2025) is not expected to be published before the end of April 2020.

In 2019, the Office's inspection activities focused on the requirements of some detailed accounting operations from 2017 and 2018 and, also on the legitimity of several historical investment expenditures. The Company has not yet received any statement from the Energy Regulatory Office regarding this matter.

26


3. Accounting policies

3.1 Basis of preparation The financial statements have been prepared in accordance with Generally Accepted Accounting Principles in the Czech Republic relevant for large companies and have been prepared under the historical cost convention (except as disclosed below).

3.2 Intangible and tangible fixed assets All intangible (and tangible) assets with a useful life longer than one year and a unit cost of more than CZK 60 thousand (CZK 10 thousand) are treated as intangible (and tangible) fixed assets. Purchased intangible and tangible fixed assets are initially recorded at cost, which includes all costs related to their acquisition. Own work capitalised is recorded at cost. Assets received as gifts are recorded at replacement cost against other operating income account as at the date of receipt. Assets acquired with a subsidy from municipalities are valued at costs decreased by the subsidy received. Intangible and tangible fixed assets contributed to the Company by innogy Energie, s.r.o. as at 1 January 2007 are recognised at replacement costs determined by the expert valuation and are depreciated over their estimated useful lives. Intangible and tangible (except for land which is not depreciated) fixed assets are depreciated applying the straight-line method over their estimated useful lives as follows:

Intangible fixed assets Estimated useful life Software 36 months Royalties 72 months

Tangible fixed assets Estimated useful life Buildings and constructions 14 - 50 years Plant, machinery and equipment 7 - 20 years Furniture and fittings 3 years Gas network 40 years

The depreciation plan is updated during the useful life of the intangible and tangible fixed assets based on the expected useful life change. Unused assets are exceptionally depreciated. Repairs and maintenance expenditures of tangible fixed assets are expensed as incurred. Technical improvements of constructions greater than CZK 40 thousand per year, equipment greater than CZK 10 thousand and distribution systems regardless of the amount are capitalised. Tangible fixed assets with a unit cost of more than CZK 2 thousand and less than CZK 10 thousand are treated as inventory and are expensed upon consumption. The Company's management assesses at each balance sheet date whether there were any events or changes in circumstances that would indicate that the carrying value of assets is greater than its estimated recoverable amount. A provision for impairment is created when the carrying value of an asset is greater than its estimated recoverable amount

27


3.3 Receivables Receivables are stated at nominal value less a provision for doubtful amounts. A provision for doubtful amounts is created on the basis of an ageing analysis and an individual evaluation of the credit worthiness of the customers. Receivables from related parties have not been provided for.

3.4 Cash and cash equivalents Cash and cash equivalents include cash in hand, stamps and vouchers and cash in banks, including bank overdrafts. Cash equivalents are short-term highly liquid investments that can be exchanged for a predictable amount of cash and no significant changes of value over time are expected. Cash equivalents are, for example, deposits with a maturity of less than 3 months from the date of acquisition and liquid debt securities traded in public markets. The Company uses a so-called cash-pooling within the group. A receivable (liability) that arises from cash-pooling is not presented in the Cash-flow statement as part of the item Cash and Cash equivalents. The Company has prepared a Cash-flow statement using the indirect method.

3.5 Foreign currency translation Transactions denominated in a foreign currency are translated and recorded at the rate of exchange ruling as at the transaction date. Cash, receivables and liabilities balances denominated in foreign currencies have been translated at the exchange rate published by the Czech National Bank as at the balance sheet date. All exchange gains and losses on cash, receivables and liabilities balances are recorded in the income statement.

3.6 Provisions Provisions are recognized when the Company has a present obligation, it is probable that an outflow of resources will be required to settle the obligation, and a reliable estimate of the amount can be made. The Company recognises a provision for its future income tax payable which is presented net of advances paid for the income tax. If advances paid are higher than the estimated income tax payable, the difference is recognised as a short-term receivable.

3.7 Revenue recognition Revenues from distribution fees represent the majority of the Company's revenues. Distribution revenues are divided into several categories. The Company distributes gas to the users of distribution system.

28


Natural gas distribution to customers for categories high-volume (“VO”) and middle- volume (“SO”) is billed to particular traders on a monthly basis based on measured consumption. Gas distribution to low-volume categories (“MO”) and households (“DOM”) is billed to particular traders periodically, when the consumption reading is performed at least once every 14 months for each customer. Revenues from MO and DOM categories consist of actually billed revenues and revenues from so called “unbilled distribution" (see note 6 Receivables). The amount of unbilled distribution is calculated from the total amount of distributed gas in the particular year based on past behaviour of individual customers and is valued based on the valid price resolution of Energy Regulatory Office.

3.8 Related parties The Company’s related parties are considered to be the following: • parties, which directly or indirectly control the Company, their subsidiaries and associates; • parties, which have directly or indirectly significant influence on the Company; • members of the Company’s or parent company’s statutory and supervisory boards and management

and parties close to such members, including entities in which they have a controlling or significant influence.

Material transactions and outstanding balances with related parties are disclosed in Note 11 Related party transactions and balances.

3.9 Leasing The costs of assets held under both finance and operating leases are not capitalised as fixed assets. Lease payments are expensed evenly over the life of the lease. Future lease payments not yet due are disclosed in the notes but not recognized in the balance sheet. Assets acquired through finance lease are recognized in the balance sheet as tangible fixed assets after the termination of the lease and transfer of ownership rights to the Company and are depreciated over their estimated useful lives.

3.10 Interest expense Interest expense on borrowings to finance the acquisition of intangible and tangible fixed assets are capitalised during the period of completion and preparation of the asset for its intended use. Other borrowing costs are expensed.

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

3.12 Subsequent events The effects of events, which occurred between the balance sheet date and the date of preparation of the financial statements, are recognized in the financial statements in the case that these events provide further evidence of conditions that existed as at the balance sheet date.

29


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

3.13 Comparatives During the year 2019 the Company changed regarding the definition of cash equivalents and cash-pooling is no longer its part. The comparatives in the Cash flow Statement that is part of the financial statements for the year ended 31 December 2019 have been amended to reflect this change. Consequently, there is an increase from CZK (77,843) thousand to CZK 1,036 thousand on the line “Cash and cash equivalents at the beginning of the year” and and increase form CZK (541,303) thousand to CZK 260 thousand on the line “Cash and cash equivalents at the end of the year” for the year ending on 31 December 2018. Those corrections were made through the lines “Change in receivables and prepayments” in amount of CZK 291,905 thousand and “Change in short=term payables and accruals” in amount of CZK 170,779 thousand.

4. Intangible fixed assets (CZK‘000)

1 January 2019

Additions / transfers

Disposals

31 December 2019

Cost Software 680,256 66,741 (2,000) 744,997 Other royalties 1,806 388 - 2,194 Other intangible fixed assets 203,883 10,994 (4,804) 210,073 Intangible fixed assets in the course of construction

407

45,335

-

45,742

Total 886,352 123,458 (6,804) 1,003,006 Accumulated amortisation Software 535,518 86,835 (2,000) 620,353 Other royalties 1,709 35 - 1,744 Other intangible fixed assets 148,229 17,638 (4,804) 161,063 Total 685,456 104,508 (6,804) 783,160 Net book value 200,896 219,846

(CZK‘000)

1 January 2018


Disposals

31 December 2018

Cost Software 585,836 95,930 (1,510) 680,256 Other royalties 1,806 - - 1,806 Other intangible fixed assets 209,357 25,539 (31,013) 203,883 Advances paid for intangible fixed assets 2,231 (2,231)1 - - Intangible fixed assets in the course of construction

7,849

(7,442)1

-

407

Total 807,079 111,796 (32,523) 886,352 Accumulated amortisation Software 469,521 67,507 (1,510) 535,518 Other royalties 1,684 25 - 1,709 Other intangible fixed assets 156,954 22,178 (30,903) 148,229 Total 628,159 89,710 (32,413) 685,456 Net book value 178,920 200,896

30


1 The item Additions/transfers for intangible fixed assets in the course of construction is represented by additions in the amount of CZK 123,571 thousand (as at 31 December 2018: CZK 114,027 thousand) and transfers in the amount of CZK 78,236 thousand (as at 31 December 2018: CZK (121,469) thousand). The item Additions/transfers related to advances paid is represented by no additions (as at 31 December2019: CZK nil thousand) and transfers in the amount of CZK nil thousand (as at 31 December 2018: CZK (2,231) thousand).

5. Tangible fixed assets

(CZK’000)

1 January 2019


Disposals

31 December 2019

Cost Land 132,011 7,875 (206) 139,680 Constructions excluding gas network 3,038,818 89,635 (14,008) 3,114,445 Gas network 97,605,982 3,054,075 (212,397) 100,447,660 Equipment 7,148,358 561,476 (186,724) 7,523,110 Advances paid for tangible fixed assets 15,692 353 - 16,045 Tangible fixed assets in the course of construction

648,440

59,607

-

708,047

Total 108,589,301 3,773,021 (413,335 111,948,987 Accumulated depreciation Constructions excluding gas network 1,295,448 110,091 (9,173) 1,396,366 Gas network 36,337,847 3,034,410 (210,183) 39,162,074 Equipment 4,850,510 447,079 (174,516) 5,123,073 Total 42,483,805 3,591,580 (393,872) 45,681,513 Provision 14,866,000 (14,866,000) - Net book value 51,239,496 66,267,474

(CZK’000)

1 January 2018


Disposals

31 December 2018

Cost Land 131,385 931 (305) 132,011 Constructions excluding gas network 2,992,341 64,296 (17,819) 3,038,818 Gas network 94,864,180 3,016,875 (275,073) 97,605,982 Equipment 6,805,135 470,624 (127,401) 7,148,358 Advances paid for tangible fixed assets 20,572 (4,880)1 - 15,692 Tangible fixed assets in the course of construction

591,653

(57,082)1

(295)

648,440

Total 105,405,266 3,604,928 (420,893) 108,589,301 Total Accumulated depreciation 1,199,950 112,409 (16,911) 1,295,448 Constructions excluding gas network 33,548,264 3,052,309 (262,726) 36,337,847 Gas network 4,562,744 409,042 (121,276) 4,850,510 Equipment 39,310,958 3,573,760 (400,913) 42,483,805 Total 15,857,000 (991,000) 14,866,000 Provision 50,237,308 51,239,496

1 The item Additions/transfers for tangible fixed assets in the course of construction is represented by additions in the amount of 3,772,565 thousand (as at 31 December 2018: CZK 3,602,104 thousand) and transfers in the amount of CZK (3,712,958) thousand (as at 31 December 2018: CZK (3,545,022) thousand). The item Additions/transfers related to advances paid is representedby additions in the amount of CZK 34,065 thousand (as at 31 December 2018: CZK 30,194 thousand)and transfers in the amount of CZK (33,712) thousand (as at 31 December 2018: CZK (35,074) thousand).

A provision was created to revaluated tangible fixed assets as at 31 December 2007 set as a difference between the net book value of tangible fixed assets and their estimated recoverable amount. The provision was calculated using the method of discounted future cash flows generated by the fixed assets. The created provision for assets was released in 2019 in the total amount of CZK 14,866,000 thousand. CZK. The impulse for the release of the provision was the market price of the Company realized

31


in connection with the sale of the remaining 50.04% stake of the parent company Czech Grid Holding, a.s. consortium of investors led by MIRA (see Note 1.1. Introductory information about the Company). The Company did not use any assets under finance lease as at 31 December 2019 and 31 December 2018. In 2019 interest costs amounting to CZK 21,237 thousand (2018: CZK 11,190 thousand) were capitalized into the value of fixed assets and became part of tangible fixed assets in categories Constructions excluding gas network, Gas network and Equipment.

6. Receivables Receivables can be analysed as follows: (CZK’000) 31 December 2019 31 December 2018 Trade receivables - current 13,827 15,013 - overdue 196,492 253,048 Total trade receivables 210 319 268,061 Receivables - subsidiaries/ controlling parties - current 10,395 754,104 Receivables - associates - current - 664,804 Other receivables - current 5,096,510 4 870,199 Net book value of short-term receivables 5 317 224 6,557,168 Provision for doubtful receivables (187,316) (200,862) Total net book value of receivables 5,129,908 6,356,306

Receivables from subsidiaries / controlling parties represent cash equivalents from cash-pooling in the amount of CZK 10,395 thousand (as at 31 December 2018: CZK 88,235 thousand), which bear an interest of 0.150% (as at 31 December 2018: a short-term loan granted to the company innogy Česká republika a.s. in the amount of CZK 665,869 thousand with an interest rate of 0.150%). As at 31 December 2018 Receivables from associates represented short-term loans granted to the companies CGN Holdings S.a.r.l. in the amount of CZK 465,203 thousand and CGN Holdings 2 S.a.r.l. in the amount of CZK 199,601 thousand with interest rate of 0.150% in both years. Unsettled receivables as at 31 December 2019 have not been secured and none of them are due after more than 5 years. Other receivables include mainly receivables from unbilled gas distribution in the amount of CZK 4,601,347 thousand (as at 31 December 2018: CZK 4,674,226 thousand) and advances paid for the purchase of energy and gas in the amount of CZK 368,134 thousand (as at 31 December 2018: CZK 139,340 thousand). The Company has no receivables nor contingent assets which are not included in the balance sheet.

7. Equity The Company is fully owned by Czech Grid Holding, a.s. with its registered office in Prague 10 - Strašnice, Limuzská 3135/12, the Czech Republic. The ultimate holding company is fund MEIF IV (Macquarie European Infrastructure Fund) incorporated in in the Grand Duchy of Luxembourg.

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The Company Czech Grid Holding, a.s. with its registered office in Prague 10 - Strašnice, Limuzská 3135/12, the Czech Republic, prepares consolidated financial statements of the smallest group of entities to which the Company belongs. The Company Czech Gas Networks S.à. r.l. based in the Grand Duchy of Luxembourg, 20 Boulevard Royal, prepares consolidated financial statements of the largest group of entities to which the Company belongs. The consolidated financial statements prepared for the smallest group and the consolidated financial statements prepared for the largest group can be obtained at the registered office of Czech Grid Holding, a.s. The sole shareholder approved the financial statements for 2018 and decided about the allocation of profit earned in 2018 of CZK 4,568,428 thousand on 24 May 2018. On 31 May 2019, the Company paid the sole shareholder Czech Grid Holding, a.s. dividends for 2018 in the amount of 2,614,513 thousand CZK. Based on the settlement agreement between the Company and the Shareholder as at 31 May 2019 the Company's liability to the sole Shareholder in respect of the paytment of the 2018 dividends in the amount of 589,000 thousand was compensated by accepting a loan from RWE Czech Gas Grid Holding in the amount of CZK 294,736 thousand, from CGN Holdings S.a.r.l. in the amount of CZK 205,914 thousand and from the company CGN Holdings 2 S.a.r.l. in the amount of CZK 88,350 thousand. The remaining part in the amount of 1,364,915 thousand (in 2018: 468,771 thousand) was transferred to retained earnings. Until the date of preparation of these financial statements, the Company has not proposed a distribution of the profit earned in 2019.

8. Provisions

(CZK'000) Income tax net of advances Other Total Opening balance as at 1 January 2018 345,600 65,383 410,983 Charge for the year 928,554 43,742 972,296 Released in the year - (9,841) (9,841) Used in the year (345,600) (15,159) (360,759) Tax advances - netting (860,753) - (860,753) Closing balance as at 31 December 2018 67,801 84,125 151,926 Charge for the year 708,216 18,595 726,811 Released in the year - (54,325) (54,325) Used in the year (67,801) (18,059) (85,860) Tax advances - netting (708,216) - (708,216) Closing balance as at 31 December 2019 - 30,336 30,336

Other provisions in the amount of CZK 30,336 thousand (as at 31 December 2018: CZK 84,125 thousand) include mainly provisions for liabilities (as at 31 December 2018: provisions for liabilities arising from identified business risks). Advances for the income tax in the amount of CZK 745,908 thousand paid by the Company as at 31 December 2019 (as at 31 December 2018: CZK 860,753 thousand) were netted off with

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the provision for income tax in the amount of CZK 708,216 thousand created as at 31 December 2019 (as at 31 December 2018: CZK 928,554 thousand). For an analysis of the current and deferred income tax see Note 14 - Income tax.

9. Payables, commitmenst and contingent liabilities Payables can be analyzed as follows: (CZK'000) 31 December 2019 31 December 2018 Trade payables - current 841,796 969 730 - overdue 1,704 891 Liabilities - subsidiaries/controlling parties - current 1,570,912 1 030 118 Liabilities - associates - current - 399 680 Other payables: - current 5,512,079 5 651 571 Total short-term liabilities 7 926 491 8,051,990 Trade payables 654 523 Liabilities - subsidiaries/controlling parties 20,709,500 10,068,298 Liabilities - associates - 10,052,202 Other long-term payables 415,850 611,975 Deferred tax liability 8,173,288 5,371,304 Total long-term liabilities 29,299,292 26,104,302 Total short-term and long-term liabilities 37,225,783 34,156,292

The Company draws long-term loans in the amount of CZK 20,709.5 million. In 2019, loans from innogy Česká republika a.s., CGN Holdings S.a.r.l. and CGN Holdings 2 S.a.r.l. were transferred to Czech Gas Networks Investments S.À R.L which became the only provider of loans that were presented under the long-term Liabilities– subsidiaries/controlling parties as of 31 December 2019. These loans have a maturity of 4 to 12 years and bear interest rates between 2.758% and 5.550% in both years. As at 31 December 2018 the Company drawned long-term loans in the amount of CZK 20,120.5 from innogy Česká Republika a.s. in amount of CZK 10,068.3 million which is presented under the long-term liabilities Liabilities – subsidiaries/controlling parties. Furthermore, CZK 7,034.1 million from CGN Holdings S.a.r.l. and CZK 3,018.1 million from CGN Holdings 2 S.a.r.l. which are presented together as a long-term liability within Liabilities – associates. These loans have a maturity of 4 to 12 years and bear interest rates between 2.758% and 5.550% in both years. In addition to these long-term loans, the Company also has the following short-term loan agreements. As at 31 December 2019 the only provider of loan is Czech Gas Networks Investments S.À R.L. and as at 31 December 2018 - companies innogy Česká republika, a.s., CGN Holdings S.a.r.l. and CGN Holdings 2 S.a.r.l: • Assets under construction facility agreement – the total loan framework of this agreement

is CZK 1,400 million and is used for investment purposes during construction until the capitalization of fixed assets. These loans are always drawn for a period of 1 year, the actual amount of credit line drawn as at 31 December 2019 was CZK 800 million with the interest rate of 3,430% (as at 31 December 2018: CZK 800 million with the interest rate of 2.870%).

• Working capital facility agreement - an agreement under which short-term operating loans can

be drawn. The credit limit is CZK 1,000 million, currently it is not drawn.

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In addition to the long and short-term loans the Company is financed through the internal cash-pooling, which includes also GridServices, s.r.o. and Czech Grid Holding, a.s. In 2018 and until March 2019, when cash-pooling ended, innogy Česká republika a.s. was also a part of the cash-pooling scheme. Cash-pooling liabilities bear interest at the band interest rate, which consists of the PRIBOR O / N act. and margin. As at 31 December 2019 Short-term liabilities – subsidiaries/controlling parties include a liability from cash-pooling to GridServices, s.r.o. in the amount of CZK 770,912 thousand (as at 31 December 2018: CZK 629,798 thousand) and short-term loan granted by Czech Gas Gas Networks Investments S. À.R.L based on the above mentioned Assets under construction facility agreement in the amount of CZK 800,000 thousand (as at 31 December 2018: CZK 400,320 thousand from innogy Česká republika a.s.). As at 31 December 2019 the Company has no short-term Liabilities- associates. As at 31 December 2018 short-term Liabilities– associates include a short-term loan provided based on the above mention Assets under construction facility agreement by CGN Holdings S.a.r.l. in the amount of CZK 279,680 thousand and CGN Holdings 2 S.a.r.l in the amount of CZK 120,000 thousand. Other short-term payables include mainly advances received from unbilled gas distribution in the amount of CZK 5,121,643 thousand (as at 31 December 2018: CZK 5,081,592 thousand), payables from unbilled distribution of services in the amount of CZK 203,106 thousand (as at 31 December 2018: CZK 165,365 thousand) and liability from value added tax in the amount of CZK 176,856 thousand (as at 31 December 2018: CZK 395,583 thousand). Other long-term payables represent mainly long-term part of liabilities due to municipalities arising from the acquisition of gas network in the amount of CZK 171 thousand (as at 31 December 2018: CZK 231 thousand) and non-current deposits received from customers in the amount of CZK 415,667 thousand (as at 31 December 2018: CZK 611,744 thousand). Trade and other payables have not been secured against any assets of the Company. Payables due after more than 5 years as at 31 December 2019 amounted to CZK 16,170,244 thousand (as at 31 December 2018: CZK 15,580,971 thousand). The amount of CZK 16,169,800 thousand (as at 31 December 2018: CZK 15,580,800 thousand) represents long-term loans and the amount of CZK 444 thousand (as at 31 December 2018: CZK 171 thousand) represents liabilities from the land purchase agreements. Capital commitments contracted by the Company were CZK 2,384,770 thousand as at 31 December 2019 (as at 31 December 2018: CZK 2,313,861 thousand). Management of the Company is not aware of any contingent liabilities as at 31 December 2019.

10. Revenues Revenue from sales of own products and services were as follows:

(CZK’000) 2019 2018 Revenues from gas distribution - VO and SO categories 5,238,368 5,398,241 - MO category 2,213,140 2,198,554 - DOM category 6,715,321 6,976,168 Other 29,888 24,590 Total sales of own products and services 14,196,717 14,597,553

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11. Related party transactions and balances All material transactions with related parties are presented in this note. Additional information relating to the transactions not under standard market conditions and which is necessary to understand the overall financial situation of the Company are disclosed. Due to the changes in ownership structure as at 30 September 2019 (see Note 1. General Information), related party transactions are divided into two parts. Related party transactions in 2019 are divided into two periods with the cut-off date being 30 September 2019, where there was change in the ownership of the parent company (see note 1. General information). The period from 1 January to 30 September 2019 includes transactions within the RWE AG concern and the period from 1 October 2019 to 31 December 2019 transactions within the MIRA Group.

(CZK’000) 1- 9.2019* 10 - 12.2019 2018

Revenues Sales of goods 3,712 - 1,993 Sales of services 3,601,012 1,372 5,652,401 Interest income 5,651 54 2,844 Other 588 - 827

Total 3,743,849 1,426 5,658,065

Costs Material and energy consumption 405,085 - 434,650 Services 2,798,939 829,118 3,716,075 Interest expense 786,962 268,390 1,006,665 Other 5,149 - 6,205

Total 3,996,135 1,097,508 5,163,595 Acquisition of Intangible and Tangible fixed assets 411,606 265,920 696,172

*innogy Česká Republika a.s., its subsidiaries or controlling entities are not related parties of the Company as of 17 September 2019, when E.ON SE became its ultimate parent and its operations within RWE AG Group were terminated (see Note 1) The following related party balances were outstanding as at:

(CZK’000) 31 December 2019 31 December 2018 Receivables Trade receivables 610 1,075 Other receivables - 2,120,903 Loans receivable/cashpooling 10,395 1,418,908 Total 11,005 3,540,886 Liabilities Liabilities to companies within the consolidation group 22,620,439 13,878,495 Out of which:

- Trade payables 340,027 556,370 - Loans payable/cashpooling 22,280,412 11,098,416 - Other payables - 2,223,709

Liabilities to associates - 10,451,882 Out of which:

- Loans payable - 10,451,882 Total 22,620,439 24,330,377

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Other receivables with related parties include mainly receivables from unbilled gas distribution and prepayments for balance differences and technological gas consumption. Other liabilities with related parties include mainly advances paid for the purchase of energy and gas. Non-monetary benefit in the form of accident insurance was provided to the Statutory Directors and other members of the management in the total amount of CZK 42 thousand (2018: CZK 41 thousand), above standard health care in the amount of CZK 106 thousand (2018: CZK 97 thousand), and also a contribution to pension scheme in the amount of CZK 63 thousand (2018: CZK 62 thousand). Company cars for private use with the purchase price of CZK 7,358 thousand (2018: 4,320 thousand) are provided to the Company’s management.

12. Fees paid and payable to the audit company The information relating to the fees paid and payable for services performed by the audit company is included in the consolidated financial statements of the parent company Czech Gas Networks S.à.r.l.

13. Employees

2019 2018 Average number of management 3 2 Average number of other staff 141 145 Total number of management and other staff 144 147

(CZK’000) 2019 2018 Wages and salaries 101,434 97,579 Social security costs 33,724 32,280 Other social costs 4,260 4,720 Wages and salaries total 139,418 134,579

The Company’s management includes members directly reporting to the Statutory Directors. Statutory directors are not employed by the Company. Other transactions with the Company’s management are described in Note 11. Related party transactions and balances.

14. Income tax The income tax expense analysis:

(CZK’000) 2019 2018 Current tax expense 708,217 928,554 Deferred tax expense 165,733 149,066 Adjustment of prior year tax expense based on final CIT return 89 13 Total income tax expense 874,039 1,077,633

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The current tax analysis:

(CZK’000) 2019 2018 Net profit before taxation 18,497,521 5,646,061 Decrease in provision for fixed assets (14,866,000) (991,000) The difference between tax and accounting depreciation/amortisation 130,780 206,465 Other tax non-deductible expenses and tax non-allowable revenues (34,171) 26,963 Tax base 3,728,130 4,888,489 Gifts (485) (1,269) Reduced tax base 3,727,645 4,887,220 Corporate income tax at 19 % 708,253 928,572 Discount for employment of disabled employees (36) (18) Corporate income tax at 19% 708,217 928,554

The deferred tax was calculated at 19% (the rate enacted for 2018 and subsequent years). The deferred tax asset/(liability) analysis:

(CZK’000) 31 December 2019 31 December 2018 Deferred tax (liability) / asset arising from: Difference between accounting and tax net book value of fixed assets (8,186,033 (8,213,983) Provisions for fixed assets - 2,824,540 Other temporary differences 12,745 18,139 Net deferred tax liability (8,173,288) (5,371,304)

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15. Subsequent events The existence of novel coronavirus (Covid-19) was confirmed in early 2020 and has spread across mainland China and beyond, including Czechia, causing disruptions to businesses and economic activity. The Company considers this outbreak to be a non-adjusting post balance sheet event. As the situation is fluid and rapidly evolving, we do not consider it practicable to provide a quantitative estimate of the potential impact of this outbreak on the Company/Group. The impact of this outbreak on the macroeconomic forecasts, our position and results, if any, will be incorporated into our estimates of asset impairment and other provisions in 2020. Except for the events disclosed in the note 1. General information relating to Transitional Service Agreement and 2. Regulation, no other events have occurred subsequent to year-end that would have a material impact on the financial statements as at 31 December 2019. In Prague on 17 March 2020

Martin Gebauer Jan Valenta Chairman of the Executive Directors Statutory Director

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5. Independent Auditor’s Report

5.1 Auditor’s Report on the Financial Statements

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41


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6. GasNet, s.r.o. Report on Related Party Transactions in the Year Ended 31 December 2019

6.1 Report of Related Party Transactions in 2019 This Report on transactions carried out during the fiscal year 2019 between the Company and controlling parties and between the Company and other parties controlled by the same controlling parties has been prepared by the Executive Directors of GasNet s.r.o. ("Company") in accordance with Section 82 et seq. of Act 90/2012 Coll. on Business Corporations and Cooperatives (Business Corporations Act), as in effect, insofar as such parties are known to the Company. The Report is attached to the Company's 2019 Annual Report. The Company's members have the right to examine the Report at the same time and under the same conditions as the Financial Statements.

6.2 Structure of relations

The Company was a member of the RWE Group until 29 September 2019. The Company was subject to interlocking directorates within the meaning of Section 79 of the Business Corporations Act, where at least one key area or activity of the Group's business is coordinated and managed in an addressed manner with the aim of promoting the Group's long-term interests in line with uniform Group-wide policies. The Company's membership in the RWE Group was disclosed on the Company's website.

On 30 September 2019, the Company became a member of a group in which the controlling party is MACQUARIE EUROPEAN INFRASTRUCTURE FUND 4 (MEIF 4 LP), LP ID 014601 ("Group").

Thus, for the purposes of this Report, the term “Group” means a group of companies controlled by RWE AG within the RWE Group for the period until 29 September 2019, and a group of companies controlled by the controlling party MACQUARIE EUROPEAN INFRASTRUCTURE FUND 4 LP for the period from 30 September 2019.

a) Controlling Parties

In the last accounting period, from 1 January 2019 to 21 February 2019, the Company was controlled by the following controlling parties:

i. Directly - innogy Grid Holding, a.s., with registered office at Limuzská 3135/12, 100 98 Prague 10 –

Strašnice, Company No. 243 10 573, the sole member of the Company ii. Indirectly

- innogy Česká republika a.s., with registered office at Limuzská 3135/12, 100 98 Prague 10 – Strašnice, Company No. 242 75 051

- innogy Beteiligungsholding GmbH, with registered office at Opernplatz 1, 45128 Essen, Federal Republic of Germany

- innogy Zweite Vermögensverwaltungs GmbH, with registered office at Opernplatz 1, 45128 Essen, Federal Republic of Germany

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- innogy International Participations N.V., with registered office at 5211AK 's-Hertogenbosch,

Willemsplein 4, Kingdom of the Netherlands - innogy SE, with registered office at Opernplatz 1, 45128 Essen, Federal Republic of Germany - GBV Vierunddreißigste Gesellschaft für Beteiligungsverwaltung mbH, with registered office at

Huyssenallee 2, 45128 Essen, Federal Republic of Germany - RWE Aktiengesellschaft, with registered office at Altenessener Str. 35, 45141 Essen, Federal

Republic of Germany, the ultimate controlling company In the last accounting period, from 22 February 2019 to 29 September 2019, the Company was controlled by the following controlling parties:

i. Directly - innogy Grid Holding, a.s., with registered office at Limuzská 3135/12, 100 98 Prague 10 –

Strašnice, Company No. 243 10 573, the sole member of the Company ii. Indirectly

- RWE Czech Gas Grid Holding B.V. with registered office at Amerweg 1, NL-4931NC Geertruidenberg, Kingdom of the Netherlands

- RWE Aktiengesellschaft, with registered office at Altenessener Str. 35, 45141 Essen, Federal Republic of Germany, the ultimate controlling company

In the last accounting period, from 30 September 2019 to 31 December 2019, the Company was controlled by the following controlling parties:

i. Directly - Czech Grid Holding, a.s., with registered office at Limuzská 3135/12, 100 98 Prague 10 –

Strašnice, Company No. 243 10 573, the sole member of the Company (previously innogy Grid Holding, a.s.),

ii. Indirectly - Czech Gas Networks Investments S.à r.l., with registered office at 20, Boulevard Royal, L –

2449, Luxembourg, Grand Duchy of Luxembourg - Czech Gas Networks S.à r.l., with registered office at 20, Boulevard Royal, L – 2449,

Luxembourg, Grand Duchy of Luxembourg - CGN Holdings S.à r.l., with registered office at 20, Boulevard Royal, L – 2449, Luxembourg,

Grand Duchy of Luxembourg - Smetana Investments S.à r.l., with registered office at 20, Boulevard Royal, L – 2449,

Luxembourg, Grand Duchy of Luxembourg - MEIF 4 Luxembourg C Holdings S.à r.l., with registered office at 20, Boulevard Royal, L – 2449,

Luxembourg, Grand Duchy of Luxembourg - MEIF 4 Luxembourg B Holdings S.à r.l., with registered office at 20, Boulevard Royal, L – 2449,

Luxembourg, Grand Duchy of Luxembourg - MEIF 4 Luxembourg A Holdings S.à r.l., with registered office at 20, Boulevard Royal, L – 2449,

Luxembourg, Grand Duchy of Luxembourg - Macquarie European Infrastructure Fund 4 LP, with registered office at First Floor, Albert

House, South Esplanade, St Peter Port, GY1 1AJ Guernsey, Norman Island, the ultimate controlling company

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The Statutory Directors are aware of no other parties exercising control over the Company.

b) Other Controlled Parties The Company has requested the above controlling parties to provide a list of other parties controlled by the same controlling parties in the last accounting period. This Report has been prepared based on information provided by such parties and based on other facts known to the Company's Executive Directors. The structure of relations between controlled and controlling parties in the fiscal year 2019 is shown in Annex 1 A (for the period from 1 January 2019 to 21 February 2019), Annex 1 B (for the period from 22 February 2019 to 29 September 2019) and Annex 1 C (for the period from 30 September 2019 to 31 December 2019) to this Report.

c) Role of the Controlled Part Withing the Group the Company's business mainly consists of gas distribution, electricity generation, lease of residential and commercial real estate, manufacture, trade, and services not listed in Annexes 1 and 3 to the Trade Licensing Act, installation, repair, inspection, and testing of gas assets, and filling vessels with gas.

d) Means and Methods for Exercising Control

The controlled party was controlled by the controlling party through the general meeting, the powers of which were exercised by the controlling party as the sole member exercising the powers of the general meeting of the controlled party.

6.3 Overview of Transactions In the last accounting period, the Company made, upon suggestion and/or in the interest of the related parties under point 1 above, a legal act concerning assets exceeding CZK 3,516,529,000, constituting 10% of the Company’s equity determined on the basis of the latest financial statements as at 31 December 2019:

- Sale of services to innogy Česká republika a.s. between 1 January 2019 and 29 September 2019

- Purchase of services and procurement of tangible and intangible fixed assets from GridServices s.r.o. throughout the 2019 accounting period

- For transactions as part of cash pooling within the relevant Group, see the “Group” definition in part 6.2

6.4 Agreements with Related Parties

Throughout the last accounting period or during a part thereof, the Company and the related parties referred to in Section 1 of this Report were subject to contractual arrangements arising under the agreements listed in Annex 2 (regarding the ultimate indirectly controlling company RWE AG) and in Annex 3 (regarding the ultimate indirectly controlling company Macquarie European Infrastructure Fund 4 LP through direct control by Czech Gas Networks Investments S.à r.l.)

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6.5 Assessment and Settlement of Losses

Throughout the last accounting period or during a part thereof, the Company and the related parties referred to in Section 1 of this Report were subject to contractual arrangements arising under the agreements listed in Annex 2 (regarding the ultimate indirectly controlling company RWE AG) and in Annex 3 (regarding the ultimate indirectly controlling company Macquarie European Infrastructure Fund 4 LP through direct control by Czech Gas Networks Investments S.à r.l.).

6.6 Assessment of Relations and Risks within the Group

Membership in the Group mainly provides the Company with benefits. The Group has strong financial resources, which benefits the Company particularly during capital-intensive investment projects into the gas infrastructure executed by subsidiaries. There are no detriments arising from the Company's membership in the Group. The Company is exposed to no risks with regard to relations within the Group.

6.7 Confidentiality

With regard to relevant stakeholders, information and documents are considered confidential insofar as they constitute the business secret of the controlling party, the controlled party, and related parties as well as all information on business transactions liable to cause damage to any relevant stakeholder in conjunction with other documents of confidential nature.

The Management Report does not contain a detailed list of specific contracts and agreements considering that such information is considered the trade secret of the relevant parties.

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6.8 Summary This Report was approved by the Company's Statutory Directors on 17 March 2020.

In Prague on 17 March 2020

Martin Gebauer Jan Valenta Chairman of the Executive Directors Statutory Director

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Annex 1 A (Scheme of relations between controlling and controlled parties for the period from 1 January 2019 to 21 February 2019)

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Annex 1 B (Scheme of relations between controlling and controlled parties for the period from 22 February 2019 to 29 September 2019)

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Annex 1 C (Scheme of relations between controlling and controlled parties for the period from 30 September 2019 to 31 December 2019)

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Annex 2: Agreements between the Company and Related Parties in Effect in the Last Accounting Period (from 1. 1. 2019 to 29. 9. 2019)

Contracting party Agreement type/subject matter Quantity

innogy Česká republika a.s. Master Agreement for Entry into Service Level Agreements for Information Technologies and Electronic Communications 1

Service Level Agreement for Information Technologies and Electronic Communications 1

Amendment 1 to Master Agreement for Entry into Service Level Agreements for Information Technologies and Electronic Communications 1

Master Agreement for Entry into Service Level Agreements for Accounting and Taxation 1

Personal Data Processing Agreement 2

Commercial Lease Agreement 4

Amendments 1 – 4 to Commercial Lease Agreement 4




Commercial Sublease Agreement 1 Amendments 1 – 2 to Commercial Sublease Agreement 2

Commercial Sublease Agreement 1

Amendment 1 to Commercial Sublease Agreement 1 Cash-Pooling Facilities Agreement 1 Amendment 1 to Cash-pooling Facilities Agreement 1

Insurance Premium Payment Agreement 1

Trademark Use Consent 1

Electricity Supply and Cost Distribution Agreement 3

Master Agreement for Entry Service Level Agreements for Facility Management, Fleet Management, and Procurement 1

Master Agreement for Service Level Agreements for Corporate Services 1

Amendment 1 to Master Agreement - Service Level Agreement for Corporate Services 1

Service Level Agreement for Corporate Services 1

Amendment 1 to Service Level Agreement on Corporate Services 1

Agreement on Purchase Agreement and on future Establishment of Easement Agreement 1

Agreement on future Purchase Agreement and on future Establishment of Easement Agreement 1

Purchase Agreement and Easement Establishment Agreement 3

Agreement to future Agreement on Establishment of Easement 9

Easement Agreement 15 Distribution System Connection Agreement 3

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Service Level Agreement for Corporate SAP Systems 1

Amendments 1 – 3 to Service Level Agreement for Corporate SAP Systems 3

Restated Assets Under Construction Facility Agreement 1 Restated Working Capital Facility Agreement 1 Restated Long Term Shareholder Loan Facility Agreement 1 Restated Deposit Line Agreement 1 Amendment 1 to Restated Deposit Line 1

Agreement on Gas Facility Relocation and on Payment of Related Costs 1

Agreement on Assignment of Rights and Acceptance of Contractual Obligations 1

Cash Pool Settlement and Release Agreement 1

Request for Consent to the Transfer of Obligations and Liabilities and Related Release 1

Contract for the Provision of Services in the Area of Business Development 1

Service Level Agreement for One-way Real Cash-pooling 1

Amendment to Service Level Agreement for One-way Real Cash-pooling 1

Termination of Service Level Agreement for One-way Real Cash-pooling 1

RWE Supply & Trading CZ, a.s. Gas Transport Agreement 1 Amendments 1 – 5 to Gas Transport Agreement 5

innogy Gas Storage, s.r.o. Service Level Agreements for Electricity Supply and Cost Distribution 1

Agreement to Agree on Establishment of Easement 1 Service Level Agreement for Gas Recirculation 2 innogy Energo, s.r.o. Distribution System Connection Agreement 44

Agreement on Connection Terms, on Cooperation and Coordination in Gas Asset Procurement, and on Future Purchase Agreement 3 Purchase Agreement 4 Gas Asset Lease Agreement 1 Easement Agreement 12 Agreement to Agree on Establishment of Easement 15

innogy Zákaznické služby, s.r.o. Master Agreement for Service Level Agreements for Services Provided by innogy Zákaznické služby, s.r.o. 1 Service Level Agreement for Services Provided by innogy Zákaznické služby, s.r.o. 1

Personal Data Processing Agreement 1 GridServices, s.r.o. Cash-Pooling Establishment Agreement 2

Amendments 1 – 3 to Cash-pooling Agreement 3 Commercial Lease Agreement 1 Amendments 1 – 24 to Commercial Lease Agreement 24 Partnership Agreement 1 Service Level Agreement for Technology Services 1

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Amendments 1 – 2 to Service Level Agreement for Technology Services 2

Master Agreement for Entry into Service Level Agreement for Technology Services 1

Agreement on Connection Terms, on Cooperation and Coordination in Gas Asset Procurement, and on Future Purchase Agreement 1

innogy Energie, s.r.o. Agreement on Bundled Electricity Supply Services 1

Agreement on Bundled Gas Supply Services for Internal Consumption and Distribution System Losses 1 Amendments 1 – 5 to Agreement on Bundled Gas Supply Services for Covering Self-consumption and Distribution System Losses 5

Cooperation Agreement for Remediation of Residual Environmental Pollution 1

Czech Grid Holding, a. s. Cash-pooling Facilities Agreement 1

Amendments 1 – 2 to Cash-pooling Facilities Agreement 2

Cash-pooling Facilities Agreement Restated 1 Liability Assumption Agreement 1 Agreement on Mutual Setoff of Receivables 1

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Annex 3: Agreements between the Company and Related Parties in Effect in the Last Accounting Period (from 30. 9. 2019 to 31. 12. 2019)

Contracting party Agreement type/subject matter

Quantity

GridServices, s.r.o. Cash-Pooling Establishment Agreement 2 Amendments 1 – 3 to Cash-pooling Agreement 3

Commercial Lease Agreement 1 Amendments 1 – 24 to Commercial Lease Agreement 24 Partnership Agreement 1 Service Level Agreement for Technology Services 1 Amendments 1 – 2 to Service Level Agreement for

Technology Services

2 Master Agreement for Entry into Service Level Agreement

for Technology Services

1 Agreement on Connection Terms, on Cooperation and

Coordination in Gas Asset Procurement, and on Future Purchase Agreement

1 Czech Grid Holding, a.s. Cash-pooling facilites agreement 1

Amendment no 1 - 2 to cash pooling facilities agreement 2 Cash-pooling facilites agreement restated 1 Liability Assuption agreement 1 Agreement on mutual set-off receivabl 1

Czech Gas Networks Investments S.À R.L. Restated Long Term Shareholder Loan Facility Agreement 1 Restated Assets Under Construction Facility Agreement 1 Restated Working Capital Facility Agreement 1

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Documents

2019 Annual Report...2019 Annual Report GasNet, s.r.o. Following the European Commission’s approval of the transaction, the contractual pre-emption right was exercised and on 30