Annual report 2019 GridServices, s.r.o. - GasNet

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Annual report 2019 GridServices, s.r.o.

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2019

Total sales (CZK m) 4,029

EBITDA (CZK m) 1,232

Operating result (CZK m) 1,174

Profit before taxation (CZK m) 1,176

Profit after taxation (CZK m) 946

Investments (CZK m) 130

Number of employees (FTE) 2,038

Wherever used in the text, the term Company refers to GridServices, s.r.o.

Abbreviations used

OHS Occupational Health and Safety

CAS Czech Accounting Standards

CEO Chief Executive Officer

LTIF lost time injury frequency

EBITDA Earnings before Interest, Taxes, Depreciations and Amortization Charges

a.s. Public limited company

s.r.o. Limited liability company

the innogy Group the innogy Group in the Czech Republic

GasNet GasNet, s.r.o.

GridServices GridServices, s.r.o.

KPI Key performance indicator

the RWE Group entities within RWE AG concern

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TABLE OF CONTENTS

1 Statement by the Executive Director ............................................................................................... 4

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

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

2.2 Governing Bodies ......................................................................................................................... 6

2.3 Persons Responsible for the Annual Report and Audit of the Financial Statements ................... 7

3 2019 Management Report............................................................................................................... 8

3.1 Results ......................................................................................................................................... 8

3.2 Business Activities ........................................................................................................................ 8

3.3 Communication ......................................................................................................................... 11

3.4 Human Resources ...................................................................................................................... 11

3.5 Occupational Health and Safety ................................................................................................. 12

3.6 Outlook ...................................................................................................................................... 13

3.7 Subsequent Events .................................................................................................................... 14

4 Financial part ................................................................................................................................. 15

4.1 Financial Statements and Notes to the Financial Statements .................................................... 15

4.2 Notes to the Financial Statements ............................................................................................. 20

5 Independent auditor’s report ........................................................................................................ 33

6 GridServices, s.r.o., Report on Related Party Transactions in the Year Ended 31 December 2019 36

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1 Statement by the Executive Director

Ladies and Gentlemen,

A look back on 2019 cannot but start with mentioning an important milestone – a change

in the Company's ownership structure. A consortium of investors headed 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), and consequently its subsidiary GridServices,

s.r.o., to 100%.

The transaction terminated our membership in the innogy Group. We began a process of building

a strong, autonomous, and fully independent servicing company catering to the gas sector.

The investors' interest in buying into the Company testifies to the fact that our business is attractive

to major strong global players. Likewise, it guarantees continuity and symbolizes the culmination

of a partnership of more than six years. As in previous years, our clear priority in 2019 was providing

top-level, professional services to the Distribution System Operator, GasNet, s.r.o.

We succeeded in maintaining a high level of services throughout the reported year. That made

a considerable contribution to the reliable, safe, and economical operation of the gas distribution

system. One of the areas where our focus concentrated was occupational safety. A fundamental pillar

of our business, employees' health is our number one priority. We mainly placed emphasis

on preventing workplace injuries sustained during pedestrian activities and on reducing the risk of traffic

accidents. We successfully deepened cooperation with contractors with regard to occupational safety.

Throughout 2019, GridServices continued to enlarge and improve the portfolio of services for end users

of natural gas. We were very active in providing consulting and brokering furnace subsidies, thanks

to which a highly positive trend was recorded as regards the restoration of gas supply to dormant service

lines. All our services were offered via new online applications, where we are committed to enlarging

the service portfolio with a view to reinforcing the status of natural gas on the energy market.

To conclude, I want to thank all employees and partners for their responsible and conscientious attitude

to work and a job well done. I am certain that their proactive attitude to day-to-day duties will continue

to increase the importance of natural gas.

Likewise, I trust that as in previous years, we will together meet our ambitious objectives in 2020.

Martin Gebauer

Chairman of the Executive Directors

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2 Corporate Information

2.1 General Information

Business Name: GridServices, s.r.o.

Registered Office: Plynárenská 499/1

602 00 Brno

Company No.: 279 35 311

Legal Form: Limited liability company

Establishment

The Company was established on 26 July 2007 and is registered under Reg. No. C 57165

in the Commercial Register maintained by the Brno Regional Court. The sole member of the Company

is Czech Grid Holding, a.s., a company with registered office at Limuzská 3135/12, 100 98

Prague 10 – Strašnice, Company No. 243 10 573. The Company has a registered capital

of CZK 75,000,000.

Objects of Business

1. Lease of real estate, residential property, and commercial property.

2. Generation of electricity.

3. Provision of services in the area of occupational health and safety.

4. Accounting consultancy, bookkeeping, and tax administration services.

5. Technical and organizational services in the area of fire safety.

6. Construction, reconstruction, and demolition of structures.

7. Construction design.

8. Installation, repair, inspection, and testing of electrical equipment.

9. Assembly, repair, inspection, and testing of gas equipment and gas vessel filling.

10. Manufacture, trading, and services other than listed in Annexes 1 to 3 to the Trades Licensing Act.

11. Geological works.

12. Land surveying.

13. Design of structures and equipment for mining work.

14. Manufacture, installation, and repair of electric machines and instruments and of electronic

and telecommunication equipment.

15. Chimney maintenance.

16. Production and distribution of heat not subject to licensing using heat production units

with an installed capacity in excess of 50 kW per unit.

Company Profile

GridServices is responsible for the operation and maintenance of the gas assets and distribution system

operated by GasNet, including management, document administration, measurement of consumption

and quality of natural gas, and customer connection and disconnection. In addition, the Company

provides engineering services for infrastructure construction and reconstruction projects. The Company

has its registered office in Brno and operates in all regions of the Czech Republic. The Company has been

conducting business as an independent entity since 1 January 2008.

Foreign Branch or Division

The Company has no branch or division abroad.

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2.2 Governing Bodies

Executive Directors of GridServices, s.r.o. in the Year Ended 31 December 2019

Martin Gebauer

Chairman of the Executive Directors

Date of birth:

4 November 1969

Education:

Brno Technical University, Faculty of Civil Engineering

City University London

Other business activities:

None

Pavel Káčer

Executive Director

Date of birth:

29 June 1958

Education:

Brno Technical University, Faculty of Mechanical Engineering


None

Dušan Malý

Executive Director

Date of birth:

21 March 1974

Education:

University of Economics, Prague, Faculty of Finance and Accounting

MBA, ESCP-EAP, Berlin


None

Changes in the Company's Governing Body in 2019

Czech Grid Holding, a.s., the sole member exercising the powers of the General Meeting, amended

the Company's Memorandum of Association on 30 September 2019, increasing the number of Executive

Directors to three. Further, effective as of 30 September 2019, the sole member appointed Martin

Gebauer and Dušan Malý as Executive Directors. The Executive Directors elected Martin Gebauer

as the Chairman of the Executive Directors effective as of 7 October 2019.

Czech Grid Holding, a.s., the sole member exercising the powers of the General Meeting, approved

the revocation of procuration granted to Radek Starý, David Fojtík, Petr Báča, and Dagmar Ledererová

effective as of 24 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:

PricewaterhouseCoopers Audit, s.r.o.

represented by Václav Prýmek acting under power of attorney

Hvězdova 1734/2c, 140 00 Prague 4

Registered in the Register of Audit Firms of the Chamber of Auditors of the Czech Republic, Registration

No. 021

Auditor in Charge:

Danuše Polívková

Statutory Auditor, Registration No. 2462

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.

Martin Gebauer Dušan Malý

Chairman of the Executive Directors Executive Director

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3 2019 Management Report

3.1 Results

Revenues, Expenses, Profit

In 2019, earnings before taxes amounted to CZK 1,176,372 thousand, and the Company recorded

CZK 946,400 thousand in profit after taxes.

In 2019, income from the sale of own products and services amounted to CZK 4,028,368 thousand

and mainly consisted of CZK 3,902,029 thousand in proceeds from services provided to the distribution

company GasNet.

Investments

The Company executed investment projects in the framework of the approved investment plan. In 2019,

the Company acquired assets with a total worth of CZK 129,514 thousand, of which CZK 84,547

thousand was invested into the acquisition of vehicles and CZK 37,695 thousand into equipment

and machinery for gas asset maintenance.

All investment projects were executed in the Czech Republic, and all were financed using the Company's

own resources.

Risk Management

Risks to which the Company is exposed are regularly monitored and assessed, and the Company's

management is informed of the current state of risks by means of reports. In 2019, the Company

identified neither any risks liable to jeopardize its existence nor price, credit, liquidity, and cash-flow

risks.

Research and Development

The Company does not carry out research and development.

3.2 Business Activities

Network Operation and Maintenance

The scope of the Company's gas assets remains essentially unchanged over the long term.

Overview of Gas Assets 2019

Length of gas pipelines in km (including service lines) 64,986

Transfer and regulating stations 3,625

Corrosion protection stations 1,094

The main target of network operation and maintenance in 2019 was to ensure the safe, reliable,

and economical operation of gas assets. To fulfill these objectives, operations workers carried out

planned inspections, repaired defects and leaks, and secured round-the-clock emergency service.

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As regards operating safety, the number of detected leaks in pipelines continued to decrease. The year-

over-year reduction amounted to 6%. During the reported year, the Company responded to several

emergencies classified as accidents. None of them compromised public safety and the safety

of operations. As part of securing repair and emergency response service, operations workers

responded to 21,323 emergency calls. The internal KPI requirement for reaching the site of a defect

within 60 minutes was complied with in 99.9% of cases.

Efforts aimed at improving energy use intensity regarding self-consumption of energies included

the replacement of 190 boilers and 74 preheating control systems.

Operation and Maintenance Tasks 2019

Planned inspections 70,427

Detected leaks 16,781

Repaired leaks 16,770

Third-party damage to gas facilities 519

Unplanned interruptions in gas supply to customers 6,344

Including unplanned third-party interruptions 4,760

Calls received by the 1239 line 32,338

Onsite emergency interventions 21,323

The operation of the distribution system was managed by the Control Center from sites in Brno and Ústí

nad Labem. We introduced the monitoring of alarm statuses at regulating stations using recording

devices. At present, long-distance monitoring covers 100% of transfer regulating stations and 90%

of regulating stations. Throughout the year, the Control Center secured the receipt of defect reports via

the 1239 line with no interruption. In the reported year, we completed the implementation of measures

securing the SCADA system in accordance with the Cybersecurity Act.

Metering and Technical Services

In 2019, the Company continued the formerly established trend of maintaining a high service quality

standard. Income from non-regulated services increased to more than CZK 14 million. The Company

began installing smart gas meters with a closing valve for selected customers and at certain regulating

stations. Three thousand smart gas meters were installed by the end of the year.

Tasks Performed by Metering and Technical Services 2019

Membrane gas meters up to G 6 297,640

Gas meters over G 6 20,995

Electronic metering systems 23,641

Unauthorized offtake 56,039

Meter readings – Large Customers and Medium Customers 2,281,688

Meter readings – Small Customers and Households 23,536

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Network Enlargement

In the reported year, the Company completed 602 construction projects worth in total CZK 2,580

million, executed in accordance with the Distribution System Operator's investment plans, and prepared

444 construction projects worth in total CZK 2,705 million for the coming period. In addition,

engineering tasks were completed as part of the preparation of an additional 353 projects.

In 2019, the Company successfully tested the egeliner method as another trenchless technology option.

Moreover, we put into full use electronic construction site diaries, in the development of which

the Company took active part, and deployed the ZOPS application for monitoring output from

inspections on individual construction sites.

Services provided by the Company included securing expert supervision of the construction of gas assets

carried out by other investors. In 2019, inspections were carried out for 611 relocation and development

projects and 676 service lines and pipeline extensions.

Engineering and Design Services

In 2019, the Company completed design plans for 134 projects, where investment costs totaled

approximately CZK 1,076 million. This way, the Company participated in the planning of 40%

of the volume of the Distribution System Operator's planned investments. Furthermore, we continued

to plan construction projects for subsequent years. In 2019, the Company began the preparation of 88

construction projects.

In addition, we joined the preparation of innovation projects aimed at new ways of using natural gas,

such as the Rapotín biogas station.

Operational Network Management

The main tasks of Operational Network Management in 2019 included digitization, automation,

and support for the connection of new customers to the distribution system. In addition to automating

the connection application process and digitizing the receipt of project documentation, a software

solution using artificial intelligence elements was developed and deployed for sorting and processing

PDF documents received via data box. The system is planned to be used in other administration-

intensive processes in the future.

The number of assessment applications decreased year-over-year, mainly on account

of the simplification of the process for connecting new offtake points, where the requirement was

eliminated to perform an independent assessment of the customer's gas supply facilities during

construction proceedings.

From the more than 21 thousand connection applications received and processed, 10,046 customers

began receiving gas supplies already during the reported year. As many as 9,612 applications concerned

dormant gas grid connections.

As to documentation and GIS, the fully electronic process of acceptance of design documents for gas

asset construction projects was extended to additional project types. Thanks to that, more than 50%

of documents for construction and reconstruction projects are now delivered in digital form.

We continued to provide customers with active assistance for connection to the distribution system

and for switching to natural gas heating systems. In doing so, we used the synergic effect of furnace

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subsidies. This service resulted in the construction of over 150 gas grid connections and the installation

of 163 new condensing boilers.

Services Provided by Operational Network Management 2019

Issued assessments 96,059

Issued distribution system connection requirements 21,705

Signed gas asset relocation agreements 732

Gas assets taken over 4,569

Including takeover by electronic means 2,474

Number of provided assessments of vector characteristics for gas assets 37,718

3.3 Communication

The key event in 2019 that affected subsequent external and internal communication at GridServices

was a transaction in which a consortium of investors headed by Macquarie Infrastructure and Real

Assets (MIRA) increased its equity interest in innogy Grid Holding to 100%. The transaction took place

in October, following which the Company, which had hitherto presented itself as an integral part

of the innogy Group, began to pursue communication autonomously, as a fully independent

corporation.

In external communication, the Company focused on providing the public with information on general

rules for the safe and reliable operation of gas appliances. Using press releases and other information

channels, the Company promoted the conduct of preventive inspections and measures improving

the safety of gas appliances.

Furthermore, the Company focused on promoting its services in order to improve safety

and the convenience of using natural gas. These efforts mainly included gas boilers maintenance

and replacement and the replacement of pressure switches in buildings.

3.4 Human Resources

Staffing Levels

In 2019, employee headcount (FTE) in the Company was 2,038. An FTE reduction by 14 employees was

achieved by organizational changes implemented in the course of the reported year.

Wages

In 2019, wages developed in accordance with the Company's business strategy and the remuneration

principles agreed in the Collective Agreement.

The average wage in 2019 amounted to CZK 40,285.

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Employee Structure by Education 2019

Elementary 0.2%

Secondary school 39.7%

Complete secondary school 45.5%

University 14.6%

Staff Training and Development

In 2019, the Company focused on expanding and deepening specialized technical knowledge

and the exchange of best practices among employees. We organized mandatory technical training

in accordance with the law.

The Company supported employees enrolled in long-distance study programs at specialized schools

to acquire new skills and improve, deepen, and broaden their qualifications.

We expanded partnerships with selected vocational schools and training facilities through

apprenticeship and scholarship programs.

Social Policy

As in previous years, the Company continued to support and develop the social program in 2019.

Under the benefit scheme, contributions were paid to employees for supplementary retirement savings,

life insurance, individual recreation, entertainment, sports, healthcare, and education.

3.5 Occupational Health and Safety

Occupational Health and Safety

In 2019, 13 occupational injuries were reported, eight involving slipping, tripping, and falling. Two cases

involved a dog bite, and two accidents were related to work on gas assets.

Close attention was paid to contractors. Redefined training for construction site supervisors, extensive

courses for workers working on gas assets, and intensification of OHS inspections on construction sites

contributed to a significant improvement of the level of safety on worksites. There was no incident

relating to work performed by contractors.

During the year, inspections were carried out of compliance with implemented OHS regulations

in collaboration with the trade union and using internal checks and audits, particularly annual

occupational safety reviews.

No government authority carried out an inspection of the Company's performance in the area

of occupational health and safety or fire prevention.

In 2019, employees made a record-high number of suggestions and near-miss reports, which testifies

to increasing OHS awareness on their part. This trend will be supported by a project currently under

preparation, which will focus on motivating workers to pay attention to occupational safety.

The Company pays close attention to worker safety and provides sizeable support. The objective is to

use the close attention paid to this area by the top and middle management to motivate line managers

and all other employees to follow suit. Changing working habits is a long-term process; however, doing

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so is essential for preventing injuries. For that reason, strong efforts will continue in this area

in the coming years.

Environmental Protection

Environmental protection is one of the Company's highest priorities. All planned environmental

protection targets and legal requirements were met thanks to the responsible attitude of all employees

and the implementation of the environmental management system.

As a result of implementing new technologies and upgrading its facilities, the Company ensured

conformity to the emission limits in effect since 1 January 2020 as per Act No. 201/2012 Coll. on Air

Protection in connection with the operation of boiler units and regulating stations.

The total production of waste from the Company's operations amounted to approximately 85 tonnes,

nearly 50% of which was recycled.

There was no serious incident in the Company's operations with an adverse impact on the environment

in 2019.

Inspections carried out by government authorities in 2019 found no violations of environmental laws

and regulations.

Contractors were required to perform work in an environmentally responsible manner. Environmental

protection was enforced in the procurement of both goods and services through relevant contractual

provisions.

3.6 Outlook

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.

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 (“TSA”) with innogy Česká republika a.s. and innogy Zákaznické služby, s.r.o. The

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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.

3.7 Subsequent Events

After the balance sheet data the Transitional Service Agreement was signed, see chapter 3.6.

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. 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.

No other events occurred subsequent to year end that would have a material impact on the financial

statements as at 31 December 2019.

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4 Financial part

4.1 Financial Statements and Notes to the Financial Statements

BALANCE SHEET (in thousand Czech crowns)

Ref. ASSETS 31. December 2019 31. December 2018

a

Gross Provision Net Net

b 1 2 3 4

TOTAL ASSETS 2,385,943 (691,240) 1,694,703 1,541,294

B. Fixed assets 1,032,324 (659,832) 372,492 298,375

B. I. Intangible fixed assets 10,283 (7,426) 2,857 5,048

B. I. 2. Royalties 8,463 (5,634) 2,829 4,101

B. I. 2. 1. Software 8,463 (5,634) 2,829 4,101

B. I. 4. Other intangible fixed assets 1,820 (1,792) 28 47

B. I. 5. Advances paid and intangible fixed assets in the course of construction

- - - 900

B. I. 5. 2. Intangible fixed assets in the course of construction

- - - 900

B. II. Tangible fixed assets 1,020,930 (652,406) 368,524 292,216

B. II. 2. Equipment 975,072 (628,001) 347,071 281,921

B. II. 3. Adjustment to acquired fixed assets 30,506 (24,405) 6,101 8,135

B. II. 5. Advances paid and tangible fixed assets in the course of construction

15,352 - 15,352 2,160

B. II. 5. 2. Tangible fixed assets in the course of construction

15,352 - 15,352 2,160

B. III. Long-term investments 1,111 - 1,111 1,111

B. III. 5. Other long-term investments in securities 1,111 - 1,111 1,111

C. Current assets 1,348,536 (31,408) 1,317,128 1,239,194

C. I. Inventories 186,295 (27,711) 158,584 151,011

C. I. 1. Raw materials 32,145 (8,686) 23,459 20,896

C. I. 2. Work in progress and semi-finished products 150,001 (19,025) 130,976 127,299

C. I. 3. Finished goods and goods for resale 4,149 - 4,149 2,816

C. I. 3. 1. Finished goods 2,829 - 2,829 2,369

C. I. 3. 2. Goods for resale 1,320 - 1,320 447

C. II. Receivables 1,161,124 (3,697) 1,157,427 1,083,618

C. II. 1. Long-term receivables 795 - 795 810

C. II. 1. 5. Receivables - other 795 - 795 810

C. II. 1. 5. 2. Long-term advances paid 795 - 795 810

C. II. 2. Short-term receivables 1,160,329 (3,697) 1,156,632 1,082,808

C. II. 2. 1. Trade receivables 364,140 (3,697) 360,443 443,332

C. II. 2. 2. Receivables - subsidiaries and controlling party

770,912 - 770,912 629,798

C. II. 2. 4. Receivables - other 25,277 - 25,277 9,678

C. II. 2. 4. 3. Taxes - receivables from the state 14,831 - 14,831 596

C. II. 2. 4. 4. Short-term advances paid 2,818 - 2,818 2,454

C. II. 2. 4. 5. Estimated receivables 6,701 - 6,701 5,761

C. II. 2. 4. 6. Other receivables 927 - 927 867

C. IV. Cash 1,117 - 1,117 4,565

C. IV. 2. Cash at bank 1,117 - 1,117 4,565

D. Prepayments and accrued income 5,083 - 5,083 3,725

D. 1. Prepaid expenses 4,452 - 4,452 3,655

D. 3. Accrued income 631 - 631 70

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BALANCE SHEET – continued (in thousand Czech crowns)

Ref. LIABILITIES AND EQUITY 31. December 2019 31. December 2018

a b c d

TOTAL LIABILITIES AND EQUITY 1,694,703 1,541,294

A. Equity 1,107,328 984,451

A. I. Share capital 75,000 75,000

A. I. 1. Share capital 75,000 75,000

A. II. Share premium and capital contributions 5,030 5,030

A. II. 2. Capital contributions 5,030 5,030

A. II. 2. 1. Other capital contributions 5,030 5,030

A. III. Other reserves 7,500 7,500

A. III. 2. Statutory and other reserves 7,500 7,500

A. IV. Retained earnings / Accumulated losses 73,398 61,386

A. IV. 1. Retained earnings or accumulated losses (+/-) 73,398 61,386

A. V. Profit / (loss) for the current period 946,400 835,535

B. + C. Liabilities 587,375 556,843

B. Provisions 123,408 110,282

B. 2. Income tax provision 23,431 4,326

B. 4. Other provisions 99,977 105,956

C. Liabilities 463,967 446,561

C. I. Long-term liabilities 11,900 1,060

C. I. 8. Deferred tax liability 11,900 1,060

C. II. Short-term liabilities 452,067 445,501

C. II. 3. Short-term advances received 3,225 3,155

C. II. 4. Trade payables 274,954 283,108

C. II. 8. Liabilities - other 173,888 159,238

C. II. 8. 3. Liabilities to employees 66,300 79,112

C. II. 8. 4.

Liabilities for social security and health insurance

35,921 37,890

C. II. 8. 5. Taxes and state subsidies payable 11,599 15,450

C. II. 8. 6. Estimated payables 55,735 22,328

C. II. 8. 7. Other liabilities 4,333 4,458

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INCOME STATEMENT (in thousand Czech crowns)

Ref. TEXT Accounting period 2019 2018

a b 1 2

I. Sales of products and services 4,028,368 3,879,304

II. Sales of goods 297 617

A. Cost of sales 1,408,345 1,380,100

A. 1. Cost of goods sold 226 440

A. 2. Raw materials and consumables used 210,917 174,890

A. 3. Services 1,197,202 1,204,770

B. Changes in inventories of finished goods and work in progress 2,819 43,245

C. Own work capitalised (70) (393)

D. Staff costs 1,396,094 1,353,533

D. 1. Wages and salaries 985,217 951,869

D. 2. Social security, health insurance and other social costs 410,877 401,664

D. 2. 1. Social security and health insurance costs 368,627 355,744

D. 2. 2. Other social costs 42,250 45,920

E. Value adjustments in operating activities 52,731 62,957

E. 1. Value adjustments of fixed assets 58,927 57,583

E. 1. 1. Depreciation, amortisation and write off of fixed assets 58,927 57,583

E. 2. Provision for impairment of inventories (6,245) 3,716

E. 3. Provision for impairment of receivables 49 1,658

III. Operating income - other 20,585 16,411

III. 1. Sales of fixed assets 12,498 11,933

III. 2. Sales of raw materials 2,000 1,551

III. 3. Other operating income 6,087 2,927

F. Operating expenses - other 15,279 17,332

F. 1. Net book value of fixed assets sold 1,148 4,665

F. 2. Cost of raw materials sold 52 36

F. 3. Taxes and charges from operating activities 8,188 8,249

F. 4. Operating provisions and complex prepaid expenses (5,980) (6,877)

F. 5. Other operating expenses 11,871 11,259

* Operating result 1,174,052 1,039,558

VI. Interest and similar income 3,159 599

VI. 1. Interest and similar income - subsidiaries or controlling party 3,159 599

J. Interest and similar expenses 87 45

J. 1. Interest and similar expenses - subsidiaries or controlling party 87 45

K. Other financial expenses 752 737

* Financial result 2,320 (183)

** Net profit / (loss) before taxation 1,176,372 1,039,375

L. Tax on profit or loss 229,972 203,840

L. 1. Tax on profit or loss - current 219,131 196,204

L. 2. Tax on profit or loss - deferred 10,841 7,636

** Net profit / (loss) after taxation 946,400 835,535

*** Net profit / (loss) for the financial period 946,400 835,535

Net turnover for the financial period 4,052,409 3,896,931

18


Statement of changes in shareholder’s equity Year ended 31 December 2019

Share

capital

Other capital funds

Statutory and other

reserves

Retained earnings

Total

As at 1 January 2018 75,000 5,030 7,500 812,914 900,444

Profit distribution paid 0 0 0 (751,528) (751,528)

Net profit for 2018 0 0 0 835,535 835,535

As at 31 December 2018 75,000 5,030 7,500 896,921 984,451

Profit distribution paid 0 0 0 (823,523) (823,523)

Net profit for 2019 0 0 0 946,400 946,400

As at 31 December 2019 75,000 5,030 7,500 1,019,798 1,107,328

19


Cash flow statement Year ended 31 December 2019

Ref. TEXT Accounting period

2019 2018

a b 1 2

Cash flows from operating activities

Net profit before tax 1,176,372 1,039,375

A. 1. Adjustments for non-cash movements: 32,269 47,902

A. 1. 1. Depreciation and amortisation of fixed assets 58,927 57,583

A. 1. 2. Change in provisions (12,175) (1,503)

A. 1. 3. Profit from disposal of fixed assets (11,350) (7,268)

A. 1. 5. Net interest expense/(income) (3,072) (554)

A. 1. 6. Other non-cash movements (61) (356)

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

1,208,641 1,087,277

A. 2. Working capital changes: (68,722) (76,769)

A. 2. 1. Change in receivables and prepayments (74,655) (170,745)

A. 2. 2. Change in short-term payables and accruals 7,261 53,990

A. 2. 3. Change in inventories (1,328) 39,986

A ** Net cash flow from operating activities before tax 1,139,919 1,010,508

A. 3. Interest paid (87) (45)

A. 4. Interest received 2,598 582

A. 5. Income tax paid (200,027) (201,100)

A *** Net cash flow from operating activities 942,403 809,945

B. 1. Acquisition of fixed assets (134,826) (71,871)

B. 2. Proceeds from sale of fixed assets 12,498 11,933

B *** Net cash flow from investing activities (122,328) (59,938)

C. 2. Changes in equity: (823,523) (751,528)

C. 2. 6. Profit distribution paid (823,523) (751,528)

C *** Net cash flow from financing activities (823,523) (751,528)

Net decrease in cash and cash equivalents (3,448) (1,521)

Cash and cash equivalents at the beginning of the year 4,565 6,086

Cash and cash equivalents at the end of the year 1,117 4,565

20


4.2 Notes to the Financial Statements

1. General information

1.1. Introductory information about the Company

GridServices, s.r.o., (“the Company”) was registered in the Commercial Register kept with the Regional

Court in Brno, section C, insert 57165 on 26 July 2007 and has its registered office in Plynárenská 499/1,

Brno, Zábrdovice, zip code 602 00, Czech Republic. Identification number of the Company is 279 35 311.

The Company’s primary business activities are construction activities including modifications

and removal of constructions, project activity in construction, assembly, repairs, revisions and tests

of designated gas and electrical equipment.

The Company is not a shareholder having unlimited liability in any other undertaking.

Statutory representatives as at 31 December 2019:

Name Position Day of appointment

Martin Gebauer Chairman of the Board of Directors 30 September 2019

Dušan Malý Statutory Representative 30 September 2019

Pavel Káčer Statutory Representative 1 October 2009

Statutory representative as at 31 December 2018:

Name Position Day of appointment

Pavel Káčer Executive Director 1 October 2009

The following changes occurred in the composition of the Company's bodies in 2019:

The sole shareholder, by decision of the General Meeting in the form of a notarial insert amended the

Company's Deed of incorporation on 30 September 2019 by increasing number of directors to three (3).

On 30 September 2019, the sole shareholder elected Martin Gebauer and Dušan Malý. Martin Gebauer

was elected as Chairman of the Board of Directors by 7 October 2019.

On 15 October 2019 the sole shareholder approved, by decision within the competence of the General

Meeting, the removal of the procuration of Radek Starý, David Fojtík, Petr Báč and Dagmar Ledererová.

Other events

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.

21


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.

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 („TSA“) 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. Accounting policies

2.1. Basis of preparation

The financial statements have been prepared in accordance with Generally Accepted Accounting

Principles in the Czech Republic relevant for large sized companies and have been prepared

under the historical cost convention.

2.2. 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 with its acquisition.

Intangible and tangible fixed assets are amortised/depreciated applying the straight-line method

over their estimated useful lives as follows:

22


Intangible and tangible fixed assets Estimated useful life

Software 3 years

Other intangible fixed assets 6 years

Machinery and Equipment 3 – 15 years

The amortization/depreciation plan is updated during the useful life of the intangible and tangible fixed

assets based on the expected useful life.

A provision for impairment is created when the carrying value of an asset is greater than its estimated

recoverable amount. The estimated recoverable amount is determined based on expected future cash

flows generated by the certain asset.

Repairs and maintenance expenditures of tangible fixed assets are expensed as incurred.

Adjustment to acquired fixed assets represents the difference between the valuations of purchased

parts of the former regional gas companies and the aggregate carrying amount of assets and liabilities

acquired as recorded in the accounts of the original owners. Such differences are amortised

on a straight-line basis over a period of 15 years.

2.3. Other securities and investments

The Company classifies securities and investments, other than investments in subsidiaries

and associates as trading, available-for-sale or held-to-maturity.

Investments intended to be held for an indefinite period of time, which may be sold in response

to liquidity requirements, are classified as available-for-sale. These investments are included

in non-current assets unless management has the express intention of holding the investment for less

than 12 months from the balance sheet date, in which case they are included in current assets.

Management determines the appropriate classification of investments as at the time of purchase

and the classification is reviewed on a regular basis.

All securities and investments are initially recorded at cost, including transaction costs. Held-to-maturity

investments are subsequently accounted for at amortised cost. Other investments are subsequently

accounted for at fair value. The fair value is determined as the market value of the securities

as at the balance sheet date. Measurement of non-traded securities is based on management estimates

based on recognised models or valuation techniques.

2.4. Inventories

Purchased inventories are stated at the lower of cost and net realisable amount. Cost includes all costs

related with its acquisition (mainly transport costs, customs duty, etc.). The weighted average cost

method is applied for all disposals.

Inventories generated from own production, i.e. work-in-progress and finished goods, are stated

at the lower of production cost and estimated net realisable amount. Production cost includes direct

and indirect materials, direct and indirect wages and production overheads.

23


Subcontracted supplies and other direct costs related to unfinished projects are expensed as incurred

and simultaneously activated as work-in-progress. Subcontracted supplies are valued at cost.

Work-in-progress is derecognised once the respective revenue is recognised.

A provision is created for slow-moving and obsolete inventory based on an analysis of turnover

and individual evaluation of inventories.

A provision for work-in-progress is created based on the analysis of estimated revenues and costs.

2.5. 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 individual evaluation of the credit worthiness

of the customers. Receivables from related parties have not been provided for.

2.6. 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

and presented net.

2.7. Provisions

The Company recognises provisions to cover its obligations or expenses, when the nature

of the obligations or expenses is clearly defined and it is probable or certain as at the balance sheet

date that they will be incurred, however their precise amount or timing is not known. The provision

recognised as at the balance sheet date represent the best estimate of expenses that will be probably

incurred, or the amount of liability that is required for their settlement.

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.

2.8. Employment benefits

The Company recognizes a provision relating to rewards, bonuses, untaken holiday and other

employment benefits.

Regular contributions are made to the state to fund the national pension plan. The Company also

provides contributions to defined contribution plans operated by independent pension funds

and capital life insurance. The contribution for pension and life insurance is recognized as an expense.

24


2.9. Revenue recognition

Sales are recognised as at the date the services are rendered and are stated net of discounts and value

added tax.

2.10. 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 12 – Related

party transactions.

2.11. Deferred tax

Deferred tax is recognised on all temporary differences between the carrying amount of an asset

or liability in the balance sheet and its tax base. Deferred tax asset is recognised if it is probable that

sufficient future taxable profit will be available against which the asset can be utilised.

2.12. Cash-flow statement

The Company has prepared a Cash-flow statement using the indirect method.

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.

2.13. Subsequent events

The effects of events, which occurred between the balance sheet date and the date of preparation

of the financial statements, are recognised in the financial statements in the case that these events

provide further evidence of conditions that existed as at the balance sheet date.

Where significant events occur subsequent to the balance sheet date but prior to the preparation

of the financial statements, which are indicative of conditions that arose subsequent to the balance

sheet date, the effects of these events are disclosed, but are not themselves recognised in the financial

statements.

2.14. Comparable data

Due to a change in accounting policy regarding the definition of cash equivalents, the financial

statements for the year ended 31 December 2018 have amended the comparative period of the Cash

Flow Statement to reflect this change.

25


Cash equivalents with a maximum of three months' notice are not considered as cash equivalents

and receivables, respectively liability arising from cash-pooling if it is due within three months

of the end of the reporting period.

3. Intangible fixed assets

(CZK’000) 1 January 2019 Additions /transfers 31 December 2019

Cost

Software 7,403 1,060 8,463

Other intangible fixed assets 1,820 - 1,820

Intangible fixed assets in the course of construction

900 (900) -

Total 10,123 160 10,283

Accumulated amortisation

Software (3,302) (2,332) (5,634)

Other intangible fixed assets (1,773) (19) (1,792)

Total (5,075) (2,351) (7,426)

Net book value 5,048 2,857

(CZK’000) 1 January 2018 Additions /transfers 31 December 2018

Cost

Software 2,599 4,804 7,403

Other intangible fixed assets 1,820 - 1,820

Intangible fixed assets in the course of construction

2,996 (2,096) 900

Total 7,415 2,708 10,123

Accumulated amortisation

Software (1,874) (1,428) (3,302)

Other intangible fixed assets (1,688) (85) (1,773)

Total (3,562) (1,513) (5,075)


26


4. Tangible fixed assets

(CZK’000) 1 January

2019 Additions /transfers

Disposals 31 December

2019

Cost

Equipment 910,861 120,849 (56,638) 975,072

Adjustments to acquired assets 30,506 - - 30,506

Tangible fixed assets in the course of construction

2,160 13,192 - 15,352

Total 943,527 134,041 (56,638) 1,020,930

Accumulated depreciation

Equipment (628,940) (54,542) 55,481 (628,001)

Adjustments to acquired assets (22,371) (2,034) - (24,405)

Total (651,311) (56,576) 55,481 (652,406)


(CZK’000) 1 January

2018 Additions /transfers

Disposals 31 December

2018

Cost

Equipment 847,367 106,079 (42,585) 910,861

Adjustments to acquired assets 30,506 - - 30,506

Tangible fixed assets in the course of construction

19,430 (12,793) (4,477) 2,160

Total 897,303 93,286 (47,062) 943,527

Accumulated depreciation

Equipment (617,263) (54,037) 42,360 (628,940)

Adjustments to acquired assets (20,338) (2,033) - (22,371)

Total (637,601) (56,070) 42,360 (651,311)


The adjustment to acquired fixed assets arose on 1 January 2008 on the purchase of Distribution

divisions from the former regional gas companies: Severočeská plynárenská, a.s.,

Severomoravská plynárenská, a.s., Středočeská plynárenská, a.s., Východočeská plynárenská, a.s.

and Západočeská plynárenská, a.s.

5. Other securities and investments

Other securities and investments as at 31 December 2019 and 2018 are represented by a 12% share in Sdružení k vytvoření a využívaní digitální technické mapy města Pardubic.

27


6. Inventories

Inventories as at 31 December 2019 and 2018 comprise in particular spare parts for repairs of gas

distribution system.

The Company created a provision for inventories as at 31 December 2019 of CZK 8,686 thousand

(as at 31 December 2018: CZK 7,975 thousand).

Work-in-progress as at 31 December 2019 and 2018 represents unfinished long-term activities relating

to construction of gas facilities.

The Company created a provision for work in progress as at 31 December 2019 amounting

to CZK 19,025 thousand (as at 31 December 2018: CZK 25,982 thousand).

7. Receivables

The overdue receivables as at 31 December 2019 amounted to CZK 5,340 thousand


The provision for doubtful receivables as at 31 December 2019 was CZK 3,697 thousand


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

The Company has no receivables nor provided any guarantees which are not included in the balance

sheet.

8. Equity

The Company is fully owned by Czech Grid Holding, incorporated in Czech Republic, registered office

at Prague 10 – Strašnice, Limuzská 3135/12, ZIP code 100 98, registration number: 243 10 573.

The ultimate holding company of the group is Czech Gas Networks S.à.r.l., incorporated in Luxembourg.

The consolidated financial statements of the smallest group of entities of which the Company forms can

be obtained at Czech Grid Holding, a.s. registered office.

On 24 May 2019 the sole shareholder approved the financial statements for 2018 and decided about

distribution of 2018 profit of CZK 823,523 thousand.

Until the date of preparation of these financial statements, the Company has not proposed distribution

of the profit earned in 2019.

28


9. Provisions

(CZK’000) Income tax

provision Other Total

Opening balance as at 1 January 2018 9,222 112,833 122,055

Charge for the year 196,104 69,688 265,792

Used in the year (9,222) (76,565) (85,787)

Advances for Income tax - offset (191,778) - (191,778)

Closing balance as at 31 December 2018 4,326 105,956 110,282

Charge for the year 218,988 61,404 280,392

Used in the year (4,326) (67,383) (71,709)

Advances for Income tax - offset (195,557) - (195,557)

Closing balance as at 31 December 2019 23,431 99,977 123,408

The Company created provisions for employee benefits in amount of CZK 40,620 thousand

(as at 31 December 2018: CZK 37,440 thousand) and provision for holidays in amount

of CZK 19,454 thousand (as at 31 December 2018: CZK 23,706 thousand).

Advances for income tax of CZK 195,557 thousand paid by the Company as at 31 December 2019

(as at 31 December 2018: CZK 191,778 thousand) are netted off with the provision for income tax

of CZK 218,988 thousand as at 31 December 2019 (as at 31 December 2018: CZK 196,104 thousand).

10. Payables, commitments and contingent liabilities

Trade and other payables have not been secured against any assets of the Company and are not due

after more than 5 years.

Liabilities to related parties are disclosed in Note 12 Related party transactions.

The Company does not have any liabilities or commitments that are not recognised in the balance sheet.

The Company has not provided guarantees that are not recognised in the balance sheet.

The management of the Company is not aware of any significant contingent liabilities

as at 31 December 2019.

29


11. Revenue analysis

Revenue analysis:

(CZK’000) 2019 2018

Revenues - management of gas facilities 3,281,948 3,216,791

Revenues - construction of gas facilities 605,605 540,618

Revenues for other services 140,815 121,895

Total sales of services 4,028,368 3,879,304

Sales of goods 297 617

Revenues from sale of fixed assets and raw materials 14,498 13,484

Other operating income 6,087 2,927

Total revenue from operating activities 4,049,250 3,896,332

12. Related parties transactions

The Company participated in these related party transactions, which are divided into two periods in

2019 with a milestone date of 30 September 2019, when the owner of the parent company changed

(see Note 1.1 General information). The period from 1 January to 30 September 2019 includes

transactions within the RWE AG Group; the period from 1 October to 31 December 2019 only includes

transactions within the MIRA group.

(CZK’000) 1-9 2019 10-12 2019 2018

Revenues

Sales of services 2,807,858 1,094,579 3,797,181

Other operating income - - 6

Interest income 1,836 1,323 599

Total 2,809,694 1,095,902 3,797,786

Costs

Material and energy consumption 17,605 265 140

Services 502,770 1,108 698,012

Other operating expenses 49 - 57

Interest expense 87 - 45

Total 520,511 1,373 698,254

30


The following related party balances were outstanding as at:

(CZK’000) 31 December 2019 31 December

2018

Receivables

Trade receivables 340,027 426,139

Other receivables 4,763 5,932

Cash-pooling receivables 770,912 629,798

Total 1,115,702 1,061,869

Liabilities to companies within the consolidation group

Trade payables 610 99,851

Other liabilities 73 5,160

Total 683 105,011

Provided and received loans and receivables and payables from cash-pooling bear interest at market

interest rates.

Company cars are made available for use by the Company’s Management.

A Stock option program was created for management, for which a provision in the amount

of CZK 11,970 thousand has been created as at 31 December 2018 (as at 31 December 2018:

CZK 8,779 thousand).

Besides the above stated, there was no other cash or in kind consideration provided for the year ended

31 December 2019 and 2018 to the statutory representative and management.

13. Employees

2019 2018

Average number of members of management 7 7

Average number of other staff 2,031 2,045

Total number of employees 2,038 2,052

31


(CZK’000) Management Other staff Total

2019

Wages and salaries 19,538 965,679 985,217

Social security costs 5,353 363,274 368,627

Other social costs 405 41,845 42,250

Total staff costs 25,296 1,370,798 1,396,094

2018

Wages and salaries 17,034 934,835 951,869

Social security costs 4,658 351,086 355,744

Other social costs 379 45,541 45,920

Total staff costs 22,071 1,331,462 1,353,533

The Company’s Management includes directors and managers, who are directly reporting to them.

Category Company’s Management includes remuneration of Statutory Representatives, who are not

employee of the Company.

Other transactions with the Company’s management are described in Note 12 - Related party

transactions.

14. Fees paid and payable to the audit company

The information relating to the fees paid and payable for services performed by the audit company

PricewaterhouseCoopers Audit, s.r.o., is included in the consolidated financial statements of Czech Grid

Holding, a.s.

15. Income tax

The income tax expense analysis:

(CZK’000) 2019 2018

Current tax expense (19 %) 218,988 196,104

Deferred tax expense 10,841 7,636

Adjustment of prior year tax expense based on final CIT return 143 100

Total income tax expense 229,972 203,840

32


The current tax analysis:

(CZK’000) 2019 2018

Net profit before taxation 1,176,372 1,039,375

Tax non-deductible costs 42,608 46,406

Non-taxable income (63,080) (50,267)

Net taxable profit 1,155,900 1,035,514

Tax incentives (633) (644)

Corporate income tax at 19 % 218,988 196,104

The deferred tax was calculated at 19% (the rate enacted for 2019 and subsequent years).

The deferred tax (liability)/asset analysis:

(CZK’000) 31 December

2019 31 December

2018

Deferred tax asset (+) / liability (-) arising from:

Difference between accounting and tax net book value of fixed assets

(36,544) (28,000)

Provisions 24,644 26,940

Net deferred tax asset / (liability) (11,900) (1,060)

16. Subsequent events

After the balance sheet data the Transitional Service Agreement was signed, see Note 1.

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. 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.

No other events occurred subsequent to year end that would have a material impact on the financial

statements as at 31 December 2019.

17 March 2020


Chairman of the Board of Directors Statutory Representative

33


5 Independent auditor’s report

34


35


36


6 GridServices, s.r.o., Report on Related Party Transactions in the Year Ended

31 December 2019

6.1 Report on Related Party Transactions in 2019

This Report on Related Party Transactions (Report) 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.

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 person 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,

- 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,

37


- 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. (till 15 October named as 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

- 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,


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


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


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


- 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.

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

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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 Party

The Company specializes in providing services of mostly technical nature to the Distribution System

Operator GasNet. These services include securing metering, operation, and maintenance of distribution

systems, documentation, day-to-day management, and network enlargement.

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 completed the following legal act at the behest or in the

interest of the related parties referred to in Section 1 of this Report, which involved assets in excess

of CZK 110,733 thousand, which represents 10% of the Company's equity reported in the most recent

Financial Statements compiled as at 31 December 2019:

- Sale of services to GasNet for the whole accounting period of 2019.

- Purchase of services from innogy Česká republika a.s. for the period from 1 January 2019

to 29 September 2019.

- Cash-pooling transactions with GasNet for the whole accounting period of 2019.

- The Company paid a dividend to innogy Grid Holding, a.s. in an amount exceeding the

value stated above.

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.).

6.5 Assessment and Settlement of Losses

The Company incurred no losses based on agreements in effect during the reported period between

the Company and other members of the Group, and other dealings and measures undertaken by the

Company at the behest or in the interest of the foregoing entities during the reported period.

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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.

6.8 Summary

This Report was approved by the Company's Executive Directors on 17 March 2020.

Brno, dated 17 March 2020


Chairman of the Executive Directors Executive Director

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ANNEX NO. 1 A Scheme of relations between controlling and controlled parties for the

period from 1 January 2019 to 21 February 2019:

41


ANNEX NO. 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 NO. 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 NO. 2

Agreements between the Company and Related Parties in the Last Accounting Period

(from 1 January 2019 to 29 September 2019)

Contracting Party Contract type / Subject-matter Quantity

GasNet, s.r.o. Cash-Pooling Establishment Agreement 2

Amendments 1 – 3 to Cash-Pooling Agreement 3

Agreement on Lease of Non-Residential Premises 1

Amendments 1 – 24 to Agreement on Lease of Non-

Residential Premises 24

Partnership Agreement 1

Contract for the Provision of Technical Services 1

Amendments 1 – 2 to the Contract for the Provision of

Technical Services 2

Master Agreement for Entry into Contracts for the

Provision of Technical Services 1

Agreement on Connection Conditions, Cooperation and

Assistance for Gas Device Implementation and

Agreement on Future Purchase Contract

1

innogy Česká republika a.s. Agreement on Lease of Non-Residential Premises 1



Commercial Sublease Agreement 2

Amendments 1 – 2 to Agreement on Lease of

Commercial Non-Residential Premises 2

Amendments 1 to Agreement on Lease of Commercial

Non-Residential Premises 1

Master Agreement for Service Level Agreements for

Corporate Services 1

Amendment 1 to SLA for Corporate Services 1

Service Level Agreement for Corporate Services 1

Service Level Agreement for Corporate SAP Systems 1

Amendments 1 – 3 to Service Level Agreement for

Corporate SAP Systems 3


Facility Management, Fleet Management, and

Procurement

1

Master Agreement for Entry into Service Level

Agreements for Accounting and Taxation 1


Information Technologies and Electronic

Communications

1

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Service Level Agreements for Information Technologies

and Electronic Communications 1

Insurance Premium Payment Agreement 1

Trademark Use Consent 1

Personal Data Processing Agreement 2

Agreement onf the Provision Product Sub-Licence 1

innogy Energie, s.r.o. Master Contract for SLA for Non-Regulated Technical

Services 1

SLA for Non-Regulated Technical Services 1 Agreement on Bundled Gas Supply Services 2

Agreement on Bundled Electricity Supply Services from

the Low-Voltage Grid 1

innogy Energo, s.r.o. Service Level Agreement for Construction of CNG Filling

Stations for Motor Vehicles 1

Lease Agreement 1

Copyright Assignment Agreement 1

Agreement on Operation and Maintenance of Gas

Connection 4

innogy Gas Storage Service Level Agreement – Analysis of Natural Gas 1 Contract for Work 1

innogy Zákaznické služby, s.r.o. Lease Agreement 1

Master Contract for Entry into Agreements on the

Provision of Services by innogy Zákaznické služby, s.r.o. 1

Agreement on the Provision of Services by innogy

Zákaznické služby, s.r.o. 1

Personal Data Processing Agreement 1

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ANNEX NO. 3

Agreements between the Company and Related Parties in the Last Accounting Period

(from 30 September 2019 to 31 December 2019)


GasNet, s.r.o. Cash-Pooling Establishment Agreement 2

Amendments 1 – 3 to Cash-Pooling Agreement 3

Agreement on Lease of Non-Residential Premises 1



Partnership Agreement 1

Contract for the Provision of Technical Services 1

Amendments 1 – 2 to the Contract for the Provision of

Technical Services 2

Master Agreement for Entry into Contracts for the

Provision of Technical Services 1

Agreement on Connection Conditions, Cooperation and

Assistance for Gas Device Implementation and

Agreement on Future Purchase Contract

1

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Documents

Annual report 2019 GridServices, s.r.o. - GasNet