Content. severomoravská plynárenská

Transcription

1 ANNUAL REPORT 2011 severomoravská plynárenská

2 Key Consolidated Ratios (IFRS) 2011 Total sales (CZK m) 10,357 EBITDA (CZK m) 1,501 Operating result (CZK m) 1,220 Profit before taxation (CZK m) 1,212 Profit after taxation (CZK m) 972 Investments (CZK m) 618 Number of employees (FTE) 14 Wherever used in the text, the term Company or SMP refers to Severomoravská plynárenská, a.s. Wherever used in the text, the term SMP Group refers to the consolidated undertaking of Severomoravská plynárenská, a.s. and SMP Net, s.r.o.

3 Severomoravská plynárenská Annual Report TABLE OF CONTENTS 1 The Chairman s Statement 6 2 Report of the Supervisory Board for SMP Group Management Report for SMP Group Profile Results Strategy and Business Activities Marketing and Communication Activities Natural Gas Distribution Human Resources Information Technologies Environmental Protection Subsequent Events Outlook 19 4 Corporate Governance Statement Shareholders and Securities Governing Processes and Other Rules and Procedures Management and Administration Policies 27 5 About the Issuer General Information The Company's Governing and Supervisory Bodies Object of Business and Activities of Issuer of Listed Securities Equity Interests Persons Responsible for the Annual Report and Audit of Financial Statements 40 6 Financial part Financial Statement of the SMP Group Notes to Consolidated Financial Statements Severomoravská plynárenská, a.s. Financial Statements Notes to separate Financial Statements 97 7 Independent Auditor's Report Auditor's Report on the Consolidated Financial Statements Auditor's Report on the Consolidated Annual Report and the Severomoravská plynárenská, a.s. Report on Relations between Related Parties Auditor's Report on the Financial Statements of Severomoravská plynárenská, a.s Report of the Board of Directors of Severomoravská plynárenská, a.s. on Relations between Related Parties as at 31 December

4

5 TRUST

6 6 The Chairman's Statement 1 THE CHAIRMAN'S STATEMENT Ladies and Gentlemen, The year 2011 brought several important events that have had a major impact on the situation in the energy sector. The accident at the Fukushima nuclear plant in Japan last March has sparked a worldwide discussion about the role of nuclear power. The subsequent decision of the German government to gradually shut down nuclear power plants had a negative effect on the situation on the electricity market throughout Europe. The global position of natural gas was affected significantly by the growing extraction of shale gas and LNG affecting European market prices. On the domestic scene, the preparation of the new Energy Concept of the Czech Republic continued. We strive to be as active as possible to strengthen the position of natural gas on the future energy market in the Czech Republic, particularly in connection with the production of electric power. We continued negotiations with our Russian partners because the terms of the long-term contract no longer correspond to the current market reality. In light of this situation, we lost over 70,000 gas customers last year, mainly in the retail segment. However, we are resolved to prevent the unfavorable situation from having an adverse impact on our performance. During 2011, we introduced new products and services with the aim to retain existing customers and to re-acquire those who have switched to other suppliers. I believe that our active approach to all customer segments will contribute to the stabilization of the Company on the natural gas market in the Czech Republic. I am happy to report that our activities in the electricity business have been very successful. Even though we have been offering this commodity to customers only for a second year, the results are highly encouraging. The Company has clearly demonstrated that we are able to design an interesting product that appeals to both existing and potential clients. The same success was achieved in our media campaigns that targeted the acquisition of new clients. Thanks to these efforts, close to 16,000 customers were receiving electric power from the Company at the end of I am convinced that this trend will successfully continue in the future.

7 Severomoravská plynárenská Annual Report On behalf of the entire Board of Directors of Severomoravská plynárenská, a.s., I want to thank our customers and business partners for their trust in We appreciate your support. In 2012, we will together celebrate a tenth anniversary of RWE's presence in the Czech Republic. I am convinced that it is the strict conformity to RWE's fundamental values, such as trust, reliability, and customer orientation, that will allow us to succeed on the Czech energy market in the upcoming years, as we have in the past. Many thanks also go to all the Company's employees for their hard work and initiative in Jindřich Broukal Chairman of the Board of Directors

8 8 Report of the Supervisory Board for Report of the Supervisory Board for 2011 In 2011, the Supervisory Board oversaw activities carried out by the Board of Directors as part of the conduct of the Company's business and supervised the compliance of the Board of Directors with generally binding regulations, the Articles of Association, and resolutions of the Company's General Meetings. During the period under review, the Supervisory Board held four regular and two extraordinary sessions and formed a quorum on all occasions. The Board of Directors regularly informed the Supervisory Board of the Company's current affairs, economic results, and financial situation. In doing so, the Board of Directors presented documents that were supplemented by verbal comments of its members during the Supervisory Board's discussions on individual matters. The oversight activity of the Supervisory Board in the reported year mainly focused on: financial results, including ongoing updates of forecasts for 2011; assessing and monitoring the negative development of the number of customers on the natural gas market caused by growing competition in the liberalized energy sector in the Czech Republic; monitoring the development of receivables and payables; preparing the General Meeting in 2011, including a review of the Company's Financial Statements, the Consolidated Financial Statements of the SMP Group as at 31 December 2010, and the 2010 Report of the Board of Directors compiled in accordance with Section 66a(9) of the Commercial Code; the ongoing performance of Audit Committee functions. The Supervisory Board confirms that all activities of the Board of Directors were carried out in accordance with the Company's Articles of Association and generally binding regulations. At its meeting held on 23 March 2011, the Supervisory Board, exercising the powers of the Audit Committee, approved a proposal for the appointment of the auditor of the Company's Annual Financial Statements as at 31 December The proposed auditor was PricewaterhouseCoopers Audit, s.r.o., which was subsequently approved on 16 May 2011 under a decision of the Company's annual General Meeting. On 26 March 2012, the Supervisory Board reviewed the report of the Board of Directors compiled in accordance with Section 66a(9) of the Commercial Code and stated no objections regarding the completeness and content of this report. At the same meeting, the Supervisory Board discussed and reviewed the Company's Annual Financial Statements and the SMP Group's Consolidated Financial Statements as at 31 December 2011, including the Auditor's Report and the Profit Distribution Proposal for 2011.

9 Severomoravská plynárenská Annual Report In line with the auditor, the Supervisory Board concluded that the submitted Financial Statements and Consolidated Financial Statements provide a true and fair view of the financial position of the Company and the SMP Group as at 31 December 2011 as well as of their business performance and cash flows in 2011 in accordance with the International Financial Reporting Standards approved by the European Union. The Supervisory Board recommends to the General Meeting to approve the Annual Financial Statements and the Consolidated Financial Statements as at 31 December 2011 as well as the Profit Distribution Proposal for 2011 submitted by the Board of Directors. The Supervisory Board thanks all employees for their work in Prague, 26 March 2012 Martin Herrmann Chairman of the Supervisory Board

10 10 SMP Group Management Report for 2011 SMP Group Profile 3 SMP Group Management Report for SMP Group Profile The SMP Group was created as a consolidated undertaking following the legal unbundling of natural gas trading and distribution in connection with the European Union's requirements and the ensuing amendment to the Energy Act. The SMP Group consists of Severomoravská plynárenská, a.s., as the consolidating company, and SMP Net, s.r.o., as the consolidated company. SMP Net, s.r.o. was founded to conduct business as a distribution system operator, a role it assumed on 1 January Additional information on the consolidated company is included in Section 5.4 of this Annual Report. 3.2 Results The SMP Group keeps its accounting books in accordance with International Financial Reporting Standards (IFRS) that were adopted by the European Union and are effective on the balance sheet date. During the reported year, the SMP Group did not experience any problems in the funding of operations and investments. Financing was secured through the cash-pooling arrangement of the RWE Group in the Czech Republic. Consolidated Revenues, Expenses, Profit In 2011, earnings before taxes (EBT) amounted to CZK 1,212 million, a CZK 860 million decrease from The SMP Group registered CZK 972 million in earnings after taxes (EAT), a year-on-year decrease by CZK 705 million. During the reported year, sales of natural gas, electricity, natural gas distribution, and other services amounted to CZK 10,357 million, CZK 2,158 million less than in the preceding year (-17.2%). There was a decrease in revenues from natural gas trading compared to 2010, mainly due to lower sales (customers' departures to other suppliers and unfavorable climatic conditions). The reduction in sales was somewhat compensated by a year-on-year increase in sales prices. Moreover, we recorded an increase in sales of electric power thanks to a rise in the number of customers.

11 Severomoravská plynárenská Annual Report Consolidated Assets As at 31 December 2011, the SMP Group's assets totaled CZK 8,154 million, a decrease by CZK 530 million (6.1%) from the value of assets at the end of Fixed assets accounted for the largest part of total assets, amounting to some 86.8%. They mainly consist of gas pipeline networks. Fixed assets grew by 4.7% on the preceding year. There was a decrease that mainly affected short-term assets whose share in total assets fell by 43.5% year-on-year, mostly due to a reduction in cash and cash equivalents and receivables consisting of unbilled gas and electricity supplies. Consolidated Liabilities As to equity and liabilities, there was a slight year-on-year decrease in equity, as the share of equity in the total value of equity and liabilities amounted to 60.3%, 4.5% less than in Short-term liabilities grew by CZK 125 million on the previous year, mainly due to an increase in other financial obligations. Long-term liabilities increased by CZK 56 million on the previous year. Investments During 2011, the SMP Group invested CZK 618 million in line with the approved investment plan, spending CZK 615 and CZK 3 million on the acquisition of tangible and intangible assets, respectively. The larger part of this sum, CZK 363 million, was invested into distribution network renewal projects. Investments into the acquisition of pipelines totaled CZK 176 million. Considering its high density, the expansion of the distribution system in the region has been essentially terminated. Investments into network development now mainly focus on reinforcing the capacity of the system and on improving its safety and reliability. The most important investment projects in 2011 included reconstruction projects involving the Suchá Albrechtice high-pressure pipeline, the local network in Hviezdoslavova Street in Hranice, and the local networks in Bruntál, Loštice, Olomouc, Ostrava, Zábřeh, and other cities. The projects were executed in coordination with municipal authorities and other utility operators. In addition, we reconstructed our customer service centers in Ostrava and Opava. The SMP Group executed all investment projects in the Czech Republic and funded all of them using financial resources of the RWE Group in the Czech Republic. The scope of planned investments has been optimized from the viewpoint of needs and resources until the year Projects foreseen in the approved mid-term plan mainly include investments into the expansion and reconstruction of process facilities. All investments will be made in the Czech Republic. The annual amount of planned accretions of assets during 2012 to 2014 has a slightly increasing trend and averages CZK 730 million.

12 12 SMP Group Management Report for 2011 Strategy and Business Activities 3.3 Strategy and Business Activities In 2011, the strategic priorities of trading mainly focused on maintaining our share of the natural gas market, entering actively the electric power market, and developing the electricity business. Due to the situation on spot markets, startup traders were able to offer lower natural gas prices, mainly due to large differences between market prices and prices negotiated under long-term purchasing contracts. We responded to pressures from other traders by trying to offer competitive natural gas prices and, more importantly, by offering new products and services. In addition, the SMP Group pursued intensively the electricity business throughout the reported year, offering customers the supply of both commodities. As to climatic conditions in North Moravia in 2011, the average temperature of 9.1 C was warmer than in the preceding year (7.9 C). The reported year was above-average warm vis-à-vis the long-term mean temperature. Gas Purchase In 2011, the Company purchased natural gas from RWE Transgas, a.s. (9,249,919 MWh), RWE Energie, a.s. (9,800 MWh), Jihomoravská plynárenská, a.s. (54,250 MWh), Východočeská plynárenská,a.s. (2,000 MWh), RWE Key Account CZ, s.r.o. (1,500 MWh), and external suppliers (145,666 MWh). The total gas volume purchased in 2011 amounted to 9,463,135 MWh, a decrease by 3,637,262 MWh from Gas Sale In the reported year, the Company sold 9,478,211 MWh of natural gas, where 8,948,825 MWh was sold to our end customers. Compared to 2010, sales decreased by 3,589,698 MWh. Lower revenues were recorded in the Key Account (-41%), Small Business (-28.1%), and Household (-21.4%) segments. The year-on-year decrease in sales in all customer segments was due to the number of clients who switched to other competitors and unfavorable climatic conditions, as temperatures fluctuated above the long-term average. Sales and Purchases of Natural Gas (MWh) Purchase 9,463,135 13,100,397 Sale Key Account (Industrial) 3,576,970 6,060,643 Small Business 1,517,543 2,110,190 Households 3,854,313 4,893,676 Other traders 529,386 3,400 Total sales 9,478,211 13,067,909 Customers As at 31 December 2011, the Company had 478,701 customers, a year-on-year decrease by 70,540.

13 Severomoravská plynárenská Annual Report Development of the Number of Customers Key Account (Industrial) Small Business 23,855 26,885 Households 454, ,676 Total 478, ,241 Electric Power In 2011, the Company continued its successful entry into the electricity market in all customer segments. The Company's present and future goals include offering comprehensive gas and electricity supply services that cater to the full range of our customers' demands. In 2011 we focused on the acquisition of customers, mostly in the retail segments, and the development of new products. In addition, the year was marked by a campaign focused on acquiring the projected sale of the electricity market and ensuring the full-scale supply of electric power. Electricity Purchase The concept for purchasing electric power is similar to our strategy for buying natural gas. From our supplier, RWE Key Account CZ, s.r.o., which purchases electric power on the free market, the Company buys structured electricity that is supplied to end customers. To secure the provision of composite supply services, we buy the "electricity distribution service" from ČEZ Distribuce, a. s., E.ON Distribuce, a.s., and PREdistribuce, a.s. In 2011, the Company purchased 58,978 MWh of electric power. Electricity Sale Electric power is sold to three basic customer segments. The most significant is the Household segment, followed by the Key Account and Small Business segments. Overall, the Company sold its 15,971 end customers 58,531 MWh of electric power. The highest number of new acquisitions were achieved in the Household segment, where we attracted 11,016 new end customers. Sales and Purchases of Electricity (MWh) Purchase 58,978 2,468 Sale Key Account (Industrial) 23,906 - Small Business 9, Household 25,269 2,190 Total sales 58,531 2,468

14 14 SMP Group Management Report for 2011 Marketing and Communication Activities Customers As at 31 December 2011, the Company had 15,971 customers. Development of the Number of Customers Key Account (Industrial) 14 - Small Business 1, Household 14,118 3,102 Total 15,971 3, Marketing and Communication Activities As is the case with most RWE Group member companies in the Czech Republic, marketing and communication activities for the SMP Group are coordinated by RWE Transgas, a.s. Thanks to this centralization, RWE's brand, products, services, and positions are presented in a uniform manner, and necessary information is provided effectively and on time. Marketing Marketing activities carried in 2011 concentrated on maintaining our existing customer portfolio on the natural gas market in the Household and Small Business segments and on stimulating a dynamic growth in the number of new electricity customers. These objectives were accomplished by the creation of new products and the continual improvement of customer care and related services. As to electricity sales, we introduced in 2011 new products that allow fixing the commodity price. As in the past, we continued to offer the product RWE Standard. Customers responded favorably to our newly introduced rate consulting service, which allows optimizing the distribution rate according to the offtake value. Another successful measure was the ongoing offer of a financial bonus for signing an aggregate contract for several offtake points. The related marketing communication met with a considerable response, both in the traditional media and in social networks, where it was viewed and commented on by tens of thousands of users. Compared to the preceding period, the SMP Group paid closer attention to the natural gas business and the development of attractive price offers. One successful product was an offer that allows fixing the natural gas price for up to two years. The free-of-charge web-based application RWE ONLINE SERVICE underwent further development and innovations. The system offers hundreds of thousands of users the convenience of managing all matters related to natural gas and electricity supply from their home or office as well as the option to contact RWE via a non-stop customer service line or a large network of client care centers.

15 Severomoravská plynárenská Annual Report The RWE PREMIUM loyalty program continued to play an important role in Under the program, we continue to offer the lowest prices on more than four thousand brand-name consumer goods, discount vouchers for Viessmann gas appliances, and DEKTRADE construction materials. The SMP Group also paid attention to issues concerning the rational use of energy and supported various activities related to this area. These efforts are evidenced by a website dedicated to energy savings that offers hundreds of tips and suggestions for reducing energy costs at home. Communication During the ten years RWE has been in the Czech Republic, brand awareness increased from zero to the nearly 100% today. Communication activities have played an important part in this achievement and the favorable perception of the RWE brand. The advantages of a single communication strategy are most apparent in media communication. In this area, RWE Group member companies in the Czech Republic strived in 2011 to present themselves as customer-oriented and respectable suppliers of natural gas and electric power. In view of RWE's entry into the electricity market and our efforts to maintain the existing share of the natural gas market, last year's communication activities focused more than in the past on acquiring new and retaining existing customers. In doing so, the SMP Group relied on the established sponsorship projects RWE Energy of Czech Film and RWE Energy of Czech Skiing. A successful measure was the introduction of the RWE CARD thanks to which RWE's customers enjoy discounts on the admission price for Czech films at associated cinemas and price reductions for ski passes at partner ski resorts. The community involvement of our staff was supported by RWE COMPANiUS, an initiative providing financial and organizational support for voluntary activities of RWE employees in their pastime. The SMP Group pays close attention to support for regional projects. Our effort to contribute to the development of the North Moravian Region is evidenced not only by marketing partnerships with cultural and sporting projects, but also by backing for various non-profit activities and projects in such areas as charity, education, health care, ecology, culture, and sports. 3.5 Natural Gas Distribution The core of the distribution system consists of high-pressure pipelines from which SMP Net, s.r.o. supplies natural gas directly to customers and to medium- and low-pressure distribution networks.

16 16 SMP Group Management Report for 2011 Human Resources The distribution capacity of existing pipelines covered fully the needs of customers. All prescribed inspections and maintenance tasks were completed. There were no extraordinary events or accidents. Corrosion protection was secured in accordance with the maintenance plan of SMP Net, s.r.o. The operation of the corrosion protection system was outsourced to RWE Distribuční služby, s.r.o. As in previous years, we continued to fine-tune end-customer consumption metering systems in response to both legislative requirements brought by the full liberalization of the market and changes in natural gas consumption at specific offtake points. 3.6 Human Resources Employees The development of the SMP Group headcount mainly reflected the 'NEW SALES' project, which resulted in new customer segmentation and, as a result, a new structure of sales managers. New centralized departments were created in RWE Transgas to which some employees of the Sales Division were transferred. The Business Sales Department was closed and replaced by the Individual Sales Department. In 2011, the average headcount (FTE) in SMP Net, s.r.o. equaled zero. All human resources were provided to SMP Net, s.r.o. based on internal service level agreements with RWE GasNet, s.r.o. and JMP Net, s.r.o. SMP Employee Headcount Development (FTE) Year

17 Severomoravská plynárenská Annual Report Wages The development of the average wage mainly reflected changes in the occupational and organizational structure of the SMP Group in the reported year. Wages increased in line with the development of inflation in SMP Average Wage Development (CZK) 38,366 42,302 Year Employee Training and Career Development In 2011, the SMP Group spent 3.2% of wage costs on the training and personal development of its workforce. The average annual cost of training per employee amounted to CZK 17,166. SMP Employee Structure by Education 64% 36% Secondary University Social Policy Working conditions and employee benefits guaranteed to the SMP Group's workers under the Collective Bargaining Agreement for the years 2010 and 2011 were provided at the standard level of the RWE Group in the Czech Republic.

18 18 SMP Group Management Report for 2011 Information Technologies During the reported year, the SMP Group supported sports, culture, and training activities of employees and their family members. Under the fringe benefit program, workers received retirement savings and life insurance contributions and Flexi Pass vouchers. 3.7 Information Technologies Information technology services were provided by RWE Interní služby on a contractual basis. Aiming to optimize processes, increase flexibility, and improve professionalism, RWE Interní služby outsourced some of the provided IT services. In mid-2011, Hewlett-Packard became the provider of end-user IT equipment logistics services. An important undertaking was the building of a new backbone network for the RWE Group in the Czech Republic and the launch of a new proxy server, which has increased the security of connection to the Internet and to RWE's internal networks. 3.8 Environmental Protection Due to its nature, the business of the SMP Group has a negligible harmful impact on the environment. In contrast, promoting and supporting actively the use of natural gas is an important positive aspect of our business. The priority of the SMP Group's strategy is focused on complying with legislative requirements in all areas of environmental protection with the aim of minimizing potential ecological risks. The Company continued implementing an ISO environmental management system, where we have committed ourselves not only to conforming to laws and regulations, but also to increasing our employees' awareness of the importance of environmental protection. By providing active support for the remediation of past environmental pollution, the SMP Group strives to alleviate the harmful impact of contamination in former city gas production facilities. The process is a long-term endeavor pursued in close cooperation with the Ministry of Environment, the Ministry of Finance, and the Czech Environmental Inspectorate. In 2011, no incident liable to have an effect on the environment occurred within the SMP Group. No government authority carried out an inspection in the area of environmental protection in the SMP Group during the reported year.

19 Severomoravská plynárenská Annual Report Subsequent Events No significant events have occurred after the balance sheet date Outlook The SMP Group plan forecasts CZK 1,309 million in earnings before tax (EBT) and CZK 1,078 million in earnings after taxes (EAT). The planned revenues from sale and distribution of natural gas and from sale of electricity will amount to CZK 9,832 million in As in the past, the SMP Group will improve and expand its products and services on the natural gas market in 2012 with the aim of retaining existing customers and re-acquiring those who have switched to other suppliers. On the electricity market, the SMP Group will continue to focus on the acquisition of new customers. Moreover, we will promote adherence to the RWE Group's fundamental values, such as trust, reliability, and customer orientation.

20

21 SAFETY

22 22 Corporate Governance Statement Shareholders and Securities 4 Corporate Governance Statement 4.1. Shareholders and Securities Share capital The share capital was paid on the day the Company was incorporated by means of the contribution specified in the Memorandum of Association and appraised in the approved privatization project for Český plynárenský podnik, a state-owned enterprise with its registered office at Belgická 26, Prague 2. The share capital amounts to CZK 2,069,728,000 and is divided into 2,069,728 shares, each with a nominal value of CZK 1,000. There was no change in the value of the Company's share capital during the preceding two years. The rules for increasing or reducing the share capital are outlined in the Company's Articles of Association. Shares Shares were issued in connection with the Company's incorporation on 1 January 1994, and they are the Company's common shares. Bearer shares are listed on the official stock market in accordance with Act No. 256/2004 Coll. on Capital Market Undertakings. Type Common share Common share Form Bearer share Registered share Kind Book-entry share Book-entry share Volume 1,472, ,443 ISIN / SIN / SIN CZ CZ Total value CZK 1,472,285,000 CZK 597,443,000 Nominal value per share CZK 1,000 CZK 1,000 Taxation of revenues from shares in the issuer's domicile country Revenues from shares are taxed in accordance with Act No. 586/1992 Coll. on Income Tax, as amended Payer of tax on revenues from shares Issuer Issuer Share transfers Shares were formerly transferred through the Securities Center; as of 7 July 2010, shares are transferred through the Central Securities Depository (Centrální depozitář cenných papírů, a.s.) Transferability restrictions None None Trading on regulated markets in the Czech Burza cenných papírů Praha, Shares are not listed Republic a.s. (Prague Stock Exchange) free market Trading on regulated markets abroad Shares have not been accepted for trading on any foreign market Name and registered office of the bank or financial institution through which shareholders can exercise their ownership rights relating to shares, in particular through which revenues from shares are paid Komerční banka, a.s., Prague 1 Payments are made by the bank's branches and head office Net revenues to the issuer derived from the issue None None

23 Severomoravská plynárenská Annual Report Shareholders as at 31 December 2011 Name Registered office RWE Gas International N.V. 5211AK 's-hertogenbosch, Willemsplein 4, Kingdom of the Netherlands Stake in share capital (%) 49,64 SPP Bohemia a.s. Novodvorská 803/82, Prague 4, Czech Republic 20,65 RWE Transgas, a.s. Limuzská 12/3135, Prague 10, Czech Republic 18,09 Slovenský plynárenský Mlynské Nivy 44/a, Bratislava, Slovakia 8,52 priemysel, a.s. Other shareholders 3,10 Note: The stake in the share capital corresponds to the share in the issuer's voting rights. Based on the value of their stake in the share capital, shareholders are entitled to exercise their voting rights at the General Meeting. As at 31 December 2011, the Company was a member of the RWE Group. As at that date, RWE Aktiengesellschaft indirectly held a 67.73% stake in the Company's share capital. RWE Aktiengesellschaft controlled RWE Gas International N.V. and RWE Transgas, a.s. The main shareholders (RWE Gas International N.V. and RWE Transgas, a.s.) exercise their rights to the extent of their votes solely at the Company's General Meeting. For this reason, it has not been necessary to adopt any measures against a misuse of the main shareholder's control rights. The ties and control structure of companies associated under the RWE Group as at 31 December 2011 are described on the third page of the cover as an annex to the Report of the Severomoravská plynárenská, a.s. Board of Directors on Relations between Related Parties as at 31 December 2011, which is a part of this Annual Report (Section 8). Slovenský plynárenský priemysel, a.s. is the sole shareholder of SPP Bohemia a.s. The Company has no other information on the structure of indirect shares in the issuer's voting rights as far as other shareholders are concerned. Rights Attaching to Shares Shareholder rights and obligations are defined in generally binding legal regulations (Commercial Code) and the Company's Articles of Association. A shareholder of the Company may be a legal entity or a natural person. Shareholders have the right to participate in the management of the Company under the conditions set out under the law and the Articles of Association. As a rule, shareholders exercise this right at the General Meeting, where they must respect the General Meeting Procedure Rules. The voting rights of a shareholder depend on the nominal value of shares held by the shareholder, where every CZK 1,000 of the nominal value of a share represents one vote (one share equals one vote). A shareholder is entitled to a share in profit (dividend) allocated by the General Meeting for distribution based on the Company s financial performance. A shareholder is under no obligation to return to the Company a dividend accepted in good faith.

24 24 Corporate Governance Statement Shareholders and Securities Shareholders are not entitled to demand the return of their contributions during the existence of the Company and upon its winding up. After the Company is wound up in liquidation, shareholders will be entitled to a share in the liquidation balance. Additional Information on Shares No third party made a takeover offer for the Company's shares in either 2011 or the preceding year. The Company has made no share takeover offer to other companies. The Company has not invested into shares and bonds issued by other issuers. The Company has not issued any convertible or interim securities. The Company has not issued any shares with special rights. The Company is not aware of any restrictions on voting rights attaching to shares it has issued. The Company is not aware of any shareholder agreements liable to restrict the transferability of shares or the voting rights attaching to shares it has issued. Neither the Company nor any person holding a direct or indirect ownership interest in the Company exceeding 50% of the share capital or voting rights owns any shares of the issuer. The Company has not issued any shares not constituting a stake in the share capital. Increasing and reducing the share capital and changing the rights attaching to individual types of shares is subject to the applicable provisions of the Commercial Code and the Company's Articles of Association. The Company does not offer employees or members of the governing and supervisory bodies the possibility to acquire under special terms the Company's shares, options for the Company's shares, or other rights attaching to the Company's shares. There was no approved or conditional increase in the share capital in Members of the public hold 64,142 shares of the Company, which accounts for 3.10% of its share capital. Right to a Dividend and Dividend Payout Period Unless otherwise specified by the General Meeting, the record date is the reference date for attending the General Meeting that makes a decision to pay dividends. Unless otherwise decided by the General Meeting, dividends are payable within three months after the day on which the General Meeting decides to distribute profit. The right to a dividend payment expires after a four-year limitation period. Dividend per Share in the Last Three Accounting Periods Year Dividend per share (CZK) 488* * Proposal of the Board of Directors. Earnings and revenues in the last two accounting periods are specified in the financial section of the Annual Report.

25 Severomoravská plynárenská Annual Report Governing Processes and Other Rules and Procedures Decision-Making Processes and Main Powers of the General Meeting The General Meeting is the supreme body of the Company. Its exclusive powers include matters reserved to the General Meeting by the law (particularly the matters specified in Section 187 of the Commercial Code) and the Articles of Association. The General Meeting is held at least once per calendar year. A General Meeting notice is published in the Commercial Bulletin and using a method allowing online access in accordance with the Act on Capital Market Undertakings and the Company's Articles of Association within the period set out in the applicable legal regulation. By the same deadline, the Company sends a General Meeting invitation to shareholders holding registered shares included on the list of shareholders to their address specified therein. The General Meeting has a quorum if attended in person, through persons authorized to act on their behalf, or through their representatives by shareholders holding shares with a nominal value exceeding 30% of the Company's share capital. The General Meeting adopts decisions by a majority of votes of present shareholders unless a different majority is required by the Commercial Code or the Articles of Association. Each of the Company's shares carries one vote. Voting at the General Meeting is done using ballots distributed to shareholders at registration time or in the course of the General Meeting. A shareholder indicates the applicable vote ("IN FAVOR", "AGAINST", "ABSTAINED") by marking the selected option on a ballot and by signing the ballot. The progress of the General Meeting is recorded by means of minutes. A copy of minutes is sent to shareholders upon request. Procedure for Amending the Articles of Association Decisions to amend the Articles of Association are made by the General Meeting. The Company does not have any special rules for amending the Articles of Association. The rules for making changes and additions to the Articles of Association are contained therein. Decision-Making Processes of the Board of Directors The Board of Directors is the Company's governing body that manages its business and acts on its behalf. The Board of Directors has three members appointed and discharged by the Company's Supervisory Board. The term of office of individual members of the Board of Directors lasts five years. Meetings of the Board of Directors are held at least once a month. The Board of Directors has a quorum if its meeting is attended by a simple majority of its members. Decisions on all matters discussed by the Board of Directors must be voted for by a simple majority of all not only present members of the Board of Directors. Each member of the Board of Directors has one vote. The Board of Directors makes decisions on all matters concerning the Company not reserved to the General Meeting or the Supervisory Board by generally binding legal regulations or the Articles of Association.

26 26 Corporate Governance Statement Governing Processes and Other Rules and Procedures At its meetings, the Board of Directors mainly discusses the Company's business performance in relation to the plan for the applicable calendar year, including continually updated forecasts. Moreover, the Board of Directors monitors sales of natural gas and electric power as well as the development of accounts receivable in individual customer segments, taking measures in response to the situation on the natural gas market in the Czech Republic. Its other responsibilities include optimizing the risk management system, fine-tuning corporate processes, reducing costs, and handling the social policy and employee care. The Company does not have any special rules for appointing and discharging members of the Board of Directors. Members of the Board of Directors do not hold any special powers or authorizations in the sense of Sections 161a and 210 of the Commercial Code. Decision-Making Processes of the Supervisory Board The Supervisory Board oversees activities carried out by the Board of Directors and the conduct of the Company's business. The Supervisory Board has six members; four are elected by the General Meeting and two by the Company's employees. The term of office of individual members of the Supervisory Board lasts two years. Meetings of the Supervisory Board are held at least twice a year. The Supervisory Board has a quorum if its meeting is attended by a simple majority of its members. Decisions on all matters discussed by the Supervisory Board must be voted for by a simple majority of all not only present members of the Supervisory Board. Each member of the Supervisory Board has one vote. At its meetings, the Supervisory Board mainly discusses the Company's business performance in relation to the plan for the applicable calendar year, including continually updated forecasts. The Supervisory Board monitors the development of the Company's receivables and payables, overdue receivables in individual customer segments in particular. It oversees compliance with generally binding regulations, the Articles of Association, and resolutions of the General Meeting as well as the functioning of the risk management system. The Supervisory Board discusses documents submitted to the General Meeting. In particular, it reviews the financial statements and the profit distribution proposal (including the proposed amount and method for payment of dividends and performance bonuses), examines payments for losses, and presents its viewpoints to the General Meeting. Furthermore, the Supervisory Board reviews the report on relations with related parties and fulfills the role of the audit committee whenever necessary. The Company does not have any special rules for appointing and discharging members of the Supervisory Board. Internal Audit Policies and Processes and Methods for Handling Financial Reporting Risks The Company's internal audit system is based on the four-eye principle, which means that the signature or consent of two persons is required for entering into agreements and approving accounting records, where such persons must hold the applicable authorization as per the Signature Rules or another internal guideline.

27 Severomoravská plynárenská Annual Report Moreover, the Company employs an authorization concept that defines the process of assigning and modifying authorizations for the SAP financial system. This concept lays down the scope of approved access rights for individual work positions. The abovementioned control systems are regularly reviewed by means of internal audits. The Company's approach to risks and risk management is described in detail in Chapter 3 of the Notes to Financial Statements. Important Agreements to which the Issuer Is a Party That Are to Come into Effect, Be Amended, or Expire if Control over the Issuer Changes as a result of a Takeover Offer and the Resulting Effects The Company has not entered into agreements that are to come into effect, be amended, or expire in the event control over the issuer changes as a result of a takeover offer. Agreements between the Issuer and Members of Its Board of Directors or Employees under which the Issuer Is Required to Perform if Their Office or Employment Terminates in connection with a Takeover Offer The Company has not signed any agreements with members of the Board of Directors or employees under which the Company would be required to perform in the event their office or employment terminates in connection with a takeover offer. Programs Allowing Employees, Members of the Board of Directors, and Members of the Supervisory Board to Acquire under Special Terms the Company's Shares, Options for the Company's Shares, or Other Rights to the Company's Shares The Company has no programs allowing employees, members of the Board of Directors, and members of the Supervisory Board to acquire under special terms the Company's shares, options for the Company's shares, or other rights attaching to the Company's shares. Payments for Extraction Rights to the Government Extraction activities do not constitute the core of the Company's business. In 2011, the Company did not pay the government any fees for extraction rights. 4.3 Management and Administration Policies In 2011, the Company did not adopt or conformed to any generally known corporate governance and administration code in view of the fact that the Company has a very low number of employees and periodically adopts and applies the RWE Group's corporate guidelines, which is sufficient for the Company's management processes.

28 28 About the Issuer General Information 5 About the issuer 5.1 General Information Company name: Severomoravská plynárenská, a.s. Registered office: Plynární 2748/6, Ostrava Moravská Ostrava Company No.: Legal form: Joint-stock company The Company s Establishment and Inception: The Company was established in accordance with the law of the Czech Republic, specifically Section 171, paragraph 1 and Section 172, paragraphs 2 and 3 of Act No. 513/1991 Coll., the Commercial Code. The Company was founded on 13 December 1993 under a single act of the National Property Fund of the Czech Republic, as the sole founder, with its registered address at Rašínovo nábřeží 42, Prague 2, based on a Memorandum of Association in the form of a notarial deed. The Company was incorporated on 1 January 1994 by registration in the Commercial Register maintained by the Ostrava Regional Court under Section B, Entry 757. Object of Business: Articles of Association, Article 4 The object of the Company's business is: 1. Gas trading 2. Consulting for technical matters relating to the gas sector 3. Production of heat 4. Lease and rental of movables 5. Lease and rental of means of transportation 6. Lease or real estate, residential property, and commercial property 7. Accounting consultancy, bookkeeping, and tax administration services 8. Administration, organization, and financial services for legal entities and natural persons 9. Assembly, repair, inspection, and testing of specialty gas equipment and gas vessel filling 10. Electronic communications services 11. Brokerage of trade and services 12. Electricity trading Investor's Timetable 14 May 2012 Reference day for attending the annual General Meeting 21 May 2012 Annual General Meeting

29 Severomoravská plynárenská Annual Report Contact Details for Shareholders Shareholder affairs are handled by the Severomoravská plynárenská, a.s. Corporate Office. Contact Person: Radmila Kulínská T F E radmila.kulinska@rwe.cz Contact address: Severomoravská plynárenská, a.s. Plynární 2748/ Ostrava Moravská Ostrava

30 30 About the Issuer The Company's Governing and Supervisory Bodies 5.2 The Company's Governing and Supervisory Bodies Board of Directors as at 31 December 2011 Jindřich Broukal Member since 3 February 2011, Chairman since 8 February 2011; CEO Date of birth: 25 October 1960 Education: Institute of Chemical Technology, Prague, Faculty of Fuel and Hydro Technologies, Sheffield Hallam University, MBA Membership in the bodies of other companies during the last five years: Chairman of the Board of Directors Východočeská plynárenská, a.s., Member of the Supervisory Board GASFINAL, a.s. in liquidation Other business activities during the last five years: None in the past and at present Lukáš Roubíček Deputy Chairman since 1 July 2008; CFO Date of birth: 25 February 1971 Education: Mining University, Ostrava, Faculty of Economics Membership in the bodies of other companies during the last five years: Deputy Chairman of the Board of Directors Východočeská plynárenská, a.s. and RWE Energie, a.s., Managing Director RWE Gas Slovensko, s.r.o., Member of the Board of Directors GASFINAL, a.s. in liquidation, Managing Director RWR-LEASING, spol. s r.o., Deputy Chairman of the Board of Directors Středočeská plynárenská, a.s. and Západočeská plynárenská, a.s. Other business activities during the last five years: None in the past and at present Note: Memberships in the bodies of other companies written in italics were no longer active as of 31 December In case that a person holds more than one position in a company, only the current or the most important position is reported. The list includes only the current or most recent commercial names.

31 Severomoravská plynárenská Annual Report David Konvalina Member since 1 August 2009 Date of birth: 24 October 1976 Education: University of Economics, Prague, Faculty of International Relations Membership in the bodies of other companies during the last five years: Member of the Board of Directors Východočeská plynárenská, a.s. and RWE Energie, a.s. Other business activities during the last five years: None in the past and at present The term of office of members of the Company's Board of Directors lasts five years. Members of the Board of Directors are elected and discharged by the Company's Supervisory Board. Members of the Board of Directors declare that: they are in compliance with the provisions of Section 196 of the Commercial Code, as amended; no member of the Board of Directors has been convicted of fraudulent crime during the past five years; no statutory or regulatory body has made an official public accusation or levied a fine against any member of the Board of Directors during the past five years; during the past five years, no member of the Board of Directors has been declared inept to act as a member of an administrative, governing, or supervisory body, a management member, or a person responsible for the operation of the Company or another corporation that is a securities issuer; they have no family ties to other members of the Company's Board of Directors or Supervisory Board; no conflict of interest in the sense of Commission Regulation (EC) 809/2004 exists between their obligations to the Company and their private or other interests; during the past five years, no member of the Board of Directors has been a party to bankruptcy (insolvency) proceedings, liquidation, or sequestration as a natural person or a member of the Company's governing or supervisory bodies with the following exceptions: Ing. Jindřich Broukal was a member of the supervisory board of Gasfinal, a.s., a company that entered into liquidation on 1 January 2011 based on a decision of the general meeting. The liquidation has been duly completed, and the company was deleted from the Commercial Register on 22 November The liquidation balance has been paid out to shareholders; Ing. Lukáš Roubíček, Ph.D. was a member of the board of directors of Gasfinal, a.s., a company that entered into liquidation on 1 January 2011 based on a decision of the general meeting. The liquidation has been duly completed, and the company was deleted from the Commercial Register on 22 November The liquidation balance has been paid out to shareholders.