CEZ A.S.

Quarterly Report • May 11, 2017

CEZ GROUP

INTERIM CONSOLIDATED FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS OF MARCH 31, 2017

CEZ GROUP CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2017

	Note	March 31, 2017	December 31, 2016
Assets
Property, plant and equipment:
Plant in service Less accumulated depreciation and impairment		776,322 (425,969)	775,181 (418,981)
Net plant in service		350,353	356,200
Nuclear fuel, at amortized cost Construction work in progress		14,032 58,906	14,892 55,803
Total property, plant and equipment		423,291	426,895
Other non-current assets:
Investment in joint-ventures Restricted financial assets Investments and other financial assets, net Intangible assets, net Deferred tax assets		3,677 18,779 14,883 22,088 1,317	5,309 19,011 14,460 21,983 1,596
Total other non-current assets		60,744	62,359
Total non-current assets		484,035	489,254
Current assets:
Cash and cash equivalents Receivables, net Income tax receivable Materials and supplies, net Fossil fuel stocks Emission rights Other financial assets, net Other current assets Assets classified as held for sale		18,366 57,080 2,269 7,629 595 4,555 38,463 3,623 32	11,226 56,331 1,181 7,520 996 3,958 56,501 3,227 647
Total current assets		132,612	141,587
Total assets		616,647	630,841

CEZ GROUP CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 2017

continued

	Note	March 31, 2017	December 31, 2016
Equity and liabilities
Equity:
Equity attributable to equity holders of the parent:
Stated capital Treasury shares Retained earnings and other reserves		53,799 (4,246) 217,009	53,799 (4,246) 207,259
Total equity attributable to equity holders of the parent		266,562	256,812
Non-controlling interests		4,654	4,548
Total equity		271,216	261,360
Long-term liabilities:
Long-term debt, net of current portion Provisions Deferred tax liabilities Other long-term liabilities	4	136,580 66,548 22,233 9,060	142,265 66,360 20,213 11,203
Total long-term liabilities		234,421	240,041
Current liabilities:
Short-term loans Current portion of long-term debt Trade and other payables Income tax payable Provisions Accrued liabilities Liabilities associated with assets classified as held for sale	5 4	8,377 22,478 59,792 71 8,140 12,152 -	8,343 17,208 80,516 392 8,160 14,251 570
Total current liabilities		111,010	129,440
Total equity and liabilities		616,647	630,841

CEZ GROUP CONSOLIDATED STATEMENT OF INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2017

	Note	1-3/2017	1-3/2016
Sales of electricity and related services Sales of gas, coal, heat and other revenues Other operating income		43,862 8,508 452	42,992 8,395 496
Total revenues and other operating income		52,822	51,883
Gains and losses from commodity derivative trading, net Fuel Purchased power and related services Repairs and maintenance Depreciation and amortization Impairment of property, plant and equipment and intangible		1,533 (3,633) (23,500) (586) (7,497)	1,477 (3,555) (21,436) (605) (7,069)
assets including goodwill Salaries and wages Materials and supplies Emission rights, net Other operating expenses		(1) (4,645) (1,070) 173 (1,941)	(2) (4,358) (960) 187 (2,595)
Income before other income (expenses) and income taxes		11,655	12,967
Interest on debt, net of capitalized interest Interest on provisions Interest income Foreign exchange rate gains (losses), net Other financial expenses Other financial income Share of profit (loss) from joint-ventures		(931) (407) 67 (100) (29) 799 (393)	(557) (373) 76 48 (391) 89 332
Total other income (expenses)		(994)	(776)
Income before income taxes		10,661	12,191
Income taxes		(1,987)	(2,235)
Net income		8,674	9,956
Net income attributable to:
Equity holders of the parent Non-controlling interests		8,569 105	9,876 80
Net income per share attributable to equity holders of the parent (CZK per share)
Basic Diluted		16.0 16.0	18.5 18.5

CEZ GROUP CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE THREE MONTHS ENDED MARCH 31, 2017

Net income 8,674 9,956 Other comprehensive income - items that may be reclassified subsequently to statement of income or to assets: Change in fair value of cash flow hedges recognized in equity 1,787 1,636 Cash flow hedges reclassified to statement of income 722 Change in fair value of available-for-sale financial assets recognized in equity (1,097) 1,691 Available-for-sale financial assets reclassified from equity (36) Translation differences - subsidiaries 239 Translation differences - joint-ventures (113) Translation differences reclassified from equity - Share on other equity movements of joint-ventures 26 Deferred tax related to other comprehensive income 6 (352) Net other comprehensive income that may be reclassified to	Note 1-3/2017 1-3/2016
		595
		(1)
		132
		(53)
		(67)
		20
		(441)
statement of income or to assets in subsequent periods	1,176	3,512
Total comprehensive income, net of tax 9,850 13,468
Total comprehensive income attributable to:
Equity holders of the parent 9,744 13,386 Non-controlling interests 106		82

CEZ GROUP CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE THREE MONTHS ENDED MARCH 31, 2017

in CZK Millions

	Note	Attributable to equity holders of the parent
		Stated capital	Treasury shares	Transla tion difference	Cash flow hedge reserve	Available for-sale and other reserves	Retained earnings	Total	Non controlling interests	Total equity
December 31, 2015		53,799	(4,246)	(9,500)	(86)	3,242	224,684	267,893	4,262	272,155
Net income Other comprehensive income		- -	- -	- 10	- 1,807	- 1,673	9,876 20	9,876 3,510	80 2	9,956 3,512
Total comprehensive income		-	-	10	1,807	1,673	9,896	13,386	82	13,468
Share options Transfer of forfeited share options within equity Acquisition of subsidiaries		- - -	- - -	- - -	- - -	6 (6) -	- 6 -	6 - -	- - 9	6 - 9
March 31, 2016		53,799	(4,246)	(9,490)	1,721	4,915	234,586	281,285	4,353	285,638
December 31, 2016		53,799	(4,246)	(10,779)	(7,499)	7,839	217,698	256,812	4,548	261,360
Net income Other comprehensive income		- -	- -	- 124	- 2,032	- (1,017)	8,569 36	8,569 1,175	105 1	8,674 1,176
Total comprehensive income		-	-	124	2,032	(1,017)	8,605	9,744	106	9,850
Share options Transfer of forfeited share options within equity		- -	- -	- -	- -	6 (1)	- 1	6 -	- -	6 -
March 31, 2017		53,799	(4,246)	(10,655)	(5,467)	6,827	226,304	266,562	4,654	271,216

The accompanying notes are an integral part of these interim consolidated financial statements.

CEZ GROUP CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2017

	Note	1-3/2017	1-3/2016
Operating activities:
Income before income taxes		10,661	12,191
Adjustments to reconcile income before income taxes to net cash provided by operating activities:
Depreciation and amortization		7,497	7,069
Amortization of nuclear fuel		923	955
Gain on non-current asset retirements, net		(153)	(37)
Foreign exchange rate losses (gains), net		100	(48)
Interest expense, interest income and dividend income, net		863	481
Provisions Impairment of property, plant and equipment and intangible		85	(1,278)
assets including goodwill		1	2
Valuation allowances and other adjustments		(362)	(223)
Share of (profit) loss from joint-ventures		393	(332)
Changes in assets and liabilities: Receivables		(245)	2,946
Materials, supplies and fossil fuel stocks		316	1,165
Receivables and payables from derivatives		(3,104)	(293)
Other current assets		(783)	1,971
Trade and other payables		1,453	(6,071)
Accrued liabilities		(3,114)	(1,162)
Cash generated from operations		14,531	17,336
Income taxes paid		(1,504)	(2,044)
Interest paid, net of capitalized interest		(424)	(214)
Interest received		76	85
Net cash provided by operating activities		12,679	15,163
Investing activities:
Acquisition of subsidiaries and joint-ventures, net of cash
acquired Disposal of subsidiaries and joint-ventures, net of cash		-	(37)
disposed of		1,048	-
Additions to non-current assets, including capitalized interest		(6,247)	(5,790)
Proceeds from sale of non-current assets		108	104
Loans made		(5)	-
Repayment of loans		353	41
Change in restricted financial assets		(390)	(38)
Total cash used in investing activities		, (5,133)	(5,720)

CEZ GROUP CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE THREE MONTHS ENDED MARCH 31, 2017

continued

Note	1-3/2017	1-3/2016
	37,323	18,663
		(9,133)
		18
		(524)
	(39)	(35)
	(553)	8,989
	43	16
	7,036	18,448
	11,330	13,482
	18,366	31,930
		(37,830) 10 (17)

Supplementary cash flow information

Total cash paid for interest	645	596
------------------------------	-----	-----

CEZ GROUP NOTES TO INTERIM CONSOLIDATED FINANCIAL STATEMENTS AS OF MARCH 31, 2017

1. The Company

ČEZ, a. s. ("ČEZ" or "the Company") is a Czech joint-stock company, owned 69.8% (70.3% of voting rights) at March 31, 2017 by the Czech Republic represented by the Ministry of Finance. The remaining shares of the Company are publicly held. The address of the Company's registered office is Duhová 2/1444, Praha 4, 140 53, Czech Republic.

The Company is a parent company of the CEZ Group ("the Group"). Main business of the Group is the production, distribution, trade and sale of electricity and heat, trade and sale of natural gas and coal mining.

2. Summary of Significant Accounting Policies

2.1. Financial Statements

The interim consolidated financial statements for the three months ended March 31, 2017 have been prepared in accordance with IAS 34 and have not been audited by an independent auditor. The interim consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group's annual financial statements as of December 31, 2016. The accounting policies adopted in the preparation of the interim consolidated financial statements are consistent with those followed in the preparation of the Group's annual financial statements for the year ended December 31, 2016.

3. Seasonality of Operations

The seasonality within the segments Generation - Traditional Energy, Generation - New Energy, Distribution and Sales usually takes effect in such a way that the revenues and operating profits of these segments for the 1st and 4th quarters of a calendar year are slightly higher than the revenues and operating profits achieved in the remaining period.

4. Long-term Debt

Long-term debt at March 31, 2017 and December 31, 2016 is as follows (in CZK millions):

	March 31, 2017	December 31, 2016
3.005% Eurobonds, due 2038 (JPY 12,000 million)	2,705	2,621
2.845% Eurobonds, due 2039 (JPY 8,000 million)	1,804	1,748
5.000% Eurobonds, due 2021 (EUR 750 million)	20,221	20,211
6M Euribor + 1.25% Eurobonds, due 2019 (EUR 50 million) 3M Euribor + 0.35% Eurobonds, due 2017 (EUR 45 million)	1,348 1,210	1,348 1,207
3M Euribor + 0,55% Eurobonds, due 2018 (EUR 200 million)	5,390	5,383
4.875% Eurobonds, due 2025 (EUR 750 million)	20,202	20,193
4.500% Eurobonds, due 2020 (EUR 750 million)	20,180	20,165
2.160% Eurobonds, due 2023 (JPY 11,500 million)	2,600	2,519
4.600% Eurobonds, due 2023 (CZK 1,250 million)	1,249	1,248
2.150%*IR CPI Eurobonds, due 2021 (EUR 100 million) 1)	2,703	2,702
4.102% Eurobonds, due 2021 (EUR 50 million)	1,348	1,348
4.250% U.S. bonds, due 2022 (USD 289 million)	7,253	7,353
5.625% U.S. bonds, due 2042 (USD 300 million)	7,508	7,613
4.375% Eurobonds, due 2042 (EUR 50 million)	1,326	1,326
4.500% Eurobonds, due 2047 (EUR 50 million)	1,326	1,325
4.383% Eurobonds, due 2047 (EUR 80 million)	2,162	2,162
3.000% Eurobonds, due 2028 (EUR 500 million)	13,346	13,337
4.500% registered bonds, due 2030 (EUR 40 million)	1,062	1,061
4.750% registered bonds, due 2023 (EUR 40 million)	1,072	1,072
4.700% registered bonds, due 2032 (EUR 40 million)	1,076	1,075
4.270% registered bonds, due 2047 (EUR 61 million)	1,623	1,622
3.550% registered bonds, due 2038 (EUR 30 million)	808	807
Exchangeable bonds, due 2017 (EUR 468.6 million) 2)	12,604	12,598
Total bonds and debentures	132,126	132,044
Less: Current portion	(19,204)	(13,805)
Bonds and debentures, net of current portion	112,922	118,239
Long-term bank and other loans:
Total long-term bank and other loans	26,932	27,429
Less: Current portion	(3,274)	(3,403)
Long-term bank and other loans, net of current portion	23,658	24,026
Total long-term debt	159,058	159,473
Less: Current portion	(22,478)	(17,208)
Total long-term debt, net of current portion	136,580	142,265

¹⁾ The interest rate is based on inflation realized in Eurozone Countries (Harmonized Index of Consumer Prices – HICP) and is fixed through the closed swap to the rate 4.553% p. a.

²⁾ Bonds are exchangeable for ordinary shares of MOL Hungarian Oil and Gas PLC. The bonds carry no interest and the separation of embedded conversion option resulted in effective interest rate of 1.43% p. a. The original nominal value of the issue (EUR 470.2 million) was reduced as a result of exercised conversion options in a nominal value of EUR 1.6 million in the 1st quarter of 2017 (see Note 8).

5. Short-term Loans

Short-term loans at March 31, 2017 and December 31, 2016 are as follows (in CZK millions):

	March 31, 2017	December 31, 2016
Short-term bank loans Bank overdrafts	7,680 697	7,962 381
Total	8,377	8,343

6. Income Taxes

Tax effects relating to each component of other comprehensive income are the following (in CZK millions):

		1-3/2017			1-3/2016
	Before		Net of	Before		Net of
	tax	Tax	tax	tax	Tax	tax
	amount	effect	amount	amount	effect	amount
Change in fair value of cash flow hedges recognized in
equity	1,787	(340)	1,447	1,636	(311)	1,325
Cash flow hedges reclassified to
statement of income	722	(137)	585	595	(113)	482
Change in fair value of available-for-sale financial
assets recognized in equity	(1,097)	121	(976)	1,691	(17)	1,674
Available-for-sale financial
assets reclassified from equity	(36)	4	(32)	(1)	-	(1)
Translation differences -
subsidiaries	239	-	239	132	-	132
Translation differences - joint ventures	(113)	-	(113)	(53)	-	(53)
Translation differences
reclassified from equity	-	-	-	(67)	-	(67)
Share on other equity movements of joint-ventures	26	-	26	20	-	20
Total	1,528	(352)	1,176	3,953	(441)	3,512

7. Segment Information

The Group reports its result using six reportable operating segments:

• Generation Traditional Energy
• Generation New Energy
• Distribution
• Sales
• Mining
• Other

The segments are defined across the countries that CEZ Group operates. Segment is a functionally autonomous part of CEZ Group that serves a single part of the value chain in the energy sector and is within the purview of individual members of the ČEZ, a. s. Board of Directors

The Group accounts for intersegment revenues and transfers as if the revenues or transfers were to third parties, that is, at current market prices or where the regulation applies at regulated prices.

The Group evaluates the performance of its segments based on earnings before interest, taxes, depreciation and amortization (EBITDA). The reconciliation of EBITDA to income before other income (expenses) and income taxes summarizes the following table (in CZK millions):

	1-3/2017	1-3/2016
Income before other income (expenses) and income
taxes (EBIT)	11,655	12,967
Depreciation and amortization	7,497	7,069
Impairment of plant, property and equipment and
intangible assets including goodwill	1	2
Gains and losses on sale of property, plant and
equipment *	(124)	(27)
EBITDA	19,029	20,011

* Gains on sale of property, plant and equipment are presented in the statement of income as part of the line item Other operating income. Losses on sale of property, plant and equipment are presented in the statement of income as part of the line item Other operating expenses.

The following tables summarize segment information by operating segments for the three months ended March 31, 2017 and 2016 and at December 31, 2016 (in CZK millions):

March 31, 2017:	Gene ration - Traditional Energy	Gene ration - New Energy	Distribu tion	Sales	Mining	Other	Combined	Elimination	Consoli dated
Revenues and other operating income - other than intersegment	14,552	1,014	7,399	28,265	1,159	433	52,822	-	52,822
Revenues and other operating income - intersegment	8,982	241	8,002	1,263	1,356	3,094	22,938	(22,938)	-
Total revenues and other operating income	23,534	1,255	15,401	29,528	2,515	3,527	75,760	(22,938)	52,822
EBITDA	9,536	1,148	5,133	1,239	1,339	632	19,027	2	19,029
Depreciation and amortization	(4,537)	(426)	(1,550)	(21)	(582)	(381)	(7,497)	-	(7,497)
Impairment of property, plant and equipment and intangible assets including goodwill	-	-	-	-	(1)	-	(1)	-	(1)
EBIT
Interest on debt and provisions	(1,200)	(60)	(84)	(1)	(48)	(94)	(1,487)	149	(1,338)
Interest income	163	-	8	1	-	44	216	(149)	67
Share of profit (loss) from joint-ventures	(161)	(6)	(33)	(48)	4	(149)	(393)	-	(393)
Income taxes	(794)	(57)	(660)	(268)	(147)	(61)	(1,987)	-	(1,987)
Net income	3,224	597	2,825	896	610	522	8,674	-	8,674
Identifiable assets	254,420	29,675	109,959	890	20,612	8,686	424,242	(951)	423,291
Investment in joint-ventures	-	537	35	569	185	2,351	3,677	-	3,677
Unallocated assets									189,679
Total assets									616,647
Capital expenditure	2,086	41	1,726	12	89	1,025	4,979	(677)	4,302

March 31, 2016:	Gene ration - Traditional	Gene ration - New	Distribu						Consoli
	Energy	Energy	tion	Sales	Mining	Other	Combined	Elimination	dated
Revenues and other operating income - other than intersegment Revenues and other operating	13,583	779	7,220	28,624	1,161	516	51,883	-	51,883
income - intersegment	9,070	218	8,223	1,421	1,332	3,397	23,661	(23,661)	-
Total revenues and other operating income	22,653	997	15,443	30,045	2,493	3,913	75,544	(23,661)	51,883
EBITDA	10,047	937	5,282	1,887	1,244	612	20,009	2	20,011
Depreciation and amortization	(4,150)	(373)	(1,477)	(10)	(610)	(449)	(7,069)	-	(7,069)
Impairment of property, plant and equipment and intangible assets including goodwill	2	-	(4)	-	-	-	(2)	-	(2)
EBIT	5,897	563	3,805	1,877	635	188	12,965	2	12,967
Interest on debt and provisions	(819)	(103)	(91)	(2)	(48)	(87)	(1,150)	220	(930)
Interest income	234	-	11	3	3	45	296	(220)	76
Share of profit (loss) from joint-ventures	237	22	34	32	1	6	332	-	332
Income taxes	(952)	(71)	(701)	(341)	(121)	(49)	(2,235)	-	(2,235)
Net income	4,263	656	3,051	1,567	499	(80)	9,956		9,956
Capital expenditure	2,501	(14)	1,548	3	101	1,380	5,519	(1,098)	4,421
December 31, 2016:	Gene ration - Traditional	Gene ration - New	Distribu						Consoli
	Energy	Energy	tion	Sales	Mining	Other	Combined	Elimination	dated
Identifiable assets	257,357	30,075	109,807	899	21,100	8,610	427,846	(953)	426,895
Investment in joint-ventures	198	544	295	756	181	3,335	5,309	-	5,309
Unallocated assets									198,637
Total assets									630,841

8. Events after the Balance Sheet Date

On April 4, 2017 the settlement of equity placing of MOL Hungarian Oil and Gas PLC and buy back of exchangeable bonds took place. The exchangeable bonds of the principal amount of EUR 463.1 million were bought back and 7,561,372 shares of MOL Hungarian Oil and Gas PLC were sold in these transactions. The total effect of these transactions to net income is approximately CZK 4.0 billion. The amount of CZK 513 million is included in the statement of income for 1-3/2017 on the line Other financial income which represents gain from change of fair value of the conversion option related to exchangeable bonds.