CEZ A.S.

Quarterly Report • Mar 15, 2016

ČEZ, a. s.

FINANCIAL STATEMENTS PREPARED IN ACCORDANCE WITH INTERNATIONAL FINANCIAL REPORTING STANDARDS AS OF DECEMBER 31, 2015

PRELIMINARY UNAUDITED ACCOUNTS Prepared as of March 14, 2016

ČEZ, a. s. BALANCE SHEET AS OF DECEMBER 31, 2015

in CZK Millions

	Note	2015	2014 *	Jan 1, 2014 *
Assets
Property, plant and equipment:
Plant in service Less accumulated depreciation and impairment		346,203 (204,187)	344,246 (196,333)	319,081 (182,282)
Net plant in service	3	142,016	147,913	136,799
Nuclear fuel, at amortized cost Construction work in progress, net	2.8 3	12,832 85,909	10,898 81,913	10,627 86,512
Total property, plant and equipment		240,757	240,724	233,938
Other non-current assets:
Restricted financial assets Investments and other financial assets, net Intangible assets, net	4 5 6	12,662 178,692 560	12,029 176,359 668	10,611 181,901 572
Total other non-current assets		191,914	189,056	193,084
Total non-current assets		432,671	429,780	427,022
Current assets:
Cash and cash equivalents Receivables, net Income tax receivable Materials and supplies, net Fossil fuel stocks Emission rights	7 8 9	2,964 41,538 - 5,134 564 1,874	9,511 46,757 1,404 5,519 561 4,175	14,166 56,480 807 4,535 593 7,300
Other financial assets, net Other current assets	10 11	32,489 1,146	38,359 1,117	37,206 1,148
Total current assets		85,709	107,403	122,235
Total assets		518,380	537,183	549,257

* The way of presentation was changed in 2015 (see Note 2.2.3). The prior year figures were changed accordingly to provide comparative information on the same basis and they do not fully correspond to the financial statements as of December 31, 2014.

ČEZ, a. s. BALANCE SHEET AS OF DECEMBER 31, 2015

continued

	Note	2015	2014 *	Jan 1, 2014 *
Equity and liabilities
Equity:
Stated capital Treasury shares Retained earnings and other reserves		53,799 (4,246) 171,016	53,799 (4,382) 156,715	53,799 (4,382) 155,826
Total equity	12	220,569	206,132	205,243
Non-current liabilities:
Long-term debt, net of current portion Provisions Deferred tax liability Other long-term liabilities	13 16 28 17	124,922 49,716 11,143 3,886	143,316 47,406 9,624 7,602	162,746 43,823 8,744 8,050
Total non-current liabilities		189,667	207,948	223,363
Current liabilities:
Short-term loans Current portion of long-term debt Trade and other payables Income tax payable Provisions Accrued liabilities Total current liabilities	18 13 19 16 20	10 10,628 87,114 165 4,195 6,032 108,144	7,433 15,092 84,415 - 6,420 9,743 123,103	2,230 24,713 78,713 - 5,808 9,187 120,651
Total equity and liabilities		518,380	537,183	549,257

* The way of presentation was changed in 2015 (see Note 2.2.3). The prior year figures were changed accordingly to provide comparative information on the same basis and they do not fully correspond to the financial statements as of December 31, 2014.

ČEZ, a. s. STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31, 2015

in CZK Millions

	Note	2015	2014 *
Sales of electricity Sales of gas, heat and other revenues Other operating income		72,635 9,088 1,597	72,132 8,881 4,020
Total revenues and other operating income	21	83,320	85,033
Gains and losses from commodity derivative trading, net Fuel Purchased power and related services Repairs and maintenance	22	(504) (10,599) (31,314) (2,433)	2,692 (10,175) (25,934) (2,979)
Depreciation and amortization Impairment of property, plant and equipment and intangible assets	3, 6	(14,708) (788)	(13,527) (297)
Salaries and wages Materials and supplies Emission rights, net Other operating expenses	23 9 24	(5,191) (1,354) (964) (7,054)	(6,087) (1,400) (3,090) (8,409)
Income before other income (expenses) and income taxes		8,411	15,827
Interest on debt, net of capitalized interest Interest on provisions Interest income Foreign exchange rate gains (losses), net Gain on sale of subsidiaries, associates and joint-ventures Other financial expenses Other financial income	2.6 16 25 26 27	(2,857) (1,452) 1,086 (474) - (5,438) 29,908	(3,722) (1,574) 1,442 (192) 24 (10,058) 20,941
Total other income (expenses)		20,773	6,861
Income before income taxes		29,184	22,688
Income taxes	28	(1,069)	(1,778)
Net income		28,115	20,910
Net income per share (CZK per share)	31
Basic Diluted		52.6 52.6	39.1 39.1

* The way of presentation was changed in 2015 (see Note 2.2.3). The prior year figures were changed accordingly to provide comparative information on the same basis and they do not fully correspond to the financial statements as of December 31, 2014.

ČEZ, a. s. STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2015

in CZK Millions

	Note	2015	2014 *
Net income		28,115	20,910
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 Cash flow hedges reclassified to income statement Cash flow hedges reclassified to assets Change in fair value of available-for-sale financial assets		11,922 (1,954) (230)	4,889 (3,950) (95)
recognized in equity Deferred tax related to other comprehensive income	28	(429) (1,769)	711 (295)
Other comprehensive income, net of tax		7,540	1,260
Total comprehensive income		35,655	22,170

* The way of presentation was changed in 2015 (see Note 2.2.3). The prior year figures were changed accordingly to provide comparative information on the same basis and they do not fully correspond to the financial statements as of December 31, 2014.

ČEZ, a. s. STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2015

In CZK Millions

December 31, 2013 53,799 (4,382) (8,692) Net income - - - Other comprehensive income - - 684	772 - 576	163,746 20,910 -	205,243 20,910 1,260
Total comprehensive income - - 684	576	20,910	22,170
Effect of merger - - - Dividends - - - Share options - - -	- - 26	(6) (21,301) -	(6) (21,301) 26
Transfer of forfeited share - - - options within equity	(70)	70	-
December 31, 2014 53,799 (4,382) (8,008)	1,304	163,419	206,132
Net income - - - Other comprehensive income - - 7,887	- (347)	28,115 -	28,115 7,540
Total comprehensive income - - 7,887	(347)	28,115	35,655
Dividends - - - Sale of treasury shares - 136 - Share options - - - Transfer of exercised and forfeited share options	- - 31	(21,317) (68) -	(21,317) 68 31
- - - within equity December 31, 2015 53,799 (4,246) (121)	(63) 925	63 170,212	- 220,569

ČEZ, a. s. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2015

In CZK Millions

	2015	2014 *
Operating activities:
Income before income taxes	29,184	22,688
Adjustments to reconcile income before income taxes to net cash provided by operating activities:
Depreciation and amortization	14,708	13,527
Amortization of nuclear fuel	3,392	3,349
Gain on non-current asset retirements, net	(298)	(116)
Foreign exchange rate losses (gains), net	474	192
Interest expense, interest income and dividend income, net	(23,328)	(18,417)
Provisions	(2,711)	311
Impairment of property, plant and equipment and intangible
assets	788	297
Other impairment and other adjustments	5,097	6,104
Changes in assets and liabilities:
Receivables	5,168	(1,469)
Materials, supplies and fossil fuel stocks	364	(955)
Receivables and payables from derivatives	5,675	4,968
Other current assets	5,863	2,799
Trade and other payables	(1,867)	3,817
Accrued liabilities	(3,104)	1,320
Cash generated from operations	39,405	38,415
Income taxes received (paid)	251	(1,791)
Interest paid, net of capitalized interest	(2,888)	(3,901)
Interest received	1,068	1,384
Dividends received	21,600	20,701
Net cash provided by operating activities	59,436	54,808
Investing activities:
Acquisition of subsidiaries, associates and joint-ventures and
refunds	49	(1,103)
Proceeds from disposal of subsidiaries, associates and joint
ventures	318	102
Additions to non-current assets, including capitalized interest	(17,287)	(22,096)
Proceeds from sale of non-current assets	70	52
Loans made	(8,123)	(1,503)
Repayment of loans	6,838	13,032
Change in restricted financial assets	(583)	(632)
Total cash used in investing activities	(18,718)	(12,148)

* The way of presentation was changed in 2015 (see Note 2.2.3). The prior year figures were changed accordingly to provide comparative information on the same basis and they do not fully correspond to the financial statements as of December 31, 2014.

ČEZ, a. s. STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2015

continued

	2015	2014 *
Financing activities:
Proceeds from borrowings Payments of borrowings Proceeds from other long-term liabilities Change in payables/receivables from group cashpooling Dividends paid Sale of treasury shares	60,734 (90,833) 179 4,091 (21,309) 68	66,610 (95,107) - 2,544 (21,320) -
Net cash used in financing activities	(47,070)	(47,273)
Net effect of currency translation in cash	(195)	(42)
Net decrease in cash and cash equivalents	(6,547)	(4,655)
Cash and cash equivalents at beginning of period	9,511	14,166
Cash and cash equivalents at end of period	2,964	9,511

Supplementary cash flow information

Total cash paid for interest 6,791 8,310

* The way of presentation was changed in 2015 (see Note 2.2.3). The prior year figures were changed accordingly to provide comparative information on the same basis and they do not fully correspond to the financial statements as of December 31, 2014.

1.	Description of the Company 2
2.	Summary of Significant Accounting Policies 2
3.	Property, Plant and Equipment 18
4.	Restricted Financial Assets 20
5.	Investments and Other Financial Assets, Net 20
6.	Intangible Assets, Net 26
7.	Cash and Cash Equivalents 26
8.	Receivables, Net 27
9.	Emission Rights 28
10.	Other Financial Assets, Net 29
11.	Other Current Assets 29
12.	Equity 29
13.	Long-term Debt 31
14.	Fair Value of Financial Instruments 33
15.	Financial Risk Management 37
16.	Provisions 43
17.	Other Long-term Liabilities 45
18.	Short-term Loans 45
19.	Trade and Other Payables 46
20.	Accrued Liabilities 46
21.	Revenues and Other Operating Income 47
22.	Gains and Losses from Commodity Derivative Trading, Net 47
23.	Salaries and Wages 48
24.	Other Operating Expenses 50
25.	Interest Income 50
26.	Other Financial Expenses 51
27.	Other Financial Income 51
28.	Income Taxes 51
29.	Related Parties 54
30.	Segment Information 56
31.	Earnings per Share 56
32.	Commitments and Contingencies 56
33.	Events after the Balance Sheet Date 57

ČEZ, a. s. NOTES TO THE FINANCIAL STATEMENTS AS OF DECEMBER 31, 2015

1. Description of the Company

ČEZ, a. s. (ČEZ or the Company), business registration number 45274649, is a joint-stock company incorporated on May 6, 1992 under the laws of the Czech Republic in the Commercial Register maintained by the Municipal Court in Prague (Section B, Insert 1581). The Company's registered office is located at Duhová 2/1444, Prague 4, Czech Republic.

The Company is involved primarily in the production, trading and sale of electricity and the related support services and in the production, distribution and sale of heat and sale of gas.

The average number of employees was 5,156 and 5,525 in 2015 and 2014, respectively.

The Czech Republic represented by the Ministry of Finance is a majority shareholder holding 69.8% of the Company's share capital at December 31, 2015. The majority shareholder's share of the voting rights represented 70.3% at the same date.

2. Summary of Significant Accounting Policies

2.1. Financial Statements

These separate financial statements were prepared in accordance with International Financial Reporting Standards (IFRS), as adopted by the EU. These separate financial statements are preliminary and have not been audited.

The financial statements are prepared under the historical cost convention, except when IFRS requires other measurement basis as disclosed in the accounting policies below.

Based on the economic substance of the underlying events and circumstances relevant to the Company, the functional and presentation currency has been determined to be Czech crowns (CZK).

The Company also compiled consolidated IFRS financial statements of the CEZ Group for the same period.

2.2. Changes in Accounting Policies

2.2.1. Adoption of New IFRS Standards in 2015

The accounting policies adopted are consistent with those of the previous financial year, except for as follows. The Company has adopted the following new or amended and endorsed by EU IFRS and IFRIC interpretations as of January 1, 2015:

Annual Improvements to IFRSs 2011 - 2013

In December 2013 the IASB issued a collection of amendments to IAS and IFRS in which they focused on areas of inconsistency in IFRSs and IASs or where the clarification of wording was required. The following standards were amended:

• IFRS 1 First-time Adoption of International Financial Reporting Standards
• IFRS 3 Business Combinations
• IFRS 13 Fair Value Measurement
• IAS 40 Investment Property

These changes did not have significant impact on the Company's financial statements.

2.2.2. New IFRS Standards and IFRIC Interpretations either not yet Effective or not yet Adopted by the EU

The Company is currently assessing the potential impacts of the new and revised standards and interpretations that will be effective or adopted by the EU from January 1, 2016 or later. Standards and interpretations most relevant to the Company's activities are detailed below:

IFRS 9 Financial Instruments – Classification and measurement. The IFRS 9 was originally issued in November 2009 and is intended to replace IAS 39 Financial Instruments: Recognition and measurement. The standard introduces new requirements for classifying and measuring financial assets and liabilities. In October 2010 the IASB added to IFRS 9 the requirements for classification and measurement of financial liabilities and derecognition of financial assets and liabilities. Most of the requirements in IAS 39 for classification and measurement of financial liabilities and derecognition of financial assets and liabilities were carried forward unchanged to IFRS 9. The standard eliminates categories of financial instruments currently existing in IAS 39: available-for-sale and held-to-maturity. According to IFRS 9 all financial assets and liabilities are initially recognized at fair value plus transaction costs.

Financial assets

Debt instruments may, if the fair value option (FVO) is not applied, be subsequently measured at amortized cost if the following both conditions are met:

• the asset is held within a business model that has the objective to hold the assets to collect the contractual cash flows;
• the contractual terms of the financial asset give rise, on specified dates, to cash flows that are solely payments of principal and interest on the principal outstanding.

All other debt instruments, where the above mentioned conditions are not met, are subsequently measured at fair value.

All equity investment financial assets are measured at fair value either through other comprehensive income (OCI) or profit or loss. Equity instruments held for trading must be measured at fair value through profit or loss. Entities have an irrevocable choice of recognizing changes in fair value either in OCI or profit or loss by instrument for all other equity investment financial assets.

Financial liabilities

For FVO liabilities, the amount of change in the fair value of a liability that is attributable to changes in credit risk must be presented in OCI. The remainder of the change in fair value is presented in profit or loss, unless presentation of the fair value change in respect of the liability's credit risk in OCI would create or enlarge an accounting mismatch in profit or loss.

Impairment

The impairment requirements are based on an expected credit loss (ECL) model that replaces the IAS 39 incurred loss model. The ECL model applies to: debt instruments accounted for at amortized cost or at FVOCI; most loan commitments; financial guarantee contracts; contract assets under IFRS 15; and lease receivables under IAS 17 Leases.

Entities are generally required to recognize either 12-months or lifetime ECL, depending on whether there has been a significant increase in credit risk since initial recognition (or when the commitment or guarantee was entered into). For some trade receivables, the simplified approach may be applied whereby the lifetime expected credit losses are always recognized.

Hedge accounting

New chapter on hedge accounting has been added to IFRS 9. This represents a major overhaul of hedge accounting and puts in place a new model that introduces significant improvements principally by aligning the accounting more closely with risk management. There are also improvements to the disclosures about hedge accounting and risk management.

IFRS 9 is effective for annual periods beginning on or after January 1, 2018, with early application permitted. The standard has not yet been endorsed by EU. Retrospective application is required, but comparative information is not compulsory. The adoption of IFRS 9 will have an effect on the classification and measurement of the Company's financial assets and liabilities.

IFRS 14 Regulatory Deferral Accounts

IFRS 14 is an optional standard that allows an entity, whose activities are subject to rate-regulation, to continue applying most of its existing accounting policies for regulatory deferral account balances upon its first-time adoption of IFRS. Entities that adopt IFRS 14 must present the regulatory deferral accounts as separate line items on the balance sheet and present movements in these account balances as separate line items in the statement of profit or loss and other comprehensive income. The standard requires disclosures on the nature of, and risks associated with, the entity's rateregulation and the effects of that rate-regulation on its financial statements. IFRS 14 is effective for annual periods beginning on or after January 1, 2016 but was not endorsed by EU yet. This new standard will have no significant impact on the Company's financial statements.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014. The standard outlines the principles an entity must apply to measure and recognize revenue. The core principle is that an entity will recognize revenue at an amount that reflects the consideration to which the entity expects to be entitled in exchange for transferring goods or services to a customer.

The principles in IFRS 15 will be applied using a five-step model:

• 1. Identify the contract(s) with a customer
• 1. Identify the performance obligations in the contract
• 1. Determine the transaction price
• 1. Allocate the transaction price to the performance obligations in the contract
• 1. Recognize revenue when (or as) the entity satisfies a performance obligation

The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either a full or modified retrospective application is required for annual periods beginning on or after January 1, 2018 with early adoption permitted. The standard has not yet been endorsed by EU. The Company is currently assessing the impact of IFRS 15 and plans to adopt the new standard on the required effective date.

IFRS 16 Leases

The IASB issued in January 2016 new standard, IFRS 16 Leases, which replaces existing IFRS leases requirements and requires lessees to recognize most leases on their balance sheets while lessor accounting is substantially unchanged. Company is currently assessing the impact of this new standard on its financial statements.

The new standard will be effective for annual periods beginning on or after 1 January 2019. Early application is permitted, provided the new revenue standard, IFRS 15 Revenue from Contracts with Customers, has been applied or is applied at the same date as IFRS 16. The standard has not yet been endorsed by EU. The Company is currently assessing the impact of IFRS 16 and plans to adopt the new standard on the required effective date.

Amendments to IAS 1 Disclosure Initiative

The amendments to IAS 1 Presentation of Financial Statements clarify, rather than significantly change, existing IAS 1 requirements.

The amendments clarify:

• the materiality requirements in IAS 1;
• that specific line items in the statement(s) of profit or loss and OCI and the balance sheet may be disaggregated;
• that entities have flexibility as to the order in which they present the notes to financial statements;
• that the share of OCI of associates and joint ventures accounted for using the equity method must be presented in aggregate as a single line item, and classified between those items that will or will not be subsequently reclassified to profit or loss.

The amendments are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. The standard has not yet been endorsed by EU. These amendments are not expected to have a significant impact to the Company, but will assist in applying judgment when meeting the presentation and disclosure requirements.

Amendments to IAS 16 and IAS 38: Clarification of Acceptable Methods of Depreciation and Amortization

The amendments clarify the principle in IAS 16 and IAS 38 that revenue reflects a pattern of economic benefits that are generated from operating a business (of which the asset is part) rather than the economic benefits that are consumed through use of the asset. As a result, a revenue-based method cannot be used to depreciate property, plant and equipment and may only be used in very limited circumstances to amortize intangible assets. The amendments are effective prospectively for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact to the Company given that the Company has not used a revenuebased method to depreciate its non-current assets.

Amendments to IAS 16 and IAS 41: Bearer Plants

The amendments change the accounting requirements for biological assets that meet the definition of bearer plants. Under the amendments, biological assets that meet the definition of bearer plants will no longer be within the scope of IAS 41. Instead, IAS 16 will apply. After initial recognition, bearer plants will be measured under IAS 16 at accumulated cost (before maturity) and using either the cost model or revaluation model (after maturity). The amendments also require that produce that grows on bearer plants will remain in the scope of IAS 41 measured at fair value less costs to sell. For government grants related to bearer plants, IAS 20 Accounting for Government Grants and Disclosure of Government Assistance will apply. The amendments are retrospectively effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact to the Company as the Company does not have any bearer plants.

Amendments to IAS 19 Defined Benefit Plans: Employee Contributions

The amendments to IAS 19 are intended to simplify the accounting for contributions that are independent of the number of years of employee service, for example, employee contributions that are calculated according to a fixed percentage of salary. The amendment is effective prospectively for annual periods beginning on or after February 1, 2015 and the Company does not expect the amendment will have a significant impact on its financial statements.

Amendments to IAS 27: Equity Method in Separate Financial Statements

The amendments will allow entities to use the equity method to account for investments in subsidiaries, joint ventures and associates in their separate financial statements. Entities already applying IFRS and electing to change to the equity method in its separate financial statements will have to apply that change retrospectively. For first-time adopters of IFRS electing to use the equity method in its separate financial statements, they will be required to apply this method from the date of transition to IFRS. The amendments are effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments will not have any impact on the Company's financial statements.

Amendments to IFRS 11 Joint Arrangements: Accounting for Acquisitions of Interests in joint operation The amendments to IFRS 11 require that a joint operator accounting for the acquisition of an interest in a joint operation, in which the activity of the joint operation constitutes a business must apply the relevant IFRS 3 principles for business combinations accounting. The amendments also clarify that a previously held interest in a joint operation is not remeasured on the acquisition of an additional interest in the same joint operation while joint control is retained. In addition, a scope exclusion has been added to IFRS 11 to specify that the amendments do not apply when the parties sharing joint control, including the reporting entity, are under common control of the same ultimate controlling party. The amendments apply to both the acquisition of the initial interest in a joint operation and the acquisition of any additional interests in the same joint operation and are prospectively effective for annual periods beginning on or after January 1, 2016, with early adoption permitted. These amendments are not expected to have any impact to the Company.

Amendments to IFRS 10, IFRS 12 and IAS 28 Investment Entities: Applying the Consolidation Exception

The amendments to IFRS 10 clarify that the exemption from presenting consolidated financial statements applies to a parent entity that is a subsidiary of an investment entity, when the investment entity measures all of its subsidiaries at fair value. Furthermore, the amendments to IFRS 10 clarify that only a subsidiary of an investment entity that is not an investment entity itself and that provides support services to the investment entity is consolidated. All other subsidiaries of an investment entity are measured at fair value. The amendments to IAS 28 allow the investor, when applying the equity method, to retain the fair value measurement applied by the investment entity associate or joint venture to its interests in subsidiaries. The amendments are effective for annual periods beginning on or after January 1, 2016. These amendments were not endorsed by EU yet and are not expected to have significant impact to the Company.

Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its Associate or Joint-Venture

The amendments address the conflict between IFRS 10 and IAS 28 in dealing with the loss of control of a subsidiary that is sold or contributed to an associate or joint venture. The amendments clarify that the gain or loss resulting from the sale or contribution of assets that constitute a business, as defined in IFRS 3 Business Combinations, between an investor and its associate or joint venture, is recognized in full. Any gain or loss resulting from the sale or contribution of assets that do not constitute a business, however, is recognized only to the extent of unrelated investors' interests in the associate or joint venture. The amendments are effective for annual periods beginning on or after January 1, 2016. These amendments were not endorsed by EU yet and are not expected to have significant impact to the Company.

Annual Improvements to IFRSs 2010 - 2012

In December 2013 the IASB issued a collection of amendments to IAS and IFRS in which they focused on areas of inconsistency in IFRSs and IASs or where the clarification of wording was required. The following standards were amended:

• IFRS 2 Share-based Payment
• IFRS 3 Business Combinations
• IFRS 8 Operating Segments
• IFRS 13 Fair Value Measurement
• IAS 16 Property, Plant and Equipment
• IAS 24 Related Party Disclosures
• IAS 38 Intangible Assets

The Company will apply these improvements from January 1, 2016.

Annual Improvements to IFRSs 2012 - 2014

In September 2014 the IASB issued a collection of amendments to IAS and IFRS in which they focused on areas of inconsistency in IFRSs and IASs or where the clarification of wording was required. The following standards were amended:

• IFRS 5 Non-Current Assets Held for Sale and Discontinued Operations
• IFRS 7 Financial Instruments: Disclosures
• IAS 19 Employee Benefits
• IAS 34 Interim Financial Reporting

The Company will apply these improvements from January 1, 2016.

These changes will have no significant impact on the Company's financial statements.

The Company does not expect early adoption of any of the above mentioned standards, improvements or amendments.

2.2.3. Changes in the Presentation of the Financial Statements

The way of presentation of the financial statements was changed in 2015. The main goal of the changes was to enhance relevancy of information contained on the face of the financial statements and reflect the developments in the best practice of financial reporting in the industry with regard to all IFRS requirements. The changes have been made to the balance sheet, statement of income, statement of comprehensive income and the statement of cash flows. As a result, reclassifications for the prior period have been made to provide fully comparative information on the same basis. The reclassifications have also been made to the balance sheet at the beginning of the earliest comparative period, i.e. at January 1, 2014.

The following tables summarize the effect of reclassifications on prior period presented (in CZK millions):

	Reclassifications 2014	Reclassifications Jan 1, 2014
Balance sheet:
Restricted financial assets Investments and other financial assets, net	12,029 (12,029)	10,611 (10,611)
Total other non-current assets	-	-
Provisions 1) Deferred tax liability 2) Other long-term liabilities	319 9,624 (2,407)	182 8,744 (2,271)
Total non-current liabilities	7,536	6,655
Deferred tax liability 2)	(9,624)	(8,744)
Trade and other payables Provisions Accrued liabilities	(64) 6,420 (4,268)	(131) 5,808 (3,588)
Total current liabilities	2,088	2,089
Total equity and liabilities	-	-

1) This line with the former headline Accumulated provision for nuclear decommissioning and fuel storage contained only nuclear provisions in the separate financial statements as of December 31, 2014. Now this line contains all long-term provisions.

2) The line Deferred tax liability was not presented within non-current liabilities in the separate financial statements as of December 31, 2014. Now it is part of non-current liabilities.

	Reclassifications 2014
Statement of income:
Gains and losses from electricity, coal and gas derivative trading, net 3) Sales of gas, heat and other revenues Other operating income	(2,692) (1,001) 4,020
Total revenues and other operating income	327
Gains and losses from commodity derivative trading, net 3) Purchased power and related services Other operating expenses	2,692 228 (3,247)
Income before other income (expenses) and income taxes	-
Other income (expenses), net Other financial expenses Other financial income	(10,883) (10,058) 20,941
Total other income (expenses)	-
Net income	-
EBITDA	-
Statement of comprehensive income:
Cash flow hedges reclassified from equity Cash flow hedges reclassified to income statement Cash flow hedges reclassified to assets	4,045 (3,950) (95)
Other comprehensive income, net of tax	-
Total comprehensive income, net of tax	-
Statement of cash flows:
Net cash provided by operating activities	(114)
Total cash used in financing activities	114
Net decrease in cash and cash equivalents	-

3) The headline of the line Gains and losses from commodity derivative trading, net was changed in 2015 (formerly Gains and losses from electricity, coal and gas derivative trading, net). This line is not presented as part of Total revenues and other operating income in 2015.

2.3. Estimates

The preparation of financial statements in conformity with International Financial Reporting Standards requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the reporting period. Actual results could differ from those estimates. Explanation of key assumptions is included in relevant sections of notes where significant estimates are being described.

Significant estimates are made by the Company while determining recoverable amounts for property, plant and equipment and financial assets (see Notes 3 and 5), accounting for the nuclear provisions (see Notes 2.21 and 16.1), provisions for waste storage reclamation (see Note 16.2), fair value of commodity contracts (see Notes 2.18 and 14) and financial derivatives (see Notes 2.17 and 14).

2.4. Revenues and Other Income

The Company recognizes revenue from supplies of electricity and related services based on contract terms. Differences between contracted amounts and actual supplies are settled through the market operator.

Revenues are recognized when it is probable that the economic benefits associated with the transaction will flow to the entity and the revenue can be reliably measured. Sales are recognized net of value added tax and discounts, if any.

Revenue from sale of goods is recognized when the goods are delivered and significant risks and rewards of ownership of the goods have passed to the buyer.

Revenue from services is recognized when the services are rendered.

Dividends earned on investments are recognized when the right of payment has been established.

2.5. Fuel Costs

Fuel costs are expensed as fuel is consumed. Fuel expense includes the amortization of the cost of nuclear fuel (see Note 2.8).

2.6. Interest

The Company capitalizes all interest incurred in connection with its construction program that theoretically could have been avoided if expenditures for the qualifying assets had not been made. The qualifying assets include assets, for which the construction represents a substantial period of time. Capitalized interest costs amounted to CZK 3,573 million and CZK 3,977 million and the interest capitalization rate was 4.3% and 4.5% in 2015 and 2014, respectively.

2.7. Property, Plant and Equipment

Property, plant and equipment are recorded at cost, net of accumulated depreciation and impairment in value. Cost of plant in service includes materials, labor, payroll-related costs and the cost of debt financing used during construction. The cost also includes the estimated cost of dismantling and removing the asset and restoring the site, to the extent that is recognized as a provision under IAS 37, Provisions, Contingent Liabilities and Contingent Assets. Government grants received for construction of certain items of property, plant and equipment decrease the acquisition cost of the respective items.

Internally developed property, plant and equipment are recorded at their accumulated cost. The cost of maintenance, repairs, and replacement of minor items of property is charged to maintenance expense when incurred. Renewals and improvements are capitalized. Upon sale, retirement or replacement of part of an item of property, plant and equipment the cost and related accumulated depreciation of the disposed item or its replaced part are derecognized from the balance sheet. Any resulting gains or losses are included in profit or loss.

At each reporting date, the Company assesses whether there is any indication that an asset may be impaired. Where an indicator of impairment exists, the Company reviews the recoverable amounts of its property, plant and equipment to determine whether such amounts continue to exceed the assets' carrying values. The recoverable amount of an asset is the higher of its fair value less costs of disposal and its value in use. Identified impairment of property, plant and equipment is recognized directly in profit or loss in the line item Impairment of property, plant and equipment and intangible assets.

At each reporting date, an assessment is made whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company makes an estimate of recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying

amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss in the line item Impairment of property, plant and equipment and intangible assets.

The Company depreciates the original cost of property, plant and equipment less its residual value by using the straight-line method over the estimated economic lives. Each part of an item of property, plant and equipment with a cost that is significant in relation to the total cost of the item is depreciated separately. The depreciable useful lives used for property, plant and equipment are as follows:

	Useful lives (years)
Buildings and structures	20 – 50
Machinery and equipment	4 – 25
Vehicles	8 – 25
Furniture and fixtures	8 – 15

Average depreciable lives based on the functional use of property, plant and equipment are as follows:

	Average life (years)
Hydro plants
Buildings and structures	45
Machinery and equipment	12
Fossil fuel plants
Buildings and structures	39
Machinery and equipment	12
Nuclear power plant
Buildings and structures	38
Machinery and equipment	13

The asset's residual values, useful lives and methods of depreciation are reviewed, and adjusted if appropriate, at each financial year end.

Depreciation of plant in service was CZK 14,453 million and CZK 13,298 million for the years ended December 31, 2015 and 2014, which was equivalent to a composite depreciation rate of 4.2% and 4.0%, respectively.

2.8. Nuclear Fuel

Nuclear fuel is stated at original cost, net of accumulated amortization and presented as part of property plant and equipment. Amortization of fuel in the reactor is based on the amount of power generated. Amortization of nuclear fuel charged to fuel expense was CZK 3,392 million and CZK 3,349 million for the years ended December 31, 2015 and 2014, respectively. The amortization of nuclear fuel includes charges in respect of additions to the accumulated provision for interim storage of spent nuclear fuel in the amount of CZK 328 million and CZK 275 million in 2015 and 2014, respectively. Additions to nuclear fuel were CZK 4,934 million and CZK 3,345 million in 2015 and 2014, respectively. In 2015 balance of nuclear fuel was increased by the capitalized portion of the provision for interim storage of nuclear fuel in the amount of CZK 64 million in connection with the change of estimate.

2.9. Intangible Assets

Intangible assets are valued at their acquisition costs and related expenses. Intangible assets are amortized over their useful lives using the straight-line method. The estimated useful life of intangible assets ranges from 3 to 10 years. The intangible assets´ residual values, useful lives and methods of amortization are reviewed, and adjusted if appropriate, at each financial year end. Improvements are capitalized.

Intangible assets are tested for impairment whenever facts or changes in circumstances indicate that the carrying amount could be impaired. The recoverable amount of an intangible asset not yet available for use is tested for impairment annually, irrespective of whether there is any indication that it may be impaired. Identified impairment of intangible assets is recognized directly in profit or loss in the line item Impairment of property, plant and equipment and intangible assets.

At each reporting date an assessment is made as to whether there is any indication that previously recognized impairment losses may no longer exist or may have decreased. If such indication exists, the Company makes an estimate of recoverable amount. A previously recognized impairment loss is reversed only if there has been a change in the estimates used to determine the asset's recoverable amount since the last impairment loss was recognized. If that is the case the carrying amount of the asset is increased to its recoverable amount. That increased amount cannot exceed the carrying amount that would have been determined, net of depreciation, had no impairment loss been recognized for the asset in prior years. Such reversal is recognized in profit or loss in the line item Impairment of property, plant and equipment and intangible assets.

2.10. Emission Rights

Emission right represents the right of the operator of a facility, which in the course of its operation emits greenhouse gases, to emit during the calendar year equivalent of one ton of carbon dioxide. Based on the National Allocation Plans the Company have been granted emission rights free of charge. The Company is responsible for determining and reporting the amount of greenhouse gases produced by its facilities in the calendar year and this amount has to be audited by an authorized person.

On April 30 of the following year, at the latest, the Company is required to remit a number of allowances representing the number of tones of CO² actually emitted in previous year.

The emission rights which were granted free of charge are stated at their nominal value, i.e. at zero. Purchased emission rights are carried at cost (except for emission rights for trading). The Company recognizes a provision to cover emissions made which is measured firstly at the cost of emission rights resulting from hedging strategy, and purchased emission rights and credits up to the level of granted and purchased emission rights and credits held and then at the market price ruling at the balance sheet date.

The Company also holds emission rights for trading purposes. The portfolio of emission rights held for trading is measured at fair value. The changes in fair value of the emission rights held for trading are recognized directly in profit or loss.

At each reporting date, the Company assesses whether there is any indication that emission rights may be impaired. Where an indicator of impairment exists, the Company reviews the recoverable amounts of the cash generating units, to which the emission rights were allocated, to determine whether such amounts continue to exceed the assets' carrying values. Any identified impairment of emission rights is recognized directly in profit or loss in the line item of Emission rights, net.

Sale and repurchase agreements with emission rights are accounted for as collateralized borrowing.

The swaps of European emission rights (EUA) and certified emission reductions (CER or emission credits) are treated as derivatives in the period from the trade date to the maturity date. The swap is measured at fair value with any fair value changes being recognized in profit and loss. Any cash received before the EUA/CER swap matures would result in an offsetting change in the fair value of the swap. Upon the delivery of EUAs and CERs the difference between the total of cash received and the fair value of the CER received on one hand and the total of the carrying value of the EUA given up and the fair value of the EUA/CER-swap given up is recognized as a gain or loss.

2.11. Investments

Investments are classified into the following categories: held-to-maturity, loans and receivables, held for trading and available-for-sale. Investments with fixed or determinable payments and fixed maturity that the Company has the positive intent and ability to hold to maturity other than loans and receivables originated by the Company are classified as held-to-maturity investments. Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market.

Investments acquired principally for the purpose of generating a profit from short-term fluctuations in price are classified as held for trading. All other investments, other than loans and receivables originated by the Company, are classified as available-for-sale.

Held-to-maturity investments and loans and receivables are included in non-current assets unless they mature within 12 months of the balance sheet date. Investments held for trading are included in current assets. Available-for-sale investments are classified as current assets if the Company intends to realize them within 12 months of the balance sheet date.

All purchases and sales of investments are recognized on the settlement date.

When financial assets are recognized initially, they are measured at fair value, plus, in the case of investments not at fair value through profit or loss, directly attributable transaction costs.

Available-for-sale and trading investments are subsequently carried at fair value without any deduction for transaction costs by reference to their quoted market price at the balance sheet date.

Gains or losses on remeasurement to fair value of available-for-sale investments are recognized directly in other comprehensive income, until the investment is sold or otherwise disposed of, or until it is determined to be impaired. Equity securities classified as available-for-sale investments that do not have a quoted market price in an active market, and whose fair value cannot be reliably measured, are measured at cost.

The carrying amounts of available-for-sale investments are reviewed at each balance sheet date whether there is objective evidence for impairment. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. 'Significant' is evaluated against the original cost of the investment and 'prolonged' against the period in which the fair value has been below its original cost. Where there is evidence of impairment, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognized in the income statement – is removed from other comprehensive income and recognized in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairment are recognized directly in other comprehensive income. In the case of debt instruments classified as available-for-sale, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the income statement. If, in a subsequent year, the fair value of a debt instrument increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the income statement, the impairment loss is reversed through the income statement.

Changes in the fair values of trading investments are included in Other financial expenses or Other financial income.

Held-to-maturity investments and loans and receivables are carried at amortized cost using the effective interest rate method.

Investments in subsidiaries, associates and joint-ventures are carried at cost. Impaired investments are provided for or written off.

Mergers with entities under common control are recorded using a method similar to pooling of interests. Assets and liabilities of the merged entities are included in separate financial statements of the Company at their book values. The difference between the cost of investment in subsidiaries and net assets merged from entities under common control is recorded directly in equity.

Financial assets and financial liabilities are offset and the net amount is reported in the balance sheet if there is a currently enforceable legal right to offset the recognized amounts and there is an intention to settle on a net basis, to realize the assets and settle the liabilities simultaneously.

2.12. Cash and Cash Equivalents

Cash and cash equivalents include cash on hand, current accounts with banks and short-term bank notes with a maturity of 6 months or less. Foreign currency deposits are translated using the exchange rates published as at the balance sheet date.

2.13. Financial Assets Restricted in Use

Restricted balances of cash and other financial assets, which are shown as restricted funds (see Note 4), relate to deposits for funding of nuclear decommissioning liabilities under a Nuclear act, waste storage reclamation under a Waste act and cash guarantees given to transaction partners. The noncurrent classification is based on the expected timing of the release of the funds to the Company.

2.14. Receivables, Payables and Accruals

Receivables are recognized and carried at original invoice amount less an allowance for any uncollectible amounts. An impairment analysis of receivables is performed by the Company at each reporting date on an individual basis for significant clients. In addition, a large number of minor receivables are grouped into homogenous groups and assessed for impairment collectively where the individual approach is not applicable. The calculation is based on actual incurred historical data of these groups.

Payables are recorded at invoiced values and accruals are reported at expected settlement values.

2.15. Materials and Supplies

Purchased inventories are valued at actual cost, using the weighted average method. Costs of purchased inventories comprise expenses which have been incurred in respect of the acquisition of materials and supplies including transportation costs. When consumed, inventories are charged to income or capitalized as part of property, plant and equipment. Work-in-progress is valued at actual cost. Costs of inventories produced internally include direct material and labor costs. Obsolete inventories are reduced to their realizable value by a provision charged to the income statement. At December 31, 2015 and 2014 the provision for obsolescence amounted to CZK 28 million and CZK 73 million, respectively.

2.16. Fossil Fuel Stocks

Fossil fuel stocks are stated at actual cost using weighted average cost method.

2.17. Derivative Financial Instruments

The Company uses derivative financial instruments such as foreign currency contracts and interest rate swaps to hedge its risks associated with interest rate and foreign currency fluctuations. Such derivative financial instruments are stated at fair value. In the balance sheet such derivatives are presented as part of Investments and other financial assets, net, Other financial assets, net, Other long-term liabilities and Trade and other payables.

The method of recognizing the resulting gain or loss depends on whether the derivative is designated as a hedging instrument, and if so, the nature of the item being hedged.

For the purpose of hedge accounting, hedges are classified as either fair value hedges when they hedge the exposure to changes in the fair value of a recognized asset or liability; or cash flow hedges where they hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction.

The Company documents at the inception of the transaction the relationship between hedging instruments and hedged items, as well as its risk management objective and strategy for undertaking various hedge transactions. The Company also documents its assessment, both at hedge inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of hedged items.

Fair value hedge:

Gain or loss from re-measuring the hedging instrument at fair value is recognized immediately in the income statement. Any gain or loss on the hedged item attributable to the hedged risk is adjusted against the carrying amount of the hedged item and recognized in the income statement. Where the adjustment is to the carrying amount of a hedged interest-bearing financial instrument, the adjustment is amortized to profit or loss over the remaining term to maturity.

Cash flow hedge:

Changes in the fair value of derivatives that are designated and qualify as cash flow hedges are initially recognized in other comprehensive income. The gain or loss relating to the ineffective portion is recognized in the income statement in the line items Other financial expenses or Other financial income.

Amounts accumulated in equity are transferred to the income statement in the periods when the hedged item affects profit or loss.

When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recorded to the income statement when the forecast transaction is ultimately recognized. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement.

Other derivatives:

Certain derivative instruments do not qualify for hedge accounting. Changes in the fair value of any derivative instruments that do not qualify for hedge accounting are recognized immediately in the income statement.

2.18. Commodity Contracts

According to IAS 39, certain commodity contracts are treated as financial instruments and fall into the scope of the standard. Most commodity purchase and sales contracts entered into by the Company provide for physical delivery of quantities intended to be consumed or sold as part of its ordinary business; such contracts are thus excluded from the scope of IAS 39.

Forward purchases and sales for physical delivery of energy are considered to fall outside the scope of application of IAS 39, when the contract concerned is considered to have been entered into as part of the normal business activity. This is demonstrated to be the case when all the following conditions are fulfilled:

• a physical delivery takes place under such contracts;
• the volumes purchased or sold under the contracts correspond to the Company's operating requirements;
• the contract cannot be considered as written option as defined by the standard. In the specific case of electricity sales contracts, the contract is substantially equivalent to a firm forward sale or can be considered as a capacity sale.

The Company thus considers that transactions negotiated with a view to balancing the volumes between electricity purchases and sale commitments are part of its ordinary business as an integrated electric utility company and do not therefore come under the scope of IAS 39.

Commodity contracts which fall under the scope of IAS 39 are carried at fair value with changes in the fair value recognized in the income statement. The Company presents revenues and expenses related to commodity trading net in the line Gains and losses from commodity derivative trading, net.

2.19. Income Taxes

The provision for corporate tax is calculated in accordance with the Czech tax regulations and is based on the income or loss reported under the Czech accounting regulations, increased or decreased by the appropriate permanent and temporary differences (e.g. differences between book and tax depreciation). Income tax due is provided at a rate of 19% for the years ended December 31, 2015 and 2014, respectively, from income before income taxes after adjustments for certain items which are not deductible, or taxable, for taxation purposes. The Czech corporate income tax rate enacted for 2016 and on is 19%.

Deferred income tax is provided, using the liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred income tax is determined using tax rates (and laws) that have been enacted by the balance sheet date and are expected to apply when the related deferred income tax asset is realized or the deferred income tax liability is settled.

Deferred tax assets and liabilities are recorded regardless when the temporary difference reverses. Deferred tax assets and liabilities are not discounted. Deferred tax assets are recognized when it is probable that sufficient taxable profits will be available against which the deferred tax assets can be utilized. A deferred tax liability is recognized for all taxable temporary differences

The carrying amount of deferred income tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized.

Current tax and deferred tax are charged or credited directly to equity if the tax relates to items that are credited or charged, in the same or a different period, directly to equity.

Change in the carrying amount of deferred tax assets and liabilities due to change in tax rate is recognized in the income statement, except to the extent that it relates to items previously charged or credited to equity.

2.20. Long-term Debt

Borrowings are initially recognized in the amount of the proceeds received, net of transaction costs. They are subsequently carried at amortized cost using the effective interest rate method, the difference between net proceeds and redemption value is being recognized in the net income over the life of the borrowings as interest expense.

Transaction costs include fees and commissions paid to agents, advisers, brokers and dealers, levies by regulatory agencies and securities exchanges.

The carrying amount of long-term debt, which is hedged against the changes in its fair value, is adjusted by the changes in the fair value attributable to the hedged risk. The changes in the fair value of the hedged long-term debt are recognized in profit or loss and are included in the income statement line Other financial expenses or Other financial income. The adjustment to the carrying amount of the hedged long-term debt in a fair value hedge is subsequently amortized to profit or loss using the effective interest rate method.

2.21. Nuclear Provisions

The Company has recognized provisions for its obligations to decommission its nuclear power plants at the end of their operating lives, to store the related spent nuclear fuel and other radioactive waste initially on an interim basis and provision for its obligation to provide financing for subsequent permanent storage of spent fuel and irradiated parts of reactors (see Note 16.1).

The provisions recognized represent the best estimate of the expenditures required to settle the present obligation at the current balance sheet date. Such cost estimates, expressed at current price levels at the date of the estimate, are discounted at December 31, 2015 and 2014 using a long-term real rate of interest of 1.5% per annum and 1.75% per annum, respectively, to take into account the timing of payments. The initial discounted cost amounts are capitalized as part of property, plant and equipment and are depreciated over the lives of the nuclear plants. Each year, the provisions are increased to reflect the accretion of discount and to accrue an estimate for the effects of inflation, with the charges being recognized as a component of interest expense. At December 31, 2015 and 2014 the estimate for the effect of inflation is 1% and 1.25%, respectively.

The decommissioning process is expected to continue for approximately a fifty-year period for Temelín power plant and sixty-year period for Dukovany power plant subsequent to the final operation of the plants. It is currently anticipated that the permanent storage facility will become available in 2065 and the process of final disposal of the spent nuclear fuel will then continue until approximately 2084 when the process should be finished. While the Company has made its best estimate in establishing its nuclear provisions, because of potential changes in technology as well as safety and environmental requirements, plus the actual time scale to complete decommissioning and fuel storage activities, the ultimate provision requirements could vary significantly from the Company's current estimates.

Changes in a decommissioning liability and in liability for final storage of spent nuclear fuel that result from a change in the current best estimate of timing and/or amount of cash flows required to settle the obligation or from a change in the discount rate are added to (or deducted from) the amount recognized as the related asset. However, to the extent that such a treatment would result in a negative asset, the effect of the change is recognized in the income for the current period.

2.22. Treasury Shares

Treasury shares are presented in the balance sheet as a deduction from equity. The acquisition of treasury shares is presented in the statement of equity as a reduction of equity. No gain or loss is recognized in the income statement on the sale, issuance or cancellation of treasury shares. Consideration received is presented in the financial statements as an addition to equity.

2.23. Share Options

Members of Board of Directors and selected managers have been granted options to purchase common shares of the Company. Expense related to the share option plan is measured on the date of the grant by reference to the fair value of the share options granted. In case of options which vest immediately, the expense is recognized directly in profit or loss with a corresponding increase in equity. In all other cases the expense is accrued over the vesting period of the equity instruments granted. The expense recognized reflects the best estimate of the number of share options which will ultimately vest. In 2015 and 2014 the expense recognized in respect of the share option plan amounted to CZK 31 million and CZK 26 million, respectively.

2.24. Foreign Currency Transactions

Assets and liabilities whose acquisition or production costs were denominated in foreign currencies are translated into Czech crowns using the exchange rate prevailing at the date of the transaction, as published by the Czech National Bank. In the accompanying financial statements, monetary assets and liabilities are translated at the rate of exchange ruling at December 31. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assets and liabilities denominated in foreign currencies are recognized in the income statement, except when deferred in equity for qualifying cash flow hedges.

Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchange gains and losses. Translation differences on non-monetary items such as equity instruments held for trading are reported as part of the fair value gain or loss. Translation differences on available-for-sale equity securities are included in equity.

Exchange rates used as at December 31, 2015 and 2014 for the translation of assets and liabilities denominated in foreign currencies were as follows:

	2015	2014
CZK per 1 EUR	27.025	27.725
CZK per 1 USD	24.824	22.834
CZK per 1 PLN	6.340	6.492
CZK per 1 BGN	13.819	14.193
CZK per 1 RON	5.976	6.185
CZK per 100 JPY	20.619	19.090
CZK per 1 TRY	8.509	9.789

2.25. Non-current Assets Held for Sale

Non-current assets and disposal groups classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Non-current assets and disposal groups are classified as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use. This condition is regarded as met only when the sale is highly probable and the asset or disposal group is available for immediate sale in its present condition. Management must be committed to the sale, which should be expected to qualify for recognition as a completed sale within one year from the date of classification.

Property, plant and equipment and intangible assets classified as held for sale are not depreciated or amortized.

3. Property, Plant and Equipment

Net plant in service at December 31, 2015 and 2014 was as follows (in CZK millions):

	Buildings	Plant and Equipment	Land and Other	Total
Cost at January 1, 2014	85,630	232,049	1,402	319,081
Additions Disposals Change in capitalized part of the provision Effect of merger Reclassification and other	4,801 (1,033) 122 - (24)	18,341 (677) 3,514 - 24	52 (1) - 46 -	23,194 (1,711) 3,636 46 -
Cost at December 31, 2014	89,496	253,251	1,499	344,246
Additions Disposals Change in capitalized part of the provision Non-monetary contribution Reclassification and other	2,167 (78) 40 (1,866) (28)	4,869 (360) 2,808 (5,545) 23	26 (4) - (95) -	7,062 (442) 2,848 (7,506) (5)
Cost at December 31, 2015	89,731	255,046	1,426	346,203
Accumulated depreciation and impairment at January 1, 2014	(41,282)	(141,000)	-	(182,282)
Depreciation Net book value of assets disposed Disposals Reclassification and other*) Impairment losses recognized Impairment losses reversed	(2,098) (37) 1,033 (466) (12) 18	(11,200) (2) 677 (1,964) - -	- - - - - -	(13,298) (39) 1,710 (2,430) (12) 18
Accumulated depreciation and impairment at December 31, 2014	(42,844)	(153,489)	-	(196,333)
Depreciation Net book value of assets disposed Disposals Non-monetary contribution Reclassification and other Impairment losses recognized Impairment losses reversed	(2,360) (19) 78 1,347 (18) (130) 12	(12,093) (42) 360 5,058 21 (65) -	- - - - - (3) -	(14,453) (61) 438 6,405 3 (198) 12
Accumulated depreciation and impairment at December 31, 2015	(43,934)	(160,250)	(3)	(204,187)
Net plant in service at December 31, 2014	46,652	99,762	1,499	147,913
Net plant in service at December 31, 2015	45,797	94,796	1,423	142,016

*) The impairment loss for Počerady gas power plant, which was created in the year 2013 as an impairment loss to construction in progress, was transferred to the tangible assets in 2014.

At December 31, 2015 construction work in progress contains mainly refurbishments performed on Ledvice and Prunéřov power plants. It also contains costs of CZK 2,243 million for the preparation of new nuclear power sources.

Company´s production assets are tested for any possible impairment as a single cash-generating unit with the exception of specific assets, e.g. the gas fired power plant in Počerady. Company´s cashgenerating unit of production assets is characterized by portfolio management in the deployment and maintenance of various production resources and the cash flows generated from these activities.

As part of testing the recoverable value of fixed assets of the cash generating unit of ČEZ, a. s. (hereinafter the "ČEZ Value"), we performed a sensitivity analysis of the test results to changes in certain key parameters of the used model – changes in wholesale electricity prices (hereinafter the "EE Prices"), changes in the discount rate used in the calculation of the present value of future cash flows and changes in CZK/EUR exchange rate.

The development of commodity prices and, in particular, the development of wholesale electricity prices in Germany (as German electricity prices have a major impact on the development of wholesale electricity prices in the Czech Republic) are the key assumptions used for the ČEZ Value model. The developments of wholesale prices are primarily determined by the EU political decisions, the development of global demand and supply of commodities and the technological progress.

The impact of EE price changes on the results of the ČEZ Value test is further influenced by a number of external factors, including, in particular, changes in the structure and availability of production resources in the Czech Republic and neighboring countries, the macroeconomic development of the Central European region and the regulation of the energy sector in the EU and Germany, including the future Market design and fundamental impact of nuclear sources attenuation in 2020-2021, the impact of the EU approved 2030 climate and energy targets and the impact of the Czech Republic State Energy Concept. The model was constructed for a period adequate to the useful life of the production resources, i.e. for a period that significantly exceeds the period for which commodities, including wholesale electricity price contracts, are traded on public liquid markets. In addition, the electricity market is subject to structural changes and major industry regulation; consequently, complete abandonment of market-based pricing mechanisms and implementation of alternative, centrally regulated payments for the availability and supply of production resources within the period of useful life of the production resources is actually possible.

With respect to the fact that we are using a long-term model, there are certain internal factors and assumptions that affect the ČEZ Value sensitivity to the development of electricity prices, such as varying deployment of the production portfolio depending on the development of electricity market prices, emission allowances and variable production costs and, in a longer perspective, also the development of fixed costs reflecting the development of the production resources gross margin.

The sensitivity test results reflect expert estimates of the status and development of the above factors in the period of the model and the status of commercial securing of the production portfolio as at December 31, 2015. The borderline values of the interval of all three main tested factors represent test results arising from the use of two price scenarios.

The basic scenario considers long-term EE prices at the level used to prepare Company´s business plan for 2016-2020. The plan was prepared in the fourth quarter 2015 whereas the plan was based on the active market parameters observed in August and September (electricity prices on EEX energy exchange in Germany, prices on PXE energy exchange in the Czech Republic, price of CO2 emission rights, FX rate CZK/EUR, interest rates etc.). There is a liquidity for electricity contracts traded on EEX for the period covering the horizon of the business plan and with regard to links between German and Czech electricity transmission network, the EEX prices are basic market price indicator for EE prices in the Czech Republic. For the purposes of the sensitivity analysis, the input EE prices, emission rights prices and foreign exchange rates were applied to the relevant opened positions of the Company. The second basic price scenario assumes EE prices lower by about 30% compared to the basic scenario and also contains decrease of relevant expenses.

A change of the assumed EE prices as per the models by 1%, with other parameters remaining unchanged, would have an impact of approximately CZK 3.0 – 4.5 billion on the ČEZ Value test results. Future cash flows of the model were discounted using a 4.2% rate. A change of 0.1 percentage point in the discount rate, with other parameters remaining unchanged, would change the ČEZ Value by CZK 3.5 – 5.4 billion. A change of 1% in the CZK/EUR exchange rate, with other parameters remaining unchanged, would result in a change of approximately CZK 3.7 – 5.3 billion in the ČEZ Value.

4. Restricted Financial Assets

Restricted financial assets at December 31, 2015, and 2014 consist of the following (in CZK millions):

	2015	2014
Restricted debt securities available-for-sale Restricted cash	10,098 2,564	10,166 1,863
Total restricted financial assets	12,662	12,029

At December 31, 2015 and 2014 the most important restricted financial assets are restricted funds representing accumulated provision for nuclear decommissioning totaled CZK 12,356 million and CZK 11,665 million, respectively, and restricted funds representing accumulated provision for waste storage and reclamation totaled CZK 247 million and CZK 303 million, respectively.

5. Investments and Other Financial Assets, Net

Investments and other financial assets, net at December 31, 2015 and 2014 consist of the following (in CZK millions):

	2015	2014
Equity securities and interests, net	160,371	161,302
Debt securities available-for-sale	675	-
Loans granted, net	9,402	7,871
Derivatives	7,006	5,456
Long-term receivable from settlement with Albania	1,111	1,705
Other long-term receivables	15	25
Financial assets in progress	112	-
Total investments and other financial assets	178,692	176,359

Movements in impairment provisions against equity securities and interest and provisions against loans (in CZK millions):

		2015		2014
	Equity securities and interests	Loans	Equity securities and interests	Loans
Opening balance	23,681	150	20,501	768
Additions Derecognition of	1,642	283	6,473	150
impaired fin. assets Reversals	(85) -	- -	(3,028) (265)	(768) -
Closing balance	25,238	433	23,681	150

In 2015 the Company created an impairment provisions against the investments in ŠKODA PRAHA Invest s.r.o. in the amount of CZK 532 million, Elektrárna Tisová, a.s. in the amount of CZK 504 million and Elektrárna Dětmarovice, a.s. in the amount of CZK 434 million in connection with reduction of recoverable amount. In addition the impairment provision against the investment in CEZ Razpredelenie Bulgaria AD was increased by CZK 172 million due to the reduction of recoverable amount.

In 2015 the Company reversed impairment provision against the investment in CEZ Trade Albania Sh.P.K. in the amount of CZK 85 million due to liquidation of company.

In 2015 the Company also increased an impairment provision against the loans granted to M.W. Team Invest S.R.L. by CZK 283 million.

In 2014 the Company created an impairment provisions against the investments in CEZ Hungary Ltd. in the amount of CZK 121 million, CEZ Trade Albania Sh.P.K. in the amount of CZK 85 million, Shared Services Albania Sh.A. in the amount of CZK 73 million and CEZ Srbija d.o.o. in the amount of CZK 36 million in connection with reduction of recoverable amount.

In addition the impairment provision against the investment in Tomis Team S.R.L. was increased by CZK 3,182 million, in TEC Varna EAD by CZK 1,021 million, in CEZ Razpredelenie Bulgaria AD by CZK 991 million, in Ovidiu Development S.R.L. by CZK 863 million and in Energetické centrum s.r.o. by CZK 101 million due to the reduction of recoverable amount.

In 2014 the Company reversed created impairment provision against the investments in Operatori i Shpërndarjes së Energjisë Elektrike Sh.A.(former CEZ Shpërndarje Sh.A.) in the amount of CZK 3,028 million and in NERS d.o.o. in the amount of CZK 102 million in connection with the sale of its shares, in CEZ RUS OOO in the amount of CZK 50 million due to liquidation of company and in PPC Úžín, a.s. in the amount of CZK 113 million due to the merger with ČEZ, a. s.

In 2014 the Company also reversed the created impairment provision against the loans granted to Operatori i Shpërndarjes së Energjisë Elektrike Sh.A. in the amount of CZK 768 million and created an impairment provision of CZK 150 million against the loans granted to M.W. Team Invest S.R.L.

Loans granted and other long-term receivables, net at December 31, 2015, and 2014 are contracted to mature in the following periods after the balance sheet date (in CZK millions):

	2015		2014
		Other long		Other long
	Loans granted	term receivables	Loans granted	term receivables
Due in 1 – 2 years	1,148	566	1,907	586
Due in 2 – 3 years	1,179	557	1,407	572
Due in 3 – 4 years	1,123	2	1,439	570
Due in 4 – 5 years Due in more than	1,726	1	1,414	2
5 years	4,226	-	1,704	-
Total	9,402	1,126	7,871	1,730

Loans granted and other long-term receivables, net at December 31, 2015 and 2014 have following effective interest rate structure (in CZK millions):

		2015	2014
		Other long		Other long
	Loans granted	term receivables	Loans granted	term receivables
Less than 2.00%	86	1,126	-	1,730
From 2.00% to 2.99%	6,128	-	910	-
From 3.00% to 3.99%	3,188	-	3,320	-
From 4.00% to 4.99%	-	-	89	-
Over 4.99%	-	-	3,552	-
Total	9,402	1,126	7,871	1,730

	2015		2014
		Other long		Other long
	Loans granted	term receivables	Loans granted	term receivables
CZK	8,172	9	6,540	15
EUR	900	1,115	950	1,712
PLN	330	-	381	1
USD	-	2	-	2
Total	9,402	1,126	7,871	1,730

Loans granted and other long-term receivables, net at December 31, 2015 and 2014 according to currencies (in CZK millions):

Changes of Equity Securities and Interests in 2015

Three subsidiaries Energocentrum Vítkovice, a. s. (100%), Elektrárna Dukovany II, a. s. (100%) and Elektrárna Temelín II, a. s. (100%) were established.

Part of the assets of the company ČEZ Obnovitelné zdroje, s.r.o. was spin off and transferred to successor companies ČEZ Korporátní služby, s.r.o. and ČEZ OZ uzavřený investiční fond a.s.

The share capital of ČEZ ESCO, a.s. was increased by cash and non-monetary contributions of 100% share in ČEZ Energetické služby, s.r.o. and non-controlling share in ČEZ Energo, s.r.o.

The equity of ČEZ Nová energetika, a.s. was increased by cash contribution. Due to the subsequent sale of 4 shares to ČEZ Teplárenská, a.s. the share in the company decreased to 93.65%.

The share capital of Elektrárna Tisová, a.s. was increased by cash and non-monetary contribution of part of business.

The equity of ŠKODA PRAHA Invest s.r.o. was increased by cash contribution outside the registered capital.

The valuation of TEC Varna EAD was decreased due to the payment of share premium. The valuation of Veolia Energie ČR, a.s. was decreased due to purchase price reduction under the terms agreed in the contract.

Two subsidiaries CEZ Bosna i Hercegovina d.o.o. and CEZ Trade Albania Sh.P.K. were deleted from the Commercial Register.

Changes of Equity Securities and Interests in 2014

Two subsidiaries ČEZ Inženýring, s.r.o. (100%) and ČEZ ESCO, a.s. (100%) were established.

The share capital of ŠKODA PRAHA a.s. and Ovidiu Development S.R.L. was increased by cash contribution.

The equity of CEZ Hungary Ltd. was increased by cash contribution outside the registered capital.

The share capital of Shared Services Albania Sh.A. was increased by the capitalization of receivable.

PPC Úžín, a.s. was deleted from the Commercial Register due to the merger with ČEZ, a. s.

The Company sold its 51% share in NERS d.o.o. to the company Elektroprivreda Republike Srpske on the basis of termination of proceedings by arbitration panel, which ruled in favor of the Company.

CEZ RUS OOO was deleted from the Commercial Register.

Other changes

In 2014 Settlement Agreement was signed with the Albanian state in the presence of a mediator from the Energy Community Secretariat in Vienna. The total amount of compensation for receivables and shares is EUR 95 million in favor of CEZ Group. Its discounted value of CZK 2,562 million was recorded in statement of income in 2014 (see Note 21). In 2015 and 2014 the Company received EUR 22 million and EUR 10 million, respectively, and the remaining amount will be received in annual installments until 2018 and is guaranteed by reputable European bank. Upon the effective date of the Settlement Agreement, the Company transferred 76% share in Operatori i Shpërndarjes së Energjisë Elektrike Sh.A. back to Albanian state. At the same time, the arbitration proceedings were closed.

The following table summarizes investments in subsidiaries, associates and joint-ventures and other ownership interests:

As at December 31, 2015		Interest, net in CZK	%	Dividends in CZK
Company	Country	millions	interest3)	millions
ČEZ Distribuce, a. s.	Czech Republic	31,415	100.00	4,942
Energotrans, a.s.	Czech Republic	17,986	100.00	881
Severočeské doly a.s.	Czech Republic	14,312	100.00	1,707
CEZ Distributie S.A.	Romania	13,489	100.00	3,714
ČEZ OZ uzavřený investiční fond a.s.	Czech Republic	12,878	99.60	1,587
Akenerji Elektrik Üretim A.S.	Turkey	9,043	37.36	-
CEZ Finance Ireland Ltd.	Ireland	9,025	100.00	-
CEZ Razpredelenie Bulgaria AD	Bulgaria	6,698	67.00	-
CEZ Poland Distribution B.V.	Netherlands	4,887	100.00	-
ČEZ Teplárenská, a.s.	Czech Republic	4,678	100.00	240
CEZ Silesia B.V.	Netherlands	4,368	100.00	4,621
ČEZ ICT Services, a. s.	Czech Republic	4,236	100.00	550
ČEZ Bohunice a.s.	Czech Republic	3,592	100.00	-
ČEZ Korporátní služby, s.r.o.	Czech Republic	3,494	100.00	369
Akcez Enerji A.S.	Turkey	3,034	50.00	-
Veolia Energie ČR, a.s.	Czech Republic	2,732	15.00	307
Elektrárna Dětmarovice, a.s.	Czech Republic	1,762	100.00	650
ČEZ ESCO, a.s.	Czech Republic	1,304	100.00	-
Elektrárna Počerady, a.s.	Czech Republic	1,280	100.00	-
ČEZ Distribuční služby, s.r.o.	Czech Republic	1,145	100.00	927
ČEZ Prodej, s.r.o.	Czech Republic	1,100	100.00	3,801
ŠKODA PRAHA a.s.	Czech Republic	996	100.00	-
CEZ Bulgarian Investments B.V.	Netherlands	973	100.00	-
CM European Power International B.V.	Netherlands	948	50.00	-
TEC Varna EAD	Bulgaria	851	100.00	-
CEZ Vanzare S.A.	Romania	817	100.00	468
Elektrárna Tisová, a.s.	Czech Republic	740	100.00	-
CEZ Slovensko, s.r.o.	Slovakia	557	100.00	-
Energetické centrum s.r.o.	Czech Republic	515	100.00	-
CM European Power Slovakia s.r.o.	Slovakia	295	24.50	108
ÚJV Řež, a. s.	Czech Republic	185	52.46	-
LOMY MOŘINA spol. s r.o.	Czech Republic	169	51.05	20
CEZ Romania S.A.	Romania	92	100.00	-
ČEZ Inženýring, s.r.o.	Czech Republic	80	100.00	-
ČEZ Obnovitelné zdroje, s.r.o.	Czech Republic	73	100.00	-
CEZ Hungary Ltd.	Hungary	73	100.00	-
ČEZ Nová energetika, a.s.	Czech Republic	59	93.65	-
VLTAVOTÝNSKÁ TEPLÁRENSKÁ a.s.	Czech Republic	55	39.25	-
Elektrárna Dukovany II, a. s.	Czech Republic	50	100.00	-
Elektrárna Temelín II, a. s.	Czech Republic	50	100.00	-
CEZ Polska sp. z o.o.	Poland	50	0.67	-
CEZ Trade Polska sp. z o.o.	Poland	45	100.00	-
CITELUM, a.s.	Czech Republic	43	48.00	-
Other		197		207
Total, net		160,371		25,099

As at December 31, 2014		Interest, net		Dividends
		in CZK	%	in CZK
Company	Country	millions	interest3)	millions
ČEZ Distribuce, a. s.	Czech Republic	31,415	100.00	5,716
Energotrans, a.s.	Czech Republic	17,986	100.00	1,352
Severočeské doly a.s.	Czech Republic	14,312	100.00	1,707
CEZ Distributie S.A.	Romania	13,489	100.00	-
ČEZ OZ uzavřený investiční fond a.s.	Czech Republic	12,874	99.60	1,199
Akenerji Elektrik Üretim A.S.	Turkey	9,043	37.36	-
CEZ Finance Ireland Ltd.	Ireland	9,025	100.00	-
CEZ Razpredelenie Bulgaria AD	Bulgaria	6,870	67.00	453
CEZ Poland Distribution B.V.	Netherlands	4,887	100.00	-
ČEZ Teplárenská, a.s.	Czech Republic	4,678	100.00	170
CEZ Silesia B.V.	Netherlands	4,368	100.00	-
ČEZ ICT Services, a. s.	Czech Republic	4,236	100.00	500
ČEZ Bohunice a.s.	Czech Republic	3,592	100.00	-
ČEZ Korporátní služby, s.r.o.	Czech Republic	3,486	100.00	813
Dalkia Česká republika, a.s.2)	Czech Republic	3,166	15.00	330
Akcez Enerji A.S.	Turkey	3,034	50.00	-
Elektrárna Dětmarovice, a.s.	Czech Republic	2,196	100.00	-
TEC Varna EAD	Bulgaria	1,288	100.00	-
Elektrárna Počerady, a.s.	Czech Republic	1,280	100.00	3,139
ČEZ Distribuční služby, s.r.o.	Czech Republic	1,145	100.00	983
ČEZ Prodej, s.r.o.	Czech Republic	1,100	100.00	2,869
ŠKODA PRAHA a.s.	Czech Republic	996	100.00	-
CEZ Bulgarian Investments B.V.	Netherlands	973	100.00	-
CM European Power International B.V.	Netherlands	949	50.00	-
CEZ Vanzare S.A.	Romania	817	100.00	389
CEZ Slovensko, s.r.o.	Slovakia	557	100.00	-
Energetické centrum s.r.o.	Czech Republic	515	100.00	-
ČEZ Energetické služby, s.r.o.1)	Czech Republic	422	100.00	38
ČEZ Energo, s.r.o.1)	Czech Republic	401	50.10	-
ČEZ ESCO, a.s.	Czech Republic	400	100.00	-
ŠKODA PRAHA Invest s.r.o.	Czech Republic	389	100.00	775
CM European Power Slovakia s.r.o.	Slovakia	295	24.50	2
ÚJV Řež, a. s.	Czech Republic	185	52.46	-
LOMY MOŘINA spol. s r.o.	Czech Republic	169	51.05	3
CEZ Romania S.A.	Romania	91	100.00	65
ČEZ Obnovitelné zdroje, s.r.o.	Czech Republic	85	100.00	98
ČEZ Inženýring, s.r.o.	Czech Republic	80	100.00	-
CEZ Hungary Ltd.	Hungary	73	100.00	-
VLTAVOTÝNSKÁ TEPLÁRENSKÁ a.s.	Czech Republic	55	39.25	-
CEZ Polska sp. z o.o.	Poland	50	100.00	-
CEZ Trade Polska sp. z o.o.	Poland	45	100.00	-
CITELUM, a.s.	Czech Republic	43 242	48.00	23 73
Other			-
Total, net		161,302		20,697

1) In 2015 the company ČEZ Energetické služby, s.r.o. and non-controlling share in ČEZ Energo, s.r.o., were contributed to ČEZ ESCO, a.s.

2) In 2015 the company Dalkia Česká republika, a.s. was renamed into Veolia Energie, ČR, a.s.

3) Equity interest is equal to voting rights.

6. Intangible Assets, Net

		Rights and
	Software	Other	Total 2015	Total 2014
Cost at January 1	1,585	1,174	2,759	2,490
Additions	181	73	254	361
Disposals	(49)	(7)	(56)	(48)
Non-monetary contribution	(7)	-	(7)	-
Reclassification and other	5	-	5	(44)
Cost at December 31	1,715	1,240	2,955	2,759
Accumulated amortization at
January 1	(1,248)	(1,016)	(2,264)	(2,101)
Amortization	(181)	(74)	(255)	(211)
Disposals	49	7	56	48
Non-monetary contribution	7	-	7	-
Reclassification and other	(2)	-	(2)	-
Accumulated amortization at
December 31	(1,375)	(1,083)	(2,458)	(2,264)
Net intangible assets at December 31	340	157	497	495

Intangible assets, net, at December 31, 2015 and 2014 were as follows (in CZK millions):

At December 31, 2015 and 2014, intangible assets presented in the balance sheet included intangible assets in progress of CZK 63 million and CZK 173 million, respectively.

7. Cash and Cash Equivalents

The composition of cash and cash equivalents at December 31, 2015 and 2014 is as follows (in CZK millions):

	2015	2014
Cash on hand and current accounts with banks	1,965	7,611
Short-term securities	999	900
Term deposits	-	1,000
Total	2,964	9,511

At December 31, 2015 and 2014, cash and cash equivalents included foreign currency deposits of CZK 79 million and CZK 160 million, respectively.

The weighted average interest rate on short-term securities and term deposits at December 31, 2015 and 2014 was 0.4% and 0.5%, respectively. For the years 2015 and 2014 the weighted average interest rate was 0.4% and 0.6%, respectively.

8. Receivables, Net

The composition of receivables, net, at December 31, 2015 and 2014 is as follows (in CZK millions):

	2015	2014
Trade receivables	31,112	34,588
Short-term loans granted	10,104	10,916
Taxes and fees excl. income tax	631	358
Other receivables	6,873	5,256
Allowance for doubtful receivables	(7,182)	(4,361)
Total	41,538	46,757

The information about receivables from related parties is included in Note 29.

At December 31, 2015 and 2014 the ageing analysis of receivables, net is as follows (in CZK millions):

	2015	2014
Not past due Past due but not impaired 1)	41,443	46,558
less than 3 months 3 – 6 months 6 – 12 months	92 2 1	196 1 2
Total	41,538	46,757

1) Past due, but not impaired receivables include net receivables, for which the Company recorded an impairment allowance based on the collective assessment of impairment of receivables that are not individually significant.

Movements in allowance for doubtful receivables (in CZK millions):

	2015	2014
Opening balance	4,361	2,977
Additions Reversals Non-monetary contribution Currency translation difference	2,875 (52) (1) (1)	3,169 (1,790) - 5
Closing balance	7,182	4,361

As of December 31, 2015 and 2014 allowances include the allowance of CZK 4,912 and 2,345 million, respectively, for loans granted to Tomis Team S.A., Ovidiu Development S.R.L. and M.W. Team Invest S.R.L.

9. Emission Rights

The following table summarizes the movements and balances of emission rights and credits in measurement units (thousands of tons) in 2015 and 2014 and as at December 31, 2015 and 2014, respectively, and their valuation presented in the accompanying financial statements:

		2015		2014
	in thousands tons	in millions CZK	in thousands tons	in millions CZK
Emission rights and credits granted and purchased for own use:
Granted and purchased emission rights and credits at January 1	23,527	3,524	14,645	6,078
Emission rights granted Non-monetary contribution to	8,510	-	23,539	-
Elektrárna Tisová, a.s. Settlement of prior year actual emissions	(1,157)	-	-	-
with register	(16,467)	(3,541)	(16,623)	(2,966)
Emission rights purchased	7,031	1,269	2,382	422
Emission rights sold	(1,936)	-	(2,073)	-
Emission credits purchased	39	-	2,131	2
Emission credits sold	-	-	(474)	(12)
Granted and purchased emission rights and credits at December 31	19,547	1,252	23,527	3,524
Emission rights and credits held for trading:
Emission rights and credits held for
trading at January 1	3,220	651	9,210	1,222
Emission rights purchased	14,354	3,058	3,321	557
Emission rights sold	(14,792)	(3,183)	(9,306)	(1,782)
Emission credits purchased	419	3	813	4
Emission credits sold	(409)	(3)	(818)	(4)
Fair value adjustment	-	96	-	654
Emission rights and credits held for trading at December 31	2,792	622	3,220	651

In 2015 and 2014, total emissions of greenhouse gases made by the Company amounted to an equivalent of 15,834 thousand tons and 16,467 thousand tons of CO2, respectively. At December 31, 2015 and 2014 the Company recognized a provision for CO² emissions in total amount of CZK 1,252 million and CZK 3,524 million, respectively (see Notes 2.10 and 16).

The following table shows the impact of transactions with emission rights and credits on income for the year ended December 31, 2015 and 2014 (in CZK millions):

	2015	2014
Gain on sales of granted emission rights	385	342
Net loss from trading with emission rights and credits	(191)	(136)
Net gain (loss) from derivatives	17	(384)
Remitted emission rights and credits	(3,542)	(2,966)
Fair value adjustment	95	654
Creation of provision for CO2 emissions	(1,252)	(3,524)
Settlement of provision for CO2 emissions	3,524	2,924
Net loss from emission rights and credits	(964)	(3,090)

10. Other Financial Assets, Net

Other financial assets, net, at December 31, 2015 and 2014 were as follows (in CZK millions):

	2015	2014
Derivatives	20,907	22,865
Equity securities available-for-sale	946	2,112
Term deposits	6,783	7,834
Debt securities held-to-maturity	3,853	5,548
Total	32,489	38,359

Derivatives balance comprises mainly positive fair value of commodity trading contracts.

Equity securities available-for-sale balance includes investments in money market fund.

Debt securities held-to-maturity are denominated in CZK and at December 31, 2015 and 2014 bear an interest of 0.3%, respectively 1.1%.

The Company concluded two put option agreements with Vršanská uhelná a.s. in March 2013. Under these contracts the Company has the right to transfer 100% of the shares of its subsidiary Elektrárna Počerady, a.s. to Vršanská uhelná a.s. First option for the year 2016 was not exercised, second option can be exercised in 2024 for cash consideration of CZK 2 billion. The option agreement can be inactivated to December 31, 2019. The contracts represent derivatives that will be settled by the delivery of unquoted equity instrument. Elektrárna Počerady, a.s. is not quoted on any market, there is no similar power plant in the Czech Republic for sale and also no similar transaction took place. There is also significant variability in the range of reasonable fair values for this equity instrument and it is difficult to reasonably assess the probabilities of various estimates. As a result the fair value cannot be reliably measured. Consequently, the put option is measured at cost. There was no option premium paid on the options and therefore the cost of these instruments is zero.

11. Other Current Assets

Other current assets at December 31, 2015 and 2014 were as follows (in CZK millions):

	2015	2014
Prepayments Advances granted	653 493	680 437
Total	1,146	1,117

12. Equity

As at December 31, 2015 and 2014, the share capital of the Company registered in the Commercial Register totaled CZK 53,798,975,900 and consisted of 537,989,759 shares with a nominal value of CZK 100 per share. All shares are bearer common shares that are fully paid and listed and do not convey any special rights.

Movements of treasury shares in 2015 and 2014 (in pieces):

	2015	2014
Number of treasury shares at beginning of period Sales of treasury shares	3,875,021 (120,000)	3,875,021 -
Number of treasury shares at end of period	3,755,021	3,875,021

Treasury shares remaining at end of period are presented at cost as a deduction from equity.

Declared dividends per share were CZK 40 in 2015 and 2014. Dividends from 2015 profit will be declared on the general meeting which will be held in the first half of 2016.

Capital management

The primary objective of the Company's capital management is to keep its credit rating on the investment grade and on the level that is common in the industry and to maintain healthy capital ratios in order to support its business and maximize value for shareholders. The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions.

The Company primarily monitors capital using the ratio of net debt to EBITDA. Considering the current structure and stability of cash flow and the development strategy, the goal of the Group is the level of this ratio in range 2.5 to 3.0. In addition, the Company also monitors capital using a total debt to total capital ratio. The Company's policy is to keep the total debt to total capital ratio below 50% in the long term.

EBITDA consists of income before income taxes and other income (expenses) plus depreciation and amortization, plus impairment of property, plant and equipment and intangible assets including goodwill and less gain (or loss) on sale of property, plant and equipment. The Company includes within total debt the long-term and short-term interest bearing loans and borrowings. Net debt is defined as total debt less cash and cash equivalents and highly liquid financial assets. Highly liquid financial assets consist for capital management purposes of short-term equity and debt securities available-for-sale, short-term debt securities held-to-maturity, long-term debt securities available-forsale and both short-term and long-term deposits. Total capital is total equity attributable to equity holders of the parent plus total debt.

	2015	2014
Total long-term debt Total short-term loans	157,271 223	176,526 7,608
Total debt	157,494	184,134
Less: Cash and cash equivalents Highly liquid financial assets:	(13,482)	(20,095)
Short-term equity securities available-for-sale Short-term debt securities held-to-maturity Short-term deposits Long-term deposits Long-term debt securities available-for-sale	(946) (3,852) (7,315) - (676)	(2,112) (6,299) (8,373) (10) -
Total net debt	131,223	147,245
Income before income taxes and other income (expenses) Depreciation and amortization	28,961 28,619	36,946 27,705
Impairment of property, plant and equipment and intangible assets including goodwill Gains and losses on sale of property, plant and equipment	7,685 (161)	8,025 (178)
EBITDA	65,104	72,498
Total equity attributable to equity holders of the parent Total debt	267,893 157,494	261,308 184,134
Total capital	425,387	445,442
Net debt to EBITDA ratio	2.02	2.03
Total debt to total capital ratio	37.0%	41.3%

13. Long-term Debt

Long-term debt at December 31, 2015 and 2014 was as follows (in CZK millions):

	2015	2014
3.005% Eurobonds, due 2038 (JPY 12,000 million)	2,466	2,283
5.825% Zero Coupon Eurobonds, due 2038 (EUR 6 million) 1)	-	42
5.750% Eurobonds, due 2015 (EUR 460 million)	-	12,749
2.845% Eurobonds, due 2039 (JPY 8,000 million)	1,645	1,523
5.000% Eurobonds, due 2021 (EUR 750 million)	20,203	20,715
6M Euribor + 1.25% Eurobonds, due 2019 (EUR 50 million)	1,347	1,380
4.875% Eurobonds, due 2025 (EUR 750 million)	20,188	20,701
4.500% Eurobonds, due 2020 (EUR 750 million)	20,140	20,633
2.160% Eurobonds, due in 2023 (JPY 11,500 million)	2,372	2,195
4.600% Eurobonds, due in 2023 (CZK 1,250 million)	1,248	1,248
3.625% Eurobonds, due 2016 (EUR 340 million)	9,176	9,397
2.150%*IR CPI Eurobonds, due 2021 (EUR 100 million) 2)	2,702	2,773
4.102% Eurobonds, due 2021 (EUR 50 million)	1,347	1,382
4.375% Eurobonds, due 2042 (EUR 50 million)	1,325	1,358
4.500% Eurobonds, due 2047 (EUR 50 million)	1,325	1,358
4.383% Eurobonds, due 2047 (EUR 80 million)	2,162	2,218
3.000% Eurobonds, due 2028 (EUR 500 million)	13,325	13,655
3M Euribor + 0.35% Eurobonds, due 2017 (EUR 45 million)	1,198	1,219
4.250% U.S. bonds, due 2022 (USD 289 million) 3)	7,111	15,847
5.625% U.S. bonds, due 2042 (USD 300 million)	7,368	6,775
4.500% Registered bonds, due 2030 (EUR 40 million)	1,060	1,086
4.750% Registered bonds, due 2023 (EUR 40 million)	1,070	1,096
4.700% Registered bonds, due 2032 (EUR 40 million)	1,075	1,102
4.270% Registered bonds, due 2047 (EUR 61 million)	1,621	1,662
3.550% Registered bonds, due 2038 (EUR 30 million)	807	828
Total bonds and debentures	122,281	145,225
Less: Current portion	(9,176)	(12,749)
Bonds and debentures, net of current portion	113,105	132,476
Bank loans (less than 2% p. a.)	13,269	13,183
Less: Current portion	(1,452)	(2,343)
Bank loans, net of current portion	11,817	10,840
Total long term debt	135,550	158,408
Less: Current portion	(10,628)	(15,092)
Total long-term debt, net of current portion	124,922	143,316

1) In December 2015, the Company bought back the bonds in full amount.

2) 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.

3) In November 2015, the original nominal value of the issue (USD 700 million) was reduced by bought back of the bonds in a nominal value of USD 411 million.

The interest rates indicated above are historical rates for fixed rate debt and current market rates for floating rate debt. The actual interest payments are affected by interest rate risk hedging carried out by the Company.

All long-term debt is recognized in original currencies while the related hedging derivatives are recognized using the method described in Note 2.17.

Future maturities of long-term debt are as follows (in CZK millions):

	2015	2014
Current portion	10,628	15,092
Between 1 and 2 years	3,127	10,886
Between 2 and 3 years	1,929	2,872
Between 3 and 4 years	3,275	1,653
Between 4 and 5 years	22,069	3,033
Thereafter	94,522	124,872
Total long-term debt	135,550	158,408

The following table analyses long-term debt by currency (in millions):

		2015		2014
	Foreign currency	CZK	Foreign currency	CZK
EUR USD JPY CZK	4,194 583 31,440 -	113,340 14,479 6,483 1,248	4,636 991 31,438 -	128,537 22,622 6,001 1,248
Total long-term debt		135,550		158,408

Long-term debt with floating interest rates exposes the Company to interest rate risk. The following table summarizes long-term debt with floating rates of interest by contractual repricing dates at December 31, 2015 and 2014 without considering interest rate hedging (in CZK millions):

	2015	2014
Floating rate long-term debt with interest rate fixed from 1 to 3 months with interest rate fixed from 3 months to 1 year	1,198 14,615	1,219 14,563
Total floating rate long-term debt	15,813	15,782
Fixed rate long-term debt	119,737	142,626
Total long-term debt	135,550	158,408

Fixed rate long-term debt exposes the Company to the risk of changes in fair values of these financial instruments. For related fair value information and risk management policies of all financial instruments see Notes 14 and 15.

14. Fair Value of Financial Instruments

Fair value is defined as the amount at which the instrument could be exchanged in a current transaction between knowledgeable willing parties in an arm's length transaction, other than in a forced or liquidation sale. Fair values are obtained from quoted market prices, discounted cash flow models and option pricing models, as appropriate.

The following methods and assumptions are used to estimate the fair value of each class of financial instruments:

Cash and cash equivalents, current investments

The carrying amount of cash and other current financial assets approximates fair value due to the relatively short-term maturity of these financial instruments.

Securities held for trading

The fair values of equity and debt securities that are held for trading are estimated based on quoted market prices.

Investments

The fair values of instruments, which are publicly traded on active markets, are determined based on quoted market prices. For unquoted equity instruments the Company considered the use of valuation models and concluded that the range of reasonable fair value estimates is significant and the probabilities of the various estimates cannot be reasonably assessed. Therefore unquoted equity instruments are carried at cost and the fair value information is not disclosed.

Short-term receivables and payables

The carrying amount of receivables and payables approximates fair value due to the short-term maturity of these financial instruments.

Short-term loans

The carrying amount approximates fair value because of the short period to maturity of those instruments.

Long-term debt

The fair value of long-term debt is based on the quoted market price for the same or similar issues or on the current rates available for debt with the same maturity profile. The carrying amount of long-term debt and other payables with variable interest rates approximates their fair values.

Derivatives

The fair value of derivatives is based upon mark to market valuations.

Carrying amounts and the estimated fair values of financial instruments at December 31, 2015 and 2014 are as follows (in CZK millions):

		2015			2014
	Cate -gory	Carrying amount	Fair value	Carrying amount	Fair value
Assets:
Investments:
Restricted debt securities available-for-sale Restricted cash Equity securities available-for-sale Other long-term financial assets, net	AFS LaR AFS LaR	10,098 2,564 2,732 11,315	10,098 2,564 2,732 11,315	10,166 1,863 3,166 9,601	10,166 1,863 3,166 9,601
Current assets:
Receivables Cash and cash equivalents Short-term debt securities held-to-maturity and term deposits Short-term equity securities available-for-sale Other current assets	LaR LaR HTM AFS LaR	40,907 2,964 10,636 946 493	40,907 2,964 10,636 946 493	46,399 9,511 13,382 2,112 437	46,399 9,511 13,382 2,112 437
Liabilities:
Long-term debt including the current portion Short-term loans Current liabilities	AC AC AC	(135,550) (10) (70,401)	(153,841) (10) (70,401)	(158,408) (7,433) (68,043)	(182,401) (7,433) (68,043)
Derivatives:
Cash flow hedges:
Short-term receivables Long-term receivables Short-term liabilities Long-term liabilities Total cash flow hedges	HFT HFT HFT HFT	548 6,242 (111) (626) 6,053	548 6,242 (111) (626) 6,053	211 4,519 (173) (3,464) 1,093	211 4,519 (173) (3,464) 1,093
Commodity derivatives: Short-term receivables Short-term liabilities	HFT HFT	19,504 (16,056)	19,504 (16.056)	21,235 (15,502)	21,235 (15,502)
Total commodity derivatives		3,448	3,448	5,733	5,733
Other derivatives:
Short-term receivables Long-term receivables Short-term liabilities Long-term liabilities	HFT HFT HFT HFT	855 764 (741) (1,331)	855 764 (741) (1,331)	1,419 937 (697) (2,387)	1,419 937 (697) (2,387)
Total other derivatives		(453)	(453)	(728)	(728)

LaR Loans and receivables

AFS Available-for-sale investments

HTM Held-to-maturity instruments

HFT Held for trading or hedging instruments

AC Financial liabilities at amortized cost

14.1. Fair Value Hierarchy

The Company uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly

Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data

For assets and liabilities that are recognized in the financial statements on a recurring basis, the Company determines whether transfers have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

There were no transfers between the levels in 2015 and 2014.

As at December 31, 2015, the fair value hierarchy was the following (in CZK millions):

Assets measured at fair value

	Total	Level 1	Level 2	Level 3
Commodity derivatives	19,504	672	18,832	-
Cash flow hedges	6,790	2,259	4,531	-
Other derivatives	1,619	13	1,606	-
Available-for-sale restricted debt securities Available-for-sale short-term	10,098	10,098	-	-
equity securities	946	946	-	-
Liabilities measured at fair value
	Total	Level 1	Level 2	Level 3
Commodity derivatives	(16,056)	(1,808)	(14,248)	-

Assets and liabilities for which fair value is disclosed

	Total	Level 1	Level 2	Level 3
Short-term debt securities held to-maturity and term deposits	10,636	-	10,636	-
Long-term debt including the current portion	(153,841)	(113,530)	(40,311)	-

Cash flow hedges (737) (2) (735) - Other derivatives (2,072) (488) (1,584) - As at December 31, 2014, the fair value hierarchy was the following (in CZK millions):

Assets measured at fair value

	Total	Level 1	Level 2	Level 3
Commodity derivatives	21,235	1,235	20,000	-
Cash flow hedges	4,730	996	3,734	-
Other derivatives Available-for-sale restricted debt	2,356	368	1,988	-
securities	10,166	10,166	-	-
Available-for-sale short-term
equity securities	2,112	2,112	-	-
Liabilities measured at fair value
	Total	Level 1	Level 2	Level 3
Commodity derivatives	(15,502)	(2,188)	(13,314)	-
Cash flow hedges	(3,637)	(110)	(3,527)	-
Other derivatives	(3,084)	(96)	(2,988)	-
Assets and liabilities for which fair value is disclosed
	Total	Level 1	Level 2	Level 3
Short-term debt securities held
to-maturity and term deposits Long-term debt including the	13,382	-	13,382	-
current portion	(182,401)	(141,286)	(41,115)	-

The Company enters into derivative financial instruments with various counterparties, principally large power and utility group and financial institutions with high credit ratings. Derivatives valued using valuation techniques with market observable inputs are mainly commodity forward and futures contracts, foreign exchange forward contracts, interest rate swaps and options. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations and option pricing models (e.g. Black-Scholes). The models incorporate various inputs including the forward rate curves of the underlying commodity, foreign exchange spot and forward rates and interest rate curves.

14.2. Offsetting of Financial Instruments

The following table shows the recognized financial instruments that are offset, or subject to enforceable master netting agreement or other similar agreements but not offset, as of December 31, 2015 and 2014 (in CZK millions):

	2015		2014
	Financial	Financial	Financial	Financial
	assets	liabilities	assets	liabilities
Derivatives	27,913	(18,864)	28,321	(22,223)
Other financial instruments *	25,051	(26,682)	26,317	(29,223)
Collaterals paid (received) **	1,309	(536)	3,345	(2,092)
Gross financial assets / liabilities	54,273	(46,082)	57,983	(53,538)
Assets / liabilities set off under IAS 32	-	-	-	-
Amounts presented in the balance sheet Effect of master netting agreements	54,273 (34,355)	(46,082) 34,355	57,983 (40,007)	(53,538) 40,007
Net amount after master netting agreements	19,918	(11,727)	17,976	(13,531)

* Other financial instruments consist of invoices due from derivative trading and are included in Receivables, net or Trade and other payables.

** Collaterals paid are included in Receivables, net and collaterals received are in included in Trade and other payables.

When trading with derivative instruments, the Company enters into the EFET and ISDA framework contracts. These contracts generally allow mutual offset of receivables and payables upon the premature termination of agreement. The reason for premature termination is insolvency or nonfulfillment of agreed terms by the counterparty. The right to mutual offset is either embedded in the framework contract or results from the security provided. There is CSA (Credit Support Annex) concluded with some counterparties defining the permitted limit of exposure. When the limit is exceeded, there is a transfer of cash reducing exposure below an agreed level. Cash security (collateral) is also included in the final offset.

Short-term derivative assets are included in the balance sheet in Other financial assets, net, long-term derivative assets in Investments and other financial assets, net, long-term derivative liabilities in Other long-term liabilities and short-term derivative liabilities in Trade and other payables.

15. Financial Risk Management

Risk management approach

A risk management system is being successfully developed in order to protect CEZ Group's value while taking the level of risk acceptable for the shareholders. In the Group, the risk is defined as a potential difference between the actual and the expected (planned) developments and is measured by means of the extent of such difference in CZK and the likelihood with which such a difference may occur.

Since 2005 a risk capital concept has been applied within the Group. The concept allows the setting of basic cap for partial risk limits and, in particular, the unified quantification of all kinds of risks. The value of aggregate annual risk limit (Profit@Risk) is approved by the Board of Directors based on the Risk Management Committee proposal for every financial year. The proposed limit value is derived from historical volatility of profit, revenues and costs of the Group (the top-down method). The approved value in CZK is set on the basis of a 95% confidence level and expresses a maximum profit decrease, which is the Group willing to take in order to reach the planned annual profit.

The bottom-up method is used for setting and updating the Risk frames. The Risk frames include the definition of risk and departments/units of the Group for which the frame is obligatory; definition of rules and responsibilities for risk management; permitted instruments and methods of risk management and actual risk limits, including a limit which expresses the share in the annual Profit@Risk limit.

Since 2009 the main Business Plan market risks are quantified (EBITDA@Risk based on MonteCarlo simulation in Y+1 to Y+5 horizon). The market risks are actively managed through gradual electricity sales and emission allowances' purchases in the following 6-year horizon, closing long-term contracts for electricity sale and emission allowances' purchase and the FX and IR risk hedging in medium-term horizon. In Business Plan horizon, the risk management is also based on Debt Capacity concept which enables to assess the impact of main Investment and other Activities (incl. the risk characteristics), on expected cash flow and total debt in order to maintain corporate rating. Risks of Investment Projects are also managed and monitored based on unified quantification of all kinds of risk according to Group methodology.

Risk management organization

The supreme authority responsible for risk management in ČEZ, a. s. is the CFO, except for approval of the aggregate annual budget risk limit (Profit@Risk) within the competence of the ČEZ, a. s. Board of Directors. CFO decides, based on the recommendation of the Risk Management Committee, on the development of a system of risk management, on an overall allocation of risk capital to the individual risks and organizational units, he approves obligatory rules, responsibilities and limit structure for the management of partial risks.

The Risk Management Committee (advisory committee of CFO) continuously monitors an overall risk impact on the Group, including Group risk limits utilization, status of risks linked to Business Plan horizon, hedging strategies status, assessment of impact of Investment and other Activities on potential Group debt capacity and cash flow in order to maintain corporate rating.

Overview and methods of risk management

The Group applies a unified categorization of the Group's risks which reflects the specifics of a corporate, i.e. non-banking company, and focuses on primary causes of unexpected development. The risks are divided into four basic categories listed below.

1. Market risks	2. Credit risks	3. Operation risks	4. Business risks
1.1 Financial (FX, IR)	2.1 Counterparty default	3.1 Operating	4.1 Strategic
1.2 Commodity	2.2 Supplier default	3.2 Internal change	4.2 Political
1.3 Volumetric	2.3 Settlement	3.3 Liquidity management	4.3 Regulatory
1.4 Market liquidity		3.4 Security	4.4 Reputation

From the view of risk management, the Group activities can be divided into two basic groups:

• activities with the unified quantification of the share of respective activity in the aggregate risk limit of the Group (i.e. using specific likelihood, it is possible to objectively determine what risk is associated with an activity/planned profit). These risks are managed by the rules and limits set by the CFO of ČEZ, a. s. based on the recommendation of the Risk Management Committee and, concurrently, in accordance with governing documents of the respective units/processes of the Group;
• activities whose share in the aggregate risk limit of the Group has not been quantified so far or for objective reasons. These risks are managed by the responsible owners of the relevant processes in accordance with internal governing documents of the respective units/processes of the Group.

For all risks quantified on a unified basis, a partial risk limit is set whose continuous utilization is evaluated at least once a month and is usually defined as a sum of the actually expected deviation of expected annual profit from the plan and the potential risk of loss on a 95% confidence. The Group's methodologies and data provide for a unified quantification of the following risks:

• market risks: financial (currency, interest and stock price) risks, commodity prices (electricity, emission allowances, coal, gas, crude oil), volume (volume of electricity produced by wind power plants);

• credit risks: financial and business counterparty risk and electricity, gas and heat end customer risk;

• operational risks: risks of nuclear and fossil power plants operation, investment risks.

The development of quantified risks is reported to the Risk Management Committee every month through 3 regular reports:

• Annual budget risks (annual Profit@Risk limit utilization);
• Business plan risks (EBITDA@Risk based on MonteCarlo simulation);
• Debt capacity (actual deviation from the optimal debt within Y+5 horizon, derived from rating agency requirements on debt indicators in order to preserve the ČEZ rating).

15.1. Qualitative description of ČEZ, a. s. risks associated with financial instruments

Commodity risks

The development of electricity, emission allowances, coal and gas prices is a key risk factor of the ČEZ value. The current system of commodity risk management is focused on (i) the margin from the own electricity production sales, i.e. from trades resulting in optimizing the sales of ČEZ's production and in optimizing the emission allowances position for production (the potential risk is managed on the EaR, VaR and the EBITDA@Risk bases), and (ii) the margin from the proprietary trading of commodities (the potential risk is managed on the VaR basis).

Market financial risks (currency and interest risks)

The development of foreign exchange rates and interest rates is a significant risk factor of the ČEZ value. The current system of financial risk management is focused mainly on (i) the future cash flows and (ii) financial trades which are realized for the purposes of an overall risk position management in accordance with the risk limits (the potential risk is managed on the basis of VaR, EBITDA@Risk and complementary position limits). Own financial instruments (i.e. active and passive financial trades and derivative trades) are realized entirely in the context of an overall expected cash flows (including operational and investment foreign currency flows).

Credit risks

Credit exposures of individual financial partners and wholesale partners are managed in accordance with individual credit limits. The individual limits are set and continuously updated according to the counterparty's credibility (in accordance with international rating and internal financial evaluation of counterparties with no international rating).

Company's maximum exposure to credit risk to receivables and other financial instruments as at 31 December 2015 and 2014 is the carrying value of each class of financial assets except for financial guarantees.

Credit risk from balances with banks and financial institutions is managed by the Group's treasury department in accordance with the Group's policy. Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty.

In accordance with the credit risk methodology applied to the banking sector per Basel II, every month the expected and potential losses are quantified on a 95% confidence level. It means that the share of credit risks in the aggregate annual Profit@Risk limit is quantified and evaluated.

Liquidity risks

Liquidity risk is primarily perceived as an operational risk (risk of liquidity management) and a risk factor is the internal ability to effectively manage the future cash flows planning process and to secure the adequate liquidity and effective short-term financing (the risk is managed on a qualitative basis). The fundamental liquidity risk management (i.e. liquidity risk within the meaning for banking purposes) is covered by the risk management system as a whole. In any given period, the future deviations of

the expected cash flows are managed in accordance with the aggregate risk limit and in the context of the actual and the targeted debt/equity ratio of ČEZ.

15.2. Quantitative description of ČEZ, a. s. risks associated with financial instruments

Commodity risks

The required quantitative information on risks (i.e. a potential change of market value resulting from the effects of risk factors as at December 31) was prepared based on the assumptions given below:

• the indicator of risk associated with financial instruments is defined as the monthly parametric VaR (95% confidence) which expresses a potential change in fair value of contracts classified as derivatives under IAS 39 (the underlying commodities in the Company's derivative transactions are: electricity, EUA and CER/ERU emission allowances, gas, coal ARA, Richards Bay, Newcastle and crude oil and crude oil products);
• highly probable forecasted future electricity generation sales with the delivery in the CZ power grid are included in the VAR calculation to reflect the hedging character of significant portion of the existing derivative sales of electricity with delivery in Germany;
• for the calculation of volatility and correlations (between commodity prices), the SMA (Simple Moving Average) method is applied to 60 daily time series;
• the source of market data is mainly EEX, PXE and ICE;
• the indicator VaR illustrates mainly the impact of revaluation of above mentioned financial instruments to Income Statement.

Potential impact of the above risk factors as at December 31 (in CZK millions):

	2015	2014
Monthly VaR (95%) – impact of changes in commodity prices	555	693

Currency risks

The required quantitative information on risks (i.e. a potential change of market value resulting from the effects of currency risk as at December 31) was prepared based on the assumptions given below:

• the indicator of currency risk is defined as the monthly VaR (95% confidence);
• for the calculation of VaR, based on volatility and internal correlations of each considered currency, the method of historical simulation VaR is applied to 90 daily historical time series;
• the relevant currency position is defined mainly as a discounted value of foreign currency cash flows from all contracted financial instruments, from expected foreign currency operational revenues and costs in 2016 and from highly probable forecasted foreign currency revenues, costs or capital expenditures that are being hedged by financial instruments;
• the relevant currency positions reflect all significant foreign-currency flows in the monitored basket of foreign currencies;
• the source of market FX and interest rate data is mainly IS Reuters and IS Bloomberg;
• the indicator VaR illustrates mainly the impact of revaluation of above mentioned currency position to Statement of Income.

Potential impact of the currency risk as at December 31 (in CZK millions):

	2015	2014
Monthly currency VaR (95% confidence)	93	337

Interest risks

For the quantification of the potential impact of the interest risk was chosen the sensitivity of the interest revenue and cost to the parallel shift of yield curves. The approximate quantification (as at December 31) was based on these assumptions:

• parallel shift of the yield curves (+10bp) was selected as the indicator of interest risk;
• the Statement of Income sensitivity is measured as an annual change of the interest revenue and cost resulting from the interest-sensitive positions as at December 31;
• the considered interest positions reflect all significant interest-sensitive positions;
• the source of market interest rates is mainly IS Reuters and IS Bloomberg.

Potential impact of the interest rate risk as at December 31 (in CZK millions):

	2015	2014
IR sensitivity* to parallel yield curve shift (+10bp)	-	2

* Positive result denotes higher increase in interest revenues than in interest costs.

Credit exposure from provided guarantees at December 31 (in CZK millions)

	2015	2014
Guarantees provided to subsidiaries and joint-ventures	21,502	22,535

At December 31, 2015 and 2014, the guarantees provided to subsidiaries amounted to CZK 18,504 million and CZK 19,462 million, respectively and guarantees provided to joint-ventures amounted to CZK 2,998 million and CZK 3,073 million, respectively. The guarantees provided represent mainly guarantees issued in connection with concluded contracts, bank loans and other obligations of the respective companies. The beneficiary may claim the guarantee only under the conditions of the letter of guarantee, usually in relation to non-payment of amounts arising out of the contract or failure to fulfil the obligations arising out of the contract. The companies whose liabilities are subject to the guarantees currently comply with their obligations. The guarantees have various validity, as of December 31, 2015 and 2014, some of the guarantees could be called until July 2028 at the latest.

Liquidity risk

Contractual maturity profile of financial liabilities at December 31, 2015 (in CZK millions):

	Bonds and debentures	Loans	Derivatives *	Trade and other payables	Guarantees issued **
Less than 1 year	14,445	1,495	260,895	70,401	21,502
Between 1 and 2 years	6,130	1,966	27,968	-	-
Between 2 and 3 years	4,934	1,959	8,457	-	-
Between 3 and 4 years	6,284	1,952	3,679	-	-
Between 4 and 5 years	25,056	1,945	5,998	-	-
Thereafter	120,959	4,116	55,754	-	-
Total	177,808	13,433	362,751	70,401	21,502

Contractual maturity profile of financial liabilities at December 31, 2014 (in CZK millions):

	Bonds and debentures	Loans	Derivatives *	Trade and other payables	Guarantees issued **
Less than 1 year	19,136	9,854	330,121	68,107	22,535
Between 1 and 2 years	15,049	1,549	54,482	-	-
Between 2 and 3 years	6,530	1,701	14,206	-	-
Between 3 and 4 years	5,306	1,690	7,442	-	-
Between 4 and 5 years	6,686	1,679	3,965	-	-
Thereafter	156,915	4,440	70,057	-	-
Total	209,622	20,913	480,273	68,107	22,535

* Contractual maturities for derivatives represent contractual cash out-flows of these instruments, but at the same time the Company will receive corresponding consideration. For fair values of derivatives see Note 14.

** Maximum amount of the guarantee is allocated to the earliest period in which the guarantee could be called.

The committed credit facilities available to the Company as at December 31, 2015 and 2014 amounted to CZK 30.5 billion and CZK 24.4 billion, respectively.

15.3. Hedge accounting

The Company enters into cash flow hedges of future highly probable cash inflows from the sales denominated in EUR against the currency risk. The hedged cash flows are expected to occur in the period from 2016 to 2019. The hedging instruments as at December 31, 2015 and 2014 are the EUR denominated liabilities from the issued Eurobonds and bank loans in the total amount of EUR 2.9 billion and EUR 3.8 billion, respectively, and currency forward contracts and swaps. The fair value of these derivative hedging instruments (currency forward contracts and swaps) amounted to CZK 1,244 million and CZK (1,749) million at December 31, 2015 and 2014, respectively.

The Company enters into cash flow hedges of future highly probable purchases of emission allowances which are expected to occur in the year 2016. The hedging instruments as at December 31, 2015 and 2014 are the futures contracts for the purchase of allowances equivalent to 7.3 million tons and 13.1 million tons of CO² emissions, respectively. The fair value of these derivative hedging instruments amounted to CZK 546 million and CZK 513 million at December 31, 2015 and 2014, respectively.

The Company also enters into cash flow hedges of highly probable future sales of electricity in the Czech Republic from 2017 to 2021. The hedging instruments are the futures and forward contracts electricity sales in Germany. The fair value of these derivative hedging instruments amounted to CZK 4,263 million and CZK 2,329 million at December 31, 2015 and 2014, respectively.

In 2015 and 2014 the amounts removed from equity in respect of cash flow hedges were recognized in profit or loss and included in the lines Sales of electricity, Gains and losses from commodity derivative trading, net, Emission rights, net, Other financial expenses and Other financial income. In 2015 and 2014 the Company recognized in profit or loss the ineffectiveness that arises from cash flow hedges in the amount of CZK (791) million and CZK 197 million, respectively. The ineffectiveness in 2015 and 2014 mainly relates to transactions for which the hedged items are no more highly probable to occur.

16. Provisions

The following is a summary of the provisions for the years ended December 31, 2015 and 2014 (in CZK millions):

	2015		2014
	Long-term	Short-term	Total	Long-term	Short-term	Total
Nuclear provisions Provision for waste storage	47,848	2,033	49,881	45,083	2,004	47,087
reclamation	986	86	1,072	1,334	84	1,418
Provision for CO2 emissions
(see Note 9)	-	1,252	1,252	-	3,524	3,524
Provision for employee benefits	882	97	979	989	64	1,053
Provision for environmental
claims Provision for legal and	-	446	446	-	447	447
commercial disputes	-	273	273	-	293	293
Other provisions	-	8	8	-	4	4
Total	49,716	4,195	53,911	47,406	6,420	53,826

16.1. Accumulated Provision for Nuclear Decommissioning and Fuel Storage

The Company operates two nuclear power plants. Nuclear power plant Dukovany consists of four units which were put into service from 1985 to 1987. Nuclear power plant, Temelín, has two units which have started commercial operation in 2002 and 2003. The Czech parliament has enacted a Nuclear Act ("Act") which defines certain obligations for the decontamination and dismantling ("decommissioning") of nuclear facilities and the disposal of radioactive waste and spent fuel ("disposal"). The Act requires that all nuclear parts of plant and equipment be decommissioned following the end of the plant's operating life. For the purpose of accounting for the nuclear provisions, it is assumed that the end of the plant's operating life will be 2027 for Dukovany and 2042 for Temelín. A 2013 Dukovany and a 2014 Temelín decommissioning cost study estimate that nuclear decommissioning will cost CZK 22.4 billion and CZK 18.4 billion, respectively. The Company makes contributions to a restricted bank account in the amount of the nuclear provisions recorded under the Act. These restricted funds can be invested in government bonds and term deposits in accordance with the legislation and are shown in the balance sheet as part of Investments and other financial assets, net (see Note 4).

Pursuant to the Act, the Ministry of Industry and Trade established the Radioactive Waste Repository Authority ("RAWRA") as the central organizer and operator of facilities for the final disposal of radioactive waste and spent fuel. The RAWRA operates, supervises and is responsible for disposal facilities and for disposal of radioactive waste and spent fuel therein. The activities of the RAWRA are financed through a "nuclear account" funded by the originators of radioactive waste. Contribution to the nuclear account was stated by a government resolution at 50 CZK per MWh produced at nuclear power plants. In 2015 and 2014, respectively, the payments to the nuclear account amounted to CZK 1,342 million and CZK 1,516 million, respectively. The originator of radioactive waste and spent fuel directly covers all costs associated with interim storage of radioactive waste and spent fuel.

The Company has established provisions as described in Note 2.21, to recognize its estimated liabilities for decommissioning and spent fuel storage.

The following is a summary of the nuclear provisions for the years ended December 31, 2015 and 2014 (in CZK millions):

	Accumulated provisions
	Nuclear	Spent fuel storage
	Decommis -sioning	Interim	Long-term	Total
Balance at December 31, 2013	13,560	7,191	22,890	43,641
Movements during 2014:
Discount accretion and effect of inflation Provision charged to income statement Effect of change in estimate charged to	474 -	252 472	801 -	1,527 472
income statement Effect of change in estimate added to	-	156	-	156
fixed assets (see Note 2.21) Current cash expenditures	2,559 -	- (706)	954 (1,516)	3,513 (2,222)
Balance at December 31, 2014	16,593	7,365	23,129	47,087
Movements during 2015:
Discount accretion and effect of inflation Provision charged to income statement Effect of change in estimate charged to	498 -	221 544	694 -	1,413 544
income statement Effect of change in estimate added to	-	22	-	22
fixed assets (see Note 2.21) Current cash expenditures	2,167 -	64 (716)	642 (1,342)	2,873 (2,058)
Balance at December 31, 2015	19,258	7,500	23,123	49,881

The current cash expenditures for the long-term storage of spent nuclear fuel represent payments to the state controlled nuclear account and the expenditures for interim storage represent mainly the purchase of interim fuel storage containers and other related equipment.

In 2015 and 2014 the Company recorded the change in estimate for interim spent fuel storage due to the change in expectations of future storage costs and change in discount rate, the change in estimate in provision for nuclear decommissioning due to the change in discount rate and the change in longterm spent fuel storage due to the modification of the expected output of the nuclear power plants and change in discount rate.

The actual decommissioning and spent fuel storage costs could vary substantially from the above estimates because of new regulatory requirements, changes in technology, increased costs of labor, materials and equipment and/or the actual time required to complete all decommissioning, disposal and storage activities.

16.2. Provision for Waste Storage Reclamation

The following table shows the movements of the provision for waste storage reclamation for the years ended December 31, 2015 and 2014 (in CZK millions):

Balance at December 31, 2013	1,320
Movements during 2014:
Discount accretion and effect of inflation Effect of change in estimate added to tangible fixed	46
assets	123
Current cash expenditures	(71)
Balance at December 31, 2014	1,418
Movements during 2015:
Discount accretion and effect of inflation Effect of change in estimate added to tangible fixed	39
assets	40
Current cash expenditures	(41)
Non-monetary contribution to Elektrárna Tisová, a.s.	(384)
Balance at December 31, 2015	1,072

17. Other Long-term Liabilities

Other long-term liabilities at December 31, 2015 and 2014 are as follows (in CZK millions):

	2015	2014
Derivatives	1,957	5,851
Long-term deposit	1,929	1,751
Total	3,886	7,602

18. Short-term Loans

Short-term loans at December 31, 2015 and 2014 were as follows (in CZK millions):

	2015	2014
Short-term bank loans	-	7,431
Bank overdrafts	10	2
Total	10	7,433

Interest on short-term loans is variable. The weighted average interest rate was 0.02% and 0.31% at December 31, 2015 and 2014, respectively. For the years 2015 and 2014 the weighted average interest rate was 0.08% and 0.34%, respectively.

19. Trade and Other Payables

Trade and other payables at December 31, 2015 and 2014 were as follows (in CZK millions):

	2015	2014
Trade payables	24,565	25,142
Derivatives	16,908	16,372
Payables from Group cashpooling and similar
intra-group loans	41,906	39,991
Other	3,735	2,910
Total	87,114	84,415

The information about payables to related parties is included in Note 29.

20. Accrued Liabilities

Accrued liabilities at December 31, 2015 and 2014 consist of the following (in CZK millions):

	2015	2014
Accrued interest	2,354	2,952
Unbilled goods and services	3,268	6,214
Taxes and fees, except income tax	319	357
Deferred income	91	220
Total	6,032	9,743

21. Revenues and Other Operating Income

Revenues and other operating income for the years ended December 31, 2015 and 2014 were as follows (in CZK millions):

	2015	2014
Sale of electricity:
Electricity sales – domestic: ČEZ Prodej, s.r.o. PXE Other revenues from domestic customers Other	22,210 4,920 26,122 3,092	24,431 3,365 26,880 2,439
Total electricity sales – domestic	56,344	57,115
Electricity sales – foreign Effect of hedging (see Note 15.3) Sales of ancillary and other services	11,566 758 3,967	9,234 1,290 4,493
Total sales of electricity	72,635	72,132
Sales of gas, heat and other revenues:
Sales of gas Sales of heat Other revenues	5,190 2,069 1,829	4,615 2,096 2,170
Total sales of gas, heat and other revenues:	9,088	8,881
Other operating income:	1,597	4,020
Total revenues and other operating income	83,320	85,033

The line item Other operating income in 2014 includes gain from settlement agreement with the Republic of Albania in the amount of CZK 2,562 million.

22. Gains and Losses from Commodity Derivative Trading, Net

Gains and losses from commodity derivative trading for the years ended December 31, 2015 and 2014 as follows (in CZK millions):

	2015	2014
Electricity derivative trading:
Sales - domestic Sales - foreign Purchases - domestic Purchases - foreign Effect of hedging (see Note 15.3) Changes in fair value of derivatives	5,278 165,038 (4,768) (160,421) (76) (4,611)	7,668 162,098 (6,738) (155,218) (270) (3,370)
Total gains from electricity derivative trading, net	440	4,170
Other commodity derivative trading:
Gain (loss) from gas derivative trading Loss from oil derivative trading Loss from coal derivative trading	(228) (714) (2)	412 (1,878) (12)
Total gains and losses from derivative trading, net	(504)	2,692

In 2014 the line item Changes in fair value of derivatives includes gain in the amount of CZK 1,952 million for the termination of contract with Crédit Agricole Corporate and Investment Bank.

23. Salaries and Wages

Salaries and wages for the years ended December 31, 2015 and 2014 were as follows (in CZK millions):

	2015			2014
	Total	Key management personnel 1)	Total	Key management personnel 1)
Salaries and wages including remuneration of board members	(3,642)	(224)	(4,191)	(296)
Share options Social and health security Other personal expenses	(31) (1,169) (349)	(31) (37) (16)	(26) (1,313) (557)	(26) (48) (43)
Total	(5,191)	(308)	(6,087)	(413)

1) Members of Supervisory Board, Audit Committee and Board of Directors and selected managers of departments with group field of activity. The remuneration of former members of company bodies is included in personal expenses.

The members of Board of Directors and selected managers were entitled to use company cars for both business and private purposes in addition to the personal expenses.

If the Company terminates a contract with a member of Board of Directors before his/her four-year term of office expires (except for resignation), the Director is entitled to a severance pay. Method of determination of the amount of the severance payment and conditions are stipulated in the respective contract.

At December 31, 2015 and 2014, the aggregate number of share options granted to members of Board of Directors and selected managers was 2,391 thousand and 2,575 thousand, respectively.

Members of the Board of Directors and selected managers are entitled to receive share options based on the conditions stipulated in the share option agreement. Members of the Board of Directors and selected managers are granted certain quantity of share options each year of their tenure according to rules of the share option plan. The exercise price for the granted options is based on the average quoted market price of the shares on the regulated exchange in the Czech Republic during one-month period preceding the grant date each year. Options granted could be exercised at the earliest 2 years and latest 3.5 years after each grant date. Option right is limited so that the profit per share option will not exceed 100% of exercise price and the beneficent has to hold at his account such number of shares exercised through options granted, which is equivalent to 20% of profit, made on exercise date until the end of share option plan.

In 2015 and 2014 the Company recognized a compensation expense of CZK 31 million and CZK 26 million, respectively, related to the granted options.

The following table shows changes during 2015 and 2014 in the number of granted share options and the weighted average exercise price of these options:

	Number of share options
	Board of Directors 000s	Selected managers 000s	Total 000s	Weighted average exercise price (CZK per share)
Share options at December 31, 2013	1,622	766	2,388	704.84
Options granted Movements Options forfeited	610 (120) (285)	177 120 (315)	787 - (600)	586.77 764.34 814.75
1) Share options at December 31, 2014	1,827	748	2,575	643.14
Options granted Options exercised 2) Options forfeited	550 (100) (457)	175 (20) (332)	725 (120) (789)	541.45 565.54 749.16
1) Share options at December 31, 2015	1,820	571	2,391	581.18

1) At December 31, 2015 and 2014 the number of exercisable options was 988 thousand and 1,128 thousand, respectively. The weighted average exercise price of the exercisable options was CZK 602.30 per share and CZK 737.24 per share at December 31, 2015 and 2014, respectively.

2) In 2015 the weighted average share price at the date of the exercise for the options exercised was CZK 635.79.

The fair value of the options is estimated on the date of grant using the binomial option-pricing model. Because these stock options have characteristics significantly different from those of traded options, and because changes in the subjective input assumptions can materially affect the fair value estimate, the existing models do not necessarily provide a reliable single measure of the fair value of stock options.

At the grant dates, the underlying assumptions and the resulting fair values per option were as follows:

	2014	2014
Weighted average assumptions:
Dividend yield	4.2%	4.6%
Expected volatility	22.8%	23.2%
Mid-term risk-free interest rate	0.3%	0.5%
Expected life (years)	1.4	1.4
Share price (CZK per share)	523.1	571.2
Weighted average grant-date fair value of options
(CZK per 1 option)	36.7	42.3

The expected life of the options is based on historical data and is not necessarily indicative of the exercise patterns that may occur. The expected volatility reflects the assumption that the historical volatility is indicative of future trends, which may also not necessarily be the actual outcome.

At December 31, 2015 and 2014 the exercise prices of outstanding options (in thousands pieces) were in the following ranges:

	2015	2014
CZK 450 – 650 per share CZK 650 – 900 per share	1,967 424	1,387 1,188
Total	2,391	2,575

The options granted which were outstanding as at December 31, 2015 and 2014 had an average remaining contractual life of 1.9 years and 1.8 years, respectively.

24. Other Operating Expenses

Other operating expenses for the years ended December 31, 2015 and 2014 consist of the following (in CZK millions):

	2015	2014
Services	(5,407)	(6,554)
Change in provisions and valuation allowances	1,628	1,191
Taxes and fees	(1,677)	(1,852)
Write-off of bad debts	(28)	(4)
Travel expense	(61)	(74)
Gifts	(120)	(152)
Loss on sale of property, plant and equipment	(11)	(6)
Loss on sale of material	-	(20)
Fines, penalties and penalty interest	(323)	(8)
Other	(1,055)	(930)
Total	(7,054)	(8,409)

Taxes and fees include the contributions to the nuclear account (see Note 16). The settlement of the provision for long-term spent fuel storage is accounted for in the amount of contributions to nuclear account. Settlement of provision for long-term spent fuel storage is included in Change in provisions and valuation allowances.

25. Interest Income

Interest income for each category of financial instruments for the years ended December 31, 2015 and 2014 was as follows (in CZK millions):

	2015	2014
Loans and receivables	614	842
Held-to-maturity investments	26	82
Available-for-sale investments	214	262
Bank accounts	232	256
Total	1,086	1,442

26. Other Financial Expenses

Other financial expenses for the years ended December 31, 2015 and 2014 consist of the following (in CZK millions):

	2015	2014
Impairment of financial investments	(4,491)	(9,010)
Derivative losses Costs of buy back of bonds	- (843)	(418) (509)
Other	(104)	(121)
Total	(5,438)	(10,058)

27. Other Financial Income

Other financial income for the years ended December 31, 2015 and 2014 consist of the following (in CZK millions):

	2015	2014
Dividends received	25,099	20,697
Derivative gains	419	-
Gains on sale of available-for-sale financial assets	422	101
Refunded gift tax on emission rights 1)	3,807	-
Other	161	143
Total	29,908	20,941

1) In November 2015 the Company was refunded part of the gift tax on emission allowances paid in 2011 and 2012 based on the decisions of Appellate Tax Directorate.

28. Income Taxes

The Company calculated corporate income tax in accordance with the Czech tax regulations at the rate of 19% in 2015 and 2014.

Management believes that it has adequately provided for tax liabilities in the accompanying financial statements. However, the risk remains that the relevant financial authorities could take differing positions with regard to interpretive issues, which could have potential effect on reported income.

The components of the income tax provision were as follows (in CZK millions):

	2015	2014
Current income tax charge	(1,312)	(1,189)
Adjustments in respect of current income tax of previous periods	(6)	(5)
Deferred income taxes	249	(584)
Total	(1,069)	(1,778)

The differences between income tax expense computed at the statutory rate and income tax expense provided on earnings were as follows (in CZK millions):

	2015	2014
Income before income taxes Statutory income tax rate	29,184 19%	22,688 19%
"Expected" income tax expense	(5,545)	(4,311)
Tax effect of: Non-deductible provisions and allowances, net Non-deductible expenses related to shareholdings Non-taxable revenue from settlement agreement with Republic of Albania Non-taxable income from dividends Non-deductible share based payment expense Non-taxable gain on sale of subsidiary	(1,060) (16) - 4,765 (6) (23)	(1,608) (23) 454 3,932 (5) 5
Gift tax on emission allowances Adjustments in respect of current income tax of previous periods Other non-deductible items, net	723 (6) 99	- (4) (218)
Income tax	(1,069)	(1,778)
Effective tax rate	4%	8%

Deferred income tax liability, net, at December 31, 2015 and 2014 was calculated as follows (in CZK millions):

2015	2014
	7,424
	1,198
667	562
28	1,879
119	161
9,384	11,224
(19,707)	(19,477)
(196)	(277)
(624)	(1,094)
(20,527)	(20,848)
(11,143)	(9,624)
	7,894 676

Tax effects relating to each component of other comprehensive income (in CZK million):

	2015		2014
	Before tax amount	Tax effect	Net of tax amount	Before tax amount	Tax effect	Net of tax amount
Change in fair value of cash flow hedges recognized in
equity	11,922	(2,265)	9,657	4,889	(929)	3,960
Cash flow hedges reclassified to income
statement	(1,954)	371	(1,583)	(3,950)	751	(3,199)
Cash flow hedges reclassified to assets Change in fair value of	(230)	43	(187)	(95)	18	(77)
available-for-sale financial assets recognized in equity	(429)	82	(347)	711	(135)	576
Total	9,309	(1,769)	7,540	1,555	(295)	1,260

29. Related Parties

The Company purchases/sells products, goods and services from/to related parties in the ordinary course of business.

At December 31, 2015 and 2014, the receivables from related parties and payables to related parties were as follows (in CZK millions):

	Receivables		Payables
	2015	2014	2015	2014
Akcez Enerji A.S.	10	119	-	-
Baltic Green Construction sp. z o.o.	302	-	-	-
CEZ Bulgaria EAD	103	102	2	1
CEZ Bulgarian Investments B.V.	-	-	370	110
CEZ Distributie S.A.	3,524	-	-	-
CEZ Hungary Ltd.	312	230	49	38
CEZ Chorzów S.A. 1)	168	74	1	1
CEZ International Finance B.V.	-	-	1,383	1,189
CEZ MH B.V.	-	-	2,511	2,238
CEZ Poland Distribution B.V.	108	41	2	-
CEZ Polska sp. z o.o.	3	19	843	539
CEZ Romania S.A. 2)	179	178	712	1,476
CEZ Silesia B.V. 3)	-	-	2,332	2,373
CEZ Skawina S.A. 4)	228	181	101	91
CEZ Slovensko, s.r.o.	852	353	8	85
CEZ Trade Polska sp. z o.o.	129	35	6	6
CM European Power International B.V. B	86	199	-	-
CM European Power Slovakia s.r.o. B bbB.V. B B.V.	494	507	-	-
ČEZ Bohunice a.s.	-	-	198	208
ČEZ Distribuce, a. s.	9,294	7,763	7,488	5,962
ČEZ Distribuční služby, s.r.o.	11	10	5,128	5,316
ČEZ Energetické produkty, s.r.o.	18	1	249	255
ČEZ ENERGOSERVIS spol. s r.o.	18	201	232	601
ČEZ ESCO, a.s.	-	-	339	400
ČEZ ICT Services, a. s.	89	27	634	884
ČEZ Inženýring, s.r.o.	1	1	125	97
ČEZ Korporátní služby, s.r.o.	12	14	753	660
ČEZ Nová energetika, a.s.	336	7	24	-
ČEZ Obnovitelné zdroje, s.r.o.	12	23	149	31
ČEZ OZ uzavřený investiční fond a.s.	-	2	311	360
ČEZ Prodej, s.r.o.	4,140	4,314	12,003	11,222
ČEZ Teplárenská, a.s.	177	197	309	224
ČEZ Zákaznické služby, s.r.o.	2	-	83	143
Eco-Wind Construction S.A.	419	363	-	-
Elektrárna Dětmarovice, a.s.	349	247	1,398	1,887
Elektrárna Počerady, a.s.	302	743	6,167	5,944
Elektrárna Tisová, a.s.	62	-	246	15
Energetické centrum, s.r.o.	104	152	17	-
Energotrans, a.s.	332	245	303	650
M. W. Team Invest S.R.L.	877	1,019	-	-
Ovidiu Development S.R.L.	7,830	8,061	28	58
Revitrans, a.s.	129	21	81	1
SD-Kolejová doprava, a.s.	1	5	216	103
Severočeské doly a.s.	212	667	643	530
ŠKODA PRAHA Invest s.r.o.	623	1,185	1,121	2,132
Telco Pro Services, a. s.	9	2	244	249
5) Tomis Team S.A.	237	473	48	79
ÚJV Řež, a. s.	1	1	185	211
Other	244	349	317	213
Total	32,339	28,131	47,359	46,582

The following table provides the total amount of transactions (sales and purchases), which were entered into with related parties in 2015 and 2014 (in CZK millions):

		Sales to related parties		Purchases from related parties
	2015	2014	2015	2014
CEZ Bulgaria EAD	151	218	1	2
CEZ Distributie S.A.	304	-	-	-
CEZ Hungary Ltd.	1,672	1,371	7	20
CEZ Chorzów S.A. 1)	195	101	6	-
CEZ Polska sp. z o.o.	5	98	-	-
2) CEZ Romania S.A.	122	182	-	-
CEZ Skawina S.A. 4)	302	194	1,184	1,022
CEZ Slovensko, s.r.o.	3,206	2,899	26	298
CEZ Srbija d.o.o.	244	153	285	160
CEZ Trade Bulgaria EAD	123	162	205	202
CEZ Trade Polska sp. z o.o.	1,858	505	47	14
CEZ Vanzare S.A.	473	97	-	-
ČEZ Distribuce, a. s.	472	620	127	131
ČEZ Distribuční služby, s.r.o.	73	108	1	24
ČEZ Energetické produkty,s.r.o.	13	6	493	596
ČEZ Energetické služby, s.r.o.	15	8	89	115
ČEZ Energo, s.r.o.	17	32	251	10
ČEZ ENERGOSERVIS spol. s r.o.	35	38	963	1,755
ČEZ ICT Services, a. s.	62	56	1,303	1,782
ČEZ Inženýring, s.r.o.	12	5	161	59
ČEZ Korporátní služby, s.r.o.	78	44	512	667
ČEZ Obnovitelné zdroje, s.r.o.	3	7	267	277
ČEZ Prodej, s.r.o.	27,613	29,433	2,034	3,177
ČEZ Teplárenská, a.s.	1,829	1,749	183	155
Elektrárna Dětmarovice, a.s.	1,011	964	3,392	3,215
Elektrárna Počerady, a.s.	3,012	2,787	5,113	7,384
Elektrárna Tisová, a.s.	131	-	340	-
Energotrans, a.s.	1,255	920	1,223	1,216
LOMY MOŘINA spol. s r.o.	-	-	168	186
MARTIA a.s.	4	1	69	44
OSC, a.s.	-	-	129	124
Ovidiu Development S.R.L.	221	244	307	276
SD-Kolejová doprava, a.s.	16	13	885	790
Severočeské doly a.s.
	82	105	4,393	4,438
ŠKODA PRAHA Invest s.r.o. 5)	10	90	5,090	8,987
Tomis Team, S.A.	89	92	604	348
ÚJV Řež, a. s.	3	2	389	476
Other	328	387	150	93
Total	45,039	43,691	30,397	38,043

1) In 2015 the company Elektrociepłownia Chorzów ELCHO sp. z o.o. changed its legal form to a joint-stock company and was renamed to CEZ Chorzów S.A.

2) In 2015 the company CEZ Romania S.R.L. changed its legal form to a joint-stock company.

3) In 2015 CEZ Chorzów B.V. merged with the succession company CEZ Silesia B.V. with the legal effective date of December 30, 2015.

4) In 2015 the company Elektrownia Skawina S.A. was renamed to CEZ Skawina S.A.

5) In 2015 the company Tomis Team S.R.L. changed its legal form to a joint-stock company. The Company and some of its subsidiaries are included in the cash-pool system. Payables to subsidiaries related to cash-pooling and similar borrowings are included in Trade and other payables (see Note 19).

Information about compensation of key management personnel is included in Note 23.

30. Segment Information

The Company is involved in the generation and sale of electricity and trading in electricity which represents a single operating segment. The Company operates mainly in the European Union markets. The Company has not identified any other separate operating segments.

31. Earnings per Share

	2015	2014
Numerator – basic and diluted (CZK millions) Net profit	28,115	20,910
Denominator (thousands shares) Basic:
Weighted average shares outstanding	534,193	534,115
Dilutive effect of share options	84	64
Diluted: Adjusted weighted average shares	534,277	534,179
Net income per share (CZK per share) Basic Diluted	52.6 52.6	39.1 39.1

32. Commitments and Contingencies

Investment Program

The Company is engaged in a continuous construction program, currently estimated as at December 31, 2015 over the next five years as follows (in CZK billion):

2016	17.7
2017	11.8
2018	10.8
2019	11.2
2020	12.4
Total	63.9

These figures do not include the expected acquisitions of subsidiaries, associates and joint-ventures, which will depend on the number of future investment opportunities, for which the Company will be a successful bidder and also considering the recoverability of these investments.

The construction programs are subject to periodic reviews and actual construction may vary from the above estimates. At December 31, 2015 significant purchase commitments were outstanding in connection with the construction program.

Insurance Matters

The Nuclear Act sets limits for liabilities for nuclear damages so that the operator of nuclear installations is liable for up to CZK 8 billion per incident. The Nuclear Act limits the liability for damage caused by other activities (such as transportation) to CZK 2 billion. The Nuclear Act also requires an operator to insure its liability connected with the operation of a nuclear power plant up to a minimum of CZK 2 billion and up to a minimum of CZK 300 million for other activities (such as transportation). The Company has obtained all insurance policies with minimal limits as required by the law. The Company concluded the above mentioned insurance policies with Česká pojišťovna a.s. (representing the Czech Nuclear Insurance Pool) and European Liability Insurance for the Nuclear Industry.

The Company also maintains the insurance policies covering the assets of its coal-fired, hydroelectric, CCGT and nuclear power plants and general third party liability insurance in connection with main operations of the Company.

33. Events after the Balance Sheet Date

On January 22, 2016 the credits, which European Investment Bank (EIB) granted to Romanian subsidiary Tomis Team S.A., were transferred to the Company. By this fact the Company´s liabilities were created in the amount of EUR 167.7 million to EIB. The Company thus has become Tomis Team´s creditor.

On February 9, 2016 the Company provided the credit in the amount of EUR 185 million to Tomis Team S.A. On February 19, 2016 there took place the General Meeting of Shareholders of the company Tomis Team S.A. where was made a decision to increase the share capital by the nonmonetary contribution in the form of the capitalization of credit´s receivable in the amount EUR 154 million. Consequently the share of the Company in Tomis Team S.A. increased to 99.999999%.

On February 9, 2016 the Company provided the credit in the amount of EUR 117 million to Ovidiu Development S.R.L. On February 19, 2016 there took place the General Meeting of Shareholders of the company Ovidiu Development S.R.L. where was made a decision to increase the share capital by the non-monetary contribution in the form of the capitalization of credit´s receivables in the amount EUR 159 million. Consequently the share of the Company in Ovidiu Development S.R.L. increased to 99.96%.

On February 5, 2016 the Company issued a two year private placement floating rate note with an aggregate nominal amount of EUR 86 million and a coupon of 3M EURIBOR plus 0.55%. The notes were issued under the established Euro Medium Term Note Programme.

On February 9, 2016 the Company issued a two year private placement floating rate note with nominal amount of EUR 15 million and a coupon of 3M EURIBOR plus 0.55%. The notes were issued under the established Euro Medium Term Note Programme.

There was a significant decrease in electricity prices on the market after the balance sheet date. The electricity market prices are one of the significant assumptions used in the estimate of recoverable amount of non-current assets of the Company (see Note 3).