ANNUAL REPORT2014

4 FOREWORD FROM THE BOARD OF DIRECTORS’ CHAIRMAN

6 COMPANY PROFILE

8 NATURAL GAS TRANSMISSION

10 TRANSMISSION SYSTEM DEVELOPMENT

12 LEGISLATIVE COMPLIANCE

13 COMPLIANCE PROGRAMME REPORT

14 BOARD OF DIRECTORS

16 SUPERVISORY BOARD

17 SUPERVISORY COMMISSION

18 MANAGEMENT

20 HUMAN RESOURCES

22 ENVIRONMENTAL PROTECTION,

OCCUPATIONAL HEALTH AND SAFETY

26 ECONOMIC AND FINANCIAL PERFORMANCE

27 CAPITAL STRUCTURE

29 FINANCIAL STATEMENTS

32 INDEPENDENT AUDITOR’S REPORT

34 SIGNIFICANT EVENTS

34 CONTACT INFORMATION

The Annual Report for 2014 refers to the accounting period from 1 January 2014 to 31 December 2014.

CONTENT

Reorganisation of the shareholder structure of SPPaffected also the Supervisory Board and theSupervisory Commission of Eustream. A change wasalso seen in the post of General Director, when on1 July 2014 the helm was taken by Rastislav Ňukovič,former head of the Asset Management organisationalunit. During the year, the Board of Directors decidedon changes to the setup of the organisationalstructure of the company and individual organisationalunits.

In 2014, once again the company Eustream was oneof the most important TSO of natural gas from theCommonwealth of Independent States to theEuropean Union. Demand prevailed for greaterflexibility of transmission services. We registered overfive hundred new confirmed transmission capacitybookings, with almost six hundred active contracts foraccess to the transmission network and gastransmission. The transmission of natural gas wasstrongly affected in the year by several factors: thegeopolitical situation in Eastern Europe, most notablythe conflict in Ukraine, reduced supplies of natural gasat the end of 2014, and last but not least, theintroduction of new European rules of regulation. Atthe call of the European Union, and repeated requestsfrom Ukraine, Eustream put into operation a reversegas pipeline connection to the east, with theestablishment of a new exit point at Budince, which isavailable to customers indiscriminately.

We held to the same company mission also in 2014 –the safe, reliable and effective transmission of naturalgas through the territory of the Slovak Republic.Thanks to the project on modernisation andoptimisation of the fleet of turbines at compressorstations, which we brought to the final phase in 2014,we reacted in time to the new conditions in natural gastransmission and current legislative requirements inenvironmental protection. As part of this project, we

FOREWORD FROM THE CHAIRMANOF THE BOARD OF DIRECTORS

Dear Shareholders, Business Partners, Ladies andGentlemen,

You are holding the Annual Report of the companyEustream for the year 2014, in which we present lastyear‘s economic results of the company in greaterdetail.

Last year, we successfully transported almost50 billion m3 (488.53 TWh) of natural gas andconcluded the fiscal year with excellent results. I wouldlike to take this opportunity to underline some of thekey events that accompanied us last year, whichproved to be determining factors for our company atthe time, and in the period ahead.

The year 2014 was one of strategic changes within theSPP group and our company. At the decision of theSlovak government, on 5 June 2014 a change waseffected to the shareholder structure of the companySlovenský plynárensky priemysel, a.s., (SPP), whichwas the 100% owner of the company Eustream. Thischanged necessitated the reorganisation of the wholeSPP group. Under the new structure, the soleshareholder of Eustream is now the company SPPInfrastructure, a.s., Bratislava, in which SPP holds a51% stake and Energetický a průmyslový holding, a.s.,(EPH) the remaining 49%.The reorganisation of the SPP group meant variouschanges also within the top bodies of Eustream. At thedecision of the sole shareholder, the companyEustream has a five-member Board of Directors.

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successfully applied an increased compression ratio atthe compressor station CS01 Veľké Kapušany,modified the Nuovo Pignone turbines to DLEtechnology, installed tandem turbo-sets at thecompressor station CS03 Veľké Zlievce, together withother smaller sub-projects.

A key role for Eustream continues to be the connectionof the transmission system to the surroundingcountries. As was mentioned above, we managed inrecord time to build a reverse flow connection toUkraine, which has capacity 40 million m3 (419 GWH)a day. Then we have the Slovakia-Hungary gasinterconnector, which on the Slovak side is completedand ready for trial operation. The new connection pointat Veľké Zlievce is the entry-exit point of ourtransmission system to and from Hungary.

The project on the Poland-Slovakia gas interconnectoris in the preparatory phase, with the aim being toestablish a cross-border connection of Poland’s andSlovakia’s gas transmission systems. The previousyear also saw us reach several significant milestones.In April, the international agreement between Polandand the Slovak Republic to support the project tookeffect, the European Union also expressed its supportby granting co-financing for the pre-engineering worksand we entered into a co-operation agreement withour Polish partner, the company GAZ-SYSTEM. At thepresent time, the selection of the main contractor forengineering works is in progress and environmentalimpact assessment is being finalised.

At the end of 2014 we have been started to work onnew gas pipeline project connecting natural gastransmission systems of Slovakia, Hungary, Bulgariaand Romania, which offers diversification of supplysources and routes of natural gas to and from Europe.At the turn of the year have been first negotiationswith potential partners and government

representatives of the affected countries and theEuropean Commission. At present the meetings ofexperts are taking place, in order to solve the technicaland commercial issues of the new pipeline project.

Last year was by no means an easy one. The wholecompany had to adapt to the new conditions andrequirements, including the organisational structureand our employees. The organisational changes led toa new organisational structure from 1 January 2015,which preserves existing synergy while alsostreamlining processes in Eustream.

It pleases me that when looking back at 2014 I am ableto say that despite the complex situation that isplaying out in the energy sector, we have smoothlyfollowed on in the tradition of successes from previousyears. I am confident that in 2015 we will once againmeet the set goals and our commitments to clients,shareholders and business partners.

Tomáš MarečekChairman of the Board of Directors

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„It pleases me that when looking back at 2014I am able to say that despite the complexsituation that is playing out in the energy sector,we have smoothly followed on in the tradition ofsuccesses from previous years.“

The primary mission of Eustream is the transmissionof natural gas to Slovakia and through its territory toEuropean markets. Since 1972, the companyEustream has transported over 2.3 trillion cubicmetres of natural gas through Slovakia, following onsuccessfully in the almost 160-year tradition of theSlovak gas industry and over 40-year tradition ofinternational gas transmission.

Eustream is the operator of the high-pressuretransmission network in the Slovak Republic, with itstransmission capacities being used by major energycompanies from member and non-member states ofthe European Union. We provide all our businesspartners with access to the transmission network ina transparent and non-discriminatory way, incompliance with European and Slovak gas legislation.

In terms of operation, we endeavour to achieveoperational excellence and our key priorities aresafety, reliability and efficiency. We build our customerrelations based on a professional approach andtransparent and non-discriminatory rules. We reactto the changing needs of the market and offer clientsa broad palette of services linked to gas transmission.

As of 31 December 2014, the owner of 100% of theshares in the company eustream a.s. was thecompany SPP Infrastructure, a.s. with registeredoffice at Mlynské nivy 44/a, 825 11 Bratislava.

Eustream owns 15% of the shares in the companyCentral European Gas Hub AG with registered officeat Floridsdorfer Hauptstrasse 1, 1210 Vienna, Austria.As of 31 December 2014, the company Eustream hadno other shareholdings in other companies orbranches abroad.

History of Eustream

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COMPANY PROFILE

1970Tranzitníplynovod, k.p.,Praha

1993Slovtransgazdivision, Slovenskýplynárenskýpriemysel, a.s.

Eustream – the gas crossroad of Central Europe

2003Tranzit division,Slovenskýplynárenskýpriemysel, a.s.

2006SPP - preprava, a.s.

2008eustream, a.s.

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The transmission system operated by Eustream is acrucial energy link between the Commonwealth ofIndependent States and the European Union. It isinterconnected with the main transmission routes inUkraine, the Czech Republic and Austria. In 2014, the transmission system connection withHungary was technically completed and handed overin the territory of the Slovak Republic.

The transmission system comprises four or fiveparallel 1200/1400 mm diameter pipelines with anoperating pressure of 7.35 MPa. The pressuredifferential required for the smooth flow of the gas issecured by four compressor stations with an output ofalmost 600 MW. The most important compressorstation is located at the Slovakia-Ukraine border inVeľké Kapušany. With a total installed capacity ofalmost 300 MW, this is the largest compressorstations in the EU. The daily technical capacity at theentry point in Veľké Kapušany is 2,288 GWh, whichtranslates as 220 million m3 of gas a day.

The dominant part of Eustream’s activities isconcentrated on the international transmission of gas.Access to the capacities of the transmission system isbased on the “Entry – Exit” principle. Customers can

choose from the following entry/exit points to enter orexit the transmission system:

Veľké Kapušany (border point between the SlovakRepublic and Ukraine)

Baumgarten (border point between the SlovakRepublic and Austria)

Lanžhot (border point between the Slovak and Czechrepublics)

Budince (exit point between the Slovak Republic andUkraine)

Veľké Zlievce (border point between the SlovakRepublic and Hungary)

Domestic point (virtual aggregated connection pointto domestic storage reservoirs and distributionnetworks)

Eustream allows a change of ownership of gas also atthe so-called Virtual Trading Point, not only betweenusers of the network with reserved transmissioncapacity, but also between gas traders.

Transmission systemof Eustream

Eustream's transmission system

In 2014, we continued to register demand for greaterflexibility in transmission services. We registered overfive hundred new confirmed transmission capacitybookings, and for the January – December 2014period we recorded almost six hundred activecontracts for transmission system access and thetransmission of gas.

Throughout 2014 we transported a total of46.5 billion m3 of natural gas through ourtransmission system, which in energy units works outat 488.53 TWh. Most of the transmission, over 90%,was performed for international customers – Slovakusers of the network and gas traders operating invarious European countries.

In addition to stable long-term contracts, the numberof contracts concerning short-term and cross-bordertransactions between hubs in the Central Europeanregion, and also contracts relating to liberalisation ofthe domestic Slovak gas market, have also increasedsubstantially.

The day-to-day goal of Eustream is to approachclients proactively and monitor their needs over andabove the requirements of legislation. In the fast-changing gas market and in the face of growingcompetition from other transmission systems,Eustream offers more than the flexible booking oftransmission capacities, with other added value in theshape of supplementary services and products suchas Title Transfer, increased flexibility using Day-aheadbooking, the option of trading with gas on the VirtualTrading Point, as well as Short-term gas storage orWheeling on the Virtual Trading Point.

Eustream also switched from volume units to energyunits and provides the services of transmissionsystem access and the transmission of gas inkilowatt-hours or megawatt-hours, this during thegas trading day (6:00 – 6:00).

An important contribution was made to diversificationof the portfolio with the launch to operation of theconnection point at Budince, which is a new existpoint of the transmission system in the direction ofUkraine. Market interest meant the volume oftransactions at the Virtual Trading Point increased,along with the customer base of transmission systemusers, whereby Eustream demonstrated maximumflexibility in adapting to new market requirements.

Market demand for supply diversification, togetherwith market liberalisation, generate ambitions tointegrate various markets and strengthen cross-border connections of transmission systems orneighbouring markets. Eustream therefore plans tocontinue boosting mutual co-operation with itsneighbouring counterparts, to provide additionalflexible cross-border transmission services, includingbundled products, and to develop co-operation withCEGH as the operator of the Virtual Trading Point inAustria.

NATURAL GAS TRANSMISSION

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Natural gas transmission (in billions of m3)

2014

2013

2012

2011

2010

2009 66.4

2008 76.2

71.4

74.0

56.5

58.5

46.5

2014

2013

2012

2011

2010

2009 690.56

2008 792.48

742.56

769.60

587.60

614.25

488.53

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Natural gas transmission (in TWh)

The most important project at the evaluation phaseconcerned the gas interconnector Poland – Slovakia.

In the field of development, nine projects are inpreparation for the upcoming period. The mostimportant projects at the evaluation and engineeringphase include:

gas interconnector Slovakia - Poland;

Eastring – the new pipeline project for Central andSouth-Eastern Europe;

construction of the new delivery station (DS)Ardovo;

connection DN 700 at the compressor station inVeľké Kapušany (at the implementation phase).

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The company Eustream consistently invests in newequipment and environmental technologies so as tominimise the impact of transmission systemoperation on the natural environment and increasethe reliability, safety and efficiency of transmission.Based on long-term forecasts of the development ofgas transmission through Slovakia and legislativerequirements on environmental protection, weprepared a long-term concept of change fortransmission system infrastructure, which weproceeded to apply also in 2014. Investments aredirected at replacing obsolete equipment,modernising existing units, technical modification ofthe arrangement and setup of the whole transmissionsystem, so that we are capable of reacting flexibly tothe changing requirements for transported gasvolumes.

In 2014, Eustream carried out eight planned projectsaimed at developing the transmission system, withtotal investments costs in excess of EUR 18 million.

The most important development investments in theyear were:

installation of tandem turbines at the Veľké Zlievcecompressor station;

connection gas pipeline DN800 Slovakia – Hungary;

connection DN 700 at the compressor station VeľkéKapušany.

TRANSMISSION SYSTEM DEVELOPMENT

Research and development

In the field of research and development, Eustream isinvolved in tasks focusing on the identification andapplication of new procedures and technologies, withthe aim of raising the effectiveness of transmissionand the safety of transmission system operation.Research and development tasks are managed asprojects, which we carry out in co-operation withresearch institutes and universities in Slovakia andabroad.

In 2014, we completed the research and developmenttask “Research and proposal of non-destructivemethod of analysing the degradation of pipelinematerials after years of operation”, on which weinvested EUR 22.2 thousand in 2014. The taskcomprised four stages costing a total of EUR98.3 thousand (based on Contract for Work), the aimof which was to develop through research andpropose for industrial application a new method ofmeasuring the micro-hardness or hardness of surfacelayers of metal materials used in the transmissionsystem. The acquired data will be collected andsupplemented progressively to a database serving forassessing the future operability of the pipes based onthe level of plastic deformation of the material andthe accumulation of damage to the line section pipematerial.

The results of the task proved the suitability andpossibility of using this method on the transmissionnetwork out in the field. A supplier developed andsuccessfully tested a prototype of meteringequipment together with respective evaluationsoftware. The metering device will be used as one ofthe support methods for diagnosing line sections ofthe pipeline.

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Transposition of the European Union’s Third EnergyPackage into Slovak legislation was done by theadoption of Act No. 251/2012 Coll. on energy, and onthe amendment and supplementing of certain laws(Energy Act), and Act No. 250/2012 Coll. on regulationin network sectors (Act on Regulation), both of whichgovern and regulate the pursuit of business in theenergy sector. These two laws set out alsorequirements for unbundling, i.e. unbundling of theproduction and supply activities from transmissionsystem operation, which have a direct impact on thecompany Eustream. Even though in the Energy Act the completeownership unbundling of the transmission systemoperator was chosen as the base model forunbundling, the Government of the Slovak Republicby Resolution 656/2012 from 28 November 2012decided to apply the ITO model (IndependentTransmission Operator) and to establish anindependent transmission system operator. In line with this decision, Eustream remained part ofa vertically integrated undertaking, while at the sametime becoming obliged to meet various fundamentalconditions imposed on it by the new legislation and toacquire certification as an independent transmissionsystem operator.

Certification

In line with the Act on Regulation, at the end ofFebruary 2013 Eustream filed a petition to initiatecertification proceedings with the Regulatory Officefor Network Industries (RONI). Key requirementsincluded ensuring ownership of the transmissionnetwork was held by the company Eustream, thecreation of a Supervisory Commission, the resolutionof various limitations in relation to other companiesof the vertically integrated company, and theelaboration of an internal Compliance Programme andits application. In complying with the Energy Act, we

prepared our own Compliance Programme, where weset out the internal measures for ensuring Eustream’sindependence, as well as specific obligations foremployees, Board of Directors members, SupervisoryBoard and Supervisory Commission members. TheCompliance Programme took effect after approval bythe Board of Directors and the national regulator. Bylaw, responsibility for monitoring fulfilment of theprogramme falls to the Compliance Officer, whoserights and obligations are defined under § 58 of theEnergy Act and in the Articles of the company.

Certification process

As part of the certification process, the nationalregulator assessed the submitted certification petitionand fulfilment of the criteria of independence as part ofa vertically integrated undertaking. In August 2013, thepetition for a certification decision of RONI receivedthe standpoint also of the European Commission.Once all the conditions placed on an independenttransmission system operator had been met, on28 October 2013 RONI issued its final decision oncertification. It announced its decision to the Ministryof Economy SR, which then certified the companyEustream as an independent transmission systemoperator satisfying the conditions required byEuropean and Slovak legislation.

Transmission tariffs

Each year, regulator RONI approves the tariffs foraccess to the transmission system and for thetransmission of natural gas, which are set based onanalysis of a comparison of prices for gas transmissionin other member states of the European Union. Tariffsfor access to the transmission network and thetransmission of natural gas were approved by decisionÚRSO 0001/2014/P for the regulatory period 2014 to2016.

LEGISLATIVE COMPLIANCE

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Pursuant to § 58 subsection 11 item b) of Act No. 251/2012 Coll. on energy, and on the amendment andsupplementing of certain laws, the person obliged to ensure compliance of the transmission systemoperator (hereinafter “Compliance Officer”) is obliged to monitor fulfilment of the Compliance Programme.

Eustream prepared its Compliance Programme in 2014, setting out:

measures for ensuring non-discriminatory conduct and independence of the transmission systemoperator,

specific obligations of employees, the management and supervisory bodies of the transmission systemoperator aimed at fulfilling the objective of the Compliance Programme.

The draft Compliance Programme of the transmission system operator was presented to the RegulatoryOffice for Network Industries (RONI), which on 18 June 2013 granted its approval, meaning the ComplianceProgramme took effect from the same date. The company Eustream then arranged all necessary stepsleading to adherence to the Compliance Programme and monitoring its fulfilment.

The transmission system operator provided the Compliance Officer with necessary collaboration inexercising his rights and obligations and ensured that this collaboration was provided also by all personsthrough whom the transmission system operator pursues its activity. The Compliance Officer was providedwith the right to participate in the meetings of the Board of Directors as a statutory body of the transmissionsystem operator, and also in the meetings of the Supervisory Commission, the General Meetings of thetransmission system operator and its other bodies as per the Commercial Code, the right to accessdocuments and records concerning the activities of the transmission system operator and to the provisionof all information required for the Compliance Officer to fulfil its obligations, as well as access to theregistered office and operational premises of the transmission system operator without prior notice.

In 2014, the Compliance Officer:

discovered no gross breaches concerning fulfilment of the Compliance Programme of the transmissionsystem operator,

did not identify actions of another party that is part of the same vertically integrated gas undertaking asthe transmission system operator, or which has direct or indirect control over a party that is part of thesame vertically integrated undertaking as the transmission system operator, at the General Meeting ora member of the Supervisory Commission at the meetings of the Supervisory Commission of thetransmission system operator, which would prevent the transmission system operator from makinginvestments that it is to carry out over the next three years according to the ten-year development plan.

Milan SedláčekCompliance Officer

COMPLIANCE PROGRAMME REPORT

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Born on 30 July 1976, in Prague. Hegraduated from the Faculty of Financeof VŠE (University of Economics) inPrague. He launched his professionalcareer by joining the department ofMergers and Acquisitions of J&T groupin 2004. From 2004, he worked in thecompany Kablo Elektro a.s., where hefirst participated in the project ofcompany restructuring before servingas finance director. In 2007-2009, heparticipated in the successfulacquisition of several companies.From 2011 to 2013 he was the vice-chairman and since 2013 he has beenthe Member of the Board of Directorsof the company Pražská teplárenskáa.s. At the same time he has served inthe Supervisory Board of the companyEP Industries, a.s. From 24 January2013 he has been Chairman of theBoard of Directors of Eustream.

Born on 14 December 1969 inBratislava, he completed universitystudies at the University of Economicsin Bratislava and postgraduate studyat the Faculty of Law of ComeniusUniversity. He started his professionalcareer by joining Tax AuthorityBratislava IV in 1993. His workingexperience includes severalmanagerial positions in commercialcompanies Merimex Int. s.r.o. (1995),RENTA g.i.a.s. (1995 – 1997), J&T realEstate a.s. (1997 – 2006). From 2006to 2010, he held the post of GeneralDirector of the Economic Section atthe Ministry of Interior of the SlovakRepublic. In 2011-2012, he worked forStrabag in contracting management.From 20 September 2012, he hasbeen Vice-Chairman of the Board ofDirectors of Eustream.

Robert HančákVice-Chairman of the Board of Directors

Tomáš MarečekChairman of the Board of Directors

BOARD OF DIRECTORS

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Born on 29 April 1987 in Levice, hegraduated from the Faculty ofInternational Affairs of the Universityof Economics in Prague. After a shortperiod in the banking industry, hejoined EPH in 2009 and has worked inthe Mergers and Acquisitionsdepartment with a focus onidentifying and evaluating acquisitionprojects in the energy business.In March 2013, he entered Eustream

as a member of the Supervisory Boardand Supervisory Commission, havingworked in these posts until 22 May2014. Since 1 June 2013, he has heldthe position of Director of Strategy. Herepresents Eustream in theSupervisory Board of the CentralEuropean Gas Hub (the natural gastrading platform in Central andEastern Europe). Since 13 June 2014,he has been a Member of the Board ofDirectors of Eustream. SinceSeptember 2014 he has been aMember of the Board of Directors ofthe European Network ofTransmission System Operators forGas (ENTSOG).

Born on 14 December 1975 inBratislava, he studied at the ViennaUniversity of Economics and Businessand graduated from the Faculty ofmanagement of Comenius Universityand the Faculty of Law of Рan-European University in Bratislava. Inthe 1990s, he worked as aninterpreter and translator, andbetween 2001 – 2012 he was theEnglish-Slovak interpreter for thePresident of the Slovak Republic. Hisworking experience includes severalmanagerial positions in thecommercial companies Entrans s.r.o.(2003 – 2013) and KL Consult s.r.o.(2006 – 2013). Since 2013, he hasbeen the Adviser to the StateSecretary of the Ministry ofEnvironment of the Slovak Republic.From 26 August 2014, he has been aMember of the Board of Directors ofEustream.

Kamil PeterajMember of the Board of Directors

Born in Prague in 1948, he graduatedfrom the Czech Technical University inPrague (České vysoké učení technickév Praze) in 1971. He started hisprofessional career in the companyEnergoprojekt Praha, sp. In 1984, hejoined the company ŠKODA PRAHAa.s. In 1993 - 1998 he worked in H&DEngineering s.r.o. and from 1998 heworked in the company HorizonEnergy Development sro. (subsidiaryof National Fuel Gas Inc., Buffalo, stateNew York, USA). Since 2005, he hasbeen the Energy group Chief engineerof the companies EP InvestmentAdvisors, s.r.o. and EP Energy, a.s.From 28 November 2014, he has beena Member of the Board of Directors ofEustream.

Jan MašindaMember of the Board of Directors

Miroslav BodnárMember of the Board of Directors

The given status is as of 31 December 2014. A change to the composition of the Board of Directors of the company Eustreamwas made on 23 May 2014, when at the decision of the sole shareholder the Board of Directors was extended to fivemembers. The new members of the Board of Directors are Miroslav Bodnár (13 June 2014) and Kamil Peteraj (26 August2014). Vladimír Mlynář terminated his service in the Board of Directors on 23 September 2014, and was replaced by JanMašinda on 28 November 2014.

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He completed his university studies at the Faculty ofMechanical Engineering of the Slovak University ofTechnology in Bratislava and in 2010 completed hisMBA studies at Nottingham Trent University, GreatBritain. In 1996, he joined the company Toyota MotorSlovakia, s.r.o., where he worked as a manager until2007, when he became General Director of VOPNováky, a.s. In 2010, he took up the post of GeneralDirector of Automobilové opravovne MV SR, a.s. Hethen went on to provide consulting services in thefield of crisis management and change managementfor various companies. On 20 September 2012, hebecame Chairman of the Supervisory Board ofEustream.

The given status is as of 31 December 2014. Changes were made to the composition of the Supervisory Boardduring the course of 2014. On 22 May 2014, Vice-chairman Miroslav Bodnár ended his service in the Board. MarekSpurný became a new member of the Supervisory Board (23 May to 18 June 2014), being replaced on 19 June 2014by Daniel Křetínský. From 24 September 2014, Daniel Křetínský has held the post of Vice-chairman in theSupervisory Board.

Peter TrgiňaChairman of the Supervisory Board

Peter TrgiňaChairman of the Supervisory Board

Daniel KřetínskýVice-chairman of the Supervisory Board

Otto HalásMember of the Supervisory Board

Andrej LendvayMember of the Supervisory Board

Viktor MihalikMember of the Supervisory Board

Viera PeťkováMember of the Supervisory Board

SUPERVISORY BOARD

The given status is as of 31 December 2014. During 2014, the following changes were made in the SupervisoryCommission: on 22 May 2014, commission member Miroslav Bodnár ended his service in the commission, beingreplaced by Marek Spurný (23 May 2014 to 18 June 2014). Marek Spurný was replaced in the post by DanielKřetínský (19 June 2014), who took over as chairman of the Supervisory Commission at 6pm on 29 July 2014 inplace of Hana Krejčí. Hana Krejčí has continued to serve in the Supervisory Commission as a member since 6pmon 29 July 2014.

Daniel KřetínskýChairman of the Supervisory Commission

Ružena LovasováVice-chair of the Supervisory Commission

Hana KrejčíMember of the Supervisory Commission

Roman KarlubíkMember of the Supervisory Commission

Jan StříteskýMember of the Supervisory Commission

SUPERVISORY COMMISSION

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He studied at the Faculty of Electrical Engineering andInformatics of STU Bratislava. From 2000 to 2002 hecompleted his postgraduate studies, specialising inthe gas industry at the Faculty of EnvironmentalProtection of VŠCHT in Prague. His career in the gasindustry began in 1998 in Slovtransgas Division ofSPP as an IT System Administrator, and later hebecame Head of the Assembly and Technical SupportDepartment. Between 2005 and 2008, he worked asDirector of Centralised Maintenance and in thefollowing four years he was Director of StrategicProjects Section. At the beginning of 2012, he becameDirector of the newly created unit Asset Management.From 1 July 2014, he has been General Director ofEustream. He represents the Slovak Gas and Oil Unionin the Executive Committee of Marcogas (TechnicalAssociation of the European Gas Industry).

Rastislav ŇukovičGeneral Director

MANAGEMENT

Rastislav ŇukovičGeneral Director responsible for leadingEconomics and Finance and Asset Management

Miroslav BodnárStrategy

Milan SedláčekCommercial and Regulatory Management

Mirek TopolánekDevelopment and Public Affairs

Petr KrafkaCorporate Affairs

Ján JanusOperation and Maintenance

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The given the status is as of 31 December 2014. Various organisational and personnel changes in companymanagement were seen during the year. A new organisational unit was established for Development and PublicAffairs, Corporate Affairs incorporated procurement and logistics and the field of human resources (originally underthe organisational unit Economy and Human Resources). On 1 July 2014, Miloš Pavlík was replaced in the post ofGeneral Director by Rastislav Ňukovič. The post of head of Commercial and Regulatory Management was taken upon 1 September 2014 by Milan Sedláček. Temporary management of the organisational units of Economics andFinance and Asset Management was entrusted to the General Director.

In 2014, the management of Human Resources in thecompany Eustream was focused chiefly on thecollective bargaining on an addendum to the CollectiveAgreement and the implementation of organisationalchanges due to modernisation of the compressor fleetand optimisation of internal processes.

Employee education and development

In addition to standard types of education intendedfor all employees, such as periodic training, experteducation on the introduction of new technologies,conferences, seminars or language courses, in 2014we continued applying the adaptation programme fornew employees, as well as programmes foremployees who finished with the company fororganisational reasons. At the same time, we preparedtwo internal training courses for managers on settinggoals and the performance evaluation process.

Evaluation, remuneration and motivation

In Eustream, we make sure the remuneration systemhas clear, fair and motivational rules and that rewardsare directly linked to performance evaluation. In 2014,we prepared the next stage of changes to the currentremuneration system. These changes concern thescope of the evaluation scale and provider betteropportunities for appreciating exceptionalperformance by special bonuses throughout thewhole year. The new principles in remuneration startbeing applied from 2015 and their aim is to set theremuneration rules so that the performance bonus ofan employee is directly proportionate to his or herindividual performance, which at the same time isintended to increase motivation.

Social care

The programme of employee benefits did not changesignificantly in 2014 and Eustream provided itsemployees with the same compensations as inprevious years. This year, once again, the employerused all available forms of assistance in cases whensome employee found themselves in a situation thathad a negative impact on their personal or family life.

In the collective bargaining process for the newCollective Agreement, employee allowances andbenefits were subject to a detailed analysis. Indefence of keeping individual benefits, the employerconsidered their use from the side of employees andalso the financial demands. The employer endeavoursto retain those employee allowances and benefitsthat are primarily used by current employeescontributing to development of the company.

At the end of 2014, collective bargaining was openedonce again to append an addendum to the CollectiveAgreement extending its validity until the end of 2018.At the same time, the addendum extends the portfolioof employee benefits, starting 2015, especially forremaining employees, by which the employerdeclares its interest in creating quality socialconditions for its employees over the long-termhorizon.

Communication

The primary goal of the company Eustream in respectof internal communication is the transparent,accurate and timely provision of information aboutimportant changes affecting employees andrepresentatives of the Gas Industry Trade Union(POZ).

HUMAN RESOURCES

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We continued in 2014 with the traditional meetingsof representatives of the company Eustream as theemployer and of the trade union POZ, wherecommunication focused on all key events andprepared changes concerning employees and theirworking conditions.

At the same time, there were the traditional meetingsof employees with top mannagement and the GeneralDirector, at which employees were informed aboutthe latest news concerning the company, its goals andfuture direction, and development on the gas market.

By way of the intranet and electronic newsletter,employees can directly access information aboutwhat’s happening in the company, about all openselection proceedings and organisational changes.

Employees were informed about the progress ofcollective bargaining and the content of the CollectiveAgreement by way of several communicationchannels.

Employee structure

As of 31 December 2014, Eustream had 802employees, of which 142 are women (17.7% of totalworkforce). Thanks to the filling of certain specific jobpositions externally, compared to previous years thecompany saw a slight increase in 2014 in the overallshare of employees with a university education (46%)and the share of employees in all age categories up to50 years of age.

30 or younger 333 employees 4.1 %

31 to 40 175 employees 21.8 %

41 to 50 316 employees 39.4 %

51 and older 278 employees 34.7 %

Vocational school 119 employees 15 %

Full secondaryeducation 313 employees 39 %

University education 370 employees 46 %

Age structure as of 31 December 2014 Qualification structure as of 31 December 2014

In the field of environmental protection, Eustreamfocuses foremost on:

respecting the waste management hierarchy withthe aim of reducing the volume of produced wastes

optimising water management

reducing emissions and pollutants to theenvironment

reducing noise levels emitted near compressorstations

Waste management

The main objective of waste management inEustream is to minimise the negative impacts ofwaste production and management on human healthand the environment, as well as the economic use ofresources and proceeding in practice according to thewaste management hierarchy (defined in theframework directive on waste – DIRECTIVE2008/98/EC OF THE EUROPEAN PARLIAMENT ANDOF THE COUNCIL of 19 November 2008 on waste andrepealing certain Directive):

source reduction,

preparation for reuse,

recycling,

other appreciation, e.g. energy recovery,

treatment and disposal.

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ENVIRONMENTAL PROTECTION,OCCUPATIONAL HEALTH AND SAFETY

2014 2013 2012

Hazardous wastes 406 780 341

Other wastes 2 249 722 453

Total 2 655 1 502 794

Waste production (in tonnes)

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Air protection

Eustream operates stationary incineration facilitiesthat produce emissions of greenhouse gases andpollutants. By caring continually about the quality ofthese facilities, we endeavour to comply with ever-stricter legislation in respect of air protection.

An important project related to air protection was themodification of the Nuovo Pignone gas turbines to DryLow Emissions (DLE) technology, the aim of which isto harmonise with DIRECTIVE 2010/75/EU OF THEEUROPEAN PARLIAMENT AND OF THE COUNCIL of

24 November 2010 on industrial emissions. In 2014,two Nuovo Pignone gas turbines were adapted atCompressor station 3 - Veľké Zlievce.

The total volume of emissions released into theatmosphere is falling also thanks to lower volumes oftransported natural gas. Automated monitoringsystems track non-stop the volumes of emissions atincineration facilities with a nominal thermal outputof more than 50 MW.

2014 2013 2012

CO 667 670 788

NOx 194 665 706

Emissions of base pollutants (in tonnes)

Protection against external noise pollution

Noise and vibration are produced in the transmissionof natural gas at incineration facilities of compressorstations and related pipe yard technology. Eustreamregularly monitors the level of noise emitted in thevicinity of compressor stations with the aim ofreducing noise and vibration to below legallyprescribed levels. The noise levels were greatlyreducing by change of operating conditions and theswitch to modern technical equipment.

In 2014, our company caused any environmentaldamage and also an environmental warning from theauthorities was not given.

Internal inspections and audits were conducted in lastyear aimed at verifying compliance to legislation in thearea of environmental protection. All ascertaineddiscrepancies were eliminated.

Occupational health and safety (OHS)

Eustream ensures health and safety at work in linewith respective legislative and internal regulations sothat we eliminate or minimise the risks to employeesafety to the maximum possible extent, and so thatwe ensure protection of their health at work.Eustream applies an active OHS policy in relation toemployees, suppliers and all business partners takingpart in the company’s activities.

Eustream has a functioning OHS managementsystem in place. Compliance with legislation andadherence to OHS rules was confirmed by inspectionsof the Labour Inspectorate and surveillance conductedby regional offices of public health, fire protectionchecks, as well as an external supervisory audit of theintegrated management system, carried out at theend of 2014.

In co-operation with the company medical service, wemonitor the conditions and influencing factors of theworking environment on the safety and health ofemployees at individual workplaces. Employeesundergo regular preventive medical examinations inrelation to their work. The scope of these depends onthe risk factors that employees are exposed to duringtheir work shift. In the 2014 calendar year, just onework injury was registered. We apply preventivemeasures and specific programmes for improvingworking conditions, eliminating risks and factorscausing work injuries, occupational disease and otherwork-related bodily harm.

Economic and other activities of the company arecarried out accounting for the creation andmaintenance of suitable working relations, conditionsand above all, the requirements for ensuring OHS.

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25

Accident rate

2014 2013 2012 2011 2010 2009

Number of registered work injuries 1 1 2 1 0 1

Serious work injuries (of number of registered work injuries) 0 0 1 1 0 0

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depreciation and amortisation, consumption ofnatural gas, material and energy, and payroll costs.Profit from financial operations for 2014 came to EUR0.14 million, representing a drop of EUR 2.22 millionover the previous year.

In 2014, by applying International Financial ReportingStandards (IFRS) as approved for use in the EuropeanUnion, Eustream posted a pre-tax profit of EUR446.86 million, which is a growth of EUR 40.72 millionover the previous year. Income tax from currentoperations came to EUR 112.85 million and profitafter tax amounted to EUR 334 million.

2014 2013

Revenue from sale of services 630.02 696.98

Operating expenses (183.30) (293.20)

Financial income/(expense) 0.14 2.36

Profit before tax 446.86 406.14

Income tax (112.85) (86.78)

Net profit for period 334.00 319.36

ECONOMIC AND FINANCIALPERFORMANCE

In 2014, the company Eustream generated incomefrom the sale of services worth EUR 630.02 million,which is EUR 66.96 million less compared to theprevious year. The cause of this drop lies in changesto the volumes of contracted transmission capacitiesas a source of revenue. Operating costs in 2014 cameto EUR 183.30 million. A significant drop of EUR109.90 million compared to 2013 was registeredchiefly as a result of the end of the contract on thelease of gas technology, which was not owned by thecompany until 28 February 2013, as well as the resultof decrease in natural gas consumption, material andenergy. The main cost items in the structure of costsin 2014 were once again costs for services,

Comparison of revenues, costs and profit (in EUR million)

27

As of the balance sheet date, total assets of Eustreamcame to EUR 3 417.44 million and compared to theprevious period it was down EUR 244.59 million,mostly due to the partial repayment of a providedloan. The value of non-current assets was reported asEUR 2 770.75 million, accounting for 81% of totalassets. Current assets comprised inventories, short-term receivables and cash and cash equivalents,accounting for 19% of the value of total assets.Compared to the previous reporting period, currentassets increased by EUR 413.38 million, mostlycaused by provided loans as part of cash-pooling.

Equity came to EUR 2 045.81 million and as a keysource of coverage accounted for 60% of the value ofcompany assets. In addition to the share capital,equity comprised also statutory reserves, other fundsand retained earnings. Equity dropped year-on-yearby EUR 280 million, chiefly under the influence of thepayment of dividends from retained earnings.

Share capital of the company as registered in theCompanies Register stands at EUR 282.93 million.The share capital comprises ten ordinary shares witha nominal value of EUR 3 319.39, one ordinary sharewith a nominal value of EUR 82 895 533.19 and one ordinary share with a nominal value of EUR200 000 000.00.

The balance of statutory reserves of the companycame to EUR 56.59 million as of the balance sheetdate. Total liabilities comprised 40% of asset cover andcame to EUR 1 371.63 million as of the balance sheet

CAPITAL STRUCTURE

2013

2014

Non-current assets

Current assets

3 428.72

94 %

233.31

6 %

2 770.75

81 %

646.69

19 %

Comparison of assets structure (in EUR million)

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date. Liabilities consisted of long-term payablesworth EUR 1 284.20 million and short-term payablesamounting to EUR 87.43 million. Compared to the

previous year, liabilities increased by EUR35.41 million. This is primarily due to the drawing ofa long-term investment loan worth EUR 75 million.

SPP Infrastructure, a. s. 12 Shares 100 %

2014 2013 2014 2013

Equity 2 045.81 2 325.81 60 % 64 %

Liabilities 1 371.63 1 336.22 40 % 36 %

Shareholder structure as of 31. December 2014:

Comparison of structure of equity and liabilities (in EUR million)

29

31 December 2014 31 December 2013ASSETS:

NON-CURRENT ASSETS

Property, plant and equipment 2 381 742 2 439 593

Non-current intangible assets 6 181 7 707

Long-term financial investments 6 600 6 600

Granted non-current loans 376 223 973 000

Other assets - 1 821

Total non-current assets 2 770 746 3 428 721

CURRENT ASSETS 646 693 233 313

TOTAL ASSETS 3 417 439 3 662 034

EQUITY AND LIABILITIES:

EQUITY

Share capital 282 929 282 929

Statutory and other reserves 67 712 56 722

Retained earnings 1 695 167 1 986 163

Total equity 2 045 808 2 325 814

NON-CURRENT LIABILITIES 1 284 199 1 207 780

CURRENT LIABILITIES 87 432 128 440

Total liabilities 1 371 631 1 336 220

TOTAL EQUITY AND LIABILITIES 3 417 439 3 662 034

FINANCIAL STATEMENTS

BALANCE SHEET (selected data in EUR thousand)

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Year ended31 December 2014

Year ended31 December 2013

INCOME FROM SALE OF SERVICES 630 015 696 981

OPERATING COSTS (183 295) (293 203)

OPERATING PROFIT/LOSS 446 720 403 778

Financial income 30 702 10 455

Financial expenses (30 566) (8 090)

Profit before tax 446 856 406 143

INCOME TAX (112 852) (86 781)

PROFIT FOR PERIOD 334 004 319 362

PROFIT AND LOSS STATEMENT (selected data in EUR thousand)

Year ended31 December 2014

Year ended31 December 2013

OPERATING ACTIVITIES

Cash flows from operations 299 032 644 237

Interest paid (25 489) (1)

Interest received 819 1 143

Income tax paid (177 157) (121 708)

Net cash flows from operations 97 205 523 671

INVESTING ACTIVITIES

Provided loans - (964 314)

Procurement of non-current assets (47 281) (27 874)

Income from sale of property, plant and equipment and intangible assets 94 6

Dividends received 713 420

Net cash flows used in investing (46 474) (991 762)

FINANCING ACTIVITIES

Income from issued bonds - 746 555

Expenses for payment of bonds (3 162) -

Income from received loans 74 925 -

Dividends paid - (265 939)

Other income from financing activities - 1 919

Other expenses from financing activities - (490)

Net cash flows from financing activities 71 763 482 045

NET INCREASE IN CASH AND CASH EQUIVALENTS 122 494 13 954

FOREIGN EXCHANGE DIFFERENCES 347 (14)

CASH AND CASH EQUIVALENTS AT BEGINNING OF REPORTING PERIOD 68 474 54 534

CASH AND CASH EQUIVALENTS AT END OF REPORTING PERIOD 191 315 68 474

CASH FLOW STATEMENT (selected data in EUR thousand)

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INDEPENDENT AUDITOR’S REPORT

32

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CONTACT INFORMATION

34

Commercial name: eustream, a.s.Registered office: Votrubova 11/A, 821 09 Bratislava, Slovak Republic

Tel.: +421 2 6250 7111, 112Fax: +421 2 6250 7051E-mail: info@eustream.sk

Legal form: joint stock companyRegistration in Companies Register: District Court of Bratislava I, section Sa, entry ref. No. 3480/B

Identification and tax details: Company reg. No.: 35910712Tax reg. No.: 2021931175VAT reg. No.: SK2021931175

SIGNIFICANT EVENTS

Since the last day of the reporting period for whichthis Annual Report is compiled, the followingsignificant events occurred that should be noted:

1 January 2015 the new organisational structuretook effect, meaning the former organisational unitOperations and Maintenance was split up into theindependent organisational units Dispatching,Compressors Technology and Maintenance andRepairs of Pipeline Systems;

on 1 January 2015, Peter Pčola took up the post ofDirector of the Economics and Financeorganisational unit, Peter Tóth took up the post ofDirector of the Asset Management organisationalunit, Ján Janus took up the post of Director of theDispatching organisational unit, Anton Zelenaj tookup the post of Director of the CompressorsTechnology organisational unit and Vladimír Potočnýtook up the post of Director of the organisational unitMaintenance and Repairs of Pipeline Systems;

in February 2015, an entity under common controlSPP Infrastructure Financing, B.V. issued bonds inthe amount of EUR 500 million. Eustreamguarantees for the obligation resulting from thesebonds;

in February 2015, the Company issued privateunsecured bonds through which received funds inthe amount of EUR 492,660 thousand. The bondswere issued in EUR currency with a fixed interestrate of 2.90% p.a. (coupon). The maturity date ofbonds issued is on 10 February 2025. The wholevolume of bonds issued was purchased by thecompany under common control - SPPInfrastructure Financing, B.V.

eustream, a.s., Votrubova 11/A, 821 09 Bratislava, Slovak Republic, www.eustream.sk