audax energía, s.a. · we have audited the accompanying annual accounts of audax energía, s.a....

Audax Energía, S.A.

Annual Accounts

31 December 2016

Directors' Report

2016

(With Independent Auditor's Report Thereon)

(Free translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails)

KPMG Auditores, S.L. Torre Realia Plaça d’Europa, 41-43 08908 L’Hospitalet de Llobregat (Barcelona)

Inscrita en el Registro Oficial de Auditores de Cuentas con el nº.S0702, y en el Registro de Sociedades del Instituto de Censores Jurados de Cuentas con el nº.10. Reg. Mer Madrid, T. 11.961, F. 90, Sec. 8, H. M -188.007, Inscrip. 9 N.I.F. B-78510153

KPMG Auditores S.L., sociedad española de responsabilidad limitada y firma miembro de la red KPMG de firmas independientes afiliadas a KPMG International Cooperative (“KPMG International”), sociedad suiza.

Independent Auditor's Report on the Annual Accounts

(Translation from the original in Spanish. In the event of discrepancy, the Spanish-language version prevails)

To the Shareholders of Audax Energía, S.A.

Report on the Annual Accounts

We have audited the accompanying annual accounts of Audax Energía, S.A. (the Company), which comprise the balance sheet at 31 December 2016, the income statement, statement of changes in equity and statement of cash flows for the year then ended, and notes.

Directors' Responsibility for the Annual Accounts

The Directors are responsible for the preparation of the accompanying annual accounts in such a way that they give a true and fair view of the equity, financial position and financial performance of Audax Energía, S.A. in accordance with the financial reporting framework applicable to the entity in Spain, specified in note 2 to the accompanying annual accounts, and for such internal control that they determine is necessary to enable the preparation of annual accounts that are free from material misstatement, whether due to fraud or error.

Auditor's Responsibility

Our responsibility is to express an opinion on these annual accounts based on our audit. We conducted our audit in accordance with prevailing legislation regulating the audit of accounts in Spain. This legislation requires that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the annual accounts are free from material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the annual accounts. The procedures selected depend on the auditor's judgement, including the assessment of the risks of material misstatement of the annual accounts, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's preparation of the annual accounts in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control. An audit also includes evaluating the appropriateness of accounting policies used and reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the annual accounts taken as a whole.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.

2

Opinion

In our opinion, the accompanying annual accounts give a true and fair view, in all material respects, of the equity and financial position of Audax Energía, S.A. at 31 December 2016, its financial performance and its cash flows for the year then ended in accordance with the applicable financial reporting framework and, in particular, with the accounting principles and criteria set forth therein.

Report on Other Legal and Regulatory Requirements

The accompanying directors’ report for 2016 contains such explanations as the Directors consider relevant to the situation of the Company its business performance and other matters, and is not an integral part of the annual accounts. We have verified that the accounting information contained therein is consistent with that disclosed in the annual accounts for 2016. Our work as auditors is limited to the verification of the directors’ report within the scope described in this paragraph and does not include a review of information other than that obtained from the accounting records of the Company.

KPMG Auditores, S.L.

(Signed on the original in Spanish)

Alejandro Núñez Pérez

5 April 2017

SWORN TRANSLATION FROM SPANISH

AUDAX ENERGÍA, S.A.

Annual Accounts and Directors’ Report for the year ended

31 December 2016


Balance Sheets

31 December 2016 and 2015

(Expressed in euros)

The accompanying notes form an integral part of the annual accounts.

Assets Note 2016 2015

Intangible assets Note 6 59,434 50,287 Software 59,434 50,287 Property, plant and equipment Note 7 1,802,207 1,201,653 Land and buildings 7,636 7,814 Plant, machinery, tools, fixtures and other equipment 1,794,571 1,193,839

Long-term investments in group and associated

companies Note 11 85,005,769 20,055,378 Equity instruments 63,112,372 11,640,739 Loans to companies 21,893,397 8,414,639 Long-term financial investments Note 11 2,024,140 2,400,160 Equity instruments 2,517 602,109 Loans to third parties 75,000 75,000 Securities representing debt 70,004 70,004 Other financial assets 1,876,619 1,653,047 Deferred tax assets Note 16 2,480 4,273

Total non-current assets 88,894,030 23,711,751 Trade and other receivables Note 11 50,653,543 46,921,908 Trade debtors for sales and services rendered, short-term 44,911,254 44,675,435 Trade debtors, group & associated companies, short-term 4,238,043 1,813,816 Sundry debtors 652,054 158,575 Loans to employees 31,664 26,300 Other receivables from Public Administrations 820,528 247,782

Short-term investments in group and associated

companies Note 11 3,502,477 2,454,967 Loans to companies 3,294,220 1,336,595 Other financial assets 208,257 1,118,372 Short-term financial investments Note 11 2,154,690 17,351,807 Equity instruments 1,843,382 3,313,382 Loans to companies - 1,500,000 Securities representing debt 338 32,455 Other financial assets 310,970 12,505,970 Short-term prepayments and accrued income 3,803,862 3,500,797 Cash and cash equivalents 13,315,726 20,111,082 Cash 13,315,726 20,111,082

Total current assets 73,430,298 90,340,561 Total assets 162,324,328 114,052,312


Balance Sheets




Equity and Liabilities Note 2016 2015

Equity Note 12 40,312,529 29,643,917 Capital

Issued capital 1,800,000 1,800,000 Reserves

Legal reserve and reserves required by Articles of Assoc. 360,000 360,000 Other reserves 26,273,821 15,382,957 Profit for the year 11,878,708 12,100,960

Total equity 40,312,529 29,643,917 Long-term debts Note 14 62,334,286 48,570,960 Debentures and other marketable securities 21,000,000 21,000,000 Bank debts 41,144,500 27,423,146 Other financial liabilities 189,786 147,814

Total non-current liabilities 62,334,286 48,570,960 Short-term debts Note 14 19,146,686 5,641,755 Bank debts 18,523,125 5,314,050 Other financial liabilities 623,561 327,705 Short-term debts with group and associated companies Note 18 2,468,162 - Short-term debts with group and associated companies 2,468,162 - Trade and other payables Note 14 38,062,665 30,195,680 Short-term trade creditors 15,488,614 8,765,861 Short-term trade creditors, group and associated companies 2,332,562 30,044 Sundry creditors 14,916,399 12,322,766 Accrued wages and salaries 112,441 107,238 Deferred tax liabilities - 1,650,171 Other debts with Public Administrations 5,212,649 7,319,600

Total current liabilities 59,677,513 35,837,435 Total equity and liabilities 162,324,328 114,052,312


Income Statements for the years ended




Note 2016 2015

Turnover Note 19 359,781,325 487,887,506 Sales 357,737,290 486,808,246 Services rendered 2,044,035 1,079,260 Supplies Note 19 (333,439,195) (461,770,106) Consumption of goods purchased for resale (329,609,922) (459,688,514) Work carried out by other companies (3,829,273) (2,081,592) Other operating income 3,116,111 1,008,082 Non-core and other operating income 3,116,111 1,006,492 Operating grants taken to income for the year - 1,590 Staff costs Note 19 (3,300,881) (2,325,164) Wages, salaries and similar remuneration (2,621,030) (1,856,141) Social Security and welfare expenses (679,851) (469,023) Other operating expenses Note 19 (13,162,586) (11,828,211) External services (7,181,427) (5,380,816) Taxes (2,709,725) (3,474,259) Losses, impairment and variation in provisions for

commercial operations (3,271,434) (2,973,136) Depreciation and amortization Notes 6 & 7 (173,270) (134,979) Excess provisions Note 19 2,035,873 3,003,451 Other income/(expenses) (35,142) (53,891) Operating profit 14,822,235 15,786,688

Financial income 2,423,403 2,618,582 On marketable securities and other financial instruments

Of group and associated companies 868,452 150,000 Of third parties 1,554,951 2,468,582 Financial expenses (2,045,903) (1,404,233) On debts with group and associated companies (7,721) (18,467) On debts with third parties (2,038,182) (1,385,766) Variation in fair value of financial instruments 598,313 (524,812) Trading portfolio and others (152,289) (302,797) Amount recognized in income statement for the year in

respect of available-for-sale assets 750,602 (222,015) Exchange differences (79,171) 3,640 Impairment and profit/(loss) on disposals of financial

instruments 43,069 254 Profit/(loss) on disposals and others 43,069 254 Net financial income/(expense) 939,711 693,431 Profit before taxes 15,761,946 16,480,119 Income tax Note 16 (3,883,238) (4,379,159) Profit for the year 11,878,708 12,100,960


Income Statements for the years ended




2016 2015 Profit for the year in the income statement 11,878,708 12,100,960

Total recognized income and expenses 11,878,708 12,100,960


Statements of Changes in Equity for the years ended


B) Statement of Changes in Equity for the year ended 31 December 2016



Issued capital Reserves Capitalization

reserve Profit for the year Total Balance at 31 December 2015 1,800,000 14,644,010 1,098,947 12,100,960 29,643,917 Operations with shareholders or owners Distribution of the profit /(loss) for the year Reserves - 10,890,864 - (10,890,864) - Profit for the year - - - 11,878,708 11,878,708 Distribution of dividends - - - (1,210,096) (1,210,096) Balance at 31 December 2016 1,800,000 25,534,874 1,098,947 11,878,708 40,312,529


Statements of Changes in Equity for the years ended


B) Statement of Changes in Equity for the year ended 31 December 2015



Issued capital Reserves Capitalization reserve Profit for the year Total

Balance at 31 December 2014 1,800,000 4,753,484 - 11,690,928 18,244,412

Operations with shareholders or owners

Distribution of the profit /(loss) for the year Reserves - 10,989,473 - (10,989,473) -

Appropriation to the capitalization reserve - (1,098,947) 1,098,947 - - Profit for the year - - - 12,100,960 12,100,960 Distribution of dividends - - - (701,455) (701,455)

Balance at 31 December 2015 1,800,000 14,644,010 1,098,947 12,100,960 29,643,917


Cash Flow Statements for the years ended




2016 2015Cash flows from operating activities

Profit for the year before taxes 15,761,946 16,480,119 Adjustments

Depreciation and amortization 173,270 134,979Impairment adjustments 3,423,723 3,275,933Variation in provisions 967,578 467,352Profit/(loss) on disposals of financial instruments - (254)Financial income (2,423,403) (2,618,582)Financial expenses 2,045,903 1,385,766Exchange differences 79,171 (3,640)Variation in fair value of financial instruments (750,602) 222,015

Changes in working capital Trade and other receivables (3,731,635) (3,268,643)Other current assets (303,065) 1,392,538Trade and other payables 7,866,985 (8,444,415)Other non-current assets and liabilities - -

Other cash flows from operating activities Interest paid (2,044,216) (1,404,233)Interest received 806,489 2,618,404Outflows in respect of income tax (3,361,245) (4,741,232)Other outflows - 1,794

Cash flows from operating activities 18,510,899 5,497,901

Cash flows from investment activities

Outflows related to investments Intangible assets (49,931) (20,877)Property, plant and equipment (733,040) (495,660)Group and associated companies (65,997,901) (12,123,943)Other financial assets - (12,800,452)

Inflows from divestments Other financial assets 15,573,137 3,015,534

Cash flows from investment activities (51,207,735) (22,425,398) Cash flows from financing activities Inflows and outflows related to equity instruments

Issue Equity instruments -

Inflows and outflows related to financial liability instruments Issue Bank debts 32,910,012 31,411,785Debts with group and associated companies -

Repayment Debts with group and associated companies - Bank debts (5,798,436) (2,846,375)Outflows for dividends paid and remuneration of other financial liabilities Dividends (1,210,096) (701,455)

Cash flows from financing activities 25,901,480 27,863,955 Net increase/decrease in cash and cash equivalents (6,795,356) 10,936,458

Cash and cash equivalents at the beginning of the year 20,111,082 9,174,624

Cash and cash equivalents at the end of the year 13,315,726 20,111,082


Notes to the Annual Accounts

31 December 2016

(cont.)

(1) Nature, Activities of the Company and Composition of the Group

Audax Energía, S.A. (formerly, Audax Energía, S.L., hereinafter the Company) was incorporated in Spain on 30 October 2007 as a limited liability company (sociedad limitada) (formerly Audax Aplicaciones, S.L.), for an indefinite term. Its registered address for corporate and tax purposes is located at Avenida de Navarra, 14, Badalona (Barcelona). The Company’s object consists of supplying electricity. The Company is engaged in the supply of electricity to qualifying consumers or other subjects of the electric system through any kind of contracting permitted by law.

On 6 March 2012, the former majority shareholder of the Company (Inversiones y Negocios Orior, S.L.) made a non-cash contribution of its shares in the Company to Lublin Develops, S.L. On 25 June 2012, Lublin Develops, S.L., the former minority shareholders of the Company and Orus Energía, S.L. formalized a contract for the sale of all the shares in the Company.

On 14 August 2012 the sale of the shares by Lublin Develops, S.L. to Orus Energía, S.L. was formalized.

On 8 March 2013 the sale of the Company’s shares by Orus Energía S.L. to Banana Phone S.L. was formalized.

On 29 April 2013, by virtue of a decision of the Sole Shareholder, a capital increase took place in the Company which was subscribed in full through cash contributions totalling 1,200 thousand euros in par value by the companies Banana Phone S.L. and Eléctrica Nuriel S.L., each of them acquiring 33% of the new shares in the Company.

At 31 December 2013, as a result of the acquisition of shareholdings in the Company by new shareholders, the Company ceased to be a single-member company.

Finally, on 23 April 2014 the Company modified its legal form to that of a public limited company (sociedad anónima).

As described in note 11, the Company holds shares in subsidiaries. As a result of this, the Company is the controlling company of a Group of companies under ruling legislation.

However, the Company is exempt from the obligation to present consolidated annual accounts because the group is included in a larger Spanish group headed by Excelsior Times, S.L., in accordance with the provisions of paragraph 2 of article 43 of the Code of Commerce. The registered address for tax and corporate purposes of Excelsior Times, S.L. is Avenida de Navarra, 14, Badalona (Barcelona).

(2) Basis of presentation

(a) True and fair view

The annual accounts have been drawn up on the basis of the Company’s accounting records. The annual accounts for 2016 have been prepared in accordance with ruling mercantile legislation and with the rules established in the Spanish General Chart of Accounts so as to give a true and fair view of the equity and the financial position at 31 December 2016 and of the results of its operations, changes in equity and its cash flows for the years then ended.

The Directors of the Company are of the opinion that the annual accounts for 2016, which were drawn up on 29 March 2017, will be approved by the General Shareholders’ Meeting without modification.

(b) Comparison of information

For comparative purposes, the annual accounts present for each of the items on the balance sheet, income state, statement of changes in equity, cash flow statement and the notes to the accounts, in addition to the figures for 2016, the previous year’s figures which formed part of the annual accounts for 2015 approved by the General Shareholders’’ Meeting on 30 June 2016.

2



(cont.)

Royal Decree 602/2016, of 2 December, modifying the General Chart of Accounts approved by Royal Decree 1514/2007, of 16 November; the General Chart of Accounts for Small and Medium-Sized Companies approved by Royal Decree 1515/2007, of 16 November; the Rules for Drawing up Consolidated Annual Accounts approved by Royal Decree 1159/2010, of 17 September; and the Rules of Adaptation of the General Chart of Accounts to not-for-profit entities approved by Royal Decree 1491/2011, of 24 October, which comes into effect for accounting periods beginning on or after 1 January 2016, have modified the criteria for the valuation of intangible assets, for the presentation of issue rights and certain breakdowns.

The Company has reclassified 3,467 thousand euros in the income statement for the year ended 31 December 2015 between the headings of Supplies and Taxes, in respect of provisions for the Single Municipal Tax, as it considers that this reflects more adequately the nature of the aforesaid amount and facilitates comparability of the current year and previous year’s figures.

(c) Functional currency and presentation currency

The annual accounts are presented in euros, which is the functional and presentation currency of the Company.

(d) Key aspects of the valuation and estimation of uncertainties and relevant judgements on the application of accounting policies

The preparation of the annual accounts requires the application of relevant accounting estimates and making judgements, estimates and assumptions in the process of applying the Company’s accounting policies. In this regard, a detail of the aspects that have involved a higher degree of judgement or complexity or in which the assumptions are significant for the preparation of the annual accounts are summarized below.

(i) Relevant accounting estimates and assumptions

(ii) Relevant judgements on the application of accounting policies

Relevant accounting estimates and assumptions:

-The evaluation of possible impairment losses on certain assets.

-The useful life of property, plant and equipment and intangible assets.

-The market value of certain financial instruments.

-The energy supplied to customers not measured at meters, as well as grid access costs and the purchase of energy the invoice for which has not yet been received.

(iii) Changes in estimates

Furthermore, although the estimates made by the Directors of the Company have been calculated on the basis of the best available information at 31 December 2016, it is possible that events that may take place in the future might make it necessary to modify them in future years. The effect on the annual accounts of any modifications deriving from the adjustments, as the case may be, to be made during future years would be recorded prospectively.

(e) Going concern principle

The annual accounts have been drawn up based on the going concern principle.

3



(cont.)

(3) Distribution of Profits

The distribution of the Company’s profits and reserves for the year ended 31 December 2015, approved by the General Shareholders’ Meeting held on 30 June 2016, was as follows:

Euros

Basis for distribution Profit for the year 12,100,960

Distribution

Voluntary reserves 10,890,864Dividends 1,210,096 12,100,960

The proposed distribution of the profit for 2016 and other reserves of the Company to be submitted to the General Shareholders’ Meeting is as follows:

Euros Basis for distribution

Profit for the year 11,878,708

Distribution

Voluntary reserves 10,690,837Dividends 1,187,871

11,878,708

(4) Accounting Policies

(a) Intangible assets

The assets included under intangible assets are stated at cost of acquisition or production, following the same principles established to determine the production cost of inventories. Intangible assets are stated on the balance sheet at cost less accumulated amortization and impairment adjustments.

(i) Software

Software acquired and developed in-house, including website development expenses, is recognized to the extent that it meets the conditions set out for development expenses. Software maintenance expenses are taken to expenses when they are incurred.

(ii) Subsequent costs

The subsequent costs incurred on intangible assets are recorded as an expense unless they increase the expected future economic benefits of the assets.

4



(cont.)

(iii) Useful life and Amortization

The amortization of intangible assets with a finite useful life is carried out by distributing the amortizable amount systematically throughout the asset’s useful life by applying the following criteria:

Years of estimated

useful life

Software 3

For these purposes, the amortizable amount is considered to be the acquisition cost of the asset less, if applicable, its residual value.

The Company reviews the residual value, the useful life and the amortization method of intangible assets at each year end. Modifications to the initially established criteria are recognized as a change in estimate.

(iv) Impairment of assets

The Company evaluates and determines impairment adjustments and reversals of impairment losses on intangible assets according to the criteria mentioned in section (c) Impairment of non-financial assets subject to amortization or depreciation.

(b) Property, plant and equipment

(i) Initial recognition

Assets included in property, plant and equipment are stated at their acquisition price or production cost, following the same principles established to determine the production cost of inventories. Non-core income obtained during the testing and commissioning period is recognized as a reduction in the costs incurred. Property, plant and equipment are stated on the balance sheet at cost less accumulated depreciation and impairment adjustments.

(ii) Depreciation

Depreciation of property, plant and equipment is carried out by distributing the depreciable amount systematically over the useful life of the assets. For these purposes, the depreciable amount is considered to be the cost of acquisition less their residual value. The Company determines the depreciation expense independently for each component that has a significant cost in relation to the total cost of the asset and a different useful life from the rest of the asset.

Depreciation of property, plant and equipment is calculated by applying the criteria indicated below:

Years of estimate

useful life

Buildings 33 Plant and machinery 8 Fixtures, fittings, tools and equipment 8 Other fixed assets 4

The Company reviews the residual value, the useful life and the depreciation method of property, plant and equipment at each year end. Modifications to the initially established criteria are recognized as a change in estimate.

5



(cont.)

(iii) Subsequent costs

Subsequent to initial recognition of the asset, costs incurred are only capitalized to the extent that they represent an increase in the asset’s capacity or productivity or prolong its useful life, and the book value of replaced assets must be written off. In this regard, the costs deriving from daily maintenance of property, plant and equipment are recorded in the income statement as they are incurred.

(iv) Impairment of assets

The Company evaluates and determines impairment adjustments and reversals of impairment losses on property, plant and equipment according to the criteria mentioned in section (c) Impairment of non-financial assets subject to amortization or depreciation.

(c) Impairment of non-financial assets subject to amortization or depreciation

The Company follows the policy of evaluating the existence of signs that could show potential impairment of non-financial assets subject to amortization or depreciation, in order to check whether the book value of these assets is higher than their recoverable value, which is considered to be the higher of their fair value, less selling costs, and their value in use.

Furthermore, independently of the existence of any sign of impairment, the Company checks at least once a year any potential impairment that could affect goodwill and intangible assets with an indefinite useful life.

Impairment losses are recognized in the income statement.

The reversal of the impairment loss is recorded by crediting the income statement. However, the reversal of the impairment loss may not increase the book value of the asset above the book value it would have had, net of depreciation, if the impairment had not been recorded.

Once the impairment adjustment or its reversal has been recognized, the depreciation for the following years is adjusted taking into account the new book value.

Notwithstanding the above, if the specific circumstances of the assets show an irreversible loss, this loss is recognized directly as a loss on fixed assets in the income statement.

(d) Financial instruments

(i) Recognition

The Company recognizes a financial instrument when it becomes a party bound by the contract or juristic act according to the provisions thereof.

Debt instruments are recognized from the date on which the legal right to receive, or the legal obligation to pay, cash arises. Financial liabilities are recognized on the date they are contracted.

(ii) Classification and separation of financial instruments

Financial instruments are classified at the time of initial recognition as a financial asset, financial liability or equity instrument, according to the economic basis of the contractual agreement and the definitions of financial asset, financial liability or equity instrument.

The Company classifies financial instruments in the different categories according to the characteristics and the Company’s intentions at the time of initial recognition.

(iii) Loans and receivables

Loans and receivables consist of credits for commercial operations and credits for non-commercial operations with fixed or determinable payments that are not traded on an active market different and not classified in other categories of financial assets. These assets are recognized initially at fair value, including the transaction costs incurred and are subsequently measured at amortized cost, using the effective interest rate method.

6



(cont.)

The Company states loans and receivables at amortized cost provided that the contract conditions allow the cash flows to be reliably estimated.

(iv) Investments held until maturity

Investments held until maturity are securities representing debt with fixed or determinable amounts to be received and a fixed maturity, which are traded on an active market and which the Company has the actual intention and capacity to keep until maturity, and not classified in other categories. The criteria for valuing these investments are the same as for loans and receivables.

The Company has not reclassified or sold financial assets classified as held until maturity during the year.

(v) Investments in group, associated and multigroup companies

Group companies are those in which the Company, directly or indirectly through subsidiaries, exercises control according to the provisions of article 42 of the Code of Commerce or when the companies are controlled through any means by one or several natural or legal persons acting jointly or under one and the same management by virtue of agreements or clauses of the Articles of Association.

Investments in group, associated and multigroup companies are recognized initially at cost, which is equivalent to the fair value of the consideration handed over, including the transaction costs incurred in the case of investments in associated and multi-group companies and are subsequently stated at cost less accumulated impairment adjustments.

(vi) Impairment of financial assets

A financial asset or group of financial assets is impaired and an impairment loss is recorded if there is objective evidence of the impairment as a result of one or more events that have occurred after initial recognition of the asset and the event or events causing the loss have an impact on the estimated future cash flows of the financial asset or group of financial assets which can be reliably estimated.

The Company follows the policy of recording the pertinent impairment adjustments of loans and receivables and debt instruments when there has been a reduction or delay in the estimated future cash flows, caused by the debtor’s insolvency.

(vii) Financial liabilities

Financial liabilities, including trade and other payables, which are not classified as held for trading or as financial liabilities at fair value with changes in the income statement, are recognized initially at their fair value, less any transaction costs directly attributable to the issue of these liabilities. Subsequent to initial recognition, liabilities classified under this category are stated at amortized cost using the effective interest rate method.

However, financial liabilities that do not have an established interest rate, where the amount falls due or is expected to be received in the short term and the effect of discounting is not significant, are valued at face value.

The Company values financial liabilities at amortized cost provided that the contract conditions permit reliable estimates of the cash flows.

(viii) Guarantee deposits

Deposits received as a result of meter rental contracts with customers are valued following the criteria set out above for financial liabilities. The difference between the amount received and fair value is recognized as an advance which is taken to the income statement over the term of the lease (during the period in which the service is provided). Advances that are going to be applied in the long term are discounted at the end of each year in line with the market interest rate at the time of initial recognition.

7



(cont.)

(ix) Disposals and modifications of financial liabilities

The Company eliminates a financial liability or part of one when it has fulfilled the obligation contained in the liability or is legally released from the principal responsibility contained in the liability either by virtue of a judicial process or by the creditor.

The exchange of debt instruments between the Company and the other party or substantial modifications in the initially recognized liabilities are recorded as a cancellation of the original financial liability and the recognition of a new financial liability, provided that the instruments have substantially different conditions.

(x) Derivatives

The Company uses derivatives to hedge the risks to which its future cash flows are exposed. These risks are fundamentally variations in the price of electricity.

At 31 December 2016 and 2015, these derivatives are not reflected in the balance sheet accounts, as the settle open positions beforehand, reflecting the cash movement in the income statement, as they have not been designated as accounting hedges.

(e) Cash and cash equivalents

Cash and cash equivalents include cash and sight bank deposits held in banks. This item also includes highly liquid short-term investments provided that they are easily convertible into determined amounts in cash and are subject to an insignificant risk of changes in value. Investments maturing in less than three months after the date of acquisition are included for these purposes.

The Company presents cash outflows and inflows from financial assets and liabilities with quick turnover on the cash flow statement at their net value. The turnover period is considered to be quick when the time between the date of acquisition and maturity is not more than six months.

For the purposes of the cash flow statement, bank overdrafts payable on demand and that form part of the Company’s cash management are included as cash and cash equivalents. Bank overdrafts are recognized on the balance sheets as financial liabilities in respect of bank debts.

(f) Provisions

(i) General policies

Provisions are recognized when the Company has a present obligation, either legal or constructive, as a result of a past event, whereby it is probable that an outflow of funds incorporating future economic benefits will be necessary to settle the obligation and the amount of the obligation can be reliably estimated.

The amounts recognized in the balance sheet are the best estimate at the balance sheet date of the necessary outflows to cancel the present obligation, after considering the risks and uncertainties related to the provision and, when significant, the financial effect produced by discounting, provided that the disbursements to be made in each period can be reliably determined. The discounting rate is determined before taxes, considering the time value of money, and the specific risks that have not been considered in the future flows related to the provision at each balance sheet date.

Isolated obligations are measured according to the most likely individual outcome. If the obligation involves an important population of homogenous items, it will be valued by weighing the possible outcomes according to their likelihood. If there is a continuous range of possible outcomes and each point in the range has the same likelihood as the rest, the obligation is measured at the mean value.

The financial effect of provisions is recognized as financial expenses in the income statement.

Where the Company has outsourced the hedged risk to a third party through a legal or contractual agreement, the provision is recognized exclusively in respect of the portion or risk assumed.

Provisions are reversed against results when it is unlikely that there will be a cash outflow to cancel the obligation.

8



(cont.)

(g) Income from sales of goods and services rendered

Income from sales of goods or services is recognized at the fair value of the consideration received or receivable deriving therefrom. Cash, volume or other types of discounts as well as the interest included in the face value of credits are recorded as a reduction in such income.

Discounts granted to customers are recognized as a reduction in income from sales when it is likely that the conditions for which they were granted are going to be met.

- Services

The Company is engaged in the supply of electricity. Sales of electricity are recognized as income when delivered to the customer according to the quantities supplied during the period, even when they have not been billed. Therefore, the figure for sales includes an estimate of the electricity supplied for which meter readings have not been taken from customers.

Ordinary income deriving from the provision of services is recognized considering the degree of completion of the service provision at the year end when the result of the transaction can be reliably estimated. This circumstance arises when the amount of the income; the degree of completion; the costs already incurred and outstanding costs can be valued reliably and it is likely that the economic benefits deriving from the provision of the service will be received.

(h) Income tax

Income tax expense or income includes both current tax and deferred tax.

Current tax is the amount payable or recoverable in respect of income tax relating to the consolidated tax profit or loss for the year. Current tax assets or liabilities are stated at the amounts expected to be paid to or recovered from the tax authorities, using the tax regulations and rates that are approved or practically approved at the year end.

Deferred tax liabilities are amounts payable in the future in respect of income tax on profits related to temporary differences while deferred tax assets are the amounts recoverable in respect of income tax due to the existence of deductible temporary differences, offsettable prior-year tax losses or deductions pending application. For these purposes, a temporary difference is considered to be the difference between the book value of the assets and liabilities and their tax base.

The current or deferred income tax is recognized in the income statement, unless it arises on a transaction or economic event that has been recognized in the same year or in a different year against equity or from a business combination.

The Company is taxed under the tax consolidation regime with other companies domiciled in Spain, with Excelsior Times, S.L. as the head of the tax group.

(i) Recognition of deferred tax liabilities

The Company recognizes deferred tax liabilities in all cases except when they arise on the initial recognition of goodwill or of an asset or liability in a transaction other than a business combination which at the time of the transaction does not affect the book profit or loss or the taxable income; these correspond to differences related to investments in subsidiaries, associated companies and joint ventures in which the Company has the capacity to control the time of reversal and they are not likely to be reversed in the foreseeable future.

9



(cont.)

(ii) Recognition of deferred tax assets

The Company recognizes deferred tax assets provided that:

o it is likely that there will be sufficient future tax profits to offset them or when tax legislation provides for the possibility of future conversion of deferred tax assets into a credit enforceable against the Public Administration. However, assets arising on the initial recognition of assets or liabilities in a transaction other than a business combination which at the time of the transaction does not affect either the book profit or loss or the taxable income are not recognized;

o they correspond to temporary differences related to investments in subsidiaries, associated companies and joint ventures to the extent that the temporary differences are going to reverse in the foreseeable future and that future tax profits are expected to be generated to offset the differences.

It is considered likely that the Company will have sufficient tax profits to recover deferred tax assets provided that there are sufficient taxable temporary differences related to the same tax authority and referred to the same tax subject, which are expected to reverse in the same tax year in which the deductible temporary differences are forecast to reverse or in years in which a tax loss arising on account of a deductible temporary difference may be offset with prior or subsequent profits. When the only future tax profits derive from the existence of taxable temporary differences, the deferred tax assets deriving from offsettable tax losses are limited 70% of the amount of the deferred tax liabilities recognized.

In order to determine the future tax profits, the Company takes into account tax planning opportunities, provided that it intends to adopt them or is likely to adopt them.

(iii) Measurement of deferred tax assets and liabilities

Deferred tax assets and liabilities are measured according to the tax rates that are going to be applicable in the years in which it is expected that the assets will be realized or the liabilities paid, based on the legislation and rates that are approved or about to be approved and after considering the tax consequences that will derive from the way in which the Group expects to recover the assets or settle the liabilities. For these purposes, the Company has considered the deduction for reversal of temporary measures established in the thirty-seventh transitory provision of Corporation Tax Act 27/2014, of 27 November, as an adjustment to the tax rate applicable to the deductible temporary difference associated to the non-deductibility of depreciation and amortization charged in 2013 and 2014 and the restatement of balance sheets under Act 16/2012, of 27 December.

The Company reviews the book value of deferred tax assets at the year end for the purpose of reducing said book value to the extent that it is unlikely that there will be sufficient future tax losses to offset them.

Deferred tax assets that do not fulfil the above conditions are not recognized on the consolidated balance sheet. The Company reconsiders at the year end whether the conditions have been met in order to recognize deferred tax assets that had not previously been recognized.

(iv) Offset and classification

The Company only offsets current income tax assets and liabilities if there is a legal right against the tax authorities and it intends to settle the resulting debts at their net amount or realize the assets and settle the liabilities simultaneously.

10



(cont.)

The Company only offsets deferred income tax assets and liabilities if there is a legal right of offset against the tax authorities and such assets and liabilities correspond to the same tax authority and the same tax subject or to different tax subjects that intend to settle or realize the current tax assets and liabilities at their net amount or realize the assets and settle the liabilities simultaneously, in each of the future years in which significant amounts of deferred tax assets or liabilities are expected to be recovered or settled.

Deferred tax assets and liabilities are recognized on the consolidated balance sheet as non-current assets or liabilities, independently of the expected realization or settlement date.

(i) Classification of assets and liabilities between current and non-current

The Company presents its balance sheet classifying assets and liabilities as current or non-current. For these purposes, current assets or liabilities are those which meet the following criteria:

- Assets are classified as current when they are expected to be realized or intended to be sold or consumed in the course of the Company’s normal operating cycle, are held fundamentally for the purposes of trading, are expected to be realized within a period of twelve months after the year end or consist of cash or cash equivalents, except in cases in which they cannot be exchanged or used to cancel a liability, at least within twelve months after the year end.

- Liabilities are classified as current when they are expected to be settled in the Company’s normal operating cycle, are held fundamentally for trading, have to be settled within a period of twelve months after the year end or the Company does not have an unconditional right to defer cancellation of the liabilities for twelve months after the year end date.

- Financial liabilities are classified as current when they have to be settled within twelve months after the year end even if the original term is more than twelve months and there is a refinancing or payment restructuring agreement in the long term which has been formalized after the year end date and before the annual accounts have been drawn up.

(j) Transactions between group companies

Transactions between group companies, except those related to mergers, demergers and non-cash contributions of businesses, are recognized at the fair value of the consideration paid or received. The difference between that value and the agreed amount is recorded according to the underlying economic substance.

(5) Sectorial Regulation

The regulation of the electricity sector in Spain is set out basically in Electricity Sector Act 54/1997, of 27 November (Electricity Sector Act), which has been modified by Act 24/2013, of 23 December. The most significant aspects regulated by the aforesaid Act and the regulations subsequently elaborating on it are as follows:

- The production of electricity takes place in a system of free competition.

- The transportation, distribution and the economic and technical management of the system are regulated activities.

- The supply of electricity is completely liberalized and all consumers must contract their electricity supply with a supplier. Since 1 July 2009, consumers who fulfil certain characteristics may opt to contract electricity with a Supplier of Last Resort (SoLR) and the Tariff of Last Resort (hereinafter “ToLR”) is applied to them. This tariff is an add-on tariff which the government sets, taking into account the cost of producing electricity.

- Grid access charges are the same throughout national territory and are collected by the distributors who act as collection agent for the electricity system.

11



(cont.)

(a) Electricity tariff for 2015

Order IET/2444/2014, of 19 December, establishes grid access charges from 1 January 2015 onwards.

It should also be noted that on 25 September 2010, Royal Decree 1202/2010, of 24 September, was published, which establishes the frequency of reviews of electricity grid access charges. According to this Royal Decree, grid access charges will be reviewed annually, although the Ministry of Industry, Tourism and Trade may revise them quarterly, at most, in certain cases:

- Possible timing lags due to mismatches in the settlements of regulated activities in the electricity sector.

- Regulatory changes in regulated costs.

- Exceptionally, when special circumstances arise that affect regulated costs or the parameters used to calculate them.

(6) Intangible Assets

The composition of and movement in the accounts included under Intangible Assets were as follows:

Euros 2016 Software Total Cost at 1 January 2016 122,694 122,694 Additions 49,931 49,931 Cost at 31 December 2016 172,625 172,625 Accumulated amortization at 1 January 2016 (72,407) (72,407) Amortization charge for the year (40,784) (40,784) Accumulated amortization at 31 December 2016 (113,191) (113,191) Net book value at 31 December 2016 59,434 59,434

Euros 2015 Software Total Cost at 1 January 2015 101,817 101,817 Additions 20,877 20,877 Cost at 31 December 2015 122,694 122,694 Accumulated amortization at 1 January 2015 (35,999) (35,999) Amortization charge for the year (36,408) (36,408) Accumulated amortization at 31 December 2015 (72,407) (72,407) Net book value at 31 December 2015 50,287 50,287

(a) Fully amortized assets

At 31 December 2016 fully amortized asset still in use total 101,817 euros (3,849 euros at 31 December 2015).

12



(cont.)

(7) Property, Plant and Equipment

The composition and movement in the accounts included under Property, Plant and Equipment were as follows:

Euros

2016 Buildings Plant and machinery

Fixtures, fittings, tools

and equipment Other fixed

assets Total Cost at 1 January 2016 8,205 1,180,779 96,084 52,458 1,337,526 Additions - 709,524 23,516 - 733,040

Cost at 31 December 2016 8,205 1,890,303 119,600 52,458 2,070,566

Accumulated depreciation at 1 January 2016 (391) (111,803) (11,351) (12,328) (135,873)

Depreciation charge (178) (108,609) (11,478) (12,221) (132,486)

Accumulated depreciation at 31 December 2016 (569) (220,412) (22,829) (24,549) (268,359)

Net book value at 31 December 2016 7,636 1,669,891 96,771 27,909 1,802,207

Euros

2015 Buildings Plant and machinery

Fixtures, fittings, tools

and equipment Other fixed

assets Total Cost at 1 January 2015 8,205 738,564 82,648 12,449 841,866 Additions - 442,215 13,436 40,009 495,660

Cost at 31 December 2015 8,205 1,180,779 96,084 52,458 1,337,526

Accumulated depreciation at 1 January 2015 (164) (30,858) (2,561) (3,719) (37,302)

Depreciation charge (227) (80,945) (8,790) (8,609) (98,571)

Accumulated depreciation at 31 December 2015 (391) (111,803) (11,351) (12,328) (135,873)

Net book value at 31 December 2015 7,814 1,068,976 84,733 40,130 1,201,653

(a) General

The additions for 2016 and 2015 mainly correspond to additions of plant related to the Company’s new offices.

(b) Fully depreciated assets

At 31 December 2016 and 2015, fully depreciated assets totalling 2,559 euros were still in use.

13



(cont.)

(8) Operating Leases - Lessee

The Company leases the premises where its central office is based from a group company under an operating lease. The initial lease contract established a total term of 12 years as of 30 June 2014, cancellable every two years by the Company giving 2 months’ prior notice, and establishing the obligation for the lessor to compensate the amount pending depreciation of any investment made in the building.

The Company cancelled the above-mentioned lease contract on 1 July 2016, and has signed a new contract with a related company for a term of 2 years and an annual rent that is to be updated in line with the CPI.

The other operating lease contracts correspond mainly to the rental of vehicles and computer equipment.

The amount of operating lease instalment recognized as expenses is as follows:

Euros 2016 2015

251,896 394,305

The minimum future payments in respect of non-cancellable operating leases are as follows:

Euros 2016 2015

Up to one year 13,668 360,000From one to five years 5,863 1,440,000More than five years - 2,160,000

19,531 3,960,000

(9) Risk Policy and Risk Management

(a) Financial risk factors

The Company’s activities are exposed to various financial risks: market risk (including interest risk in fair value and price risk), credit risk, liquidity risk and interest rate risk in cash flows. The Company’s overall risk management programme focuses on the uncertainty of the financial markets and seeks to minimize the potential adverse effects on the Company’s financial profitability.

Risk management is controlled by Financial Management of the Company pursuant to policies approved by the Directors. Financial Management identifies, evaluates and hedges financial risks in close collaboration with the Company’s operating units. The Directors provide written policies for overall risk management, as well as for specific matters such as exchange rate risk, interest rate risk, liquidity risk and investment of surplus liquidity.

(i) Price risk

The evolution of the price of energy on the markets in which the Company operates has a significant effect. Management of the risk associated to this evolution of prices is duly handled by the Finance and Operations departments, under the supervision of the Board of Directors.

14



(cont.)

(ii) Credit risk

The Company does not have significant concentrations of credit risk. The Company has policies to ensure that sales are made to customers with a suitable credit history. The Company has policies in place to limit the amount of risk with any financial institution.

Write-downs due to customer insolvencies, the review of individual balances based on customer credit rating is subject to a considerable amount of judgement.

(iii) Liquidity risk

The Company carries out prudent liquidity management, based on maintaining sufficient cash and marketable securities, the availability of financing through a sufficient amount of committed credit facilities and sufficient capacity to settle market positions.

(10) Financial Assets by Category

(a) Classification of financial assets by category

The classification of financial assets by category and class, together with the comparison between fair value and book value, is shown in Appendix I.

The amount of financial income (net gains in the income statement) from financial assets totalled 2,423,403 euros and 2,618,582 euros in 2016 and 2015, respectively.

(11) Financial Investments and Trade Debtors

(a) Financial investments in group and associated companies

The breakdown of financial investments in group and associated companies is as follows:

Euros Non-Current Non-Current 2016 2015

Group

Equity instruments 63,112,372 11,640,739Loans 21,893,397 8,414,639

Total 85,005,769 20,055,378

Euros Current Current 2016 2015

Group

Loans 3,294,220 1,336,595Other 208,257 1,118,372

Total 3,502,477 2,454,967

Non-current equity instruments at 31 December 2016 include the following items:

- Shareholding in the company Audax Energía, S.r.l. totalling 1,740 thousand euros, with no variation compared to 2015.

- On 29 January 2015, the document incorporating the company called Audax Energie, GmbH located in Germany was recorded in a public instrument. The contribution made totalled 50,000 euros divided into 50,000 shares of 1 euro each, fully paid up.

- Shareholding in the company Generación Iberia, S.L. totalling 697,885 euros (200,000 euros in 2015).

15



(cont.)

- New shareholding in the Polish company Deltis Sp, Z.o.o. totalling 1,513,526 euros, corresponding to 51% of that company’s shares.

- Fersa Energías Renovables, S.A.

On 9 May 2016 the Board of Directors of the Company adopted the decision to make a voluntary takeover bid on all the issued shares of the listed company Fersa Energías Renovables, S.A. (the “Bid”), and this decision was ratified by the Universal General Shareholders’ meeting held on 19 May 2016.

On 19 May 2016 the Company sent the prior announcement of the Bid to the National Securities Market Commission (Comisión Nacional del Mercado de Valores -CNMV), and proceeded to apply for authorization of the bid on 8 June 2016, which was accepted for consideration by the CNMV on 16 June 2016.

On 8 August 2016, the CNMV communicated that the result of the takeover bid on Fersa Energías Renovables, S.A. made by the Company had been accepted by 70.86% of that entity’s share capital.

At 31 December 2016 the Company has a shareholding in Fersa Energías Renovables, S.A. totalling 49,609,652 euros.

- Videowave Inversiones, S.A., SICAV

Valuation at 31 December 2016 of the 513,695 shares acquired by the Company on 24 December 2013, with an initial price of 5.27 euros per share. The shares representing the share capital of the SICAV are admitted to trading on the alternative stock market Mercado Alternativo Búrsatil (MAB).

-Firefly Investments, S.A., SICAV

Valuation at 31 December 2016 of the 400,000 shares acquired by the Company on 30 May 2014 with an initial price of 6.13 euros per shares. The shares representing the share capital of the SICAV are admitted to trading on the alternative stock market Mercado Alternativo Búrsatil (MAB).

- SNAIL Investment, S.A. SICAV

Valuation at 31 December 2016 of the 2,399,000 shares acquired by the Company on 24 November 2014 with an initial price of 1 euro per share. The shares representing the share capital of the SICAV are admitted to trading on the alternative stock market Mercado Alternativo Bursátil (MAB).

- Avantfly XXI SICAV, S.A.

Valuation at 31 December 2016 of the 239,999 shares acquired by the Company on 26 January 2015 with an initial price of 10 euros per share. The shares representing the share capital of the SICAV are admitted to trading on the alternative stock market Mercado Alternativo Bursátil (MAB).

Of the amounts reflected under long-term financial investments in group and associated companies referring to Snail Investments, S.A., SICAV, 245,000 securities with a net book value of 244,509 euros at 31 December 2016 are subject to guarantee under a special facility for foreign operations which the Company has with a financial institution (the same institution that manages the pledged shares of the company).

The long and short-term loans with group companies correspond mainly to loans granted during 2016 and 2015 to the group companies Audax Italia, S.r.l., Excelsior Times, S.L., A-Dos Energía, S.L., Deltis Sp, Z.o.o., Audax Green, S.L., ADS Energy 8.0, S.L. and Svendborg, PV VII, S.L.. These loans accrue a market interest rate.

In addition, the item Other financial assets under the heading of Short-term investments in group companies in current assets includes the balance in respect of current accounts with group companies. These operations accrue market interest rates.

During the year no dividends were received from group companies.

16



(cont.)

(b) Shareholdings in group companies

The information relating to shareholdings in group companies is presented in Appendix II.

(i) Impact on the income statement

The impact on the income statement recorded in the different shareholdings as a result of provisions and variations in the net asset value of the investments held is as follows:

Euros

Shareholding 2016 2015

Videowave Inversiones, S.A., SICAV (257,612) (59,057)

SNAIL Investment, S.A. SICAV 87,506 (115,223)

Avantfly XXI SICAV, S.A 20,677 (46,905)

Generación Iberia S.L - (81,612)

Other (2,860) -

Total (152,289) (302,797)

(c) Financial investments

The breakdown of financial investments is as follows: Euros 2016 2015 Non-current Current Non-current Current Non-related Equity instruments 2,517 1,843,382 602,109 3,313,382 Loans 75,000 - 75,000 1,500,000 Securities representing debt 70,004 - 70,004 28,745 Interest - 338 3,710 Deposits and guarantees 431,619 - 158,102 - Other 1,445,000 310,970 1,494,945 12,505,970

Total 2,024,140 2,154,690 2,400,160 17,351,807

At 31 December 2016 and 2015 the balance of current and non-current Equity Instruments mainly includes amounts held by the Company in different investment funds maturing in the short and long term, respectively.

At 31 December 2016 and 2015, Other financial assets corresponds to fixed-term deposits in financial institutions, classified as non-current or current assets depending on their maturity date, and which accrue a market interest rate.

17



(cont.)

(d) Trade and other receivables

The breakdown of trade and other receivables is as follows:

Euros 2016 2015 Current Current

Group Trade debtors 4,238,043 1,813,816

Non-related Trade debtors 51,348,441 50,341,654Other debtors 652,054 158,575Loans to employees 31,664 26,300Other receivables from Public Administrations 820,528 247,782Impairment adjustments (6,437,187) (5,666,219)

Total 50,653,543 46,921,908

(e) Impairment

The analysis of the movement in adjustment accounts representing impairment losses arising due to the credit risk of financial assets measured at amortized cost is as follows:

Euros

2016 Trade debtors Total

Current

Balance at 1 January 2016 (5,666,219) (5,666,219)

Impairment (1,993,164) (3,804,845)Reversals 533,411 533,411Eliminations against the accounting balance 688,785 2,500,466

Balance at 31 December 2016 (6,437,187) (6,437,187)

Euros

2015 Trade debtors Total

Current

Balance at 1 January 2015 (2,693,083) (2,693,083)

Impairment (3,419,662) (3,419,662)Reversals 446,526 446,527

Balance at 31 December 2015 (5,666,219) (5,666,219)

In addition, at 31 December 2016 the heading Losses, impairment and variation in provisions for commercial operations includes 1,812 thousand euros in charges to the provision for energy purchase costs.

18



(cont.)

(12) Equity

The composition of and movement in equity is presented in the statement of changes in equity.

(a) Capital

As indicated in note 1, on 8 March 2013 the sale of all the shares in the Company by Orus Energía, S.L. to Banana Phone, S.L. was formalized.

On 29 April 2013, the Sole Shareholder resolved to increase the share capital by 1,200 thousand euros, through the issue and placement in circulation of 1,200,000 new ordinary shares with a par value of 1 euro each, belonging to the same class as the outstanding shares and with identical content in terms of rights and represented by bearer securities. The shares were subscribed in full by Eléctrica Nuriel, S.L. and Banana Phone, S.L who subscribed 600,000 shares each.

On the date of the decision to increase capital, 100% of the subscribed capital was paid up through a cash contribution totalling 1,200 thousand euros.

On 23 April 2014 the Company modified its legal form to that of a public limited company (Sociedad Anónima) as indicated in note 1.

At 31 December 2016 and 2015 the Company’s share capital was represented by 1,800,000 shares with a par value of 1 euro each, fully paid up. All the shares into which the share capital is divided are of the same class and confer the same rights on shareholders.

The companies with a direct or indirect stake in the Company’s share capital of 10% or more at 31 December are as follows:

2016 2015

Company Number of

shares Percentage

shareholding Number of

shares Percentage

shareholding Banana Phone, S.L. 1,200,000 67% 1,200,000 67% Eléctrica Nuriel, S.L. 600,000 33% 600,000 33%

1,800,000 100% 1,800,000 100%

There are no restrictions on the transfer of shares, except with regard to the obligations established in the prospectus for the issue of simple bonds agreed by the Company’s Board of Directors, at its meeting held on 16 June 2014, under the terms of the Second Resolution of the General Shareholders’ Meeting of the same date (see Note 14), and which limits changes in control outside the scope of the provisions of article 42.1 of the Code of Commerce, unless authorized by a resolution of the General Meeting of Bondholders in accordance with the provisions of Article 8 of the Regulations of the Syndicate of Bondholders.

(b) Reserves

(i) Legal reserve

The legal reserve has been set up in accordance with article 274 of the Companies Act, which establishes that an amount equal to 10 per cent of the profit for the year must be transferred to this reserve until it reaches at least 20 per cent of the share capital.

It may not be distributed and if it is used to offset losses, in the event that no other sufficient reserves are available for that purposes, it must be replenished out of future profits.

19



(cont.)

(ii) Capitalization reserve

Corporation Tax Act 27/2014, of 27 November (LIS), has introduced as a new feature the Capitalization Reserve, a tax benefit applicable to taxpayers who are taxed under the general tax rate established in the LIS, i.e. 25%, although on a transitory basis during 2015 the general rate was 28%. A reduction in the taxable income equal to 10% of the increase in equity (without taking into account the result for the year) will be allowed, with a limit of 10% of the taxable income, subject to maintaining such an increase in equity for 5 years. If the above-mentioned limit comes into play, the outstanding amounts may be applied in the 2 years immediately following the end of the tax period in which the right to the reduction has been generated, respecting the same limit. In 2015, the company generated a capitalization reserve of 1,098,947 euros.

(iii) Voluntary reserves

Voluntary reserves may be freely distributed. However, the distribution of dividends is subject to the provisions established in the prospectus for the issue of simple bonds resolved on by the Company’s Board of Directors at its meeting held on 16 June 2014, under the Second Resolution of the General Shareholders’ Meeting of the same date (see Note 14).

(13) Financial Liabilities by Category

(a) Classification of financial liabilities by category

The classification of financial liabilities by category and class, together with a comparison between the fair value and the book value, is show in Appendix III.

(14) Financial Debts and Trade Creditors

(a) Debts

The breakdown of debts is as follows:

2016 Euros Non-current Current

Non-related Non-convertible debentures 21,000,000 -Interest - 513,187Bank debts 41,144,500 18,009,938Guarantees and deposits received 189,786 -Other - 623,561

Total 62,334,286 19,146,686

2015 Euros

Non-current Current Non-related

Non-convertible debentures 21,000,000 -Interest - 513,188Bank debts 27,423,146 4,800,862Guarantees and deposits received 147,814 -Other - 327,705

Total 48,570,960 5,641,755

The Board of Directors of the Company, at its meeting held on 16 June, under the Second Resolution of the General Shareholders’ Meeting of the same date, resolved to issue simple bonds with a face value of twenty-one million, fully paid up on 29 July 2014, admitted for inclusion in the Alternative Bond Market (Mercado Alternativo de Renta Fija -MARF) at a fixed nominal interest rate of 5.75% p.a. until their maturity in 2019 and repayment of the total capital.

20



(cont.)

The amount included under the heading Debentures and other marketable securities in non-current liabilities at 31 December 2016 and 2015 reflects the debt payable as a result of the issue of these bonds.

On 18 May 2016 the Company took out three loans with Banco Popular Español S.A., that fall due in the year 2020, for a total of 4,000 thousand euros, accruing a market interest rate. At 31 December 2016, the balance drawn from them is 3,564 thousand euros.

In addition, during 2016, the Company has taken out a loan with Targobank, S.A., falling due in 2017, for a total of 1,000 thousand euros which is outstanding at 31 December 2016.

Furthermore, on 8 June 2016, with the aim of financing the acquisition of Fersa Energías Renovables, S.A. mentioned in note 11, the Company took out a credit facility with CaixaBank S.A., falling due on 8 June 2019, for 29,850 thousand euros, which accrues a market interest rate linked to Euribor plus an annual margin. At 31 December 2016, the outstanding balance totals 24,650 thousand euros.

In parallel with this, on the same date the Company formalized a contract with the same bank for the issue of guarantees and counterguarantees by virtue of which the Company is granted a line of guarantees for total guaranteed amount of up to 70,015,889 euros, to be used to ensure performance by the Company of the payment obligations established in the takeover bid on securities representing the share capital of Fersa Energías Renovables, S.A. At 31 December 2016, as a result of the execution of the acquisition of Fersa Energías Renovables, S.A., these contracts have been cancelled, although the shares acquired in this company are pledged subject to repayment of the credit.

The above-mentioned guarantee contract entails a series of financial ratios which are mandatory for the Company. At 31 December 2016 the Company has not incurred in breach of any of them.

(b) Trade and Other Payables

The breakdown of trade and other payables is as follows:

Euros 2016 2015 Current Current

Group

Trade creditors 2,332,562 30,044

Non-related Trade creditors 15,488,614 8,765,861Creditors 14,916,399 12,322,766Accrued wages and salaries 112,441 107,238Public Administrations for Corporation Tax (note 16) - 1,650,171Other debts with Public Administrations 5,212,649 7,319,600

Total 38,062,665 30,195,680

21



(cont.)

(c) Classification by maturity

The classification of financial liabilities by maturity is as follows:

(15) Information on deferrals of payments to suppliers. Third additional provision “Duty of Information” of Act 15/2010, of 5 July

Information on deferrals in payments to suppliers is set out below:

2016 2015 Days Days

Average payment period to suppliers 31 15Ratio of paid operations 0.97 0.96Ratio of operations pending payment 0.08 0.04

Amount in Euros

Total payments made 376,274,978 503,346,725Total outstanding payments 32,737,575 20,910,345

2016 2017 2018 2019 Subsequent

years Less current

portion Total non-

current

Debts Bank debts and other financial liabilities 19,146,686 16,759,952 17,756,974 6,817,361 (19,146,686) 41,334,286

Debentures and other marketable securities - - 21,000,000 - - 21,000,000

Trade creditors 17,821,175 - - - (17,821,175) - Sundry creditors and advances from customers 14,916,400 - - - (14,916,400) -

Accrued wages and salaries 112,441 - - - (112,441) -

Total financial liabilities 51,996,702 16,759,952 38,756,974 6,817,361 (51,996,702) 62,334,286

2015 2016 2017 2018 Subsequent

years Less current

portion Total non-

current

Debts Bank debts and other financial liabilities 5,641,755 5,877,091 5,835,586 15,858,283 (5,641,755) 27,570,960

Debentures and other marketable securities - 21,000,000 - 21,000,000

Trade creditors 8,795,905 - - - (8,795,905) - Sundry creditors and advances from customers 12,322,766 - - - (12,322,766) -

Accrued wages and salaries 107,238 - - - (107,238) -

Total financial liabilities 26,867,664 5,877,091 5,835,586 36,858,283 (26,687,664) 48,570,960

22



(cont.)

(16) Tax Situation

The breakdown of balances with Public Administrations is as follows:

Euros 2016 2015 Non-current Current Non-current Current Assets Deferred tax assets 2,480 - 4,273 - Current tax assets - 247,210 - 247,233 Value Added Tax and similar - 573,318 - 549

2,480 820,528 4,273 247,782

Liabilities Current tax liabilities - - - 1,650,171

Value Added Tax, Withholdings and similar - 5,152,921 - 7,289,877

Social Security - 59,728 - 29,723

- 5,212,649 - 8,969,771

Value Added Tax and similar includes 3,692,446 euros and 4,360,083 euros at 31 December 2016 and 2015, respectively, in relation to the Single Municipal Tax.

The Company pays Corporation Tax under the consolidated taxation regime with the companies Excelsior Times, S.L., A-Dos Energía, S.L., Eléctrica Nuriel, S.L., Orus Energía, S.L., Banana Phone, S.L., Audax Green, S.L., Orus Properties, S.L., Orus Renovables, S.L. and Generación Iberia, S.L., with Excelsior Times, S.L. as the head of the tax group.

As a result of the above-mentioned consolidated taxation, the Corporation Tax balance is presented as balances with group companies.

At 31 December 2016, the Company is open to tax inspection in respect of all the principal taxes applicable to it since 1 January 2013 (1 January 2012 for Corporation Tax) that are not statute-barred.

As a result, among others, of the different possible interpretations of ruling tax legislation, additional liabilities may arise as a result of an inspection. However, the Directors consider that any such liabilities, should they arise, would not significantly affect the annual accounts.

(a) Income tax

The reconciliation between net income and expenses for the year and taxable income is detailed in Appendix IV.

The relationship between income tax expense/(income) and the profit/(loss) for the year is detailed in Appendix V.

23



(cont.)

The detail of deferred tax assets by type of assets is as follows:

Euros 2016 2015

Deferred taxes

Fixed assets 2,480 4,273

2,480 4,273

(17) Environmental Information

There are no important assets either in the current year or in the previous year dedicated to the protection and improvement of the environment, and no relevant expenses of this nature have been incurred.

The Directors of the Company consider that there are no significant contingencies related to the protection and improvement of the environment, and do not consider it necessary to record any provision whatsoever in this regard.

(18) Balances and Transactions with Related Parties

(a) Balances with related parties

The breakdown of balances by categories is as follows: Euros

2016 Controlling company

Group companies Total

Long-term investments in Group and associated companies 6,624,681 78,381,088 85,005,769

Trade and other receivables

Trade debtors for sales and services

rendered, short term 30,696 4,207,347 4,238,043

Short-term investments in group and associated companies 86,843 3,415,634 3,502,477

Total assets 6,742,220 86,004,069 92,746,289

Short-term debts with group and associated companies (2,437,718) (30,444) (2,468,162)

Trade and other payables

Trade creditors (875,439) (1,457,123) (2,332,562) Total liabilities (3,313,157) (1,487,567) (4,800,724)

24



(cont.)

Euros


Group companies Total

Long-term investments in Group and associated companies - 20,055,378 20,055,378

Trade and other receivables

Trade debtors for sales and services

rendered, short term - 1,813,816 1,813,816

Short-term investments in group and associated companies - 2,454,967 2,454,967

Total assets - 24,324,161 24,324,161

Long-term debts with group and associated companies -


Trade creditors - (30,044) (30,044) Total non-current liabilities - (30,044) (30,044)


Total liabilities - (30,044) (30,044)

The balance classified as Short-term debts with group and associated companies mainly corresponds to the balance with Excelsior Times, S.L. as a result of the consolidated taxation regime applied to the Company since 2016.

(b) Transactions of the Company with related parties

The amounts of the Company’s transactions with related parties are as follows:

Euros


Group companies

Other related parties Total

Income Net sales Sales 325,801 11,333,593 - 11,659,394 Financial instruments

Financial income 459,306 409,146 - 868,452

Total Income 785,107 11,742,739 - 12,527,846

Expenses Purchases - 4,528,565 - 4,528,565Operating lease expenses 189,675 189,675Other services received 986,848 - - 986,848Financial instruments Financial expenses - 7,721 - 7,721 Total Expenses 986,848 4,725,961 - 5,712,809

25



(cont.)

Euros


Group companies

Other related parties Total

Income Net sales Sales - 1,502,442 - 1,502,442Financial instruments Financial income - 10,656 - 10,556

Total Income - 1,513,098 1,513,098

Expenses Operating lease expenses - 360,000 - 360,000Other services received 1,287,491 167,858 - 1,455,349Financial instruments Financial expenses 18,467 - - 18,467

Total Expenses 1,305,958 527,858 - 1,833,816

During 2016 and 2015 the most significant transactions carried out with group companies correspond to sales of energy through bilateral contracts, as well as billing other companies for work carried out by employees of the Company.

As far as expenses are concerned, the most significant are those from Orus Energía, S.L., as a result of the gas purchase operations for subsequent supply, as well as the default recovery management services received from Excelsior Times, S.L.U.

In addition, the Company has distributed the dividends indicated in note 3.

(c) Information relating to the Directors and Senior Management personnel of the Company

During the year ended 31 December 2016, the Directors have received remuneration totalling 24,000 euros (40,000 euros in 2015), have not been granted advances or loans and no obligations have been undertaken on their behalf as guarantees. Furthermore, the Company has no pension or life insurance obligations in relation to former or current Directors of the Company.

In addition, the duties of Senior Management are undertaken by the members of the Board of Directors.

(d) Shareholdings and posts in other companies of the Directors and of persons related to them

The Directors of the Company and the persons related to them have not incurred in any situation of conflict of interest that should have been disclosed in accordance with the provisions of article 229 of the Companies Act.

26



(cont.)

(19) Income and Expenses

(a) Turnover

The breakdown of turnover according to category of activity and geographical market is as follows:

Euros National Rest of European Union

2016 2015 2016 2015

Income from sale of energy 275,950,721 397,574,889 81,786,569 89,233,357

Services rendered 2,044,035 1,079,260 - -

277,994,756 398,654,149 81,768,569 89,233,357

The annual accounts for 2016 and 2015 include the financial statements of a permanent establishment in Portugal which has a similar object to the Company. Its registered address is established at Avenida das Túlipas, 6, 18º, Lisbon.

As indicated in Note 4, as the habitual period for taking meter readings does not coincide with the closing of the financial statements for the year, Company Management has made an estimate of the sales to customers which have still to be billed. The accumulated balances in respect of sales of electricity pending billing are included under the heading "Trade and other receivables" in assets on the accompany balance sheet and, at 31 December 2016, total 34,611,982 euros (31,665,879 euros at 31 December 2015). In respect of this energy, there is an estimate of invoices that have not been received for the electricity grid access costs totalling 8,908,565 euros (10,382,257 euros at 31 December 2015).

In addition, in the income statement for 2016 the Company has presented 200 thousand euros in respect of an excess of provisions associated to the provision for energy purchase costs to be incurred (1,115 thousand in 2015), according to the Company’s best estimate, based on the available historical information.

(b) Supplies

The breakdown of Consumption of goods purchased for resale, raw materials and other supplies is as follows:

Euros 2016 2015

Consumption of goods purchased for resale

Domestic purchases 329,546,752 416,908,064Intracommunity purchases 63,169 42,688,401Imports - 92,049

329,609,922 459,688,514

Consumption of raw materials and other supplies

Work done by other companies 3,829,273 2,081,592

333,439,195 461,770,106

As indicated above, as the habitual period for taking meter readings does not coincide with the closing of the financial statements for the year, Company Management makes an estimate of invoices that have not yet been received for the electricity grid access costs totalling 8,908,565 euros (10,382,257 euros at 31 December 2015). The accumulated balances for this item are included under “Trade and other payables” in liabilities on the accompanying balance sheet. In addition, there is an estimate of energy purchase invoices that have not yet been received totalling 179,626 euros (1,316,987 euros at 31 December 2015). The accumulated balances in respect of this item are included under “Trade and other payables" in liabilities on the accompanying balance sheet.

27



(cont.)

(c) Social Security and Welfare Expenses and Provisions

The breakdown of social security and welfare expenses and provisions is as follows:

Euros 2016 2015

Social Security and Welfare Employer’s Social Security contribution 674,976 459,283 Other employee welfare expenses 4,875 9,740

679,851 469,023

(d) Other operating expenses

The breakdown of other operating expenses is as follows:

Euros 2016 2015

External services 7,181,427 5,380,816 Taxes 2,709,725 3,474,259

Losses, impairment and variation in provisions for commercial operations 3,271,434 2,973,136

13,162,586 11,828,211

(e) Excess provisions

As indicated in note 19 (a), the income statement for 2016 presents 200 thousand euros in respect of an excess provision related to a provision for energy purchase costs to be incurred (1,115 thousand in 2015), according to the Company’s best estimate, based on available historical information.

In addition, at 31 December 2016 the Company has recorded a reversal of a provision in respect of the Single Municipal Tax totalling 1,836 thousand euros (1,881 thousand euros in 2015) corresponding to provisions initially recorded to cover that tax, which finally have not had to be paid.

(f) Other

During 2016 the Company has recognized income of 750 thousand euros (expense of 222 thousand euros in 2015) corresponding to the settlements of financial instruments that matured during the year.

(20) Information on employees

The average number of employees of the Company during 2016 and 2015, detailed by category, is as follows:

Numbers 2016 2015

Management 3 3 Administrative personnel 91 69

94 72

28



(cont.)

Distribution of employees and Directors by gender at the end of 2016 and 2015 is as follows: Number 2016 2015 Women Men Women Men Management 1 2 - 3 Administrative personnel 55 33 39 30

56 35 39 33

The average number of employees of the Company with a disability of 33% or more (or local equivalent qualification) during 2016 and 2015, detailed by category, is as follows:

Number 2016 2015

Administrative personnel 2 2

2 2

(21) Audit Fees

The audit firm (KPMG Auditores, S.L.) of the Company’s annual accounts accrued fees for professional services during the years ended 31 December 2016 and 2015 as detailed below:

Euros 2016 2015

For audit services 49,500 23,000For other services 29,000 13,000

78,500 36,000

The amounts indicated in the above table include all the fees for the services carried out during 2016 and 2015, independently of when they were billed.

Furthermore, other entities affiliated to KPMG International have invoiced the Company net fees for professional services during the years ended 31 December 2016 and 2015, as detailed below:

Euros 2016 2015

For advising and consulting services 98,000 -

98,000 -

29


Memoria de las Cuentas Anuales

º(22) Other Information

At 31 December 2016 and at 31 December 2015 the Company had been guaranteed by financial institutions in relation to third parties in respect of 20,911,925 euros and 25,212,296 euros, respectively. These guarantees have been provided in order to secure purchase operations on the electricity market.

(23) Post-balance-sheet Events

In January 2017 the Company has registered a programme of promissory notes in the Alternative Bond Market (Mercado Alternativo de Renta Fija -MARF) for a maximum of 50 million euros.

This appendix forms an integral part of note 10 to the annual accounts, and should be read in conjunction with it.

Appendix I 1 of 2


Classification of Financial Assets by Category for the year ended 31 December 2016

Euros Non-current Current 2016 Book value Fair value Total Book value Fair value Total

Other assets at fair value with changes in the income statement

Equity instruments Unlisted 2,517 2,517 2,517 1,843,382 1,843,382 1,843,382 Credits Variable rate 75,000 75,000 75,000 - - - Securities representing debt Unlisted 70,004 70,004 70,004 338 338 338 Loans and receivables Other financial assets 1,876,619 1,876,619 1,876,619 310,970 310,970 310,970 Trade and other receivables - - - 49,833,015 49,833,015 49,833,015 Total financial assets 2,024,140 2,024,140 2,024,140 51,987,705 51,987,705 51,987,705


Appendix I 2 of 2


Classification of Financial Assets by Category for the year ended 31 December 2015

Euros Non-current Currentº2015 Book value Fair value Total Book value Fair value Total

Other assets at fair value with changes in the income statement

Equity instruments Unlisted 602,109 602,109 602,109 3,313,382 3,313,382 3,313,382 Credits Variable rate 75,000 75,000 75,000 1,500,000 1,500,000 1,500,000 Securities representing debt Unlisted 70,004 70,004 70,004 32,455 32,455 32,455 Loans and receivables Other financial assets 1,653,047 1,653,047 1,635,047 12,505,970 12,505,970 12,505,970 Trade and other receivables - - - 46,674,126 46,674,126 46,674,126 Total financial assets 2,400,160 2,400,160 2,400,160 64,025,933 64,025,933 64,025,933


Appendix II 1 of 2


Information relating to group companies for the year ended 31 December 2016

%

shareholding

Name Domicile Activity Auditor Direct Capital

Reserves and other equity

items Operating Continuing Total equity

Net book value of

shareholding Generación Iberia, S.L. Spain Generation - 100% 200,000 167,349 (23,697) (192,839) 174,510 697,885 Audax Energía, S.R.L. Italy Supply - 100% 100,000 1,720,655 (665,620) (939,441) 881,214 1,740,000 Audax Energie, GmbH Germany Supply - 100% 50,000 (201,049) (138,270) (344,722) (495,771) 50,000 Videowave Inversiones SICAV, S.A, Spain Investment Deloitte 99.97% 7,694,575 (5,029,084) (28,834) (256,931) 2,408,560 2,408,560 Firefly Investments SICAV, S.A. Spain Investment Vir Audit 100% 2,451,282 90,908 (29,721) 60,621 2,602,811 2,543,201 Avantfly XXI, SICAV, S.A. Spain Investment Deloitte 99.96% 2,401,040 (239,615) (34,607) 20,676 2,183,075 2,183,075 Snail Investment, SICAV, SA Spain Investment Deloitte 99.89% 2,401,776 (124,242) (17,996) 88,939 2,366,473 2,366,473 Deltis SP. Z.o.o. Poland Supply - 51% 114,244 323,032 (333,967) (346,134) 91,142 1,513,526 Fersa Energías Renovables, S.A. Spain Generation Deloitte 70.86% 98,002,644 13,977,863 3,486,788 (31,247,863) 80,732,644 49,609,652 63,112,372


Appendix II 2 of 2

AUDAX ENERGÍA, S.A. Information relating to group companies

for the year ended 31 December 2015

%

shareholding

Name Domicile Activity Auditor Direct Capital Reserves Other equity

items Operating Continuing Total equity

Net book value of

shareholding Generación Iberia, S.L. Spain Generation - 100% 200,000 (223,085) - (23,697) (1,114) (34,199) 200,000 Audax Energía, S.R.L. Italy Supply - 100% 100,000 (46,064)) 1,500,000 399,924 266,719 1,820,655 1,740,000 Audax Energie, GmbH Germany Supply - 100% 50,000 0 0 (56,658) (56,658) (6,658) 50,000 Videowave Inversiones SICAV, S.A, Spain Investment Deloitte 99.97% 7,694,575 2,673,490 (5,074,096) (30,084) 45,593 2,666,172 2,666,172 Firefly Investments SICAV, S.A. Spain Investment Vir Audit 100% 2,451,282 66,958 80 (26,572) 24,881 2,543,201 2,543,201 Avantfly XXI, SICAV, S.A. Spain Investment Deloitte 99.96% 2,401,040 (3) (34,607) (238,638) 2,162,399 2,162,399 Snail Investment, SICAV, SA Spain Investment Deloitte 99.89% 2,401,715 (28) (5,859) (29,030) (116,648) 2,279,180 2,278,967

11,640,739


Appendix III 1 of 2


Detail of Financial Liabilities by Category for the year ended 31 December 2016

Euros Non-current Current 2016 Book value Fair value Total Book value Fair value Total Debits and payables Bank debts Debentures and other marketable securities 21,000,000 21,000,000 21,000,000 Bank debts 41,144,500 41,144,500 41,144,500 18,523,125 18,523,125 18,523,125 Other financial liabilities 189,786 189,786 189,786 623,561 623,561 623,561 Trade and other payables 32,850,016 32,850,016 32,850,016 Total financial liabilities 62,334,286 62,334,286 62,334,286 51,996,702 51,996,702 51,996,702


Appendix III 2 of 2


Detail of Financial Liabilities by Category for the year ended 31 December 2015

Euros Non-current Current 2015 Book value Fair value Total Book value Fair value Total Debits and payables Bank debts Debentures and other marketable securities 21,000,000 21,000,000 21,000,000 - - - Bank debts 27,423,146 27,423,146 27,423,146 5,314,050 5,314,050 5,314,050 Other financial liabilities 147,814 147,814 147,814 327,705 327,705 327,705 Trade and other payables - - - 21,225,909 21,225,909 21,225,909 Total financial liabilities 48,570,960 48,570,960 48,570,960 26,867,664 26,867,664 26,867,664


Appendix IV 1 of 2

AUDAX ENERGÍA, S.A. Reconciliation between net income and expenses for the year and taxable income


EurosIncome Statement Income and expenses attributed to equity

2016 Increases Decreases Net Increases Decreases Net Total

Balance of income and expenses for the year 11,878,708 - 11,878,708 Corporation Tax (3,883,238) - (3,883,238) Profit/(loss) before taxes 15,761,946 - 15,761,946 Permanent differences 720,720 108,183 612,537 - 612,537 Temporary differences Of the individual Company 5.,75 (5,975) - (5,975) Reduction in respect of capitalization reserve 1,066,079 (1,066,079) - (1,066,079) Taxable income (Tax profit) 720,720 1,180,237 15,302,429 - 15,302,429


Appendix IV 2 of 2

AUDAX ENERGÍA, S.A. Reconciliation between net income and expenses for the year and taxable income


EurosIncome Statement Income and expenses attributed to equity

2015 Increases Decreases Net Increases Decreases Net Total

Balance of income and expenses for the year 12,100,960 - 12,100,960 Corporation Tax (4,379,159) - (4,379,159) Profit/(loss) before taxes 16,480,119 - 16,480,119 Permanent differences 552,477 552,477 - 552,477 Temporary differences Of the individual Company 6,886 (6,886) - (6,886) Reduction in respect of capitalization reserve 1,098,947 (1,098,947) (1,098,947)

15,926,763 - 15,926,763

Taxable income (Tax profit)


Appendix V 1 of 2

AUDAX ENERGÍA, S.A. Relationship between income tax expense/(income) and the profit/(loss) for the year


EurosIncome Statement Equity Total

Balance of income and expenses before taxes for the year Tax at 25% 3,940,487 - 3,940,487 Non-taxable income (27,045) - (27,045) Non-deductible expenses 180,179 - 180,179 Reduction in respect of capitalization reserve (266,520) - (266,520) Deductions and rebates for the current year (1,792) - (1,792) Prior-year adjustments 57,929 - 57,929

Income tax expense/(income) On continuing operations 3,883,238 - 3,883,238


Appendix V 2 of 2

AUDAX ENERGÍA, S.A. Relationship between income tax expense/(income) and the profit/(loss) for the year


EurosIncome Statement Equity Total

Balance of income and expenses before taxes for the year 16,480,119 - 16,480.,19 Tax at 25% 4,614,433 - 4,614,433 Non-taxable income Non-deductible expenses 154,693 - 154,693 Reduction in respect of capitalization reserve (307,705) - (307,705) Deductions and rebates for the current year (50,833) - (50,833) Prior-year adjustments (31,429) - (31,429)

Income tax expense/(income) On continuing operations 4,379,159 - 4,379,159


Directors’ Report


1. General presentation of the Company:

Audax Energia, S.A. (hereinafter Audax or the Company), is a public limited company (sociedad anónima) with an indefinite term and with registered office in Badalona, Avenida Navarra,14, with Tax Identification Number A85258549.

Audax is an electricity supplier company. In 2009 the liberalization of electricity supply in Spain took place, leading to the entry of new competitors in the supply activity, generating greater competition among them. During these years Audax has grown very significantly and in 2016 was among the top 10 companies in volume of MW supplied.

The market currently offers three types of tariffs, with Audax being one of the few companies that offers all three alternatives:

i. Fixed Price: This lets the final price be decided by modifying consumption parameters. ii. Indexed Price: This lets the energy be paid for at actual market price (cost price), i.e. the energy is paid for

every hour at the price at which it is being sold on the electricity market, thus overcoming time differentiation. iii. Flat Rate: The first electricity flat rate that lets the same amount be paid every month, avoiding peaks in the

months of greatest consumption and incorrect estimated readings, calculated in a personalized way according to the needs of each customer, mainly household customers.

In spite of this, 95% of the customers of Audax in 2016 opted for the Indexed Tariff, as it is the one which has permitted the greatest savings for customers.

2. Evolution of the business and situation of the Company

At the end of 2016, the Company’s sales had decreased by 26% compared to 2015, recording turnover of 359.7 million euros. This decrease in turnover has been caused by the decrease in the pool price plus the decline in units consumed, which is a result of the Company’s decision to prioritize profitability over volume.

In absolute terms, the gross margin has increased by + 1.1% (26.4 million euros) compared to 2015 (26.1 million euros), while the sales margin was 7.34% in 2016, representing an increase of 37% compared to the margin for 2015 (5.35%).

The profit for the year has fallen by 1.2%, to 11.9 million euros, caused by expenses incurred in the operation for the acquisition and integration of 70.86% of Fersa Energías Renovables S.A.

Sales on the Portuguese market have undergone a decline of 7.8 % with turnover of 81 million euros 2016. This fall in turnover has been caused by the fall in the pool price plus the decline in units consumed, as a result of the Company’s decision to prioritize profitability over volume.

Following from the above, it should be noted that during 2016 the Company carried out a friendly takeover bid of the company FERSA ENERGIAS RENOVABLES, reaching 70.86% acceptance.

In addition, 51% of the shares in the company DELTIS SP ZOO, located in Poland, were acquired.

3. Research and development activities

During the year no Research and Development activities have been carried out.

4. Acquisition of own shares

No purchase operations of the Company’s own shares have been carried out during 2016.

5. Description of the main risks and uncertainties facing the Company

The Company considers that based on an analysis of its financial position and if a similar level to the current year is maintained, there are no potential risks and uncertainties that could significantly affect the Company’s assets.

Badalona, 29 March 2017


The Directors of the Company AUDAX ENERGÍA, S.A. being assembled on 29 March 2017, in compliance with the requisites established in article 253.2 of the Companies Act (Consolidating Act) and in article 37 of the Code of Commerce, proceed to draw up the annual accounts and the Directors’ report for the year running from 1 January 2016 to 31 December 2016. The annual accounts consist of the accompanying documents that precede this statement.

Signatories:

Mr Francisco José Elías Navarro

Mr Emilio Moraleda Martínez

Mr Ramiro Martínez-Pardo del Valle

Mr Rafael Garcés Beramendi

audax energía, s.a. · we have audited the accompanying annual accounts of audax energía, s.a....

Documents