annual report 2016 - smartwings · 2019-02-26 · strengthening of safety standards formally...

ANNUAL REPORT 2016TRAVEL SERVICE, a. s.

annual report 2016 | Travel Service2

Responsibility

ProspectLucidity

ReliabilityFriendship

SafetyBezpečnost

Odpovědnost

PerspektivaSrozumitelnostSpolehlivost

Přátelství

annual report | Travel Service 3

Content

1. Principal financial indicators for the reporting period 42. Opening statement of Ing. Roman Vik, general director and a member of

the board of directors 83. Report of the board of directors on company’s business activities

and balance of assets 124. About Travel Service, a. s. 215. Relationships with customers and suppliers 246. Facts recorded in the register of companies maintained by the Municipal

court in Prague 307. Shareholder structure 328. Information on shareholder structure 349. Company management 3810. Corporate governance and compliance 4111. Risk management 4312. Safety 4613. Organisational structure of the company 4814. Information about research and development 5115. Information about acquisition of own shares 5116. Events after the balance sheet date 51

Notes to the financial statements for the year ended 31 december 2016 521. General information 532. Preparation of the annual financial statements 543. General accounting principles and used accounting methods 564. Intangible, tangible and financial assets 625. Inventory 726. Receivables 747. Deferred expenses 788. Equity 809. Changes in equity 8210. Financial derivatives 8411. Provisions 8612. Payables 8713. Payables to credit institutions 9114. Operating revenue of the company 9515. Costs of consumed material, energy and services 9816. Income taxation 10117. Related party transactions 10418. Analysis of development the number of employees and structure of staff costs 10619. Other operating revenue and other operating costs 10820. Financial revenue and costs 11021. Cash flow statement 11222. Risk management 11423. Post balance sheet events 11624. Report on related parties‘ transactions 11725. Independent auditor‘s report 11926. Balance sheet 12127. Profit and loss account 12828. Cashflow 13129. Contact 133


1. Principal financial indicators for the reporting period In line with Czech Accounting Standards (in CZK thousand) 2016 2015 2014 2013 2012 2011

Financial Results

Revenue in total 16 072 105 16 467 885 16 413 200 15 369 051 11 124 616 10 961 681

where of:

Sales of own products and services 15 481 000 14 802 770 15 716 557 14 036 578 10 682 207 10 328 369

where of:

Charter Revenue 6 678 5281 7 626 701 9 431 889 8 479 493 6 973 444 7 580 942

Scheduled Flights Revenue 5 618 5952 4 247 377 3 536 331 3 290 834 2 058 929 1 881 810

Wet and Dry Lease Revenue 2 659 556 2 010 934 1 889 718 1 724 869 943 588 558 563

Sales of goods 24 495 45 764 28 953 21 937 17 976 21 204

Sales of goods 9 049 17 765 21 217 12 807 8 802 13 196

Cost of sales 14 062 108 13 504 945 14 468 197 12 779 831 9 769 260 9 691 055

where of:

Fuel Costs (No Rebilling) 2 407 644 2 708 232 4 101 519 3 819 725 3 129 713 3 222 214

Aircraft Lease 3 692 955 3 364 720 3 145 934 2 755 856 1 721 542 1 733 555

Labour Costs 1 583 520 1 316 251 1 260 742 1 265 887 1 028 288 938 246

Maintenance Costs 2 227 711 2 066 126 1 470 996 1 181 617 945 176 699 095

Added value 1 428 025 1 315 684 1 269 577 1 269 554 921 749 650 511

Operating profit (loss) 71 8533 488 356 274 184 149 530 86 283 26 439

Financial profit / (loss) 178 647 -240 491 -203 679 69 223 -22 207 -26 087

Profit / (loss) on ordinary activities after taxation 193 299 192 487 60 067 158 354 47 706 -4 469

Profit /(loss) on extraordinary activities after taxation 0 0 0 0 0 0

Profit / (loss) before taxation 250 500 247 865 70 505 218 753 64 075 352

Profit / (loss) for the accounting period after taxation 193 299 192 487 60 067 158 354 47 706 -4 469

EBIT 274 232 271 492 79 349 231 783 75 597 10 531

EBT 250 500 247 865 70 505 218 753 64 075 352


¹ Charter Revenue includes even the revenue generated by Business Jet (aerotaxi).

² Scheduled Flights Revenue includes even the revenue generated by sales of flight tickets for shared flights.

³ To provide hedging against the risks arising from fluctuations in aviation fuel prices, the Company concluded commodity swaps with gain of CZK 90,663 thousand with cooperating banks - UniCredit Bank, Komerční banka and Česká spořitelna. To ensure continuity,

this result is included in the financial profit or loss. In the event of recognition of commodity swaps as part of the aviation fuel price in operating profit or loss, the operating profit for 2016 amounted to CZK 162,516 thousand due to lower costs of aviation fuel that are

part of purchased consumables and services. As such, the financial profit is reduced to CZK 87,984 thousand.

EBITDA

EBITDAR

2011 2 586

2011 1 763 307

2012 73 643

2012 1 823 516

2013 300 404

2013 3 087 365

2014 93 529

2014 3 269 964

2015 293 309

2015 3 687 662

2016 290 390

2016 4 014 349

0

0

50 000 100 000 150 000 200 000 250 000 300 000 350 000

500 000 100 000 1 500 000 2 000 000 2 500 000 3 000 000 3 500 000 4 000 000 4 500 000


2016 2015 2014 2013 2012 2011

Balance Sheet

Assets in Total 4 458 976 3 728 543 2 993 392 2 798 280 1 998 232 1 605 436

Equity 1 981 301 982 903 777 432 735 273 575 036 526 042

Share Capital 1 241 236 250 000 250 000 250 000 250 000 250 000

Return on Equity 10,95% 25,22% 9,07% 29,75% 11,14% 0,07%

Return on Sales 1,77% 1,83% 0,50% 1,65% 0,71% 0,10%

5 000 000

6 000 000

4 000 000

3 000 000

2 000 000

1 000 000

0

2016 2015 2014 2013 2012 2011

1 98

1 30

1

982

903

777

432

735

273

575

036

526

042

4 45

8 97

6

3 72

8 54

3

2 99

3 39

2

2 79

8 28

0

1 99

8 23

2

1 60

5 43

6

Assets in Total

Equity

Assets in Total

Equity


2016 2015 2014 2013 2012 2011

Cash flow

Net cash flows from ordinary activities 189 560 -261 695 -109 128 232 625 -75 843 -51 431

Net cash flows from investing activities -511 049 -34 528 -57 918 -172 253 -50 279 -129 420

Net cash flows from financing activities 454 254 301 794 169 099 86 248 120 081 22 956

Cash and cash equivalents at the end of the accounting period

320 988

188 223

182 652

180 599

33 9

79

40 0

20

2016

2015

2014

2013

2012

2011


2. Opening statement of Ing. Roman Vik, general director and a member of the board of directorsDear Shareholders, Business Partners and Employees,

another year is over and here I am sitting in my study room, reading through a book called ‘Year 2016’

which offers fascinating, shocking and emotional stories taking place on airports, in our airplanes,

everywhere around. In this context, I cannot help but reminding you of our principal pillars supporting

the vision of Travel Service, a. s. and its subsidiaries: SAFETY, RESPONSIBILITY, FRIENDSHIP, RELIABILITY,

LUCIDITY, PROSPECT. I believe that these pillars have their substance for the community of people that

love airplanes, flying and all related things, while also offering a constantly expanding and pulsating

dimension such as the endless and pulsating universe around us. I may not know what the centre of

the universe is, but I do know that the centre and focus of our work and our efforts is the safety of our

passengers and people around us.

According to the Annual Safety Review 2016 published by the European Aviation Safety Agency (EASA),

which evaluates aviation accidents and classifies them into the most serious (Fatal Accident), less serious

(Non-Fatal Accident) and serious incidents, only one event from the “Fatal Accident” group was recorded

in commercial air transportation in airplanes with the maximum take-off mass (MTOM) of above 5,700

kg in 2015, it occurred on the Germanwings flight on 24 March 2015. With the exception of 2014 which

saw 2 accidents falling into the “Fatal Accident” category, no more than 2 accidents of this type have been

recorded since 2005. The average number of these accidents in a ten-year period, i.e. until 2015, was 1.3

accident per year. The average number of less serious accidents was 64.2 per year as indicated by the

above review. And what about the year 2016?

The review of the European Aviation Safety Agency that will discuss the overview of 2016 has not yet

been published as of today’s date. However, in pursuing the vision of the Company and its subsidiaries,

we monitor all incidents taking place in the air transportation segment.

In 2016, a number of serious airplane accidents were recorded worldwide. These include the EgyptAir

flight from the Charles de Gaulle airport in Paris to Cairo with 56 passengers and 10 crew members

onboard. Nobody survived this accident and it is suspected to have been a terrorist attack. Another

accident was the accident of the Emirates airplane that occurred at the Dubai airport on 3 August 2016.

At that time, there were 282 passengers and 18 crew members onboard. One firefighter was killed in

tackling the blaze in the accident.

An accident with tragic consequences was the accident of a TU-154 airplane in which all 85 passengers

and 8 crew members died. The cause of this accident has yet to be clarified, again the suspicion of

a terrorist attack exists. The accident of Bolivian LaMia Airlines which happened on 28 November 2016

led to the death of 71 passengers of the 77 persons onboard. One of the possible causes of this tragic

accident might have been the lack of fuel, but also a system failure, as indicated by the Hispanic-American

media agency.

The above accidents confirm the well-known facts that accidents are preceded by incidents and safety

deficiencies and underestimation of safety risks. The underestimation of any risks might have fatal

and catastrophic consequences not only for Travel Service, a. s. and its subsidiaries, but also for our

environment. We seek to learn lessons from each event that occurs anywhere around the world and we

seek to adopt new, primarily preventive measures, such as measures in flight planning, including the

specification of the estimated fuel consumption and relating reserves, in aircraft maintenance, training

of crews and training of other employees, set-up of processes, etc. The day-to-day efforts relating to the

strengthening of safety standards formally culminated in the successful completion of the IOSA audit as

part of the IATA Operational Safety Audit Program (IOSA), and the Company is a registered IOSA OPERATOR

with the registration effective until 30 November 2018.

The technical condition of aircraft is very important for air transportation safety. In 2016, similarly as in the

previous year, we paid maximum attention to aircraft maintenance and the scope of performed work

exceeded the requirements of the aircraft manufacturer, all this in pursuit of safety. In aircraft maintenance, we

cooperated with reputable certified and proven suppliers. The costs directly involved in aircraft maintenance,

net of payroll and other staff costs of technical section employees, exceeded CZK 1,100,577 thousand.

Nevertheless, technology is and always will be only technology; the key factor are people, our employees.


What I believe in most in today’s world where various religions, interests, cultures and traditions meet,

is the responsiveness, attention, intelligence and education, flexibility, responsibility, experience and

enthusiasm, and loyalty and skills of our employees and employees of our subsidiaries. We all need to be

constantly alert to ensuring the safety of our passengers, and other people around us.

In addition, we are fully aware of our responsibility towards our passengers, suppliers, environment,

company, employees and shareholders of the Company.

In 2016, we implemented a series of measures with the objective of mitigating the impacts of passenger

air transportation on the environment and becoming part of the worldwide Earth protection process,

primarily in relation to the production of carbon dioxide. In an effort to reduce the aerodynamic resistance

of aircraft, aviation fuel consumption and production of carbon dioxide, we worked, for example, on

polishing the leading edges, we covered the aerodynamically sensitive parts of aircraft with nano paint

coating, we optimised the filling of aircraft with aviation fuel and we took other measures leading to

a decrease in the total weight of operated aircraft which eventually results in carbon dioxide production

being reduced.

All of our aircraft are equipped with first-aid devices and defibrillators over and above the level required

by the applicable legislation, the crew regularly attends training focused on first-aid, hygiene and sanitary

requirements, behaviour and handling of emergency situations. We conduct regular audits of our partners

that provide aircraft repairs, aircraft handling, etc.

In 2016, the share capital of the Company was increased from the original amount of CZK 250,000

thousand to CZK 1,241,236 thousand. The share capital was increased by CZK 991,236 thousand which

enhanced the Company’s credibility, reliability and prospects. A significant portion of this sum was used

in making advance payments to Boeing for the acquisition of new 737 – 8 MAX aircraft and their inclusion

in the assets of Travel Service, a. s. Other advance payments were made to leasing companies in relation

to supplies of new aircraft of the same type under operating leases. The gradual renewal of the aircraft

fleet will commence in 2018 and the new type of aircraft will be gradually supplied until the end of 2024.

We need to be ready to respond to changes in a relatively close environment, albeit located thousands of

kilometres away from us. We need to be able to respond to the changing market environment and have

a clear perspective, define risks and subsequently mitigate them and take on only reasonable, calculated

and acceptable business risks.

The public referendum held in the United Kingdom decided, by 52 percent to 48 percent, on the exit

of the United Kingdom from the European Union. The result raises numerous questions. For example,

whether the United Kingdom will remain a full-fledged member of the European Common Aviation Area

(ECAA), how to deal with a perceived imbalance between the number of visitors to the United Kingdom

from other EU countries, in 2016 approximately 27.6 million as compared to 56.1 million U.K citizens

travelling to other EU countries, and the related net deficit in revenues and expenses of approximately

£18.1 billion? What will become of the EU Open Skies Agreement which is supervised by the Court of

Justice of the European Union when the current prime minister, Theresa May, prefers the UK not being

subjected to the rulings of the Court of Justice of the European Union. How will the slots for European

transporters be allocated in London and whether the 2006 situation when American transporters moved

from the Gatwick airport to the more lucrative Heathrow airport in relation to the termination of the

Bermuda II Agreement will recur?

In 2016, we continued to take maximum possible care of our passengers and customers. Unfortunately,

and with a certain degree of displeasure, I must say that the average delay of our operated flights

increased from 15 to 20 minutes in 2016. In this regard, vast room for improvement in our work exists. For

this reason, a work committee was established as an auxiliary body of the Board of Directors, its members

are representatives of individual Company divisions (technical, operational, business), and its mandate is

to evaluate the reasons underlying individual delays and to follow up on these findings by proposing and

acting upon remedial measures.


With a view to capitalising on market prospects, we conduct marketing surveys and we search for new

perspectives and market opportunities in Asia, North and South America and Africa (for example in

relation to the Yamoussoukro Decision leading to the liberalisation of African skies; twenty African Union

member states (Egypt, Ethiopia, Kenya, Nigeria, Ghana, Guinea, etc.) have signed an obligation to update

the commitment of the internal single market in Africa).

I believe that we were successful in embracing and implementing the Company’s vision in 2016, primarily

in terms of safety, responsibility, friendly approach, reliability and prospects. It is necessary to continue

in these trends in the following periods and intensify our efforts in searching for new opportunities,

improvement in provided services and our own products.

Thank you all for cooperation, opportunities and fair approach.

Sincerely

Roman Vik


3. Report of the board of directors on company’s business activities and balance of assets The Board of Directors decides all issues of the Company that are not defined as within the authority of

the General Meeting or the Supervisory Board by generally binding regulations or Company’s Articles

of Association. The Board of Directors primarily engages in business management of the Company,

exercises rights and obligations of an employer, grants consent with the transfer of shares and their

pledge, provides for bookkeeping and preparation of the financial statements in accordance with legal

regulations, etc. The Board of Directors cooperates with statutory bodies of subsidiaries when determining

and implementing business policy.

3.1 BUSINESS ACTIVITIES IN 2016

The Company and its three subsidiaries, i.e. Travel Service Polska Sp. z o. o, Travel Service Kft., Travel

Service Slovensko s. r. o., engage in scheduled and charter carriage by air, interstate and international air

transportation of passengers, their luggage, animals, mail and cargo. The fourth subsidiary Travel Service

GmbH is dormant. The last of the subsidiaries – T. S. Building, s. r. o. engages in different principal business

activities, lease of immovable assets.

The Company’s Board of Directors determines and implements principal lines of the business and marketing

policy of the group in air transportation, determines principal lines and concept of the group’s aircraft fleet,

determines general characteristics for procurement of inputs, e.g. in procurement of fuel and provision

other necessary preconditions needed for the generation of sales, provides for the funding of the Company.

The Board of Directors takes such measures that ensure financial and economic stability of the Company

while its growth is sustainable, achievement of adequate profit of the Company, adequate appreciation

of its assets and assets of shareholders. The implementation of the above measures is based on SAFETY,

RESPONSIBILITY, FRIENDSHIP, RELIABILITY, LUCIDITY, PROSPECT pillars.

The Company supplies the market with products consisting primarily in the generation of income from

charter transportation of passengers, charter flights, scheduled transportation of passengers, lease of aircraft

including their maintenance, insurance and qualified crews (WET LEASE), lease of aircraft without standard

maintenance, usual insurance and qualified crews (DRY LEASE) and aerotaxi in the Business Jet category.

In respect of the focus of its business activities, these primarily include services provided to other business

entities (B2B), end customers – individual passengers (B2C) while building a strong “SMARTWINGS” brand.

The group of income generated in B2B predominantly includes charter flights and aircraft leases, income

generated from B2C includes regular transportation of passengers.

The business plan prepared by the Company anticipated total sales of own products and services CZK

15,004,880 thousand for 2016, of which charter transportation of passengers in the amount of CZK

7,372,773 thousand, regular transportation of passengers in the amount of CZK 5,229,726 thousand and

aircraft leases and relating services (WET and DRY LEASE) in the amount of CZK 2,078,413 thousand.

The Company’s operating profit was planned in the aggregate amount of CZK 244,238 thousand and the

profit for the reporting period in the amount of CZK 62,619 thousand. In accordance with the financial

statements, the operating profit amounted to CZK 71,853 thousand; to ensure continuity the result

relating to hedging of fuel prices (hedging instruments – derivatives in the form of commodity swaps) is

recognised in the financial profit and had no accounting effect on the aviation fuel costs, though they are

concluded to hedge against its price fluctuation. In 2016, the income from these derivatives amounted

to CZK 90,663 thousand. The profit for the 2016 reporting period was CZK 193,299 thousand. Profit before

tax amounted to CZK 250,500 thousand in 2016 (2015: CZK 247,865 thousand).

The completed flights and other business activities generated total sales of products and services of CZK

15,481,000 thousand (2015: CZK 14,802,770 thousand). In charter transportation, total sales amounted to CZK

6,449,918 thousand in 2016 (2015: CZK 7,495,260 thousand), schedules transportation of passengers generated

sales of CZK 4,904,563 thousand in 2016 (2015: CZK 3,504,554 thousand), the product consisting in the lease of

aircraft and relating services generated sales of CZK 2,659,556 thousand (2015: CZK 2,010,934 thousand), sold

tickets on flights shared with České aerolinie, a. s. generated sales of CZK 714,032 thousand (2015: CZK 742,823

thousand), aerotaxi services in 2016 totalled CZK 228,610 thousand (2015: CZK 131,441 thousand). Other

services primarily consisting in the rebilling of purchased services, advertising (2016: CZK 21,718 thousand,

2015: CZK 29,108 thousand) amounted to CZK 524,321 thousand (2015: CZK 577,258 thousand).


Sales in B2B are generated based on long-term relationships with entities operating primarily on the

market of the Czech Republic, other European Community countries, North America and Middle East.

The aircraft lease (WET and DRY LEASE) is also provided to subsidiaries Travel Service Polska Sp. z o. o.,

Travel Service Slovensko s. r. o. and Travel Service Kft. Subsidiaries “transform” this product primarily into

passenger charter transportation services. Leases to subsidiaries are provided on a market basis, on an

arm’s length principle. Sales from the direct lease of aircraft to subsidiaries amounted to CZK 214,902

thousand in 2016 (2015: CZK 624,755 thousand). Travel Service Slovensko s. r. o. operated its own OM-TSG

aircraft (2015: OM-HCA, OM-TSG) which flew 1,021.70 BH on TVQ flights (2015: 1,293.07 BH). Travel Service

Polska Sp. z o. o. operated aircraft with SP-TVZ registration which flew 1,234.08 BH on TVP flights (2015:

1,091.08 BH).

In 2016, the Company operated 12,682 (2015: 14,086) charter flights of 40,121.63 block hours (2015:

44,456.32 block hours), 12,505 flights on scheduled lines (2015: 9,901), i.e. 34,102.18 BH (2015: 26,030.02

BH) and 45,836.87 BH of aircraft leases (2015: 36,661 BH). In aerotaxi services, the Company operated

2,819.05 BH (2015: 1,639.18 BH). Other flights, such as flyovers, technical maiden flights, training of crews

amounted to 3,711.43 BH (2015: 2,999.18). In 2016, subsidiaries recorded the total of 15,642.70 BH (2015:

17,353.38 BH).

In total, the Company recorded 126,591.17 BH, and the group recorded 142,233.97 BH in 2016. In the

previous year, i.e. 2015, the Company recorded 111,785.70 BH of flights and the group recorded 129,139.08

BH.

To provide for the above block hours (BH) and generate the income, the Company used the fleet of

aircraft registered by the Company, or its subsidiaries, with the relevant civil aviation authority. The above

performance, predominantly charter and scheduled flights and aircraft leases, was ensured primarily by

28 (2015: 29) Boeing 737-800 aircraft in the most frequently used configuration for 189 passengers with

the total of 104,065.07 BH (2015: 100,990.17 BH) of which for the Company 89,386.22 BH (2015: 88,885.20

BH), two (2015: 1) Boeing 737-900 aircraft with the configuration for 212 passengers with the total of

7,368.30 BH (2015: 1,961.85 BH), of which for the Company 7,365.63 BH (2015: 1,942.02 BH), and two B737-

700 aircraft with the seat capacity for 148 passengers and total of 6,113.62 BH (2015: 5,733.53 BH) of which

for the Company 5,965 BH (2015: 5,714.78 BH).

In March 2016, operating lease of Airbus A320-214 aircraft, manufacturing number 2180, registration OK-

HCB, was discontinued. In April 2016, the lease of Airbus A320-200 aircraft, manufacturing number 4699,

registration OK-HCA, was discontinued. Both aircraft completed 117.58 BH (2015: 5,239.32 BH), of which

for the Company 110.08 BH (2015: 2,766.25 BH).

In aerotaxi services, the Company operated five Cessna 680 Citation Sovereign aircraft, one aircraft (OK-

JUR) was lent by the manufacturer for a limited period of time as part of the complaint procedure. On

average, the Company operated four aircraft of this category, with the average annual completed 704.76

BH, total of 2,819.05 BH (2015: 1,646.85 BH, for the Company 1,639.18 BH). In 2016, the OK-EMA aircraft was

already fully operational; it was damaged by the handling company with which the Company concluded

a settlement agreement and the caused damage was compensated in line with the agreement.

Given the insufficient transportation capacity in the summer season, the Company leased aircraft from

well-established partners in the form of wet lease, these completed 21,750.25 BH in the reporting period

(2015: 13,613.50 BH) of which for the Company 15,787.13 BH (2015: 10,884.40 BH).

The OM-TSG and SP-TVZ aircraft of the subsidiaries completed 5,157.93 BH for the Company. The lease of

this aircraft from the subsidiaries is billed to the Company on an arm’s length basis.

In 2016, Company’s aircraft completed 101,545.72 BH in the form of Dry Lease, without any flights for

other entities. In 2015, they completed the total of 94,639.30 BH. The number of completed BH increased

year-on-year by 7.30%.


The costs relating to the direct maintenance of Company’s aircraft, including the repairs of onboard

equipment, amounted to CZK 1,106,738 thousand in 2016 (2015: CZK 904,283 thousand). The aircraft

maintenance costs increased year-on-year by 22.39%. Although the aircraft fleet of the Company

completed more hours of flight, the increased costs are also due to the “ageing” of the aircraft.

The ageing of the aircraft brings about increased maintenance costs and, in comparison with newly used

models, and increase in costs resulting from the fuel consumption and gradual withdrawal from market

positions. The above facts justify the implementation of the aircraft renewal strategy when the existing

aircraft fleet is replaced by new Boeing 737-8 MAX aircraft. Between 2018 and 2021, the Company will

gradually receive supplies of 32 new aircraft of the above type, of which 8 aircraft will be included in the

assets of the Company based on concluded purchase contracts with Boeing of 29 July 2013 (3 aircraft)

and 22 December 2016 (5 aircraft). Gradually, i.e. from January 2018 to May 2021, 24 new aircraft will be

supplied under operating leases. Leases were agreed for 12 and 13 years, i.e. the anticipated termination

of the operating lease will range from 2030 to 2034.

In 2016, the labour market saw an increased demand for experienced aircraft pilots, especially captains.

Given that situation, the Board of Directors had to adopt and implement

a number of measures, including payroll measures. As compared to 2015, when payroll costs, statutory

social security and health insurance amounted to 965,338 thousand, these costs were increased to CZK

1,150,453 thousand, i.e. by 19.18%. In addition, the costs of employee training increased from CZK 39,179

thousand in 2015 to CZK 56,874 thousand in 2016, of which the flight division accounted for CZK 56,045

thousand of the total costs of the Company. The increase in the educational costs in 2016 was 45.16%.

The average headcount in 2016 was 1,169 persons (2015: 1,082), of which the average headcount of pilots

was 282 (2015: 278 pilots), average headcount of stewards and stewardesses was 453 (2005: 416), average

headcount of employees working in the technical division was 170 (2015: 148) and other employees 264

(2015: 240).

The Board of Directors manages the hedging of the Company against business risks on an ongoing

and systematic basis. It implements measures consisting in the diversification of products, consumer

segments, products and territories on a continuous basis. The Company implements hedging against

foreign exchange rate fluctuations and aviation fuel price fluctuation.

When conditions permit it, and when it is appropriate and purposeful, the Company opens tenders for

supplies of services and products, e.g. in supplies of aviation fuel, in respect of aircraft maintenance, etc.

In certain cases, primarily where it is necessary to ensure maximum quality and reliability of supplied

services in respect of the air operation safety, the Company prefers long-term business relationships, for

example in respect of aircraft engine repairs.

Pursuant to the prepared business plan for 2017, the Board of Directors set a task for 2017 for the Company:

completed 127,821 block hours with the anticipated sales of CZK 17,120,974 thousand and the profit for

the reporting period of CZK 202,020 thousand.

Summary:

1. The planned profit of the Company for 2016 was exceed by CZK 130,680 thousand and amounts to

CZK 193,299 thousand;

2. Planned sales of own products and services of the Company were exceeded by CZK 476,120 thousand;

3. As compared to 2015, the structure of flights changed in favour of scheduled transportation and

aircraft leases;

4. In 2015, the Company discontinued the operations of the AIRBUS aircraft and made further steps to

the implementation of the aircraft unification and aircraft fleet renewal strategy;

5. The number of aircraft used for the additional business activity, aerotaxi, was increased;

6. Increased payroll and other staff costs and educational costs due to shortage of pilots;

7. Risk diversification; and

8. Planned profit after tax for 2017 has been determined on the level of CZK 202,020 thousand.

9. In 2016, we have taken further steps observing our strategy of the aircraft unification and aircraft


fleet renewal which aims at keeping our position on the market and cutting other costs spent on our

aircraft fleet that is aging.

3.2 INFORMATION ON THE BALANCE OF ASSETS

As of 31 December 2016, the assets of the Company amounted to CZK 4,458,976 thousand (2015:

3,728,543 thousand) which were “covered” by the equity of the Company of CZK 1,981,301 thousand

(2015: CZK 982,903 thousand) with the share capital of CZK 1,241,236 thousand (2015: CZK 250,000), third-

party liabilities of CZK 2,413,044 thousand (2015: CZK 2,656,027 thousand) and expenses, or deferred

income, such as purchased air tickets for flights after 31 December 2016, of CZK 61,595 thousand (2015:

CZK 48,459 thousand).

In line with the resolution of the Company’s General Meeting held on 4 May 2016, on the course of which

notarial deed NZ 251/2016 was prepared, the share capital of the Company was increased by CZK 991,236

thousand through the subscription of new shares. The issue rate of all newly subscribed shares in cash

was paid in full and the Company recorded no receivables for subscribed share capital as of 31 December

2016.

As of 31 December 2016, the assets of the Company included fixed assets of CZK 1,250,228 thousand

(2015: CZK 761,359 thousand), i.e. intangible fixed assets with the book value of CZK 64,297 thousand

(2015: CZK 29,400 thousand), tangible fixed assets of CZK 723,292 thousand (2015: 274,481 thousand)

and non-current financial assets of CZK 462,639 thousand (2015: CZK 457,478 thousand). The fixed assets

increased by CZK 488,869 thousand as compared to 2015.

Intangible fixed assets as of 31 December 2016 included emission allowances with book value of CZK

30,655 thousand (2015: CZK 4,419 thousand), software with book value of CZK 14,466 thousand (2015:

14,011 thousand) and advance payments made for intangible assets and intangible fixed assets under

construction with book value of CZK 19,138 thousand (2015: CZK 10,900 thousand). At the end of

the reporting period, the Company held 355,395 emission allowances and aviation allowances (2015:

123,141) on its asset account in the register for trading with allowances for emissions of greenhouse gases

maintained by the national administrator. The assets of the Company include the MS Dynamics NAV 2013

software application intended primarily for bookkeeping and taxes in the amount of CZK 7,872 thousand

and the EFA application, software integrating business, operational and communication activities of the

Company, including the communication with travel agencies in the book value of CZK 6,176 thousand. In

respect of intangible fixed assets under construction, the principal item is the building of the warehouse,

logistics information system and system focusing of aircraft maintenance (Computerised Aviation

Maintenance and Engineering Software) OASES with book value of CZK 8,389 thousand from the British

supplier Communications Software (Airline Systems) limited based in Tiptree, Essex.

Tangible movable assets and sets of tangible movable assets amounted to CZK 38,114 thousand (2015:

CZK 39,022 thousand) as of 31 December 2016. The assets of the Company include aircraft fuel containers

with book value of CZK 12,667 thousand, seats for aircraft of CZK 3,647 thousand, movable assets relating

to aircraft maintenance (e.g. Iplex LX videoscope with a probe, tools for the repair of aircraft brakes, airstair,

transportation cart with a cradle and bars), Dacia Logan with towing device, Škoda Octavia ACTIVE,

Volkswagen Passat, computers, office furniture. During 2016, redundant, damaged or otherwise impaired

assets were disposed of, e.g. on-board computer, KV systems, crack detection device, etc.

In fixed assets, the most significant change was recorded in tangible fixed assets, advance payments

made for the acquisition of tangible fixed assets increased from CZK 217,284 thousand as of 31 December

2015 to CZK 664,255 thousand. The increase of CZK 446,971 thousand relates to the above contracts

concluded with Boeing for the supplies of new aircraft of 29 July 2013 (contract no. 3989) and 22

December 2016 (contract no. TSF-PA-04606). On 1 April 2016, the Company made an advance payment

of USD 5,049 thousand in line with contract no. 3989, following payments of USD 5,087 thousand and

USD 6,219 thousand were made on 30 May 2016 and 30 August 2016. In accordance with the purchase

contract for the supply of 5 aircraft concluded on 22 December 2016, as indicated above, the Company

paid an advance payment of USD 800 thousand in December 2016. Other advance payments were made

after the balance sheet date.


Advance payments were partially made from medium-term loans provided by UniCredit Bank Czech

Republic and Slovakia of CZK 125,000 thousand on 18 December 2015 with regular quarterly instalments

of CZK 10,417 thousand from 31 March 2016 and maturity on 31 December 2018, loan provided by

Raiffeisenbank a. s. of CZK 125,000 thousand on 27 May 2016 with regular quarterly instalments of CZK

10,417 thousand from 30 September 2016 and maturity date on 31 May 2019. After the balance sheet

date, similar loan was provided by Česká spořitelna in the amount of CZK 150,000 thousand with maturity

on 22 February 2020.

The Board of Directors negotiates with a foreign bank and local banks on funding of aircraft that the

Company will acquire based on purchase contract no. 3989 of 29 July 2013.

Advance payments and adherence to contractual arrangements in line with concluded purchase

contracts complies with the Company’s aircraft renewal strategy. Advance payments are made in USD

and identically as similar asset items denominated in foreign currencies are exposed to exchange rate

fluctuations in terms of accounting.

Fixed assets under construction as of 31 December 2016 include assets of the Company of CZK 18,833

thousand (2015: CZK 15,344 thousand). These include recognised interest on provided loans, as indicated

above, for the acquisition of new aircraft.

The Company holds the 100% equity investments in subsidiaries:

1. Travel Service Polska Sp. z o. o, full name TRAVEL SERVICE POLSKA SPÓŁKA Z OGRANICZONA

ODPOWIEDZIALNOSCIA, corporate ID (REGON) 142926546 and (NIP) 5222978306, with its registered

office at ul. GORDONA BENNETTA, nr 2 B, lok. ---, WARSAW, code 02-159, WARSAW, POLAND, recorded

in the Register of Companies since 9 May 2011, statutory executives (CZŁONEK ZARZADU) - Jiří Jurán

and Jiří Beneš;

2. Travel Service Kft., full name Travel Service Légiforgalmi és Szolgáltató Felelősségű Tarsaság, with its

registered office at 16 Wesselényi u 16, 1077 Budapest, recorded in the Register of Companies since

22 January 2001, statutory executives - Attila Farkas and Jiří Jurán;

3. Travel Service Slovensko s. r. o., corporate ID 47 880 627 with its registered office at Ivanská cesta 30/B,

821 04 Bratislava, Slovakia, recorded in the Register of Companies since 10 September 2014, statutory

executives - Jiří Jurán, Peter Šujan and Michal Tomis;

4. Travel Service GmbH, corporate ID HRB 221461, with its registered office at 803 33 München,

Theatinerstrase 23, c/o Baker & McKenzie, recorded in the Register of Companies since 5 September

2014, statutory executive - Jiří Beneš,

5. T.S. Building, s.r.o., corporate ID 645 83 970, with its registered office at Václavské nám. 53/815, Praha 1,

110 00, recorded in the Register of Companies since 14 November 1995, statutory executives - JUDr.

Jiří Šimáně, Lenka Viková and Ing. Jiří Pavlát.

As of 31 December 2016, non-current financial assets amounted to CZK 462,639 thousand (2015: CZK

457,478 thousand) of which CZK 404,704 thousand in controlled entities

(2015: CZK 398,354 thousand). Individual equity investments were as follows:

1. Travel Service Polska Sp. z o. o. - CZK 3,080 thousand (2015: CZK 3,187 thousand)

2. Travel Service Kft. - CZK 233,465 thousand (2015: CZK 227,007 thousand)

3. Travel Service Slovensko s. r. o. - CZK 6,755 thousand (2015: CZK 6,756 thousand)

4. Travel Service GmbH - CZK 676 thousand (2015: CZK 676 thousand)

5. T.S. Building, s.r.o. - CZK 160,728 thousand (2015: CZK 160,728 thousand),

of which CZK 40,000 thousand is the payment over and above the share capital balance

The Company provides its subsidiaries, having the principal business activities consisting in air

transportation of passengers, with servicing based on contracts.

In 2016, Travel Service Polska Sp. z o. o. operated the total of 2,639 (2015: 1,639) mostly charter flights

with completed 8,870.45 (2015: 5,338.38) block hours. It used the SP-TVZ registration aircraft registered to


Travel Service Polska Sp. z o. o. and operated based on operating leases concluded with Wilmington Trust

SP Services (Dublin) Limited, the Company contractually guarantees the due payment of the lease. This

aircraft completed the total of 4,060.93 (2015: 3,618.37) block hours, of which 1,234.08 (2015: 1,091.08)

block hours for Travel Service Polska, 2,809.60 (2015: 2,527.28) block hours on flights of the Company

and 17.15 (2015: 0) block hours on flights of subsidiary Travel Service Slovensko. Other flights of 7,636.37

(2015: 4,247.30) block hours for Travel Service Polska were operated using aircraft under ACMI (Wet Lease).

In total 4,922.38 (2015: 925.53) block hours from lessors who are not group members. Lessors included

for example Canadian company Sunwing (long-term partner, mutual leases, the Company leases its

aircraft to Canada in the winter season, these were Boeing 737-800 with registrations C-FDBD, C-FJVE,

C-FYLC, C-GOFW, which completed 3,954.93 (2015: 925.53) block hours for Travel Service Polska), another

Canadian company Air Transat (Airbus 330-200 aircraft with the capacity of 345 seats, registration C-GTSN,

741,90 (2015: 0) block hours). Company’s aircraft completed 2,459.38 block hours on flights of the Polish

subsidiary and aircraft of subsidiary Travel Service Slovensko completed 254.60 block hours on flights of

the Polish subsidiary.

Pursuant to the concluded mandate contract, the Company provides Travel Service Polska with various

activities relating to its business activities, among other things, the Company maintains technical

documentation relating to aircraft operations, provides for aircraft repairs, supplies of spare parts, training

of flight and other staff, billing, preparation of business contracts, supplies of aviation fuel, insurance, etc.

In addition, the Company provides for the use and accesses to software applications, primarily to AIMS

(Aircraft Information Management System), EFA (including access for its clients), Microsoft Dynamic Nav

(bookkeeping), Salsys (warehouse management), DMS (Document Management Systems) and potential

other applications used by the Company. The Company is entitled to charge a management fee for the

provided services. In 2016, the amount of the management fee was USD 1,619 thousand (2015: USD 1,089

thousand).

In 2016, Travel Service Polska Sp. z o. o. recorded sales of PLN 282,844 thousand (2015: PLN 175,456 thousand) and

profit of PLN 2,109 thousand (2015: PLN 2,841 thousand). The average headcount in 2016 was 210 (2015: 175).

Travel Service Kft. on the air transportation market allocated 2,180.05 (2015: 3,875.32) block hours on 908

(2015: 1,472) mostly to charter flights. These flights were operated by the HA-LKG aircraft, with the original

registration OK-TVB, registered with the relevant civil aviation authority in Hungary, which completed

1,114.75 (2015: 1,126.48) block hours. Company’s aircraft completed 856.55 (2015: 2,404.21) block hours

for Travel Service, Kft., aircraft of Travel Service Slovensko, s. r. o. completed 8.28 (2015: 11.33) block hours

and aircraft of entities outside the ACMI (WET LEASE) leases completed 200.47 (2015: 333.30) block hours.

Pursuant to a concluded mandate contract, the Company is a servicing organisation for Travel Service

Kft. and provides aviation fuel, airport services, employee insurance, procures aircraft, etc. The Company

charged a management fee of EUR 627 thousand (2015: EUR 1,026 thousand) for the services provided

to Travel Service Kft.

In 2016, Travel Service Kft. recorded total sales of Ft 3,751,705 thousand (2015: Ft 6,847,790 thousand)

and profit for the reporting period of Ft 122,700 thousand (2015: Ft 146,739 thousand). The average

headcount in 2016 was 34 (2015: 34), 28 employees at the end of 2016 (2015: 25).

In 2016, Travel Service Slovensko s. r. o. operated 1,784 (2015: 3,304) mostly charter flights and completed

4,592.20 (2015: 8,185.68) block hours. Aircraft registered with the relevant civil aviation authority of

Slovakia, registration OM-TSG, operated 410 flights with completed 1,036.53 (2015: 1,349.10, including

the OM-HCA aircraft) block hours. Other flights were operated on leased aircraft under ACMI lease (WET

LEASE). Aircraft from the Company’s fleet completed 2,698.15 (2015: 5,366.32) block hours, the aircraft

leased from subsidiary Travel Service Polska Sp. z o. o. completed 17.25 (2015: 0) block hours and aircraft

leased from other entities outside the Travel Service group completed 840.27 (2015: 1,470.26) block hours.

Travel Service Slovensko s. r. o. uses, identically as the above subsidiaries, services of the Company. The

Company charged the management fee of EUR 3,011 thousand (2015: EUR 2,982 thousand) for the

provided services.


In 2016, Travel Service Slovensko s. r. o. recorded sales of EUR 51.913 thousand (2015: EUR 60,344 thousand)

and the profit for the reporting period of EUR 1,293 thousand (2015: EUR 402 thousand). The average

headcount in 2016 was 49 (2015: 63), 3 employees at the end of 2016 (2015: 4).

T.S. Building, s.r.o. is an entity which is not involved in air transportation of passengers, and it has no employees. Its

fixed assets include the building in which the registered office is located and T. S. Building rents it to the Company.

Sales of T. S. Building from the rent of the real estate amounted to 14,338 thousand in 2016 (2015: CZK 14,338

thousand) and other sales (rebilling for cleaning, security services, etc.) amounted to CZK 4,247 thousand (2015:

4,285 thousand). These are solely sales to the Company. The profit for the reporting period amounted to CZK 6.471

thousand (2015: CZK 7.791 thousand).

Since 2015, the Company has been the owner of the 34% investment in the share capital of České aerolinie a.

s., with its registered office at Evropská 846/176a, Vokovice, 160 00 Prague 6, corporate ID 45795908. In 2016,

the Company recorded sales of its own products and services of CZK 7,975,248 thousand (2015: CZK 8,057,118

thousand) and generated profit of CZK 241,382 thousand (2015: CZK 223,427 thousand). Profit before tax

amounted to CZK 241,382 thousand (2015: CZK 223,427 thousand).

As of 31 December 2016, the Company recorded long-term receivables of CZK 866,670 thousand (2015: CZK

716,502 thousand). These are primarily security deposits with book value of CZK 826,046 thousand relating to

aircraft leased under operating leases, for example aircraft, OK – TVJ registration (deposit of USD 500 thousand in

favour of WILMINGTON TRUST SP SERVICES (DUBLIN) LIMITED), OK-TVV (deposit of USD 670 thousand), etc. On 29

January 2016, the Company paid a security deposit of USD 1,900 thousand to WILMINGTON TRUST SP SERVICES

(DUBLIN) LIMITED in relation to the supply of new Boeing 737-8 MAX aircraft in accordance with the fleet renewal

strategy. The supply of the first aircraft in line with the concluded contracts for aircraft operating lease is anticipated

for May 2019. Another security deposit of USD 1,230 thousand was paid on 10 February 2016 to Celestial Aviation

Tradin 11 limted. In 2016, other deposits were paid, for example on 2 February 2016 and 4 May 2016 in relation to

the conclusion of the contract for operating lease of aircraft, OK-TSO registration. On the other hand, the security

deposit relating to the lease termination and return of aircraft with registration OK-HCB was settled.

Fixed assets, i.e. fixed assets and long-term receivables total CZK 2,116,898 thousand and are substantially

covered by the Company’s equity and medium-term loans (CZK 104,167 thousand). These long-term

funds amount to CZK 2,085,468 thousand.

The balance of inventory as of 31 December 2016, taking into account allowances for material, amounted

to CZK 441,538 thousand (2015: CZK 329,189 thousand). Allowances for inventory of material – material

of CZK 4,717 thousand (2015: CZK 4,760 thousand) were recognised for temporarily disassembled

spare parts from aircraft and represent anticipated costs of their restoring to the original condition. The

temporarily disassembled parts include for example brakes (BRAKE 737-800 HONEYWELL of CZK 19,645

thousand, BRAKE 737-800 GOODRICH of CZK 2,217 thousand, MAIN BRAKE MESSIER-BUGATTI of CZK

4,536 thousand), aircraft engine blades (FAN BLADE of CZK 6,000 thousand), main wheels of CZK 29,113

thousand, CLASS DIVIDER of CZK 8,236 thousand, etc. The inventory of material includes newly purchased

items, such as carpets for aircraft of CZK 1,762 thousand.

Other assets, including trade receivables, were assessed and allowances were recognised where needed.

As of 31 December 2016, the Company recognised allowances for receivables of CZK 71,540 thousand

(2015: CZK 51,183 thousand).

Summary:

1. The share capital was increased by CZK 991,236 thousand in 2016, the balance sheet total has

increased by CZK 730,433 thousand;

2. The increase in fixed assets primarily relates to the implementation of the aircraft renewal strategy

and advance payments made for their supplies;

3. Long-term funds “cover” fixed assets – Company’s assets;

4. All subsidiaries of the Company that are performing their business activities are profitable; the profit of Travel Service

Polska, Sp. z o. o. is PLN 2,109 thousand (CZK 12,918 thousand), the profit of Travel Service, Kft. is Ft 122,700 thousand

(CZK 10,701 thousand), the profit of the subsidiary, Travel Service Slovensko, s. r. o. is EUR 1,293 thousand (CZK 34,937

thousand) and the profit of T.S. Building, s.r.o. is CZK 6,471 thousand; CZK 65,027 thousand in total)


5. The Company is a servicing organization for its subsidiaries and mutually provided services within the

group are billed on an arm’s length basis.

6. In line with the aircraft fleet renewal strategy, advance payments were made for the supplies of new

aircraft B 737-8 MAX by way of operational leasing;

7. The increase in inventory /spare parts in stock is given by the fact that the Company must ensure the

smooth operation of aircraft and the fact that the aircraft fleet is aging;

3.3 PROPOSAL HOW TO DISTRIBUTE THE PROFIT

The Company generated the profit of CZK 193,299,111.60. The Board of Directors proposes to the general

meeting that the following profit distribution to be approved:

1. CZK 13,299,111.60 to be transferred to the fund that is used to cover any potential losses and

entrepreneurial risks of the Company;

2. CZK 180,000,000 to be transferred to the account Retained Profit of Previous Years;

Summary: The Board of Directors proposes not to pay out any dividends in 2016.

3.4 CONCLUSION

Considering results for 2016, the Board of Directors believes that the assets of the Company, including

financial investments, were appreciated in 2016, and preconditions were created for further sustainable

development of the Company and the Company is fully able to continue as a going concern.

Principal tasks for the Company for 2017 include meeting of strategic objectives as indicated above,

including the implementation of further measures relating to the aircraft fleet renewal and further

building of a strong sales brand. In addition, the Board of Directors takes measures aiming to the increase

in the Company’s equity to the amount exceeding

CZK 2,000 million as of 31 December 2017.

Company’s Board of Directors


4. About Travel Service, a. s.

Travel Service, a. s. is one of the oldest and concurrently largest private airlines in Central and Eastern

Europe, in terms of transportation capacity, size of its aircraft fleet and the number of transported

passengers, generated income or balance of its assets. The general information on the Company:

Name: Travel Service, a.s. (hereinafter the “Company”)

Registered office: K Letišti 1068/30, 160 08 Prague 6

Legal status: joint stock company

Register of Company: held by the Municipal Court in Prague, File no. B 5332

Corporate ID: 25663135

Business activities: - scheduled and charter, intrastate and international commercial air

transportation of passengers, their luggage, animals, mail and cargo

- production, trade and services not listed in appendices 1 to 3 to the Trade

Licensing Act

Travel Service, a.s. (hereinafter the “Company”) was formed in accordance with laws of the Czech Republic and is

recorded in the Register of Companies held by the Municipal Court in Prague, File B, Insert 5332. The Company

was formed by a deed of foundation prepared on 23 January 1998 in the form of notarial deed no. NZ/12/1998

(N21/1998). In its resolution with registration no. Rg. B 5332/01 of 28 April 1998, the then Regional Commercial

Court in Prague decided on the entry of Travel Service, a.s. in the Register of Companies. The above resolution took

effect and became enforceable on 28 April 1998. The Company started its business activities in 1998.

Registered office of the Company and the place of its actual administration is located at K Letišti 1068/30, 160 08

Prague 6, Czech Republic.

The Company and its subsidiaries, Travel Service Légiforgalmi és Szolgáltató Korlátolt Felelősségű Társaság,

in abbreviated form Travel Service, Kft. and Travel Service Polska Spólka z Ograniczona Odpowiedzialnošcia, in

abbreviated form Travel Service Polska Sp. z o. o. and Travel Service Slovensko s. r. o. maintained their significant

positions on the air transportation market in Hungary, Poland and Slovakia.

The Company, and its subsidiaries in Hungary, Poland and Slovakia, use the fleet of Boeing 737-900, Boeing

737 – 800, Boeing 737 – 700, Airbus A320-214 and Cessna 680 Citation Sovereign aircraft registered with

aviation authorities in the Czech Republic, Hungary, Poland and Canada. It additionally used short-term

leases of aircraft from other airlines. At the beginning of 2016, the operation of Airbus A320-214 was

discontinued and the aircraft were returned to leasing companies.

The Company holds the 100% equity investment in T. S. Building, s. r. o., corporate ID 645 83 970, with

its registered office in, Václavské nám. 53/815, Prague 1, 110 00, recorded in the Register of Companies

held by the Municipal Court in Prague, File no. C 41233 and 34% investment in the share capital of České

aerolinie a. s., with its registered office at Evropská 846/176a, Vokovice, 160 00 Prague 6, recorded in the

Register of Companies held by the Municipal Court in Prague, File no. B 1662.


The following chart shows the equity investments of the Company:

Travel Service, Kft.

(Hungary)

100%

Travel Service Polska, Sp. z o. o.

(Poland)

100%

T. S. Bulding, s. r. o.

(Czech Republic)

100%

Travel Service Slovensko, s. r. o.

(Slovakia)

100%

Travel Service GmbH

100%

České aerolinie a.s.

34%

Travel Service, a. s.

(including Travel Service, a. s. organizačná zloška Slovensko)


5. Relationships with customers and suppliers

The Company has built its relationships with customers in the long-term and it wishes its customers

to accept their customer role and keep it. Presently, companies face the toughest competition so far.

The move from the philosophy of products and sales to marketing philosophy provides companies with

a better opportunity to beat their competitors. The basic pillar of the well envisaged marketing focus

involves strong relationships with customers and concurrently the company must use the philosophic

basis stating: “If we try to provide a higher level of customer satisfaction, this fact must bring satisfaction

also to other involved parties within total available sources.” In an effort to achieve an increased customer

satisfaction, the Company took numerous measures. For examples, it concluded employment contract

with pilots and stewards and stewardesses – French citizens – in accordance with French labour law for

flights with mostly French speaking passengers.

5.1 CUSTOMERS

In 2016, the Company and its subsidiaries carried out 142,234 block hours of flights relating to services provided to Company’s customers.

2016

Carried out block hours

2015

2014

2013

2012

2011

142 234

129 185

129 833

121 475

86 759

84 145


In 2016, the Company continued the managed process of regrouping of carried out block hours between

the charter carriage and scheduled carriage in relation to the pursing of a strong trademark strategy. The

strengthening of the fleet for aero taxi and return of one aircraft back to operations due to an insured event

resulted in an increase of carried out block hours in the segment of individual transportation. The Company

recorded an increase in carried out block hours in Poland, and decrease in block hours in Slovakia and Hungary.

The following chart shows the increase in the number of carried out block hours in ACMI leases carried

out in Canada, Oman, India, etc.

60 000 Charter Carriage by Air

WET a DRY LEASE

Scheduled Carriage by Air

Business Jet

Travel Service, kft

Travel Service Polska Sp. z o. o.

Travel Slovensko, s.r.o.

30 000

40 000

50 000

20 000

10 000

0

2011 2012 2013 2014 2015 2016

54 0

09

11 2

09

12 6

83

1 44

1

4 80

2

0 0 43 6

82

17 1

53

14 1

63

2 07

5

3 73

3

5 95

3

0 53 8

73

35 1

10

19 9

34

2 27

8

2 16

9

8 11

2

0 49 2

25

47 6

57

21 6

31

2 37

9

3 62

9

4 98

0

0 44 4

56

36 6

61

26 0

30

1 63

9

3 87

5

5 33

8

8 18

6

40 1

22

45 8

37

34 1

02

2 81

9

2 18

0

8 87

0

4 59

2


5.1.1 TERRITORIAL STRUCTURE OF COMPANY’S REVENUES

The Company generated more than 97% revenues with customers or through customers based in 14 states, specifically:

1. Czech Republic - approx. 35% (2015: approx. 39%) 8. Oman - approx. 3%

2. Poland - approx. 14% (2015: approx. 14%) 9. India - approx. 3% (2015: approx. 2%)

3. France - approx. 12% (2015: approx. 10%) 10. Austria - approx. 2% (2015: approx. 1%)

4. Israel - approx. 7% (2015: approx. 4%) 11. Hungary - approx. 2% (2015: approx. 2%)

5. Canada - approx. 6% (2015: approx. 6%) 12. Norway - approx. 1% (2015: approx. 1%)

6. Slovakia - approx. 6% (2015: approx. 3%) 13. Germany - approx. 1% (2015: approx. 3%)

7. Ireland - approx. 3% (2015: approx. 5%) 14. United Kingdom - approx. 1% (2015: approx. 1%)

5.1.2 BUSINESS-TO-BUSINESS MARKET VERSUS BUSINESS-TO-CONSUMER MARKET – CHARTER

CARRIAGE, WET LEASE AND SCHEDULED CARRIAGE

The operating income of the Company is generated primarily from charter carriage, scheduled carriage

under SmartWings brand and ACMI leases (Wet Lease, or Dry Lease). The income from charter carriage

and income from ACMI (WET LEASE) is generated on B2B markets and primarily involves purchases by

travel agents and other airlines. The income from scheduled carriage is generated primarily on B2C

markets using various distribution channels. All listed income in the past 5 years show a growth trend,

the most dynamic growth has been recorded in income generated under Company’s own SmartWings

brand.


37,9

6 %

27,0

2 %

25,1

9 %

23,4

4 %

19,2

7 %

18,2

2 %

16,6

7 %

13,6

7 %

2009

71,2

9 %

Charter Revenue Scheduled Flights Revenue Wet and Dry Lease Revenue

Wet and Dry Lease Revenue Charter Revenue Scheduled Flights Revenue

60,00 %

70,00 %

80,00 %

30,00 %

40,00 %

50,00 %

20,00 %

10,00 %

0,00 %2016 2015 2014 2013 2012 2011 2010

The following chart shows the development in the share of the above income in operating income.

The share of the Company’s income generated in the B2B market and B2C market and trends in prior years were as follows:

43,1

4 % 17

,97

%

37,9

6 %

51,5

2 % 12

,80

%

27,0

2 %

60,0

1 % 13

,46

%

25,1

9 %

60,0

41 % 12

,29

%

23,4

4 %

65,2

8 % 8,

83 %

19,2

7 %

73,4

0 % 5,

41 %

18,2

2 %

73,0

0 %

6,50

%

16,6

7 %

8,60

%

13,6

7 %

60,00 %

70,00 %

80,00 %

90,00 %

30,00 %

40,00 %

50,00 %

20,00 %

10,00 %

0,00 %2016 2015 2014 2013 2012 2011 2010 2009

61,1

1 %

64,3

2 %

73,4

8 %

72,7

0 %

74,1

1 %

78,8

1 %

79,5

0 %

79,8

9 %

Revenue – B2B market

Revenue – B2C market

Mocninná (Revenue – B2B market)

Mocninná (Revenue – B2C market)


5.1.3 BUSINESS-TO-BUSINESS MARKET – B2B

The Company has built and maintained long-term relationships with its clients from amongst travel

agents and airlines. The sold products are as follows:

(i) Charter flights – sale of full aircraft capacity to one partner or division of the full capacity to blocks

and sale of individual blocks to several customers. In respect of unused capacities, in certain cases the

Company makes clearance sales to end customers through distribution channels (B2C).

(ii) Lease of aircraft, including crews, maintenance and insurance (ACMI leases, WET LEASE) when the

aircraft are controlled by the Company.

(iii) Dry Lease.

In charter carriage of persons, significant clients include entities in the Czech Republic, Slovakia, Poland,

France, Austria, Israel, etc. These are entities cooperating in the long-term with well-built customer

relationships.

The lease of aircraft is used primarily when the Company has sufficient transportation capacity available,

specifically in the winter season. Aircraft are leased to India, Oman, Canada, etc. They are leased primarily

to clients having long-term relationships with the Company. Aircraft leases are provided on a long-term

basis, e.g. Oman, Canada.

Aircraft leases are additionally provided on an ad hoc basis, for example in a situation when other airlines

have short-term insufficient transportation capacity. The high flexibility of the Company allows to

conclude these short-term contracts at any night and day time, all year round and dispatch aircraft within

6 hours from the explanation of requirements of the customer.

In 2016, the Company strengthened its position and relationships with long-term clients in EU countries

and beyond the borders of the EU. The Company has a very strong position on the B2B market in the

“Visegrad Four” countries4. The Company strengthens its business relationships with non-EU partners.

5.1.4 BUSINESS-TO-CONSUMER MARKET – B2C

The income generated from transportation under the SmartWings brand has grown faster since 2009

than other income from charter carriage. The Company is aware of the fact that its “customers are more

educated and gather more information than before and they possess tool to verify and search for better

alternatives”5. The Company differs itself from other “low-cost” company by the level of provided services.

The passengers on flights of the Company continued to enjoy numerous benefits as part of their purchase

tickets that were previously treated as standard, and which are currently paid in many competitors. The

Company does not intend to require for example payment for the use of toilets, etc. The Company does

not apply any hidden fees – e.g. additional fees for payments made by payment cards, etc. This difference

relates to the building of a strong SmartWings brand.

The Company is aware that “Building of a strong brand requires a careful planning and significant long-

term investments and the core of the successful brand is an excellent product supported by creative

marketing activities.6” For this reason, the costs relating to advertising and brand building have been

rather stable since 2012.

0

10 000

20 000

40 000

2016 2015 2014 2013 2012 2011

30 000

25 033 25 160 26 262 37 453 26 084 20 666


The SmartWings brand is registered by the Industrial Property Office, similar EU authority (the Trade Marks

and Designs Registration Office of the European Union) and the Company is the owner of the brand in

both graphic and verbal form. Given the business and sales strategy of the Company the brand has been

developed and supported in the long-term and purposefully.

5.2 SUPPLIERS

The Company has operated on the air transportation market for almost twenty years and it has built

and strengthened long-term correct relationships with its suppliers and customers based on the mutual

benefit principle.

The Company has very good relationships with fuel suppliers – Air Total International SA, Shell Czech

Republic, a. s., BP International Limited, World Fuel Services Europe Ltd., etc.

In aircraft maintenance and supplies of spare parts, long-term partners include Lufthansa Technik

Aktiengesellschaft, AJ Walter Aviation Ltd. West Sussex, Honeywell International – Chicago, Middlesex,

Phoenix, Rolle (Switzerland), Czech Airlines Technics a. s. Praha, etc.

As the Company prefers long-term relationships with its suppliers, it searches for optimum prices of

supplied services and products every year. For this purpose, it announces transparent tenders specifically

for supplies of fuel, cyclical aircraft repairs - AV CHECK, etc., when the condition for the participation in

the tender are quality criteria and final decision on the supplier depends on total costs of the Company

relating to the procurement of products and services supplies. Similar method is used for the procurement

of supplies for subsidiaries Travel Service Kft., Travel Service Polska Sp. z o. o. and Travel Service Slovensko

s. r. o.

4 Visegrad Four is a group of four Central European states: Czech Republic, Hungary, Poland and Slovakia formed in 1991.

5 Glen L. Urban, “The Emerging Era of Customer Advocacy”

6 Philip Kotler, Kevin Lane Keller, Marketing Management 12th edition, Grada Publishing


6. Facts recorded in the register of companies maintained by the Municipal court in Prague

In May 2016, the amount of the share capital was recorded in the Register of Companies, it is recorded

as paid in full in the amount of CZK 1,241,236,250 and relating records show the number of registered

shares and their nominal value (12,411 ordinary registered shares in the certificate form with the

nominal value of CZK 100,000 and similar record of CZK 136,250 shares with the nominal value of CZK

1. Share are transferrable to other shareholders or third parties only with the prior written consent of

the Company’s Board of Directors. The record of the share capital is accompanied by a record from the

General Meeting held on 4 May 2016 which decided on an increase in the hare capital.

In August 2016, Ing. Peter Šujan and Mgr. Michal Tomis, as members of the Supervisory Board, were

removed from the Register of Companies. Another record related to a change in the Supervisory Board,

Ing. Ludvík Macháček was recorded as the member of the Supervisory Board and a new member – Ing.

Marcel Hrdá was recorded as the Chairwoman of the Supervisory Board.

The composition of the Company’s Board of Directors in 2016 was as follows: JUDr. Jiří Šimáně, chairman,

Ing. Roman Vik and Ing. Jiří Jurán, members.


7. Shareholder structure

As at 31 December 2016, the shareholder structure was as follows:

(i) UNIMEX GROUP, a.s., Václavské nám. 53, Prague 1, held 1,390 ordinary shares in the certificate form

with the nominal value of CZK 100,000 per share, and 18,460 ordinary shares with the nominal value

of CZK 1 per share. The serial numbers of held shares are 337-409, 668-707, 823-838, 951-1036, 1058-

1100, 1824-1845, 5308-5824, 10708-11300, 109854-128313. The aggregate nominal value of shares

is CZK 139,018,460 and the investment of the shareholder in the share capital is 11.20%. The above

shares entitle the shareholder to exercise all shareholder rights.

(ii) Ing. Roman Vik held 1,390 ordinary shares in the certificate form with the nominal value of CZK 100,000

per share, and 18,460 ordinary shares with the nominal value of CZK 1 per share. Serial numbers of

held shares are 243-336, 435, 631-667, 785-811, 856-893, 1241-1250, 2085-2157, 4791-5307, 10115-

10707, 91394-109853. The aggregate nominal value of shares is CZK 139,018,460 and the investment

of the shareholder in the share capital is 11.20%. The above shares entitle the shareholder to exercise

all shareholder rights.

(iv) CANARIA TRAVEL, spol. s r. o., with its registered office at Horňátecká 5/481, Praha 8, corporate ID

49689428, held 3,435 ordinary shares with the nominal value of CZK 100,000 per share, and 74,194

ordinary shares with the nominal value of CZK 1 per share. Serial numbers of held shares are 410-434,

458-627, 708-784, 839-855, 894-950, 1531-1625, 2250-2500, 5825-7456, 11301-66257, 128314-148661.

The aggregate nominal value of shares is CZK 343,574,194 and the investment of the shareholder in

the share capital is 27.68%. The above shares entitle the shareholder to exercise all shareholder rights.

(v) China International Group Corporation Limited with its registered office at Room 4307-4312, 43/F,

Convention Plaza Office Tower, 1 Harbour Road, Wan Chai, Hong Kong, China, held 6,196 ordinary

shares with the nominal value of CZK 100,000 per share, and 25,136 ordinary shares with the nominal

value of CZK 1 per share. Serial numbers of held shares are 1-242, 436-457, 628-630, 812-822, 1037-

1057, 1101-1240, 1251-1530, 1626-1823, 1846-2084, 2158-2249, 2501-4790, 7457-10114, 66258-91393.

The aggregate nominal value of shares is CZK 619,625,136, and the investment of the shareholder in

the share capital is 49.92%. The above shares entitle the shareholder to exercise all shareholder rights.


8. Information on shareholder structure

Travel Service, a. s.

Roman Vik

(100%)

Mr. Ye Jianming

(90%)

Mr. Zang Jianjun

(10%)

Unimex Group, a. s.

(25%)

TO-SERVIS spol. s r. o.

(50%)

EH Group s. r. o.

(25%)

Jiří Šimáně

(60%)

Jaromír Šmejkal

(40%)

China United Association

International Funding

Centre Ltd. (70%)

Zhong Ye Equity Investment

Fund Ltd.

(30%)

Jiří Šimáně

(60%)

Jaromír Šmejkal

(40%)

Roman Vik

(50 %)

EH Goup s. r. o.

(50%)

China United Association

(HK) Limited

(100%)

Mr. Zang Jianjun

(80 %)

Mr. Lu Dachuan

(20 %)

CANARIA TRAVEL, spol. s r. o.

(27,68%, 2015: 27,68%)

Roman Vik

(11,20%, 2015: 31,16%)

UNIMEX GROUP, a. s.

(11,20%, 2015: 31,16%)

China International Group

Corporation

(49,92%, 2015: 10%)


The above chart shows that the ultimate owners of the equity investment of 50.08% are three Czech

citizens, citizens of the European Union – Jiří Šimáně, Roman Vik, Jaromír Šmejkal and one entity with

its registered office outside the European Union. The change in the shareholder structure made in

2016 resulted from an increase in the share capital of the Company from CZK 250,000 thousand to CZK

1,241,236 thousand.


Jiří Šimáně

Unimex Group, a. s., Chairman of the Board of Directors

BT Golf, s.r.o., Statutory Executive and shareholder holding

an equity investment

UG-D, a. s., Chairman of the Board of Directors

UG SHOPS, s . r. o. , Statutory Executive

TRAVEL FREE, s. r. o. , Statutory Executive

T. S. Building, s. r. o., Statutory Executive

Global Stores, a. s. , Chairman of the Board of Directors

Vinohradská BLDG, a. s. , Chairman of the Board of Directors

UNIMEX GROUP, uzavřený investiční fond, a. s., Chairman of the Board of Directors

UNI HOBBY, a. s., Chairman of the Board of Directors

Janáčkovo, a. s., Chairman of the Board of Directors

Příkopy, a. s., Chairman of the Board of Directors

Václavské, a. s., Chairman of the Board of Directors

Global Spirits s. r. o., Statutory Executive

UG Jet, s. r. o.

Roman Vik

TO-SERVIS spol. s r. o. Statutory Executive and shareholder holding


EH Group s. r. o.Statutory Executive and shareholder holding


EHQ Energy s. r. o. Shareholder holding an equity investment

EHQ s. r. o.Statutory Executive and shareholder holding


CANARIA TRAVEL, spol. s r. o., Statutory Executive


In 2016, China International Group Corporation Ltd. held an equity investment in LAPASAN, s. r. o. (77.78%),

MÉDEA, a. s. (30%), EMPRESA MÉDIA, a. s. (49%) and 100% equity investment in China International Group

Holding Corporation Ltd. in addition to the above equity investment in Travel Service, a. s.

Summary: Relationships among shareholders primarily include relationships among China International

Group Corporation Limited, Unimex Group, a. s. and Ing. Roman Vik, where the “core” business of Roman

Vik is the international air transportation, in Unimex Group, a.s. the international air transportation is one

of many other activities. Mutual relationships may be qualified as parity relationships.

Jaromír Šmejkal

Unimex Group, a. s. Vice-Chairman of the Board of Directors

REAL PROPERTY INVESTMENTS, s. r. o., Statutory Executive and shareholder holding


UG-D, a. s., Vice-Chairman of the Board of Directors

UG SHOPS, s. r. o., Statutory Executive

Travel FREE, s. r. o. , Statutory Executive

Pelicana, s. r. o, Statutory and shareholder holding an equity

investment

Stephany Fiora s. r. o.,Statutory and shareholder holding an equity

investment

Global Stores, a. s. , Vice-Chairman of the Board of Directors

Vinohradská BLDG, a. s. , Vice-Chairman of the Board of Directors

UNIMEX GROUP, uzavřený investiční fond, a. s., Vice-Chairman of the Board of Directors

UNI HOBBY, a. s., Vice-Chairman of the Board of Directors

Janáčkovo, a. s., Vice-Chairman of the Board of Directors

Příkopy, a. s., Vice-Chairman of the Board of Directors

Václavské, a. s., Vice-Chairman of the Board of Directors

Global Spirits s. r. o., Statutory Executive

UNIMEX spol. s r. o.,Statutory Executive and shareholder holding



9. Company management

9.1 GENERAL MEETING

The General Meeting is the supreme body of the Company. The share capital of the Company amounts to

CZK 1,241,236,250 and is composed of 12,411 ordinary shares with the aggregate nominal value of CZK

1,241,100,000 and 136,250 ordinary shares with the aggregate nominal value of CZK 136,250. As indicated

above, shareholders of the Company are Unimex Group, a. s., Ing. Roman Vik and CANARIA TRAVEL, spol.

s r. o. and China International Group Corporation Limited.

9.2 BOARD OF DIRECTORS

The Board of Directors is the statutory body of the Company which manages its activities and represents

the Company in a manner defined in the Articles of Association. Two members of the Board of Directors

act on behalf of the Board of Directors. The Board of Directors is entitled to authorise a member of the

Board of Directors to act on behalf of the Company. Activities of the Board of Directors are defined by

the applicable version of the Company’s Articles of Association. At its meeting held on 28 June 2012,

the Board of Directors authorised its members JUDr. Jiří Šimáně, Ing. Roma Vik and Ing. Jiří Jurán, to act

individually in all matters on behalf of the Company, in accordance with the Articles of Association and

manner of acting on behalf of the Company recorded in the corporate details held in the Register of

Companies.

Since 25 June 2014, the change in the Company’s Articles of Association has been in effect, and each

member of the Board of Directors acts individually on behalf of the Company.

Board of Directors at

31 Dec 2011:

Chairman: Jiří Šimáně

Member: Roman Vik

Member: Sigthor Einarsson


31 Dec 2012:


Member: Roman Vik

Member: Sigthor Einarsson

Member: Jiří Jurán


31 Dec 2013:


Member: Roman Vik



31 Dec 2014:


Member: Roman Vik



31 Dec 2015:


Member: Roman Vik



31 Dec 2016:


Member: Roman Vik



9.3 SUPERVISORY BOARD

(i) The Supervisory Board is the control body of the Company and it supervises the activities of the Board

of Directors and business activities of the Company.

Supervisory Board at

31 Dec 2012

Ludvík Macháček, Chairman

Michal Tomis, member

Peter Šujan, member


31 Dec 2013





31 Dec 2014





31 Dec 2015





31 Dec 2016

Marcela Hrdá, Chairwoman

Ludvík Macháček, member

Wang MIngtai, member


10. Corporate governance and compliance

The Company develops its own norms, manuals and regulations that are in line with general legal norms

and regulations. The Company has a prepared “EMERGENCY RESPONSE PLAN” PS – II – TVS – 008-08,

“SAFETY MANAGEMENT MANUAL” PŘ-I-TVS-016-01, ORGANISATIONAL MANUAL) TVS-I-011-01, etc.

The Company adheres to conditions of Act No. 49/1997 Coll., on Civil Aviation, as amended, and holds

the operating licence and the Air Operator Certificate issued by the Czech Republic through the Czech

Civil Aviation Authority. In 2015, there was not any change in the certificate of the aviation operator, the

Company successfully renewed the verification of compliance with the EASA (European Aviation Safety

Agency) requirements and the Czech civil Aviation Authority re-issued the Air Operator Certificate. In

2015, several successful external audits were conducted in the Company by business partners.


11. Risk management

As other airlines, the Company is exposed to safety, operational, commercial, credit, political, territorial,

personal, foreign exchange rate and commodity risks. Other companies engaged in international

activities are identically exposed to similar risks to a certain extent. The Company manages and defines

the level of risk acceptance, it focuses on their optimisation. As indicated above, the Company takes an

uncompromising approach relating to the provision of aviation operations safety relating to protection

of lives of people, health of passengers, its employees and other persons.

11.1 SAFETY AND OPERATIONAL RISKS, INSURANCE

The Company is exposed to operational risks arising from the substance of the international air

transportation. The Company takes all possible measures in the air transportation safety.

As part of its risk management, the Company and its subsidiaries in Slovakia, Poland and Hungary

have adequate insurance for an extensive scope of insured events, as indicated below. The Company is

a member of the “Lufthansa Aviation Insurance Group” (“LAIG”) through which all aviation risks are insured.

The insurance broker of LAIG is the “local” broker of Lufthansa Group, “Albatros Versicherungsdienste

GmbH” based in Cologne, and London broker Willis in respect of war and associated risks. Most aviation

risks are placed on the London insurance market. The leading insurer is – except for the below exception

– “Allianz Global Corporate & Specialty AG”. The insurer for the Hull Deductible Insurance and Spares All

Risk Insurance up to the primary limit is “Delvag Luftfahrtversicherungs-AG”.


Insurance Insurance limit Leading insurer Note

Combined accident and liability insuranceAccident up to USD 150 million

Including spare parts above the primary limit

Liability up to USD 850 million Combined single limit

War risk insurance up to USD 320 million Lloyd's

Above-limit war risk insurance – liability to third parties USD 350 million above USD 250 million

Allianz Primary limit of USD 250 mil

Hull Deductible InsuranceUSD 700 million above USD 50 million

Delvag Standard co-insurance USD 750 mil

Spares ALL Risk Insurance EUR 2.6 million Delvag Primary limit

Loss of Use USD 15 thousand / day Allianz Max. 45 days (starting from the 10th day)

In addition to statutory insurance, the employees of the Company, including the employees of

subsidiaries, are provided with insurance coverage when they are travelling from the Czech Republic,

Slovakia, Hungary and Poland abroad. The subject of the insurance coverage are medical treatment costs,

including dentist treatment and physiotherapy, hospitalisations, active assistance, transit, relocation and

transportation, repatriation of body remains. Travel insurance for business trips of employees has been

arranged with ERV Pojišťovna.

11.2 BUSINESS AND CREDIT RISK

Business risks are managed primarily by the diversification of markets:

• Territorial diversification – the Company provides its services to customers based in various parts of

the world (e.g. Canada, France, Austria, Switzerland, Oman, United Kingdom, Poland – see above); in

2015, airplanes of the Company landed on and took off from almost 250 airports worldwide;

• Product diversification – charter flights, scheduled carriage, wet and dry leases, aerotaxi (Business Jet

Aerocab Service) and market diversification - B2B market and B2C market;

• Credit risk – potential origination of bad receivables is covered primarily by received deposits,

received advance payments, bank guarantees. On the other hand, the Company must provide

deposits predominantly to fuel suppliers, lessors, airports, or suppliers of other services. The provision

of deposits involves provision of bank guarantees and standby (import) letters of credit to a certain

extent, that are issued by local banks, and replace the requirements of partners for provision of

deposits.

11.3 EXCHANGE RATE RISKS

The Company is exposed to foreign exchange rate risk, primarily in respect of CZK/USD and EUR/USD

currency pairs. The EUR/USD currency risk is mitigated by the sales of subsidiary Travel Service Polska, Sp.

z o. o. which generates its income in USD and records USD surplus, and lack of EUR on the other hand. In

2015, the Company increased the volume of sales in USD to achieve natural hedging, i.e. a situation when

the income and expenses, primarily in USD, are comparable. However, due to the seasonal character

of individual markets and products, there is, and there apparently will be, a time mismatch between


income and expenses in USD. Currency risks are further managed primarily by currency forwards in

cooperation with local banks - Komerční banka, a. s. a UniCredit Bank Česká republika a Slovensko, a. s.,

Česká spořitelna, a. s. and Raiffeisen Bank.

11.4 RISKS ARISING FROM FUEL PRICE FLUCTUATIONS

Risks arising from fuel price fluctuations are managed using two methods – fuel surcharges with B2B

clients and concluded derivative transactions, specifically commodity swaps with local banks– UniCredit

Bank Czech Republic and Slovakia, a. s., Komerční banka, a. s. and Česká spořitelna, a.s.

11.5 OTHER RISKS

Other risks, such as political risks, natural disasters, are managed by the diversification of products, markets

and destinations, etc. The Company is able to balance potential lack of demand for transportation services

by reduction of its transportation capacities.


12. Safety

The Company pays maximum attention to air transportation safety and preparation for dealing

with emergency situations. The Company publicly undertook to provide safe operations and healthy

environment for all its employees and customers. The pillar of the safety policy is the acceptance of

individual and collective responsibility in the recognition of risks and their management, assessment

of work procedures and awareness that familiarity and extended deficiencies results in the loss of the

possibility to assess the risks. The Company implemented the Safety Management System (SMS) which

became an integral part of the entire existing Company management system in accordance with the

above Commission Regulation (EU) No 965/2012, article ORO.GEN.200. Management system, under

which the operator shall establish, implement and maintain a management system that includes:

(1) clearly defined lines of responsibility and accountability throughout the operator, including a direct

safety accountability of the accountable manager;

(2) a description of the overall philosophies and principles of the operator with regard to safety, referred

to as the safety policy;

(3) the identification of aviation safety hazards entailed by the activities of the operator, their evaluation

and the management of associated risks, including taking actions to mitigate the risk and verify their

effectiveness;

(4) maintaining personnel trained and competent to perform their tasks;

(5) documentation of all management system key processes, including a process for making personnel

aware of their responsibilities and the procedure for amending this documentation;

(6) a function to monitor compliance of the operator with the relevant requirements. Compliance

monitoring shall include a feedback system of findings to the accountable manager to ensure

effective implementation of corrective actions as necessary.

The development, administration and management of this system is provided by the Safety Department

created for this purpose and headed by the Safety Manager.

The Company uses the SAMS software equipment for the safety management.

SAMS was fully implemented in the Company as of 30 June 2014. On 25 June 2014, internal regulation no.

č. PŘ-I-TVS-016-01/14 – “Safety Management Manual” was added.

Summary: The Company used highly qualified personal, modern software and material equipment

adhering to most recent requirements and base of regulations to ensure the maximum safety of its

operational activities, specifically safe flight operations. The Company implemented the corporate culture

of an active search for potential safety and operational risks across the entire structure of the Company

and all employees.


13. Organisational structure of the company

The below organisational structure of the Company is determined by the organisational manual while

adhering to the Company’s Articles of Association and requirements resulting from regulations and

norms relating to international air transportation.

The Board of the Directors

General Director

(Authorized Member of the Board)

Accountable Manager

Managing Director

Deputy of General Director

Safety Manager

Safety Management Department

Security Manager

Security Department

Compliance Monitoring Manager

Compliance Monitoring Department

Technical Director

Technical Division

Ground Operations Director

Ground Operations Division

Flight Operations Director

Flight Operations Division

Commercial Director

Commercial Division

Financial Director

Financial Division


13.1 COMPANY’S MANAGEMENT

Members of the Company’s management offer extensive life experience, long-term work practice and

practical skills usable in the segment of air transportation. They have university market focused education,

they graduated from universities in the Czech Republic, Slovakia and United Kingdom with technical,

economic, business, natural sciences and legal specialisations.

13.2 COMPANY’S BOARD OF DIRECTORS

JUDr. Jiří Šimáně, Chairman of the Board of Directors, graduated from the School of

Law at the Charles University in Prague, he has extensive experience in foreign trade.

From 1976, he worked in Strojexport a. s., between 1988 and 1991 as a representative

in Zambia. He is the founder of Unimex Group, a. s and its majority owner. He has been

the Chairman of the Company’s Board of Directors since 7 January 2010.

Ing. Roman Vik, member of the Board of Directors and General Director of the Company

is concurrently the shareholder of the Company. He graduated from the University of

Economics in Prague. After 1989, he started his business activities, first in procurement,

sale and distribution of copy machines. In 1997, he was an initiator and one of the

decisive founders of Travel Service, a. s.

Ing. Jiří Jurán, MBA, member of the Board of Directors, Deputy General Director – he

studied at the University of Economics in Prague and economic department of the

Technical University in Ostrava, he graduated from Sheffield Hallam University. He took

part in two-year postgraduate studies “Comprehensive Preparation of KB Managers” in

Komerční banka. Between 2001 and 2006, he was a member of the Board of Directors

and General Manager of the Czech Consolidation Agency and he was a member of the

Supervisory Board of

České aerolinie. From 1994 to 2001, he worked in Komerční banka, a.s. on various positions including

the head of the restructuring division where he, among other things, implemented a bailout of CZK 60

billion of risk assets relating to the prepared privatisation of Komerční banka, a.s. Between 1994 and 2006,

he worked together with McKinsey consultancy on several projects (transfer from the product to client

approach, project work-out). From 1992 to 1994, he worked as the CFO of Kovohutě Břidličná, including

the cooperation with the European Investment Bank on the implementation of an environmental project.

From 1990 to 1991, he worked as the investigator of Czech Police, focusing on white-collar crime. Before

1990, he worked in the then State Czechoslovak Bank.

13.3 SENIOR MANAGEMENT TEAM

Mgr. Michal Tomis, Managing Director of the Company – he graduated from the School

of Law of the Charles University in Prague. He started his career in air transportation in

1981 in Řízení letového provozu ČSR (Air Navigation Services) where he held various

positions, including the head of the aviation information services. After 1990, he

worked on various management positions in private aviation companies. He currently

holds the position of the Executive Director of Travel Service, a.s., he specialises in

aircraft acquisitions and leases, including contractual issues, aviation insurance and

regulatory affairs.

Ing. Peter Šujan, Commercial Director of the Company – he graduated from the Department

of Operations and Economics of Transport and Communications of the University in Žilina.

He started his career in 1984 in Československé Aerolinie, in navigation department where

he was responsible for navigation calculations and flight planning. He participated in the

implementation of new A310-300 aircraft in the fleet of ČSA. From 1990, he worked in

various aviation companies. Since 1997, he has worked in Travel Service, a.s., first as a person

responsible for ground operations and planning. Since 2004, he has been the Sales Director

of Travel Service, a.s. Since 2010, he has additionally been the Director of Travel Service, a.s., organizační složka

Slovensko. Since 2006, he has been a member of the Supervisory Board of Travel Service, a.s.


Ing. Pavel Veselý, Flight Operations Director of the Company – he graduated from the

University of Žilina. He started his professional career in 1988 as a commercial pilot.

In 1993, he became an airline transport pilot and he worked for regional airlines as

captain of L 410 and Jetstream BA 31 aircraft. In 1999, he completed a basic professional

training for piloting of Boeing B 737 type aircraft and became a captain of this type of

aircraft and started to work for Travel Service, a.s. Between 2001 and 2004, he was the

head of pilot training. He has worked on the position of the Flight Operations Director

since 2004.

Ing. Jan Bělina, Ground Operations Director of the Company since 1 February 2014 – he

graduated from the School of Transport at the University of Pardubice. He started his

career in 2002 in Travel Service, a.s. as an assistant to air transportation controller. From

2003, he worked as air transportation controller. Five years later, he was appointed

head of the air transport control centre of Travel Service, a.s. He has been the Ground

Operations Director since February 2014.

Ing. Luděk Stašek, Technical Director of the Company – he has worked in the

aviation industry since the completion of his studies at the Aviation Department of

the Military Academy in Brno. His first position was the head of a team of engineers

in aviation repair shops. He started to work for Travel Service, a.s. in 2007 and held

various technical positions. In 2012, he was appointed Deputy Technical Director and

actively participated in the management of the Technical Department. In 2014, he was

appointed Technical Director of Travel Service, a.s.

Mgr. Vladímíra Dufková, spokesperson – she graduated from the Faculty of Science at

the Masaryk University in Brno. From 1994, she worked as a reporter and subsequently

as a TV news anchor in TV Nova. Between 2001 and 2002, she was the spokesperson of

the minister and head of the Czech Government Office. Since November 2003, she has

been a spokesperson of Travel Service, a.s., and has been responsible for PR and

advertising.

Petr Žežulka, IT Manager of the Company – he holds MBA Basic from TC business

School accredited by International Business School Nederland, MBA at the Institute of

Law and Legal Science accredited by the International Education Society. He currently

completes the studies of the BBA legal programme at the the Institute of Law and

Legal Science. He started his career in 2001 in Dimar s.r.o. and Domicall s.r.o. where

he was responsible for the operations of IT systems. Since 2004, he has been the IT

Manager in Travel Service, a.s., responsible for overall operations of IT in the Company

and branches in Slovakia and Poland.

Mgr. Blanka Horáčková (HR Manager) – she graduated from the School of Natural

Sciences of Palacký University in Olomouc. Between 1997 and 2001, she was a lecturer

in companies focusing on training in various communication segments in Czech and

English. From 2001 to 2004, she worked as an HR advisor in Vodafone and Deloitte.

From 2004 to 2001 she worked in two leading banks (ČS, a.s. a Raiffeisenbank, a.s)

on management positions in HR departments. Before joining Travel Service, a. s., she

gained experience from rather small companies (LMC s.r.o, T&CC s.r.o) where she worked as HR project

manager, and in state administration, specifically section of Human Resources Management at the Czech

Ministry of Interior. Since July 2015, she has been the HR Manager in Travel Service, a.s.; she is responsible

for hiring of new employees and coordination of HR projects within the Company.


The Company performed no research and development activities.

The Company acquired no own shares.

See page 116 paragraph 23 Post balance sheet events.

Roman Vik

Member of the Board of Directors

Jiří Jurán


Jiří Šimáně

Chairman of the Board of Directors

14. Information about research and development

15. Information about acquisition of own shares

16. Events after the balance sheet date


Notes to the financial statements

for the year ended 31 december 2016


Name: Travel Service, a.s. (hereinafter the “Company”)

Registered office: K Letišti 1068/30, Prague 6, 16008

Legal status: joint stock company

Register of Companies: Municipal Court in Prague, File B, Insert 5332

Date of formation: 28 April 1998

Corporate ID: 25663135

Principal activities: Scheduled and charter, interstate and international commercial air transportation

of passengers, their luggage, animals, mail and cargo

Production, trade and services not listed in appendices 1 to 3 to the Trade

Licensing Act

1. General information


Notes to the financial statements have been prepared in accordance with Decree no. 500/2002 Coll., as

amended, which stipulates the content of the financial statements for businessmen. The information in

the financial statements is based on the accounting documentation of Travel Service, a. s., which primarily

includes accounting documents, accounting books and accounting records. These financial statements

are presented in whole thousands of Czech crowns, unless stipulated otherwise.

Current reporting period is the reporting period from 1 January 2016 to 31 December 2016

Prior reporting periods are the reporting periods from 1 January 2015 to 31 December 2015 and

from 1 January 2014 to 31 December 2014

2. Preparation of the annual financial statements


A) BOOKKEEPING PRINCIPLES

Accounting books are maintained in accordance with accounting regulations applicable in the Czech

Republic.

Amounts in the financial statements and in the notes to the financial statements are rounded to

thousands of Czech crowns (CZK thousand), unless stipulated otherwise.

B) USE OF ACCOUNTING ESTIMATES

The preparation of the financial statements requires the management of the Company to use estimates

and assumptions that have an impact on the reported amounts of assets and liabilities as of the date

of the financial statements and the reported amount of income and expenses for the reporting period.

Management of the Company believes that the used estimates and assumptions will not significantly

differ from the actual figures in the following reporting periods.

Estimates are regularly reviewed; following the meeting of necessary requirements, primarily obtaining of

accounting documents, they are settled, and differences are recognised in the reporting period.

C) INTANGIBLE FIXED ASSETS

Purchased intangible fixed assets are measured at cost, which includes the cost of acquisition and all

acquisition related expenses.

Amortisation of intangible fixed assets for accounting purposes is calculated based on the cost and

anticipated useful life of relevant assets. The Company uses straight line amortisation method. The

anticipated amortisation period in years is calculated as follows:

Technical improvements on intangible fixed assets exceeding CZK 40 thousand for the reporting period

are capitalised.

If the carrying amount of intangible assets exceeds its estimated useful life, allowances are recognised

for such assets and these allowances are expensed. If the impairment of assets is permanent, assets are

written-off on a one-of basis.

Intangible fixed assets with useful lives exceeding one year and the cost not exceeding CZK 60 thousand

per item, are capitalised to a special sub-ledger account and accrued in expenses over three years.

3. General accounting principles and used accounting methods

Useful life Useful life Useful life

2016 2015 2014

Research and development 8 8 8

Software 3 3 3

Valuable rights 3 - 6 3 - 6 3 - 6


D) TANGIBLE FIXED ASSETS

Purchased tangible fixed assets are carried at cost, which includes the cost of acquisition and all acquisition

related expenses (e.g. transportation costs and assembly costs). Tangible fixed assets generated internally

are carried at own cost.

Tangible fixed assets primarily include individual movable assets with individual technical and economic

purpose, with the input cost exceeding CZK 40 thousand and operational and technical useful life

exceeding one year. Tangible fixed assets additionally include buildings, structures, etc.

Tangible fixed assets with useful lives exceeding one year and cost between CZK 2 thousand and CZK 40

thousand per item, are accrued in expenses over three years.

Tangible fixed assets with useful lives exceeding one year and costs not exceeding CZK 2 thousand per

item are expensed upon acquisition.

Depreciation of tangible fixed assets for accounting purposes was calculated based on the cost and

anticipated useful lives of relevant assets. The Company used the straight-line method of depreciation.

The anticipated depreciation period in years is calculated as follows:

If the carrying amount of tangible fixed assets exceeds their anticipated useful lives, allowances are

recognised for these assets.

Repair and maintenance costs of tangible fixed assets are expensed. Technical improvements on tangible

fixed assets exceeding CZK 40 thousand for the reporting period are capitalised.

Useful life Useful life Useful life

2016 2015 2014

Technical improvements of leased buildings and structures

10 10 10

Machines, devices and equipment 4 - 10 4 - 10 4 - 10

Vehicles 4 – 8 4 - 8 4 - 8

Furniture and fixtures 6 6 6

Valuation difference on acquired assets

15 15 15


E) NON-CURRENT FINANCIAL ASSETS

Upon acquisition, non-current financial assets are carried at cost. The cost includes direct acquisition related

expenses.

As of the financial statements preparation date, securities and equity investments denominated in foreign

currencies are translated using the exchange rate of the Czech National Bank applicable as at the balance sheet

date. The resulting exchange rate gain or loss is recognised in account group 41 - Share capital and capital

funds.

F) INVENTORY

Purchased inventory is carried at cost, or replacement cost using the weighted arithmetic average method.

The cost includes the cost of acquisition and all expenses relating to the acquisition of this inventory (primarily

customs duty, transportation costs, packaging costs).

The Company uses the A method for the recognition of additions and disposals of inventory (i.e. method

of accounting for individual additions and disposals). The principle of accounting is the concentration of all

expenses incurred for the acquisition of inventory on asset accounts. Inventory is recognised in operating

expenses when actually used.

Allowances for inventory are recognised when the valuation used in accounting temporarily exceeds the

current market value of relevant inventory.

Inventory of material in the Company may be structured as follows:

• Spare parts for aircraft – are used to put third party tangible fixed assets to their original conditions, i.e. for

repairs in line with concluded contracts for operating leases, primarily of aircraft (e.g. main wheels, brakes,

batteries, steering units, Flight Management Computers (FMC), movable curtain dividers, oxygen bottles,

safety belts, valves, drives, blades of blower, sensors, pipes, etc.);

• Low value consumer material (e.g. gaskets, bolts, washers, pins, rivets, etc.);

• Auxiliary and operational substances – e.g. chemical material (paints, lubricants, fuel, cleaning products);

• Packaging and packaging material (e.g. cases, boxes, bags, pallets) ;

• Movable assets with useful lives not exceeding 1 year regardless the amount of the input cost (e.g.

upholstery, carpets).

The Company also stores material that is not owned by it. This material is separated from the material owned by

the Company and representatives of authorised owners are provided with the possibility make the inventory

count as needed. The Company invites these owners to make the inventory count every year.

G) RECEIVABLES AND PAYABLES

Receivables and payables are carried at their nominal values upon origination. Allowances for receivables are

recognised based on the ageing structure of receivables and individual assessment of the credit standing of

debtors and potential payables of the Company that can be successfully offset against the existing receivables.

Receivables and payables in respect of related parties that arose from business transactions are reported in

Trade receivables/payables.

H) CASH

Cash (cash on hand and cash at bank) is carried at nominal value.

I) EQUITY

The share capital of the Company represents the amount of the capital as recorded in the Register of

Companies. The share premium represents the amount by which the nominal value of newly issued shares

was lower than their issue rate.

In 2014, the Company created a fund for coverage of potential future losses and business risks to which the

balance of the reserve fund was transferred. Other contributions to this fund will be decided annually by the

General Meeting of the Company.


J) PAYABLES TO CREDIT INSTITUTIONS

Short-term and long-term loans are recognised in their nominal values. Short-term loans include the part of

long-term loans that is payable within one year from the financial statements date.

K) RECOGNITION OF INCOME AND EXPENSES

Income and expenses are accrued, i.e. recognised in the reporting period to which they relate (accrual principle).

In accordance with the prudence principle, the Company recognises provisions and allowances for the

coverage of risks, losses and impairment known as of the financial statements preparation date in expenses.

L) FOREIGN CURRENCY TRANSLATION

Assets and liabilities denominated in foreign currencies are translated to the Czech currency using the fixed

exchange rate determined based on the Czech National Bank’s exchange rate applicable always for one-

month period. In respect of petty cash transactions or transfer of money between bank accounts, the foreign

currency is translated using the exchange rate actually used by the bank for the particular transaction or market

exchange rate agreed with the bank.

All cash assets and liabilities, receivables and payables denominated in foreign currencies were translated as

part of the annual financial statements using the exchange rate promulgated by the Czech National Bank as of

the balance sheet date. All realised and unrealised exchange rate gains and losses are, except for non-current

financial assets listed in note E), reported in the Profit and loss account.

M) FINANCIAL DERIVATIVES

Financial derivatives including currency forwards and options, interest rate, currency and commodity swaps are

recorded off-balance sheet upon acquisition. As of the financial statements date, derivatives are remeasured

to fair value.

Financial derivatives are used for the hedging of the currency, interest rate and market risks as part of the

Company’s risk management strategy.

In line with applicable accounting regulations, the Company does not use the possibility to recognise

derivatives separately as hedging derivatives, it treats all derivatives as trading derivatives not intended for

trading on the public market. Fair value changes as at the balance sheet are recognised in profit or loss.

The fair value of forwards and swaps is calculated as the present value of anticipated future cash flows.

N) INCOME TAXATION

Income tax in the profit and loss account for the reporting period includes income tax payable and changes

in the balance of deferred tax.

The Company calculated the income tax payable using the applicable tax rate from the profit or loss, adjusted

by permanent and temporary differences.

The provision for the income tax in the balance sheet is reduced by a receivable arising from income tax

advance payments made.

Deferred tax reflects temporary differences between the carrying amount of assets or liabilities in the balance

sheet and their tax value. The corporate income tax rate, for the reporting period in which the utilisation of

deferred tax is anticipated, is applied. A deferred tax asset is recognised if it is likely that it will be recoverable for

tax purposes in the following reporting period.

O) SUPPLEMENTARY PENSION INSURANCE SCHEME

The Company provides pilots and airplane captains with contributions for the supplementary pension

insurance scheme. The total amount of the contributions paid in 2016 was CZK 2,882 thousand (2015: CZK

3,067 thousand, 2014: CZK 2,949 thousand). Contributions for the supplementary pension insurance scheme

have been provided by the Company since 30 June 2008. Contributions have been paid based on contracts

that the above employees concluded with pension companies.


To finance the state pension insurance system, the Company makes regular statutory payments to the state

budget. The Company makes these payments in periods defined by legislation and has not reported any

payables past their due dates.

P) LEASES

The cost of assets acquired under finance and operating leases is not capitalised. Lease payments are

recognised in expenses on a straight-line basis over the lease term.

If the asset is purchased after the lease term, the assets are capitalised in the amount of the purchase price, or

in the amount of the replacement cost in the event of free of charge transfer of assets.

Operating lease is the lease of fixed assets when the leased asset is returned to the lessor after the expiration

of the lease term. The costs relating to the lease of aircraft itself are recognised in account group 51 – Services.

Together with the lease of aircraft, the Company pays “supplemental rents” that are recognised in the same

account group and are treated as costs relating to repairs and maintenance and embody the level of standard

wear and tear of leased aircraft, or their individual parts such as aircraft engines, fuselage, landing gear, live limit

parts, APU, etc.

Q) VARIANCES IN THE ARRANGEMENT OF CERTAIN ITEMS IN THE FINANCIAL STATEMENTS, CHANGES IN

VALUATION METHODS, COMPARABILITY OF INFORMATION FROM THE PRIOR AND CURRENT REPORTING

PERIODS

No significant changes in valuation, depreciation and amortisation and recognition were made year-on-year,

except for the following:

Pursuant to the requirements of the amendment to the Accounting Act and implementation decree effective

since 1 January 2016, changes were made in the reporting of balance sheet and profit and loss account

items. To ensure the comparability of these items with the prior period, the balance sheet and profit and loss

items for 2015 were reclassified. The Company proceeded in accordance with Czech Accounting Standard

for Businessmen no. 024 “Comparable period for the reporting period starting in 2016” and the following

reclassifications were made:

Changes in the balance sheet reporting:

Accrued income is reported in D. Other assets (it was reported in short-term receivables before 31 December 2015).

Accrued expenses are reported in D. Other liabilities (it was reported in short-term payables before 31 December 2015).

Payables to credit institutions are reported in C. Payables (before 31 December 2015 as an individual item Bank loans and borrowings).

The entity falls within the large entities category.

Changes in the reporting in the profit and loss account:

Items as of 31 December 2015 (reporting applicable since 1 January 2016) Items as of 31 December 2015 (reporting applicable before 31 December 2015)

E.2. – Adjustments to value of inventories (part of the item)E.3. – Adjustments to value of receivables (part of the item)F.4. - Provisions relating to operating activities and complex deferred expenses (part of the item)

G. - Change in provisions and allowances relating to operating activities and complex deferred expenses

J.1. - Interest expenses and similar expenses - controlled or controlling entity (part of the item)J.2. Other interest expenses and similar expenses

N. – Interest expenses

VI.1. Interest income and similar income - controlled or controlling entity VI.2. Other interest income and similar income

X. Interest income

VII. Other financial income (part of the item) IX. Income from the revaluation of securities and derivatives

K. Other financial expenses (part of the item) L. Costs of the revaluation of securities and derivatives


A) INTANGIBLE FIXED ASSETS

Development in intangible fixed assets:

4. Intangible, tangible and financial assets

Research and development

Software Valuable rightsOther intangible fixed

assets

Intangible fixed assets under construction

Advance payments made

for intangible fixed assets

Total intangible fixed assets

Cost

Balance at 1 Jan 2016 510 52 176 2 467 4 457 10 900 0 70 510

Additions 0 9 279 0 30 655 7 266 972 48 172

Disposals 0 81 0 4 457 0 0 4 538

Reclassification 0 0 0 0 0 0 0

Balance at 31 Dec 2016 510 61 374 2 467 30 655 18 166 972 114 144

Accumulated amortization

Balance at 1 Jan 2016 510 38 165 2 435 0 0 0 41 110

Additions 0 8 608 129 0 0 0 8 737

Disposals 0 0 0 0 0 0 0

Reclassification 0 135 -135 0 0 0 0

Balance at 31 Dec 2016 510 46 908 2 429 0 0 0 49 847

Net book value

Balance at 1 Jan 2016 0 14 011 32 4 457 10 900 0 29 400

Balance at 31 Dec 2016 0 14 466 38 30 655 18 166 972 64 297


During the reporting period, the Company continued to improve its software, MS Dynamics NAV 2013. Having

taken into account the amended law valid in the Czech Republic, the Company implemented the module

that helps to prepare the VAT Control Statement. VAT Control Statement is to be submitted in the Czech

Republic since 1 January 2016, as laid down under the Act on VAT, No. 235/2004 Sb., as amended by Act No.

360/2014 Sb. enacted by the Chamber of Deputies of the Czech Republic on 22 December 2014. In addition,

the Company elaborated on its system of control in the area of revenue generated by sales of tickets for regular

flights operated by the Company. The system of control aimed at comparing and reconciling the revenue,

as recorded in MS Dynamics NAV 2013 and in the systems designated for collecting data from the computer

reservation systems and booking engines.

In the Company’s subsidiary, Travel Service Slovensko, s.r.o., a module was implemented on 1 February 2016

that allows payment orders to be exported in the XML file, as required under the ISO 20022 XML standard. In

2016, Travel Service Polska, Sp. z o. o. continued to implement some changes and amendments arising from

the Polish legislation into its information system. In summer 2016, changes were made that had arisen from

newly executed agreements and business transactions.

In 2016, an analysis was introduced that analyses as to whether invoices issued for fuel were imported into

MS Dynamics NAV 2013 in accordance with the IATA standard (XML Standard for Electronic Fuel Transactions).

The import of invoices prepared in accordance with the IATA standard will provide the Company with more

detailed information that is vital when checking the prices, fees and consumed quantity of fuel.

In mid-February 2016, the AIMS system was upgraded to the last version B2_2014. Thanks to this upgrade, the

Company can now avail of new functions and prolong the technical support provided by AIMS.

Intangible assets in progress include, in particular, the ongoing modernisation and installation of the so-called

Datalink for the aircraft Boeing 737 (to enhance the air traffic safety). In addition, intangible assets in progress

include further development of the EFA software offering sales and operational functions and of the financial

software Microsoft NAV 2013. It also includes the development of the software mentioned above that provides

support for the maintenance system OASES etc.

Other key software that is used by the Company is the information system handling the issues of Air Safety

Management of the Company and its subsidiaries. The Company is required to implement and maintain this

software under Commission Regulation (EU) No 965/2012 of 5 October laying down technical requirements

and administrative procedures related to air operations pursuant to Regulation (EC) No 2016/2008 of the

European Parliament and of the Council Parliament and of the Council. Following a properly rendered tender,

the Company decided to implement the software developed by Airbus called SAMS.

In 2016, the Company further focused on development of the key sales and operational objectives of EFA

(Extranet Flight Application) that, working on the internet interface, gathers important information about and

requirements of the Company’s clients, the information on flights, incl. the number of passengers onboard,

catering, specific requirements and requests of passengers, etc. These objectives are developed by the

Company that closely cooperates with an external supplier.

In 2016, the Company continued with works on implementing the information system called OASES that will

support the maintenance procedures and the procedures of engineering the fleet of aircraft of the Company

and its subsidiaries. This information system is being implemented in corporation with Communications

Software (Airline Systems) Limited, having its registered office in Essex, United Kingdom of Great Britain and

Northern Ireland. We anticipate that the implementation will be completed in May 2017. Intellectual property

rights represent, in fact, the value of the trademark, i.e. SMART WINGS logo and any relevant domain. This closely

relates to the long-term strategy of the Company – to build a strong, solid and well-established trademark.

Other intangible assets include EUA and EUAA emission allowances. Any changes are given by the purchase of

emission allowances, by free allocation of emission allowances and their disposal. The Company is required to

have these intangible assets under Directive 2008/101 EC of the European Parliament and of the Council of 19

November 2008 under which, on 1 January 2012, the civil aviation sector was brought within the existing EU

ETS. Act No. 383/2012 transposed this Directive into the Czech legislation.

The EU ETS also applies to all operators of aircraft parked at or from airports in any Members States of the

European Union (plus Iceland, Lichtenstein and Norway). The Company and its subsidiaries offering services in

the area of air transport are also deemed to be the aircraft operator.


Every year, each operator must determine and report the volume of its CO2 emissions produced in the given

year. The Ministry of the Environment of the Czech Republic has a special reserve of emission allowances

designated for the trading period from 2013 through 2020. The Company meets all the eligibility requirements

and, thus, is entitled to free allocation of emission allowances from the reserve held by the Ministry of the

Environment of the Czech Republic

Since the geographical scope covered by the EU ETS has changed, the Ministry of the Environment of the

Czech Republic determined, by applying its own calculation, the quantity of emission allowances that are

to be freely allocated to aircraft operators for the period from 2013 to 2016. In this period, the Company was

allocated total of 478,528 emission allowances, i.e. 119,632 emission allowances for each year over the course

of the years mentioned above. Nevertheless, the number of freely allocated emission allowances is completely

insufficient for the Company and, as a result, the Company is forced to purchase emission allowances under

the usual market conditions.

Emission allowances that are consumed are recorded as per the emissions actually produced and they are

recorded using the accounts of estimated payables and receivables. When the Company receives the freely

allocated emission allowances, this acquisition is recorded as subsidy and this subsidy does not lower the value

of intangible assets. This subsidy is then cleared to and recognised as revenues at the very same moment (and

at the very same amount) when the consumed allowances are recorded (given to) the register. At the same

time, they are reversed from the assets account.

B) TANGIBLE FIXED ASSETS

Development in tangible fixed assets:

BuildingsIndividual movable assets and sets of movable assets

Tangible fixed assets under construction

Advance payments made for tangible fixed

assets


Total tangible fixed assets

Cost

Balance at 1 Jan 2016 7 294 102 894 15 344 217 284 60 143 402 959

Additions 0 5 845 3 819 446 971 0 456 635

Disposals 0 22 835 0 0 0 22 835

Reclassification 0 330 -330 0 0 0

Balance at 31 Dec 2016 7 294 86 234 18 833 664 255 60 143 836 759

Accumulated depreciation

Balance at 1 Jan 2016 4 463 63 872 0 0 60 143 128 478

Additions 741 6 680 0 0 0 7 421

Disposals 0 22 432 0 0 0 22 432

Reclassification 0 0 0 0 0 0

Balance at 31 Dec 2016 5 204 48 120 0 0 60 143 113 467

Net book value

Balance at 1 Jan 2016 2 831 39 022 15 344 217 284 0 274 481

Balance at 31 Dec 2016 2 090 38 114 18 833 664 255 0 723 292


Individual movable assets and sets of movable assets

The Company purchased a hydraulic power unit for the acquisition costs of CZK 968 thousand and a RSU

tool that helps to load the data into aircraft – Dataloader for the acquisition costs of CZK 660 thousand.

For the towing procedure for the aircraft, type Cessna, the Company purchased an aircraft tug LEKTRO

AP8600A-EZ for the acquisition costs of CZK 942 thousand. In addition, the Company purchased vehicles,

type Volkswagen Passat, information technology, namely servers, printers and backup systems.

Buildings

The Buildings line reported on the balance sheet reflects, in particular, the construction alterations that were

carried out in hangars rented from Letiště Praha, a. s., having its registered office in Prague 6, K Letišti 6/1019.

Advance payments for tangible assets

In line with the Company’s strategy to, inter alia, modernise its fleet of aircraft that aims mainly at purchases

and operating lease of aircraft Boeing 737 – MAX, in December 2016 the Company signed a contract in

respect of a supply of 5 aircraft, type Boeing 737 – MAX. In total, the Company entered into contracts to

purchase eight aircraft of this type that will become a part of the Company’s assets. As of 31 December 2016,

advance payments of CZK 664,255 thousand were made in respect of these supplies.


The valuation difference on acquired fixed assets arose when the Company was founded and when the

founder of the company contributed the value of Travel Servis, s.r.o. into the company. It reflects the difference

(positive) between the appraiser’s report for Travel Service, s.r.o. and the sum of all values of all its individual

assets reported in the books of the contributing company. The value of non-monetary contribution was

documented by appraisers’ opinions presented by two appraisers that are independent of the founder.

These opinions were prepared on 23 December 1997. The valuation adjustment to acquired fixed assets

was recognised and expensed by way of deprecation over the course of 15 years. As at 31 December 2016,

the total of accumulated depreciation amounted to CZK 60,143 thousand. As of 31 December 2016, the

valuation difference was depreciated in full.

C) LOW VALUE ASSETS

The aggregate amount of low value tangible fixed assets and low value intangible fixed assets recognised

in expenses in individual years:

In 2016, the Company purchased office equipment and devices, such as a shredder, printer, hard disks,

notebooks, LCD monitors, ultra-mobile projector, mobile phones, clothes lock boxes and wardrobes, office

desk tops, office chairs, racks, etc. In addition, the Company purchased tools and equipment needed to train

the crew and some facilities required – such as, bags, narcotics testing equipment, airline service trolleys,

defibrillation electrodes, the equipment for the technical unit – card data readers from Boeing 737, iPads,

hand trucks, storage lock boxes, boxes for documents, etc.

Acquisition of intangible assets include the purchase of regular service plan for MS Dynamics NAV BREP,

copyrights permitting to show productions and movies onboard, acquisition of licenses and software for

IPads, anti-virus programs and windows licenses.

2016 2015 2014

Low value intangible fixed assets 11 725 6 030 3 768

Low value tangible fixed assets 6 578 5 986 8 840

Total 18 303 12 016 12 608


D) OPERATING LEASES

The Company’s fleet comprises, in particular, aircraft that are used by the Company under the lease

contracts. Most of the aircraft used by the Company are Boeing, type B 737-800 with capacity of 189

passengers and 6 members of the crew. In addition, the Company has two aircraft, Boeing with capacity

of 148 passengers and one aircraft with capacity of 212 passengers. In 2015, the Company’s fleet of

aircraft also included two aircraft Airbus A320 with capacity of 180 passengers. However, their lease was

terminated in February 2016. For a long time, the Company also offers services of an aero taxi and, for

these purposes, it uses Cessna Citation 680 with capacity of 9 passengers.

These aircraft are used in accordance with the lease contracts that were made as follows:

Item no. Assets leased in 2016Manu-

facturing date

Lease period in months

Date of inceptionAnticipated date

of expiration Lessor

1. BOEING 737-8CX, MSN 32362, HA LKG (OK TVB) 4.02 206 3 May 2002 31 March 2019 MASL IRELAND (13) LIMITED

2. BOEING 737-8FH, MSN 29669, OK TVF (C-GTVF) 4.05 182 20 April 2005 19 April 2020 ALC BLARNEY AIRCRAFT Limited

3. BOEING 737-8Q8, MSN 30719, OK TVG (C-GTVG) 4.07 169 4 May 2007 31 March 2021 Macquarie AirFinance Acquisitions (Ireland) Limited

4. BOEING 737-8Q8, MSN 35275, OK TVH (C-GVVH) 5.08 170 12 May 2008 11 May 2022 ILFC AIRCRAFT 73B-35275 LIMITED

5. BOEING 737-86Q, MSN 30294, OK TVE (C-GRKB) 3.04 170 19 March 2004 19 March 2018 Wells Fargo Bank Northwest, National Association

6. BOEING 737-8Q8, MSN 29351, OK TVJ (C-FTAH) 3.04 128 18 Nov 2008 17 May 2019 ILFC Ireland Limited

7. BOEING 737-86N, MSN 32740, OK TVK (C-FGVK) 2.04 97 21 May 2009 22 May 2017 Celestial Aviation Trading 17 Limited

8. BOEING 737-8FN, MSN 37076, OK TVL 1.10 191 25 Jan 2010 9 Oct 2025 MALACHITE AIRCRAFT LEASING LIMITED

9. BOEING 737-8FN, MSN 37077, OK TVM 2.10 186 3 Feb 2010 3 June 2025 Fly Aircraft Holding Twenty Limited

10. BOEING 737-8CX, MSN 32360, OK TVO 3.02 119 21 June 2010 31 March 2020 MASL IRELAND (13) Limited n

11. BOEING 737-8K5, MSN 32907, OK TVP (C-GKVP) 4.02 139 8 June 2010 30 Oct 2021 DCAL 5 LEASING LIMITED

12. BOEING 737-86N, MSN 38018, OK TVR 4.11 122 28 April 2011 27 April 2021 Celestial Aviation Trading 12 Limited

13. BOEING 737-86N, MSN 39404, OK TVS 5.11 122 5 May 2011 4 May 2021 Celestial Aviation Trading 12 Limited

14. BOEING 737-86N, MSN 39394, OK TVT 1.12 122 31 Jan 2012 30 Jan 2022 Celestial Aviation Trading 12 Limited

15. BOEING 737-86N, MSN 38025,OK TVU (C-GKVU) 3.12 122 20 March 2012 19 March 2022 Celestial Aviation Trading 17 Limited

16. BOEING 737-86N, MSN 38027, OK TVV (C-GKVV) 5.12 122 9 May 2012 8 May 2022 Celestial Aviation Trading 26 Limited

17. BOEING 737-86Q, MSN 30295, OK TVW 11.04 97 29 June 2012 28 June 2020 SASOF III (A20) AVIATION IRELAND DAC

18. BOEING 737-8Z9, MSN 33833, OK TVX 4.05 72 29 April 2013 28 April 2019 Macquarie Aviation Capital Finance Limited

19. BOEING 737-8Q8, MSN 30724, OK TVY (C-GTQY) 6.07 72 22 May 2013 21 May 2019 WILMINGTON TRUST SP SERVICES (DUBLIN) LIMITED


Item no. Assets leased in 2016Manu-

facturing date

Lease period in months

Date of inceptionAnticipated date

of expiration Lessor

20. BOEING 737-8S3, MSN 29250, OK TSA 3.01 60 4 April 2013 3 April 2018 SASOF III (A10) AVIATION IRELAND DAC (3)

21. BOEING 737-8Q8, MSN 41795, OK TSD 5.14 122 5 May 2014 4 May 2024 ILFC Aircraft 73B-41795 Limited

22. BOEING 737-81D, MSN 39437, OK TSE 2.14 97 3 Feb 2014 2 Feb 2022 Macquarie Aerospace Finance 39437 Limited

23. BOEING 737-8GJ, MSN 37360, OK TSF 1.09 97 24 March 2015 23 March 2023 Halodell Limited

24. BOEING 737-804, MSN 28231, OK TSH 5.00 58 14 April 2015 5 Feb 2020 Constitution Aircraft Leasing (Ireland) 9 Limited

25. BOEING 737-9GJER, MSN 37363, OK TSI 12.12 67 13 May 2015 31 Oct 2020 CIT Aerospace International

26. BOEING 737-8FH, MSN 35093, OK TSC (C-GTQX) 2.07 71 7 May 2013 7 March 2019CONSTITUTION AIRCRAFT LEASING (IRELAND) 9 LIMITED

27. BOEING 737-7Q8, MSN 29346, OK SWT 3.03 113 22 June 2012 21 Nov 2024 ILFC IRELAND LIMITED

28. BOEING 737-7Q8, MSN 28254,OK SWW 2.03 60 1 June 2012 30 Nov 2024 ILFC IRELA)ND LIMITED

29. BOEING 737-900ER, MSN 34952, OK TSM 11.07 74 27 Jan 2016 31 March 2022 SASOF III (A8) Aviation Ireland DAC

30. BOEING 737-800-8GQ, MSN 35793,OK TSO 11.07 72 6 May 2016 5 May 2022 AWAS 35793

31. A320-214, MSN 4699, OK HCA 1.11 28 31 Oct 2013 14 April 2016 Celestial Aviation Trading 69 Limited

33. A320-214, MSN 2180, OK HCB 2.04 28 31 Oct 2013 4 March 2016 Artemis Ireland Leasing Limited

34. Citation 680, MSN 680-0139, OK UNI 6.07 208 13 June 2007 25 June 2017 UG Jet s.r.o.

35. Citation 680, MSN 680-0279, OK EMA 5.09 144 21 May 2009 21 May 2017 UG Jet s.r.o.

Citation 680, MSN 680-0324, OK UGJ 2.12 108 13 March 2012 12 March 2020 UG Jet s.r.o.

36. Citation 680, MSN 680-0558,OK JRT 3.16 60 30 March 2016 30 March 2021 UG Jet s.r.o.

37.BOEING 737-8BK, MSN 29643, SP TVZ - provozováno Travel Service Polska, Sp. z o. o.

6.07 110 15 Feb 2010 14 Feb 2019 Wilmington Trust SP Services (Dublin) Limited

38. BOEING 737-82R, MSN 30666, OM TSG – provozováno Travel Service Slovensko, s.r.o.

3.04 72 9 May 2014 8 May 2020 ILFC Ireland Limited


Costs of operating lease of aircraft listed above can be analysed as follows (in TCZK):

Due to the insufficient number of operated aircraft, especially in summer, the Company enters into so-called

A.C.M.I. contracts (Wet Leasing Agreement). Under these contracts, the Company leases aircraft with a crew,

and maintenance and insurance are included.

In 2016, costs of lease of such aircraft amounted to CZK 1,137,031 thousand in total (2015: CZK 799,040

thousand; 2014: CZK 964,644 thousand). In 2016, the biggest lessors were České aerolinie (Czech Republic,

Airbus A 320, A319), SUNWING AIRLINES (Canada, Boeing 737- 800), SMARTLYNX AIRLINES (Latvia, Airbus

A 320), MIAT Mongolian Airlines (Mongolia, Boeing 737-800), GO2SKY (Slovakia, Boeing 737-800), AirExplore

(Slovakia, Boeing 737-800), NOUVELAIR TUNISIE (Tunisia, Airbus A320) and CORENDON AIRLINES (Turkey,

Boeing 737-800)

During the year, the aircraft were allocated to the Company on an individual basis, such as in Poland,

Hungary, Slovakia, France, Canada, Oman and Maldives. Costs of use of aircraft within the group are then

rebilled at arm’s length. For example, the aircraft with the registration number SP-TVZ whose direct lessee is

Travel Service Polska, Sp. z o. o. was provided to the Company to the extent of 2,810 block hours. The aircraft

with the registration number OM-TSG whose direct lessee is Travel Service Slovensko, s.r.o. was provided to

the extent of 2,348 block hours.

E) NON-CURRENT FINANCIAL ASSETS

Investments in Travel Service, Kft. in Hungary, Travel Service Polska, Sp. z O. O. in Poland, Travel Service

Slovensko, s. r. o., having its registered office in Slovakia and Travel Service GmbH having its registered office

in Germany may be classified as participation in the controlled entities and in associates and in entities with

a controlling and substantial interest. Regulation (EC) No 1008/2008 of the European Parliament and of the

Council of 24 September 2008 on common rules for the operation of air services in the Community and

the local applicable acts and regulation define conditions under which an operating license is granted to

undertakings offering air services. One of these essential conditions is to have these subsidiaries founded.

If the Company had no such operating license and if the subsidiaries did not meet other conditions, it

would be very difficult for the parent company, Travel Service, a.s. to operate some flights from the Member

States mentioned above outside the territory of the European Community. And, as a matter of fact, it would

be rather impossible to operate such flights on a regular basis. This may, as a result, mean that the clients

located in the states mentioned above could not run their business to the extent possible today. In addition,

the Company’s market position in Hungary, Poland and Slovakia would be at risk.

Over the course of its legal existence, the Company has built up such an infrastructure that allows the

Company to pursue a number of business activities and transactions within the group of companies operating

air transport services. Such activities, inter alia, include planning and preparing flights, crew planning,

maintaining flight documents, arranging air operation control, providing catering services, securing flight

permits and permissions, arranging airport access, calculating single flight fuel consumption and optimizing

its possible supply, providing passenger check-in services, dealing with any claims and complaints, ensuring

spare parts for aircraft maintenance, arranging aerodromes maps and routes, safety management system

for air traffic (air safety control). In addition, there are technical activities such as preparing an aircraft

maintenance program, controlling and monitoring the airworthiness orders compliance, maintaining and

keeping aircraft documents relating to modification condition of the aircraft, assessing aircraft regular and

failure rate according to aviation rules and regulations, collecting and maintaining data about aircraft and

rotating aircraft and many other activities and services.

For its subsidiaries, the Company arranges other supplies of material and services, incl. supply of air fuel and it

also arranges aircraft and their crew, incl. staff training. Thanks to demand for a larger number of services plus

the long-term relationships established by the Company, the subsidiaries can avail of delivery conditions,

prices, payment and other conditions that would be typical for standard, large and well-established airlines.

Payable in 2017 Payable in 2018 Payable in 2019 Payable in 2020 Payable in 2021 Payable in 2022 Payable in 2023 Payable in 2024 Payable in 2025 Total

2 794 082 2 622 211 2 222 134 1 784 648 1 331 891 674 361 447 734 336 800 114 301 12 328 162


The subsidiaries may also use the Company’s software equipment, such as AIMS module (Aircraft

Management Information System), EFA, MS Dynamics NAV 2013 (for more information, please see section

INTANGIBLE ASSETS), the system for issuing invoices, credit notes and other documents used for taxation

purposes (except for Travel Service, Kft and Travel Service GmbH), treasure, accounting or any related

support, etc.

The services and business activities mentioned above are provided and arranged between the Company

and its subsidiaries under a contract of mandate where the parties act as the mandatary and the mandatory.

Very often, commercial agreements and contracts are made between more than two entities where

a supplier is one of the contracting party and the Company and its subsidiaries would be the contracting

party. Travel Service, a. s. provides its services for a consideration. The fee to be charged is determined as per

calculations set in accordance with the arm’s length principle.

The Company ensures and performs business activities for its subsidiaries, Travel Service Polska Sp. z o. o.

and Travel Service Slovensko, s. r. o. In addition, the Company is also their sales representative. The Company

provides these services for a consideration.

In addition to the activities and services mentioned above that are provided against a consideration, the

Company also does so-called simple rebilling of, for example, air fuel consumed on the flights operated by

subsidiaries, etc.

As at the balance sheet date, Travel Service GmbH pursues no business activities. The company itself only

represents the Company’s interest to enter the market of carriage by air in Germany.

Another subsidiary where the Company holds a substantive interest is T. S. Building that lets non-residential

premises to the Company – the business administration centre at K Letišti 1068/30 160 08 Prague 6.

Since 2015, the Company has held a substantial interests in České aerolinie a. s., having its registered office

at Prague 6, Jana Kašpara 1069/1, Post Code 160 08, Company Number 457 95 908. Since 31 March 2015,

the Company has held a 34% interest in the registered capital of České aerolinie a. s., by way of holding one

single (collective) ordinary registered stock.

The Company believes that it was a strategic investment to acquire the stock of České aerolinie, a. s. ensuring

sustainable development.


Name, registered office CostInvestment in the share

capital (%)Equity*

Profit/loss for the reporting period

Dividends/Profit share

At 31 Dec 2016

Travel Service, Kft, Hungary 233 465 100.00% 69 988 10 701 0

T. S. Building, s. r. o. 160 728 100.00% 98 795 6 471 0

Travel Service Polska Sp. z o. o. 3 080 100.00% -90 451 12.918 0

Travel Service Slovensko, s.r.o. 6 755 100.00% 18 459 34 944 0

Travel Service GmbH 676 100.00% 263 -363 0

Total 404 704 97 054 51 753 0

At 31 Dec 2015


T. S. Building, s. r. o. 160 728 100.00% 92 324 7 790 0

Travel Service Polska Sp. z o. o. 3 187 100.00% -106 980 18 012 0

Travel Service Slovensko, s.r.o. 6 756 100.00% -14 300 13 052 0

Travel Service GmbH 676 100.00% 676 0 0

Total 398 354 29 892 51 410 0

At 31 Dec 2014


T. S. Building, s. r. o. 160 728 100.00% 84 534 6 246 0

Travel Service Polska Sp. z o. o. 3 264 100.00% -127 988 -33 743 0

Travel Service Slovensko, s.r.o. 6 931 100.00% -28 060 -34 992 0

Total 384 694 -24 662 -34 783 0

The following table shows the equity of subsidiaries:


The Company is the only owner of Travel Service, Kft, Hungary. As of 31 December 2016, Travel Service, Kft

reports the equity of HUF 802,520 thousand (CZK 69,988 thousand; as of 31 December 2015, the equity

was CZK 58,172 thousand). In the past, Travel Service, Kft. faced some unfair competition with the state run

carrier – the national airlines Malev. At the beginning of 2012, the European Commission decided that Malev

had to return public subsidies that amounted to more than a hundred million US dollars. On 3 February

2012, Malev discontinued all its flights and bankruptcy was declared over the company’s assets. As a result,

the Hungarian market started to offer standard market conditions without any public subsidies. This had

positive impact on the financial situation of Travel Service, Kft. The Company anticipates that Travel Service,

Kft. will continue to have good economic results and will generate a profit of about HUF 200,000 thousand.

The Company’s subsidiary, Travel Service Polska Sp. z o. o. entered the Polish market in 2012 and on 8 May

2012, it was granted an operating license. The year 2016 was the fourth year when Travel Service Polska

was active on the Polish market for the entire year. Based on the prepared project documentation and

the business plan for 2016, the subsidiary anticipated that it will generate profit before taxes of PLN 3,633

thousand. The actual profit before taxes was, however, lower by PLN 1,614 thousand.

T. S. Building, s. r. o. is the Company’s subsidiary and it is an owner of the building where the Company has

its registered office. Its only principle activity is to let the building located at the address: Prague 6, K Letišti

1068/30. On 25 June 2013, the Company, as the company’s sole member, passed a resolution to make

a voluntary contribution of CZK 40,000 thousand outside the registered capital.


The increase in spare parts for aircraft, including low value consumer material was 34% year-on-year. The increase in these assets results from the strategy of the maximum aircraft use.

The eligible interest of the Company is to maintain the fleet of aircraft in the best working condition possible and

to minimise any delays due to lack of spare parts. This is, however, done while closely observing the principles

of safety of air operations and while complying with all accounting principles, such as principle of transparency

and evidence by document. When any defect is discovered on an aircraft operated under the operating lease

contracts and if it is vital to replace any spare part or component, it happened in 2016 and to a certain extent even

in previous years that the replaced spare part that was supplied for the aircraft was classified as a spare part in the

company’s assets and, thus, “stored” in the particular aircraft. Since there was no relevant document available (and

in order to observe the principle of evidence by document), the removed spare part could not be capitalised

in the Company’s assets. When the operating lease was terminated and the aircraft returned to the lessor, the

Company ceased to be the owner of the spare part or component affixed to the aircraft. As agreed under the

operating lease contracts, the Company is bound by the contract to return the aircraft in the working condition

and the aircraft must comply with all the rules and regulations governing the air operations services. Therefore, the

Company was not entitled to issue any invoice to the lessor for the installation of the spare part or the component.

On the other hand, by replacing the spare part in question, the Company became the owner of the spare part

or the component. These spare parts were then properly stored in the so-called warehouse used for temporarily

removed spare parts or components and, subsequently, these spare parts were divided into two groups – before

repair and repaired. Following the replacement, the Company became, by law, the owner of the spare part or the

component and they were then valued at their replacement costs. The spare parts or the components that were

not repaired as at the balance sheet date were than adjusted. The adjustment recognised for these spare parts or

components reflects the amount of anticipated costs that are to be expended in order reinstate the spare parts

or components to the original condition.

The above resulted in surpluses discovered at the physical count of inventory and in corrections that were to be

made to consumed spare parts in 2016.

Another fact that resulted in higher inventories is the repair of engines and the acquisition of their components

that were replaced by the entity repairing the engines. Under the operating lease contracts, it is agreed that only

new spare parts are implemented and, thus, following any replacements, the Company becomes the owner

of the replaced spare parts or components. These spare parts or components may be used, once repaired, and

the service companies use them when repairing the aircraft. The assets acquired this way are valued at their

replacement costs after taking into account the amount of anticipated costs that are to be expended in order

reinstate the spare parts or components to the appropriate condition.

5. Inventory

At 31 Dec 2016 At 31 Dec 2015 At 31 Dec 2014

Material 446 127 333 859 235 322

- spare parts for aircraft, including low value consumer material 426 820 318 501 222 497

- additional costs relating to the acquisition 16 395 11 944 10 110

- other 2 912 3 414 2 715

Goods 128 90 114

Total (gross) 446 255 333 949 235 436

Provision for inventory -4 717 -4 760 0

Total (Net) 441 538 329 189 235 436


The long-term receivables reported on the balance sheet include, in particular, the advance payments

made for the lease of aircraft of CZK 826,046 thousand (2015: 706,114; 2014: 670,057) and other long-term

advance payments made in relation to the air operations.

The due date of advance payments made in relation to the lease of aircraft is determined as per the

termination date of the lease contracts and as per the date when the leased aircraft are to be returned.

As at 31 December 2016, most of the advance payments made in relation to the lease are classified as

long-term.

In 2015 and 2014, the accrued revenue was reported as “Short-term receivables”.

6. Receivables


Short-term receivables (gross) 1 536 024 1 474 077 974 354

Long-term receivables (gross) 866 670 716 502 704 343

of which receivables with the remaining maturity periods exceeding 5 years

231 810 273 308 361 397

Total receivables (gross) 2 402 694 2 190 579 1 678 697


Short-term receivables on the balance sheet have the following structure of due dates:

Trade receivables Other receivables Total

Before due date 338 778 863 806 1 202 584

- of which intragroup 248 357 4 561 252 918

Past due date 247 161 86 279 333 440

- of which intragroup 153 257 0 153 296

Total at 31 Dec 2016 585 939 950 085 1 536 024

Allowances for receivables -71 540 0 -71 540

Total (net) 514 399 950 085 1 464 484

Before due date 329 873 922 864 1 252 737


Past due date 118 406 102 934 221 340

- of which intragroup 0 0 0

Total at 31 Dec 2015 448 279 1 025 798 1 474 077

Allowances for receivables -51 183 0 -51 183

Total (net) 397 096 1 025 798 1 422 894

Before due date 121 726 564 299 686 025


Past due date 268 146 20 183 288 329

- of which intragroup 61 537 0 61 537

Total at 31 Dec 2014 389 872 584 482 974 354

Allowances for receivables -86 561 -20 183 -106 744

Total (net) 303 311 564 299 867 610


Other receivables may be analysed as follows:


Receivables – controlled or controlling entity – Travel Service Polska, Sp. z o.o. 0 128 359 39 914

State– tax receivables 2 752 1 864 25 671

- corporate income tax (advance payments for the corporate income tax were offset against the income tax provision in the balance sheet in 2016)

645 274 24 074

- VAT 2 107 1 590 1 597

Short-term advance payments made 212 009 103 730 124 933

Estimated receivables 484 733 563 498 274 225

- payments for aircraft repairs made by the lessor 273 003 210 016 131 638

- insurance benefits 43 552 113 977 0

- income from the lease of aircraft 17 371 0 57 560

- Smart Wings – estimated sales from not-yet recognised scheduled flights 94 394 59 692 57 517

- Management fee 0 135 358 0

- Other 56 413 44 455 27 510

Other receivables 250 591 227 123 99 047

- advance payments for travel costs 85 527 56 255 97 036

- short-term portion of deposits relating to the lease of aircraft 0 43 538 0

- fair value of the receivable arising from concluded commodity and currency swaps 90 862 0 0

- other (deposits and standing advance payments) 74 202 127 330 2 011

Total other receivables (gross) 950 085 1 024 574 583 773


The structure of deferred expenses is as follows:

Complex deferred expenses in 2014 included, in particular, the costs of the operating lease and costs of aircraft insurance.

7. Deferred expenses


Deferred expenses 114 949 310 376 356 456

- lease 88 205 85 806 81 258

- promotion 1 518 705 479

- insurance 7 605 6 116 8 310

- commission for the mediated lease of aircraft 0 60 048 105 087

- preliminarily billed costs for unfinished repairs 5 372 137 777 143 911

- training 3 410 3 069 1 280

- other 8 839 16 855 16 131

Complex deferred expenses 0 0 88 859

Total deferred expenses 114 949 310 376 445 315


Deferred expenses – lease instalments include the part of the lease as of 31 December 2016. It is determined from the invoices received and any payments made on the lease of aircraft that relate to the period up

to 1 January 2017. Below you can find the overview of all flights and periods that relate to the lease:

Deferred expenses spent on the training included the expenses recorded on the accrual basis of accounting that related to the staff training, namely trainings for captains

(pilot-in-command), first officers (co-pilots), flight services managers (head of the cabin crew) and flight attendants.

1. OK - TSH: 1 Jan 2017 to 14 Jan 2017 10. OK - TSO: 1 Jan 2017 to 5 Jan 2017 19. OK - TVX: 1 Jan 2017 to 28 Jan 2017

2. OK - TSA: 1 Jan 2017 to 3 Jan 2017 11. OK - TVJ: 1 Jan 2017 to 17 Jan 2017 20. OK - TVB: 1 Jan 2017 to 9 Jan 2017

3. OK - TVW: 1 Jan 2017 to 28 Jan 2017 12. OK - SWT: 1 Jan 2017 to 21 Jan 2017 21. OK - TVO: 1 Jan 2017 to 20 Jan 2017

4. OK - TSC: 1 Jan 2017 to 17 Jan 2017 13. OK - TVU: 1 Jan 2017 to 19 Jan 2017 22. OK - TVF: 1 Jan 2017 to 19 Jan 2017

5. OK - TVS: 1 Jan 2017 to 4 Jan 2017 14. OK - TVP: 1 Jan 2017 to 8 Jan 2017 23. OK - TVE: 1 Jan 2017 to 18 Jan 2017

6. OK - TVV: 1 Jan 2017 to 8 Jan 2017 15. OK - TVK: 1 Jan 2017 to 22 Jan 2017 24. OK - TVT: 1 Jan 2017 to 30 Jan 2017

7. OK - TSD: 1 Jan 2017 to 4 Jan 2017 16. OK - TVR: 1 Jan 2017 to 27 Jan 2017 25. OK - TVM: 1 Jan 2017 to 3 Jan 2017

8. OK - TVY: 1 Jan 2017 to 21 Jan 2017 17. OK - TVG: 1 Jan 2017 to 3 Jan 2017 26. OK - TVL: 1 Jan 2017 to 8 Jan 2017

9. OK - TVH: 1 Jan 2017 to 11 Jan 2017 18. OK - TSE: 1 Jan 2017 to 2 Jan 2017 27. OK - TSF: 1 Jan 2017 to 23 Jan 2017


Structure of shareholders as at the balance sheet date:

The General Meeting of the Company held on 4 May 2016 passed a resolution that the Company’s registered

share capital of CZK 250,000,000 will be increased by CZK 991,236,250 to its new balance of CZK

1,241,236,250.

The registered share capital has been increased by way of subscribing 9,911 pieces of registered shares at

their nominal value of CZK 100,000 and 136,250 pieces of registered shares at their nominal value of CZK

1. As at 31 December 2016, the registered share capital was paid in full.

8. Equity

Type of shares At 31 Dec 2016 (CZK) Number of shares At 31 Dec 2015 (CZK) Number of shares

UNIMEX GROUP, a.s., 139 000 000 1 390 77 900 000 779

Shares with the nominal value of CZK 100 thousand, paid in full

Shares with the nominal value of CZK 1, paid in full 18 460 18 460

Ing. Roman Vik 139 000 000 1 390 77 900 000 779



CANARIA TRAVEL, spol. s r.o. 343 500 000 3 435 69 200 000 692



China International Group Corporation Limited

Shares with the nominal value of CZK 100 thousand, paid in full 619 600 000 6 196 25 000 000 250


Total 1 241 236 250 - 250 000 000 2 500


Share capitalShare

premiumOther capital

funds

Gains or losses from the

revaluation of assets and

liabilities*

Funds from profit

Profit or loss for prior periods

Profit/loss for the reporting

period Total equity

At 31 Dec 2013 250 000 10 149 0 -10 971 26 090 301 651 158 354 735 273

Transfer of the profit or loss of the prior reporting period

0 0 0 0 8 000 112 354 -120 354 0

Other changes in equity 0 0 0 20 091 0 0 0 20 091

Payment of dividends 0 0 0 0 0 0 -38 000 -38 000

Profit or loss for the reporting period 0 0 0 0 0 0 60 067 60 067

Rounding 0 0 0 0 0 1 0 1

At 31 Dec 2014 250 000 10 149 0 9 120 34 090 414 006 60 067 777 432


0 0 0 0 8 000 52 067 -60 067 0

Other changes in equity 0 0 0 12 984 0 0 0 12 984

Payment of dividends 0 0 0 0 0 0 0 0


At 31 Dec 2015 250 000 10 149 0 22 104 42 090 466 073 192 487 982 903


0 0 0 0 0 192 487 -192 487 0

Other changes in equity 991 236 0 1 6 349 0 0 0 997 586

Payment of dividends 0 0 0 0 0 -192 487 0 -192 487


At 31 Dec 2016 1 241 236 10 149 1 28 453 42 090 466 073 193 299 1 981 301

9. Changes in equity

* revaluation of non-current financial assets (foreign currency equity investments in subsidiaries) using the balance sheet exchange rate


Pursuant to resolutions of general meetings, the profit of the Company generated in 2013, 2014 and 2015 was distributed in accordance with the submitted proposal as follows:

2015 2014 2013

Allocation to other funds from profit 0 8 000 8 000

Profit allocated to retained earnings 0 45 716 112 354

Compensation of profit and loss 0 6 351 0

Payment of dividends to shareholders 192 487 0 38 000

Profit after tax 192 487 60 067 158 354


10. Financial derivatives

In accordance with the internal guideline, the Company classifies and records all its derivatives as the

derivatives held for trading. As at the balance sheet date, the change in the fair value of derivatives held

for trading is reflected in the Company’s profit/loss. The Company disclosed the change in fair value of

these derivatives reported in the current period in its Profit and Loss Account, under Other Financial

Expenses, or Other Financial Revenue. The reported figure may be analysed as follows:

The Company uses commodity swaps to hedge against the price of fuel that are made with Komerční

banka, a. s., UniCredit Bank Czech Republic and Slovakia and Česká spořitelna, a. s. As at 31 December

2016, the fuel in quantity ranging from 25,000 to 35,000 tons was hedged. The exact quantity hedged

under commodity swaps is subject to trade secret.

2016 2015 2014

Costs of the revaluation of securities and derivatives -4 094 -321 892 -304 107

Income from the revaluation of securities and derivatives 113 855 85 633 50 286

Net result of the revaluation and settlement of financial derivatives 109 761 -236 259 -253 821


11. Provisions

Below you can find the overview of each provision and its changes between the balance sheet dates, i.e.

31 December 2015 and 31 December 2016:

* The Company recognised the provision for the income tax of CZK 56,670 thousand that was, at the level

of the Balance Sheet, reduced by the advance payments made of CZK 36,994 thousand.

Other provisions are created, in particular, for the incoming invoices received in respect of the accounting

period 2016.

Balance at 31 Dec 2015 Recognition of provisions Release of provisions Balance at 31 Dec 2016

Other provisions 29 937 9 000 29 937 9 000

Provision for the income tax* 18 952 19 676 18 952 19 676

Total 48 889 28 676 48 889 28 676


12. Payables

*Long-term payables reported on the Balance Sheet include, mainly, the payables owed to credit

institutions, such as credits provided by banks for the purchase of new aircraft.

**Following the change to the structure of the Balance Sheet that was enacted on 1 January 2016 when it

was decided that payables owed to credit institutions are to be included in payables, payables increased.

Balance at 31 Dec 2016 Balance at 31 Dec 2015 Balance at 31 Dec 2014

Short-term payables 2 280 015 1 466 551 1 316 667

Long-term payables 104 353* 3 981 3 474

Of which payables with the remaining maturity period exceeding 5 years 0 0 0

Total payables 2 384 368** 1 470 532 1 320 141

Trade payables Other payables Total

Before due date 161 731 1 666 497 1 828 228


Past due date 311 150 140 637 451 787


Total at 31 Dec 2016 472 881 1 807 134 2 280 015

Before due date 23 315 1 002 177 1 025 492


Past due date 294 879 146 180 441 059


Total at 31 Dec 2015 318 194 1 148 357 1 466 551

Before due date 383 956 542 309 926 265


Past due date 243 312 147 090 390 402


Total at 31 Dec 2014 627 268 689 399 1 316 667

Below you can find the overview of short-term payables sorted as per their due dates:



Other payables:

Payable to subsidiary Travel Service Slovensko 166 289 342 994 0

Payables to subsidiary Travel Service Polska 169 073 8 483 8 663

Payables to subsidiary T. S. Building 3 516 3 516 3 516

Payable arising from payment of dividends 74 799 70 741 13 741

Payables to employees 63 837 52 968 52 077

Social security and health insurance payables 31 021 19 433 17 025

State– tax payables and subsidies 11 466 8 280 11 049

- corporate income tax 0 0 0

- personal income tax from dependent activities and other 11 466 8 280 11 049

Payables to credit institutions 668 041 0* 0*

Short-term advances received 166 249 364 820 232 870

Accrued expenses 0** 41 154 25 966

Estimated payables 223 802 186 264 77 782

Sundry payables 229 041 49 704 246 710

Total other payables 2 280 015 1 148 357 689 399

*Following the change to the structure of the Balance Sheet that was enacted on 1 January 2016, payables owed to credit institutions were included in other payables.

** Following the change to the structure of the Balance Sheet that was enacted on 1 January 2016, accrued expenses are no longer included in other payables.


Below you can find the overview of payables due to state public bodies:

Social security Health insurance Tax payables

Before due date 20 380 10 641 11 466

Past due date (arrears) 0 0 0

Total at 31 Dec 2016 20 380 10 641 11 466

Before due date 9 943 7 175 8 280

Past due date (arrears) 0 2 315 0

Total at 31 Dec 2015 9 943 9 490 8 280

Before due date 9 653 7 372 11 049

Past due date (arrears) 0 0 0

Total at 31 Dec 2014 9 653 7 372 11 049


13. Payables to credit institutions

To finance its operation and investment needs, the Company uses the business loans provided by

UniCredit Bank Czech Republic and Slovakia, a. s., Komerční banka, a. s., Raiffeisenbank a.s. and Česká

spořitelna, a. s. The loans to finance the operations are repaid in summer season or partly drawn due to

a surplus of funds in EUR and

non-suitability of their conversion into CZK. Medium-term loans granted by UniCredit Bank Czech

Republic and Raiffeisenbank, a. s. were used to finance the advance payments for the acquisition of

tangible fixed assets – purchase of new airplanes Boeing 737 – 8 Max.

Loan provider

Total loan amount/loan facility in TCZK

Outstanding portion CZK thousand

of which due in one year

CZK thousand

of which due in one year or more

CZK thousand

Komerční banka, a.s. 80 000 0 0

Overdraft 0

Komerční banka, a.s. 370 000 38 641 0

Revolving loan 38 641

Raiffeisenbank a.s. 200 000 200 000 0

Short-term loan 200 000

Raiffeisenbank a.s. 125 000 48 428 62 500

Medium-term loan 110 928

UniCredit Bank Czech Republic and Slovakia, a.s. 500 000 339 298 0

Overdraft 339 298

UniCredit Bank Czech Republic and Slovakia, a.s. 125 000

Medium-term loan 83 333 41 666 41 667

Česká spořitelna, a. s. 100 000

Overdraft 8 8 0

Total credit line facility 1 500 000

Total outstanding portion 772 208 668 041 104 167


UniCredit Bank Czech Republic and Slovakia, a. s. and the Company entered into a loan agreement on

29 September 2004, as amended. The Company may use a revolving multipurpose line in the maximum

amount of CZK 550,000 thousand in the period from 1 November to 30 June or CZK 250,000 thousand in

the period from 1 July to 31 October to finance its operations, to issue bank guarantees or documentary

letters of credit or to pursue treasury transactions. Cash withdrawals are capped at CZK 500,000 thousand

in the period from 1 November to 30 June or at CZK 200,000 thousand in the period from 1 July to 31

October. The loan is due on 31 December 2017.

Shares issued by Travel Service a.s., namely a total of 1,250 ordinary shares in the nominal value of CZK

125,000 thousand were put in pledge for the benefit of UniCredit Bank Czech Republic and Slovakia, a. s.,

by the following pledgers:

1. UNIMEX GROUP, a. s. – 44 ordinary shares in the nominal value CZK 4,400 thousand;

2. Ing. Roman Vik –184 ordinary shares in the nominal value of CZK 18,400 thousand;

3. CANARIA TRAVEL, spol. s r. o. - 152 ordinary shares in the nominal value of CZK 15,200 thousand;

On 29 December 2015, the Company entered into LOAN AGREEMENT reg. no. 1327/15-120 with UniCredit

Bank Czech Republic and Slovakia, for a loan due by 31 December 2018, a. s. Under the agreement,

the Company received a credit to finance advance payments to buy fixed tangible assets – the airplane

Boeing 737 – MAX in the amount of CZK 125,000 thousand. The loan shall be repaid quarterly in regular

instalments starting from 31 March 2016. The payments at 31 March 2016, 30 June 2016, 30 September

2016 and 31 December 2016 in the amount of CZK 10,416,666.67 was settled by due dates specified by

the agreement. In 2016, the company paid a principal in the amount of CZK 41,667 thousand.

On 18 December 2014, the Company made with Komerční banka, a. s. a General Agreement for Provision

of Financial Services (General Agreement). On 30 November 2015, the parties entered into Amendment

3 to the General Agreement, which set the global credit line at CZK 500,000 thousand for the period

from 1 December 2015 to 31 May 2016 and for CZK 370,000 thousand for the period from 1 June 2016

to 30 November 2016. A total of CZK 80,000 thousand may be used in the form of an overdraft, and

CZK 370,000 thousand in the form of a revolving credit. Under the Agreement, the company may use

other products also so long as it does not exceed the sum of the foregoing limits. These include customs

guarantees (CZK 50,000 thousand), performance bond (CZK 150,000 thousand), payment guarantees

(CZK 200,000 thousand), documentary letters of credit (CZK 200,000 thousand) and standby letters of

credit (CZK 200,000 thousand).

After the balance sheet date, i.e. at 6 March 2017, the parties entered into Amendment 4, which set the

global credit line at CZK 600,000 thousand for the period from 31 May 2017 and from 1 December 2017

and at CZK 470,000 thousand for the period from 1 June 2017 to 30 November 2017.

The General Agreement and the products ensuing from it are secured by a pledged created for the

benefit of Komerční banka, a. s. as follows:

1. A letter of comfort issued by UNIMEX GROUP, a. s., Reg. No. 41693540;

2. A mortgage over real property – office building number 1068, Ruzyně, owned by the subsidiary T. S.

Building, s. r. o., registered office Praha 1, Václavské nám. 53/815, Reg. No. 645 83 970;

3. Securities – 694 shares serial number 359 -409, 668-707, 951-1036, 5308 – 5824 in the nominal value

CZK 100,000 per each, issued by Travel Service, a. s. owned by UNIMEX GROUP, a.s., Reg. No. 41693540.

The nominal value of secured shares is CZK 69,400 thousand;

4. Securities – 554 shares serial number 631-667, 4791-5307 in the nominal value CZK 100,000 per each,

issued by Travel Service, a. s. owned by Ing. Roman Vik. The nominal value of secured shares is CZK

55,400 thousand;

5. Securities – 1,670 shares serial number 0410-0434, 0772-0784, 5825-7456 in the nominal value

CKZ 100,000 per each, issued by Travel Service, a. s. owned by CANARIA TRAVEL, spol. s r.o., Reg. No.

49689428. The nominal value of secured shares is CZK 167,000 thousand;


6. Securities – 53,846 shares serial number 12.412-66257 in the nominal value CZK 1 per each, issued

by Travel Service, a. s. owned by CANARIA TRAVEL, spol. s r.o., Reg. No 49689428. The nominal value of

secured shares is CZK 54 thousand;

7. Securities – 3,288 shares serial number 1-242, 628-630, 1037-1057, 1101-1207, 1251-1530, 1626-1823,

1938-2084, 2501 – 4790, in the nominal value CZK 100,000 per each, issued by Travel Service, a. s.

owned by China International Group Corporation limited, registration number 1580628. The nominal

value of secured shares is CZK 328,800 thousand;

The nominal value of shares issued by Travel Service, a. s. and given in pledge to Komerční banka, a. s.

Praha is CZK 620,654 thousand, i.e. 50% of the Company’s registered share capital.

The Company cooperates with Raiffeisenbank a.s., which also assist in the arrangement of day-to-

day payment transactions and in financing the Company’s operations and investments. In the area of

operations financing, the bank granted the Company an overdraft credit in the amount of CZK 200,000

thousand under a loan contract No. 980466/2013/2. On 30 November 2016, the parties entered into

amendment No. 5 to the foregoing loan agreement which set the term for drawing the credit at 30 June

2017 or 30 November 2017 respectively, subject to the prior consent of the bank’s department in charge

of the loan agreement. The final due date is set at 30 November 2017.

On 27 May 2016, Raiffeisenbank a.s. and the Company entered into an investment credit contract which

granted the company a medium-term investment credit in the amount of CZK 125,000 thousand to

finance the advance payment for the purchase of the new airplane Boeing 737-8 MAX. The credit is

redeemed in quarterly payments in the amount of CZK 10,417 thousand since 30 September 2016. The

final due date of the credit is set at 31 May 2019.

The Company also cooperates with Česka spořitelna, a. s., which granted the Company an overdraft for

the amount of CZK 100,000 thousand under a contract for a credit line facility due by 28 February 2018.

The Company did not make use of the overdraft at the balance sheet date.

After the balance sheet date, the company received a medium-term credit in the amount of CZK 150,000

thousand to refinance the purchase of the new airplane Boeing 737-8 MAX. The credit was drawn on

22 February 2017. The credit is secured by a blank bill of exchange plus the Contract About the Right to

Complete a Blank Bill of Exchange. The credit is settled in monthly instalments in the amount of CZK 4,167

thousand. The last instalment in the amount of the outstanding part of the principle is scheduled on the

3rd anniversary of the execution date of the contract, i.e. on 22 February 2020.

COOPERATION WITH BANKS, INCLUDING THE INFORMATION ON INTEREST RATES

Interest rates charged on the credit are flexible; they are based on Pribor/Libor/EURIBOR rates, depending

on the currency of the loan, and a fixed mark-up in the range from 1.0% p. a. to 2.5% p. a. (the exact figure

is protected by trade secret).

The Company has current accounts in Komerční banka, a. s., in UniCredit Bank Czech Republic and Slovakia,

a.s., in Raiffeisenbank a.s., in Citibank Europe plc, organizační složka and in Československá obchodní

banka, a.s. For payment transactions in Slovakia, the Company also cooperates with Tatra Banka, a. s. and

a foreign bank branch – Komerční banka Bratislava, in Poland with PEKAO Bank, in Israel with Citi Bank

and in Ireland with Citi Bank.


In 2016, the Company carried out 126,591 block hours of flight, in 2015 a total of 111,785 block hours of

flight, in 2014 a total of 126,036 block hours of flight. Compared to year 2015, the aircraft time increased

by 14,806 block hours of flight.

For details, please refer to the management’s Annual Report on the company’s business and financial

position.

The following table shows carried out block hours of the Company and their structure by products:

The following table shows year-on-year changes in products.

14. Operating revenue of the company

Block hours 2016

Product 12016 22016 32016 42016 52016 62016 72016 82016 92016 102016 112016 122016 2016

Total TVS 8 493 8 796 9 833 9 881 9 153 13 517 15 453 15 328 13 741 9 254 5 936 7 206 126 591

of which

Charter carriage 1 524 1 685 1 830 2 441 3 113 5 119 6 515 6 460 5 239 3 225 1 374 1 595 40 122

Scheduled carriage 708 613 898 1 037 1 557 5 366 6 539 6 346 5 595 2 218 1 646 1 578 34 102

Lease of aircraft 6 022 6 191 6 772 5 841 3 763 2 107 1 729 1 919 2 167 3 139 2 520 3 666 45 837

Other 238 307 333 562 719 925 669 603 739 672 396 367 6 530

Block hours – comparison of 2016 and 2015

Product 1_16_15 2_16_15 3_16_15 4_16_15 5_16_15 6_16_15 7_16_15 8_16_15 9_16_15 10_16_15 11_16_15 12_16_15 2016_2015

Total TVS 794 1 571 1 149 1 553 307 1 601 2 125 1 491 1 768 2 375 241 -169 14 806

of which

Charter carriage -131 -60 -373 26 -757 -820 -396 -827 -911 -143 -3 61 -4 335

Scheduled carriage 322 295 409 80 169 995 1 322 1 153 900 785 890 752 8 072

Lease of aircraft 539 1 248 1 050 1 357 672 1 002 940 1 020 1 549 1 683 -846 -1 038 9 176

Other 64 89 64 90 223 424 258 146 229 49 200 56 1 892


Change in the structure of block hours affects the structure of revenue, as shown below.

*** In 2016, the following entries are included in the calculation I. Revenue from sale of goods and services

(classified as charter/scheduled carriage, lease of aircraft and other) in the amount of CZK 15,481,000, II.

Revenue from sale of goods in the amount of CZK 24,495 thousand and III. Other operating revenue of

CZK 53,171 thousand.

*The charter carriage revenue also includes revenue from Business Jet flights (aerotaxi)

**The scheduled carriage revenue includes also revenue from the sale of airplane tickets for shared flights

The foregoing operating revenue was accompanied by the following total operating cost:

*In 2016, the calculation includes all operating costs.

Operating revenue 2016 2015Year-on-year comparison in CZK

thousand Year-on-year comparison in %

Income from charter carriage* 6 678 528 7 626 701 -948 173 -12

Income from scheduled carriage** 5 618 595 4 247 377 1 371 218 32

Income from the lease of aircraft and services

2 659 556 2 010 934 648 622 32

Other operating income 601 987 587 862 14 125 2

Total operating revenue** 15 558 666 14 472 874 1 085 792 8

2016 2015Year-on-year comparison in CZK

thousand Year-on-year comparison in %

Operating cost * 15 486 897* 13 992 452 1 494 394 11


The following table outlines the selected substantial costs.

2016 2015 Difference % 2014

Consumed fuel, material and energy 2 679 797 3 030 698 -1 416 302 -12% 4 447 000

- fuel 2 406 386 2 706 862 -300 476 -11% 4 100 899

- fuel - rebilling 196 414 240 421 -44 007 -18% 259 057

- printing 43 936 46 411 -2 475 -5% 48 469

- technical section 5 371 10 079 -4 708 -47% 3 726

- energy 6 265 6 636 -371 -6% 7 297

- other 18 425 20 289 -1 864 -9% 27 552

15. Costs of consumed material, energy and services


2016 2015 Difference % 2014

Services 11 382 311 10 474 247 908 064 9% 10 021 197

- lease of aircraft 3 692 955 3 363 293 329 662 10% 3 223 809

- handling, landing and other flight related costs 2 389 015 2 197 444 191 571 9% 2 294 974

- charges 1 642 407 1 497 687 144 720 10% 1 646 314

- aircraft repairs 2 206 630 1 936 280 270 350 14% 1 423 743

- catering 145 299 201 802 -56 503 -28% 295 441

- services for rebilling 85 138 126 550 -41 412 -33% 70 572

- travel costs and accommodation 408 223 302 075 106 148 35% 304 915

- commissions 130 441 107 085 23 356 22% 78 227

- promotion 25 033 25 160 -127 -1% 26 264

- connections and communication 89 794 70 468 19 326 27% 55 387

- leases 31 757 29 970 1 787 6% 33 755

- training 56 874 39 179 17 695 45% 57 515

- other than aircraft repairs 3 247 4 531 -1 284 -28% 1 168

- codeshare 177 291 375 350 -198 059 -53% 322 873

- other 298 207 197 373 100 834 51% 186 240

A substantial decrease in the price of commodities such as petroleum and natural gas on global

markets caused a substantial decline in costs associated with fuel consumption. Simultaneously, the

maintenance costs increased, particularly the costs of repairing and maintaining airplanes. The costs

can be classified as follows:

a) Costs related to the maintenance of airplanes, amounting to CZK 1,100,578 thousand in 2016 (2015 -

CZK 899,070 thousand)

b) Supplemental rent costs associated with the use of airplanes, amounting to CZK 1,099,896 thousand in

2016 (2015 - CZK 1,031,997 thousand)


The tax liability (+) / asset (-) in the respective periods is outlined in the following table:

The income tax due in the respective periods is outlined below:

16. Income taxation

2016 2015 2014

Tax payable 61 230 54 870 10 946

Deferred tax -4 029 508 -508

Total 57 201 55 378 10 438

2016 2015 2014

Profit before tax 250 500 247 865 70 505

Net adjustment to the tax base 49 357 35 556 14 716

Tax base 299 857 283 421 85 221

Recognition of income tax provision (19 % of the tax base) 56 670 53 850 16 192

Income tax provision less discounts and tax credits abroad 56 670 53 850 14 557

Release of the income tax provision for the prior reporting period -53 850 -14 557 -58 152

Actual tax liability for the prior reporting period 58 410 15 577 54 219

Other impacts 0 0 322

Income tax payable (tax charge) 61 230 54 870 10 946


2016 2015 2014

Intangible and tangible fixed assets -12 475 -9 500 -12 014

Other temporary differences 13 717 -10 463 -5 274

Total 1 242 -19 963 -17 288

Tax rate 19 % 19 % 19 %

Deferred tax 236 -3 793 -3 285

The deferred tax at 31 December 2016 or at 2015 and 2014 is calculated from temporary differences by a tax rate valid in the period when the deferred tax is expected to be realised. It may be outlined as follows:


(in CZK thousand) Sale Purchase Balance at 31 Dec 2016

Travel Service Slovensko, s. r. o. 785 293 196 395 588 898

České aerolinie a. s. 595 038 196 025 399 013

CANARIA TRAVEL, spol. s r. o. 237 560 3 261 234 299

Travel Service, Kft. 203 134 18 817 184 317

Travel Service Polska, Sp. z o. o. 376 086 344 462 31 624

TS Building, s. r.o. 0 22 328 -22 329

UG Jet, s. r. o. 1 150 527 -150 526

Total 2 197 112 931 815 1 265 296

17. Related party transactions

In 2016, the company carried out all transactions with related parties at arm’s length. Related parties

include the subsidiaries Travel Service Slovensko, s. r. o., Travel Service Polska, Sp. z o. o., Travel Service, Kft,

TS Building, s. r. o., the Company’s shareholders CANARIA TRAVEL, spol. s r. o. and UNIMEX GROUP, a. s., and

the companies EHQ, s. r. o., UG Jet, s. r. o. and České aerolinie a.s.

The cooperation with related parties entail cooperation in the areas of passenger transport (Canaria

Travel, s. r. o.), lease of airplanes (Travel Service, Kft., Travel Service Slovensko, s. r. o, Travel Service Polska,

Sp. z o. o., UG Jet, s. r. o.), lease of commercial premises (TS Building, s. r.o.), financial services (Unimex

Group, a. s.), supply of materials and services, and trade agency services (Travel Service, Kft., Travel Service

Slovensko, s. r. o, Travel Service Polska, Sp. z o. o.).

As noted above, the Company provides a broad range of services to its subsidiaries. The services are charged in compliance with the arm’s length principle; the fair price is determined by calculating the costs and

based on a comparison with fair market prices at the same time and location.


18. Analysis of development the number of employees and structure of staff costs

Compared to 2015, the average number of the Company’s employees increased from 1,082 employees in

2015 to 1,158 employees in 2016. This represents a 7.02% year-on-year increase.

The Company’s management include employees directly reporting to the Chief Executive Officer of

the Company. These executives include Deputy CEO, Executive Director, Sales Director, Flight Director,

Technical Director, Operations Director, HR Manager, spokesperson, IT Manager, Compliance Monitoring

Manager, Technical Quality Manager, Manager in charge of subsidiary Travel Service Polska, Sp. z o. o.,

Manager for scheduled flights and the Financial Director.

Number of employees 2016 2015 2014

Average recalculated management headcount 15 11 14

Average recalculated headcount of other employees 1 143 1 071 1 018

Total 1 158 1 082 1 032


Payroll costs can be divided as follows:

2016 Management Other Total

Payroll costs 31 263 850 600 881 863

Bonuses to members of Company’s bodies 63 0 63

Social security and health insurance 6 702 261 825 268 527

Other social costs 0 8 444 8 444

Total 38 028 1 120 869 1 158 897


Payroll costs 24 379 714 286 738 665




Total 30 213 944 090 974 303


Payroll costs 24 642 701 235 725 877




Total 30 371 927 393 957 764


19. Other operating revenue and other operating costs

In 2016, the Company’s other operating revenue amounted to CZK 53,019 thousand (2015: CZK 240,462

thousand; 2014: CZK 109,076 thousand). The revenue comprised insurance indemnity in the amount of

CZK 1,164 thousand (2015: CZK 115,739 thousand; 2014: CZK 33,297 thousand); reversal of a public grant

for free emission allowances and revenue from the sale of emission allowances in the amount of CZK

12,845 thousand (2015: 34,874 thousand; 2014: 23,110 thousand); revenue from contractual penalties

and late-payment interest in the amount of CZK 12,291 thousand (2015: CZK 22,950 thousand; 2014: CZK

18,232 thousand), revenue from written-off receivables in the amount of CZK 523 thousand (2015: CZK

9,814 thousand; 2014: CZK 6,994 thousand), inventory differences etc.

Other operating costs in the amount of CZK 233,090 thousand (2015: CZK 261,666 thousand; 2014: CZK

117,912 thousand) consisted in costs associated with the recognition of emission allowances in the

amount of CZK 35,593 thousand (2015: CZK 67,988 thousand; 2014: CZK 27,066 thousand), insurance

premium costs of CZK 95,025 thousand (2015: CZK 89,624 thousand; 2014: CZK 76,014 thousand),

statutory employee insurance premium (Kooperativa), etc. In 2015 and in 2016, other operating costs

included also costs associated with the write-off of receivables in the amount of CZK 2,975 thousand

(2015: CZK 81,781 thousand).


20. Financial revenue and costs

Financial revenue and costs may be classified as follows:

The net financial profit is largely due to the Company’s hedging policy against price fluctuations of aviation fuel by means of commodity swaps, and the recent development in fuel prices, i.e. a consequence of

comparing the fixed price with the flexible price.

2016 2015 2014

Net foreign exchange rate gains or losses 84 149 12 483 64 669

Result of derivative transactions (including revaluation to fair value) 109 761 -236 259 -253 821

Interest income 19 688 14 751 5 432

Interest expenses -23 732 -23 627 -8 844

Other financial costs and revenue (primarily banking fees) -11 219 -7 839 -11 115

Total net financial profit or loss 178 647 -240 491 -203 679


21. Cash flow statement

The cash flow statement is an individual statement which is part of these financial statements. The

Company has prepared the cash flow statement using the indirect method. Cash equivalents include

current liquid financial assets that are convertible to cash anytime.


22. Risk management

The Company is exposed to risks arising from potential insolvency of service purchasers. These risks are

covered by required payments relating to the provision of services before the rendering of services, or

issued bank guarantees (e.g. bank guarantees of CITY Group, Raiffeissen Polska, etc.), or deposits.

The Company is exposed to risks arising from the insolvency of its suppliers, primarily those who

require payments before the use of purchased services of the Company, or require security deposits.

The Company eliminates these risks by using hedging instruments as part of the cooperation with local

banks in the form of letters of credit and bank guarantees – refer to Note 11, which replace the payments

required in advance. However, even bank guarantees issued at the Company’s request involve certain

risks arising from the substance of guarantees themselves, as they represent a first-call payment and the

relationship is abstract rather than accessory.

The Company is exposed to foreign exchange rate risks which are covered by “natural hedging” when the

Company balances its revenues and expenses to be, if possible, balanced by individual currencies. Potential

differences are hedged by financial derivatives – call and put options, or forwards. The strengthening of

the natural hedging principle, primarily against fluctuations in the USD/CZK exchange rate, involves the

increase in sales with partners that settle their payables in American dollars. These predominantly include

clients from North America, Israel and Poland.

To cover an unanticipated increase in fuel prices, the Company enters in contractual arrangements,

containing a fuel clause, with business partners. At the end of 2016, the Company recorded concluded

commodity options for hedging the aviation fuel price in thousand tons of aviation fuel.


23. Post balance sheet events

1. Česká spořitelna, a. s. provided an investment loan of CZK 150,000 thousand for financing the advance

payments made for supplies of new aircraft in accordance with concluded contracts with Boeing 737

– MAX;

2. After the balance sheet date, on 6 March 2017, the Company and Komerční banka, a.s. concluded

amendment no. 4 which stipulated a global credit line facility of CZK 600,000 thousand for the period

to 31 May 2017 and from 1 December 2017, and CZK 470,000 thousand for the period from 1 June

2017 to 30 November 2017;

3. The Company is taking steps to acquire the equity investments and the 20% investment in the

registered share capital of ALPHA FLIGHT a. s., corporate ID 278 80 427, with its registered office at K

Letišti 1018/55 Ruzyně, Praha 6, 161 00;

4. In accordance with concluded purchase contracts and aircraft fleet renewal strategy, the Company

makes advance payments to Boeing Company for their supplies;

5. Employees who met determined conditions receive contributions for a supplementary pension

insurance scheme; and

6. The Company, together with its subsidiaries, will operate 44 to 45 medium-route aircraft, primarily

Boeing 737-800 type, in the 2017 summer season.

Roman Vik


Jiří Jurán


Jiří Šimáně

Chairman of the Board of Directors


BETWEEN THE CONTROLLING ENTITY AND THE CONTROLLED ENTITY AND BETWEEN ENTITIES

CONTROLLED BYTHE SAME CONTROLLING ENTITY

FOR THE FISCAL YEAR FROM 1 JANUARY 2016

TO 31 DECEMBER 2016

UNDER § 82 OF THE BUSINESS CORPORATIONS ACT

in respect of

TRAVEL SERVICE, a. s.

1. GENERAL INFORMATION ON THE CONTROLLED ENTITY

Company name: Travel Service, a. s. (the „Company“)

Registered office: Prague 6, K Letišti 1068/30, postcode 160 08

Legal form: joint stock company

Commercial Register: Metropolitan Court in Prague

Date of incorporation: 28 April 1998

Identification number: 25663135

Business activities: - scheduled and unscheduled domestic and international commercial air

transportation of passengers, their luggage, animals, mail and cargo

- production, trade and services not listed in Annexes No. 1 to 3 of the Trades

Licensing Act

24. Report on related parties‘ transactions

2. DUTY TO PREPARE THE REPORT ON RELATED PARTIES‘ TRANSACTIONS

In the reported period, ownership interests in Travel Service, a. s. were owned by the following shareholders:

Ownership interests in %

UNIMEX GROUP, a.s., Prague 1, Václavské nám. 53 11.20

Ing. Roman Vik, Prg. 4 - Hodkovičky, Korandova 217/9, postcode 147 00 11.20

CANARIA TRAVEL, spol. s r.o., Prague 8, Horňátecká 5/481 27.68China International Group Corporation Limited, Room 4307-4312, 43/F, Convention Plaza Office Tower, 1 Harbour Road, Wan Chai, Hong Kong, Peoples Republic of China

49.92


Under Section 74 of the Business Corporations Act, this gives rise to dependence between the ultimate

owners, i.e. UNIMEX GROUP, a. s. and Ing. Roman Vik, as the controlling entity, and Travel Service, a. s.,

as the controlled entity. Under Section 82 of the Business Corporations Act, the managing body of

the controlled entity is required to prepare a written report on relations and transactions between the

controlling entity and the controlled entity and on relations between the latter and all other entities

controlled by the same controlling entity.

3. STRUCTURE OF RELATIONS BETWEEN THE ENTITIES SPECIFIED IN POINT 2 AND THE ROLE OF THE

CONTROLLED ENTITY IN THESE RELATIONS

In 2016, the company entered into the following relations described in a Note to the Financial Statements

with the entities specified above (Point 2).

4. METHODS AND MEANS OF CONTROL

The controlling entity exercises influence over the controlled entity via the general meeting through

election of the company‘s statutory body.

5. LIST OF CONTRACTS AND AGREEMENTS MADE BY AND BETWEEN THE CONTROLLED ENTITY AND

THE CONTROLLING ENTITY OR BETWEEN THE CONTROLLED ENTITIES

In 2016, no contracts or agreements were concluded between the controlled entity and the controlling

entity or between entities controlled by the same controlling entity.

6. LIST OF ACTIONS PERFORMED IN THE LAST PERIOD AT THE INITIATIVE OR IN THE INTEREST OF THE

CONTROLLING ENTITY OR THE ENTITIES CONTROLLED BY THE CONTROLLING ENTITY, RELATING TO

ASSETS EXCEEDING 10% OF THE EQUITY REPORTED BY THE CONTROLLED ENTITY IN THE LAST FINANCIAL

STATEMENTS

With the exception of actions described in a Note to the Financial Statements, in the last period, no

other actions were performed at the initiative or in the interest of the controlling entity or the entities

controlled by the controlling entity that relate to assets exceeding 10% of the equity reported by the

controlled entity in the last financial statements and no other actions at the initiative or in the interest of

the controlling entity or the entities controlled by the controlling entity were discovered.

7. ASSESSMENT OF ANY DETRIMENT THAT MAY HAVE BEEN CAUSED TO THE CONTROLLED ENTITY;

ASSESSMENT OF ITS SETTLEMENT IN ACCORDANCE WITH SECTION 71 AND 72 OF THE BUSINESS

CORPORATIONS ACT

No detriment has been caused to the Company by the relations and the actions specified above.

8. ASSESSMENT OF ANY BENEFITS AND DRAWBACKS ARISING FROM THE RELATIONS BETWEEN THE

ENTITIES SPECIFIED IN POINT 2

No significant risks arise from the relations specified for the controlling entity; to the contrary, the

Company predominantly benefits from these relations.

9. FINAL REPRESENTATION

Information disclosed in this report is to the best of our knowledge complete and contains any and all

data required under Section 82 of the Business Corporations Act.

Prague, 31 March 2017

Signature of authorized representative


25. Independent auditor‘s report


26. Balance sheet

BALANCE SHEET full version at 31. 12. 2016 (in TCZK)

Ident. ASSETS line Current period Prior period

Gross Adjustment Net Net

TOTAL ASSETS 001 4 698 547 -239 571 4 458 976 3 728 543

A. Receivables for subscribed shared capital 002 0 0 0 0

B. Fixed assets 1 413 542 -163 314 1 250 228 761 359

B. I. Intangible fixed assets 004 114 144 -49 847 64 297 29 400

B. I. 1. Research and development 006 510 -510 0 0

B. I. 2. Royalties 63 841 -49 337 14 504 14 043

B. I. 2. 1. Software 007 61 374 -46 908 14 466 14 011

B. I. 2. 2. Other Royalties 008 2 467 -2 429 38 32

B. I. 3. Goodwill 009 0 0 0 0

B. I. 4. Other intangible fixed assets 010 30 655 0 30 655 4 457

B. I. 5.Advances paid for intangible fixed assets and intangible fixed assets in the course of construction

19 138 0 19 138 10 900

B. I. 5. 1 Advances paid for intangible fixed assets 012 972 0 972 0

B. I. 5. 2 Intangible fixed assets in the course of construction 011 18 166 0 18 166 10 900

B. II. Tangible fixed assets 013 836 759 -113 467 723 292 274 481

B. II. 1. Land 7 294 -5 204 2 090 2 831

B. II. 1. 1. Land and buildings, halls and constructions 014 0 0 0 0

B. II. 1. 2. Buildings, halls and constructions 015 7 294 -5 204 2 090 2 831

B. II. 2. Movable items and sets of movable items 016 86 234 -48 120 38 114 39 022

B. II. 3. Adjustment to acquired fixed assets 022 60 143 -60 143 0 0

B. II. 4. Other fixed assets 0 0 0 0




B. II. 4. 1. Cultivated areas 017 0 0 0 0

B. II. 4. 2. Livestock 018 0 0 0 0

B. II. 4. 3. Other tangible fixed assets 019 0 0 0 0

B. II. 5.Advances paid for tangible fixed assets and tangible fixed assets in the course of construction

683 088 0 683 088 232 628

B. II. 5. 1. Advances paid for tangible fixed assets 021 664 255 0 664 255 217 284

B. II. 5. 2. Tangible fixed assets in the course of construction 020 18 833 0 18 833 15 344

B. III. Long-term financial investments 462 639 0 462 639 457 478

B. III. 1. Investments – controlled and controlling entities/subsidiaries 024 404 704 0 404 704 398 354

B. III. 2. Intragroup loans – controlling influence and controlled entities 027 0 0 0 0

B. III. 3. Investments in associates 025 57 935 0 57 935 59 124

B. III. 4. Intragroup loans in associates 023 0 0 0 0

B. III. 5. Other long-term investments in securities 026 0 0 0 0

B. III. 6. Intragroup loans– other 028 0 0 0 0

B. III. 7. Other long-term financial investments 0 0 0 0

B. III. 7. 1. Other long-term financial investments 029 0 0 0 0

B. III. 7. 2. Advances paid for long-term financial investments 030 0 0 0 0

C. Current assets 031 3 169 937 -76 257 3 093 680 2 655 584

C. I. Inventories 032 446 255 -4 717 441 538 329 189

C. I. 1. Materials 033 446 127 -4 717 441 410 329 099

C. I. 2. Work-in-progress and semi-finished products 034 0 0 0 0

C. I. 3. Finished products and goods for resale 128 0 128 90

C. I. 3. 1. Finished products 035 0 0 0 0

C. I. 3. 2. Goods for resale 037 128 0 128 90

C. I. 4. Livestock 036 0 0 0 0




C. I. 5. Advances paid for inventories 038 0 0 0 0

C. II. Receivables 2 402 694 -71 540 2 331 154 2 138 172

C. II. 1. Long-term receivables 039 866 670 0 866 670 716 502

C. II. 1. 1. Trade receivables 040 0 0 0 0

C. II. 1. 2. Receivables – controlling influence or controlled entities 041 0 0 0 0

C. II. 1. 3. Receivables – significant influence (associates) 042 0 0 0 0

C. II. 1. 4. Deferred tax asset 046 236 0 236 0

C. II. 1. 5. Receivables – other 866 434 0 866 434 716 502

C. II. 1. 5. 1. Receivables from shareholders 043 0 0 0 0

C. II. 1. 5. 2. Long-term advances paid 067 0 0 0 0

C. II. 1. 5. 3. Estimated receivables 044 0 0 0 0

C. II. 1. 5. 4. Other receivables 045 866 434 0 866 434 716 502

C. II. 2. Short-term receivables 047 1 536 024 -71 540 1 464 484 1 421 670

C. II. 2. 1. Trade receivables 048 585 939 -71 540 514 399 397 096

C. II. 2. 2. Receivables – controlling influence or controlled entities 049 0 0 0 128 359

C. II. 2. 3. Receivables – significant influence 050 0 0 0 0

C. II. 2. 4. Receivables – other 950 085 0 950 085 896 215

C. II. 2. 4. 1. Receivables from shareholders 051 0 0 0 0

C. II. 2. 4. 2. Receivables for social security and health insurance 052 0 0 0 0

C. II. 2. 4. 3. Due from state – tax receivables 053 2 752 0 2 752 1 864

C. II. 2. 4. 4. Short-term advances paid 054 212 009 0 212 009 103 730

C. II. 2. 4. 5. Estimated receivables 055 484 733 0 484 733 563 498

C. II. 2. 4. 6. Other receivables 056 250 591 0 250 591 227 123

C. III. Short-term financial assets 057 0 0 0 0

C. III. 1. Investments – controlled and controlling entities/subsidiaries 060 0 0 0 0




C. III. 2. Other short-term financial assets 061 0 0 0 0

C. IV. Cash and Cash Equivalents 320 988 0 320 988 188 223

C. IV. 1. Cash 058 4 575 0 4 575 4 912

C. IV. 2. Cash in bank 059 316 413 0 316 413 183 311

D. Accruals and deferrals of asset 062 115 068 0 115 068 311 600

D. 1. Prepaid expenses 063 114 949 0 114 949 310 376

2. Complex deferred expenses 064 0 0 0 0

3. Accrued income 066 119 0 119 1 224


Ident. LIABILITIES line Current period Prior period

TOTAL LIABILITIES + EQUITY 070 4 458 976 3 728 543

A. Equity 071 1 981 301 982 903

A. I. Share capital 072 1 241 236 250 000

A. I. 1. Share capital 073 1 241 236 250 000

2. Own shares held 074 0 0

3. Changes in share capital 075 0 0

A. II. Share premiumn and capital contributions 076 38 603 32 253

A. II. 1. Share premium 077 10 149 10 149

A. II. 2. Capital contributions 28 454 22 104

A. II. 2. 1. Other capital contributions 078 1 0

A. II. 2. 2. Gains or losses from revaluation of assets and liabilities 079 28 453 22 104

A. II. 2. 3. Gains or losses from revaluation in corporate transformations 080 0 0

A. II. 2. 4. Differences from corporate transformations 080a 0 0

A. II. 2. 5. Gains or losses from valuation in company transformations 080b 0 0

A. III. Revenue reserves 081 42 090 42 090

A. III. 1. Other reserve fund 082 0 0

2. Statutory and other reserves 084 42 090 42 090

A. IV. Retained earnings 085 466 073 466 073

A. IV. 1. Retained earnings 086 466 073 466 073

2. Accumulated losses 087 0 0

3. Other retained earnings 087a 0 0

A. V. Profit / (loss) for the current period (+ / -) 088 193 299 192 487

A. VI. Decided about advances for profit distribution (-) 088a 0 0

B. + C. Liabilities 089 2 413 044 2 656 027

B. Provisions for future liabilities and charges 090 28 676 48 889

B. 1. Provisions for pensions and similar liabilities 092 0 0

2. Provisions for corporate income tax 093 19 676 18 952



3. Tax deductible provisions 091 0 0

4. Other provisions 094 9 000 29 937

C. Liabilities 095 2 384 368 2 607 138

C. I. Long-term liabilities 104 353 87 314

C. I. 1. Debentures and bonds issued 101 0 0

C. I. 1. 1. Debentures and bonds issued 101a 0 0

C. I. 1. 2. Debentures and bonds issued 101b 0 0

C. I. 2. Long-term bank loans 119 104 167 83 333

C. I. 3. Long-term advances received 100 0 0

C. I. 4. Trade payables 096 186 188

C. I. 5. Long-term bills of exchange payable 102a 0 0

C. I. 6. Payables – controlling influence or controlled entities 097 0 0

C. I. 7. Payables – significant influence (associate) 098 0 0

C. I. 8. Deferred tax liability 105 0 3 793

C. I. 9. Liabilities – other 0 0

C. I. 9. 1. Payabl.to shareholders 099 0 0

C. I. 9. 2. Estimated payables 103 0 0

C. I. 9. 3. Other payables 104 0 0

C. II. Short-term liabilities 106 2 280 015 2 519 824

C. II. I. Debentures and bonds issued 115 0 0

C. II. 1. 1. Debentures and bonds issued 115a 0 0

C. II. 1. 2. Debentures and bonds issued 115b 0 0

C. II. 2. Other short-term borrowings 120 668 041 1 094 427

C. II. 3. Short-term advances received 114 166 249 364 820

C. II. 4. Trade payables 107 472 881 318 194

C. II. 5. Short-term bills of exchange payable 102b 0 0



C. II. 6. Payables - controlling influence or controlled entities 108 338 878 354 993

C. II. 7. Payables – significant influence (associate) 109 0 0

C. II. 8. Liabilities – other 633 966 387 390

C. II. 8. 1. Payabl.to shareholders 110 74 799 70 741

C. II. 8. 2. Other short-term borrowings 121 0 0

C. II. 8. 3. Payables to employees 111 63 837 52 968

C. II. 8. 4. Payabl. to social security and health insurance institutions 112 31 021 19 433

C. II. 8. 5. Due to state – taxes and subsidies payable 113 11 466 8 280

C. II. 8. 6. Estimated payables 116 223 802 186 264

C. II. 8. 7. Other payables 117 229 041 49 704

D. Accruals and deferrals of liabilities 122 64 631 89 613

D. 1. Accrued expenses 123 3 036 41 154

D. 2. Deffered income 124 61 595 48 459

Jiří Jurán



Profit and loss account full version at 31. 12. 2016 (in TCZK)

27. Profit and loss account

Ident.line

Reality in the accounting period

Current per. 1 Prior per. 2

I. Sales of own products and services 05 15 481 000 14 802 770

II. Sales of goods 01 24 495 45 764

A. Cost of sales 14 077 554 13 532 944

A. 1. Cost of goods sold 02 15 446 27 999

A. 2. Materials and energy consumption 09 2 679 797 3 030 698

A. 3. Services 10 11 382 311 10 474 247

B. Changes in inventories of finished goods and work-in-progress 06 0 0

C. Capitalization 07 -84 -94

D. Personnel costs 09 1 158 897 974 303

D. 1. Wages and salaries 13 881 926 738 737

D. 2. Social security and health insurance costs and other charges 276 971 235 566

D. 2. 1. Social security and health insurance costs 15 268 527 226 601

D. 2. 2 Other charges 16 8 444 8 965

E. Adjustments to values in operating actvities 36 800 -35 563

E. 1. Adjustments to values of intangible and tangible fixed assets 16 366 15 161

E. 1. 1. Adjustments to values of intangible and tangible fixed assets - permanent 18 16 366 15 161

E. 1. 2. Adjustments to values of intangible and tangible fixed assets - temporary 25a 0 0

E. 2. Adjustments to values of inventories 25b 43 4 760

E. 3. Adjustments to values of receivables 25c 20 391 -55 484

III. Other operating income 19 53 171 989 588

III. 1. Sale of fixed assets 20 152 749 126


Ident.line



2. Sale of raw materials 21 0 0

3. Other operating income 26 53 019 240 462

F. Other operating expenses 213 646 878 176

F. 1. Net book value of fixed assets sold 23 194 575 752

F. 2. Net book value of materials sold 24 0 0

F. 3. Taxes and fees 17 1 290 1 407

F. 4. Provisions (operating activities) and complex deferred expenses 25 -20 928 39 351

F. 5. Other operating expenses 27 233 090 261 666

* Operating profit (loss) (+/-) 71 853 488 356

IV. Revenues from long-term financial investments - interests 0 0

IV. 1. Revenues from investments – controlled and controlling entities/subsidiaries 34a 0 0

2. Other revenues from interests 34b 0 0

G. Securities and ownership interests sold 32 0 0

V. Revenues from other long-term financial investments 0 0

V. 1.Revenues from other long-term financial investments – controlling influence and controlled entities

35 0 0

2. Other revenues from other long-term financial investments 36 0 0

H. Expenses from long-term financial investments 38 0 0

VI. Interest and similar income 19 688 14 751

VI. 1. Interest and similar income – controlling influence and controlled entities 42a 19 684 14 614

2. Other interest income and similar income 42b 4 137

I. Adjustments to values and reserves relating to financial activities 41 0 0

J. Interest and similer expense 23 732 23 627

J. 1. Interest and similer expense – controlling influence and controlled entities 43a 14 215 9 684

J. 2. Other interest and similer expense 43b 9 517 13 943

VII. Other financial income 44 493 751 614 919


Ident.line



K. Other financial expenses 45 311 060 846 534

* Financial profit / (loss) (+/-) 178 647 -240 491

** Profit / (loss) before taxation 250 500 247 865

L. Corporate income tax 57 201 55 378

L. 1. Corporate income tax – due 56 61 230 54 870

2. Corporate income tax – deferred 57 -4 029 508

** Profit / (loss) after taxation 193 299 192 487

M. Transfer of profit / (loss) to partners (+/-) 59 0 0

*** Profit / (loss) for the accounting period after taxation (+/-) 193 299 192 487

* Net turnover from the current period = I. + II. + III. + IV. + V. + VI. + VII. 16 072 105 16 467 792

Jiří Jurán



Ident. Contens year/amount Prior period/amount

P. Cash and cash equivalents at the beginning of the accounting period 188 223 182 652

Cash flows from ordinary activities

Z. Net profit / (loss) on ordinary activities before taxation 250 500 247 865

A.1. Adjustments for non-cash transactions (figures A.1.1. to A.1.6.) -90 060 -383 089

A.1.1.Depreciation of fixed assets, excluding net book value of fixed assets sold, and amortization of adjustment to acquired fixed assets

20 823 17 504

A.1.2. Change in provisions for assets and future liabilities and charges -624 -20 863

A.1.3. Profit (loss) from disposal of fixed assets (adjustments to expenses or revenues) 42 -173 374

A.1.4. Income from dividends and shares in profit 0 0

A.1.5. Net interest income (expense), excluding capitalised interest 4 044 8 876

A.1.6. Other adjustments for non-cash transactions -114 345 -215 232

A.* Net cash flows from ordinary activities before tax, changes in working capital and extraordinary items (Z. + A.1.) 160 440 -135 224

A.2. Change in working capital (A.2.1. to A.2.4.) 94 155 -102 382

A.2.1. Change in receivabl.from ordinary activities, accruals, prepayments and estimat.receivables 82 440 -397 590

A.2.2. Change in short-term payables from ordinary activities, accruals and estimated payables 124 021 393 721

A.2.3. Change in inventories -112 306 -98 513

A.2.4. Change in short-term financial assets (if not under P. or R.) 0 0

A.** Net cash flows from ordinary activities before tax and extraordinary items (A.* + A.2.) 254 595 -237 606

A.3. Interest paid, excluding capitalized interest -23 732 -23 627

A.4. Interest received 19 688 14751

A.5. Corporate income tax on ordinary activities paid and additional tax payments for previous tax periods -60 991 -15 213

A.*** Net cash flows from ordinary activities (A.** + A.3. + A.4. + A.5.) 189 560 -261 695

Cashflow as at 31. 12. 2016 (in TCZK)

28. Cashflow


Ident. Contens year/amount Prior period/amount

Cash flows from investing activities

B.1. Acquisition of fixed assets -511 201 -783 654

B.2. Proceeds from sale of fixed assets 152 749 126

B.3. Long-term loans 0 0

B.4. Income from dividends and shares in profit 0 0

B.*** Net cash flows from investing activities (B.1. to B.4.) -511 049 -34 528

Cash flows from financing activities

C.1 Change in long-term and short-term liabilities (financing activities) -405 553 301 794

C.2. Changes in equity, affecting cash and cash equivalents (C.2.1. to C.2.6.) 859 807 0

C.2.1.Cash inflow from the increase of share capital, share premium or reserve funds, including down payments on this increase in share capital

991 236 0

C.2.2. Disbursement from equity to shareholders 0 0

C.2.3. Other cash contributions to equity by shareholders 0 0

C.2.4. Redemption of retained loss by shareholders 0 0

C.2.5. Direct payments from contributions 0 0

C.2.6.„Dividends and shares in profit paid including withholding tax paid and revenue equalization (settlement) with shareholders of general partnerships (v.o.s.) and general partners of limited partnerships (k.s.)“

-131 429 0

C.*** Net cash flows from financing activities (C.1. + C.2. + C.3.) 454 254 301 794

F. Net increase / (decrease) in cash and cash equivalents (A.*** + B.*** + C.***) 132 765 5 571

R. Cash and cash equivalents at the end of the accounting period (P+F) 320 988 188 223


29. Contact

CZECH REPUBLIC

Travel Service, a.s.

K Letišti 1068/30

160 08 Praha 6

Česká republika

www.travelservice.aero

www.smartwings.com

SLOVAKIA

Travel Service Slovensko s.r.o.

Ivánska cesta 30/B

821 04 Bratislava

Slovenská republika


www.smartwings.com

HUNGARY

Travel Service, Kft.

Wesselényi u.16/A

1077 Budapešť

Maďarsko


www.smartwings.com

POLAND

TRAVEL SERVICE POLSKA sp. z o.o.

Ul. Gordona Bennetta 2B

02–159 Warsaw

Polsko


www.smartwings.com

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