We Are Building the Leading Energy Company in Northern Germany

WE ARE BUILDING THE LEADING ENERGY COMPANY IN NORTHERN GERMANY.

INTEGRATED REPORT 2016 OUR BUSINESS

At EWE, around 9,000 employees generate annual revenue of around 8 billion euros – this makes us one of the largest municipal companies in Germany. Our customers in north-west Germany and Brandenburg and on Rügen benefit from innovative energy products and powerful telecommunications. EWE has also made a name for itself as a reliable provider and trendsetter in modern energy markets in Poland and Turkey. The Group headquartered in Oldenburg has its own production capacities from both renewable and conventional energy sources. In addition, the companies of the EWE Group operate advanced and safe networks for electricity, natural gas and telecommuni cations. Our portfolio is rounded off with Germany-wide IT solutions.

EMS-WESER-ELBE BREMEN BRANDENBURG/RÜGEN TURKEY/POLAND

• Integrated supply of • The swb Group supplies • A wide-ranging natural gas • Active in Turkey since 2007: electricity, natural gas and energy, drinking water supply network has been natural gas supply in two telecommunications and telecommunications under construction since major cities (Bursa and • Generation, household and in the state of Bremen 1990 Kayseri) mobility services • It is one of the largest • Electricity since 2008 • EWE has its own power and • High-performance regional energy suppliers with • EWE’s first electric vehicle gas company and an energy infrastructure proprietary electricity and recharging point was opened consultation service provider (grids and storage) heat generation in Germany in 2016 company • Renewable energy generation, • Has been part of the EWE • Telecommunications primarily from wind Group since 2009 since 2016 • Solid customer base in Poland: market entry in 1999

Rügen

POLAND

Oldenburg (EWE headquarters) Poznań (headquarters) Brandenburg

GERMANY Istanbul (headquarters)

TURKEY

EMPLOYEES TELECOMMUNICATION ELECTRICITY CUSTOMERS GAS CUSTOMERS (2015: 8,855) CUSTOMERS (2015: 1.3 mio.) (2015: 1.7 mio.) (2015: 615,000) 9,048 631,000 1.3 mio. 1.8 mio. OUR BUSINESS MODEL

WHERE WE ARE GOING

EWE – THE LEADING ENERGY COMPANY FOR NORTHERN GERMANY.

EWE Group (Own share in EWE AG: 10%)

Weser-Ems-Energie- Energieverband Elbe-Weser EnBW Energie beteiligungen GmbH Beteiligungsholding GmbH Baden-Württemberg AG 64% 20% 6%

HOW WE CREATE VALUE

in the segments

Renewables, Grids Sales, Services International and Gas Storage and Trading

Group Central swb Division

along the value chain

RESOURCES

Plants and Social aspects Environment Know-how Employees Finance networks and relationships

Electricity Generation Trading Grids Sales

Gas Procurement Storage Trading Grids Sales

Telecommunications Grids Sales

Information technology Consultation System integration System management

Sales Operating EBIT EBIT Dividend 7,566.3 million euros 534.6 million euros 649.2 million euros 88.0 million euros OUR GROUP KEY FIGURES

| T 001

in millions of euros 2016 2015 Change in %

Sales 7,566.3 7,819.3 -3.2 Operating EBIT 534.6 428.1 24.9 EBIT 649.2 212.0 >100 Result for the period 332.9 -9.4 –

Cash outflows for capital expenditure (total) 469.2 666.9 -29.6 Cash flow from operating activities 471.6 708.2 -33.4

Balance sheet total 8,435.2 9,744.3 -13.4 Equity ratio in % 23.0 18.0 – Net financial position 3,399.7 4,237.1 -19.8 Employees (on average) 9,048 8,855 2.2 Full time employees (FTE) 8,607 8,465 1.7

Non-financial performance indicators1) Installed electrical output from renewables 374 MW 322 MW 16.1

Specific CO2 emissions from electricity generation 563 g CO2/kWhel 536 g CO2/kWhel 5.0 Health rate in % 94.8 95.4 –

1) The data in the non-financial report are based on the consolidated data of the key companies, as defined by their strategic relevance and coverage of at least 95 per cent of the sales generated by the EWE Group.

The accounting methods applied may result in rounding differences of +/- one unit (euro, per cent, etc.). 1

WE ARE BUILDING THE LEADING ENERGY COMPANY IN NORTHERN GERMANY.

We aim to use our core skills to build the best possible energy system for the future and provide optimal solutions for every single customer. We will rely on lucrative partnerships and seize the opportunities presented by new markets and digitisation.

CONTENT

U2 Our business model 18 Our resources 32 Our stakeholders 02 In conversation with the 20 Environment 34 Responsible Board of Management 22 Plants and networks management 06 Report from the 24 Know-how 36 Combined Supervisory Board 26 Employees management report 08 Our strategy 28 Social aspects and 64 Consolidated financial 10 Digitisation relationships statements 12 Customer focus 30 Finance 145 Facts and figures 14 Renewable U3 5-year financial summary 16 Efficiently EWE Group

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REFERENCE REFERENCE INTEGRATED INTERNET REPORT 2016 2

INTERVIEW WITH THE BOARD OF MANAGEMENT

THE BOARD OF MANAGEMENT OF EWE AG Wolfgang Mücher, Chief Financial Officer, and Michael Heidkamp, Chief Sales Officer

The full interview can be found online at: report.ewe.com/ir2016/management.html 3

WE WILL SEIZE OUR GREAT OPPORTUNITIES WITH BOTH HANDS.

2016 was a good year for EWE and the company is looking to the future with optimism. Why? The members of EWE’s Board of Management Wolfgang Mücher and Michael Heidkamp answer this question in an interview: EWE does not have to depreciate coal or nuclear power plants, the company possesses the key technologies of the future with renewable energy generation, efficient grids, telecommunications and IT and has started to develop and test business models for a digital world. The interview was conducted by the independent editor Wolfgang Witte.

In light of recent events, my first question When will the Board of Management does not concern the 2016 business year or be complete again? the future of EWE, but rather the present. The dismissal of the Chairman of the Board Michael Heidkamp: of Management and the reports on apparent That is up to the Supervisory Board. We expect irregularities, these do not fit EWE’s tradi- that our Supervisory Board will not rush the tional image. What can you say about the issue and make the necessary personnel-related state of play? decisions in the near future. For Mr Mücher and myself, the highest priority is that we continue Wolfgang Mücher: to provide our customers with the same quality Mr Witte, you are absolutely right. Integrity is of service. We must also work internally to one of the guiding principles of EWE. Integrity return the company to an even keel. is part of our business success and we know that our customers, business partners, owners These regrettable circumstances have and, of course, our employees, deserve to be overshadowed EWE’s positive business treated with it. We take these allegations very performance. What was behind this seriously and will investigate them quickly, success? thoroughly and impartially. This will be in coor- dination with our auditing and compliance Wolfgang Mücher: departments as well as two external consulting Yes, the 2016 business year was a good year. agencies. Our earnings were significantly higher than in 2015. This was due to three elements in particular: for one, our operating units worked really well. Our success is also the result of the hard work of our employees. Secondly, 2016 “We will be in an even stronger, was a normal weather year without the mild temperatures we experienced in 2015 and 2014. more solid position for the next Finally, the statement of financial position few years. features two extraordinary line items: the sale of the shares in VNG and swb’s restructuring of its company pension regulations.

EWE Integrated Report 2016 4

We were therefore able to distribute a healthy What does that mean specifically? dividend in 2016 and guard against risks. We will be in an even stronger, more solid position Michael Heidkamp: for the next few years. Specifically, it means that we provide everything we think we do well in our domestic You have adopted a new Group strategy. market, i.e. in the north west, throughout How does EWE want to be successful in Germany. We will work to expand our business the future? Many energy companies find with customers geographically. Secondly, it it difficult to answer this question. means that we will merge our energy products with our telecommunications and IT products. Wolfgang Mücher: The first stage might be a flat rate for energy The energy sector is on the precipice of an and Internet connections. In the future we unprecedented transition. Large nuclear and will be able to provide a full household package; fossil fuel power plants will disappear from we are drawing closer to intelligent solutions the market. Fortunately, this problem barely for smart homes or smart living, for example. affects us. We rely on decentralised, renewable Thirdly, in specific terms this means installing energy. We also rely on intelligent networking fibre optic cables in every house in order to and digitisation. We focus on customer orien provide every one of our customers with ultra- tation and experience. We are in an excellent fast Internet. This is the only way to fully position with regard to the transition in the embrace digitisation. Finally, it means that in energy sector. We can be successful in the mar- a decentralised world we do not try to do ket. It is now a matter of seizing these major everything ourselves and instead work with opportunities with both hands. partners to provide customers with comprehensive solutions and extend our value chain. This is what we are currently doing in a project entitled “enera”. To put it simply, with “enera” “ we aim to show that grids can be controlled in In future our customers will be real time through a digital platform. This would be revolutionary in Germany and serve as a able to control their lighting, blueprint for the new electricity market. heating and smart e-mobility solutions using apps.

EWE Integrated Report 2016 5

We“ are learning what the customer of tomorrow would like.

The word “digitisation” has been used. You are not releasing a traditional annual Digitisation will be a decisive factor in report for the first time, but instead an the transformation of the energy sector. Integrated Report. Why? How has EWE prepared for this? Wolfgang Mücher: Michael Heidkamp: Even here we are moving with the times. In addition to the energy segment, our We want to present ourselves as more modern company has a major IT subsidiary in BTC and and target-group-oriented in our business telecommunications in EWE TEL. We are the reports. Our stakeholders’ expectations are only company in Germany that has all of the changing with regard to our reporting methods. resources it needs to offer its customers We are offering a condensed financial report something digitally. We are gradually becoming with facts, figures and dates, yet our Integrated familiar with new ways of working, i.e. more Report also contains information on our strat- agile work, which not everyone would believe egy and on the ecological, economic and soci- the energy sector capable of implementing at etal issues that affect EWE. And that is what the moment. In addition to the “enera” project the people in the region, the public sector, our that I mentioned earlier, we are trying other shareholders, our employees and other groups things out. We are learning what the customer want to know. We are certain that this type of tomorrow would like. We are looking at of annual report will appeal to a number of start-ups and have even created three of our people. I believe that we are among the first in own with digital business models. Essentially, the energy sector to introduce a report such digital business models mean that products as this. We can be proud of that. and even switching services are provided automatically over digital platforms. You will have seen this kind of thing on Check24, although we aim to do it even better. And in future our customers will be able to control their lighting, heating and smart e-mobility solutions using apps or other applications.

“Integrity is part of our business success.

EWE Integrated Report 2016 6

REPORT FROM THE SUPERVISORY BOARD

LADIES AND GENTLEMEN,

Over the course of the 2016 business year, the Supervisory Board continuously monitored the company’s management and received regular, comprehensive reports from the Board of Management on the company’s position, all significant events and company performance, both verbally and in writing.

The Supervisory Board thoroughly discussed all matters requiring its approval either by law or the company’s articles of incorporation and made the necessary decisions. In a total of five meetings in 2016, the Supervisory Board dealt in particular with the annual and consolidated financial statements, the current earnings position (including the risk management system), investments and their financing, and individual transactions of particular importance. The Supervisory Board provided guidance regarding the company’s strategic focus, regarding resolutions on planned offshore investments, regarding expansion of the broadband network expansion in the region and regarding its commitment to the Turkish market in light of the current political situation. The Super visory Board approved the re-securitisation of global registered shares in EWE AG by providing written consent in lieu of holding a meeting. Additionally, the Supervisory Board passed resolutions to terminate the appointment and dissolve the employment contracts of the members of the Board of Management Ines Kolmsee and Nikolaus Behr. The Group auditing department provided the Supervisory Board with regular reports on the audits carried out. An external forensic investigation has been commissioned following anonymous reports of legal violations, especially in connection with donation promises and the illegal awarding of contracts. The investigations will be ongoing in the 2017 business year and will continue to be the subject of frequent Supervisory Board resolutions.

The Supervisory Board of EWE AG underwent the following changes since 1 January 2016: Following the decrease in the shares of the shareholder EnBW Energie Baden-Württemberg AG, Mr Stefan Brok, Dr Hans-Josef Zimmer and Dr Frank Mastiaux have stepped down from their roles as shareholder representatives on the Supervisory Board. Shortly after his withdrawal, Dr Frank Mastiaux was re-appointed to the Supervisory Board of the company. Additionally, Ms Beatrix Kuhl and Mr Peter Bohlmann were appointed to the Supervisory Board as representatives of the shareholders. Mr Jürgen Humer resigned from his position as employee representative. Ms Heike Klattenhoff has been appointed his successor by the Local Court (Amtsgericht) of Oldenburg. Mr Gregor Heller, who stepped down from the Supervisory Board at the end of 2015, has been replaced by Mr Claus Christ as an employee representative. Dr Hans-Josef Zimmer resigned from his position as a member of the working committee, the finance and audit committee and the mediation committee pursuant to Article 27 (3) of the German Co-determination Act (MitbestG). Ms Beatrix Kuhl was appointed to the working committee, Mr Peter Bohlmann was appointed to the finance and audit committee and Mr Heiner Schönecke was appointed to the mediation committee.

The Supervisory Board thanks its former members for their committed, constructive work and for their efforts to further the interests of the company.

Together with the Board of Management, the Supervisory Board committees prepared the meetings and the resolutions of the Supervisory Board. All in all, the steering committee met eight times, the working committee twice and the finance and audit committee a total of two times. No meetings of the mediation comittee pursuant to Article 27 (3) MitBestG were held.

EWE Integrated Report 2016 7

The annual financial statements of EWE AG prepared by the Board of Management in accordance with the German Commercial Code (HGB), the consolidated financial statements prepared in accordance with IFRS and the combined management report for EWE AG and the Group for the 2016 business year have been audited by the accounting firm Ernst & Young GmbH, which was elected as auditor at the Annual General Meeting on 4 May 2016, and subsequently hired by the Supervisory Board. The auditors’ reports were distributed to the members of the Supervisory Board, officially acknowledged and incorporated into the discussion and review of the annual and consolidated financial statements. The auditors participated in the meeting of the finance and audit committee on 4 April 2016 and the Supervisory Board meeting dealing with the financial statements, where they reported on the major findings of their audit and were available to answer questions. Having conclusively examined the annual financial statements and consolidated financial statements prepared by the Board of Management, the management report for EWE AG and the Group management report as well as the proposal for the appropriation of net profit, the Supervisory Board expresses no objections. The Supervisory Board today adopted the annual financial statements, approved the consolidated financial statements and concurred with the Board of Management’s proposal for the appropriation of net profit.

The Board of Management also prepared a report as required by Article 312 of the German Stock Corporation Act (AktG) on relationships with affiliated companies as per Article 313 AktG. The auditors have audited this report and issued the following auditor’s opinion:

“On the basis of our audit and in our professional opinion, we confirm that:

1. The factual statements of the report are correct 2. The consideration paid by the company for the transactions mentioned was not inappropriately high.”

Each member of the Supervisory Board was provided with a copy of the annual financial statements and management report, the consolidated financial statements and Group management report, as well as the audit reports from the company’s auditor. After our own review of the report, the Supervisory Board concurs with the results of the audit and expressly states that it has no objections to the statements by the Board of Management at the end of the report on transactions with affiliated companies.

The Supervisory Board would like to thank and express its appreciation to the Board of Management, all employees and the members of the works councils for their hard work in the 2016 business year.

Oldenburg, Germany, 25 April 2017

The Supervisory Board

Dr Stephan-Andreas Kaulvers Chairman

EWE Integrated Report 2016

EWE IS UNDERGOING A STRATEGIC TRANSFORMATION.

EWE is at ease with tradition and the future. We are proud of our years of experience and our reputation as a major energy company in northern Germany. We have often headed in new directions in the past, be it because the general political and regulatory conditions required it or with a view to opening up new lines of business through which we were able to provide our customers with attractive products and services.

We are facing the current challenges in the energy sector with the same perspective. EWE was one of the first companies in Germany to create the conditions for the energy, telecommunications and mobility markets to merge. We rely on our proven expertise and experience – we want to grow and shape the optimal energy supply for the future. To this end we are investing in partnerships and heading in new directions in order to improve our networks even further. And not only in northern Germany.

We are focusing our high level of innovation on a digital world. Through the networking of intelligent devices, our world will be shaped by new, highly efficient technical processes and markets designed to meet individual customer requirements. The changes are happening quickly. We have started to digitise our grids and develop holistic solutions for the energy transition. We are investing in renewables, our telecommunication networks and in expanding our e-mobility charging infrastructure. We are equally determined to implement the necessary changes within our company. We have the expertise to offer impressive price-performance ratios in all lines of business. Our personnel strategy is centred on employee and manager qualification and talent development, especially in the field of digitisation.

EWE aims to continue consolidating its position as a leading energy company for northern Germany. We have set four key strategic focal points:

• We will use the opportunities of DIGITISATION. • We are a point of contact for our CUSTOMERS in a world of decentralised energy supplies. • We rely on RENEWABLE ENERGY and an intelligent grid infrastructure. • We work EFFICIENTLY in all business segments.

EWE Integrated Report 2016

WE WILL USE THE OPPORTUNITIES OF DIGITISATION.

The energy supply of the future is digital. As a leading energy company in northern Germany, EWE will play a decisive role in digitisation in the coming decade.

By operating energy and telecommunication In order to allow this full potential, we will networks and as an expert in e-mobility, we restructure our internal processes over the are prepared for the dynamic merging of next few years and increase the speed at these markets. We possess the necessary which we develop new products. Digitisa- IT systems to evaluate the necessary data tion will also revolutionise the operation and can promise our customers maximum of grids. By fitting sensors and intelligent data security. transformers to a grid, it will be possible to view detailed information on current flow The intelligent use of data is of key impor in individual households, districts and even tance to the energy supply of the future. regions. Intelligent grid load management These data can be used to generate addi- helps lower the costs of grid operation tional value for customers. Therefore, in the long term. In this market EWE will EWE also intends to develop products and advocate intelligent assistance systems services relating to its traditional electricity and digital platforms that make the lives and gas business that are based on new of customers easier, more secure, more requirements. We are prepared for tough comfortable and less resource-intensive. competition from start-ups, successful Internet concerns and other energy companies in the emerging smart living products market. E W E is well prepared for the merging of the energy, telecommunications and I T markets.

EWE Integrated Report 2016

WE ARE A POINT OF CONTACT FOR OUR CUSTOMERS IN A WORLD OF DECENTRALISED ENERGY SUPPLIES.

The energy supply of the future is reliant on integrated solutions. Whereas in the past almost everything depended on the augmentation of production technology, the future of the energy transition will be characterised by new and changing customer requirements.

We want to continue to be the best part- We will pave the way for e-mobility with ner to our customers in the decentralised, a dense network of charging points, sim- digital energy future. Our high technical ple charging processes, special tariffs for expertise serves as a reliable platform for green electricity and smart applications. this partnership, yet ultimately we want to In the digital world, EWE will create new, impress our customers not with techno favourable conditions for grid customers to logy, but with tailored offers. These include start feeding in electricity generated from services that improve a person’s quality of wind and solar power. We will also offer life as well as helping business customers this know-how to other energy companies optimise their technical and administrative with no personal resources or strong finan- processes. cial base so that they can develop these services independently. The energy supply of the future will be decentralised: the increasing networking of intelligent devices will create a demand for assistance systems that will cause areas of life that are currently separate to Our customers should receive a customer merge. We therefore believe that our future lies in holistic offers that facilitate the experience from a single source. conscientious, responsible use of energy and provide access to other cost-effective services. We will rely on the emergence of regional energy markets with digital billing systems in which all customers can participate. With our digital platforms, we are available round the clock to provide our customers with exceptional service.

EWE Integrated Report 2016

WE RELY ON RENEWABLE ENERGY AND AN INTELLIGENT GRID INFRASTRUCTURE.

EWE is driving the energy transition in northern Germany. Ever since our formation we have considered ourselves experts in grids and pioneers in renewable energy.

We have been making a name for ourselves Not only will we build wind farms and as a pioneer in wind power since the 1980s solar power stations with our own funds, and made a significant contribution to the we will also do it alongside partners from fact that wind farms in good locations the region and from other sectors more now generate competitive amounts of frequently. Given the expected level of electricity. We preserve this tradition and income, more capital from new lines of will continue to expand our expertise all business is flowing into renewable energy. along the value chain. In partnership with communities, residents and landowners, EWE will shape the devel- We want to supply our customers with the opment, construction and operation of most cost-effective clean energy possible; renewable energy power stations and pro- we will therefore continue to move away vide attractive investment opportunities. from fossil fuels and invest in onshore wind farms, solar parks and, depending on the political situation, battery storage in the future. We will also drive the digitisation of grids forward and support the growing E W E already has an excellent number of our customers who generate, store and use their own energy. The reputation as a driver of the energy smoother the interplay between renewa- transition in the sector. ble energy power stations, energy storage facilities and local grid stability, the more cost-effectively electricity can be generated from renewables and transported to our customers.

EWE Integrated Report 2016

WE WORK EFFICIENTLY IN ALL BUSINESS SEGMENTS.

Energy efficiency is a cornerstone of the energy transition. By using energy more productively, we can make a significant contribution to keeping global warming beneath the 2°C mark. What other challenges will the upheaval of the energy industry bring?

We associate the transformation at EWE Our employees are of key importance to with a new awareness of efficiency. Our the completion of our strategic objectives. divisions and employees will therefore be More than 9,000 employees are contrib- much more closely connected than in the uting to the success of our customers. Our past. As a group, we will develop innova- personnel strategy therefore places great tive products for the markets of tomorrow importance on qualification, advanced whilst promoting a new corporate culture. training, innovative ways of working and the promotion of diversity. As part of our The landscape has changed dramatically transformation we also aim to make EWE for energy providers. Decentralised energy one of the most attractive employers in supplies require intelligent technologies. northern Germany. A new generation of customers want to manage their energy consumption independently and value energy efficiency. EWE is embracing this change. Being efficient also means We are increasing efficiency on all levels of the company. This will have an effect on focusing on successful fields of business. almost all of our operations. Our profits are being squeezed by increasing competition, high price pressure and comprehensive regulations. Therefore, being efficient also means focusing on successful fields of business and investing in partnerships with other companies.

EWE Integrated Report 2016

OUR RESOURCES

Financial and non-financial value drivers contribute to the success of our company. We report how we create value – economic, ecological and societal value – by the following resources: environment, plants and networks, know-how, employees, social aspects and relationships and finance.

ENVIRONMENT PLANTS AND KNOW-HOW Page 20 NETWORKS Page 24 Page 22

EWE Integrated Report 2016

EMPLOYEES SOCIAL ASPECTS AND FINANCE Page 26 RELATIONSHIPS Page 30 Page 28

EWE Integrated Report 2016 20

ENVIRONMENT

SIGNIFICANCE

As a company actively involved in shaping the energy transition, we want to promote energy generation from renewable sources. We develop solutions to balance out the fluctuations in renewable energy generation caused by the weather and ensure a reliable energy supply at all times. However, it goes without saying that we strive to treat our environment responsibly. We monitor and reduce our energy consumption throughout our Group, we make our employees aware of the impact of what they do and we train them in energy-related aspects that are of significance to the environment. We are working hard to cut the CO2 emissions from our own electricity generation activities. We are applying our expertise to develop environmentally friendly solutions and energy-saving products.

SELECTED MEASURES IN 2016

• Opening of Hatten and Köhlen wind farms • Energy management expanded: with EWE AG, EWE NETZ and EWE WASSER, eleven Group companies are now certified: • EWE AG: in partnership with EWE TEL, around one million kilowatt hours (kWh) of electricity have been saved in a data processing centre. Measure: optimised cooling of server rooms • EWE NETZ: gas pressure monitoring systems identified as one of the largest energy consumers. Measure: The company is examining the potential for optimisation of the gas pre-heating process • EWE WASSER: electricity requirements of the pumping station at the waste water purification plant in Cuxhaven lowered by approx. 90 per cent. Measure: modernise the waste water pumping facility

VALUE CREATION

Expansion of wind power 24 new turbines with a total capacity of almost 75 megawatts (MW) were connected to the grid in 2016. EWE granted some residents and landowners a stake in the turbines, e.g. with a savings certificate model. Ongoing reduction of energy consumption In 2016 we almost met our target of having twelve companies certified by 2020. On the basis of specific energy-saving targets in the companies, we are continuously identifying potential ways to save energy and deriving specific energy-saving measures from them. Temporary increase in specific CO2 emissions from electricity generation In 2016 the specific CO2 emissions of the electricity generated by EWE were higher than in 2015 (see image). Nevertheless, we expect to reach our target of 40 per cent lower emissions in 2020 compared to 2005. In 2016 the reduction was 32 per cent compared to 2005. In order to meet this target, we will expand wind power with even more determination over the next few years, including in partnership with private individuals and partner companies. EWE currently holds a 37.5 per cent stake in the Trianel Windpark Borkum II offshore wind farm.

EWE Integrated Report 2016 21

900 828 815 790 784 786 800 728 728 722

700 658

/kWh el 600 563 2 540 536 g CO 500 Specific CO2 emissions from electricity generation 400 Grams CO2 per kilowatt-hour 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

ONSHORE AND OFFSHORE WIND POWER CHARGING INFRASTRUCTURE: 900 For over 25 years EWE has been reliant primarily828 on wind THE KEY TO SUCCESS IN E-MOBILITY 815 790 784 786 power as it expanded its renewables. EWE800 operates plants E-mobility cannot become more widespread without a with a capacity of around 220 MW onshore and around larger network 728of charging728 722stations. EWE and its sub- 142 MW offshore. A wide range of environmental700 protec- sidiary swb in Bremen operate more658 than 240 public tion measures have been implemented for the Hatten wind charging points throughout Germany (as at 2016), 120 600 563 farm (with eight turbines). The 16 turbines at the Köhlen of which are located in the EWE service area540 in the536 north wind farm are a joint project between 500PNE Wind AG and west. EWE has also been awarded a contract by an e-fleet EWE; Köhlen is one of the largest wind farms in northern customer with around 100 charging points. In the vehicle 400 Germany. Private individuals and municipalities2005 2006will be20 07 fleet2008 segment,2009 EWE’s2010 services2011 20 include12 2013 connecting2014 2015 charging2016 able to acquire stakes in both wind farms. points to the grid, operation and maintenance as well as metering and the delivery of energy. More information

CO2 EMISSIONS FROM ELECTRICITY GENERATION900 on e-mobility at EWE.

828 The increase in specific CO2 emissions from815 electricity 790 786 generation is due primarily to the decrease800 in generation784 OUR FOCUS IN THE FUTURE 728 728 from wind power. Compared to 2015, 2016 was a poor We722 will continue to augment electricity generation from 700 wind year. This combined with the fact that the RIFFGAT wind658 power. We plan to invest around 116 million euros

600 wind farm was rendered non-operational for a number of in this in 2017.563 With regard to e-mobility we will spur on 540 536 months by a technical problem resulted in lower genera- the expansion of our charging infrastructure in the north 500 tion from wind power. The opening of the high-efficiency west in future. We aim to double the number of charging gas and steam turbine plant in Bremen 400in December 2016 points in the EWE service area in the north west by late has not yet had a relevant effect on the’05 CO’06 2 ’emissions07 ’08 ’09 ’10 ’11 2017.’12 ’13 For’14 example,’15 ’16 EWE is installing charging points at 60 for the reporting year. locations run by the supermarket chain Edeka. We remain focused on holistic solutions for our private customers. For example, with wall boxes we can make it possible to charge electric vehicles quickly at home. Using solar panels in combination with an EQOO energy storage system, home owners can independently cover 70 per cent of their electricity requirements on average.

EWE Integrated Report 2016 22

PLANTS AND NETWORKS

SIGNIFICANCE

The expansion of renewable energy and changing customer expectations are making it necessary to restructure and increase the flexibility of the infrastructure that we, as a service provider, make available. We face up to the regional challenges and fit our power grid with intelligent monitoring technology. We are seizing the opportunities presented by digitisation. By systematically integrating energy, telecommunications and information technology, we can pave the way for cutting-edge, smart energy systems. We guarantee security of supply with our power generation plants and gas storage facilities.

SELECTED MEASURES IN 2016

• Smart Grid: our entire power grid is being converted, for example 60 per cent of all switchboards have now been fitted with fibre optic connections. • Broadband network expansion: a multi-billion-euro fibre optic expansion project has been agreed • enera is paving the way for the energy transition. • EWE NETZ was one of the first German grid operators to be certified under the German Federal IT Security Act (IT-Sicherheitsgesetz): legislators have obliged the operators of critical infrastructure to heighten their information security and have their standards certified. EWE NETZ passed the certification audit for the operation of power and gas grids in 2016. • Joint project: a highly efficient natural gas power plant became operational on 1 December 2016 • Smart metering: EWE is a co-founder of the joint venture GWAdriga, a service provider specialising in gateway administration and measurement data management www.gwadriga.de

VALUE CREATION

Investments in infrastructure in 2016 EWE NETZ invested 162.4 million euros in the reporting year Expansion of broadband infrastructure EWE invested around 61 million euros in broadband network expansion in 2016. Investments totalling 1.2 billion euros are to be made in the networks over the next few years. In doing so EWE is making a significant contribution to digitisation in north-western Germany. Smart Grid The power grid of EWE NETZ can be controlled intelligently in the event of unexpected fluctuations in electricity production from renewable sources and reacts automatically before the situation becomes critical. A secure natural gas supply With 38 underground gas storage facilities in its portfolio, EWE is contributing to a secure supply in the event of supply shortages.

EWE Integrated Report 2016 23

EWE has been investing in wind energy for 25 years. In future, EWE will focus even more intensely on expanding renewables.

OUR POWER GRID: EFFICIENT AND RELIABLE 1 December 2016. swb carried out the project in collab- In 2016 we fitted our grid with intelligent technology oration with partners from the energy sector. One such (Smart Grid) in order to improve the integration of renew- partner was DB Energie which will receive the majority able energy. Renewables provide 80 per cent of the power of the plant’s output. The new power station has a net in the networks operated by EWE NETZ. EWE’s power grid electrical capacity of around 445 MW and an efficiency currently features 270 controllable mains transformers level of over 58 per cent. Modern coal power stations that make it possible to manage voltage efficiently. have an efficiency level of just 45 per cent.

ENERA – FOR THE ENERGY TRANSITION IN GERMANY EXTENSIVE BROADBAND NETWORK EXPANSION In late 2016 the German government decided to provide FOR AN INCREASINGLY CONNECTED REGION the “enera” project with a subsidy of 50 million euros. In Direct fibre optic building connections are the future collaboration with our partners, we are working to make of broadband infrastructure. Fibre optic cables replace the energy systems in the districts of Friesland, Aurich and less effective copper cables, guaranteeing large band- Wittmund and in the town of Emden future-proof, flexible widths and fast Internet. EWE already offers around and largely digitised by installing smart technologies. For 90,000 households the option of having a fibre optic example, around 32,000 smart meters are due to be rolled connection fitted. This number will increase sharply in the out in the model region. In future it will be possible to near future: over the next years we plan to invest 1.2 bil- generate the same results throughout Germany. lion euros into an extensive fibre optic expansion project. www.energie-vernetzen.de/en Expanding the fibre optic network is a key milestone on our road to becoming the leading energy company in POWER GENERATION: RENEWABLES ON THE RISE northern Germany. EWE has continued to invest in the expansion of onshore wind power. In future EWE will focus on renewable energy OUR FOCUS IN THE FUTURE projects, including in partnership with companies and In the long term, the accelerating integration of renewa- private individuals. Over the next few years EWE will grad- bles will require a withdrawal from conventional energy ually move away from conventional energy generation and generation. The investments due to be made in the focus on projects with customers and partners. Overall, Renewables, Grids and Gas Storage segment in 2017 three block-unit power plants are currently being operated total approx. 345 million euros. The investments are by our subsidiary swb. In late 2016 blocks 5 and 14 were mostly in the infrastructure of the electricity, gas and shut down permanently after having been in cold reserve. telecommunications networks (approx. 206 million euros), Following a number of construction-related delays, the in the offshore wind farm TWB II and in onshore wind gas and steam turbine plant went into operation on farms (approx. 116 million euros).

EWE Integrated Report 2016

KNOW-HOW

SIGNIFICANCE

We apply our decades of experience in the fields of energy, telecommunications and information technology. This experience has given us a profound understanding of connections and processes in the energy sector. Our research and development work is focused on innovative, new business models that will increase the potential revenue of EWE and provide our customers with better value. To this end we are steadily pooling our expertise from the fields in which we operate and merging it with what we learn through strategic partnerships. This will enable us to develop holistic solutions in a connected, digital energy landscape.

SELECTED MEASURES IN 2016

In 2016 we implemented a range of measures designed to promote business model innovations: PDF See PDF Integrated Report, page 39 – 40

• The German government has pledged 50 million euros in subsidies to the major project “enera” www.energie-vernetzen.de/en • Interest in sovanta AG and future strategic collaboration: in 2016 we acquired a stake in sovanta AG, a software specialist. The objective is to simplify business processes and to develop mobile IT applications, digital services and products for EWE. • Support for EWE’s NEXT ENERGY research centre www.next-energy.de/en • EWE’s innovative portal – an online tool that employees can use to submit suggestions – is due to go online in April 2017; the portal can also be accessed by external users in the medium term.

VALUE CREATION

Positioning New sources of revenue can be generated with innovative business ideas. EWE is increasingly focused on market trends and the opportunities presented by digitisation. Partnerships EWE is more actively pooling expertise obtained through strategic partnerships. Focus on the customer EWE is boosting customer value with intelligent and holistic solutions.

EWE Integrated Report 2016

Creativity through teamwork: resourceful minds are on the lookout for new business model ideas on Innovation Friday.

A MOVE TO INNOVATION AND BETTER THE BEST IDEAS AND CONCEPTS FOR THE FUTURE KNOWLEDGE: OUR APPROACH A project such as “enera” produces creative potential We are enhancing our expertise in three ways: for one, that we will not leave untapped. We are making more we are integrating our practical expertise into our fields and more room for creativity because good ideas need of business by having EWE companies collaborate across to be able to grow. The introduction of Innovation Friday disciplines. We are also promoting the emergence of an in autumn 2016 is just one example of a format which innovative culture within our company. To this end we are enables creative minds from the Group and the “enera” changing existing processes and testing flexible working team to put their business model ideas on the Group’s methods more frequently. In line with our new strategy, internal innovation development path. The Group’s we have started to enter into strategic partnerships increasing employment of flexible working methods with other companies. This way we can gain access to (hackathons, kanban, scrums etc.) promotes creative external know-how and be ready for the digitised energy thinking. In particular, our subsidiary swb supports landscape. start-ups entering the market with “Kraftwerk – City Accelerator Bremen”. We bring together experience and DATA SCIENCE IN THE “ENERA” PROJECT innovation to make our vision a reality and develop suc- The joint project “enera” aims to create a model region cessful products and services to meet new requirements. for the energy transition in districts including Friesland, http://kraftwerk-accelerator.com/en/ Aurich and Wittmund, as well as the town of Emden. The consortium of over 30 partners under the leadership of OUR FOCUS IN THE FUTURE EWE will serve to develop shared and specific expertise in We will continue to do our utmost to shape the energy order to drive the energy transition onwards. We expect transition. Our work focuses on customer value and holis- our in-depth data evaluations and analyses of consumer tic solutions. We support the continued intertwining of requirements and energy consumer habits (data science) expertise with interdisciplinary collaboration and accel- to produce detailed findings that can be used to develop erated communication channels. Our strict information new business models. The project is due to finish in security standards will deliver the necessary basis of December 2020. trust for us to pursue new strategies in connection with big data and big data analyses. We will also intensify our increasing use and application of flexible working methods (hackathons, kanban, scrums etc.) and roll them out throughout the Group.

EWE Integrated Report 2016 26

EMPLOYEES

SIGNIFICANCE

Energy, telecommunications and information technology provide a diverse field of activity and varied opportunities for an average of 9,048 EWE employees. The success of the Group is the result of their skills and motivation. Our employees undergo continuous development in order to survive in a sector characterised by rapid developments and intense competition. In the face of change processes and sometimes challenging conditions, EWE strives to remain an attractive employer in the future.

SELECTED MEASURES IN 2016

The comprehensive integration of employees into Group-wide change processes gained major significance in 2016.

• Employee development: full digitisation and expansion of the workshop portal • Introduction of the new profession of plant mechanic • Occupational safety: new measures as part of the health, safety and environment guidelines • Company-wide agreement on the integration of severely disabled people • Health management continuously advanced

At the same time EWE still aims to cut 500 full-time jobs by late 2017 in line with its redundancy programme “Sozialplan 500”.

VALUE CREATION

Personnel development In 2016 almost 1,000 employees took part in interdisciplinary advanced training opportunities. Addi- tionally, as part of the separation of the roles of EWE VERTRIEB and EWE NETZ on the market, around 1,500 employees were trained for their new duties. This required the support of 50 colleagues who had previously qualified as internal trainers. The entire advanced training portal was digitised and 34 e-learning opportunities were added. This has significantly broadened and facilitated employee access to advanced training opportunities. Data protection e-learning unit: more than 1,000 EWE TEL employees (approx. 80 per cent of its staff) were trained in data protection with the existing e-learning unit in 2016. Around 160 people at BTC took part in 2016. Health rate EWE pressed on with health management in 2016 with a view to keeping the health rate high and closing in on its target of 97 per cent by 2020. In 2016, 30 per cent of employees took part in the health management measures provided by EWE. The health rate (EWE Group including International segment) was 94.8 per cent in 2016. Vocational training The Group employed 441 vocational trainees in 2016. The EWE Group as a whole provides training in 24 different professions and integrated degree programmes.

EWE Integrated Report 2016 27

COURAGE to change: We encourage thinking outside of the box, acting with self-confidence and seizing opportunities. PASSION for the customer: We motivate everyone to understand our customers and impress them with an excellent service.

Our leadership values At the EWE Group we lead on the basis of trust and encourage our employees to act as RESPONSIBILITY for the outcome: entrepreneurs and on their own responsibility. We agree targets, assign responsibility, expect transparency and let the results speak for themselves.

TRANSFORMATION AND CULTURAL CHANGES of the “digital natives” are explained to the executives and The energy sector is experiencing a massive upheaval. At they are shown how Snapchat etc. work. In return, young EWE we have spent years considering how best to involve colleagues gain insights into how experienced managers our employees in the changes. The development of the think. Mutual appreciation is necessary for this seemingly new EWE strategy in 2016 also involved the revision of unusual approach to work. And it sometimes also takes a its personnel strategy. The new strategy is centred on little courage not to let go of the reins. Especially because employee and manager qualification, talent development your mentee might be your boss. and, in particular, taking the requirements of digitisation into consideration. EWE therefore carried out a review of OUR FOCUS IN THE FUTURE its situation in 2016. The review highlighted some issues The example of an internal nursery shows that the work- for which specific measures are being implemented in life balance is a key aspect of our human resources work. 2017. Our employees and managers are being prepared Health awareness remains another significant element. to face the new challenges on the basis of our value Besides health management, flexible working hour mod- structure. els and smooth retirement models are just some of the subjects on which EWE is currently working. Likewise, over OUR FOUNDATION: OUR VALUES the next few years we will focus more heavily on diversity Our values serve as a basis for cohesion, even in challeng- and the advancement of women. We are addressing the ing times. The fundamental values of EWE are courage, upcoming lack of experts by strengthening our image as passion and responsibility. Additionally, in 2016 EWE for- an employer and establishing a strategic personnel plan. mulated an Employee Value Proposition in which it defines its values, targets, identity and culture as an employer. An implementation concept is currently being drawn up.

DIGITISATION FOR BEGINNERS: ROLE SWITCHING WITH REVERSE MENTORING Reverse mentoring, a pilot project launched in 2016, is one example of EWE’s new theoretical approaches. In reverse mentoring, experienced executives are given advice by vocational trainees or students on integrated degree programmes, i.e. by far younger colleagues. Both sides benefit from this arrangement: the communication habits

EWE Integrated Report 2016 28

SOCIAL ASPECTS AND RELATIONSHIPS

SIGNIFICANCE

Everything we do is centred on the trust and satisfaction of our customers – be they private households, business customers or municipalities. Our increasingly digitised world is causing customer requirements to change fundamentally. By carrying out studies and surveys we can keep ourselves up to date regarding trends and expectations. This way we can keep close to our customers and provide them with an excellent service. Our relations with suppliers and the public are characterised by the values we have defined for EWE and by transparency and a focus on dialogue.

SELECTED MEASURES IN 2016

• EWE customer service: rated excellent once again in 2016 • Combination of the portals for energy and telecommunications products: all EWE services can be accessed through a single log-in screen • 54 per cent of our suppliers have signed our Supplier Code of Conduct

VALUE CREATION

Customer relations The Group’s new strategy focuses on the customer, which means that EWE is working continuously to improve the value and added value of its services for customers. Supplier relations The introduction of the Supplier Code of Conduct will raise the levels of transparency and engagement in relationships with suppliers. The general public EWE supports the region through sponsoring and the EWE FOUNDATION. See page 29, 34

EWE Integrated Report 2016 29

To be independent and supply your own energy – this is what customers want today.

OUR CUSTOMER RELATIONS machine construction, metalworking, electrical engineer- We are taking an increasingly holistic approach to cus- ing, marketing, consultation and information technology tomer relations too: for private customers, we aim to be on a regional, national and international level. the leading provider in our domestic market of sustainable, integrated products and services designed for households. At the moment, 54 per cent of our strategic suppliers For our business customers and municipalities, we are a have signed our Supplier Code of Conduct. This statistic partner specialising in the specific requirements of the cannot be compared with the previous year (74 per cent) sector that provides sustainable, leading solutions and because we have since carried out a re-assessment of products centred on the energy transition and telecom- which suppliers are of strategic significance to us on the munications. basis of our new corporate strategy. We are working to persuade new suppliers to sign the Supplier Code SELF-DETERMINATION: CUSTOMERS ARE of Conduct too, which will cause the ratio to increase “PROSUMERS” significantly. Our goal remains to have 95 per cent of We expect the decentralised self-supply market to our strategic suppliers recognise the EWE Supplier Code continue to grow. With our product “Mini PV” even tenants of Conduct by 2020. www.ewe.com/en/compliance and flat occupants can generate electricity with a solar In 2016 we spent around 1 billion euros on materials and module, for instance on a balcony. It is due to be released services. Of this amount, 52 per cent was attributable to in 2017. The marketing of our solar power storage system regional suppliers. EQOO for private and business customers – with which home owners can meet 70 per cent of their electricity FOR THE REGION: THE EWE FOUNDATION requirements on average – remained successful in 2016. The EWE FOUNDATION has been supporting charita- We have attracted eight other public utility companies as ble projects in the fields of art, culture, education and white label partners. research and development in the regions of Ems-Weser- Elbe and Brandenburg and on the island of Rügen since SATISFIED CUSTOMERS 2002. In 2016 the Foundation subsidised 198 projects We learn what our customers expect from us by carrying with a total of 745,000 euros. However, the EWE FOUN- out regular customer surveys. For example, in 2016 we DATION never considers itself merely a financial backer. made our switching service easier for our customers to It strives to encourage its project partners to use their use. We are also working to avoid high additional pay- creativity, perseverance and commitment to the benefit ments towards annual energy bills by more accurately of the region. This way, responsibility for shaping our estimating monthly payments. In 2016 we introduced society is shared equally. mystery shoppers to our business. We want to continue to expand this new means of customer analysis. OUR FOCUS IN THE FUTURE We will work on customer satisfaction in particular. OUR SUPPLIERS: PROCUREMENT AND We aim to expand our energy storage and solar power SUPPLIER MANAGEMENT generation portfolios further and augment our customer Our supply chain encompasses the acquisition of mate- services from the perspective of a “prosumer”. We are also rials, services and energy resources such as gas and coal. developing solutions for energy-efficient construction We maintain supply relationships with around 10,000 and renovation. companies in a range of sectors including plant and

EWE Integrated Report 2016 30

FINANCE

SIGNIFICANCE

We use our financial strength and finance management to finance our operative business and our growth. The energy sector is on the precipice of an unprecedented transition. Traditional business models featuring large fossil and nuclear power plants will die out. The focus will shift to decentralised, renewable energy, investments in grid infrastructure and new digital customer solutions. EWE’s strategy aims to build the leading energy company in northern Germany by 2026. To do so we need a solid financial basis.

SELECTED MEASURES IN 2016

• Renewal of the syndicated credit facility of 750 million euros • The bond buy-back totalling around 300 million euros will significantly reduce future interest expenses • Moody’s confirms EWE’s rating with a stable outlook (Baa1)

VALUE CREATION

Cash flow from operating activities 471.7 million euros Cash flow from investing activities 570.8 million euros Cash payments to shareholders of the parent company and minority shareholders (dividends) -225.5 million euros Incoming payments from the acquisition of financial liabilities 7.5 million euros Payments from the repayment of financial liabilities -815.2 million euros Cash flow from financing activities -1,033.2 million euros Change in cash and cash equivalents related to currency translation -9.4 million euros Cash and cash equivalents at the beginning of the period 352.3 million euros Cash and cash equivalents at the end of the period 352.2 million euros

All of these statistics are based on the 2016 business year.

EWE Integrated Report 2016 31

180

150

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0 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sept. Oct. Nov. Dec.

Performance of EWE bonds in 2016 EWE 4.875% Oct.-19 EWE 4.125% Nov.-20 EWE 5.250% Jul.-21 Spread vs. mid-swaps (bp) Euro-Aggregate: Industrials Euro-Aggregate: Utilities

EWE BONDS AND THE CREDIT MARKET The Debt Issuance Programme launched in 2014, a stand- In spite of several periods of volatility the credit markets ardised documentation platform for capital market finance, fared consistently well in 2016, driven primarily by the enables EWE to obtain debt more quickly and efficiently. European Central Bank’s (ECB) bond-buying scheme. At The programme has been inactive since 1 August 2016 and the start of the year, concerns about Chinese and global is expected to remain inactive for the foreseeable future. 180 growth temporarily slowed the issuance of bonds. How- www.ewe.com/en/debt-issuance-programm ever, the corporate bond-buying scheme150 announced by the ECB represented a clear turning 120point on the credit Short-term financing instruments are primarily used to market, improving the conditions on the aftermarket ensure EWE’s ongoing solvency and as a liquidity reserve. 90 as well as the conditions of new bond issuances in the As at 31 December 2016 EWE had a syndicated credit long term. Political developments such60 as the British EU facility of 750 million euros as well as other bilateral credit referendum, the US presidential election30 and the Italian facilities totalling around 250 million euros. referendum were unable to stifle the mood on the credit 0 market. A total of 300 billion euros was issued in the FINANCIAL LIABILITIES Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sept. Oct. Nov. Dec. investment grade corporate bond market in 2016, which EWE 4,875% Oct-19 EWE 4,125% Nov-20 EWE 5,250% Jul-21 is a new record. Driven by the ECB’s bond-buyingEuro-Aggregate: scheme, Industrials Maturity Euro-Aggregate: profile Utilities of the bonds and private EWE was even able to surpass the positive performance placements of EWE of the supplier sector. in millions of euros 500 464 FINANCING INSTRUMENTS EWE AG has been represented on the capital market 400 372 365 since 2004. As a market-oriented yet unlisted company, 300 EWE finances itself primarily by means of long-term debt instruments such as public bonds, private placements and 200 150 bonded loans. Bilateral bank loans are another source of 100 long-term finance. 50 0 0 0 2017 2018 2019 2020 2021 … 2032

PDF See PDF Integrated Report, page 110

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OUR STAKEHOLDERS

STAKEHOLDERS OF EWE EWE stakeholders

Following EWE’s strategic reorientation, it has become even more »» Customers essential to be connected, to have partners and to enjoy the abso- »» Employees lute trust of our employees and customers. The transition of the »» EWE shareholders energy economy is making it increasingly important to forge part- »» Suppliers and business partners nerships and pool strengths. Yet the change can only take place if »» Society and politicians all groups of stakeholders are included. This requires transparency. » G4-24 Our stakeholders are important to us, as is a regular dialogue with them. Not least because as an energy company, we bear an even greater responsibility for societal issues, especially for shaping the energy transition. » G4-25

MATERIALITY MATRIX

Very high Very 7 Environmental management and resource efﬁciency Climate protection and generation Health and Security of supply Supply chain and network stability 6 occupational safety Employees

High and education Regional Market and Innovation and responsibility 5 transparency product responsibility SIGNIFICANCE FOR STAKEHOLDERS SIGNIFICANCE FOR Data protection and 4 information security Medium

4 5 6 7

Medium High Very high SIGNIFICANCE FOR THE COMPANY

» G4-19

EWE Integrated Report 2016 33

KEY ISSUES UP KRITIS

Most recently in 2013 we carried out a materiality analysis to In close collaboration with industry and the German government, determine the key issues to us and our stakeholders. The previous EWE was also actively involved in information security and critical matrix maps the aspects identified by the analysis. The X and Y infrastructure in 2016. UP KRITIS is a public-private initiative axes of the matrix indicate the relative significance of the aspects between operators of critical infrastructure (KRITIS), industrial to EWE and its stakeholders. associations and the relevant government offices. EWE has been working with this initiative for a number of years. In 2016 more These aspects have not lost their significance in light of EWE’s important application assistants were made available to help new corporate strategy. In this, the first integrated report by affected companies implement the strict legislative requirements EWE, we present more detailed information on these aspects with regard to information security more easily. For example, alongside key indicators in the sections entitled “Our Resources” standards were developed for supplier obligations, methods were (page 18 et seqq), “Responsible Management” (page 34 – 35) developed for executing reporting processes and industry-specific and in the “Indicator Notes” PDF see PDF Integrated Report, standards were developed to ensure safety. page 147 et seqq. » G4-18 Generally speaking, EWE uses the regular dialogue with companies and authorities and the resulting contacts to glean detailed infor- IN DIALOGUE mation and to prepare for the rapid changes in information security legislation. In turn, the sector benefits from the practical expe- To open a dialogue with our stakeholders and nurture an exchange rience of EWE through the exchange. of ideas is a fundamental objective on which we never stop working on a variety of levels. Dialogues never fail to present opportu- EWE memberships nities, even in the face of challenging times and difficult subjects. Here are two selected examples from the reporting year: »» German Association of Energy and Water Industries (BDEW) »» German Association of Local Utilities (VKU) GRID ADVISORY BOARDS AT EWE NETZ »» Bundesverband Breitbandkommunikation e. V. »» Bundesverband Informationswirtschaft, Telekommunikation The grid advisory board dialogue format introduced in 2014 took und neue Medien e. V. root in 2016. EWE NETZ held a total of 14 events where subjects »» Netzwerk Compliance e. V. such as planned investments, construction measures and regula- » G4-26, G4-27 tory issues were discussed with municipal representatives. The open dialogue supports trusting collaboration, for instance in the renegotiation of easements or in the opening up of new regions. Representatives from 13 districts in the north west and the city of Oldenburg entered into a dialogue with EWE in 2016.

EWE Integrated Report 2016 34

RESPONSIBLE MANAGEMENT

OUR CODE OF CONDUCT OUR SUPPLIER CODE OF CONDUCT

Integrity and transparent business processes are key prerequisites EWE assumes responsibility for its business activities outside of for responsible management. The EWE Code of Conduct intro- its own sphere of influence, which is why it introduced a Supplier duced in 2012 sets out the principles which guide our actions. Code of Conduct in 2015. This Code sets out principles relating The Code is based on the concepts of sustainability, fairness and to human rights and working conditions, occupational health and safety and contains rules designed to avoid conflicts of interest safety, environmental protection and the integrity of business. and on how to treat business partners, gifts and sensitive com- In 2016 we had our business partners undertake to adhere to our pany information. www.ewe.com/en/compliance Supplier Code of Conduct. www.ewe.com/en/compliance

Conduct consistent with the law and the rules is the highest INFORMATION SECURITY priority of EWE: around 5,300 employees of the EWE Group – 75 per cent of our employees in Germany – took part in internal Information plays an important role in the business model of training courses on compliance in 2016. In order to establish EWE. The security of information is therefore a crucial factor in the Code of Conduct throughout the Group, it was introduced by the success of the company. EWE has established Group-wide the Turkish subsidiaries in 2016 as well. The Code came into information security management systems for this very purpose. effect in the Polish companies in 2014. These are based on the standard ISO 27001. The Group guideline on information security sets out the framework for information DONATIONS BY THE EWE GROUP AND THE security. EWE FOUNDATION CHANGES TO THE COMPOSITION OF THE SUPERVISORY Donations are part of EWE’s work in the public domain. We BOARD AND THE BOARD OF MANAGEMENT consider ourselves a responsible company with a sustainable business model and we dedicate our resources to selected projects. The memberships of Stefan Brok, Dr Frank Mastiaux and We primarily contribute to education, science, art, culture and Dr Hans-Josef Zimmer on the Supervisory Board ended on 21 April social and humanitarian causes. EWE donated a total of 6.6 mil- 2016. The Annual General Meeting appointed Peter Bohlmann lion euros in 2016. and Beatrix Kuhl to be their successors on 17 May 2016. Dr Frank Mastiaux was also reappointed to the Supervisory Board. Jürgen New rules on donations were introduced by the Group in the Humer stepped down from the Supervisory Board on 31 January reporting year. As a result, in future EWE’s charitable commit- 2016. He was succeeded by Heike Klattenhoff by judicial appoint- ments will be largely pooled into the legally independent EWE ment on 28 April 2016. On 17 June 2016 Dr Frank Mastiaux was FOUNDATION. In line with its articles of association, the volun- reappointed Vice-chairman of the Supervisory Board. tary management board of the foundation decides on applications it receives for grants independently. The EWE FOUNDATION is The Board of Management of EWE AG currently consists of two regulated by the regulatory agency of Lower Saxony and the members. Wolfgang Mücher joined the Board of Management German tax authorities. The capital of the foundation has been with effect from 1 March 2016. He is responsible for the Finance increased to 50 million euros, enabling it to support even more department. Nikolaus Behr resigned from his office as Head of effective and comprehensive charitable projects. Human Resources and IT on 19 September 2016. Ines Kolmsee, Head of Technology, stepped down from the Board of Manage- Sponsoring is an element of EWE’s communication with custom- ment on 1 January 2017. On 22 February 2017 the Supervisory ers. Besides marketing and sales objectives, sponsoring fulfils Board accepted the recommendation of the Executive Committee other corporate objectives such as improving the attractiveness and removed Matthias Brückmann from the Board of Manage- of a location whilst taking the public responsibility of the EWE ment. The Supervisory Board will address the new appointment Group into consideration. We inspect our sponsoring activities to the Board of Management in one of its upcoming meetings. regularly. In 2016 the decision was made to gradually reduce certain commitments to sports over the next few years. This was due to planned cost reductions.

EWE Integrated Report 2016 35

PERCENTAGE OF WOMEN IN MANAGERIAL POSITIONS CRISIS AND BUSINESS CONTINUITY MANAGEMENT SYSTEM EWE wishes to increase the percentage of women in managerial positions over the next few years. To do so we will rely on tried- We have established a crisis and business continuity management and-tested and new measures to strengthen the work-life balance system to protect and maintain our most vital business processes and promote diversity in professional and career development. and the infrastructure required for them to function. For this reason EWE NETZ identified all critical business processes and Key positions should be filled by the most suitable candidate, resources that, if impaired, would quickly cause major damage to regardless of gender. In order to ensure that men and women have customers or financial and reputational damage to EWE. In the equal opportunities to occupy managerial positions and in line subsequent stage, potential threat scenarios such as natural disas- with the statutory regulations, EWE has set the following target ters, IT failures or attacks on EWE’s infrastructure were analysed percentages for women on the Supervisory Board, the Board of and their effects estimated. Specific measures and plans that can Management and other executive boards, as well as the two upper be implemented in such cases to preserve business operations levels of management: were derived from the results of these analyses. By February 2017 all of the critical processes of EWE NETZ had been integrated into Target percentages for the Supervisory Board and the crisis and business continuity management system. Board of Management of EWE AG | T 002 TRANSPARENT REPORTING Percentage of women Target For the sake of optimal transparency, we update our investors, Board or level of (as at percentage by management 31.12.2016) 30.6.2017 Defined by: financial analysts, the media and the public on the situation of the Supervisory company and on significant changes in its business promptly and Board 15.0% 5.0% Supervisory Board regularly. Twice a year EWE reports on business developments and Board of of EWE AG on the net assets, financial position and results of operations of Management 20.0% 20.0% the company, including its opportunities and risks. The annual

financial statements of EWE AG, the consolidated financial state- Target percentages for the top two levels of ments and the combined management report are published within management of EWE AG 120 days of the end of each business year. EWE uses the Internet | T 003 as a continuously up-to-date publication platform. The website of Percentage of the Group lists the dates of its major publications and events such women Target as the Integrated Report and the financial reports released over Level of (as at percentage by management 31.12.2016) 30.6.2017 Defined by: the course of the year (half-year reports). In addition to our regu- Department Board of lar reports, we publish ad-hoc announcements of not generally heads 12.0% 12.5% Management known circumstances that, if become known, would have a con- Team leaders 15.0% 24.4% of EWE AG siderable effect on the price of the bonds of EWE.

RISK MANAGEMENT

EWE has established an integrated risk and opportunity management system across the Group in order to quickly identify and actively manage potential risks and opportunities in connection with its business activities. This involves regular analyses of risks and opportunities. The Board of Management of the Group and its supervisory committees are notified of the results on a quarterly basis. PDF see PDF Integrated Report, page 55 et seqq.

EWE Integrated Report 2016 36

“Overall, the Board of Management of EWE AG can look back on 2016 as a successful financial year. At 332.9 million euros, the Group’s net income for the period recovered significantly following the slump in the previous year.

EWE Integrated Report 2016 37

COMBINED MANAGEMENT REPORT 2016

38 BUSINESS CONDITIONS AND GENERAL 51 REPORT ON EXPECTED DEVELOPMENTS FRAMEWORK AND THEIR KEY OPPORTUNITIES AND RISKS 38 THE EWE GROUP 51 FORECAST REPORT 40 GENERAL ECONOMIC CONDITIONS 55 REPORT ON RISKS AND OPPORTUNITIES 44 CURRENT SITUATION OF THE EWE GROUP 59 KEY CHARACTERISTICS OF THE 44 OVERALL ASSESSMENT OF BUSINESS EWE GROUP’S ACCOUNTING- PERFORMANCE RELATED INTERNAL CONTROL 44 FORECAST DEVIATIONS SYSTEM (PURSUANT TO ARTICLE 289 44 EARNINGS PERFORMANCE (5) AND ARTICLE 315 (2) NO. 5 OF 45 SIGNIFICANT CHANGES TO THE THE GERMAN COMMERCIAL CODE) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 60 CURRENT SITUATION OF EWE AG 46 SEGMENT PERFORMANCE 60 EARNINGS PERFORMANCE 48 ASSET POSITION 61 ASSET POSITION 48 FINANCIAL POSITION 62 FINANCIAL POSITION 49 NON-FINANCIAL PERFORMANCE 63 FORWARD-LOOKING STATEMENTS INDICATORS 49 EMPLOYEES OF THE EWE GROUP

EWE Integrated Report 2016 38 COMBINED MANAGEMENT REPORT

BUSINESS CONDITIONS AND GENERAL FRAMEWORK

THE EWE GROUP In the field of Gas Storage we construct, acquire and operate systems to store as well as inject and withdraw gaseous and liquid ORGANISATION AND REPORTING PRINCIPLES energy carriers such as high-pressure natural gas, hydrogen, liquefied petroleum gas and compressed air, and render all related We are an energy company which operates primarily in the fields services. In this business area we operate a total of 38 under- of energy, telecommunications and information technology (IT) in ground reservoirs in locations throughout northern Germany, as Germany, Turkey and Poland. Besides operating state-of-the-art, well as in Rüdersdorf near Berlin, and sell storage capacity to reliable energy grids, we are a pioneer in the field of renewable internal and external customers. With a total storage capacity of energy and, as the first company in Germany to do so, tap the 2.1 billion cubic metres, we are one of the largest operators of gas joint potential of energy, telecommunications and IT. The EWE storage reservoirs in the German-European natural gas market. Group comprises EWE AG, an “Aktiengesellschaft” (public limited company) incorporated under German law, as well as its subsi Sales, Services and Trading segment diaries. Our company’s headquarters are located in Oldenburg, Germany. In the 2016 business year, the Group had an average of The Energy and Telecommunications segment combines the sale 9,048 employees (previous year: 8,855). of energy products with telecommunications. In the domestic market, the sale of energy products takes up the leading position This business year the management report has been revised in in the competitive environment. The focus of its telecommuni order to improve its clarity and transparency. cations sales lies primarily in north-western Germany, parts of Brandenburg, on the island of Rügen and in the Ostwestfalen- DESCRIPTION OF BUSINESS ACTIVITIES Lippe region. We support commercial customers nationwide. Through the establishment of new business activities such as light Renewables, Grids and Gas Storage segment contracting, power storage and energy audits, we are currently transitioning into a service provider for which – in addition to the In the Renewables segment, we plan, build and operate renewable classic power, gas and heat products and telecommunications – power generation plants, including within the scope of investment customer-specific services and solutions will open up new busi- and partner models. We market our expertise in the construction ness opportunities. and operation of offshore wind parks internationally. In the current business year we have improved our power generation capacity The IT segment contains our holistic range of IT products and ser- (including proportional capacities of holdings consolidated using vices designed especially for the energy and telecommunications the equity method), from 245 MW to 297 MW. sectors, the public sector, industrial companies and service providers. Our key areas of expertise lie in consulting, system integration In the Grids segment, we operate state-of-the-art, efficient power and applications and system management. We place a focus on grids and natural gas networks in the Ems-Weser-Elbe region of energy-related software products. Germany, as well as natural gas networks in Brandenburg, Rügen and Nordvorpommern totalling 138.5 thousand km in length The Trading segment encompasses services relating to the pro- (previous year: 137.7 thousand km). Thanks to low outage times, curement and marketing of electricity and gas. Additionally, the our distribution grids are some of the safest in Europe. We also Trading business area facilitates the optimisation of the entire operate a wide telecommunications network approx. 38.8 thou- energy portfolio of the EWE Group, allowing it to provide its sand km in length (previous year: 37.7 thousand km). The company customers and partners with a wide range of services, for instance is continuously pushing forward with the broadband network portfolio and balancing group management. Trading services to expansion in the rural areas of north-western Germany. We also provide market access to our Group’s sales and generation operate several drinking water networks and, as an energy com- activities. pany with regional roots, are active in the waste water business. We purified 17.6 million cubic metres of water in the reporting year (previous year: 17.4 million cubic metres).

EWE Integrated Report 2016 COMBINED MANAGEMENT REPORT 39 38 BUSINESS CONDITIONS AND GENERAL FRAMEWORK 44 CURRENT SITUATION OF THE EWE GROUP 51 REPORT ON EXPECTED DEVELOPMENTS AND THEIR KEY OPPORTUNITIES AND RISKS 60 CURRENT SITUATION OF EWE AG

International segment Earnings before interest and taxes are of key importance, represented by the leading key performance indicator operating EBIT. In Turkey and Poland, the distribution and sale of natural gas Operating EBIT represents earnings before interest and taxes, are key components of our business operations. Our business adjusted for special items. This includes valuation effects from in Turkey holds long-term gas trade and liquefied natural gas derivative financial instruments, impairment (such as goodwill licences as well as a power trading licence. We supply natural gas impairment, impairment of tangible fixed assets and impairment to industrial customers, industrial zones, gas power plants and of investments) and special items resulting from changes to the utility companies throughout the country. We have also supplied basis of consolidation, as well as those resulting from restructur- business customers with power since 2014. Following the acqui ing measures and donations. sition of Millenicom in 2016, we are also active in telecommuni cations in Turkey. At the level of operative segments, the main key performance indicator operating EBIT is complemented by specific figures. swb segment Furthermore, investments and their distribution across the individual segments represent a further focus of Group-wide This segment encompasses our business activities in the cities of reporting. Bremen and Bremerhaven. swb and its subsidiaries are active in the fields of electricity, natural gas, heating, drinking water and Internal and external Group reporting is continuously adjusted telecommunications. Likewise, this segment includes the Conven- to meet the operative requirements of managing the EWE Group tional Generation and Disposal business unit of swb. as well as current legal stipulations.

Group Central Division segment RESEARCH AND DEVELOPMENT

EWE AG manages the EWE Group as its holding company. Its In the 2016 business year we reorganised our research and duties lie in the strategic and cross-market development of the development activities. In the future, the focus of the Group’s business areas as well as strategic planning and assuring the innovation work will lie on business model innovations in order Group’s financing. In addition, EWE AG performs centralised to unlock new potential revenue for the business of EWE. The pre- corporate services for the Group’s companies. viously central research and development projects were either completed or operational responsibility for them was transferred INTERNAL MANAGEMENT SYSTEM to the business areas in 2016.

The EWE Group uses a multilevel management system which The enera project “Digital Agenda for the Energy Transition” aims makes it possible to decentralise corporate responsibility and at to show how energy systems can be designed to overcome the the same time create a high level of transparency. The internal challenges of the future and operated more efficiently with smart management system differentiates between the Group and the technologies. It involves grids, markets and data. Grids will be segment level. The operative segments Renewables, Grids and Gas fitted with intelligent measuring technology in order to improve Storage; Sales, Services and Trading; International and swb form grid stability and make distribution grids capable of balancing the basis of the internal reporting structures and external report- energy supply and demand on a regional level. Energy will be ing (segment reporting). Internal and external reporting is based traded on regional markets in order to minimise the necessity for on the same management information system. This technological transmission grids. The various generation, storage and consump- platform enables the use of a uniform database for a variety of tion plants will regularly supply data that can be transferred to reporting needs and ensures that the content of information is the a central data platform and merged with external data. This will same between reporting levels and within one reporting level. provide us with an excellent platform on which to develop new, data-based business models. The project started in January 2017 As the parent company, EWE AG has defined clear targets for and is expected to end in late 2020; its conceptual and structural measuring and controlling company performance which will frameworks were prepared in 2016. ensure the long-term success of the company. Integral com ponents of this overarching objective include long-term value creation, assuring adequate financing and stabilising the com pany’s external rating.

EWE Integrated Report 2016 40 COMBINED MANAGEMENT REPORT

One example of the continuous intertwining of our research In principle, the commodities gas and coal followed the develop- activities is the project “Regional Virtual Power Plant Field Test on ments on the crude oil market. Isolated cases of extreme weather the Basis of Micro-CHP Technology”. The project aims to make and discussions regarding the availability of the Dutch Groningen progress towards a decentralised energy supply by connecting gas field had the opposite effect on the gas price in the meantime. peripheral urban areas. These are dominated by detached and The prices of CO2 emissions certificates appeared unaffected. For semi-detached houses and therefore represent a potential market. one, this market was driven by political debates about its future In the project, economic strategies must be developed for the structure. Additionally, low fossil fuel prices led to growing sample micro combined heat and power systems (micro-CHP demand for fossil fuels and in turn the certificates. The electricity systems) that we have installed in real households. This can be market was largely dependent on developments in the coal mar- done by fitting the micro-CHP systems with smart metering and ket and less so on the gas and emissions markets. At the end of control technology and by building on the virtual power plants the previous year, the relatively low availability of France’s nuclear of EWE AG. At the same time, the findings from the project will power plants caused electricity prices to increase again. pave the way to integrating even small plants into modern energy grids. According to preliminary calculations by the Working Group on Energy Balances (Arbeitsgemeinschaft Energiebilanzen – AGEB), in The project “green2store” is an element of the developing field of 2016 energy consumption in Germany increased by around 1.6 per energy storage. It is currently in the fourth and final year of its cent compared to the previous year. Primary energy consumption funding phase. This year focused on the interregional field test in in the reporting year totalled 458.2 million tonnes of coal equiva- which the digital networking of decentralised storage facilities lent (TCE), compared to 451.1 million TCE in the previous year. was tested in an energy storage cloud. The results show that there This growth was due to the slightly colder weather compared to is demand for a storage network that can be marketed to the the mild year before and this year’s leap day, although the increase energy trading and services markets. Business model concepts was slowed by improvements in energy efficiency. Adjusted for for marketing storage systems highlight the potential of this weather, energy consumption increased by just 1.0 per cent. With approach. regard to CO2 emissions, the AGEB is expecting a slight increase of 0.9 per cent from the previous year, or just 0.6 per cent if adjusted GENERAL ECONOMIC CONDITIONS for temperature.

DEVELOPMENT OF THE MARKET Natural gas consumption increased dramatically by 10.0 per cent to 103.8 million TCE. This was due primarily to the cooler weather, The business of EWE is more greatly affected by developments especially in the fourth quarter, than in the previous year, as well in the energy and telecommunications sectors than by global as the increased usage of natural gas in power plants. Comprising economic developments, which is why the information provided 22.7 per cent of total primary energy consumption, natural gas below focuses on the energy and telecommunications markets. slightly increased its share compared to the previous year (20.9 per cent). Energy market and prices Renewable energy increased its contribution by 2.9 per cent to International commodity prices, particularly of oil, gas and coal, as 57.7 million TCE. Biomass increased by 3.0 per cent year-over-year. well as the prices of CO2 certificates, are the predominant factors Hydroelectric power generation (without pump storage) increased that affect price trends on the power and gas markets. The petro- by 13.0 per cent. As a result, the proportion of renewables in the leum market can be considered a leading indicator. Following a overall energy mix increased slightly to 12.6 per cent (previous short recovery period in 2015, the price of the front-month con- year: 12.4 per cent). tract on the crude oil type Brent fell to 27.10 US dollars per barrel in January 2016 as OPEC failed to enact any measures to stabilise the crude oil market. The year 2016 was characterised by discussions and speculation about imposing output cuts on OPEC and non-OPEC producers which were then passed in late November. This move caused the front month price of Brent Crude to increase to just under 58.00 US dollars per barrel, its highest level since July 2015.

EWE Integrated Report 2016 COMBINED MANAGEMENT REPORT 41 38 BUSINESS CONDITIONS AND GENERAL FRAMEWORK 44 CURRENT SITUATION OF THE EWE GROUP 51 REPORT ON EXPECTED DEVELOPMENTS AND THEIR KEY OPPORTUNITIES AND RISKS 60 CURRENT SITUATION OF EWE AG

Energy market and prices Electricity, gas, CO2, coal and Brent

in euros in US$

60 120

50 100

40 80

30 60

20 40

10 20

0 0 Q4/2013 Q1/2014 Q2/2014 Q3/2014 Q4/2014 Q1/2015 Q2/2015 Q3/2015 Q4/2015 Q1/2016 Q2/2016 Q3/2016 Q4/2016

CO2 certiﬁcate price (in €) Natural gas price (in €) Wholesale electricity price (in €) Coal price (in US$) Crude oil price (in US$)

Telecommunications market POLITICAL AND REGULATORY ENVIRONMENT

The total revenue in the telecommunications services market in The General Data Protection Regulation came into force Germany was around 60.5 billion euros in 2016. It was therefore 0.8 per cent higher than in the previous year (60.0 billion euros). The European General Data Protection Regulation came into Of this figure, around 26.4 billion euros were attributable to force in June 2016. The new regulations will become mandatory mobile communication services (previous year: 26.5 billion euros) throughout the EU in two years. The content most relevant to and around 34.1 billion euros were attributable to landlines our Group concerns the regulations on handling personal data and including the cable network (previous year: 33.5 billion euros). As the most stringent regulations on fines and compensation. a result, landline revenue’s share of total revenue now stands at 56.4 per cent (previous year: 55.8 per cent), while the share of Brexit caused uncertainty revenue from mobile communications decreased to 43.6 per cent (previous year: 44.2 per cent). The growth in the business year At the end of the first half of 2016 the political landscape was ended was therefore generated by landlines. overshadowed by the referendum on the UK’s membership of the EU held on 23 June 2016. The UK’s withdrawal is expected to have Unlike in previous years, Telekom Deutschland GmbH, Bonn a profound impact on the political system of the EU and cause (TDG), and the cable network operators were able to increase massive delays in certain legislative processes. For our Group, a their landline revenue from around 19.4 billion euros to around clear, stable political environment is of great importance to future 20.2 billion euros, while alternative providers generated around investment plans. The Brexit talks are expected to start in late 0.2 billion euros less in revenue. If adjusted for the revenue of the March 2017. cable network operators, this is the second year in a row in which TDG increased its revenue at the expense of its competitors. The situation in the field of mobile communications is different: TDG lost approx. 0.2 billion euros in turnover whereas its competitors saw increases of around 0.1 billion euros.

EWE Integrated Report 2016 42 COMBINED MANAGEMENT REPORT

New Combined Heat and Power Act came into force Smart meters for the energy transition

The amended Combined Heat and Power Act (KWKG) came into The Energy Transition Digitisation Act (Gesetz zur Digitalisierung effect on 1 January 2016. The amendments change subsidies for der Energiewende) came into force on 2 September 2016. It sets new, modernised and retrofitted combined heat and power (CHP) out the roll-out plan for smart meters. From 2017 these smart plants. CHP plants with a capacity of more than 2 MW should meters will become mandatory for major consumers with an benefit most from this. The new Act also sets out the economic annual consumption in excess of 10,000 kilowatt hours (kWh) and conditions for constructing heating networks and storage facili- for feed-in stations with a capacity of over 7 kilowatts (kW). In ties. Due to funding concerns on the part of the European Com- 2020 the threshold will be lowered to an annual consumption of mission (EU Commission), however, the section of the law con- 6,000 kWh. Additionally, the Act determines the future interplay cerning funding only came into effect in the second half of the between market participants with regard to metering and sets out year. Approvals for plants that had become operational by this the technological basis of future energy systems, on which all time in 2016 could not be granted for the time being. The unclear future market and grid-based services must be based. legal situation made our customers reluctant to make investments. Transition from low-calorific gas to high-calorific gas

In order to meet the requirements of the EU, the German Due to the declining reserves of low-calorific gas in Germany and government has started work on a new amendment to the act the Netherlands, a transition to high-calorific gas is essential. that will introduce invitations to tender. This will also ensure supply security in the market regions that up until now have been supplied with low-calorific gas, of which the German Electricity Market Reform Act passed EWE service area is one. In 2016 the Dutch parliament discussed further reductions on the production of low-calorific Groningen The German Electricity Market Reform Act (Strommarktgesetz) gas in order to prevent earthquakes in the Groningen region. In came into force in late July 2016. It will serve as the basis for this regard we are monitoring the effects of the political situation future electricity market designs. The Act aims to ensure that the on the market region transition and the security of supply in the supply of electricity remains efficient even if renewables continue EWE service area, and are holding constructive dialogues with to grow in significance. Its regulations include the introduction of political representatives. a capacity reserve, more obligations on the part of those responsible for balancing groups and a free pricing guarantee. No capacity In light of the uncertain political situation in the Netherlands in market was introduced. We welcome the new Act in principle. connection with production cuts, the market region transition in One positive highlight is the introduction of a 3 per cent peak cap the EWE service area will not start in 2021 as originally planned, based on an approach developed by EWE. but rather in 2018, and end in 2027, two years earlier than forecast in the 2016 network development plan. In the Bremen supply German Act Extending Liability for Mining Damage to area the transition will start in 2017. Borehole Mining and Underground Reservoirs came into force Amended German Incentive Regulation Ordinance

The German Act Extending Liability for Mining Damage to Bore- The process of amending the German Incentive Regulation hole Mining and Underground Reservoirs (Gesetz zur Ausdehnung Ordinance (ARegV), which started with the evaluation of the der Bergschadenshaftung auf den Bohrlochbergbau und Kavernen) incentive regulations in the 2014 calendar year, was completed on came into force in August 2016. It extends liability for mining 3 August 2016 with the amendment. Ultimately, the amended damage and in turn the shifting of the burden of proof to include ARegV does not provide a comprehensive solution to the invest- underground gas reservoirs. The background is that lawmakers see ment challenges faced by grid operators. Nevertheless, the a heightened risk of mining damage here too. Mining companies retention of “optimal billing” for determining efficiency values will have to prove that they did not cause the damage. This will and the categorisation of compensatory payments for feed-in significantly increase the cost of providing evidence. In the event management measures as costs that cannot be influenced are of damage, EWE GASSPEICHER GmbH might be negatively positive aspects in this context. Additionally, the abolition of the affected by these regulations. heavily criticised time delay problem for new investments is welcome news. However, one negative aspect is that there was

EWE Integrated Report 2016 COMBINED MANAGEMENT REPORT 43 38 BUSINESS CONDITIONS AND GENERAL FRAMEWORK 44 CURRENT SITUATION OF THE EWE GROUP 51 REPORT ON EXPECTED DEVELOPMENTS AND THEIR KEY OPPORTUNITIES AND RISKS 60 CURRENT SITUATION OF EWE AG

no extension to the fourth regulatory period in connection with BNetzA requires standardised price sheets for the “delay effect” issue; rather, an investigation of the regulation gas distribution grid charges is planned to take place during the third regulatory period. From 1 January 2018, EWE NETZ GmbH is obliged to use a stand- German Federal Network Agency (BNetzA) has set equity ardised price sheet for gas distribution grid charges in order to interest rates for the third regulatory period meet the criteria of the BNetzA. Currently, for part of the grid the discharge fee is calculated as a demand charge, as is the case in On 5 October 2016 the BNetzA published the equity interest rates long-distance transmission grids. The BNetzA had approved two for electricity and gas network operators for the third regulatory pricing systems for a transitional period. period, which starts in 2018 for gas network operators and in 2019 for power grid operators. Despite in-depth discussions between EWE NETZ GmbH has filed an appeal against the decision with the relevant business communities, politicians and the BNetzA the Higher Regional Court (Oberlandesgericht) of Düsseldorf. This and despite the known negative consequences of a cut in interest process notwithstanding, the company is examining other options rates both for businesses and for the energy transition in general, in order to avoid massive increases in charges for the connected at the end of the consultation phase the BNetzA stuck to its businesses. The establishment of an internal grid company for the decision to lower equity interest rates significantly. As a result, the relevant part of the grid is one possible option. equity interest rates were lowered from 9.05 per cent to 6.91 per cent for new plants and from 7.14 per cent to 5.12 per cent for German Digital Network Act enters into force existing plants. EWE NETZ GmbH has joined other grid operators and filed an appeal against this decision with the Higher Regional The German Digital Network Act (DigiNetz-Gesetz) came into Court (Oberlandesgericht) of Düsseldorf. effect in November 2016. Germany has therefore been late to implement the European Directive on measures to reduce the cost BNetzA plans to set the general industrial productivity of broadband network expansion. The Act provides for the right to factor (X Generell) share certain infrastructures for the expansion of high-speed Internet. It also governs duties to provide information, the coordi- In connection with the definition of caps on the revenue of grid nation of construction sites and the installation of telecommuni- operators, the ARegV provides for a general industrial productivity cations lines during other construction measures. factor referred to as “X Generell”. X Generell is determined based on the difference between the productivity factor of the network Expansion of VDSL vectoring in short-range networks sector and the productivity factor of the economy as a whole and the difference between the development of cost prices in the In mid 2016 the BNetzA granted TDG a comprehensive vectoring economy as a whole and the development of cost prices in the expansion right for access points in direct service areas. The network sector. Therefore, besides an efficiency comparison EWE Group has a right to implement expansions in over 800 of mechanism for grid operators X Generell is another component of these access points. The EWE Group intends to exercise these the ARegV that will heighten the pressure to be efficient. In line rights and provided the BNetzA with a notarised letter of intent with the regulations of the ARegV, X Generell was 1.25 per cent to carry out expansion work in December. With VDSL vectoring for the first regulatory period and 1.50 per cent for the second technology, the approx. 100,000 affected households in the EWE regulatory period. At the start of the third regulatory period service area will be provided with broadband speeds of up to (2018 for gas and 2019 for electricity), the BNetzA will be obliged 100 Mbit/s by late 2018. Nevertheless, the EWE Group has also to re-calculate X Generell before the start of every regulatory filed a suit against the decision of the BNetzA with the Admini period using state-of-the-art methods. To this end the BNetzA strative Court (Verwaltungsgericht) of Cologne because the has commissioned an appraisal, the results of which were due authority rejected a commitment to install VDSL vectoring to be published in December 2016. In this regard it is possible that in all direct service areas. The decision is due to be made in different general productivity requirements are set out for February 2017. electricity and gas.

EWE Integrated Report 2016 44 COMBINED MANAGEMENT REPORT

CURRENT SITUATION OF THE EWE GROUP

OVERALL ASSESSMENT OF BUSINESS PERFORMANCE Whereas the Renewables, Grids and Gas Storage segment performed in line with expectations, the International and Sales, Overall, the Board of Management of EWE AG can look back on Services and Trading segments failed to meet the forecasts. 2016 as a successful financial year. At 332.9 million euros, the Group’s net income for the period recovered significantly follow- The developments in the Sales, Services and Trading segment ing the slump in the previous year. The improvement was driven were due primarily to price reductions, lower quantities of elec- primarily by the fact that EWE was able to sell its shares in tricity and gas sold to private customers, impending losses in VNG-Verbundnetz Gas Aktiengesellschaft, Leipzig (VNG), in the connection with the operation of the natural gas fuel station first half of 2016. Additionally, income from the reversal of pen- network, higher customer acquisition costs and the promise of sion provisions due to the reorganisation of swb’s company pen- a subsidy to the EWE research centre NEXT ENERGY. sion scheme in the reporting year had a positive effect on earnings. Likewise, the gains from the remeasurement of derivative EARNINGS PERFORMANCE financial instruments had a positive effect on the income of the Group. Higher impairments of fixed assets and higher interest The ability of the EWE Group’s normal business operations to expenses due to the prepayment penalty that we paid for prema- generate earnings over the long term is of particular importance to turely paying our debts had a negative effect. The operating EBIT both internal governance as well as the external communication is 534.6 million euros and increased by 106.5 million euros. This of the current and future development of the Group’s earnings. increase is due primarily to the decrease in pension provisions in Operating EBIT is an adjusted earnings figure which is used to illus- connection with the reorganisation of swb’s company pension trate and manage operative earnings performance. To calculate scheme. operating EBIT, EBIT is adjusted for special items such as derivative financial instruments, impairment (such as goodwill impairment, FORECAST DEVIATIONS impairment of tangible fixed assets and impairment of investments) and special items resulting from changes to the basis of | T 004 consolidation, as well as those resulting from restructuring measures and donations. 2016 Achieve- target ment in millions of euros 2015 in % 2016 in % The following chart illustrates the reconciliation to the Group’s net income for the period: Renewables, Grids and +5% to Gas Storage segment 314.4 +15% 333.7 6.1 | T 005 Sales, Services and +5% to Trading segment 80.4 +35% 61.2 -23.9 in millions of euros 2016 2015 +5% to International segment 25.3 +20% 25.6 1.2 Operating EBIT 534.6 428.1 -45% to Derivatives 87.7 -11.9 swb segment 90.3 -30% 165.2 82.9 Impairments -174.9 -150.4 Group Central Investments 243.0 -0.1 Division segment -82.3 -51.1 Restructuring -21.2 -53.7 +0% to Donations -20.0 EWE Group 428.1 +15% 534.6 24.9 EBIT 649.2 212.0

Net interest income/expense -206.5 -180.9 Income taxes -109.8 -40.5 At 534.6 million euros, the operating EBIT of the EWE Group Group’s net income for the period 332.9 -9.4 for the 2016 business year was far above expectations. The swb

segment in particular experienced a highly positive deviation from forecasts characterised by a special item of 90.6 million euros resulting from the reorganisation of swb’s company pension scheme.

EWE Integrated Report 2016 COMBINED MANAGEMENT REPORT 45 38 BUSINESS CONDITIONS AND GENERAL FRAMEWORK 44 CURRENT SITUATION OF THE EWE GROUP 51 REPORT ON EXPECTED DEVELOPMENTS AND THEIR KEY OPPORTUNITIES AND RISKS 60 CURRENT SITUATION OF EWE AG

SIGNIFICANT CHANGES TO THE CONSOLIDATED INCOME STATEMENT

| T 006

Change in millions of euros 2016 2015 in %

Revenue (excluding electricity and energy taxes) 7,566.3 7,819.3 -3.2 Material expenses -5,761.7 -6,067.4 5.0 Personnel expenses -722.5 -727.3 0.7 Other income and expenses -81.6 -215.0 62.0 Income from investments 254.5 -17.5 > 100 Write-downs -605.8 -580.1 -4.4 EBIT 649.2 212.0 > 100 Net interest income/expense -206.5 -180.9 -14.2 Earnings before income taxes 442.7 31.1 > 100 Income taxes -109.8 -40.5 < -100 Net income for the period 332.9 -9.4 > 100

Thereof attributable to: Shareholders of the parent company 331.9 -7.1 > 100 Minority shares 1.0 -2.3 > 100 332.9 -9.4 > 100

In the 2016 business year our Group generated turnover primarily from positive valuation effects in connection with deriv- (excluding electricity and energy taxes) of 7,566.3 million euros ative financial instruments and recognised hedges in the energy (previous year: 7,819.3 million euros). This represents a decrease sector, as well as from the income from the reversal of pension of 253.0 million euros (3.2 per cent) compared to the same period provisions due to the new company pension regulations adopted in the previous year. The decrease is due primarily to lower gas by swb in the reporting year. prices. In contrast, material expenses decreased disproportion- ately by 5.0 per cent or 305.7 million euros. The material usage Overall, write-downs increased from 580.1 million euros to rate improved from 77.6 per cent to 76.1 per cent due to factors 605.8 million euros as higher impairments were taken into including lower procurement costs. In the reporting year, as in the account than in the previous year. previous year, approx. 90 per cent of the turnover was generated inland and approx. 10 per cent was generated abroad. The increase in income from investments is almost entirely attributable to the proceeds from the sale of the shares in VNG Personnel expenses remained at the same level as in the previous (240.3 million euros). year as the special items from the previous year in connection with the restructuring measures were balanced out by the effects The interest result totalling -206.5 million euros resulted primarily in the current year. On the one hand the number of employees from interest on bearer bonds (public-sector bonds), bonds (pri- increased following the acquisition of Millenicom, and on the vate placement), interest on floating bank debts and discounting other personnel expenses increased due to the formation of a non-current liabilities. The increase in interest expenses was the provision for the cash settlement of in-kind benefits. result of around 50 million euros in prepayment penalties in connection with the premature buy-back of bonds. The balance of other operating income and other operating expenses (including inventory changes and internally produced The income taxes increased in line with the earnings before taxes. and capitalised assets) totalled -81.6 million euros (previous year: -215.0 million euros). The change from the previous year resulted

EWE Integrated Report 2016 46 COMBINED MANAGEMENT REPORT

SEGMENT PERFORMANCE

The following chart illustrates the operating EBIT and external sales:

| T 007

External sales Operating EBIT

Change Change in millions of euros 2016 2015 in % 2016 2015 in %

Renewables, Grids and Gas Storage segment 2,012.9 1,951.8 3.1 333.7 314.4 6.1 Sales, Services and Trading segment 3,763.9 4,053.4 -7.1 61.2 80.4 -23.9 International segment 727.9 759.4 -4.1 25.6 25.3 1.2 swb segment 1,058.7 1,052.1 0.6 165.2 90.3 82.9 Group Central Division segment 2.9 2.6 11.5 -51.1 -82.3 37.9 Total 7,566.3 7,819.3 -3.2 534.6 428.1 24.9

RENEWABLES, GRIDS AND GAS STORAGE SEGMENT tion with restructuring and a donation to the EWE FOUNDATION had a negative influence on the EBIT. | T 008

in millions of euros 2016 2015 SALES, SERVICES AND TRADING SEGMENT

Operating EBIT 333.7 314.4 | T 009 Derivatives 0.2 in millions of euros 2016 2015 Impairments -149.2 -4.2

Investments -0.1 Operating EBIT 61.2 80.4 Restructuring -14.0 -13.1 Derivatives 64.3 -15.6 Donations -7.0 Impairments -6.1 -9.9 EBIT 163.6 297.1 Investments 4.5 Restructuring -3.0 -9.4 Donations -13.0 EBIT 103.4 50.0 In our Renewables, Grids and Gas Storage segment, external revenue in the reporting period grew by 3.1 per cent year-over-year to 2,012.9 million euros (previous year: 1,951.8 million euros). The In our Sales, Services and Trading segment, we experienced a year- increase in revenue resulted primarily from higher electricity and over-year decline in external revenue of 7.1 per cent, down to gas grid tariffs. This segment contributed approx. 26.6 per cent to approx. 3,763.9 million euros (previous year: 4,053.4 million the Group’s total revenue in the reporting period (previous year: euros). This was due in particular to price cuts and lower quantities 25.0 per cent). The segment’s operating EBIT totalled 333.7 million of gas and electricity sold to private customers. This segment con- euros (previous year: 314.4 million euros). The measurement of the tributed approx. 49.7 per cent to the Group’s total revenue in the gas reserves in the gas storage plants as at the reporting date had a reporting period (previous year: 51.8 per cent). The operating EBIT positive effect on the operating EBIT. The poor wind year in 2016 decreased to 61.2 million euros (previous year: 80.4 million euros). had a negative effect on the contributions of onshore and offshore In energy sales, lower gross profits in the electricity, gas and heat- wind parks to earnings. However, this can be balanced out by posi- ing segments, impending losses in connection with the operation tive effects on earnings by the Grids business area. of the natural gas fuel station network, higher customer acquisition costs and the promise of a subsidy to the EWE research centre At 163.6 million euros, the EBIT was lower than in the previous NEXT ENERGY had a negative effect on the operating EBIT. In the year (297.1 million euros), due primarily to impairments. Most of previous year, the telecommunications business area contained these impairments concerned the offshore wind farm RIFFGAT income from a settlement with TDG. as well as tangible fixed assets used for gas storage. Additionally, provisions for the cash settlement of in-kind benefits in connec-

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Essentially, the EBIT was adjusted for the gains from derivative The increase was due primarily to higher revenue from electricity financial instruments, for the expenses in connection with transmission. This is due to a price increase and excess quantities provisions for the cash settlement of in-kind benefits in in the high voltage field. This segment contributed approx. connection with restructuring, and for the donation to the 14.0 per cent to the Group’s total revenue in the reporting period EWE FOUNDATION. (previous year: 13.5 per cent). The segment’s operating EBIT totalled 165.2 million euros (previous year: 90.3 million euros). INTERNATIONAL SEGMENT The improvement over the previous year is due primarily to the positive special item of 90.6 million euros resulting from the | T 010 reorganisation of the company pension scheme. in millions of euros 2016 2015 The improved earnings from derivatives is due to valuation effects Operating EBIT 25.6 25.3 in connection with derivative financial instruments. These reflect Derivatives 8.1 -0.1 the changes in the prices of commodities in the business year. Impairments 0.0 -0.9 Having been at a low level, especially in the first quarter of 2016, EBIT 33.7 24.3 gas and electricity prices rose sharply over the course of the year.

GROUP CENTRAL DIVISION SEGMENT In our International segment, we recorded a decline in external rev- | T 012 enue of 4.1 per cent, down to 727.9 million euros (previous year: 759.4 million euros). This decrease is primarily associated with the in millions of euros 2016 2015 business in Turkey where earnings declined predominantly due to currency conversion. This segment contributed approx. 9.6 per cent Operating EBIT -51.1 -82.3 to the Group’s total revenue in the reporting period (previous year: Derivatives 0.0 5.5 Impairments -13.0 -0.1 9.7 per cent). The segment’s operating EBIT totalled 25.6 million Investments 239.8 -5.0 euros (previous year: 25.3 million euros). The improvement in oper- Restructuring -4.9 -6.1 ating EBIT was due primarily to the increase in gross profits from EBIT 170.8 -88.0 gas in Poland.

The non-operative items are derivatives that had been measured but not realised as at the reporting date. The positive market Our Group Central Division segment only generates a low level of values are due to the gas safeguards for the business in Turkey. revenue. The segment’s operating EBIT totalled -51.1 million euros (previous year: -82.3 million euros). These earnings resulted from SWB SEGMENT the holding function of EWE AG and the other investments attributed to it. Although the sale of the shares in VNG had a positive | T 011 effect in the current business year, VNG contributed to a loss from in millions of euros 2016 2015 investments (-24.7 million euros) in 2015.

Operating EBIT 165.2 90.3 Most of the impairments are attributable to buildings and soft- Derivatives 15.1 -1.7 ware, whereas the investments are almost entirely characterised Impairments -6.6 -135.3 by the proceeds from the disposal of the interest in VNG. With Investments 3.3 0.4 regard to restructuring, provisions have been formed for the cash Restructuring 0.7 -25.1 settlement of in-kind benefits. EBIT 177.7 -71.4

In our swb segment, at 1,058.7 million euros (previous year: 1,052.1 million euros) external revenue in the reporting period was 0.6 per cent higher than in the previous year.

EWE Integrated Report 2016 48 COMBINED MANAGEMENT REPORT

ASSET POSITION

| T 013

in millions of euros 31.12.2016 in % 31.12.2015 in %

Assets Non-current assets 6,494.8 77.0 6,659.6 68.3 Current assets 1,940.4 23.0 3,084.7 31.7 Total assets 8,435.2 100.0 9,744.3 100.0

Equity and liabilities Equity 1,941.9 23.0 1,749.2 18.0 Non-current liabilities 4,745.5 56.3 5,312.9 54.5 Current liabilities 1,747.8 20.7 2,682.2 27.5 Total equity and liabilities 8,435.2 100.0 9,744.3 100.0

As a result of its business activities, our Group has a high intensity pension provisions which increased by 75.9 million euros and by of investments with the associated capital commitment. As such, rehabilitation provisions which increased by 42.5 million euros. fixed assets comprise approx. 77.0 per cent of the balance sheet The development of the pension provisions is essentially due to total; this figure has increased compared to 31 December 2015 lower interest rates; this effect will be partially balanced out by due to the decrease in the balance sheet total. Current assets the reversal of pension provisions due to swb’s decision in the decreased by 1.1 billion euros, due primarily to the disposal of the reporting year to reorganise its company pension scheme. interest in VNG. The non-current assets are financed with equity and non-current debt. FINANCIAL POSITION

| T 014 The equity ratio stands at 23.0 per cent. The absolute increase in equity is due primarily to changes in hedging relationships and the Change increase in net income for the period. in millions of euros 2016 2015 in %

Cash flow from The decrease in current debt is due primarily to the repayment operating activities 471.7 708.2 -33.4 of loans (293.0 million euros), the settlement of the purchase Cash flow from price liability for treasury shares (504.8 million euros) that was investment activities 570.8 -594.6 > 100 recognised as at 31 December 2015 and the reduction in current Cash flow from financing activities -1,033.2 -77.3 < -100 derivative liabilities (171.3 million euros). Changes to cash and cash equivalents 9.3 36.3 -74.4 Non-current liabilities primarily encompass bonds, pension Currency conversion -9.4 -11.5 18.3 reserves and contributions to building costs. The decrease com- Cash and cash pared to 31 December 2015 is due to the premature buy-back equivalents at the beginning of of bonds (298.4 million euros), the repayment of long-term loans the period 352.3 327.5 7.6 (67.4 million euros), the reclassification of around 217 million Cash and cash euros as current liabilities due to changes in payment deadlines equivalents at the and the decrease in non-current derivative financial instruments end of the period 352.2 352.3 0.0 classified as liabilities (81.9 million euros). This was mitigated by

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The cash flow from operating activities represents a key element EMPLOYEES OF THE EWE GROUP of our financing. In the 2016 financial year, EWE generated a cash flow from operating activities of 471.7 million euros. CHANGES TO THE NUMBER OF EMPLOYEES

The cash flow from investing activities of 570.8 million euros is During the 2016 business year, our Group had an average of mainly due to the purchase price received from the sale of the 9,048 employees (previous year: 8,855). This increase was due shares in VNG. This was countered by investments in the Group’s primarily to the acquisition of Millenicom and the recruitment of infrastructure (especially grids, renewables and broadband net- personnel to implement the major project enera successfully. This work expansion). figure includes all full-time and part-time employees as well as trainees and temporary staff. The cash flow from financing activities primarily comprises the | T 015 buy-back of bonds (448.4 million euros), the repayment of loans (366.8 million euros) and the dividend of 225.5 million euros for Number of employees by the 2015 business year that was distributed to the shareholders of segment 2016 2015 EWE AG in the 2016 business year. Renewables, Grids and Gas Storage 2,079 2,042 Sales, Services and Trading 3,213 3,188 The financial flexibility of our Group is secured thanks to bilateral International 965 832 credit lines as well as a syndicated, revolving credit facility of swb 2,178 2,166 750.0 million euros valid until November 2021. At the end of the Group Central Division 613 627 reporting period on 31 December 2016, EWE had drawn on a total Total 9,048 8,855

of 0.0 million euros of this credit line (previous year: 175.0 million euros). VOCATIONAL TRAINING Issuing bonds represents another key component of EWE’s finan cing. As of 31 December 2016, unsecured bonds quoted in euros As a predominantly local corporate Group, EWE has a long-term with a total nominal value of 1,401.6 million euros (previous year: commitment to providing professional training to young people 1,850.0 million euros) have been issued. Some of these were from the region. Through internships and regional and national bought back prematurely in connection with the VNG sale. Issued vocational training fairs and events, secondary school and univer- bonds with a value of 150.0 million euros will become mature and sity students are given the opportunity to acquire an in-depth payable in 2017. Further bonds with a total nominal value of look at EWE and its business and make their first professional con- 1,201.6 million euros have maturity dates between 2019 and 2021. nections. A vocational training programme or combined degree Just one bond with a value of 50.0 million euros will mature in and vocational training programme at EWE goes far beyond the 2032. These bonds have fixed interest rates between 4.0 per cent mandatory training content. The young people who participate in and 5.25 per cent. a training programme at EWE are provided with a comprehensive range of educational, mentoring and recreational activities, from NON-FINANCIAL PERFORMANCE INDICATORS communication training and in-depth economic knowledge to athletics and culture. In the 2016 business year the EWE Group INSTALLED OUTPUT OF RENEWABLE ENERGY employed 441 vocational trainees (previous year: 433).

In the 2016 business year the installed output of renewables University students also have the option of completing their final increased by 322.3 MW year-over-year to 374.1 MW in total. This project at EWE. After earning their degree, graduates can choose increase is due primarily to the full opening of the Köhlen and from a variety of models (including trainee programmes and Hatten wind parks. Of the total power generation capacity of the entry-level positions) to launch their career at one of the EWE EWE Group, renewables account for 23.3 per cent (previous year: Group’s companies. 22.1 per cent).

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ADVANCED TRAINING In light of this, target quotas have been specified pursuant to the German law for the equal participation of women and men in EWE brings together three sectors – energy, telecommunications managerial positions in both the private and public sectors. The and information technology – that are shaped by rapid technolo proportion of women in the Supervisory Board, Board of Manage- gical developments and stiff competition. In order to overcome ment and executive positions, as well as the top two levels of these challenges, the company offers its employees a wide range management in the companies to which the law applies, have of internal and external advanced training opportunities. We been defined as follows: improve and refine these programmes and factor in current trends, such as digitisation or working with lean project methods. Target percentages for the Supervisory Board and In 2016 an intuitive online workshop portal was introduced for Board of Management of EWE AG | T 016 employees to manage and administrate their advanced training opportunities in collaboration with their managers. Percentage of Target Board or level of women (as of percentage by The managers of the Group are the key drivers and designers of management 31.12.2016) 30.06.2017 Defined by: the reorientation of EWE. This target group faces significant chal- Supervisory lenges as part of this role, both with regard to everyday manage- Board 15.0% 5.0% Supervisory Board ment and to dealing with the specific challenges of our sector. Board of of EWE AG Consequently, managerial development in 2016 centred on the Management 20.0% 20.0% professional capability of our managers to shape the corporate change inclusively and with solutions in mind. A large number of distinct change processes were carried out in the Group, cater- Target percentages for the top two levels of management ing to and moulding the corporate culture, and the teams were of EWE AG | T 017 involved continuously by means of suitable formats and instruments such as sounding boards. Percentage of Target Level of man- women (as of percentage by Extensive expertise with regard to changes and training drove the agement 31.12.2016) 30.06.2017 Defined by: success of the ABACUS project. By late 2016 50 internal trainers Department Board of had been trained and 1,400 employees were capable of realising heads 12.0% 12.5% Management the separation of market roles and working in the new systems. Team leaders 15.0% 24.4% of EWE AG

An extensive offering in the fields of health management and work-life balance rounds out EWE’s advanced training and staff DEMOGRAPHIC CHANGE retention activities. From 2020 onwards, demographic change will have a significantly GENDER QUOTA noticeable effect on EWE. The generations with high birth rates will reach retirement age, particularly in technical fields. In order The EWE Group has a fundamental interest in further increasing to overcome the associated challenges, a variety of spheres of the percentage of women in managerial positions in the future. activity within the field of demographic management have been EWE wants to offer women and men the same opportunities when defined and implemented. These include improving health man- filling management positions. In this context, the company relies agement, enhancing EWE’s employer brand and establishing on both tried-and-tested and new measures to further strengthen strategic HR planning to identify future capacity and productivity the work-life balance and promote diversity in professional and risks. career development. The aim here is to ensure that key positions are filled by the most suitable candidate, regardless of gender.

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REPORT ON EXPECTED DEVELOPMENTS AND THEIR KEY OPPORTUNITIES AND RISKS

FORECAST REPORT FUTURE POLITICAL AND REGULATORY CONDITIONS

BUSINESS ENVIRONMENT FORECAST As part of its implementation of a general strategy for a European energy union and the decisions of the Council of Europe regarding The energy supply of the future will be based on renewable the 2030 climate and energy framework of the EU, in recent energy. Over the past few years, electricity generation from months the EU Commission has published a number of legislative renewable sources has become dramatically most cost-effective. proposals that will be debated into 2017 and beyond. The follow- The price of solar power in sunny regions is now lower than power ing dossiers potentially have the most significant direct impact on generated using oil, coal and even natural gas. The same goes for our business activities. onshore wind energy which even now can demonstrate exception- ally competitive generation costs in good locations. Technological A reformed EU emissions trading scheme (ETS) advancements will lead to further cost degression. In order to realise a 40 per cent cut in greenhouse gas emissions The energy landscape will become largely decentralised and in the EU by 2030 (compared to 1990 levels), in 2015 the EU access to customers will be a crucial factor. We believe that vari- Commission proposed a structural reform of the EU ETS for the ous markets and products will merge in future, especially electric- period between 2021 and 2030. One element of the reform is an ity, heating, telecommunications, IT and mobility. Even now many increase in the reduction factor of certificates from 1.74 per cent customers possess their own power supply systems and infra- to 2.20 per cent per year. However, the protective measures structure. This means that in the energy industry, it is a question required to protect industrial competitiveness in Europe must also of recognising customers as partners who not only purchase be upheld. The talks will continue in 2017. The structure of the electricity, but also generate it. ETS could have a considerable effect on the costs of conventional generation, energy-intensive industries and the conditions for Furthermore, markets and politics will demand even greater investing in low-CO2 technologies. The EWE Group is therefore efficiency in all business segments. The transition to tendering committed to an effective, stable system which protects indus- for onshore wind, offshore wind and solar power has lead to sig- tries competing on an international level at the same time. nificantly more transparency, competition and price reductions throughout Europe. The production costs for offshore wind have A reformed Regulation (EU) No 994/2010 fallen below 100 euros per megawatt-hour (MWh) and solar power and onshore wind are already far below this threshold. The proposal for a new resolution concerning measures to safe- Returns are being limited further in regulated markets, merit guard security of gas supply has been in the EU legislative pipeline orders and market mechanisms are resulting in low electricity since February 2016 and, if adopted, could affect the transparen- prices and the high level of stock exchange liquidity is bringing cy-related obligations of the Group and the supplying of certain about transparency and dynamism. New technologies are lower- customer groups during crises. In light of the upcoming duties to ing transaction costs and new sales channels no longer target collaborate across regions, we believe that it is important for the small markets with a 100 per cent market share, rather are gener- issue of low-calorific gas and high-calorific gas to be taken into ating dynamic, adaptable structures and systems. All of these consideration in the EWE service area and for more efficient use factors are increasing the efficiency requirements faced by all to be made of the existing storage infrastructure across regions market participants. through greater interconnectivity. The political talks are expected to end in 2017. Digitisation is both an unavoidable consequence of underlying technological and societal developments and a necessary prere Regulation on the internal market for electricity quisite for a sustainable, cost-effective energy supply. It will cause fundamental changes in customer habits, the culture and organi- The proposal for a new regulation on the internal market for sation of companies, the rendering of services and in value- electricity published in November 2016 aims to redefine the regu- creating structures and business models. Half of all electricity lations and key principles of the European internal market for and gas provider switches already take place online – and many electricity. The new regulation is expected to set out regulations customers only see offers when they are available online or can for the feed-in of renewable energy and for cross-border partici- be purchased using a smartphone. Digitisation will lower the pation in order to ensure the security of supply (including regula- transaction costs of product creation and customer interfaces tions on capacity mechanisms). It will also set out principles for a and facilitate the development of new business models. market-based, cross-border electricity market. In doing so it aims

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to harmonise the trading and accounting intervals in day-ahead supply and consumption of energy. It also paves the way for set- and intraday trading throughout Europe. The proposed regulations ting national energy efficiency targets for 2020 and 2030. The would therefore affect the trading activities of the Group, its proposal for a new Energy Performance of Buildings Directive aims power distribution grids and its business with renewable energy to introduce a partially mandatory roll-out of the infrastructure in particular. The talks on this and the following dossiers will end necessary for e-mobility. The rules will largely determine the in late 2017 at the earliest. general conditions of our business activities in connection with energy efficiency, for example e-mobility charging infrastructure, Internal electricity market directive smart home solutions, energy consultation, energy audits and contracting. The proposal for a new directive seeks to introduce common rules for the internal electricity market and set out the legal framework A number of laws and ordinances of great significance to EWE for the roles and rights of consumers, for independent energy gen- are due to come into force in Germany in 2017. It is also to be eration and aggregators and explains the duties and obligations expected that issues relating to energy and telecommunications of transmission grid operators and distribution grid operators. For will be discussed in detail as part of the federal elections. one, in future energy consumers will be entitled to demand a dynamic energy tariff from their energy provider, i.e. a variable A new general framework for renewable energy energy tariff which differentiates between the intervals of the wholesale market, enter into agreements with aggregators with- The reformed Renewable Energy Sources Act (EEG) came into out the consent of other market participants and change supplier force on 1 January 2017. It stipulates that the scale of subsidies for free of charge. Additionally, consumers will be entitled to produce, renewables will no longer be determined on a political level, but consume, store or trade their own renewable energy in all seg- by a competitive tendering process. The regulations concerning ments of the market. This proposal is comprehensive and will onshore wind energy are particularly relevant to us as we aim to affect almost all of the electricity-related business areas of the expand this method of generation even further. EWE generally EWE Group. supports the introduction of tendering. We are critical of the reduced scale of installation for onshore wind energy com- Renewable Energy Directive pared to the 2014 version of the Renewable Energy Sources Act (EEG), as well as the fact that the installation of onshore wind The proposed revision of the current Renewable Energy Directive parks in certain regions is to be reduced further depending on aims to set out the framework for ensuring that the binding target transmission grid loads. The details of the Act will be set out in of at least 27 per cent renewables in the final energy consumption a regulation that has to be passed by March 2017. in the EU by 2030 is met. The proposal sets out requirements for financial subsidies for renewables, for opening subsidy schemes Additionally, in early 2017 the Act Amending the Combined Heat for other Member States, for the independent generation and and Power Act and the Renewable Energy Sources Act (KWKG- consumption of green electricity, for authorisation processes, for EEG-Änderungsgesetz) will change the general framework for using renewable energy for refrigeration, heating and transpor renewables in such a way that own consumption will only remain tation, for partnerships between Member States and with third unaffected by the EEG reallocation charge under certain circum- countries and for guarantees of origin and sustainability criteria stances and for certain plants. This could render certain projects for biofuels. This European framework will have a significant unattractive to EWE customers. impact on the investment conditions and our business activities in the field of renewable energy. Combination of EnEG, EnEV and EEWärmeG

Energy Efficiency Directive and Energy Performance of Before the end of the legislative period, the German government Buildings Directive aims to present a bill to combine the German Energy Conserva- tion Act (EnEG), the German Energy Saving Ordinance (EnEV) The proposal for a new Energy Efficiency Directive sets out a and the German Renewable Energy Heat Act (EEWärmeG). This common framework for measures designed to promote energy move is designed to improve efficiency in the heating sector and efficiency within the EU in order to ensure that energy efficiency simplify regulations. Our representation of interests is intended increases by 20 per cent by 2020 and by 30 per cent by 2030. It to optimise the general framework within which we market our also contains rules on removing barriers in the energy market and energy services. correcting market shortfalls that impair the efficiency of the

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New framework for combined heat and power EU Commission publishes draft of new regulatory framework for electronic communications The new KWKG, is due to come into effect at the start of the year. On the order of the EU Commission it had to be revised again in In September 2016 the EU Commission published a proposal for a 2016. The amendments to the current law focus on the introduc- directive for a new regulatory framework for electronic communi- tion of tendering for plants with installed capacities of between cations. In this regard, the most significant development is the use 1 and 50 MW as well as particularly innovative CHP plants. For the of connectivity with extremely high-performance broadband con- EWE Group, the introduction of tendering will make the field of nections as a regulatory target. The EU Commission aims to pro- business for plants of this scale a more challenging environment. vide all socio-economically relevant institutions such as authori- Additionally, the amendments increase the subsidy criteria for ties and schools with a 1 Gbit/s network connection by 2025. By heating networks in which a higher proportion of CHP heat or this point all private households in Europe are expected to have heat from renewable sources is required. Additionally, the regula- Internet speeds of at least 100 Mbit/s. The EU Parliament will tions on privileges for energy-intensive end consumers as part of address the proposals of the EU Commission in 2017. Once the reallocations under the KWKG are due to be adapted to the regu- Directive is passed and comes into effect, it will have to be imple- lations in the 2017 version of the EEG. mented into national law. The entire process is not expected to come to a close before 2020. The German Grid Tariff Modernisation Act (NEMoG) EXPECTED PERFORMANCE OF THE EWE GROUP The German Federal Ministry for Economic Affairs and Energy (BMWi) presented a draft of the Grid Tariff Modernisation Act We use the aforementioned expectations and assumptions as to (NEMoG) in November 2016. We expect this process to continue sector-specific developments and the general political and regula- in 2017. The draft contains regulation proposals designed to cap, tory landscapes to make forecasts concerning the EWE Group and abolish and gradually lower avoided grid tariffs. The amendments its segments for the 2017 business year. to the avoided grid tariffs planned by the BMWi would come with major economic disadvantages for EWE as avoided grid tariffs for The forecast does not include the effects of legal developments. certain power generation plants in the Group represent a key Our forecasts concern our key performance indicator operating component of revenue. We will monitor all further legislation EBIT, adjusted for unforeseeable special items. closely. | T 018

Climate Protection Act in Lower Saxony in millions of euros 2017 2016

In 2016 the state of Lower Saxony presented a draft Climate Pro- Renewables, Grids and +0% to Gas Storage segment +10% 333.7 tection Act (Klimaschutzgesetz). The Act aims to cut greenhouse Sales, Services and Trading segment +10% to +35% 61.2 gas emissions in the state by between 80 and 95 per cent by 2050 International segment -30% to -15% 25.6 compared to 1990. Additionally, the regional government intends swb segment -60% to -45% 165.2 to cut its own emissions by 70 per cent by 2030. An integrated Group Central Division segment – -51.1 energy and climate protection programme that is still to be pre- Operating EBIT, Group -20% to -10% 534.6

pared will set out concepts as well as intermediate milestones with regard to energy conservation and renewable energy. In this connection, we will represent interests with a view to improving the general conditions for the expansion of renewables and energy-related services.

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Expected performance in the Renewables, Grids and Expected performance in the International segment Gas Storage segment In the International segment, EWE expects a decrease in operating In the Renewables, Grids and Gas Storage segment, EWE expects EBIT in the 2017 business year compared to 2016. to improve its operating EBIT in 2017 compared to 2016. With regard to the gas trading business in Turkey, lower gas trad- Based on the assumption of a “normal wind” year, we expect the ing quantities are forecast for 2017. Furthermore, the integration contributions of our existing onshore and offshore wind parks to and expansion of the business activities of the Turkish telecom- earnings to increase. Additionally, positive effects on revenue are munications company Millenicom will have a negative impact on expected from the first full year of operation of both the Köhlen earnings. The development of earnings for the regions of Bursa and Hatten onshore wind parks. In contrast, costs that cannot be and Kayseri will be heavily influenced by regulatory plans. Overall, capitalised in connection with the implementation of the offshore this will lead to a higher operating EBIT on the parts of Bursagaz wind park Trianel Windkraftwerk Borkum II GmbH & Co. KG and Kayserigaz. Further moderate grid expansions are expected in (TWB II) will likely have a negative effect on earnings. Kayseri and Bursa in 2017; we therefore forecast an increase in both the number of customers as well as gas revenue. Due to the The investments due to be made in the Renewables, Grids and Gas changes in the market landscape and competitive situation in Storage segment in 2017 total approx. 345 million euros. The Poland, the earnings will be significantly lower than in the previ- investments are mostly in the infrastructure of the electricity, gas ous year. and telecommunications networks (approx. 206 million euros), in the offshore wind park TWB II and in onshore wind parks (approx. The investments planned for 2017 in the International segment 116 million euros). total approx. 43 million euros and primarily apply to developing business areas in Turkey (41 million euros). Essentially, invest- Expected performance in the Sales, Services and ments in grids and expansion in the Bursa and Kayseri regions are Trading segment planned.

In the 2017 business year we expect the Sales, Services and Trad- Expected performance in the swb segment ing segment to generate a higher operating EBIT than in 2016. Weather-related fluctuations in sales are not foreseeable and not In the 2017 business year we expect the swb segment to generate preventable, however. a significantly lower operating EBIT than in 2016. This is due primarily to the elimination of the positive special item in 2016 In sales, EWE primarily expects to see positive results in the resulting from the reorganisation of swb’s company pension energy business in the area of procurement costs, the assignment scheme. of an adjusted “normal year” and the elimination of negative special items. In contrast, decreasing average electricity and gas In the conventional power generation business, the company consumption rates are expected amongst private customers expects lower earnings when adjusted for the special item result- (due to factors including improving energy efficiency) and profit ing from the reorganisation of swb’s company pension scheme. margins from business customers are expected to become nar- The expected decrease in earnings brought about by falling elec- rower (due to factors including the growing level of competition). tricity prices can be mitigated by the expected increase in proceeds from avoided grid tariffs. The operation of the gas and EWE plans to make investments totalling approx. 86 million euros steam turbine plant is also having a negative effect on earnings. in the Sales, Services and Trading segment in 2017. Key investments include approx. 57 million euros for the broadband network The high expected waste prices are the main reason why the expansion and the BSA programme (provision of IT interfaces as company expects its earnings in connection with waste disposal well as guaranteeing technical availability in conjunction with to improve in 2017. vectoring), as well as other investments in technology and equipment. With regard to energy, the majority of investments will be Assuming normal weather conditions, in the 2017 business year made in heating plants. the operating EBIT of the grid operators will match the level of the previous year as adjusted for special items. These special items from 2016 concern the reorganisation of swb’s company pension scheme and the increase in rehabilitation provisions for gas storage facilities.

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The Sales business area must face strong competition with only PROCESS OF RISK AND OPPORTUNITY MANAGEMENT limited pricing options when it comes to the sale of power and natural gas. In this context, EWE expects the quantity of power Within the EWE Group, the internal control system and the risk sold to increase slightly, natural gas and heat to decrease slightly management system are implemented through an integrated and drinking water to increase moderately. EWE will continue its risk management approach using standardised methods and pro- strategy of acquiring private customers and customers in con- cesses. The risk management system is based on a standardised tracts with special terms outside of Bremen and Bremerhaven planning and controlling process tailored specifically to the Group. alongside its long-standing partnership with EWE TEL GmbH in The Group auditing department regularly monitors the reliability the field of telecommunications. Overall the operating EBIT will and effectiveness of the early risk warning system as well as the decrease in 2017, due primarily to special items in 2016 resulting fulfilment of legal requirements. from the reorganisation of swb’s company pension scheme and falling margins for electricity and natural gas. Risks are identified early on, evaluated and reported to the EWE Group’s Group-wide risk management at the level of the indivi We expect to see further growth from new products and services dual companies responsible for the risks in a structured, quarterly in the contracting business and in technical services. Our collabo- process with consideration for the Group-wide guidelines. Risk ration with Group companies in connection with the development management involves measures designed to avoid, minimise and of energy supply services will generate additional contracts. overcome risks.

EWE plans to make investments totalling approx. 148 million euros The EWE Group’s energy-trading activities are also subject to in the swb segment in 2017. The focus here is on investments of separate risk guidelines which define risk assessment and manage- approx. 93 million euros in grid infrastructure as well as investment instruments tailored specifically to the energy trade. ments of approx. 21 million euros in the Essel onshore wind park. Risks are assessed by probability of occurrence and amount of The risks and opportunities described below might cause the damage. They are assigned to one of three risk categories: low, actual performance of EWE and its segments to deviate positively moderate and high, which represent the potential loss that the or negatively from our forecasts, or if our expectations and EWE Group would suffer. assumptions prove inaccurate. The following section describes risks and the most significant REPORT ON RISKS AND OPPORTUNITIES negative effects they might have on our business, assets, financial position, earnings and reputation. Opportunities often stand PRINCIPLES OF RISK AND OPPORTUNITY MANAGEMENT directly opposite the corresponding risks and are assigned to the same categories and reported in them. The fields of business of the EWE Group continue to be characterised by a high level of dynamism and ongoing change. Our busi- RISKS AND OPPORTUNITIES ness activities are therefore linked with substantial risks and opportunities. The early identification and active management of Strategic risks and opportunities these risks and opportunities is an integral element in the planning and implementation of our business strategies. This way we Changes to the international macroeconomic market environment can support the sustainable growth and secure the long-term as well as adjustments to underlying legal and social conditions competitiveness of the EWE Group. increase the potential risk to the company’s long-term business development as it pertains to key financial target figures in the The Board of Management and risk committee set out the under- EWE Group’s individual segments. lying risk management system for the business operations of the EWE Group. Additionally, regular reports to the decision-making This applies to the field of conventional power generation, which and supervisory committees ensure transparency in connection is affected by the significant increase in the capacity from renew with the current risk profile of the EWE Group and the continuous able energy sources available on the power market. In the field of monitoring of the parameters of the risk management system. gas storage, the competitive situation and market conditions are currently undergoing permanent changes that can lead to a reduction in existing earnings potential and make a more flexible marketing strategy necessary. With regard to revenue, the sales

EWE Integrated Report 2016 56 COMBINED MANAGEMENT REPORT

department is facing a continuous decline in consumption due to Market price risks and opportunities as well as quantity changes to customers’ consumption patterns, improving energy risks and opportunities efficiency and increasingly decentralised energy solutions from individual customers (prosumers). Due to increasing competitive pressure in the national and international energy procurement and sales markets, the EWE Group is The underlying conditions governing the energy sector continue to faced with constantly high market price, quantity and margin be heavily influenced by the “German energy transition” enacted risks, primarily in the areas of generation and sales. by the German government. The competition in energy sales is being exacerbated by disruptive Society’s increasing digitisation is creating opportunities for business models based on technological innovations, online price energy service providers such as EWE. At the same time, it is lead- comparison platforms and the emergence of new market actors ing to a reduction in barriers to market entry for competitors from that previously operated in other sectors. other industries. Additionally, energy sales to end customers are exposed to the In particular, the interaction between energy, telecommunications risk that the actual sale deviates from expectations in terms of and information technology makes new product offerings with quantity or structure. Gas consumption in particular is highly increased customer benefit as well as competitive differentiation dependent on weather conditions. This results in quantity risks to possible. In addition, the combination of energy, telecommunica- both sales and network operations. On the other hand, the possi- tions and information technology creates the conditions neces- bility of a weather-related increase in consumption also exists. sary to continue the stable and efficient operation of grids and Unscheduled changes to cost elements outside of EWE’s control networks, despite ever-increasing demands. could also have a negative effect on margins, both in sales as well as in network operations. We use sophisticated planning and fore- Besides the German energy market, in recent years the EWE casting methods in order to counter the risks and manage the Group has established itself and its activities in the Polish and opportunities. Additionally, the sales quantities in power and gas Turkish energy markets. This has resulted in additional growth sales are secured via long-term procurement strategies. opportunities that are, to a large extent, unaffected by the developments in the German market, yet utilise the EWE Group’s In the field of conventional power generation, the attainable existing areas of expertise. The country-specific risks inherent margins (“spreads”) remain under pressure. Over the course of to the International segment are monitored systematically in the German energy transition, supply has increased as a result of this regard. additional capacities from renewable energy sources that are not or only slightly affected by the market prices due to subsidy The political risk faced by the Turkish companies of the EWE Group mechanisms. As such, the company faces the risk of temporarily has increased significantly ever since the unsuccessful coup by or permanently generating lower earnings than in the past in this elements of the Turkish military in July 2016 and the measures field. them implemented by the Turkish government. There are currently no specific indications of short-term adverse effects on the busi- In the Turkish market, which is going through the process of ness activities of Turkish EWE companies (such as non-fulfilment deregulation, imbalances still exist in the formation of prices. of contracts, termination of contracts without notice or official The aforementioned effects of weather conditions apply in similar sequestration of Turkish EWE companies). No potential medium fashion to the Group’s gas business in Turkey, and result in the or long-term adverse effects are currently foreseeable. The emer- same opportunities and risks. gence of political risks can negatively affect the stability of the value of foreign investments in the EWE Group, both directly and The significant risks that can be categorised as market price risks indirectly. and opportunities as well as quantity risks and opportunities are rated low in financial terms. The significant risks that can be categorised as strategic risks and opportunities are rated moderate and low in financial terms.

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Risks and opportunities from business operations Financial risks

Operative risks to the EWE Group result both from the operation Financial risks result from the operative business activities of the of technologically complex systems at all stages of the value crea- Group’s various business areas in the form of liquidity, credit and tion chain as well as due to unscheduled interruptions to sched- valuation risks. uled process work flows. EWE utilises state-of-the-art information and communications technology to efficiently support all of the The EWE Group utilises a structured liquidity management pro- individual units’ business processes. Furthermore, extra quality cess to confront general liquidity risks, which is used to manage assurance and coordinated redundancy concepts have been and plan the changes to liquidity over the short, medium and long implemented to guarantee the reliability of processes, which are terms. In addition, the EWE Group maintains a sufficient level of continuously enhanced in line with the requirements. liquidity reserves in the form of liquid funds and credit lines to ensure the Group can meet its financial obligations at any time. Given the increasing proliferation of digitisation in the business processes of the EWE Group, they have become dependent on EWE conducts an intensive analysis of the creditworthiness of secure, reliable and robust information processing. Therefore, the major customers, wholesale partners and banks with the goal of risk of cyber attacks is becoming more significant both in the eyes preventing or limiting non-payment risks in Germany and abroad. of the company and from a legal perspective. Consequently, in late 2014 the Group started to implement measures designed to In general, the EWE Group is exposed to risks from changes in ensure information security throughout the Group. The key objec- value that can inherently result from increasing capital market tive is the appropriate handling of information and data in line interest rates, fluctuating exchange rates as well as the business with their confidentiality levels in order to ensure the effective, prospects of individual companies becoming permanently worse. comprehensive control of information security risks and cyber risks. Fundamentally, the external rating of EWE AG is at risk of being downgraded. The development of and influences on its rating are Our operative activities are subjected to regular external audits. monitored continuously and appropriate measures are imple- This is reflected by a range of ISO certifications in particular. Addi- mented where possible. tionally, employees are involved in a system of continuous training designed to maintain and improve the high level of quality, mini- The significant risks that can be categorised as financial risks are mise potential risks and identify new opportunities. We are also rated low in financial terms. an active member of and have representatives on a number of expert committees and boards. This guarantees a structured Legal and compliance risks approach to current and future challenges, measures relating to safety and statutory regulations. Within the scope of its business activities in Germany and other countries in which it is active, the EWE Group is faced with The significant risks that can be categorised as risks and oppor numerous legal risks and result from both general legal provisions tunities from business operations are rated low in financial terms. as well as special, industry-specific legal, regulatory and miscellaneous requirements.

EWE Integrated Report 2016 58 COMBINED MANAGEMENT REPORT

All relevant legislative and legal developments are being moni- The EWE Group mainly uses derivative financial instruments to tored continuously and their potential impacts on business hedge against market price risks resulting from physical gas and operations are assessed. electricity trading. Additionally, the Board of Management of EWE AG has granted the Group’s own trading company limited Likewise, the EWE Group can be exposed to risks resulting from authority to take speculative steps in order to optimise its port legal disputes or governmental or official procedures. We cannot folio. The risk posed by market price risks to earnings is limited rule out the possibility that the outcomes of these legal disputes by an in-depth risk monitoring and loss limitation concept. and procedures might have a negative effect on our business, Additionally, the use of derivative financial instruments is always assets, financial position and earnings. linked with counterparty risks (see also financial risks).

To cover significant legal risks, we have taken out a liability To hedge against energy trading and finance-related price risks, insurance policy which the management considers adequate and the EWE Group utilises power futures, gas futures, coal swaps, reasonable. However, our insurance does not protect us against oil swaps, EUA and CER futures contracts (European Union Allow- any damage to our reputation. Additionally, through legal disputes ances and Certified Emissions Reductions) as well as currency we can suffer losses beyond the amount covered by our insurance, and interest rate hedges. However, the occasional use of options not covered by our insurance or in excess of any provisions we cannot lead to the EWE Group acting as an option writer. The risk have formed for losses from legal disputes. resulting from the use of these instruments is therefore limited to the net premium and is taken into account as part of market In addition to general legal risks, the EWE Group is exposed to price risk management. an increasing number of compliance risks. These risks result from increased activity on the part of national and EU lawmakers. More disclosures regarding financial instruments can be found in the notes. The significant risks that can be categorised as legal and compliance risks are rated moderate and low. Regardless of how the risks The significant risks that can be categorised as risks from the use are categorised, the EWE Group is currently examining possible of financial instruments are rated low in financial terms. indications of irregularities, especially in connection with grids. These have been subjected to an independent examination by SUMMARY OF THE RISK SITUATION a third party which is due to finish in late 2017. These external examinations have the full, unconditional support of EWE. The Group risk management system did not identify any threats to the continued existence of the company in the 2016 financial Risks from the use of financial instruments year or beyond, either individually or in their entirety.

Within the scope of risk management activities carried out by the In the 2016 business year the effectiveness of the internal control EWE Group, financial risks are identified, evaluated and addressed. system was tested and confirmed by a self-assessment of all key Financial instruments are regularly used when implementing controls. hedging strategies.

EWE Integrated Report 2016 COMBINED MANAGEMENT REPORT 59 38 BUSINESS CONDITIONS AND GENERAL FRAMEWORK 44 CURRENT SITUATION OF THE EWE GROUP 51 REPORT ON EXPECTED DEVELOPMENTS AND THEIR KEY OPPORTUNITIES AND RISKS 60 CURRENT SITUATION OF EWE AG

KEY CHARACTERISTICS OF THE EWE GROUP’S The accounting guidelines standardised across the Group, which ACCOUNTING-RELATED INTERNAL CONTROL SYSTEM must be consistently applied by all units, form the conceptual (PURSUANT TO ARTICLE 289 (5) AND ARTICLE 315 (2) framework for the preparation of the consolidated financial state- NO. 5 OF THE HGB) ments. EWE continuously analyses and takes into account new laws, accounting standards and other official statements with The aim of EWE’s financial reporting activities is for our annual regard to their relevance and effects on the Group’s consolidated and interim reports to provide complete and correct information financial statements and combined management report. to all interested parties. Our accounting-related internal control system (ICS) aims to identify potential sources of error and limit The annual financial statements submitted by EWE AG and its the resulting risks. The accounting-related ICS encompasses subsidiaries, which are based on the accounting entries recorded accounting and financial reporting across the entire EWE Group. by each unit, form the data basis used to prepare the consolidated financial statements. The Group’s financial statements are drawn The Supervisory Board’s audit committee regularly reviews the up using the consolidation process based on the annual reports effectiveness of the accounting-related ICS. Once a year, the submitted. The steps required to prepare the consolidated finan- Board of Management reports to the audit committee regarding cial statements undergo both manual and automated reviews. the risks from financial reporting, explains the implemented supervisory measures and illustrates how the correct implemen Within the scope of external reporting, the members of EWE AG’s tation of these measures was verified. Board of Management must take a “balance sheet oath” and sign a responsibility statement. By signing this statement, they confirm The structure of the accounting-related ICS results from the adherence to the mandatory accounting standards as well as the organisation of EWE’s accounting and financial reporting process. EWE Group’s accounting guidelines as codified in the Group’s accounting handbook, and that the figures presented give a true One of the main functions of this process is the management of and fair view of the Group’s assets, liabilities, financial position the EWE Group and its operative units. In this context, the targets and earnings. set by the Board of Management of EWE AG form the initial points of reference. Based on these targets and EWE’s expectations with Potential financial reporting risks are identified at the division regard to the company’s operative development, once a year the level based on quantitative, qualitative and process-related company creates its medium-term plans. These encompass target criteria. The company’s generally binding guidelines represent a figures for the upcoming business year as well as the following fundamental component of EWE’s ICS. In addition, EWE defined years. For current business years, EWE draws up forecasts which minimum requirements governing the key processes used to are reviewed and adjusted at regular intervals. The Board of Man- secure an integrated system of data collection and management. agement of EWE AG as well as the boards of management and An annual review is used to verify whether the necessary moni CEOs of the company’s main subsidiaries meet at regular intervals toring measures were appropriate, actually took place and were to evaluate quarterly and annual financial statements and update carried out correctly. Furthermore, the ICS is reviewed by the forecasts. Group auditing department during the year as part of its auditing programme. The individual companies are responsible for their own book keeping, which is subject to various local standards, whereby the accounting-related ICS is tailored specifically to the needs of each company on the basis of Group-wide guidelines. In its position as a holding company, EWE AG carries out central accounting duties. This includes consolidating figures and analysing the recoverability of goodwill on the balance sheet.

EWE Integrated Report 2016 60 COMBINED MANAGEMENT REPORT

CURRENT SITUATION OF EWE AG

The annual financial statements of EWE AG, with headquarters The net interest was influenced primarily by interest payable on in Oldenburg, Germany, were prepared in accordance with the bonds, loans from credit institutes and the bonded loan as well as provisions of the German Commercial Code (HGB). interest income from Group companies. In the reporting year, the negative net interest of 142.4 million euros worsened by 24.2 mil- EWE AG manages the EWE Group as its holding company. Its lion euros year-over-year. Interest income declined by 0.8 million duties lie in the strategic and cross-market development of the euros. This was due to the persistently low market interest rate business areas as well as strategic planning and assuring the that EWE AG offers the subsidiaries as part of cash pooling and for Group’s financing. In addition, EWE AG performs centralised loans. The increase in interest expenses (increased by 23.5 million corporate services for the Group’s companies. euros) was due primarily to the premature buy-back of some of the placed bonds (50.3 million euros). This stood in contrast to a EARNINGS PERFORMANCE decrease in provisions (decrease of 8.2 million euros) resulting from the changes to the regulations concerning provisions for old- | T 019 age pensions. Additionally, interest expenses were eliminated due in millions of euros 2016 2015 to the retirement of bonds in the previous year (21.0 million euros).

Profit/loss from financial investments 378.1 384.2 The German Accounting Directive Implementation Act (BilRUG) Net interest income/expense -142.4 -118.2 has caused the structure of the consolidated income statement to Revenue 199.8 0.0 change. It has made it necessary to recognise revenue and mate- Other operating income 6.0 202.7 rial expenses that correspond to the services to be rendered for Material expenses -102.7 0.0 subsidiaries. Likewise, other operating income and expenses were Personnel expenses -68.6 -70.4 affected by the transition and can therefore only be compared Amortisation, depreciation and impairment -32.5 -20.0 with the previous year on a limited basis. The notes to the finan- Other operating expenses -67.8 -167.5 cial statements of EWE AG contain a reconciliation of the line Income taxes -67.6 -83.0 items with the previous year, with consideration for the BilRUG. Income after taxes 102.3 127.8 Other taxes 1.6 -1.0 Whereas personnel expenses in the previous year were influenced Annual net profit 103.9 126.8 heavily by special items resulting from the “Human Resources Profit carried forward from 2017” programme, they decreased by just 1.8 million euros in the previous year 3.3 2.0 reporting year. The reduction in personnel due to the “Human Withdrawals from allocations Resources 2017” programme was balanced out by the recruitment to revenue reserves 100.0 of temporary staff for the enera project “Digital Agenda for the Appropriation to reserves -15.0 Net profit 92.2 228.8 Energy Transition” as well as transfers of roles and personnel between EWE AG and its subsidiaries. Finally, the expenses

increased due to the termination of a bargaining agreement con- EWE AG’s earnings are primarily influenced by the results of finan- cerning payments in kind and the agreed 2.4 per cent wage cial investments, net interest and proceeds from the provision of increase took effect on 1 January 2016. central services to the Group’s companies. Amortisation, depreciation and impairment increased by 12.5 mil- Earnings from financial investments declined year-over-year by lion euros year-over-year, reaching 32.5 million euros. This was 6.1 million euros. Earnings from profit and loss transfer agreements due primarily to 4.3 million euros in write-downs of intangible decreased by 81.3 million euros and earnings from investments assets and 6.4 million euros in write-downs of buildings. decreased by 44.3 million euros. This was countered by income of 104.7 million euros from the sale of the shares in VNG. The decline The tax expenses decreased by 15.4 million euros due to the associated with profit and loss transfer agreements is due primarily development of the financial result and the necessary formation to lower earnings on the parts of Zweite EWE Offshore Beteiligungs of tax provisions. GmbH, EWE VERTRIEB GmbH, EWE TEL GmbH and EWE GAS SPEICHER GmbH. EWE NETZ GmbH contributed improved earn- The effects described above caused earnings after taxes to fall by ings. The decrease in income from investments was due to the 25.5 million euros, which means that the annual net profit totalled elimination of the VNG dividend in the reporting year following the 103.9 million euros and was 22.9 million euros lower than in the sale. The negative development of earnings from investments was previous year. mitigated by 16.6 million euros less in write-downs on investments.

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ASSET POSITION

| T 020

in millions of euros 31.12.2016 in % 31.12.2015 in %

Assets

Fixed assets 3,156.9 81.6 4,588.3 87.8 Current assets 696.4 18.0 617.1 11.8 Accrued and deferred items 15.7 0.4 22.1 0.4 Total assets 3,869.0 100.0 5,227.5 100.0

Equity and liabilities

Equity 1,571.5 40.6 2,206.7 42.2 Provisions 159.6 4.1 150.4 2.9 Liabilities 2,137.7 55.3 2,870.2 54.9 Accrued and deferred items 0.2 0.0 0.2 0.0 Total equity and liabilities 3,869.0 100.0 5,227.5 100.0

EWE AG’s balance sheet total at the end of the reporting period On the liabilities side, the reduction in equity through the acqui stood at 3.9 billion euros (previous year: 5.2 billion euros) and sition of 10.0 per cent of the treasury shares caused equity to exhibited a well-balanced asset and capital structure. The balance decrease by 1.6 billion euros. In light of the lower balance sheet sheet is structured around EWE AG’s functions as the parent com- total, the equity ratio remained stable at 40.6 per cent. In addi- pany of the EWE Group, in which the key shareholdings are held. tion to equity, non-current assets are accompanied by non- Fixed assets represent the dominant item on the asset side, with current debt with a value of 1.4 billion euros. As such, non-current a value of 3.2 billion euros, equal to 81.6 per cent of total assets; assets (3.2 billion euros) were almost completely covered by the most significant item is a financial asset worth 3.0 billion non-current available capital (3.0 billion euros). euros. The decrease compared to the previous year was primarily the result of the disposal of the shares in VNG. The decrease in non-current liabilities was primarily attributable to bonded debt and liabilities to credit institutes, essentially due The value of current assets including deferred expenses and to the premature partial retirement of bonds and the repayment accrued income totalled 712.1 million euros. The item is domi- of loans. In contrast, provisions for taxes and miscellaneous provi- nated by accounts receivable from affiliated companies from cash sions increased by 8.2 million euros. Together with non-current pooling and profit and loss transfer as well as liquid assets, and euro bonds and other bonds with a total value of 1.3 billion euros, reflects EWE AG’s financing function. The accounts receivable pension reserves with a total value of 97.4 million euros formed from affiliated companies decreased by 94.3 million euros in total the dominant portion of non-current debt. in connection with cash pooling, loans and receivables from profit and loss transfers. In contrast, the securities portfolio increased to 99.7 million euros and liquid assets increased by 49.9 million euros. The increase in current assets including deferred expenses and accrued income of 72.9 million euros compared to the previous year is due primarily to the changes in securities (increase of 99.8 million euros) which in turn was due to the disposal of the shares in VNG and the resulting cash flow.

EWE Integrated Report 2016 62 COMBINED MANAGEMENT REPORT

FINANCIAL POSITION INVESTMENTS

| T 021 The value of investments made in the reporting year totalled in millions of euros 2016 2015 88.8 million euros:

Cash flow from operating activities -64.5 148.6 | T 022 Cash flow from investment activities 1,246.2 151.4 in millions of euros 31.12.2016 31.12.2015 Cash flow from financing activities -1,132.2 -277.9

Changes to cash and cash equivalents 49.5 22.1 Intangible assets1) 6.8 4.8 Land and buildings 3.1 4.7 Power supply systems 0.2 Other technical equipment and The cash flow from operating activities was -64.5 million euros in machinery 0.1 the business year. At 103.9 million euros, the annual net profit Furniture and office equipment 2.6 1.6 on which the calculation was based was 22.9 million euros lower Financial assets 76.2 402.1 than in the previous year. Non-cash depreciation, amortisation Total 88.8 413.4 and write-downs of 82.3 million euros, interest expenses and the 1) Of this total, 2.7 million euros for assets under construction changes in provisions and liabilities increased the cash flow, (previous year: 0.5 million euros) whereas gains from the disposal of assets (105.9 million euros), income from investments and income tax payments decreased it. The investments in land and buildings were attributable to a number of smaller construction and renovation projects in locations The positive cash flow from investing activities was influenced deci- including Bremen, Leer and Rhauderfehn. The acquisitions cate sively by the sale of the shares in VNG. Investments are of lesser gorised as furniture and office equipment were for office furniture significance. Additionally, incoming payments from dividends or and vehicles, while the investments in intangible assets were profit transfers from financial investments (303.9 million euros) led attributable to various software licences. Essentially, the invest- to a positive cash flow overall. However, this income was lower than ments totalling 76.2 million euros in financial assets were in the previous year. attributable to the acquisition of 10.0 per cent of the shares in sovanta AG in Heidelberg and capital increases for GWAdriga The cash flow from financing activities mostly reflects the retire- GmbH & Co. KG, Berlin, and Trianel Windkraftwerk Borkum II ment of bonds, the repayment of loans and the payment of the GmbH & Co. KG, Oldenburg. Furthermore, loans have been dividend of 225.5 million euros in the previous year. Cash and cash granted to EWE Windpark Köhlen GmbH & Co. KG, Oldenburg, equivalents represent liquid assets and increased by 49.5 million and EWE Windpark Hatten GmbH, Hatten, in order to build the euros. wind parks.

The company was always capable of fulfilling its financial FORECAST DEVIATIONS obligations. As expected, EWE AG generated annual net profit in the 2016 business year in the three-digit million range. Contrary to expectations, however, this total did not exceed the value of net profits generated in the previous year. This was due to unplanned donations to the EWE FOUNDATION which had a negative effect due to three affiliated companies which have a profit and loss transfer agreement with EWE AG. Additionally, the new rules concerning benefits in kind introduced in 2016, write-downs of intangible assets and fixed assets and a write-down of an affiliated company had a negative effect on the annual result. Ultimately, the profit and loss transfers from subsidiaries remained below expectations.

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EXPECTED DEVELOPMENT OF EWE AG FORWARD-LOOKING STATEMENTS

Due to its position as the Group’s parent company, EWE AG’s All statements made are based on current knowledge and assump- annual result is heavily influenced by income from investments. tions. They represent estimates that we have formulated on the Compared to the business year ended, EWE AG is forecasting an basis of all information available to us at the present time. In the improved result from its onshore and offshore investments, event that the underlying assumptions do not occur or additional whereas its earnings from energy sales, telecommunications and risks develop, actual results could deviate from expected results. grids remain under constant price pressure and are facing regula- As such, we cannot assume liability for these statements. tion and changes in charges. EWE AG expects its interest expenses to be significantly lower following the premature buy-back of Oldenburg, Germany, 3 March 2017 bonds. Furthermore, the reorganisation of the pension provisions through the introduction of an interest calculation period of ten years will have a positive effect on the net interest. The measures The Board of Management introduced in 2015 as part of the “Human Resources 2017” programme will lower the personnel expenses, although the enera joint project “Digital Agenda for the Energy Transition” will lead to a need for temporary staff and, less expected subsidies, lower the annual result during the project phase. Non-recurring special items notwithstanding, the net annual profit is expected to be Michael Heidkamp Wolfgang Mücher slightly higher than in the current year.

The search for an investor willing to buy treasury shares will continue in 2017. An agreement is expected in 2018 at the earliest. The investment portfolio will be optimised with additional acquisitions and disposals. No potential impacts on earnings can be predicted at this point.

REPORT PURSUANT TO ARTICLE 312 OF THE GERMAN STOCK CORPORATION ACT

Pursuant to Article 312 of the German Stock Corporation Act (AktG), EWE AG has prepared a report on its relationship with affiliated companies. This report closes with the following statement by the Board of Management:

“In the transactions specified in the report on EWE AG’s relationship with affiliated companies, our company – based on the circumstances we were aware of at the time the transactions were carried out – received fair compensation in each transaction.”

EWE Integrated Report 2016 64

EWE Integrated Report 2016 65

CONSOLIDATED FINANCIAL STATEMENTS 2016

66 CONSOLIDATED INCOME STATEMENT OF THE EWE GROUP 67 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF THE EWE GROUP 68 STATEMENT OF FINANCIAL POSITION OF THE EWE GROUP 70 STATEMENT OF CHANGES IN EQUITY OF THE EWE GROUP 72 CASH FLOW STATEMENT OF THE EWE GROUP 73 NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS 143 RESPONSIBILITY STATEMENT 144 AUDIT OPINION

EWE Integrated Report 2016 66 CONSOLIDATED FINANCIAL STATEMENTS

CONSOLIDATED INCOME STATEMENT OF THE EWE GROUP

FROM 1 JANUARY TO 31 DECEMBER 2016

| T 023

in millions of euros Notes 2016 2015

Revenue 5 7,936.2 8,200.4 Electricity and energy taxes -369.9 -381.1 Revenue (excluding electricity and energy taxes) 7,566.3 7,819.3

Inventory changes -1.5 1.5 Other internally produced and capitalised assets 6 62.4 65.5 Other operating income 7 435.4 324.6 Material expenses 8 -5,761.7 -6,067.4 Personnel expenses 9 -722.5 -727.3 Amortisation, depreciation and impairment 10 -605.8 -580.1 Other operating expenses 11 -577.9 -606.6 Profit/loss from financial investments accounted for using the equity method 12 -0.7 -20.4 Other income from investments 13 255.2 2.9 EBIT 1) 649.2 212.0

Interest income 14 13.0 16.8 Interest expenses 14 -219.5 -197.7 Earnings before income taxes 442.7 31.1

Income taxes 15 -109.8 -40.5 Earnings in the period 332.9 -9.4

Thereof attributable to: Shareholders of the parent company 331.9 -7.1 Minority shares 1.0 -2.3 332.9 -9.4 1) Earnings Before Interest and Taxes

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 67 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME OF THE EWE GROUP

FROM 1 JANUARY TO 31 DECEMBER 2016

| T 024

in millions of euros Notes 2016 2015

Earnings in the period 332.9 -9.4 Actuarial gains and losses from performance-based pension plans and similar obligations 29 -183.5 174.6 Deferred taxes on pensions 49.2 -50.8 Sum of other comprehensive income and expenses recognised outside profit and loss without future reclassification to profit and loss -134.3 123.8 Balancing item for foreign currency translation from international subsidiaries -22.9 -16.6 Cash flow hedges 39 323.7 -145.5 Deferred taxes on accruals for cash flow hedges -91.8 38.6 Fair value of available-for-sale financial assets 37.7 51.0 Deferred taxes on accruals for available-for-sale financial assets 0.1 -0.4 Share of other comprehensive income comprising financial assets accounted for using the equity method 19 -0.7 3.0 Sum of other comprehensive income and expenses recognised outside profit and loss with future reclassification to profit and loss 246.1 -69.9 Other income after taxes 111.8 53.9

Comprehensive income after taxes 444.7 44.5

Thereof attributable to: Shareholders of the parent company 446.5 49.2 Minority shares -1.8 -4.7 444.7 44.5

EWE Integrated Report 2016 68 CONSOLIDATED FINANCIAL STATEMENTS

STATEMENT OF FINANCIAL POSITION OF THE EWE GROUP

AS AT 31 DECEMBER 2016

ASSETS

| T 025

in millions of euros Notes 31.12.2016 31.12.2015

Non-current assets Intangible assets 16 868.7 874.5 Property, plant and equipment 17 4,926.6 5,120.1 Investment property 18 5.4 5.7 Investments accounted for using the equity method 19 123.0 126.0 Other financial assets 20 526.7 429.4 Income tax refund claims 35 1.9 3.1 Other non-financial assets 10.1 2.4 Deferred taxes 35 32.4 98.4 6,494.8 6,659.6

Current assets Inventories 21 204.3 218.2 Trade receivables 22 764.8 895.1 Other financial receivables and assets 23 470.3 234.9 Income tax refund claims 35 35.9 10.9 Other non-financial receivables and assets 24 113.8 122.0 Liquid assets 25 351.3 352.0 1,940.4 1,833.1 Non-current assets held for sale 26 1,251.6 1,940.4 3,084.7 Total assets 8,435.2 9,744.3

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 69 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

EQUITY AND LIABILITIES

| T 026

in millions of euros Notes 31.12.2016 31.12.2015

Equity 27 Subscribed capital 243.0 243.0 less treasury shares -24.3 -24.3 Capital reserves 1,619.2 1,619.2 less treasury shares -489.3 -480.5 Accumulated earnings 788.2 684.5 Accumulated other comprehensive income -219.8 -317.6 Equity attributable to the shareholders of the parent company 1,917.0 1,724.3 Minority shares 24.9 24.9 1,941.9 1,749.2

Non-current liabilities Construction subsidies 28 675.9 694.9 Provisions 29 2,236.7 2,119.4 Bonds 30 1,237.4 1,677.2 Liabilities to financial institutions 31 130.7 267.3 Other financial liabilities 33 317.0 400.4 Income tax liabilities 35 30.4 1.4 Other non-financial liabilities 34 9.6 10.5 Deferred taxes 35 107.8 141.8 4,745.5 5,312.9

Current liabilities Construction subsidies 28 50.6 51.0 Emission rights 14.0 18.0 Provisions 29 159.4 130.7 Bonds 30 168.2 171.4 Liabilities to financial institutions 31 76.4 296.1 Trade payables 32 598.1 667.8 Other financial liabilities 33 500.7 1,198.4 Income tax liabilities 35 63.6 67.6 Other non-financial liabilities 34 116.8 81.2 1,747.8 2,682.2 Total equity and liabilities 8,435.2 9,744.3

EWE Integrated Report 2016 70 CONSOLIDATED FINANCIAL STATEMENTS

STATEMENT OF CHANGES IN EQUITY OF THE EWE GROUP

FROM 1 JANUARY TO 31 DECEMBER 2016

| T 027

Equity attributable to the shareholders Subscribed Capital reserves Accumulated of the parent capital of the EWE Group earnings Accumulated other comprehensive income Accumulated other comprehensive income company Minority shares Equity

Changes to Reserve for valuations using IFRS 3 available-for-sale Changes due the equity method remeasurement Reserve for financial to currency Measurement of not recognised in millions of euros reserve cash flow hedges instruments translation pension obligations IFRS 5 in profit and loss

As at 01.01.2015 243.0 1,619.2 781.7 74.5 -13.5 112.3 -72.5 -462.8 -11.9 2,270.0 15.2 2,285.2 Earnings in the period -7.1 -7.1 -2.3 -9.4 Other earnings -106.9 50.6 -14.2 123.8 3.0 56.3 -2.4 53.9 Total earnings 49.2 -4.7 44.5

Capital increase 13.8 13.8 Treasury shares -24.3 -480.5 -504.8 -504.8 Dividend payments -88.0 -88.0 -0.6 -88.6 Changes in basis of consolidation 0.1 0.1 Other changes -2.1 16.8 -16.8 -2.1 1.1 -1.0 As at 31.12.2015 218.7 1,138.7 684.5 74.5 -120.4 162.9 -86.7 -339.0 16.8 -25.7 1,724.3 24.9 1,749.2

Earnings in the period 331.9 331.9 1.0 332.9 Other earnings 231.9 37.8 -20.1 -134.3 -0.7 114.6 -2.8 111.8 Total earnings 446.5 -1.8 444.7

Treasury shares -8.8 -8.8 -8.8 Dividend payments -225.5 -225.5 -225.5 Changes in basis of consolidation -16.8 -16.8 -16.8 Other changes -2.7 -2.7 1.8 -0.9 As at 31.12.2016 218.7 1,129.9 788.2 74.5 111.5 200.7 -106.8 -473.3 -26.4 1,917.0 24.9 1,941.9

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 71 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

| T 027

Earnings in the period 331.9 331.9 1.0 332.9 Other earnings 231.9 37.8 -20.1 -134.3 -0.7 114.6 -2.8 111.8 Total earnings 446.5 -1.8 444.7

EWE Integrated Report 2016 72 CONSOLIDATED FINANCIAL STATEMENTS

CASH FLOW STATEMENT OF THE EWE GROUP

1 JANUARY TO 31 DECEMBER 2016 SOURCE OF FUNDS (+), APPLICATION OF FUNDS (-)

| T 028

See notes, in millions of euros section 43 2016 2015

EBIT 1) 649.2 212.0 Amortisation, depreciation and impairment 610.2 586.3 Reversals of write-downs -0.8 Release of construction subsidies -59.9 -57.4 Interest paid -150.9 -126.4 Interest received 12.8 16.0 Income tax payments/refunds -125.3 -74.7 Profit/loss from the divestiture of fixed assets -219.6 5.4 Non-cash foreign currency gains/losses -0.1 Non-cash changes to the value of accruals 33.7 137.2 Changes to valuations using the equity method recognised in profit and loss 1.9 75.3 Non-cash profit/loss from financial derivatives -86.0 -10.5 Other non-cash expenses and income 0.9 38.2 Changes in inventories 10.7 79.3 Changes in receivables and other assets -19.4 130.8 Changes in liabilities -185.7 -303.3 Cash flow from operating activities 471.7 708.2

Incoming payments from construction subsidies 49.9 46.5 Payments for investments in intangible fixed assets -43.5 -46.7 Incoming payments from the divestiture of fixed assets 15.0 9.0 Payments for investments in fixed assets -373.3 -373.6 Incoming payments from the divestiture of other non-current assets 975.1 16.8 Payments for investments in other non-current assets -38.2 -246.6 Payments for investments in shares in fully consolidated companies -14.2 Cash flow from investing activities 570.8 -594.6

Incoming payments from allocations to equity 13.8 Cash payments to shareholders of the parent company and minority shareholders (dividends) -225.5 -88.6 Incoming payments from the acquisition of financial liabilities 7.5 481.7 Payments from the repayment of financial liabilities -815.2 -483.9 Other net payments from financing activities -0.3 Cash flow from financing activities -1,033.2 -77.3

Change in cash and cash equivalents 9.3 36.3 Change in cash and cash equivalents related to currency translation -9.4 -11.5 Cash and cash equivalents at the beginning of the period 352.3 327.5 Cash and cash equivalents at the end of the period 352.2 352.3 1) Earnings Before Interest and Taxes

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 73 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS OF EWE AG

1. INFORMATION ABOUT THE COMPANY Slight deviations might result in the calculation of total values and percentages in the consolidated financial statements as a EWE Aktiengesellschaft (hereinafter referred to as “the company” result of rounding. or “EWE AG”) and its subsidiaries (hereinafter referred to as the “EWE Group”) are active in the fields of energy supply (particu- The consolidated financial statements for the business year larly power and gas), energy generation, sales and trading, water ending on 31 December 2016 were approved by the Board of Man- supply, information technology and telecommunications. From a agement for review by the Supervisory Board on 3 March 2017. regional standpoint, the company carries out these activities in the Ems-Weser-Elbe region, in the German state of Lower Saxony, The consolidated financial statements and the Group management in the German city of Bremen and, with regard to gas supply report of EWE AG for the 2016 business year will be published in operations, also in the German state of Brandenburg, the island the German Federal Gazette. of Rügen and in Poland and Turkey. CONSOLIDATION METHODS EWE AG’s headquarters are located at Tirpitzstrasse 39 in Oldenburg, Germany (postcode 26122). The company is registered The consolidated financial statements comprise the annual in the commercial register of the Oldenburg district court under financial statements of EWE AG and its subsidiaries as at HRB 33. 31 December 2016.

2. ACCOUNTING METHODS Subsidiaries are fully consolidated from the date of acquisition onward; that is, from the period of time that the Group gains full PRINCIPLES GOVERNING THE PREPARATION OF THE control over the company. Consolidation ends as soon as the par- CONSOLIDATED FINANCIAL STATEMENTS ent company no longer has control of the company. Subsidiaries’ financial statements are prepared using uniform accounting EWE AG’s consolidated financial statements dated 31 December methods for the same reporting periods as the parent company’s 2016 were prepared pursuant to article 315a, section 1 of the financial statements. All intra-Group balances, transactions, German Commercial Code (HGB) in accordance with the binding unrealised profits and losses from intra-Group transactions and International Financial Reporting Standards (IFRS) from the dividends – taking deferred taxes into account – are eliminated International Accounting Standards Board (IASB), London, Great in full. Britain, as well as interpretations by the IFRS Interpretations Committee (IFRS IC), applicable as at 31 December 2016, in so A subsidiary’s comprehensive income is also attributed to far as they were approved for use in the European Union (EU). minority shares, even if this would lead to a negative balance. Further applicable legal provisions set forth in the HGB have also been adhered to. Changes to the level of a stake in a subsidiary which do not cause a loss of control are recognised as an equity transaction. In general, the consolidated financial statements were prepared based on the historical cost principle. This does not apply to deriv- As a result of another shareholder’s controlling stake in Hansewasser ative financial instruments and available-for-sale financial assets, Ver- und Entsorgungs-GmbH, Bremen (HVE), EWE AG does not have which have been measured at fair value. The carrying amounts control of this company. As a result, HVE is recognised as a joint of assets and liabilities recognised in the statement of financial venture in the consolidated financial statements. Gemeinschafts position which represent underling transactions within the scope kraftwerk Bremen GmbH & Co. KG, Bremen (GKB), is recognised as of fair value hedges and are otherwise recognised at amortised a joint venture despite a majority stake in the company, since a cost, are matched to the fair value changes attributable to the qualified majority is required to make major decisions. Trianel Wind- risks hedged within the scope of effective hedging relationships. kraftwerk Borkum II GmbH & Co. KG, Oldenburg (TWB II), is recog- The consolidated financial statements were prepared in euros. nised as an associated company despite a majority stake in the All values are rounded up or down to the nearest million euros company, since the other partners hold a majority of voting rights unless otherwise indicated. as set forth in the consortium agreement.

The recognition of individual items has been changed by marginal The schedule of the Group’s investments is published in the amounts. Corresponding previous year’s values have been German Federal Gazette pursuant to article 313, section 2, adjusted accordingly. nos. 1–4, and section 3 of the HGB. The subsidiaries, investments accounted for using the equity method and other investments

EWE Integrated Report 2016 74 CONSOLIDATED FINANCIAL STATEMENTS

included in the consolidated financial statements are listed in The preliminary fair values of the identifiable assets and liabilities section 45 of these notes. as at the acquisition date are as follows:

| T 030 The following changes to the basis of consolidation took place during the 2016 business year: Recognised in thousands of euros upon acquisition | T 029

Non-current assets 7,897.4 Type of consolidation and number Germany International Total of which intangible assets 7,101.6 Current assets 10,178.0 Full consolidation of which trade receivables 6,235.9 01.01.2016 48 7 55 of which cash and Additions 1 2 3 cash equivalents 3,425.0 Disposals 3 3 Total assets 18,075.4 31.12.2016 46 9 55 Non-current liabilities 1,221.7

Companies measured Current liabilities 16,621.2 at equity Total liabilities 17,842.9 01.01.2016 10 10 Additions 1 1 Net assets 232.5 31.12.2016 11 11 Historical cost 15,309.2 Goodwill 15,076.7 Total 01.01.2016 58 7 65 Additions 2 2 4 The goodwill is a premium for the entry into a new market in Disposals 3 3 Turkey. 31.12.2016 57 9 66 The fair value of the receivables totalled 6.2 million euros as at the reporting date and corresponds to the carrying amount and The disposals in connection with fully consolidated companies gross amount. It is likely that the receivables can be collected. were the result of internal reorganisation measures. Since its acquisition, Millenicom has contributed 29.2 million The increase in the number of fully consolidated companies is euros to revenue and -6.7 million euros to the consolidated result due primarily to the acquisition of Millenicom Telekomünikasyon for the period. Had the acquisition date been at the start of the Hizmetleri A.Ş., Kağıthane/Istanbul, Turkey (Millenicom). period, the contribution to revenue would have been 31.8 million euros and the contribution to the consolidated result for the The shares in VNG – Verbundnetz Gas Aktiengesellschaft, Leipzig period would have been -8.4 million euros. (VNG), measured at equity were recognised as non-current assets held for sale as at 31 December 2015 due to EWE’s intent to sell The transaction costs totalling 0.1 million euros were recognised them. The shares were sold in the first half of 2016. The number in other operating expenses in the consolidated income statement of companies accounted for using the equity method increased in 2015. following the addition of the newly established GWAdriga GmbH & Co. KG, Berlin. SUMMARY OF KEY ACCOUNTING METHODS

Corporate acquisitions in 2016 The key accounting methods applied in the preparation of these consolidated financial statements for the EWE Group are pre- As at 21 January 2016, EWE held 100 per cent of the shares in sented below. The methods described herein were consistently Millenicom. The company operates in the field of telecommuni applied to the reporting periods presented, except where other- cations. The purchase price of 15.3 million euros for the shares wise indicated. was paid in cash. This amount corresponds to the fair value of the entire consideration received.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 75 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

Mergers and goodwill If goodwill was allocated to a CGU and one of this unit’s business areas is sold, the goodwill attributable to the sold business area is Mergers are accounted for using the acquisition method. The taken into consideration as a component of the carrying amount acquisition costs of an acquisition are calculated as the total of of the business area when calculating the profit or loss from the the consideration transferred valued at fair value as at the date of sale. The value of the sold portion of goodwill is calculated on the acquisition and the shares without a controlling influence in the basis of the relative value of the sold business area and the acquired company. In every merger, the acquiring company values remaining portion of the CGU. the shares without a controlling influence in the acquired company either at fair value (known as the full goodwill method) or Investments in associates and joint ventures according to the corresponding share of identifiable net assets (known as the purchased goodwill method) of the acquired Investments by the EWE Group in an associate or joint venture are company. Costs incurred as part of the merger are recognised as accounted for using the equity method. An associate is an entity expenses. over which the EWE Group has significant influence. Joint ventures are companies which stand under joint control with another party. If the EWE Group acquires a company, it evaluates the suitable classification and designation of financial assets and acquired According to the equity method, the investment in another com- financial liabilities in accordance with the contractual terms, pany is recognised at historical cost plus the changes to the share economic data and the prevailing conditions at the time of of company’s net assets held by the EWE Group occurring after acquisition. This also includes separating embedded derivatives the acquisition date. The goodwill associated with the company is from the host contract. contained within the carrying amount of the investment and is neither subject to scheduled depreciation nor a separate impair- In the case of gradual mergers, the share of equity in the acquired ment test. company previously held by the buyer is revalued at fair value on the date of acquisition and the resulting profit or loss is recognised The EWE Group’s share of a company’s net profit/loss for a in profit or loss. period is recognised in the EWE Group’s consolidated income statement. Changes recognised directly in the company’s other The agreed upon contingent consideration is recognised at fair comprehensive income are recorded by the Group according to value on the date of acquisition. Subsequent changes to the fair its share and disclosed cumulated in the Group’s statement of value of contingent consideration which represent an asset or a changes in equity. liability are recognised either in profit or loss or other comprehensive income in accordance with IAS 39. If the contingent consider- As a matter of principle, subsidiaries’ financial statements are ation does not fall within the scope of IAS 39, it is valued in prepared as at the same reporting date as the financial statements accordance with the corresponding IFRS. of the EWE Group. Changes to accounting methods applied in a consistent manner across the Group are carried out insofar as Upon initial recognition, goodwill is measured at historical cost, necessary. i.e. the value of the transferred consideration which exceeds the value of the identifiable assets and liabilities acquired by the At the end of each reporting period, the EWE Group assesses Group. If this consideration falls below the fair value of the net whether objective information is available which indicates that an assets of the acquired subsidiary, the difference is recognised investment in a company accounted for using the equity method in the consolidated income statement. could be impaired. In the event of an impairment, the difference between the recoverable amount of the investment in the com- After the initial recognition, goodwill is measured at historical pany and the carrying amount of the investment in the company cost less accumulated impairment losses. For the purpose of is recognised in profit and loss as an impairment loss. impairment testing, the goodwill acquired within the scope of a merger is allocated as of the date of acquisition to the cash- generating unit (CGU) of the Group that is expected to profit from the merger.

EWE Integrated Report 2016 76 CONSOLIDATED FINANCIAL STATEMENTS

In the event of a loss of significant influence or joint control, the Fair value measurement Group values all retained investments in the former company accounted for using the equity method at fair value. Differences The EWE Group measures the fair value of financial instruments between the carrying amount of an investment in companies for reporting and/or accounting purposes at the end of each accounted for using the equity method at the time of the loss of reporting period. significant influence or joint control and the fair value of the retained investment as well as consideration received are recog- Fair value is the price that would be received to sell an asset or nised in profit and loss with consideration for any amounts paid to transfer a liability in an orderly transaction between transferred from other comprehensive income. market participants at the measurement date. When measuring fair value, the company assumes that the transaction in which Classification as current and non-current the sale of the asset or transfer of the liability takes place is carried out in either: The EWE Group classifies its assets and liabilities on the in the statement of financial position as current and non-current. »» The principal market for the asset or liability, or »» The most advantageous market for the asset or liability An asset is classified as current when: in the absence of a principal market.

»» Realisation of the asset is expected within the normal business In this context, the Group must have access to the principal cycle or the asset is held for sale or use within the time period; market or the most advantageous market. »» The asset is primarily held for trading purposes; »» Realisation of the asset is expected within twelve months of The fair value of an asset or a liability is measured based on the the end of the reporting period; assumptions that market participants would take into account »» The asset is cash or a cash equivalent, except in the case that when pricing the asset or liability. In this context, it is further the exchange or use of the asset to fulfil an obligation is assumed that the market participants would act in their best restricted for a period of at least twelve months after the end financial interests. of the reporting period. Measuring the fair value of a non-financial asset is carried out All other assets are classified as non-current. taking into account the ability of the market participant to generate economic benefit from the highest and best use of the A liability is classified as current when: asset or through its sale to another market participant who will find the highest and best use for the asset. »» The fulfilment of the liability is expected within the normal business cycle; The Group utilises measurement methods that are appropriate »» The liability is primarily held for trading purposes; given the circumstances and for which sufficient data are available »» Fulfilment of the liability is expected within twelve months to measure fair value. The Group maximises the use of relevant of the end of the reporting period; observable inputs and minimises the use of unobservable inputs. »» The company does not have the unrestricted ability to postpone fulfilment of the liability by at least twelve months after the end of the reporting period.

All other liabilities are classified as non-current.

Deferred tax assets and liabilities are classified as non-current assets or liabilities.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 77 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

All assets and liabilities for which fair value has either been is reclassified to the consolidated income statement upon the measured or disclosed in the financial statements are categorised disposal of this foreign operation. into different levels of the fair value hierarchy described below, based on the input parameters of the lowest level that is signifi- All goodwill resulting in conjunction with the acquisition of a cant to the entire measurement of fair value: foreign operation and every adjustment of the carrying amount of the assets and liabilities resulting from the acquisition of this »» Level 1: Quoted (non-adjusted) prices for identical assets or foreign operation to their fair value are treated as assets and liabilities in active markets; liabilities of the foreign operation and translated using the »» Level 2: Measurement methods in which the lowest-level input exchange rate applicable at the end of the reporting period. parameter material to the overall fair value measurement is directly or indirectly observable in the market; The following exchange rates were used for the foreign currency »» Level 3: Measurement methods in which the lowest-level input translation of individual financial statements prepared in a foreign parameter material to the overall fair value measure- currency: ment is not observable in the market. | T 031

Foreign currency translation Rate at the end 1 Euro of the period Average rate The EWE Group’s consolidated financial statements are prepared 31.12. 31.12. 2016 2015 2016 2015 in euros, the functional currency of the parent company. Each

company within the EWE Group determines its own functional Polish złoty (PLN) 4.41 4.26 4.36 4.18 currency. The items contained in the financial statements of each Turkish lira (TRY) 3.71 3.18 3.34 3.03 company are measured using this functional currency.

Foreign currency transactions and balances Revenue recognition Foreign currency transactions are initially translated by the Group’s companies into the functional currency at the applicable Revenue is recognised independent of when payment is received exchange rate on the date of the transaction. at the point in time when it is likely that the economic benefit will flow to the Group and the amount of revenue can be measured Monetary assets and liabilities in a foreign currency are translated with reliability. Revenue is measured at the fair value of the con- into the functional currency at the end of every reporting period sideration received or receivable in due consideration of contrac- using the exchange rate applicable on that date. tually stipulated payment terms, whereby taxes and other fees are not taken into account. Furthermore, the following list of criteria All exchange differences are recognised in profit and loss. must be satisfied before revenue is recognised:

Non-monetary items that are measured at acquisition cost in a Sale of goods foreign currency are translated using the exchange rate applicable Revenue is recognised when the significant rewards and risks at the date of the transaction. Non-monetary items that are associated with ownership of the sold goods have been transferred measured at fair value in a foreign currency are translated using to the buyer. This usually occurs when the goods have been the exchange rate applicable when the fair value was determined. delivered to the buyer.

Group companies When it comes to supplying customers with power or gas, transfer The assets and liabilities of foreign operations are translated of the significant rewards and risks to the buyer occurs when the within the scope of consolidation at the exchange rate applicable power or gas flows through the meter. Since meter readings at the at the end of the reporting period. The translation of revenue and end of the reporting period cannot be acquired in a timely fashion, expenses is carried out using an average exchange rate. The portions of revenue are calculated using statistical methods. resulting exchange differences within the scope of consolidation are recognised in other comprehensive income. The amount The electricity and energy taxes paid by the Group companies are recognised in other comprehensive income for a foreign operation openly deducted from revenue.

EWE Integrated Report 2016 78 CONSOLIDATED FINANCIAL STATEMENTS

Revenue from feed-in tariffs passed on to companies generating Government grants power from renewable energy sources is disclosed as a share of total revenue. This revenue is offset by the payments to these Government grants are recognised when there is reasonable companies disclosed under material expenses. assurance that grants will be received and that the company will comply with any conditions attached to the grant. Grants received Rendering of services as compensation for costs which are recognised as income over Revenue generated from telecommunications and IT services is the period necessary to match them with the related costs, for recognised upon rendering the service. In the case of multi- which they are intended to compensate, on a systematic basis. component contracts, revenue is recognised separately for each Grants relating to an asset are recognised as deferred income in identifiable valuation unit (component). In this context, revenue is the statement of financial position and are recognised in profit recognised on the basis of the fair value of the individual compo- and loss in equal instalments over the estimated useful life of the nents. The price of the entire multi-component business deal is asset. divided on the basis of the proportional value of the different components. Taxes

In the systems business, revenue is recognised when there are sub- Actual income taxes stantial indications of a purchase agreements, the products have The current income tax refund claims and tax liabilities for the been delivered or the services rendered, the sale price or fees have current period are measured at the amount expected to be been or will be set, and recoverability is sufficiently guaranteed. recovered from or paid to the tax authorities. Tax calculations are based on the tax rates and tax laws applicable as at the end of Revenue from contracts for services rendered by time or material the reporting period in the countries in which the EWE Group is expenditure is recognised when the hours worked have been com- active and generates taxable income. pleted and the direct costs at the contractually stipulated hourly rate have been incurred. Current taxes that relate to items recognised directly in equity are not recognised in profit and loss, but instead in equity. The proportional dissolution of customers’ construction subsidies Management regularly evaluates individual tax matters with over the time period of the useful life of house connection lines is regard to whether room for interpretation exists in light of reflected in revenue. applicable tax provisions. Tax provisions are set aside as and when required. Interest For all financial instruments measured at amortised cost, interest Deferred taxes income and interest payable is recognised using the effective Deferred taxes are formed using the liability method on tempo- interest rate. This is the discount rate used to exactly discount rary differences existing at the end of the reporting period future incoming and outgoing payments over the expected term between the carrying amount of an asset or liability disclosed of the financial instrument (or a shorter period, if applicable) to in the statement of financial position and their tax bases. the net carrying amount of the financial asset or financial liability. Interest income is disclosed in the consolidated income state- Deferred taxes are recognised for all taxable temporary differ- ment. ences with the exceptions of:

Dividends »» Deferred tax liabilities from the initial recognition of goodwill Dividend income is recognised when the right to receive payment or an asset or liability from a transaction other than a merger is established. which, at the time of the transaction, does not affect the net income disclosed for the period or taxable profit, »» Deferred tax liabilities arising from taxable temporary differences associated with investments in subsidiaries, associates and interests in joint arrangements, but only to the extent that the company is able to control the timing of the reversal of the differences and it is probable that the reversal will not occur in the foreseeable future.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 79 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

Deferred tax assets are recognised for deductible temporary Deferred tax benefits acquired within the scope of a merger that differences, unused tax losses and unused tax credits to the extent do not meet the criteria for being recognised separately at the that it is probable that taxable profit will be available and against time of acquisition are recognised in following periods provided which the deductible temporary differences can be utilised, unless that this results from new information about the facts and cir- the deferred tax asset arises from: cumstances that existed at the time of acquisition. The adjustment is either treated as a reduction in goodwill, provided it arose »» Deferred tax assets from deductible temporary differences during the evaluation period (and as long as it does not exceed arising from the initial recognition of an asset or liability from the value of goodwill) or in profit or loss for the period. a transaction other than a merger which, at the time of the transaction, does not affect the net income disclosed for the Value-added tax period or taxable profit, Revenue, expenses and assets are recognised after deducting »» Deferred tax assets from deductible temporary differences value-added tax. The following cases are an exception: arising from investments in subsidiaries, associates and interests in joint arrangements, but only to the extent that it is »» If the value-added tax incurred upon the purchase of assets or probable that the temporary difference will not reverse in the the use of services cannot be claimed from the tax authorities foreseeable future or that insufficient taxable profit will be by way of refund, the value-added tax is recognised as part of available and against which the temporary difference can be the asset’s historical cost or as a portion of the expenses. utilised. »» Accounts receivable and payable are disclosed together with the amount of value-added tax included. The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no The amount of value-added tax that either must be refunded by longer probable that sufficient taxable profit will be available to or paid to the tax authorities is reported as an asset or liability. allow the benefit of part or all of that deferred tax asset to be utilised. Unrecognised deferred tax assets are examined on every Non-current assets held for sale and discontinued reporting date and recognised in so far as it is considered probable fields of business that there will be future taxable earnings which will make it possible to realise the tax asset. Non-current assets or disposal groups that are classified as held for sale are measured at the lower of carrying amount and fair Deferred tax assets and liabilities are measured at the tax rates value less costs to sell. They are not subject to depreciation. that are expected to apply to the period when the asset is realised Non-current assets or disposal groups are classified as held for or the liability is settled. This is based on the tax rates and laws sale when the associated carrying amount is primarily realised that are in place as at the end of the reporting period. through a sales transaction and not continued use. This is only the case when the sale is highly probable and the asset or disposal Deferred taxes arising from items recognised outside of profit or group is available for immediate sale in its current condition. loss are also recognised outside of profit or loss. As such, these Management must be committed to the sale and expect it to deferred taxes are recognised consistent with the underlying qualify as a completed sale within a period of one year from the transaction either in other comprehensive income or directly in date of classification. equity. Property, plant and equipment Deferred tax assets and deferred tax liabilities are offset if the EWE Group has the legal right to settle current tax amounts on a Items of property, plant and equipment are carried at historical net basis and the deferred tax amounts are levied by the same cost including existing rehabilitation and removal obligations taxing authority on the same tax subject. measured at present value, less accumulated depreciation and/or accumulated impairment losses. In addition to direct costs, the historical costs include directly attributable indirect costs.

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Subsequent historical costs – for example, as a result of expansion If transfer of ownership to the EWE Group at the end of the lease or replacement investments – are only recorded as a portion of is not sufficiently certain, however, the leased asset is depreciated an asset’s historical costs or as a separate asset (if applicable) if it over either the expected useful life of the asset or the term of the is probable that an economic benefit will flow to the EWE Group lease, whichever is shorter. in the future and the cost of the asset can be reliably determined. Expenses for repairs and maintenance that do not represent a For operating leases, lease payments are recognised as an expense major replacement investment are recognised as an expense in in profit and loss over the lease term on a straight-line basis. profit and loss in the business year they were incurred. Assets classified as property, plant and equipment are depreciated using Borrowing costs the straight-line method, with the exception of land. Scheduled depreciation using the straight-line method is based on the Borrowing costs that are directly attributable to the acquisition, following useful periods: construction or production of an asset are capitalised as part of the historical cost of the asset. All other borrowing costs are | T 032 recognised as an expense in the period in which they were Years incurred.

Buildings up to 50 Intangible assets Technical equipment and machinery Power supply systems 8 – 45 Intangible assets are initially measured at their historical cost. Gas supply systems 10 – 55 In the following periods, intangible assets are carried at their Other technical equipment and machinery 3 – 50 historical cost less accumulated amortisation and impairment Gas storage 33 – 40 losses. With the exception of the portion eligible for capitalisa- Other equipment, operating and office equipment 5 – 14 tion, developments costs are not capitalised and are recognised in profit and loss in the period in which they were incurred.

Items of property, plant and equipment are removed from the Intangible assets are classified either as intangible assets with statement of financial position on disposal. finite useful lives or indefinite useful lives.

The residual values, useful lives and depreciation methods of Intangible assets with finite useful lives are amortised over their assets are reviewed at the end of each business year and adjusted useful economic life and assessed for possible impairment if infor- prospectively, if necessary. mation exists which indicates that the intangible asset might be impaired. The period and method of amortisation for intangible Leases assets with a finite useful life are reviewed at least at the end of every reporting period. The necessary changes to the method or Determining whether an agreement contains a lease is based on period of amortisation due to the changes to the anticipated use- the economic impact of the agreement at the time the agreement ful life or to the anticipated use of the future economic benefit of was concluded. the asset are accounted for as changes in accounting estimates.

Finance leases in which essentially all opportunities and risks associated with the ownership of the leased asset transfer to the Group are capitalised at the start of the term of the lease. The leased asset is measured at the lower of its fair value or the present value of the minimum lease payments. Lease instalments are divided into interest and principal repayment using a fixed interest rate.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 81 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

Scheduled depreciation using the straight-line method is based Emission rights on the following useful periods: Emission rights (CO2 certificates) are recognised as intangible assets under non-current other non-financial receivables and | T 033 assets. Initial measurement upon acquisition (in the case of pur- Years chase) is carried out at historical cost and then subsequent carried at amortised average acquisition cost, whereby a comparison Permits, licences and rights 15 – 60 with the net recoverable amount is carried out. Emission rights Computer software and licences 3 – 5 held at the end of the reporting period which are intended to be Customer list 5 – 17 surrendered in the following year pursuant to effective use are recognised as a liability. This liability is measured at the amortised historical cost of the respective right. In the event that actual In the case of intangible assets with indefinite useful lives, an emissions exceed emission certificates granted and held at the impairment test is carried out once annually for the individual end of the reporting period, provisions are created equal to the asset or at the level of the CGU. These intangible assets will not market value of the emission rights the company must acquire. be amortised. The useful life of an intangible asset with an indefinite useful life is reviewed each reporting period to determine Financial instruments – initial recognition and whether events and circumstances continue to support an indefi- subsequent measurement nite useful life assessment for that asset. If they do not, the useful life assessment is changed from indefinite to definite prospec- I. Financial assets tively. Initial recognition and measurement Pursuant to IAS 39, financial assets are either classified as finan Trademarks and licences cial assets recognised at fair value through profit or loss, as loans Trademarks and licences have finite useful lives and are carried and receivables, as held-to-maturity investments, as available- at amortised cost less accumulated amortisation. for-sale financial assets or as derivatives that were designated as a hedging instrument and are effective as such. The EWE Group Research and development costs determines the classification of its financial assets upon initial Research costs are recognised as an expense in the period in which recognition. they are incurred. Development costs of an individual project are only capitalised as an intangible asset if the EWE Group can Financial assets are measured at fair value upon initial recognition. demonstrate technical feasibility, the intention to complete or In the case of financial assets not recognised at fair value through sell the asset, the economic benefit of the asset, the availability profit or loss, this also includes transaction costs directly associ- of resources and the ability to reliably determine expenses. ated with the acquisition of the assets.

Amortisation begins upon completion of the development stage Purchases or sales of financial assets which specify the transfer and from the point of time when the asset can be used. It is of the assets within a specific time period determined by the carried out over the period of time during which future benefit is provisions or conventions of the market in question (market-based expected. During the development stage, an annual impairment purchases) are recognised on the trade date – that is, the date test is carried out. on which the EWE Group accepted the obligation to purchase or sell the asset. The development costs incurred in the EWE Group do not currently meet the recognition criteria set out in IAS 38 and The EWE Group’s financial assets encompass cash and current are therefore not recognised. deposits, trade receivables, receivables from loans granted and other receivables, listed and unlisted financial instruments and derivative financial instruments.

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Subsequent measurement Available-for-sale financial assets The subsequent measurement of financial assets is dependent Available-for-sale (AfS) financial assets include equity and debt on their classification as follows: instruments. Equity instruments classified as available-for-sale are all those instruments neither designated as held for trading nor on Financial assets at fair value through profit or loss initial recognition as one to be measured at fair value through The group of financial assets measured at fair value through profit or loss. The debt instruments in this category include all profit or loss contains derivative financial instruments held by the those that should be held for an indefinite period of time and that EWE Group that are not designated as hedging instruments as can be sold as a reaction to liquidity needs or changes in market defined by IAS 39. Derivatives, including embedded derivatives conditions. separated from their host contract, are classified as held for trading. After initial recognition, available-for-sale financial assets are measured in the following periods at fair value. Unrealised profits Financial assets measured at fair value through profit or loss are or losses are recognised in other comprehensive income and dis- recognised at fair value in the statement of financial position, in closed in the reserves for available-for-sale financial instruments. which regard changes to fair value are disclosed in profit and loss. If this type of asset is derecognised, the accumulated profit or loss is reclassified in profit and loss. If an asset is impaired, the accu- The EWE Group has not classified any financial assets upon initial mulated loss is reclassified in profit and loss and removed from recognition as financial assets at fair value through profit or loss. the reserves for available-for-sale financial instruments. If the fair value of an unlisted equity instrument cannot be determined The EWE Group evaluates its financial assets held for trading (with with sufficient reliability, the portions are measured at cost the exception of derivatives) with regard to whether the Group (less impairment losses, if applicable). still intends to sell the assets in the near future. Derecognition Derivatives embedded in host contracts are recognised separately A financial asset (or a share of a financial asset or a share of and measured at fair value when the economic risks and charac- a group of similar financial assets) is derecognised when the teristics of the embedded derivatives are not closely related to contractual rights to receive the cash flows from a financial those of the host contract and the host contracts were not desig- asset are lost. nated as held for trading or as assets at fair value through profit or loss. Changes to fair value are recognised in profit and loss. II. Impairment of financial assets Reappraisal is only carried out upon a change to the contractual The EWE Group assesses at the end of each reporting period terms which lead to a significant change in cash flows that would whether objective evidence exists that a financial asset or group have otherwise resulted from the contract. of financial assets is impaired. Evidence of impairment may exist if there are indications that a debtor or a group of debtors faces Loans and receivables considerable financial difficulties, in the event of non-payment or Loans and receivables are non-derivative financial assets with fixed delayed payment of interest or principal payments, if insolvency or determinable payments that are not listed in an active market. or another reorganisation process is likely and if observable data After their initial recognition, these financial assets are subse- indicate a measurable reduction in expected future cash flows, quently measured at amortised historical costs less impairment such as changes in arrears or economic conditions that correlate losses using the effective interest method. Amortised historical with payment defaults. costs are calculated taking a premium or discount upon acquisition, as well as fees and costs, into account that represent an integral component of the effective interest rate. The proceeds from amortisation using the effective interest method are recognised in profit and loss. The losses from impairment are recognised in profit and loss. Accounts receivable, other financial receivables and cash and cash equivalents have been assigned to this category.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 83 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

If objective evidence exists that an asset has become impaired, III. Financial liabilities the impairment loss is calculated as the difference between Initial recognition and measurement the carrying amount of the asset and the present value of the Financial liabilities are measured at fair value upon initial recogni- future cash flows expected to be derived from the asset (with tion. Derivatives are measured at fair value in profit and loss and the exception of expected future loan defaults that have not yet then carried at fair value. All other financial liabilities are classi- occurred). The carrying amount of the asset is reduced using a fied as other liabilities and carried at amortised cost using the valuation account and the impairment loss is recognised in profit effective interest method. and loss. Receivables (including the associated impairment loss) are derecognised when they are classified as unrecoverable and Derecognition all guarantees have been invoked and realised. A financial liability is derecognised when the liability’s underlying obligation is either discharged, cancelled or expires. Available-for-sale financial assets With regard to available-for-sale financial assets, the EWE Group IV. Offsetting financial instruments assesses at the end of each reporting period whether objective Financial assets and liabilities are only offset (with the net amount evidence exists that an asset or group of assets is impaired. reported) when the company has a legally enforceable right to offset the amounts at the present time and intends either to For equity instruments classified as available for sale, a significant settle on a net basis or to realise the asset and settle the liability or ongoing decline in the fair value of the instrument below its simultaneously. historical cost would represent an objective indication. The criterion “significant” is evaluated based on the original historical cost V. Fair value of financial instruments of the financial investment, and the criterion “ongoing” based on The fair value of financial instruments traded on active markets is the period of time in which the fair value of the asset stood below determined by the listed market price at the end of the reporting its original historical cost. If evidence of impairment exists, the period or the publicly listed price (buyer’s offered bid price in the accumulated losses – resulting from the difference between his- case of long positions and ask price in the case of short positions) torical cost and current fair value less any eventual impairment without deducting transaction costs. losses from this instrument recognised earlier in profit and loss – are reclassified from other reserves and recognised in profit and The fair value of financial instruments not traded on any active loss. Allowances for equity instruments are not reversed out of market is determined using suitable valuation methods. The profit and loss; any later increase in the fair value of the instru- valuation methods include the use of recent arm’s-length market ment is recognised directly in other comprehensive income. transactions between knowledgeable, willing and independent Impairment losses associated with available-for-sale unlisted parties, reference to the current fair value of another instrument equity instruments carried at historical cost cannot be reversed. that is substantially the same, discounted cash flow analysis and other valuation methods. When measuring impairment of debt instruments classified as available for sale, the same criteria are used as for financial assets An analysis of the fair value of financial instruments and further carried at amortised historical cost. The amount recognised for details regarding how financial instruments are measured can the purposes of impairment is, however, the accumulated loss that be found in section 39. results from the difference between amortised historical cost and current fair value less any eventual impairment losses from this instrument recognised earlier in profit and loss.

When the fair value of a debt instrument increases in a subsequent reporting period and the increase can objectively be attribu ted to an event that occurred after the recognition of impairment in profit and loss, the increase in fair value is recognised in profit and loss.

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Derivative financial instruments and hedge accounting Hedges that meet the stringent criteria of hedge accounting are accounted for as follows: Initial recognition and subsequent measurement The EWE Group uses derivative financial instruments such as Fair value hedges forward exchange contracts, interest rate swaps, commodities The change in the fair value of the derivative interest rate hedging futures and commodities swaps to hedge currency exchange, instrument is recognised in profit and loss. The change in the fair interest rate and commodities price risks. These derivative finan- value of the hedged item that can be attributed to the risk being cial instruments are measured at fair value upon conclusion of the hedged is carried as a portion of the carrying amount of the contract and remeasured at fair value in the subsequent reporting hedged item and is also recognised in profit and loss. periods. Derivative financial instruments are carried as financial assets when their fair value is positive and as financial liabilities When it comes to fair value hedges that are related to hedging when their fair value is negative. items carried at amortised cost, the change to the carrying amount is reversed through profit and loss over the remaining Changes to the fair value of commodities futures that fall within term until maturity. the scope of IAS 39 are recognised in profit and loss, provided that no hedge has been formed. If the hedged item is derecognised, the non-amortised fair value is immediately recognised in profit and loss. For the purpose of accounting for hedging relationships, hedges are classified as follows: If an unrecognised fixed commitment is classified as a hedged item, the subsequent accumulated change in the fair value of the »» As a fair value hedge when used to hedge the exposure to fixed commitment that can be attributed to the hedged risk is changes in the fair value of a recognised asset or recognised carried as an asset or liability with a corresponding profit or loss liability or a previously unrecognised fixed commitment; in profit or loss for the period. »» As a cash flow hedge when used to hedge the exposure to variability in cash flows that is attributable to a particular risk Cash flow hedges associated with a recognised asset, a recognised liability or a The effective portion of profit or loss from a hedging instrument highly probable forecast transaction or the currency risk of an is recognised in other comprehensive income and accumulated in unrecognised fixed commitment. the reserves for cash flow hedges, while the ineffective portion is immediately recognised in profit and loss. At the beginning of a hedging relationship, the relationship itself as well as the EWE Group’s risk management objectives and strat- The EWE Group uses forward exchange contracts as a hedging egies for undertaking the hedge are formally defined and docu- instrument to hedge the exchange rate risks resulting from fixed mented. This documentation includes identification of the hedging commitments and forecast transactions as well as commodities instrument, the hedged item or hedged transaction as well as the futures to hedge risks stemming from the volatility in the price of nature of the risk being hedged and a description of how the com- goods. Coal swaps are used to hedge currency and market price pany will assess the effectiveness of achieving offsetting changes risks in relation to coal. Further details can be found in section 39. in fair value or cash flows attributable to the hedged risk as designated and documented. These types of hedging relationships are assessed as highly effective to offset the risks from changes in fair value of cash flows. They are assessed on an ongoing basis with regard to whether they were highly effective during the entire reporting period for which the hedging relationship was defined.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 85 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

The accumulated amounts recognised in other comprehensive »» Embedded derivatives that are not closely related to their income and the cash flow reserve are “recycled” into profit and host contracts are classified in accordance with the cash flows loss in the reporting period in which the hedged transaction from the host contract. affects profit or loss – for example, when hedged financial gains »» Derivative financial instruments that are designated as hedging or losses are recognised or when a forecast sale is carried out. If a instruments and are effective as such are classified in accor hedge results in the recognition of a non-financial asset or non- dance with the classification of the underlying hedged item. financial liability, the gain or loss that was previously recognised The derivative financial instrument is only divided into a cur- in other comprehensive income is included in the initial cost of rent and non-current portion when it can be classified with the acquired non-financial asset or liability. reliability as such.

If the forecast transaction or fixed commitment is no longer Inventories expected to occur, the accumulated profits or losses previously recognised in equity are “recycled” into profit and loss. If the Inventories are initially measured at historical cost. Historical cost hedging instrument expires or is sold, terminated or exercised includes all costs associated with purchase, conversion or process- without being replaced or rolled over into another hedging instru- ing as well as other costs incurred in bringing the inventories to ment, or if the hedge no longer meets the hedge accounting crite- their present location and condition. It comprises incidental ria, the profits or losses previously accumulated in other compre- acquisition costs as well as other costs that can be directly attri hensive income will remain in the reserve until the forecast buted to the procurement of inventories. Directly attributable transaction or fixed commitment affects profit or loss. costs can comprise both direct and indirect costs.

The EWE Group has entered into interest rate swaps to hedge risks Trade discounts, rebates and deductions are subtracted as reduc- from interest rate changes from which the Group receives variable tions in acquisition costs. cash flows and pays fixed cash flows. Provided these interest rate swaps meet the criteria of hedge accounting, namely with regard Inventories are measured at the lower of historical cost and net to hedge effectiveness, the resulting changes to the market value realisable value. Net realisable value is the estimated selling price of these financial instruments will be accounted for within the in the ordinary course of business, less the estimated cost of scope of hedge accounting over the course of their term. Further completion and the estimated costs necessary to make the sale. details can be found in section 39. Any reversals of write-downs must be recognised up to the Classification as current and non-current original historical cost in profit and loss. Derivative financial instruments that are not designated as hedging instruments and are not effective as such are classified Impairment of non-financial assets as either current or non-current or divided into a current and non-current portion on the basis of an evaluation of the facts At the end of each reporting period, the EWE Group assesses and circumstances (i. e. the underlying contractual cash flows). whether there is any indication that a non-financial asset may be impaired. If there is an indication that an asset may be impaired or »» If the EWE Group holds a derivative for a period of more than if an annual assessment of an asset’s recoverability is required twelve months after the reporting date for the purpose of (goodwill, intangible assets with indefinite useful lives or assets in hedging against economic risks (and does not account for it as development), the EWE Group estimates the asset’s recoverable a hedging relationship), the derivative is classified in accord- amount. The recoverable amount of an asset is the higher of the ance with the underlying item as non-current (or divided into fair value of an asset or a CGU less costs of disposal and its value a current and non-current portion). in use. The recoverable amount must be determined for each individual asset unless an asset no longer generates cash flows that are predominantly independent of the cash flows of other assets

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or other groups of assets. If the carrying amount of an asset or Provisions CGU exceeds its recoverable amount, the asset is impaired and is written down to its recoverable amount. To calculate value in use, Basic principles the expected future cash flows are discounted to their present A provision is recognised when the Group has a present obligation value using a pre-tax rate that reflects current market assess- (legal or constructive) as a result of a past event, the outflow of ments of the time value of money and the risks specific to the resources with economic benefit to fulfil the obligation is probable asset. To calculate fair value less disposal costs, recent market and the amount can be estimated reliably. If the Group expects transactions are used, if available. If no such transaction can be to be reimbursed for some or all of the expenditure required to identified, a suitable valuation method is applied. This is based on settle a provision (such as in the case of an insurance contract), valuation multiples, stock exchange prices of listed shares of sub- the reimbursement is recognised as a separate asset if it is virtu- sidiaries or other indicators of fair value available. ally certain that reimbursement will be received. The expenditure required to settle a provision is recognised in profit and loss less Impairment losses from ongoing operations including impairment the reimbursement. of inventories are recognised in profit and loss. Provisions are measured at discounted present value using a pre- At the end of the reporting period, an assessment is carried out tax discount rate that reflects the current market assessments for all assets, with the exception of goodwill, as to whether there of the time value of money and the risks specific to the liability. are any indications that a previously recognised impairment loss Increases to the provision resulting purely from the addition of no longer exists or has decreased. If such an indication exists, accrued interest are recognised as interest expenses in profit the EWE Group estimates the asset’s or the CGU’s recoverable and loss. amount. A previously recognised impairment loss is only reversed if the assumptions used to determine the recoverable amount Provisions are classified according to their maturity. Provisions have changed since the recognition of the last impairment loss. or portions of provisions whose obligations are expected to reach The reversal is limited in such a manner that the carrying amount maturity within twelve months after the end of the reporting of an asset cannot exceed its recoverable amount or the carrying period are disclosed as current provisions. Provisions that will amount that would have resulted (taking scheduled depreciation reach maturity after twelve months are classified as non-current. into account) had no impairment loss been recognised for the asset in previous years. A reversal is recognised in profit and loss. Provisions for contingent losses Provisions for contingent losses are recognised – when the general Cash and cash equivalents requirements for the recognition of provisions are fulfilled – for onerous contracts in the amount that the unavoidable costs Cash and cash equivalents include cash on hand, bank balances associated with the contract exceed the expected economic and current deposits with a term of less than three months. To benefit from the contract. calculate the value of cash and cash equivalents for the cash flow statement, cash-pooling receivables are also included. Provisions for rehabilitation and deconstruction Provisions are recognised for rehabilitation obligations for underground gas storage facilities and gas fields in the present value of the obligation. These are capitalised and depreciated and/or the provisions are discounted. The expenditure resulting from the interest added to the provision for rehabilitation is recognised as interest expenditure in profit and loss. Changes to estimates or adjustments to the discount rate will change an existing carrying amount. The reversal of provisions for rehabilitation beyond the carrying amount of an asset is recognised in other comprehensive income.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 87 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

Provisions for emissions certificates As a result of a lack of information as set forth in IAS 19.34 with If it becomes apparent over the course of the year that an insuffi- regard to the defined benefit plan, this pension plan is accounted cient number of emission allowances are held – that is, emissions for as a defined contribution plan. In the event that the plan is have already occurred and the level of emissions exceeds the underfunded, the participating employers are required to com number of emission allowances held – a provision is recognised for pensate for this underfunding. In this context, the amount of the the remaining emission allowances that need to be purchased. In additional contribution obligation is calculated by VBL and allo- contrast, provisions for future emissions are prohibited, even if cated precisely according to cause across all members as a pro- planning indicates that there is a high probability that emissions rated contribution in the form of the currently open-ended will exceed the number of emission allowances held. reorganisation fee. Upon exiting the VBL system, the company may be obliged to pay compensation in order to balance out a Pensions and other employee benefits potential future amount of underfunding allocated to its portion of the plan. The portion of VBL’s total insurance plan allocated Pensions and similar obligations to EWE AG is marginal compared to the obligations of other Provisions for pensions and similar obligations are recognised participating companies. The company does not plan to leave for immediate pension obligations to employees (including former the VBL system. employees) with an entitlement and claim to company pension benefits. Collective labour agreements, labour-management Other long-term employee benefits agreements and individual commitments form the legal basis of Other long-term employee benefits primarily encompass obliga- these obligations within the EWE Group. They are accounted for tions from employment anniversary bonuses. As such, employees pursuant to IAS 19 using the projected unit credit method. In receive a one-time bonus payment on the 25th and 40th anniver- this context, the future obligations are measured using actuarial saries of their hiring that is predominantly based on their salary. valuation methods, as well as estimates of the relevant influencing Similar long-term obligations include partial retirement agree- variables (including but not limited to interest rate, probability of ments with employees. At the EWE Group, these agreements death and salary and retirement trends). Based on this method, were generally entered into using the “block model”. The resulting the expenditure required for the additional unit of benefit entitle- obligations are calculated using actuarial principles based on the ment is attributed to the period of service in which the additional prepaid expense method. In cases in which these obligations (the unit was earned. In this context, the additional unit of benefit amount to be paid) are balanced against plan assets, the obliga- entitlement is viewed as the portion of the entire scheduled future tions are offset by the fair value of the applicable plan assets. benefit that is attributed to the corresponding business year while taking vesting provisions into account. Termination benefits Termination benefits are paid when an employee is laid off before Within the scope of introducing a defined contributions unit- reaching the usual age of retirement or leaves the employment based plan, the association EWE-Treuhandverein e. V. was founded relationship with the company voluntarily in return for a severance in 2009 and swb-Treuhandverein e. V. in 2016. In so far as assets payment. The EWE Group recognises severance payments if the are transferred to EWE-Treuhandverein e. V. or swb-Treuhand Group has a clearly verifiable obligation to terminate employment verein e. V. for the purpose of financing company pension plans, contracts with current employees based on a detailed, formal plan these assets represent offsettable plan assets within the terms of that cannot be rescinded, or if the Group has a clearly verifiable IAS 19.8. Several deferred compensation commitments entered obligation to provide a severance package upon voluntary termi into by the company are financed by the Versorgungskasse Energie nation of employment by employees. (energy pension fund), meaning that the actuarial reserves formed there are accounted for as plan assets. This particularly includes individual contracts entered into with employees governing early retirement. These employees have In addition to direct benefits, groups of employees are compul been released from their job duties yet continue to receive a sorily insured through VBL (Pension Institution of the Federal reduced salary until they reach the earliest retirement age set Republic and the Länder). In order to finance these benefits, the forth by the provisions of statutory pension insurance for employ- company must pay annual allocations and reorganisation fees to ees in an ongoing employment relationship. Benefits that are due VBL. These pension commitments must, in principle, be treated later than twelve months after the end of the reporting date are as a multi-employer-defined benefit plan as set forth in IAS 19. discounted to their present value.

EWE Integrated Report 2016 88 CONSOLIDATED FINANCIAL STATEMENTS

Construction subsidies estimates, however, events can occur that lead to significant adjustments to the carrying amount of the affected assets or Construction subsidies include subsidies for investments and liabilities in future periods. construction costs. The most important future-related assumptions as well as other The EWE Group receives construction cost subsidies for power, gas main sources of uncertainty surrounding estimates at the end of and water connections for customers in contracts with standard the reporting period, on the basis of which there is a significant terms and customers in contracts with special terms. Construc- risk that a considerable adjustment will be necessary to the carry- tion subsidies are recognised as a liability and released over the ing amount of assets and liabilities within the next business year, useful life parallel to the fixed assets for which they were received. are explained below. The assumptions and estimates by the Group This release is carried out in revenue since the receipt of construc- are based on parameters that applied at the time the consolidated tion cost grants is closely related to the company’s actual power financial statements were prepared. These circumstances and and gas business and therefore applies to the EWE Group’s normal assumptions regarding future developments can change, however, business activities. due to market fluctuations and market conditions that fall outside of the Group’s sphere of influence. Such changes are first reflected Investment grants are recognised as a liability and released over in the Group’s assumptions after they occur. the useful life parallel to the fixed assets for which they were received. The grants are released to profit and loss. Goodwill

ACCOUNTING CHANGES Goodwill is tested for impairment at least once annually or when- ever appropriate indicators from internal or external sources of No changes to the accounting principles used in comparison to information indicate that goodwill may be impaired. This impair- the previous year occurred during the reporting period. The fol- ment test is based on assumptions about the future which require lowing standards, which were first applicable to this reporting estimates related to future cash flows of CGUs that encompass period, are an exception, although their application had no or no goodwill. These estimates can have an effect on the calculation of significant effect on the consolidated financial statements: these cash flows and lead to extraordinary depreciation of the goodwill. The core assumptions used to determine the recoverable »» Investment Entities (Amendments to IFRS 10, IFRS 12 and amount for the CGUs are presented in section 16. IAS 28): Application of the Exemption from Consolidation »» Amendments to IFRS 11 – Acquisition of an Interest in a Joint Intangible assets and property, plant and equipment Operation »» Amendments to IAS 1 – Presentation of Financial Statements The calculation of these assets’ expected useful lives and »» Clarification of Acceptable Methods of Depreciation and impairment is based on management assessments. Technological Amortisation (Amendments to IAS 16 and IAS 38) progress, a deterioration of the market situation or damage can »» Bearer Plants (Amendments to IAS 16 and IAS 41) lead to the extraordinary depreciation of these assets. »» Amendments to IAS 19 – Employee Benefits »» Equity Method in Separate Financial Statements Deferred sales (Amendments to IAS 27) »» Improvements to IFRS (2010 – 2012) As at the reporting date, utilisation thresholds had been set for »» Improvements to IFRS (2012 – 2014) trade receivables that had been incurred but not invoiced. In this context, the measurement of revenue from energy supply agree- 3. KEY DISCRETIONARY JUDGEMENTS, ESTIMATES ments is subject to a statistical estimation procedure that factors AND ASSUMPTIONS in seasonal consumption fluctuations and the influences of weather. When preparing the EWE Group’s consolidated financial statements, management makes discretionary judgements, estimates Provisions for pensions and similar obligations and assumptions that have an effect on the value of the earnings, expenses, assets and liabilities disclosed at the end of the report- The measurement of pension obligations is carried out while ing period as well as the disclosure of contingent liabilities. As a taking actuarial assumptions into account which relate to result of the uncertainty associated with these assumptions and demographic (probability of death) and financial variables

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 89 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

(interest rate, future salary increases, pension trends). For more Provisions for the 2017 staff reduction programme information, see section 29. In this context, the discount rate is derived taking into account the specific structure of the payment The EWE Group has decided to reduce its staff by approx. flows of the obligations earned. This calculation is based on the 500 employees. Provisions for these job cuts being carried out pension obligations that exist at the end of the reporting period. through early retirement and severance agreements and recog- The calculations are carried out on the basis of the yield curves nised as an expense in profit and loss were formed on the basis of German federal bonds, the DJ EuroStoxx 50 and the iBoxx index of average values in 2015. with regard to the market yield of high-quality corporate bonds as at their current value on 31 December 2016. Pursuant to 4. ISSUED STANDARDS WHOSE APPLICATION IAS 19.83, the discount rate used is determined by reference to IS NOT YET MANDATORY market yields at the end of the reporting period on high-quality corporate bonds (with an AA rating or better), with currencies With regard to the following issued standards whose application and terms of bond yields used consistent with the currency and is not yet mandatory, the EWE Group has determined at its reason estimated term of the obligation being discounted. In the event able discretion that future application will have more than a negli- that a sufficient market is not available for the terms required, gible effect on the information disclosed as well as on the Group’s yield is interpolated or extrapolated for these terms based on assets, liabilities, financial position and earnings situation. The the available yield structure as set forth in IAS 19.86. EWE Group intends to apply these standards as soon as their application becomes mandatory. Obligations from rehabilitation and deconstruction IFRS 9 – Financial Instruments: The provisions for the rehabilitation and deconstruction of underground gas storage facilities are based on external reports On 24 July 2014 the IASB issued the final version of IFRS 9. IFRS 9 and/or information from the facility manager. With regard to is first applicable to business years beginning on or after 1 January underground gas storage facilities and wind parks, the cost of 2018. Early adoption of the final standard (IFRS 9 (2014)) is per- rehabilitation and deconstruction in the event of abandonment is mitted at any time. The standard must be applied retroactively. estimated. This amount is discounted to date at the end of the The standard contains new provisions governing classification, reporting period. The value of provisions for rehabilitation must measurement and impairment as well as hedge accounting. be reassessed at the end of each reporting period and adjusted to a different, new, best-possible estimate, if applicable. Changes The Group has carried out initial reviews of all three aspects of with regard to the expected dates and values of payments IFRS 9. The preliminary evaluation is based on currently available required to fulfil the obligation as well as changes to the discount information and is subject to change due to further detailed rate lead to adjustments to the provisions for rehabilitation analyses or additional reasonable, solid information to which the recognised outside of profit and loss. For more information, see Group gains access in future. section 29. (a) Classification and measurement Income taxes The Group does not expect any significant effect on its statement of financial position or equity from the application of the classifi- The calculation of actual and deferred taxes is associated with cation and measurement regulations of IFRS 9. The categorisation assumptions. The use of deferred tax assets is dependent on the of shares in partnerships as debt instruments measured at fair ability to achieve sufficient taxable income. value in profit and loss can have an effect on the earnings for the period that cannot yet be determined reliably. The Group assumes EEG recognition that it will continue to measure all financial assets carried at fair value at their fair value. Loans and trade receivables are held in Revenue from feed-in tariffs passed on to companies generating order to collect contractual cash flows that generally represent power from renewable energy sources is disclosed as a share of payments of interest and principal on the outstanding nominal total revenue. This revenue is offset by the payments to these amount. Therefore, the Group expects that they will continue to companies disclosed under material expenses. For more informa- be measured at amortised cost pursuant to IFRS 9. tion, see sections 5 and 8.

EWE Integrated Report 2016 90 CONSOLIDATED FINANCIAL STATEMENTS

(b) Impairments (b) Sale of goods The simplified approach is applied to the financial receivables, The transitioning of contracts with customers in which the sale most of which have to be carried at amortised cost, and the loan of goods is generally expected to represent the sole performance defaults expected across their terms must be disclosed. Due to the obligation to accounting in line with IFRS 15 is not expected to higher risk provisions required, the Group expects its equity to be have any impact on profit or loss. The Group expects realisation affected. However, a more detailed analysis of all relevant, reliable to occur when the authority to dispose of the asset transfers to information, including elements relating to the future, is required the customer. As in the past, this is generally the case when the in order to determine the magnitude of the effects. goods are delivered.

(c) Disclosure of hedges Some contracts with customers provide for reductions and The Group believes that all hedges currently designated as quantity discounts. The Group currently recognises revenue from effective also meet the criteria set out in IFRS 9 for recognition the sale of goods at the fair value of the consideration received as hedging relationships. As IFRS 9 does not change the general or at the fair value of the accounts receivable less refunds, price principles of how a company must account for effective hedging reductions and quantity discounts. If revenue cannot be measured relationships, the Group does not expect the application of IFRS 9 reliably, it is deferred until the uncertainty is cleared up. Under to have any significant impact on its financial statements. IFRS 15, such contractual provisions mean that consideration is variable and must be estimated upon the conclusion of the con- IFRS 15 – Revenue from Contracts with Customers: tract. IFRS 15 requires variable consideration to be limited in order to avoid the realisation of excessively high revenue. Over the next In the 2016 financial year, the Group carried out a preliminary few months the Group will continue to evaluate individual con- evaluation of IFRS 15 that is subject to change following a more tracts in order to determine the estimated variable consideration in-depth analysis. Furthermore, the Group intends to monitor the and the related limitation. The Group currently expects the clarifications published by the IASB in April 2016 as well as the application of the limitation set out in IFRS 15 to require more further developments with regard to the interpretation of IFRS 15. revenue to be deferred than in the past.

(a) Sale of energy services (c) Rendering of services The transitioning of contracts with customers in which the sale The Group renders services (such as telephony and maintenance). of energy is generally expected to represent the sole performance These services are either sold individually through contracts with obligation to accounting in line with IFRS 15 is not expected to customers or offered to customers as a package alongside the have any impact on profit or loss. The Group has come to the pre- sale of goods, in which regard the remuneration is currently split liminary estimation that the energy deliveries will be made over between these two components on the basis of relative fair a period of time as the customer will receive the benefit of the values. Revenue from services is recognised based on the degree service of the Group and utilise it at the same time. On this basis, of completion. Under IFRS 15, the remuneration must be divided the Group will continue to account for revenue from energy on the basis of the relative standalone selling prices. As a result, services on the basis of time periods and not dates. the division of the remuneration and in turn the chronological recognition of revenue might be affected by the transition to IFRS 15. The Group has come to the preliminary estimation that the services will be rendered over a period of time as the customer will receive the benefit of the service of the Group and utilise it at the same time. On this basis, the Group will continue to account for revenue from these service contracts (or from service components of contracts comprising goods and services) on the basis of time periods and not dates.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 91 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

(d) Presentation and disclosure regulations NOTES TO THE INCOME STATEMENT The presentation and disclosure regulations of IFRS 15 go far beyond the provisions of the current standard. The new presenta- 5. REVENUE tion regulations represent a significant change from current prac- tice and will require significantly more disclosures in the consoli- Net revenue contains the payments received from distribution dated financial statements in future. IFRS 15 requires quantitative grid operators as compensation for feeding power into the grid as and qualitative disclosures regarding the sub-categorisation of stipulated by the EEG totalling 1,372.7 million euros (previous revenue, performance obligations, contractual balances, significant year: 1,416.4 million euros). Correspondingly, the original compen- discretionary judgements and capitalised contractual costs; many sation payments for feeding power into the grid pursuant to the of these disclosure requirements are entirely new. In the 2016 busi- EEG are disclosed in material expenditures. ness year the Group started to develop suitable systems, guidelines and procedures. Revenue is presented by product and service as part of segment reporting (section 42). IFRS 16 – Leases: 6. OTHER INTERNALLY PRODUCED AND The new provisions of IFRS 16 were issued on 13 January 2016 and CAPITALISED ASSETS are applicable to all annual reporting years that begin on or after 1 January 2019. The standard stipulates that, in the future, lessees Internally produced and capitalised assets include construction must recognise all lease agreements. Lessors are still required to and expansion measures within supply networks and the classify leases according to the existing requirements of IAS 17. expansion of wind power parks. Prior application of the standard is permissible, but only if IFRS 15 is also applied. The effects on the EWE Group’s consolidated 7. OTHER OPERATING INCOME financial statements are currently being reviewed. The standard | T 034 will lead to further disclosures in the EWE Group’s consolidated financial statements, among other things. in millions of euros 2016 2015

With regard to the following issued standards whose application Derivative financial instruments 138.5 110.1 is not yet mandatory, the EWE Group has determined at its Reversal of provisions 122.6 11.4 Reimbursement claims 54.2 36.0 reasonable discretion that future application will have no or only Operating leases 26.7 28.5 a negligible effect on the information disclosed as well as on the Reversal of impairments 6.8 6.6 Group’s assets, liabilities, financial position and earnings situation: Foreign currency profits 6.5 24.5 Divestiture of fixed assets 4.5 3.3 »» Amendments to IFRS 10 and IAS 28 – Sale or Contribution of Income from combined heat and Assets between an Investor and its Associate or Joint Venture power load equalisation/surcharges 3.8 18.9 »» Clarifications to IFRS 15 – Revenue from Contracts Administration of water utilities 3.6 3.8 with Customers Biogas cost allocation 6.5 »» Amendments to IAS 7 – Disclosure Initiative Miscellaneous 68.2 75.0 »» Amendments to IAS 12 – Recognition of Deferred Tax Assets Total 435.4 324.6 for Unrealised Losses »» Transfers of Investment Property (Amendments to IAS 40) »» IFRS 2 – Clarifications of Classification and Measurement Income from the reversal of provisions contains income from pension of Share Based Payment Transactions provisions due to the new company pension regulations adopted by »» Amendments to IFRS 4 – Applying IFRS 9 Financial swb in the reporting year. Instruments with IFRS 4 Insurance Contracts »» IFRIC 22 – Foreign Currency Transactions and Advance Consideration »» Improvements to IFRS (2014 – 2016)

EWE Integrated Report 2016 92 CONSOLIDATED FINANCIAL STATEMENTS

8. MATERIAL EXPENSES 10. AMORTISATION, DEPRECIATION AND IMPAIRMENT

| T 035 Impairments totalling 170.5 million euros were recognised in in millions of euros 2016 2015 the reporting year (previous year: 144.2 million euros).

Expenditures for raw materials, Of these impairments, 144.9 million euros were attributable to consumables and supplies 4,831.2 5,288.9 the Renewables, Grids and Gas Storage segment. Impairments Expenditure on third-party services 930.5 778.5 Total 5,761.7 6,067.4 were due primarily to the offshore wind park RIFFGAT (71.6 million euros) in connection with the end of the high remuneration

phase and lower assumed market prices. Additionally, impair- Material expenditures include expenses from EEG compensation ments of 73.3 million euros were necessary, attributable primarily guaranteed by law paid to distributed power grid operators for to property, plant and equipment in connection with gas storage feeding power into the grid, which is offset by compensation received facilities and natural gas fuelling stations. Impairments were also from distribution grid operators (for more information, see section 5). carried out on tangible and intangible assets in the swb segment (6.6 million euros), in the Sales, Services and Trading segment 9. PERSONNEL EXPENSES (6.1 million euros) and in the Group Central Division (12.9 million euros) due to a lack of recoverability. | T 036

in millions of euros 2016 2015 In the previous year, impairments were carried out on the goodwill of the power generation CGU (31.4 million euros), on power plants Wages and salaries 586.0 585.0 classified as property, plant and equipment (43.9 million euros) Social security costs and and on district heating licences (53.5 million euros). These impair- expenses related to pension plans and for support 136.5 142.3 ments totalling 128.8 million euros are all attributed to the swb Total 722.5 727.3 segment. Furthermore, other impairments of property, plant and equipment totalling 5.4 million euros and of goodwill totalling 10.0 million euros were recognised in the previous year. The average number of employees during the year was as follows: The classification by segment can be found in segment reporting | T 037 (see section 42). 2016 2015

Full-time employees 7,829 7,726 Part-time employees 1,080 983 Trainees and temporary staff 139 146 Total 9,048 8,855

Personnel expenses remained at the same level as in the previous year as the special items from the previous year in connection with the restructuring measures were balanced out by the effects in the current year. The number of employees increased and the restructuring of the employee tariff as part of the Group’s new strategy “EWE 2026” produced a negative effect.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 93 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

11. OTHER OPERATING EXPENSES The current profit/loss from financial assets measured at equity breaks down as follows: | T 038 | T 040 in millions of euros 2016 2015 in millions of euros 2016 2015 Licence fees (see section 44) 124.9 124.4 Derivative financial instruments 46.4 96.6 Hansewasser Ver- und Promotional measures and sponsoring 40.1 36.2 Entsorgungs-GmbH 5.0 5.4 Fees and consulting 37.3 26.8 DOTI Deutsche Offshore-Testfeld- und Infrastruktur-GmbH & Co. KG 1.0 0.6 Rent and leases 32.5 30.8 Gemeinschaftskraftwerk Bremen Allocation to other provisions 29.0 26.1 GmbH & Co. KG -2.5 -2.4 Other personnel-related expenses 24.9 26.2 VNG – Verbundnetz Gas Donations 21.6 2.6 Aktiengesellschaft -24.7 IT expenses 21.3 18.7 Other associated companies 0.7 Commission 16.2 9.2 Total 3.5 -20.4

Write-downs of receivables 13.6 13.1 Printing, postal and shipping costs 11.5 10.3 Other taxes 10.8 14.7 Insurance contributions 9.3 10.5 The impairment of financial assets measured at equity is due Disposal of intangible assets and entirely to DOTI Deutsche Offshore-Testfeld- und Infrastruktur- property, plant and equipment 8.4 9.1 GmbH & Co. KG. Charges and contributions 6.2 5.7 Allocations to write-downs 5.3 4.4 13. OTHER INCOME FROM INVESTMENTS Fair value changes to hedged items 4.4 20.3 | T 041 Foreign currency losses 3.6 13.2 German Combined Heat and in millions of euros 2016 2015 Power Act (KWKG) 15.7

Miscellaneous 110.6 92.0 Gains from the sale of investments 240.3 0.5 Total 577.9 606.6 Income from investments 15.3 10.9 Income from the transfer of profits 0.2 Other expenses from investments -1.3 Impairment of financial investments -0.1 -6.2 12. PROFIT/LOSS FROM FINANCIAL INVESTMENTS Expenses from the transfer of losses -0.5 -1.0 ACCOUNTED FOR USING THE EQUITY METHOD Total 255.2 2.9 | T 039

in millions of euros 2016 2015 The increase in other income from investments is due primarily Profit/loss from financial assets to the sale of the shares in VNG which were still recognised as accounted for using the equity method 3.5 -20.4 non-current assets held for sale as at 31 December 2015. Income from financial assets accounted for using the equity method -4.2 Total -0.7 -20.4

The improvement in the profit from financial assets measured at equity is due primarily to the reclassification of the shares in VNG in the second half of 2015 as non-current assets held for sale. The shares were sold in the first half of 2016, resulting in a non- recurring increase in other income from investments.

EWE Integrated Report 2016 94 CONSOLIDATED FINANCIAL STATEMENTS

14. NET INTEREST The taxes on the EWE Group’s earnings before taxes deviate from the theoretical tax expense which would result from application of | T 042 the weighted average group tax rate to the Group’s earnings in millions of euros 2016 2015 before taxes as follows:

Interest and similar income 13.0 16.4 | T 044 Interest and similar expenses -168.9 -153.7 in millions of euros 2016 2015 Interest components of allocations to

Pension provisions -39.9 -37.4 Earnings before income taxes 442.7 31.1 Rehabilitation provisions -6.2 -6.3 Fictitious tax expense 132.8 9.3 Other provisions -4.5 0.1 Deviation as a result of the basis for Total -206.5 -180.9 assessment of a local trade tax 6.6 4.6 Deviation from the expected tax rate Deviation as a result of differences to the group tax rate -4.2 15. INCOME TAXES Permanent deviations -67.9 10.9 Use of loss carryforwards 2.6 0.3 | T 043 Non-deductible expenses 2.6 5.6 in millions of euros 2016 2015 Tax-free income -1.6 -1.3 Associates accounted for Tax expense for the current period 79.1 117.5 using the equity method -1.1 6.1 Tax expense/(income) Non-periodic taxes 38.2 7.8 from previous periods 40.4 11.1 Other -2.4 1.4 Actual income taxes 119.5 128.6 Effective tax expense 109.8 40.5 Effective tax rate in per cent 24.8 130.2 Temporary differences -9.1 -87.0

Loss carryforwards -0.6 -1.1 Deferred taxes -9.7 -88.1 The increase in permanent deviations encompasses the recon Total 109.8 40.5 ciliation item from the sale of the shares in VNG.

The EWE Group’s weighted average tax rate for 2016 totalled 30.0 per cent (previous year: 30.0 per cent).

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 95 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

NOTES TO THE STATEMENT OF FINANCIAL POSITION

16. INTANGIBLE ASSETS

| T 045

in millions of euros 31.12.2016 31.12.2015

Concessions, industrial property rights, licences and similar rights 442.4 417.6 Prepayments 8.2 49.2 Goodwill 322.2 311.8 Intangible assets with indefinite useful lives 95.9 95.9 Total 868.7 874.5

Intangible assets developed as follows:

| T 046

Concessions, industrial property Intangible rights, licences assets with and similar indefinite in millions of euros rights Prepayments Goodwill useful lives Total

Historical cost As at: 01.01.2016 864.6 49.2 744.5 95.9 1,754.2 Changes to the basis of consolidation/acquisitions 11.1 15.1 26.2 Additions 36.3 7.2 43.5 Reclassifications 53.4 -48.2 5.2 Currency adjustments -31.7 -31.7 -63.4 Disposals -13.3 -13.3 As at: 31.12.2016 920.4 8.2 727.9 95.9 1,752.4

Cumulative depreciation, amortisation and write-downs As at: 01.01.2016 447.0 432.7 879.7 Changes to the basis of consolidation/acquisitions 3.8 3.8 Scheduled depreciation during the reporting year 48.5 48.5 Impairments in the reporting year 9.5 9.5 Reclassifications -0.1 -0.1 Currency adjustments -17.6 -27.0 -44.6 Disposals -13.1 -13.1 As at: 31.12.2016 478.0 405.7 883.7

Carrying amounts As at: 31.12.2016 442.4 8.2 322.2 95.9 868.7

EWE Integrated Report 2016 96 CONSOLIDATED FINANCIAL STATEMENTS

| T 047

Concessions, industrial property Intangible rights, licences assets with and similar indefinite in millions of euros rights Prepayments Goodwill useful lives Total

Historical cost As at: 01.01.2015 869.7 16.1 773.3 95.9 1,755.0 Additions 15.4 31.3 46.7 Reclassifications 6.9 1.8 8.7 Currency adjustments -25.6 -28.8 -54.4 Disposals -1.8 -1.8 As at: 31.12.2015 864.6 49.2 744.5 95.9 1,754.2

Cumulative depreciation, amortisation and write-downs As at: 01.01.2015 368.3 414.4 782.7 Scheduled depreciation during the reporting year 40.8 40.8 Impairments in the reporting year 53.5 41.4 94.9 Reclassifications -0.3 -0.3 Currency adjustments -13.6 -23.1 -36.7 Disposals -1.7 -1.7 As at: 31.12.2015 447.0 432.7 879.7

Carrying amounts As at: 31.12.2015 417.6 49.2 311.8 95.9 874.5

Development costs were not capitalised due to not meeting the Goodwill and intangible assets with an indefinite useful life requirements for capitalisation. These costs were – similar to research costs – recognised as an expense. With regard to impairment testing, goodwill and trademarks acquired within the scope of mergers are attributed to the Impairment of intangible assets was recognised in profit and loss following CGUs: as depreciation, amortisation and impairment. »» Waste disposal No limitations to EWE’s property rights to intangible assets »» wesernetze exist; furthermore, no intangible assets were used as collateral »» swb sales for liabilities. »» EWE Enerji »» Millenicom »» Telecommunications »» Miscellaneous

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 97 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

Major goodwill and intangible assets with an indefinite The fundamental assumptions which management used as the useful life attributed to CGUs in 2016: basis for calculating fair value less disposal costs of CGUs with a carrying amount attributed to them contain a discounted growth | T 048 rate into perpetuity of between 0.0 and 0.5 per cent, or 3.27 per WACC cent for the Turkish CGU. In 2016 it was not necessary to impair in millions of euros in % Goodwill Trademark Total any goodwill as a result of the impairment tests carried out for the aforementioned CGUs. The impairment of goodwill recognised in CGU the previous year was primarily attributable to the conventional Waste disposal 3.51 57.8 57.8 wesernetze 1.96 159.9 159.9 power generation CGU (31.4 million euros) and the swb sales swb sales 3.47 28.6 95.9 124.5 CGU (5.1 million euros). These impairments were recognised under EWE Enerji 10.38 16.9 16.9 amortisation, depreciation and impairment in profit and loss. Millenicom 10.90 13.2 13.2 Telecommunications 3.65 42.8 42.8 Fair value less disposal costs of the CGUs is calculated based on Miscellaneous 2.63 3.0 3.0 current planning and assumptions. As a general principle, a plan- Total 322.2 95.9 418.1 ning horizon of three years which then continues into perpetuity was used. For projects with a definite term, the length of this term was used accordingly. Major goodwill and intangible assets with an indefinite useful life attributed to CGUs in 2015: Discount rates reflect current market evaluations of the specific risks of each individual CGU as at 30 September of the year in | T 049 question and are based on the CGU’s weighted average cost of WACC capital (WACC). in millions of euros in % Goodwill Trademark Total The discount rates were derived from capital market data for CGU industry-specific peer groups. They take expectations with regard Waste disposal 4.38 57.8 57.8 wesernetze 3.59 159.9 159.9 to the risk-free market interest rate and the specific risks of the swb sales 4.38 28.6 95.9 124.5 CGU in question into account. The individual WACC after taxes EWE Enerji 10.37 19.7 19.7 calculated in this manner was used for each planning horizon. The Telecommunications 4.55 42.8 42.8 discount rates used are listed in the table above. Miscellaneous 3.56 3.0 3.0 Total 311.8 95.9 407.7 Underlying assumptions for the calculation of fair value less disposal costs

The EWE Group conducts its annual impairment testing on Estimation uncertainty exists with regard to the following key 30 September of each year. An impairment test is also carried out assumptions used in the calculation of fair value: when circumstances exist which indicate that the asset may be impaired. The CGU’s recoverable amount is calculated on the basis »» Discount rates (all CGUs) of fair value less disposal costs. In this context, information was »» Production quantities and waste prices (disposal) used that was not based on observable market data and, as such, »» Grid fee trends (wesernetze) is classified in level 3 of the fair value hierarchy. »» Changes in the size of the customer base (swb sales, telecommunications)

EWE Integrated Report 2016 98 CONSOLIDATED FINANCIAL STATEMENTS

Discount rates (all CGUs) Changes in the size of the customer base The discount rates represent current market estimates with regard (swb sales, telecommunications) to the specific risks attributed to each CGU. Calculation of the Changes in the size of the customer base have a major effect on discount rate takes the specific circumstances of the EWE Group profit and loss in the swb sales and telecommunications CGUs and its CGUs into account and is based on their WACC. The WACC and, as such, a direct effect on the absolute contribution to cover include both external financing and equity. Equity costs are existing fixed costs. In this context, based on historic fluctuation derived from investors’ expected rate of return. External financing rates, EWE assumes that the size of the customer base in the swb costs are derived from the market price of industry-specific bonds. sales and telecommunications CGUs will remain essentially stable. The risk specific to a CGU is included through the application of individual beta factors. The beta factors are determined annually Sensitivity analysis of the underlying assumptions on the basis of publicly accessible market data. The effects of the major underlying assumptions on the recovera- Production quantities and waste prices (disposal) ble amount are explained in the following: Management’s estimates are based on past experience, existing contracts and an estimation of the otherwise unused capacity/ Discount rates production quantity. A capacity-oriented production quantity and For all of the aforementioned CGUs, an increase in the WACC used a normal year were assumed as the basis for terminal value. With as the basis of up to 0.38 per cent (previous year: 1.00 per cent) regard to waste prices, a normal year is based on the last year with would not lead to any additional impairment. detailed planning. 17. PROPERTY, PLANT AND EQUIPMENT Grid fee trends (wesernetze) | T 050 Profit and loss related to grids is heavily affected by regulatory influences, particularly the regulation of grid fees (specification of in millions of euros 31.12.2016 31.12.2015 an upper limit), as well as the awarding of concession agreements. On the basis of management’s experience, EWE will continue to Land and buildings 412.3 438.2 assume that existing concession agreements will be awarded in Technical equipment and machinery Power supply systems 1,665.3 1,712.6 the future and that an adequate earnings position is guaranteed Gas supply systems 1,666.9 1,733.8 from regulated grid fees. Other 1,066.0 1,101.3 Other equipment, operating and office equipment 49.9 50.8 Prepayments and assets under construction 66.2 83.4 Total 4,926.6 5,120.1

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 99 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

Property, plant and equipment developed as follows:

| T 051

Other equipment, Prepayments Technical operating and and assets Land and equipment and office under in millions of euros buildings machinery equipment construction Total

Historical cost As at: 01.01.2016 875.0 11,867.3 225.1 102.6 13,070.0 Changes in basis of consolidation 8.8 0.5 9.3 Additions 9.5 363.3 15.5 52.1 440.4 Reclassifications 4.0 49.2 1.4 -65.3 -10.7 Currency adjustments -1.1 -34.3 -1.1 -1.1 -37.6 Disposals -9.2 -235.3 -18.3 -3.0 -265.8 As at: 31.12.2016 878.2 12,019.0 223.1 85.3 13,205.6

Cumulative depreciation, amortisation and write-downs As at: 01.01.2016 436.8 7,319.6 174.3 19.2 7,949.9 Changes in basis of consolidation 4.2 0.4 4.6 Scheduled depreciation during the reporting year 20.5 350.2 15.9 386.6 Impairments in the reporting year 16.6 143.8 0.6 161.0 Reclassifications -3.6 -0.5 -4.1 Currency adjustments -12.6 -0.6 -0.1 -13.3 Disposals -3.7 -183.9 -17.4 -205.0 Reversals of write-downs -0.7 -0.7 As at: 31.12.2016 465.9 7,620.8 173.2 19.1 8,279.0

Carrying amounts As at: 31.12.2016 412.3 4,398.2 49.9 66.2 4,926.6

EWE Integrated Report 2016 100 CONSOLIDATED FINANCIAL STATEMENTS

| T 052

Other equipment, Prepayments Technical operating and and assets Land and equipment and office under in millions of euros buildings machinery equipment construction Total

Historical cost As at: 01.01.2015 872.1 11,473.0 267.0 168.0 12,780.1 Additions/disposals through from mergers and reorganisations 0.1 0.1 0.2 Additions 3.2 336.9 13.1 68.9 422.1 Reclassifications 4.7 156.2 -42.1 -127.9 -9.1 Currency adjustments -0.2 -17.5 -0.6 -1.4 -19.7 Disposals -4.8 -81.4 -12.4 -5.0 -103.6 As at: 31.12.2015 875.0 11,867.3 225.1 102.6 13,070.0

Cumulative depreciation, amortisation and write-downs As at: 01.01.2015 420.0 6,954.9 207.9 18.7 7,601.5 Additions/disposals through from mergers and reorganisations 0.1 0.1 Scheduled depreciation during the reporting year 20.7 358.6 15.6 394.9 Impairments in the reporting year 48.8 0.5 49.3 Reclassifications -0.1 37.1 -36.9 0.1 Currency adjustments -7.0 -0.4 -7.4 Disposals -3.8 -72.8 -12.0 -88.6 As at: 31.12.2015 436.8 7,319.6 174.3 19.2 7,949.9

Carrying amounts As at: 31.12.2015 438.2 4,547.7 50.8 83.4 5,120.1

No limitations to EWE’s property rights to fixed assets (property, plant and equipment) exist; furthermore, no fixed assets (property, plant and equipment) were used as collateral for liabilities.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 101 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

18. INVESTMENT PROPERTY Property classified as investment property had a fair value of 7.9 million euros at the end of the reporting period (previous year: The changes to investment property were as follows: 10.1 million euros).

| T 053 19. INVESTMENTS ACCOUNTED FOR USING in millions of euros 2016 2015 THE EQUITY METHOD

Historical cost Interests in companies accounted for using the equity method As at: 01.01 13.4 22.6 developed as follows: Reclassifications 5.0 | T 055 Disposals -3.3 -9.2 As at: 31.12. 15.1 13.4 in millions of euros 2016 2015

Cumulative depreciation, Opening balance as at 01.01. 126.0 1,240.0 amortisation and write-downs Group share of profit/loss 3.5 -20.4 As at: 01.01 7.7 13.2 Dividends collected -5.4 -54.9 Scheduled depreciation Addition 9.8 214.8 during the reporting year 0.2 0.2 Reclassification -1,251.6 Reclassifications 3.5 Disposal -6.0 -4.9 Disposals -1.6 -5.7 Changes recognised outside of profit Reversals of write-downs -0.1 and loss -0.7 3.0 As at: 31.12. 9.7 7.7 Impairments -4.2 Closing balance on 31.12. 123.0 126.0 Carrying amounts

As at: 31.12. 5.4 5.7

Of the additions in the current year, 5.1 million euros are Composition of profit/loss in the period from financial invest- attributable to Trianel Windkraftwerk Borkum II GmbH & Co. KG, ments: 3.5 million euros are attributable to Gemeinschaftskraftwerk Bremen GmbH & Co. KG and 1.2 million euros are attributable to | T 054 GWAdriga GmbH & Co. KG. in millions of euros 31.12.2016 31.12.2015 As at 31 December 2016, the interests in associates held by the Rental income from Group had a goodwill totalling 18.1 million euros (previous year: investment property 0.6 0.8 18.1 million euros). This goodwill is contained within the Sales, Operating expenses (including repairs and maintenance) with Services and Trading segment. which rental income was generated 0.3 0.4 Profit/loss from financial instruments 0.3 0.4 Consolidated financial information about companies accounted for using the equity method (all of which are not listed on the stock exchange) is presented in the following table. In this con- The Group is not limited in any way with regard to its ability to text, the figures presented do not represent the share attributable sell investment property, and the Group has not entered into any to EWE AG, but the full amount. contractual obligations to sell, construct or develop investment property. Furthermore, the Group has no contractual obligations with regard to the repair, maintenance or improvement of investment property.

EWE Integrated Report 2016 102 CONSOLIDATED FINANCIAL STATEMENTS

Statement of financial position 21. INVENTORIES

| T 056 | T 059

in millions of euros 31.12.2016 31.12.2015 in millions of euros 31.12.2016 31.12.2015

Non-current assets 839.4 789.6 Gas inventories 133.7 123.8 Current assets 102.2 89.3 Raw materials, consumables and of which cash and cash equivalents 48.6 29.2 supplies 45.2 54.7 Non-current liabilities 478.0 424.9 Work in progress, unfinished goods 7.7 9.2 Current liabilities 176.4 166.0 Finished goods and merchandise 5.4 4.6 Total assets 941.6 878.9 Prepayments 12.1 25.9 Pollutant emission rights 0.2

Total 204.3 218.2

Comprehensive income statement Inventories contain impairment losses of 1.6 million euros | T 057 (previous year: 9.0 million euros). A total of 7.5 million euros has in millions of euros 2016 2015 been recognised as reversals (previous year: 0.1 million euros).

Revenue 178.6 108.4 No limitations on the right of disposal or other encumbrances Amortisation, depreciation and exist. impairment -26.8 -24.6 Interest income 0.1 0.8 Interest expenses -6.7 -7.7 Tax result -9.1 -9.1 Profit/loss 0.2 2.7

20. OTHER NON-CURRENT FINANCIAL ASSETS

| T 058

in millions of euros 31.12.2016 31.12.2015

Shares 306.1 259.4 Loans 108.8 97.8 Derivative financial instruments 104.3 64.5 Miscellaneous 7.5 7.7 Total 526.7 429.4

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 103 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

22. TRADE RECEIVABLES

Trade receivables are payable within one year:

| T 060

of this total: overdue and not individually impaired as at the end of the reporting period neither overdue Between Between Between Carrying nor Less than 30 and 91 and 181 and More than in millions of euros amount impaired Total 30 days 90 days 180 days 360 days 360 days as at 31.12.2016 Trade receivables 764.8 452.3 312.5 228.1 13.9 23.8 32.5 14.2 as at 31.12.2015 Trade receivables 895.1 638.3 256.8 172.0 62.8 10.6 4.1 7.3

Changes to impairments of trade receivables were as follows: 23. OTHER FINANCIAL RECEIVABLES AND ASSETS

| T 061 | T 062

in millions of euros 31.12.2016 31.12.2015 in millions of euros 2016 2015 Derivative financial instruments 242.7 126.4 Total valuation allowances Receivables from companies as at 01.01. 35.3 41.7 with which an investment Exchange rate differences -0.9 -0.5 relationship exists 65.2 56.7 Changes to the basis of Receivables from contract consolidation/merger 3.6 0.2 manufacturing 4.7 10.1 Allocations 5.1 4.4 Securities 103.4 4.8 Use 0.2 -1.9 Other financial assets 54.3 36.9 Reversals -6.8 -6.6 Total 470.3 234.9 Reclassifications -2.0 Total valuation allowances as at 31.12. 36.5 35.3

Changes in valuation allowances are recognised as other operating expenses/income in profit and loss.

EWE Integrated Report 2016 104 CONSOLIDATED FINANCIAL STATEMENTS

Other financial receivables and assets are payable within one year.

| T 063

of this total: overdue and not individually impaired as at the end of the reporting period neither overdue Between Between Between Carrying nor Less than 30 and 91 and 181 and More than in millions of euros amount impaired Total 30 days 90 days 180 days 360 days 360 days as at 31.12.2016 Other financial receivables and assets 470.3 458.8 11.5 3.2 0.4 6.5 1.4 as at 31.12.2015 Other financial receivables and assets 234.9 229.5 5.4 2.1 0.3 0.1 2.9

The following table lists the valuation allowances for other 25. LIQUID ASSETS financial receivables and assets. Liquid assets totalled 351.3 million euros as at 31 December 2016. | T 064 This includes 200 million euros in the form of time deposits and in millions of euros 2016 2015 instant-access demand deposits, earmarked for settling the liabilities payable in the 2017 business year. Total valuation allowances as at 01.01. 1.9 1.9 See section 43 for more information on the composition of cash Allocations 0.2 Use -1.9 and cash equivalents in the cash flow statement. Total valuation allowances as at 31.12. 0.2 1.9 26. NON-CURRENT ASSETS HELD FOR SALE

The shares in VNG measured at their carrying amount and 24. OTHER NON-FINANCIAL RECEIVABLES AND ASSETS classified as held for sale in the Group Central Division as at 31 December 2015 were transferred to EnBW Energie Other non-financial receivables and assets are payable within one Baden-Württemberg AG (EnBW), Karlsruhe, in April 2016. year.

| T 065

in millions of euros 31.12.2016 31.12.2015

Value-added tax 33.3 45.0 Prepayments 27.0 28.7 Emission rights 19.8 26.6 Other non-financial assets 33.7 21.7 Total 113.8 122.0

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 105 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

27. EQUITY In 2015, EWE entered into an agreement with EnBW, subject to certain conditions, regarding the transfer of the interest in VNG The subscribed capital of EWE AG totalling 242,988 thousand held by EWE to EnBW. Within the scope of this agreement, EWE euros (previous year: 242,988 thousand euros) is divided into has agreed to buy back 10 per cent of its own shares currently held 242,988 registered shares (previous year: 242,988), each with by EnBW (treasury shares), among other conditions. Since EWE a value of 1,000 euros. In the reporting year the company could no longer withdraw from this obligation as at 31 December acquired 10 per cent of its own shares. EWE AG therefore holds 2015, the company must recognise as a liability written put 24,298 treasury shares. The subscribed capital attributable to options on its own shares at the present value of the obligation treasury shares is 24.3 million euros. and deduct this amount from equity as set forth in IAS 32.23. To ensure continued disclosure in the following year, in 2015 EWE The acquisition cost of 10 per cent of EWE AG’s treasury shares decided to deduct the value from equity in such a way as if the was 513.6 million euros. The associated payment obligation, which treasury shares were already purchased. As such, the nominal had to be recognised as a liability as at 31 December 2015 in line value (24.3 million euros) will be openly deducted from subscribed with IAS 32.23, was satisfied in the first half of 2016. EnBW is capital and the value exceeding this amount (480.5 million euros) expected to hold 6 per cent of the share capital of EWE AG by will be openly deducted from the capital reserve. 2019. Weser-Ems-Energiebeteiligungen GmbH (WEE), Oldenburg, has held 64 per cent of the shares of EWE AG since 20 April 2016 Net Income of EWE AG and Energieverband Elbe-Weser Beteiligungsholding GmbH (EEW), Oldenburg, holds 20 per cent. Ems-Weser-Elbe Versorgungs- und The Board of Management suggests to the general meeting of Entsorgungsverband Beteiligungsgesellschaft mbH (EWE-Verband shareholders that from the net income of EWE AG, a dividend of GmbH), Oldenburg, is the owner of WEE. Ems-Weser-Elbe Versor 88,000,856.00 euros be paid out to the company’s shareholders. gungs- und Entsorgungsverband (EWE-Verband), Oldenburg, is the This corresponds to a distribution of 402.40 euros per qualifying sole shareholder of EWE-Verband GmbH and EEW. The members share. The remaining 4,157,471.81 euros are to be carried forward. of the EWE-Verband include districts and cities in our supply area between the Ems, Weser and Elbe rivers. The minority shares show the shares held by third parties in Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş., The capital reserve primarily results from the provisions of Kayseri, Turkey, Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret article 272 (2) no. 4 of the HGB. ve Taahhüt A.Ş., Bursa, Turkey, and EWE NETZ GmbH, Oldenburg. The latter is related to the municipal EWE grid investment model.

28. CONSTRUCTION SUBSIDIES

| T 066

31.12.2016 31.12.2015

in millions of euros Non-current Current Non-current Current

Construction subsidies 675.9 50.6 694.9 51.0

Construction subsidies are released over the useful lives of the assets for which they were received.

EWE Integrated Report 2016 106 CONSOLIDATED FINANCIAL STATEMENTS

29. PROVISIONS

| T 067

31.12.2016 31.12.2015

in millions of euros Non-current Current Total Non-current Current Total

Provisions for pensions and similar obligations 1,812.0 1,812.0 1,736.1 1,736.1 Personnel-related obligations 86.7 40.5 127.2 95.1 17.1 112.2 Rehabilitation obligations 296.4 296.4 253.9 253.9 Other provisions 41.6 118.9 160.5 34.3 113.6 147.9 Total 2,236.7 159.4 2,396.1 2,119.4 130.7 2,250.1

PROVISIONS FOR PENSIONS AND SIMILAR OBLIGATIONS In the case of the unit-linked direct benefits model introduced in 2009, the Group companies participating in this model transfer an EWE AG primarily grants pension benefits through age-based annual benefit contribution to the EWE-Treuhandverein e. V. (trust schemes and deferred compensation plans. In addition to these association) association for each entitled employee. The same plans, in which the majority of EWE employees are enrolled, applies to swb-Treuhandverein e. V. which was introduced in 2016. individual contractual benefit commitments exist. The retirement EWE-Treuhandverein e. V. and swb-Treuhandverein e. V. have trust benefits paid out by the EWE Group to its employees correspond by-laws that govern, in particular, the purpose of the association, to the definition of defined benefit plans for post-employment membership and the bodies of the association and their respon benefits as set forth in IAS 19. sibilities, and are managed by the Board of Management that has been appointed in accordance with the by-laws. The benefit The obligations encompass both pension benefits currently being contributions which accumulate over the vesting period plus the paid out as well as entitlements to future benefit payments. returns earned on them are annuitised upon the occurrence of an event which results in eligibility to receive benefits or, in the case The characteristic feature of obligations under defined benefit of swb, paid out as capital by default. In this context, the partici- plans is that the EWE Group has to fulfil them in the amount pating Group company guarantees the value of the nominal granted and therefore bears both the funding risk and the bio contributions. The defined benefit obligation (DBO) of the direct metric risks (i.e. longevity risk). commitment is recognised as the difference between the present value of the guaranteed obligation and plan assets. Similarly, Plans with previously granted pension entitlements were rolled current service cost results from the maximum of the current over to EWE-wide regulations in 2001. In these plans, the pension service cost of guaranteed obligations and contributions to the commitments largely depend on the length of service and the plan. Finally, if plan assets exceed the present value of guaranteed employee’s average compensation over the twelve months of obligations, the interest income from plan assets is considered employment prior to termination or retirement. The EWE Group equal to the interest expense, yet opposite in sign. This results in is not obliged to form plan assets for plans with pension entitle- the appropriate recognition of the actual extent of the obligation ments. and the expenses. As long as plan assets exceed the present value of the guaranteed minimum benefit, there is no disclosure in profit and loss and expenses regularly correspond to the contri butions made, which in essence corresponds to the accounting treatment of a defined contribution plan. At the same time, this ensures that the minimum obligation under labour law is always covered by plan assets, which is enough to satisfy the defined benefit element of the plan’s structure.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 107 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

As a result, this model essentially transfers the funding risk for the The following table shows the change in the present value of the retirement benefits to the entitled employees while still taking obligations: the guaranteed benefit in the amount of the contributions during | T 070 the vesting period into account. In return, the employees have the opportunity to earn appropriate returns on the capital invested. in millions of euros 2016 2015

Current contribution payments in the form of annual service costs Present value at the beginning of the period 1,761.4 1,925.5 are recognised as personnel expenses for the period in question Current service cost 34.9 42.6 and disclosed in the EBIT. The net interest expense is disclosed in Interest expense 40.4 37.8 net interest income/expense. Actuarial (gains)/losses not recognised in profit and loss 184.3 -174.1 The line items for the defined benefit and defined contribution of which changes in pension obligations are as follows: demographic assumptions -5.5 of which changes in | T 068 financial assumptions 190.5 -148.9 Past service cost -92.1 in millions of euros 31.12.2016 31.12.2015 Pension payments from company assets -71.4 -70.4 Present value of financial obligations Present value at the end of the period 1,857.5 1,761.4 funded via EWE/swb-Treuhandverein 44.5 23.0 Fair value of plan assets (EWE/swb-Treuhandverein) -43.1 -23.0 Present value of financial The following table shows the performance of plan assets: obligations not funded via EWE/swb-Treuhandverein 1,813.0 1,738.4 | T 071 Fair value of plan assets -2.4 -2.3 in millions of euros 2016 2015 Carrying amount 1,812.0 1,736.1

Present value at the beginning of the period 25.2 20.1 The following values have been recognised in profit and loss: Interest income 0.6 0.4 | T 069 Income from plan assets not included in net interest 0.9 0.2 in millions of euros 2016 2015 Employer contributions 17.4 3.3 Deferred compensation 1.3 1.2 Current service cost 34.9 42.6 Present value at the end of the period 45.4 25.2 Net interest expense 39.9 37.4

Past service cost -92.1 Total -17.3 80.0 Since 2010, the trust assets of EWE have been invested in Fidelity target-date funds with target dates between 2015 and 2040, with the capital invested on the basis of the expected retirement The past service cost is almost entirely due to the new company dates of the entitled employees. There is a listed price in an active pension regulations adopted by swb in the reporting year which market as defined in IFRS 13 for all target funds in which the trust provide for a transition to a contribution-based system with assets are invested. The trust assets of EWE consist of the follow- capital cover. ing: shares, 73 per cent (previous year: 74 per cent); fixed-income securities, 17 per cent (previous year: 15 per cent); cash and cash equivalents, 9 per cent (previous year: 10 per cent) and other investments, 1 per cent (previous year: 1 per cent). Since Decem- ber 2016, swb-Treuhandverein has existed with trust assets of 14.1 million euros that are currently located in one of its bank accounts. In 2017 the assets will be invested in line with the investment strategy of the trust.

EWE Integrated Report 2016 108 CONSOLIDATED FINANCIAL STATEMENTS

The following table shows the change in the present value of the Pension payments for 2017 are expected to total 69.8 million obligation: euros. Contributions to plan assets are expected to total 13.3 million euros. | T 072

in millions of euros 2016 2015 Changes to the applicable actuarial assumptions would have the following effects on the defined benefit pension obligation: Carrying amount at beginning of period 1,736.1 1,905.4 | T 074 (Income)/expense recognised in profit and loss -17.4 80.3 Effect on the present value of obligations not financed Pension payments from company via EWE-Treuhandverein assets and contributions to in millions of euros 2016 2015 EWE/swb-Treuhandverein -90.2 -75.0

Actuarial (gains)/losses 183.5 -174.6 Change in the assumption Carrying amount regarding the discount rate at the end of the period 1,812.0 1,736.1 Increase by 1.0% -265.6 -245.9

Decrease by 1.0% 347.4 319.4 All actuarial gains and losses of 183.5 million euros (previous year: regarding future salary increases -174.6 million euros) were recognised in other comprehensive Increase by 0.5% 25.0 36.5 income. Decrease by 0.5% -23.5 -34.3 regarding inflation Increase by 0.5% 60.5 50.9 Pension obligations were calculated using the 2005 G Klaus Decrease by 0.5% -55.0 -46.5 Heubeck actuarial tables and based on the following main regarding life expectancy actuarial assumptions: Reduction in mortality rate by 10% 67.9 61.5 | T 073

Calculation assumptions/ parameters (in per cent) 31.12.2016 31.12.2015 The sensitivity analyses shown each take only changes to one assumption into account, with the remaining assumptions Discount rate 1.75 2.50 remaining unchanged with respect to the initial calculation. Interest rate for plan assets 1.75 2.50 Future salary increases 2.50 2.50 Future pension increases 1.75 1.75 The average duration of the defined benefit pension obligation Labour turnover rate 0.00 0.00 weighted on the basis of the present value of obligation (Macaulay duration) is 17.6 years (previous year: 17.1 years).

In contrast to the aforementioned assumptions, the pension obligations calculated as at the end of the reporting period for the swb segment are based on an annual rate of pension progression of 0.75 per cent (previous year: 1.00 per cent), a salary trend of 2.00 per cent p.a. (previous year: 2.50 per cent p.a.) and an average labour turnover rate of 1.25 per cent p.a. (previous year: 1.25 per cent p.a.). In EWE segments, obligations with historically higher adjustment rates have been measured using the adjustment rates observed in the past and expected to continue over the long term, including a rate of pension progression of 4.00 per cent p.a., similar to the previous year.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 109 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

Defined contribution pension plans in the EWE Group relate to statutory pension insurance. In 2016, the expense related to employer contributions totalled 62.6 million euros (previous year: 57.4 million euros).

Statement of provisions | T 075

Changes recognised outside As at of profit Other Interest As at in millions of euros 01.01.2016 Allocations and loss Reversals changes effect Used 31.12.2016

Provisions for pensions and similar obligations 1,736.1 30.0 183.5 -92.1 -14.2 39.9 -71.2 1,812.0 Miscellaneous provisions Personnel-related obligations 112.2 40.3 -8.4 1.0 3.2 -21.1 127.2 Rehabilitation obligations 253.9 28.4 25.2 -18.0 0.7 6.2 296.4 Other provisions 147.9 57.6 -4.1 -2.7 1.3 -39.5 160.5 Total 2,250.1 156.3 208.7 -122.6 -15.2 50.6 -131.8 2,396.1

Personnel-related provisions encompass, among other items, storage facilities required additional allocations. Provisions for obligations stemming from partial retirement plans and service underground gas storage facilities and wind farms are disclosed anniversaries as well as provisions for staff reduction within the under non-current liabilities, as no rehabilitation or deconstruc- scope of the “Human Resources 2017” programme. In contrast, tion work is expected in the near future. Provisions for rehabilita- an allocation to the restructuring provision was made for the tion are recognised at the amount needed to settle the obligation, reorganisation of the employee tariff. discounted to the end of the reporting period. A discount rate of 2.5 per cent p.a. was used in the reporting year (previous year: Provisions for rehabilitation are primarily formed to cover the cost 2.5 per cent p.a.). of rehabilitation and deconstruction of underground gas storage facilities and wind farms in the event of abandonment, as well as The remaining other provisions are primarily related to contingent the costs of power plant deconstruction and land rehabilitation, obligations arising from pending transactions, risks of litigation, including the disposal of existing waste due to ground contamina- invoicing and storage obligations as well as obligations for envi- tion from the past operation of a natural gas plant. The provisions ronmental restoration measures. for underground gas storage facilities are formed as a result of a legal obligation. The amount of provisions to recognise for underground gas storage facilities is based on external expert reports. The geological particularities of some of the underground gas

EWE Integrated Report 2016 110 CONSOLIDATED FINANCIAL STATEMENTS

30. BONDS

An overview of all outstanding bonds is presented in the following table:

| T 076

Carrying amount Carrying amount as at Nominal as at Nominal in millions of euros Interest rate Maturity date 31.12.2016 volume 31.12.2015 volume

Three-month Bearer bond Euribor +0.20% July 2016 50.0 50.0 Three-month Bearer bond Euribor +0.25% September 2016 50.0 50.0 Bearer bond 1.350% November 2016 50.0 50.0 Three-month Bearer bond Euribor +0.25% January 2017 50.0 50.0 50.0 50.0 Three-month Bearer bond Euribor +0.28% March 2017 50.0 50.0 50.0 50.0 Bearer bond 0.625% December 2017 49.9 50.0 49.9 50.0 Eurobond (15 years) 4.875% October 2019 372.2 372.4 499.7 500.0 Eurobond (9 years) 4.125% November 2020 354.3 365.3 481.5 500.0 Eurobond (12 years) 5.250% July 2021 461.0 463.9 496.3 500.0 Bearer bond 4.000% September 2032 49.9 50.0 49.9 50.0 Accrued interest 18.3 21.3 Total 1,405.6 1,401.6 1,848.6 1,850.0

31. LIABILITIES TO FINANCIAL INSTITUTIONS

| T 077

31.12.2016 31.12.2015

in millions of euros Non-current Current Non-current Current

Liabilities to financial institutions 130.7 76.4 267.3 296.1

The fixed-interest current and non-current liabilities to financial 32. TRADE PAYABLES institutions totalling 207.1 million euros (previous year: 255.8 million euros) generally carry an average interest rate of 4.07 per Trade payables are due within one year and are primarily denomi- cent p.a. (previous year: 3.97 per cent p.a.). The average remaining nated in euros. fixed-interest period is 1.59 to 2.83 years (previous year: 36 days to 4.37 years).

The variable-interest current and non-current liabilities to financial institutions totalling 307.6 million euros in the previous year generally carried an average interest rate of 0.80 per cent p.a. The average remaining fixed-interest period was 299 days.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 111 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

33. OTHER FINANCIAL LIABILITIES

| T 078

31.12.2016 31.12.2015

in millions of euros Non-current Current Non-current Current

Liabilities from contributions by silent partners 225.0 225.0 Derivative financial instruments 54.5 166.9 136.4 338.2 Security deposits 127.4 130.1 Personnel-related liabilities 3.1 58.3 3.2 56.8 Outstanding invoices and credit notes 49.8 61.0 Liabilities to companies with which an investment relationship exists 39.0 543.8 Liabilities from guaranteed dividends 26.6 2.8 28.3 2.0 Grant agreements with EWE Research Institute 2.0 2.0 5.0 Research and development 0.8 0.7 1.1 1.7 Remaining other financial liabilities 5.0 53.8 6.4 59.8 Other financial liabilities 317.0 500.7 400.4 1,198.4

The security deposits primarily comprise payments that Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve Taahhüt A.Ş., Bursa, Turkey, and Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş., Kayseri, Turkey, receive from all new customers upon the conclusion of a contract and which are repayable upon termination of the contract. These liabilities are classified as current as customers have the ability to terminate their contract at any time. These security deposits cannot be realised otherwise.

The decrease in current liabilities to companies with which an investment relationship exists resulted primarily from the share buyback and is directly associated with the change in equity.

34. OTHER NON-FINANCIAL LIABILITIES

| T 079 31.12.2016 31.12.2015

in millions of euros Non-current Current Non-current Current

Tax liabilities 83.9 47.6 Advance payments for orders 22.1 22.8 Remaining other non-financial liabilities 9.6 10.8 10.5 10.8 Other non-financial liabilities 9.6 116.8 10.5 81.2

EWE Integrated Report 2016 112 CONSOLIDATED FINANCIAL STATEMENTS

35. DEFERRED TAXES

The deferred tax assets and liabilities are spread over the following line items:

| T 080

31.12.2016 31.12.2015

in millions of euros Asset Liability Asset Liability

Intangible assets 2.4 128.5 0.8 136.7 Property, plant and equipment 26.1 517.9 12.3 546.9 Other assets 3.7 66.1 5.8 40.5 Non-current assets 32.2 712.5 18.9 724.1

Inventories 1.4 4.5 0.3 10.3 Receivables 2.6 1.8 3.2 4.5 Other assets 9.5 145.7 30.8 135.5 Current assets 13.5 152.0 34.3 150.3

Building subsidies 189.1 189.7 Emission permits 0.7 1.0 Pension provisions 262.5 241.9 0.4 Other provisions 102.7 2.0 92.1 1.4 Liabilities 51.9 4.0 58.9 6.8 Non-current liabilities 606.2 6.7 582.6 9.6

Building subsidies 10.2 6.4 9.4 6.5 Emission permits 9.1 9.8 Other provisions 14.1 7.9 17.4 3.0 Liabilities 129.2 5.0 182.8 6.2 Current liabilities 162.6 19.3 219.4 15.7

Deferred taxes for the balance sheet heading 814.5 890.5 855.2 899.7 Loss carryforwards 0.6 1.1 Deferred taxes before offsetting 815.1 890.5 856.3 899.7 Offsetting -782.7 -782.7 -757.9 -757.9

Deferred taxes after offsetting 32.4 107.8 98.4 141.8

| T 081 The amount of taxable loss carryforwards for which no deferred tax assets have been recognised was 10.0 million euros as at the in millions of euros 31.12.2016 31.12.2015 end of the reporting year (previous year: 3.3 million euros). The taxable loss carryforwards can be used without restriction. Tax receivables 37.8 14.0 Tax liabilities -94.0 -69.0 Actual income taxes -56.2 -55.0 No deferred tax assets were formed for the aforementioned

taxable loss carryforwards as the company does not expect to Deferred tax assets 32.4 98.4 realise the tax assets in the foreseeable future. Deferred tax liabilities -107.8 -141.8 Deferred taxes -75.4 -43.4 As in the previous year, the amount of temporary differences for Total -131.6 -98.4 which no deferred tax assets were recognised in the statement of financial position was 0.0 million euros.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 113 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

The amount of temporary differences in connection with shares It has no other contingent liabilities. In the previous year, other in subsidiaries and associated companies for which no deferred contingent liabilities totalling 5.4 million euros were linked to an tax liabilities were recognised in the reporting year pursuant to asset swap. IAS 12.39 was 298.5 million euros (previous year: 353.4 million euros). The company also has standard long-term supply contracts for gas and electricity. 36. CONTINGENT RECEIVABLES/CONTINGENT LIABILITIES AND OTHER OBLIGATIONS 37. LEASES

Contingent receivables Obligations from operating leases

Contingent receivables from guarantees totalling 11.3 million Financial obligations from operating leases are primarily associ- euros were recognised as at 31 December 2016 (previous year: ated with real estate, vehicles, an underground gas storage facility 9.8 million euros). and other property, plant and equipment. The leases have different terms and conditions. The lease payments for office buildings Guarantees are adjusted regularly in line with price indices.

As at the reporting date, guarantees were recognised in the The following table shows future accumulated minimum lease amount of 460.7 million euros (previous year: 102.9 million payments from non-terminable operating leases: euros), of which 56.7 million euros (previous year: 58.2 million | T 082 euros) had been issued to creditors of an associated company and 0.0 million euros (previous year: 0.3 million euros) were in millions of euros 31.12.2016 31.12.2015 related to financial liabilities. up to one year 25.7 24.6 Obligations to purchase intangible assets and property, between one and five years 53.8 69.8 more than five years 63.7 88.8 plant and equipment Total 143.2 183.2

Contractual obligations of 9.8 million euros have been recognised in connection with the acquisition of intangible assets (previous year: 10.7 million euros). Contractual obligations of 53.7 million Minimum lease payments from leases recognised in profit and euros have been recognised in connection with the acquisition of loss in the 2016 reporting period totalled 26.7 million euros property, plant and equipment (previous year: 81.2 million euros). (previous year: 27.4 million euros). These primarily concern purchase commitments in connection with the construction of wind parks and the expansion of supply 38. CAPITAL MANAGEMENT networks and technical plants. The Group’s objectives with respect to capital management Other contingent liabilities and obligations include securing the company’s continued existence as a going concern, optimising its capital structure and maintaining As part of an interest in a power plant company, EWE is obliged financial flexibility. to contribute financing for the construction of a new power plant proportionate to the size of the interest. The amount of the Long-term capital management at the EWE Group is based on an contribution is calculated on the basis of the agreed investment analysis of the optimal capital structure considering both equity plan and totals 2.5 million euros less payments rendered (previous and borrowings. Activities to optimise the capital structure focus year: 4.7 million euros). EWE also has a contingent obligation to on minimising the total cost of capital and imply a target rating in provide additional contributions of no more than 5 per cent of its the A range for the EWE Group. share of equity amounting to 2.2 million euros (previous year: 2.2 million euros). EWE does not currently expect this obligation to provide additional contributions to be called upon.

EWE Integrated Report 2016 114 CONSOLIDATED FINANCIAL STATEMENTS

Equity consists of equity attributable to the parent company’s Derivative financial instruments are only entered into with con- shareholders and minority interests. tractual partners with a high degree of creditworthiness. To hedge against price risks, the EWE Group utilises power futures, gas Equity and total assets stood at: futures, coal swaps, oil swaps, EUA and CER futures contracts and forward exchange contracts. | T 083

in millions of euros 31.12.2016 31.12.2015 In some cases, hedging relationships are not recognised in the statement of financial position. Derivatives for which hedge Total equity 1,941.9 1,749.2 accounting is not possible (IAS 39.88) or sensible are included Equity ratio in % 23.0 18.0 within the scope of financial hedges. Opportunistic trading Total assets 8,435.2 9,744.3 positions are limited in terms of their scope and impact on earnings.

39. DERIVATIVE FINANCIAL INSTRUMENTS AND An effectiveness test using either the critical term match method, HEDGE ACCOUNTING the cumulative dollar-offset method or by means of regression analysis is carried out to assess the effectiveness of a hedging a) Strategy and targets relationship (cash flow hedges).

The EWE AG Board of Management defines the risk management The nominal volume of the derivatives shown below is shown policy for the EWE Group; the implementation of this policy is the without offsetting. The amount of the nominal volume allows responsibility of the departments across the Group. Financial risks conclusions to be drawn as to the extent of the use of derivatives. are identified, evaluated and hedged against. The prior approval It does not reflect the Group’s risk, however, since the derivative of the risk committee is required for hedging strategies which transactions at the end of the reporting period are offset or, in the deviate from the guidelines. The risk committee is also informed future, will be offset by hedged items with countervailing risks. on a regular basis about the extent and value of risk exposure. b) Derivatives without a hedging relationship

The following table shows the derivatives which do not qualify for hedge accounting but are still used to hedge an existing risk position.

| T 084

Nominal volume Fair value

in millions of euros 31.12.2016 31.12.2015 31.12.2016 31.12.2015

Currency derivatives 236.0 332.6 0.8 0.7 Commodity derivatives Power futures 0.1 -0.2 Other commodity derivatives 1,730.6 1,226.3 17.8 -47.2 Other derivatives 0.1 0.1 Total 1,966.7 1,559.0 18.7 -46.7

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 115 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

c) Fair value hedges of positive market values of 225.6 million euros (previous year: 75.0 million euros) and negative market values totalling 133.3 mil- With regard to commodities, in the past fair value hedges were lion euros (previous year: 326.5 million euros). In the reporting recognised at fixed prices in order to hedge gas price risks (the risk period, the effective portion of commodity cash flow hedges with a of changes in fair value) resulting from distribution transactions. value of 112.1 million euros (previous year: -178.6 million euros) was Hedges based on the TTF (Title Transfer Facility) gas price index recognised in other comprehensive income. The ineffective portion were used as hedging instruments. The market value of the previ- totalled 0.2 million euros (previous year: 4.5 million euros). The ously hedged item which exists upon dissolution of the hedging basis adjustment totalled 8.3 million euros (previous year: 10.9 mil- relationship in 2014 remains accounted for until settlement. In the lion euros). Commodity hedging transactions resulted in an effect reporting year, decreases totalling 4.4 million euros resulting from recognised as an expense in profit and loss totalling 110.7 million settlements were recognised as other operating expenses. As at euros (previous year: 54.7 million euros). The hedged cash flows will the reporting date, the market values resulting from distribution be received in the following five years. The entire impact on profit transactions were positive at 1.5 million euros. and loss is expected within the same period of time.

d) Cash flow hedges At the end of the reporting period, the recognised fair values of derivatives used as currency cash flow hedges were made up Cash flow hedges are primarily used in the Group’s business of positive market values of 14.9 million euros (previous year: operations to hedge price risks in the purchase of gas, the 17.7 million euros) and negative market values totalling 0.3 million purchase of coal and CO2 certificate trading, as well as to euros (previous year: 3.2 million euros). In the reporting period, hedge foreign currency risks. the effective portion of currency cash flow hedges with a value of 6.5 million euros (previous year: 12.1 million euros) was recognised To hedge cash flow fluctuations stemming from future, highly in other comprehensive income. The basis adjustment totalled probable gas purchases, financial price hedges are used (such as -6.1 million euros (previous year: -9.8 million euros). Currency TTF swaps), while electricity forward contracts are used to hedge hedging transactions resulted in an effect recognised as an against cash flow fluctuations from highly probable electricity expense in profit and loss totalling 0.2 million euros (previous purchases. These contracts are realised in profit and loss within year: -0.7 million euros). To hedge foreign currency risks, EWE the following five business years. uses forward exchange contracts whose settlement and recognition in profit and loss can fall within the next three years. At the end of the reporting period, the recognised fair values of derivatives used as commodity cash flow hedges were made up Derivatives in connection with cash flow hedges:

| T 085

Nominal volume Fair value

in millions of euros 31.12.2016 31.12.2015 31.12.2016 31.12.2015

Currency derivatives 174.2 231.4 14.6 14.5 Commodity derivatives Power futures 1,159.5 1,055.1 19.4 -5.0 Other commodity derivatives 793.7 893.7 72.9 -246.5 Total 2,127.4 2,180.2 106.9 -237.0

EWE Integrated Report 2016 116 CONSOLIDATED FINANCIAL STATEMENTS

40. ADDITIONAL DISCLOSURES CONCERNING FINANCIAL INSTRUMENTS

a) Disclosures related to financial instrument categories under IAS 39, classes under IFRS 7 and fair value levels

The following is an overview of EWE AG’s disclosures related to financial instrument categories under IAS 39, classes under IFRS 7 and fair value levels:

Carrying amounts, bases of recognition and fair values by measurement category | T 086

Measure- ment Carrying Carrying category amount Fair value amount Fair value pursuant to as at as at as at as at IAS 39 31.12.2016 Basis of recognition under IAS 39 31.12.2016 31.12.2015 Basis of recognition under IAS 39 31.12.2015

Fair value Fair value recognised Fair value recognised Fair value outside of recognised in outside of recognised in Amortised Historical profit and profit and Amortised Historical profit and profit and in millions of euros cost cost loss loss cost cost loss loss

Assets Other non-current assets Loans and receivables LaR 116.2 116.2 116.4 105.5 105.5 105.5 Shares AfS 306.1 1.2 304.9 306.1 259.4 1.3 258.1 259.4 Financial assets measured at fair value Derivatives without a hedging relationship FAHfT 28.1 28.1 28.1 25.2 25.2 25.2 Derivatives with a hedging relationship N/A 76.2 76.2 76.2 39.3 39.3 39.3 Trade receivables LaR 764.8 764.8 764.8 895.1 895.1 895.1 Other receivables and assets Securities AfS 99.8 99.8 99.8 Securities FAHfT 3.7 3.7 3.7 4.8 4.8 4.8 Other financial assets LaR 124.2 124.2 124.2 103.6 103.6 103.6 Liquid assets LaR 351.3 351.3 351.3 352.0 352.0 352.0 Financial assets measured at fair value Derivatives without a hedging relationship FAHfT 78.4 78.4 78.4 72.9 72.9 72.9 Derivatives with a hedging relationship N/A 164.3 164.3 164.3 53.5 53.5 53.5

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 117 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

Carrying amounts, bases of recognition and fair values by measurement category | T 086

EWE Integrated Report 2016 118 CONSOLIDATED FINANCIAL STATEMENTS

Equity and liabilities Bonds FLAC 1,405.6 1,405.6 1,643.4 1,848.6 1,848.6 2,113.9 Liabilities to credit institutes FLAC 207.1 207.1 210.9 563.4 563.4 578.4 Trade payables FLAC 598.1 598.1 598.1 667.8 667.8 667.8 Other liabilities FLAC 596.3 596.3 599.7 1,124.2 1,124.2 1,126.3 Financial liabilities measured at fair value Derivatives without a hedging relationship FLHfT 87.8 87.8 87.8 144.9 144.9 144.9 Derivatives with a hedging relationship N/A 133.6 133.6 133.6 329.7 329.7 329.7

Of which aggregated into measurement categories (IAS 39): Loans and receivables (LaR) 1,356.5 1,356.5 1,356.7 1,456.2 1,456.2 1,456.2 Available-for-sale financial assets (AfS) 405.9 1.2 404.7 405.9 259.4 1.3 258.1 259.4 Financial assets held for trading (FAHfT) 110.2 110.2 110.2 102.9 102.9 102.9 Financial liabilities measured at amortised cost (FLAC) 2,807.1 2,807.1 3,052.1 4,204.0 4,204.0 4,486.4 Financial liabilities held for trading (FLHfT) 87.8 87.8 87.8 144.9 144.9 144.9

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 119 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

EWE Integrated Report 2016 120 CONSOLIDATED FINANCIAL STATEMENTS

The fair value of financial instruments is measured solely on a Listings on active markets are used as a reference for the measure- recurring basis. ment of commodity derivatives. If there are no listings available (due to insufficient liquidity in the market, for example), fair val- Fair value is the price that would be received to sell an asset ues are calculated on the basis of recognised valuation methods. or paid to transfer a liability in an orderly transaction between When available, trades that are identical to stock exchange trans- market participants at the measurement date. actions on the over-the-counter market are measured on the basis of the published closing rates of each stock exchange. The fair Available-for-sale financial assets encompass securities and values of unlisted products are measured on the basis of publicly non-consolidated interests that are not traded on an active available broker quotes or, if not available, on the basis of recog- market. The fair value of unlisted equity instruments is generally nised valuation methods using internal data. The risk of default is calculated using the discounted cash flow method. Unlisted equity measured. Energy deals conducted as part of commodity transac- instruments whose fair value could not be reliably measured due tions are generally subject to EFET (European Federation of Energy to a lack of sufficient recently planning data are measured at cost. Traders) agreements. Risks of default are accounted for by taking EWE had no intention to dispose of these instruments as at the netting agreements into consideration. end of the reporting period. With regard to derivatives, the credit and debit value adjustment Trade receivables, other receivables and assets as well as cash and (CVA/DVA) resulted in an expense of minor significance, similar to cash equivalents have short periods until maturity. For this reason, the previous year. their carrying amounts at the end of the reporting period generally correspond to their fair value. The maximum default risk is The fair value of exchange-traded bonds corresponds to the nomi- reflected by the carrying amounts of the assets recognised in the nal value of the bonds multiplied by the quoted price at the end of statement of financial position. the reporting period. As at 31 December 2016, the fair value of the bonds exceeded their carrying amount. The fair value of derivative financial instruments is dependent on trends in the underlying market factors. Each fair value is The fair value of other non-exchange traded, fixed-interest bonds measured and reviewed at regular intervals. or fixed-interest liabilities to credit institutions is measured as the present value of the payments stemming from these liabilities Derivative financial instruments are governed by conventional based on the applicable yield curves. When it comes to floating- offsetting agreements. Derivative transactions are generally rate liabilities to credit institutions, it is assumed that the carrying conducted on the basis of standard agreements which enable the amount will generally correspond to fair value due to the regular netting of all outstanding transactions with business partners adjustments made to the interest rates on the basis of current under certain conditions. market parameters.

Interest rate swaps, forward exchange contracts, coal swaps, gas Trade payables and other liabilities primarily have short maturi- price hedging contracts (swaps) and CO2 forwards are measured ties; the carrying amounts are therefore generally equivalent to using the standard market valuation method with maximum fair value. consideration given to observable market data such as currency spot and futures rates, yield curves and hourly price forward curves.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 121 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

The following table allocates financial instruments measured at fair value to the three levels of the fair value hierarchy:

| T 087

31.12.2016

in millions of euros Level 1 Level 2 Level 3 Total

Financial assets at fair value Shares 304.9 304.9 Securities 103.4 103.4 Derivative financial instruments 328.4 18.6 347.0 Total 103.4 328.4 323.5 755.3

Financial liabilities at fair value Derivative financial instruments 221.4 221.4 Total 221.4 221.4

| T 088

31.12.2015

in millions of euros Level 1 Level 2 Level 3 Total

Financial assets at fair value Shares 258.1 258.1 Securities 4.8 4.8 Derivative financial instruments 182.4 8.5 190.9 Total 4.8 182.4 266.6 453.8

Financial liabilities at fair value Derivative financial instruments 0.1 465.0 9.5 474.6 Total 0.1 465.0 9.5 474.6

The levels of the fair value hierarchy and their application to At the end of each reporting period, a review is conducted to assets and liabilities are described below: determine if there is a reason to reclassify assets or liabilities into or out of a valuation level. During the reporting period ending on »» Level 1: Listed (non-adjusted) prices for identical assets or 31 December 2016, EWE did not reclassify any assets or liabilities liabilities in active markets. between levels 1 and 2 of the fair value hierarchy, nor did it reclas- »» Level 2: Inputs other than listed market prices that are sify any assets or liabilities into or out of level 3 of the hierarchy. observable for the asset or liability, either directly (i.e. prices) or indirectly (i.e. derived from prices). »» Level 3: Inputs for assets and liabilities that are not based on observable market data.

EWE Integrated Report 2016 122 CONSOLIDATED FINANCIAL STATEMENTS

Changes to fair values in level 3

The following table provides an overview of financial instruments allocated to level 3 of the fair value hierarchy:

| T 089

Derivative financial Derivative financial Interests instruments instruments in millions of euros (assets) (assets) (liabilities)

As at 01.01.2016 258.1 8.5 9.5 Other operating income and other operating expenses recognised in profit and loss 10.0 -9.5 Gains and losses from other interests recognised in profit and loss (fair value of available-for-sale financial instruments) -0.1 Gains and losses recognised in other comprehensive income (market fluctuations of available-for-sale financial instruments) 41.3 Purchases 10.9 0.1 Sales -5.3 As at 31.12.2016 304.9 18.6

| T 090

Derivative financial Interests Derivative financial instruments in millions of euros (assets) instruments (assets) (liabilities)

As at 01.01.2015 191.0 25.4 43.7 Other operating income and other operating expenses recognised in profit and loss -16.9 -34.2 Gains and losses from other interests recognised in profit and loss (market fluctuations of available-for-sale financial instruments) -6.2 Gains and losses recognised in other comprehensive income (market fluctuations of available-for-sale financial instruments) 49.6 Purchases 23.7 As at 31.12.2015 258.1 8.5 9.5

The fair values of interests classified in level 3 are calculated using As at 31 December 2016, level 3 derivative financial instruments the discounted cash flow method based on planning figures from include gas contracts which also apply to trading periods for several periods for the cash flows to be discounted and assuming which there are still no active markets. In particular, this applies sustainable terminal value. This category includes non-exchange- to gas contracts linked to oil prices, the valuation of which is traded equity instruments with fair values that can be determined dependent on future changes in the wholesale market prices of with a sufficient degree of reliability. A hypothetical change to gas and oil, amongst other factors. All else being equal, when the WACC by +/-1 per cent would result in a theoretical decrease gas prices rise or oil prices fall, the market price of these supply in fair values of 65.3 million euros (previous year: decrease of contracts rises. To measure the value of contracts with volume 58.0 million euros) or an increase of 136.6 million euros (previous flexibility, EWE utilises a valuation model which includes Monte year: increase of 109.6 million euros). A hypothetical change to Carlo simulations that makes it possible to determine a price of EBIT by +/-10 per cent would result in a theoretical increase in fair the contract options. values of 24.2 million euros (previous year: increase of 24.9 million euros) or a decrease of 24.2 million euros (previous year: decrease of 24.9 million euros).

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 123 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

b) Offsetting financial instruments

The following overview shows the financial assets and financial liabilities that have not yet been offset, yet are subject to global netting agreements or similar agreements. The fair value of pledged and received financial collateral is based on margin payments.

| T 091

Fair value Values that of financial Offsetting of financial assets and financial Recognised Disclosed cannot be collateral liabilities as at 31.12.2016 in millions of euros gross values Offsetting net values offset received Net value

Derivatives (assets) 347.0 347.0 -155.8 -14.1 177.1 Derivatives (liabilities) 221.4 221.4 -155.8 -10.7 54.9

| T 092

Fair value Values that of financial Offsetting of financial assets and financial Recognised Disclosed cannot be collateral liabilities as at 31.12.2015 in millions of euros gross values Offsetting net values offset received Net value

Derivatives (assets) 190.9 190.9 -117.4 73.5 Derivatives (liabilities) 474.6 474.6 -117.4 -0.6 356.6

EWE Integrated Report 2016 124 CONSOLIDATED FINANCIAL STATEMENTS

c) Net profit/loss by measurement category

The following table provides an overview of net profit and loss (excluding profit/loss sharing and dividends) by IAS 39 category:

| T 093

from interest from subsequent measurement Net profit/loss

Impairment Currency loss/reversal of in millions of euros at fair value translation impairment 2016 2015 2016 2015 2016 2015 2016 2015 2016 2015

Loans and receivables (LaR) 13.0 16.4 2.9 11.3 -12.0 -10.9 3.9 16.8 Available-for-sale financial assets (AfS) 37.8 51.5 -0.1 -6.2 37.7 45.3 Financial instruments held for trading (FAHfT and FLHfT) 92.1 13.5 92.1 13.5 Financial liabilities measured at amortised cost (FLAC) -168.9 -153.7 -168.9 -153.7 Total -155.9 -137.3 129.9 65.0 2.9 11.3 -12.1 -17.1 -35.2 -78.1

Interest income and expenses from financial instruments are Furthermore, Group companies are provided with funds for recognised in the item net interest income/expense. Other long-term financing purposes. Fund-raising on the banking and components of net profit/loss are recognised in other operating capital markets is generally carried out by EWE AG at the level income and expenses as well as in profit/loss from investments. of the parent company.

41. RISK MANAGEMENT The EWE Group manages its liquidity by maintaining a sufficient supply of cash, cash equivalents and lines of credit with banks, Liquidity risks and by means of the cash inflows from operations. Financial flexibility is secured with bilateral credit lines as well as a syndi- The liquidity risk of a company is the risk that it is unable to meet cated, revolving credit facility of 750.0 million euros. The term of its financial obligations. In order to ensure that it remains solvent, the syndicated, revolving credit facility ends in November 2021. the EWE Group obtains the majority of the funds needed to finance This credit line is used for general equipment finance. As at working capital and investments from the proceeds of business 31 December 2016, EWE had drawn on a total of 0.0 million euros operations and external financing. The EWE Group monitors the risk of this credit line (previous year: 175.0 million euros). The bilateral of a liquidity shortfall continuously by means of liquidity planning. credit lines available as at the reporting date totalled 409.4 mil- The maturity periods of financial investments and financial assets lion euros (previous year: 433.9 million euros). Of this amount, are taken into consideration, as are expected cash flows from oper- 120.4 million euros (previous year: 55.2 million euros) has been ating activities. drawn on in some form, including as guarantees.

As part of operative liquidity management, the EWE Group pools The EWE Group has not made any financial covenants whatsoever all of its liquid assets on a daily basis. In this context, Group in relation to financing agreements. companies with excess liquidity are obliged to pool it centrally and provide companies with liquidity shortfalls with the funds The liquidity held with banks as well as the current and non- they require. current lines of credit provide EWE AG with sufficient flexibility to cover the Group’s liquidity needs.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 125 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

The following overview of the maturity of financial liabilities shows future repayments on the primary financial liabilities.

| T 094

in millions of euros Cash flows

31.12.2016 < 1 year 1 – 5 years > 5 years

Original financial liabilities: Bonds -209.9 -1,388.6 -72.0 Liabilities to financial institutions -78.3 -123.1 -12.3 Liabilities from guaranteed dividends -2.8 -11.1 -22.1 Trade payables -598.1 -3.0 -0.1 Other financial liabilities -330.8 -47.9 -354.3

| T 095

in millions of euros Cash flows

31.12.2015 < 1 year 1 – 5 years > 5 years

Original financial liabilities: Bonds -224.5 -1,419.0 -600.3 Liabilities to financial institutions -305.1 -264.7 -15.8 Liabilities from guaranteed dividends -2.0 -11.1 -25.0 Trade payables -667.8 -5.5 -0.1 Other financial liabilities -858.1 -45.3 -364.5

Cash flows from power derivatives (not own use) | T 096

31.12.2016 31.12.2015

in millions of euros < 1 year 1 – 5 years < 1 year 1 – 5 years

Cash outflows -441.7 -167.9 -372.2 -184.4 Cash inflows 370.3 179.7 287.0 211.6 Net cash flows -71.4 11.8 -85.2 27.2

The cash flows apply to electricity derivatives with negative fair values of 106.7 million euros (previous year: 75.1 million euros) as well as positive fair values of 126.1 million euros (previous year: 69.9 million euros). From a business perspective, it is only sensible to consider all cash inflows and outflows from the trading of all electricity derivatives (acquisitions and sales). The own-use line items that are of importance in this context are not presented in the table above as they are not financial instruments as defined by IFRS.

EWE Integrated Report 2016 126 CONSOLIDATED FINANCIAL STATEMENTS

Gas derivative cash flows (not own use) | T 097

31.12.2016 31.12.2015

in millions of euros < 1 year 1 – 5 years < 1 year 1 – 5 years

Cash outflows -668.0 -167.9 -534.1 -162.3 Cash inflows 380.5 179.7 113.2 15.9 Net cash flows -287.5 11.8 -420.9 -146.4

The cash flows apply to gas derivatives with negative fair values Trading deals can give rise to risks stemming from financial of 63.9 million euros (previous year: 294.1 million euros) as difficulties or the ability to deliver on the part of the business and well as positive fair values of 144.7 million euros (previous year: trading partner. The risk can come to bear if the trading partner 46.3 million euros). From a business perspective, it is only sensible defaults (such as in the case of insolvency), and can consist of: to consider all cash inflows and outflows from the trading of all gas derivatives (acquisitions and sales). The own-use line items »» Loss of receivables for physical goods and financial that are of importance in this context are not presented in the transactions; table above as they are not financial instruments as defined by »» Repurchase risk arising from purchase contracts and IFRS. The gas derivatives are part of the other commodity price increases; derivatives (not own use). »» Non-acceptance risk arising from sales contracts, if prices have since declined. Credit risks Potential default risks are limited by means of specific changes in Credit risk describes the threat of a financial loss if a business or framework agreements with trading partners. These framework trading partner is not able to meet its contractual obligations. agreements set forth the general terms for individual contracts in Within the scope of normal business operations, trade receivables order to allow them to be transacted efficiently. Together with are continuously monitored. The risk of default is taken into the joint arrangements for amending the framework agreement – account through the recognition of specific valuation allowances usually a framework agreement from the European Federation of and lump-sum valuation allowances. The most significant credit Energy Traders (EFET) or a German framework agreement for risks to which the EWE Group is exposed arise in the business with financial futures (Deutscher Rahmenvertrag für Finanztermin customers in contracts with special terms, in energy and foreign geschäfte (DRV) – they help ensure that business is conducted in exchange trading and the investment of liquid assets. In order to an orderly and risk-focused manner. The framework agreements limit credit risks arising from financial difficulties or insolvency in include stipulations governing collateral to be provided, if neces- the business with customers in contracts with special terms, offers sary, as well as on measures to protect the parties from losses are only presented to new customers with excellent credit ratings. due to insolvency, among other clauses.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 127 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

To minimise the credit risk from energy trading partners, business The sensitivities used in measuring power, natural gas, coal and is preferably only concluded with trading partners with very good emissions rights derivatives as well as for currencies and interest to excellent credit ratings. To determine their credit score, all rates are shown below. In this context, only derivatives accounted trading partners are subject to an internal ranking process carried for as financial instruments whose market value fluctuations out on a regular basis. After they have been classified in a rating affect equity and/or profit and loss were included. category, a limit is set for the maximum market value of open items this partner. The internal credit rating encompasses both In contrast, derivatives used for the physical fulfilment of non- quantitative and qualitative factors. If available, scores from financial items in accordance with the company’s expected pur- external rating agencies and providers of business reports (Stand- chase, sale or usage requirements (“own use”) are not included. ard & Poor’s, Moody’s, Fitch, D&B) are used wherever possible. These items are not accounted for within the scope of IAS 39. As Transactions are only permitted with trading partners for whom a such, the following sensitivities do not reflect the actual economic limit in euros has been specified, and with whom the specified risks and merely serve to fulfil the disclosure requirements of limit has not yet been reached. The risk controlling division con- IFRS 7. The economic sensitivity is regarded as low. tinuously monitors compliance with limits. With the exception of CO2 transactions, no cash flow effects In connection with the investment of cash and cash equivalents, result from the specified market value fluctuations. In CO2 trad- the EWE Group is exposed to losses if the counterparty does not ing, market value fluctuations are compensated for financially meet their contractual payment obligations. Cash and cash equiva- through a margin deposit specified within the terms of margin lents are therefore invested solely with financial institutions as agreements. instant access and term deposits. Furthermore, risk is also managed by diversifying across counterparties by means of a limit Sensitivity analyses assume a change in the underlying market system. price or exchange rate of +/-10 per cent and/or interest of +/-100 basis points (bp) across all recognised supply years or Market price risks periods.

Market price risks are the risks of fluctuations in the fair value or Power future cash flows of a financial instrument due to market risks. Within the EWE Group, this primarily applies to price risks related To measure, manage and limit the market price risks which affect to commodities, currency exchange and interest. the entire power portfolio, a number of different strategies are applied in conjunction with dynamic price and volume limits. The amount of these limits is determined for a supply year and the risk controlling team monitors compliance on a regular basis.

Overview of market price risk – power:

| T 098

Change in Impact on Impact on other price trends profit and loss comprehensive income

in millions of euros 31.12.2016 31.12.2015 31.12.2016 31.12.2015

Power futures requiring physical fulfilment using hedge accounting +10% 7.9 4.7 using hedge accounting -10% -7.9 -4.7 Total +10% 7.9 4.7 Total -10% -7.9 -4.7

EWE Integrated Report 2016 128 CONSOLIDATED FINANCIAL STATEMENTS

Gas

Gas supply contracts with end customers with a fixed gas price are subject to market risks. There is a risk of price changes in gas purchase contracts with a price formula that includes variable elements. To minimise this risk, the energy trading division uses futures contracts in the form of oil swaps, TTF-based or NCG- based hedges (NetConnect Germany), taking into account the individual terms of the supply contracts.

Overview of market price risk – gas:

| T 099

Change in Impact on Impact on other price trends profit and loss comprehensive income

in millions of euros 31.12.2016 31.12.2015 31.12.2016 31.12.2015

Gas futures requiring physical fulfilment using hedge accounting +10% 10.5 2.6 using hedge accounting -10% -10.5 -3.8 not using hedge accounting +10% -4.6 -1.3 not using hedge accounting -10% 5.9 1.9

Gas futures requiring financial fulfilment using hedge accounting +10% 66.9 55.3 using hedge accounting -10% -66.9 -55.3 not using hedge accounting +10% 27.8 15.8 not using hedge accounting -10% -27.8 -15.8 Total +10% 23.2 14.5 77.4 57.9 Total -10% -21.9 -13.9 -77.4 -59.1

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 129 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

Coal

The following table shows sensitivity based on the API 2 index, which is listed in US dollars. In this context, the EWE Group assumes a highly efficient hedging relationship for the coal swaps used as hedging instruments. The items were translated from US dollars into euros at the end of each reporting period.

Overview of market price risk – coal:

| T 100

Change in Impact on Impact on other price trends profit and loss comprehensive income

in millions of euros 31.12.2016 31.12.2015 31.12.2016 31.12.2015

Coal swaps using hedge accounting +10% 6.8 5.2 using hedge accounting -10% -6.8 -5.2 not using hedge accounting +10% 2.4 1.3 not using hedge accounting -10% -2.4 -1.3 Total +10% 2.4 1.3 6.8 5.2 Total -10% -2.4 -1.3 -6.8 -5.2

CO2 certificates

Overview of market price risk – CO2 certificates:

| T 101

Change in Impact on Impact on other price trends profit and loss comprehensive income

in millions of euros 31.12.2016 31.12.2015 31.12.2016 31.12.2015

CO2 futures using hedge accounting +10% 1.0 0.9 using hedge accounting -10% -1.0 -0.9 not using hedge accounting +10% 0.7 1.5 not using hedge accounting -10% -0.7 -1.5 Total +10% 0.7 1.5 1.0 0.9 Total -10% -0.7 -1.5 -1.0 -0.9

EWE Integrated Report 2016 130 CONSOLIDATED FINANCIAL STATEMENTS

Currencies

The Group is mainly exposed to foreign exchange risks which result from trading commodities, primarily gas and coal, in foreign currencies. This risk is due to the variability of future cash flows resulting from volatile exchange rates, especially EUR/USD, USD/TRY and EUR/PLN. The Group uses hedges in line with its risk management policy to minimise this risk. In this context, the EWE Group assumes the hedging relationship consisting of the hedged items (e.g. planned coal purchases) and the foreign currency futures contracts is highly efficient.

Overview of foreign exchange risk:

| T 102

Change in exchange rate euro/ Impact on Impact on other foreign currency profit and loss comprehensive income

in millions of euros 31.12.2016 31.12.2015 31.12.2016 31.12.2015

Coal swaps using hedge accounting +10% 0.8 -4.9 using hedge accounting -10% -0.6 4.0 not using hedge accounting +10% 0.2 -0.1 not using hedge accounting -10% -0.2

Forward exchange contracts using hedge accounting +10% -15.4 -21.4 using hedge accounting -10% 18.8 26.1 not using hedge accounting +10% -0.9 -1.3 not using hedge accounting -10% 1.1 1.6 Total +10% -0.7 -1.4 -14.6 -26.3 Total -10% 0.9 1.6 18.2 30.1

Interest The sensitivity analyses for interest rate risk are based on the following assumptions: The purpose of EWE’s interest rate risk management is to manage and monitor the interest-bearing and interest-rate-sensitive »» Changes in the market interest rates for fixed-interest assets and liabilities in the statement of financial position. The primary financial instruments only have an effect on profit objective is to mitigate the impact of interest rate fluctuations and loss for the period if these are carried at fair value. and risks on the Group’s earnings and assets position. »» Fixed-interest financial instruments carried at amortised cost are not subject to interest rate risks.

Floating-rate financial liabilities and interest derivatives based on variable interest rates can lead to earnings volatility.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 131 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

Overview of interest rate risks:

| T 103

Change in Impact on Impact on other interest rates profit and loss comprehensive income

in millions of euros 31.12.2016 31.12.2015 31.12.2016 31.12.2015

Floating-rate liabilities to credit institutions not using hedge accounting +100 bp -1.9 not using hedge accounting -100 bp 1.3

Miscellaneous not using hedge accounting +100 bp -1.0 -1.3 not using hedge accounting -100 bp 0.3 Total +100 bp -1.0 -3.2 Total -100 bp 1.6

42. SEGMENT REPORTING Energy and telecommunications sales as well as energy trading and the information technology business are consolidated in the The segments in the EWE Group are determined in accordance Sales, Services and Trading segment. with internal reporting approaches (a management-based approach). The International segment encompasses EWE’s business activities in Turkey and Poland. The resulting segments are as follows: The swb segment consists of the swb sub-group. This segment »» Renewables, Grids and Gas Storage encompasses the provision of energy and water services, espe- »» Sales, Services and Trading cially supplying energy and water to the municipalities of Bremen »» International and Bremerhaven and their surrounding areas. »» swb »» Group Central Division In addition to EWE AG as a holding company for the Group’s property portfolio, the Group Central Division encompasses In addition to power generation from renewable energy sources as the investments managed directly by EWE AG as well as the c well as the gas storage business, the Renewables, Grids and Gas ompanies consolidated at the Group-wide level. As at 31 Decem- Storage segment encompasses power grids, natural gas pipelines, ber 2015 the shares in VNG AG were classified as held for sale. telecommunications networks and water and waste water.

EWE Integrated Report 2016 132 CONSOLIDATED FINANCIAL STATEMENTS

SEGMENT REPORTING AS AT 31 DECEMBER 2016 (I/II)

| T 104

Renew Renew- ables, Grids ables, Grids Sales, Sales, and Gas and Gas Services Services Inter- Inter- Storage Storage and Trading and Trading national national in millions of euros 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015

REVENUE (excluding electricity and energy taxes) External sales 2,012.9 1,951.8 3,763.9 4,053.4 727.9 759.4 Sales between the segments 862.7 832.0 532.8 473.3 0.2 Total revenue (excluding electricity and energy taxes) 2,875.6 2,783.8 4,296.7 4,526.7 728.1 759.4

PROFIT/LOSS Segment profit/loss (operating EBIT) 333.7 314.4 61.2 80.4 25.6 25.3

OTHER INFORMATION Segment assets 3,615.0 3,727.6 1,550.2 1,407.3 505.5 596.4

Financial investments and securities Investments in associates accounted for using the equity method 65.9 70.1 37.0 36.6 Income tax refund claims and deferred tax assets Consolidated assets Segment liabilities 2,405.0 2,334.7 1,219.5 1,369.8 319.5 399.9 Financial liabilities (bonds, liabilities to credit institutions) Deferred taxes, tax provisions and income tax liabilities Consolidated liabilities Payments for investments 240.3 257.4 75.6 80.6 51.0 30.5 Other operating income 78.1 61.1 202.0 198.8 22.2 31.2 Material expenses -1,970.9 -1,882.4 -3,799.7 -4,036.4 -635.1 -697.3 Personnel expenses -192.3 -188.5 -234.8 -231.7 -25.7 -19.7 Depreciation and amortisation -226.0 -220.9 -62.7 -65.9 -17.1 -15.4 Impairments -144.9 -4.2 -6.1 -3.8 -0.9 Other operating expenses -276.5 -282.4 -313.7 -353.8 -38.7 -33.0 Income from investments 2.2 2.4 5.4 3.0 Income from interests in associates -4.6 0.6 1.6 0.9 Significant non-cash items -13.9 -6.6 52.1 -22.5 1.9 2.1 Employees (average) 2,079 2,042 3,213 3,188 965 832

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 133 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

SEGMENT REPORTING AS AT 31 DECEMBER 2016 (II/II)

| T 105

Group Group Central Central swb swb Division Division Group Group in millions of euros 31.12.2016 31.12.2015 31.12.2016 31.12.2015 31.12.2016 31.12.2015

REVENUE (excluding electricity and energy taxes) External sales 1,058.7 1,052.1 2.9 2.6 7,566.3 7,819.3 Sales between the segments 272.1 224.2 -1,667.7 -1,529.5 Total revenue (excluding electricity and energy taxes) 1,330.8 1,276.3 -1,664.8 -1,526.9 7,566.3 7,819.3

PROFIT/LOSS Segment profit/loss (operating EBIT) 165.2 90.3 -51.1 -82.3 534.6 428.1

OTHER INFORMATION Segment assets 2,465.8 2,437.1 -320.6 1,067.8 7,815.9 9,236.2

Financial investments and securities 426.1 269.7 Investments in associates accounted for using the equity method 20.1 19.3 123.0 126.0 Income tax refund claims and deferred tax assets 70.2 112.4 Consolidated assets 8,435.2 9,744.3 Segment liabilities 1,680.2 1,713.3 -945.4 -445.5 4,678.8 5,372.2 Financial liabilities (bonds, liabilities to credit institutions) 1,612.7 2,412.0 Deferred taxes, tax provisions and income tax liabilities 201.8 210.9 Consolidated liabilities 6,493.3 7,995.1 Payments for investments 77.9 77.6 24.4 220.8 469.2 666.9 Other operating income 189.8 75.8 -56.7 -42.3 435.4 324.6 Material expenses -889.0 -841.5 1,533.0 1,390.2 -5,761.7 -6,067.4 Personnel expenses -200.0 -215.7 -69.7 -71.7 -722.5 -727.3 Depreciation and amortisation -108.3 -112.6 -21.2 -21.1 -435.3 -435.9 Impairments -6.6 -135.3 -12.9 -170.5 -144.2 Other operating expenses -156.5 -132.1 207.5 194.7 -577.9 -606.6 Income from investments 7.1 3.3 240.5 -5.8 255.2 2.9 Income from interests in associates 2.3 2.8 -24.7 -0.7 -20.4 Significant non-cash items 64.7 -77.6 5.4 -78.2 110.2 -182.8 Employees (average) 2,178 2,166 613 627 9,048 8,855

EWE Integrated Report 2016 134 CONSOLIDATED FINANCIAL STATEMENTS

The following table shows external sales by product and service:

| T 106

Renewables, Sales, Group 2016 Grids and Services Central in millions of euros Gas Storage and Trading International swb Division Group

Power 1,723.0 1,923.7 45.8 587.4 4,279.9 Gas 216.4 1,254.6 652.6 232.0 2,355.6 ICT 490.9 29.3 520.2 Other 73.5 94.7 0.2 239.3 2.9 410.6 External sales 2,012.9 3,763.9 727.9 1,058.7 2.9 7,566.3

| T 107

Renewables, Sales, Group 2015 Grids and Services Central in millions of euros Gas Storage and Trading International swb Division Group

Power 1,705.3 2,046.0 16.0 569.9 4,337.2 Gas 187.8 1,431.0 743.1 234.7 2,596.6 ICT 479.7 479.7 Other 58.7 96.7 0.3 247.5 2.6 405.8 External sales 1,951.8 4,053.4 759.4 1,052.1 2.6 7,819.3

The following table shows external sales, assets and capital expenditure by region:

| T 108

Germany Germany International International Group Group in millions of euros 2016 2015 2016 2015 2016 2015

External sales 6,838.4 7,059.9 727.9 759.4 7,566.3 7,819.3 Segment assets 7,310.4 8,639.8 505.5 596.4 7,815.9 9,236.2 Payments for investments 418.2 636.4 51.0 30.5 469.2 666.9

Of the total sales generated outside of Germany, 679.2 million euros (previous year: 718.1 million euros) were generated in Turkey. The segment assets for Turkey total 437.5 million euros (previous year: 537.3 million euros).

Due to EWE’s large number of customers and wide range of business activities, EWE has no customers whose volume of business represents a significant amount in relation to the entire volume of business of the EWE Group.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 135 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

Operating EBIT can be reconciled as follows to earnings before The cash flow from financing activities includes profit distribu- taxes (EBT): tions or dividends totalling 88.0 million euros (previous year: 88.0 million euros) to EWE AG’s shareholders. This corresponds to | T 109 402.40 euros (previous year: 362.16 euros) per qualifying share. in millions of euros 2016 2015 Additionally, a special dividend of 137.5 million euros (previous year: 0.0 million euros) was distributed to EWE AG’s shareholders. Operating EBIT 534.6 428.1 This corresponds to 673.65 euros (previous year: 0.00 euros) per Derivatives 87.7 -11.9 qualifying share. No dividends were distributed to minority share- Impairments -174.9 -150.4 holders in the reporting year (previous year: 0.6 million euros). Investments 243.0 -0.1 Restructuring -21.2 -53.7 Non-cash investments of 67.1 million euros (previous year: Donations -20.0 48.4 million euros) primarily relate to the capitalisation of EBIT 649.2 212.0 rehabilitation provisions. Interest income 13.0 16.8 Interest expenses -219.5 -197.7 As at 31 December 2016, cash and cash equivalents were not EBT 442.7 31.1 subject to any restrictions on use.

43. CASH FLOW STATEMENT 44. INFORMATION ON EASEMENTS

Liquid assets comprise the item cash and cash equivalents on A number of easements – that is, agreements governing the use the statement of financial position, which consist of 351.3 million of public property for electricity and natural gas, and concession euros (previous year: 352.0 million euros) as well as cash pooling agreements in the water sector – exist between companies in the receivables of 0.9 million euros (previous year: 0.3 million euros). EWE Group and the local authorities in EWE’s network areas. Liquid assets encompass cash in hand and bank balances. In its easement agreements, the companies in the EWE Group are To calculate cash flow from operating activities, the additions given the right to use public spaces within the contractual terri- to and reversals of provisions are presented as non-cash changes tory for the construction, operation and maintenance of power in provisions and the use of provisions is shown in changes in lines and pipelines as well as the associated equipment which liabilities and other components of equity and liabilities. The cash serves to directly supply end customers with power and natural flow from operating activities includes dividends received totalling gas. The water concession agreements oblige the local authorities 17.5 million euros (previous year: 65.8 million euros). in the contract territory to agree to grant EWE the exclusive use of public spaces for the installation and operation of pipelines to Besides a non-cash portion of 10 per cent of treasury shares, directly supply the public with water. Within the scope of these the consideration received for the sale of the shares in VNG agreements, a licence fee must be paid to the municipality for the (74.2 per cent) includes a cash settlement recognised under use of public land. incoming payments from the divestiture of other non-current assets. These agreements are generally entered into for a period of 20 years. If the easements are not renewed, EWE is legally obliged Payments for investments in shares in fully consolidated com to transfer the local distribution facilities to the new energy panies essentially comprise the acquisition of the shares in supplier in return for reasonable consideration. Millenicom less the 3.4 million euros in liquid funds acquired.

EWE Integrated Report 2016 136 CONSOLIDATED FINANCIAL STATEMENTS

45. SELECTION OF SIGNIFICANT SHAREHOLDINGS PURSUANT TO ARTICLE 313, SECTION 2 OF THE HGB AS AT 31.12.2016

| T 110

Name of company and location of headquarters Interest Annual in thousands of euros in % Equity profit/loss

Affiliated companies Consolidated: Bioenergie Schwarme GmbH, Bremen 100.00 1) 1,032 215 BREKOM GmbH, Bremen 100.00 1) 11,316 1,066 4) BTC Business Technology Consulting AG, Oldenburg 100.00 12,902 2) BTC IT Services GmbH, Oldenburg 100.00 1) 1,463 2) Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve Taahhüt A.Ş., Bursa, Turkey 80.00 1) 64,145 -5,138 4) Energieversorgung Weser-Ems GmbH, Oldenburg 100.00 170,171 2) Enervis Enerji Servis Sanayi ve Ticaret A.Ş., Istanbul, Turkey 100.00 1) 10,328 4,463 4) EWC Windpark Cuxhaven GmbH, Oldenburg 100.00 1) 2,230 610 4) EWE Biogas GmbH & Co. KG, Wittmund 100.00 -107 -779 3) EWE Bürgerwindpark Köhlen GmbH & Co. KG, Oldenburg 100.00 1) 19 -58 4) EWE energia Sp. z o. o., Międzyrzecz, Poland 100.00 1) 87,825 2,546 3) EWE Enerji A.Ş., Istanbul, Turkey 100.00 1) 18,616 15,373 4) EWE ERNEUERBARE ENERGIEN GmbH, Oldenburg 100.00 5,206 2) EWE GASSPEICHER GmbH, Oldenburg 100.00 160,090 2) EWE NETZ GmbH, Oldenburg 96.92 5) 222,799 2) EWE Offshore Service & Solutions GmbH, Oldenburg 100.00 25 2) EWE Polska Sp. z o. o., Poznań, Poland 100.00 94,338 285 3) EWE TEL GmbH, Oldenburg 100.00 95,908 2) EWE TELEKOMÜNIKASYON HIZMETLERI A.Ş., Istanbul, Turkey 100.00 1) 54 -1 2), 4) EWE TRADING GmbH, Bremen 100.00 30,026 2) EWE Turkey Holding A.Ş., Istanbul, Turkey 100.00 272,286 7,725 4) EWE VERTRIEB GmbH, Oldenburg 100.00 152,156 2) EWE WASSER GmbH, Cuxhaven 100.00 1) 14,216 2) EWE Windpark Hatten GmbH, Hatten 100.00 1) 732 548 4) EWE Windpark Köhlen GmbH & Co. KG, Oldenburg 100.00 1) 192 -554 4) EWE-WINDSERVICE GmbH, Krummhörn 100.00 1) 407 382 4) Gastransport Nord GmbH, Oldenburg 100.00 20,790 2) Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş., Kayseri, Turkey 80.00 1) 24,331 6,109 4) Millenicom Telekomünikasyon Hizmetleri A.Ş., Istanbul, Turkey 100.00 1) -3,017 -6,831 4) nordcom Niedersachsen GmbH, Oldenburg 100.00 1) 525 2) Offshore-Windpark RIFFGAT GmbH & Co. KG, Oldenburg 99.58 1) 311,530 10,727 4) PRO CONSULT Management- und Systemberatung GmbH, Mainz 100.00 1) 270 174 swb Abrechnungsservice GmbH, Bremen 100.00 1) 517 3,977

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 137 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

45. SELECTION OF SIGNIFICANT SHAREHOLDINGS PURSUANT TO ARTICLE 313, SECTION 2 OF THE HGB AS AT 31.12.2016

| T 110

Name of company and location of headquarters Interest Annual Name of company and location of headquarters Interest Annual in thousands of euros in % Equity profit/loss in thousands of euros in % Equity profit/loss

Affiliated companies Affiliated companies Consolidated: Consolidated: Bioenergie Schwarme GmbH, Bremen 100.00 1) 1,032 215 swb AG, Bremen 100.00 294,799 40,952 BREKOM GmbH, Bremen 100.00 1) 11,316 1,066 4) swb Beleuchtung GmbH, Bremen 99.00 1) 250 -328 BTC Business Technology Consulting AG, Oldenburg 100.00 12,902 2) swb Bremerhaven GmbH, Bremerhaven 100.00 1) 1,980 7,121 BTC IT Services GmbH, Oldenburg 100.00 1) 1,463 2) swb CREA GmbH, Bremerhaven 100.00 77 -1,276 Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve Taahhüt A.Ş., Bursa, Turkey 80.00 1) 64,145 -5,138 4) swb Entsorgung GmbH & Co. KG, Bremen 100.00 1) 140,693 8,670 Energieversorgung Weser-Ems GmbH, Oldenburg 100.00 170,171 2) swb Erzeugung AG & Co. KG, Bremen 100.00 1) -20,730 31,007 Enervis Enerji Servis Sanayi ve Ticaret A.Ş., Istanbul, Turkey 100.00 1) 10,328 4,463 4) swb Erzeugung und Entsorgung AG & Co. KG, Bremen 100.00 1) 189,463 23,042 EWC Windpark Cuxhaven GmbH, Oldenburg 100.00 1) 2,230 610 4) swb Services AG & Co. KG, Bremen 100.00 1) 10,351 7,274 EWE Biogas GmbH & Co. KG, Wittmund 100.00 -107 -779 3) swb Vertrieb Bremen GmbH, Bremen 100.00 1) 7,249 32,739 EWE Bürgerwindpark Köhlen GmbH & Co. KG, Oldenburg 100.00 1) 19 -58 4) swb Vertrieb Bremerhaven GmbH & Co. KG, Bremerhaven 100.00 1) -220 3,184 EWE energia Sp. z o. o., Międzyrzecz, Poland 100.00 1) 87,825 2,546 3) swb Windpark Am Zolltor GmbH & Co. KG, Bremerhaven 100.00 1) 2,364 364 EWE Enerji A.Ş., Istanbul, Turkey 100.00 1) 18,616 15,373 4) swb Windpark Essel GmbH & Co. KG, Bremerhaven 100.00 1) 1,953 -29 EWE ERNEUERBARE ENERGIEN GmbH, Oldenburg 100.00 5,206 2) swb Windpark Weserufer GmbH & Co. KG, Bremerhaven 100.00 1) 3,860 452 EWE GASSPEICHER GmbH, Oldenburg 100.00 160,090 2) wesernetz Bremen GmbH, Bremen 99.00 1) 211,002 43,112 EWE NETZ GmbH, Oldenburg 96.92 5) 222,799 2) wesernetz Bremerhaven GmbH, Bremerhaven 99.00 1) 34,468 7,498 EWE Offshore Service & Solutions GmbH, Oldenburg 100.00 25 2) wesernetz Stuhr GmbH & Co. KG, Bremen 100.00 1) 6,773 954 EWE Polska Sp. z o. o., Poznań, Poland 100.00 94,338 285 3) wesernetz Weyhe GmbH & Co. KG, Bremen 100.00 1) 4,231 963 EWE TEL GmbH, Oldenburg 100.00 95,908 2) Windfarm Elsdorf II GmbH, Oldenburg 100.00 1) -834 -25 EWE TELEKOMÜNIKASYON HIZMETLERI A.Ş., Istanbul, Turkey 100.00 1) 54 -1 2), 4) Windfarm Märkisch-Linden GmbH & Co. KG, Kränzlin 85.20 1) 8,208 -370 EWE TRADING GmbH, Bremen 100.00 30,026 2) Windpark Industriehäfen GmbH & Co. KG, Bremerhaven 74.90 1) 1,760 160 EWE Turkey Holding A.Ş., Istanbul, Turkey 100.00 272,286 7,725 4) Zweite EWE Offshore Beteiligungs GmbH, Oldenburg 100.00 327,210 2) EWE VERTRIEB GmbH, Oldenburg 100.00 152,156 2) EWE WASSER GmbH, Cuxhaven 100.00 1) 14,216 2) Other interests: 2) EWE Windpark Hatten GmbH, Hatten 100.00 1) 732 548 4) BIBER GmbH – Bildung Betreuung Erziehung, Oldenburg 100.00 73 3) EWE Windpark Köhlen GmbH & Co. KG, Oldenburg 100.00 1) 192 -554 4) E3/DC GmbH, Oldenburg 100.00 1,115 -674 1) 3) EWE-WINDSERVICE GmbH, Krummhörn 100.00 1) 407 382 4) ENRO Ludwigsfelde Energie GmbH, Ludwigsfelde 100.00 8,180 664 1) 2) Gastransport Nord GmbH, Oldenburg 100.00 20,790 2) EWE Direkt GmbH, Oldenburg 100.00 23 2) Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş., Kayseri, Turkey 80.00 1) 24,331 6,109 4) EWE Urbanisation Dienstleistungs GmbH (UDG), Bremen 100.00 2,374 3) Millenicom Telekomünikasyon Hizmetleri A.Ş., Istanbul, Turkey 100.00 1) -3,017 -6,831 4) Grünspar GmbH, Münster 90.00 -637 -3,705 1) 2) nordcom Niedersachsen GmbH, Oldenburg 100.00 1) 525 2) PBB GmbH, Oldenburg 100.00 496 2) Offshore-Windpark RIFFGAT GmbH & Co. KG, Oldenburg 99.58 1) 311,530 10,727 4) proNaturWatt GmbH, Oldenburg 100.00 25 1) 3) PRO CONSULT Management- und Systemberatung GmbH, Mainz 100.00 1) 270 174 SOCON Sonar Control Kavernenvermessung GmbH, Giesen 62.00 7,115 2,522 1) 3) swb Abrechnungsservice GmbH, Bremen 100.00 1) 517 3,977 TEWE Energieversorgungsgesellschaft mbH Erkner, Erkner 100.00 4,552 86 1) Indirect investment

2) Control (including partial control) and/or profit and loss transfer agreements exist with this company. 3) Equity and annual profit/loss are from 2015 4) Preliminary annual profit/loss are from 2016 5) A 95.12% interest is held indirectly. 6) This company is recognised using the equity method as part of Hansewasser Ver- und Entsorgungs-GmbH, Bremen. 7) This company was founded in 2016. 8) This company has entered into a profit/loss transfer agreement with another company.

EWE Integrated Report 2016 138 CONSOLIDATED FINANCIAL STATEMENTS

T 110

Name of company and location of headquarters Interest Annual in thousands of euros in % Equity profit/loss

Affiliated companies Consolidated: DOTI Deutsche Offshore-Testfeld- und Infrastruktur-GmbH & Co. KG, Oldenburg 47.50 1) 167,890 2,770 3) Gemeinschaftskraftwerk Bremen GmbH & Co. KG, Bremen 51.76 1) 59,314 -4,558 4) GWAdriga GmbH & Co. KG, Berlin 48.00 7) hanseWasser Bremen GmbH, Bremen 38.20 6) 51,774 12,050 3) Hansewasser Ver- und Entsorgungs-GmbH, Bremen 51.00 1) 56,816 10,496 4) htp GmbH, Hanover 50.00 30,634 3,158 3) swb Weserwind GmbH & Co. KG, Bremen 50.00 1) 1,894 454 4) Trianel Windkraftwerk Borkum II GmbH & Co. KG, Oldenburg 100.00 3,571 -399 3) Weserkraftwerk Bremen GmbH & Co. KG, Bremen 50.00 1) 6,577 -711 4) Windpark Köhlen GmbH, Oldenburg 50.00 1) 254 446 4) Windpark Spolsen GmbH & Co. KG, Zetel 40.00 1) 2,006 478 3)

Other interests: Gasversorgung Angermünde GmbH, Angermünde 49.00 1) 2,089 216 3) Stadtwerke Ludwigsfelde GmbH, Ludwigsfelde 20.00 1) 12,577 1,798 3) Stadtwerke Strausberg GmbH, Strausberg 38.38 1) 11,747 1,793 3), 8) Städtische Betriebswerke Luckenwalde GmbH, Luckenwalde 20.00 1) 13,721 2,417 3) Verkehr und Wasser GmbH, Oldenburg 26.00 1) 8,000 -1,782 3) 1) Indirect investment 2) Control (including partial control) and/or profit and loss transfer agreements exist with this company. 3) Equity and annual profit/loss are from 2015 4) Preliminary annual profit/loss are from 2016 5) A 95.12% interest is held indirectly. 6) This company is recognised using the equity method as part of Hansewasser Ver- und Entsorgungs-GmbH, Bremen. 7) This company was founded in 2016. 8) This company has entered into a profit/loss transfer agreement with another company.

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 139 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

46. RELATED PARTY DISCLOSURES The following table shows the transactions with related parties:

Transactions with companies included in the consolidated finan- SHAREHOLDERS/INVESTORS IN EWE AG cial statements were eliminated in the course of consolidation. | T 111 The following are deemed related companies of the EWE Group: in millions of euros 2016 2015 »» The controlling shareholder (EWE-Verband GmbH) or the shareholder with the largest controlling interest Purchase of properties and buildings on other assets 0.7 (EWE-Verband) in EWE AG; Purchase of energy 43.8 58.0 »» Companies that exert significant influence over EWE AG Sale of energy 38.5 25.6 (the investor EnBW until April 2016); Services purchased 25.0 1.0 »» Parties under the influence of shareholders or the investor; Services rendered 13.0 14.1 »» Non-consolidated affiliated companies; Receivables 1.8 1.2 »» Associates accounted for using the equity method; and Liabilities 9.3 0.6 »» Interests measured pursuant to IFRS 5 (VNG until April 2016).

For the EWE Group, related persons in key positions include the members of the Board of Management and the Supervisory Board ASSOCIATES ACCOUNTED FOR USING THE EQUITY METHOD of EWE AG. AND ASSETS MEASURED PURSUANT TO IFRS 5

| T 112 Relationships with the group of shareholders are primarily of a financial nature as well as for the exchange of commercial in millions of euros 2016 2015 services. Purchase of goods 24.4 The majority of the relationships with the group of companies Sale of goods 0.1 Purchase of energy accounted for using the equity method and the assets measured including grid usage fees 1) 26.5 49.4 pursuant to IFRS 5 are supply and service relationships for natural Sale of energy gas as well as financial relationships. All transactions are con- including grid usage fees 2) 21.0 21.9 cluded on standard market terms. Services purchased 3) 2.3 7.1 Services rendered 19.8 24.2 As at 31 December 2015 the shares in VNG measured at equity Financing (loans receivable) 15.7 15.6 were classified as non-current assets held for sale due to EWE’s Consideration paid for financial agreements (loans) 0.2 intent to sell them. The shares (74.2 per cent) were transferred to Consideration received for EnBW in April 2016. In exchange, the shareholders of EWE AG financial agreements (loans) -0.1 and EWE AG itself acquired 20 per cent of the shares in EWE in Guarantees, securities and total. EnBW will retain 6 per cent of the shares in EWE by 2019 at warranties granted 58.2 the latest; these shares will then be acquired by EWE-Verband. Receivables 18.1 5.8 The company has held 10 per cent of its treasury shares since Liabilities 4) 8.1 2.9 May 2016. 1) Of which 11.0 million euros to companies accounted for pursuant to IFRS 5 (previous year: 40.0 million euros) 2) Of which 6.2 million euros to companies accounted for pursuant to IFRS 5 (previous year: 6.3 million euros) 3) Of which 0.1 million euros to companies accounted for pursuant to IFRS 5 (previous year: 0.8 million euros) 4) Of which 0.0 million euros to companies accounted for pursuant to IFRS 5 (previous year: 0.7 million euros)

EWE Integrated Report 2016 140 CONSOLIDATED FINANCIAL STATEMENTS

NON-CONSOLIDATED AFFILIATED COMPANIES INFORMATION ON THE BOARDS OF EWE AG

| T 113 SUPERVISORY BOARD in millions of euros 31.12.2016 31.12.2015 Dr Stephan-Andreas Kaulvers Loans 9.0 5.0 Chairman of the Supervisory Board Receivables 9.0 13.5 Former Chairman of the Board of Management of Cash-pooling receivables 0.9 0.4 Bremer Landesbank, Hatten, Germany Other receivables 0.2 Trade payables 1.3 2.9 Carsten Hahn Cash-pooling liabilities 15.9 15.8 First deputy chairman Other liabilities 0.5 1.1 Chairman of the joint works council of EWE AG,

Osterholz-Scharmbeck, Germany

The local authorities and municipalities in our supply area Dr Frank Mastiaux between the Ems, Weser and Elbe rivers make up the Ems-Weser- Second deputy chairman Elbe Versorgungs- und Entsorgungsverband (supply and disposal CEO of EnBW AG, Karlsruhe, Germany association). They are supplied with power, natural gas and telecommunications and information services at standard market Heiner Schönecke rates. Third deputy chairman Member of the state parliament of Lower Saxony, The EWE Group concluded no significant transactions with related Neu-Wulmstorf, Germany individuals. The supply of power, natural gas and telecommunications services to third parties takes place at rates and with terms Bernhard Bramlage and conditions comparable with those agreed upon with third Fourth deputy chairman parties. Former district administrator of the district of Leer, Leer, Germany

Wolfgang Behnke Chairman of the Group works council of EWE AG, Osterholz-Scharmbeck, Germany

Peter Bohlmann (from 17 May 2016) District administrator of the district of Verden, Langwedel, Germany

Stefan Brok (until 21 April 2016) CEO of Aral AG, Gronau, Germany

Claus Christ (from 1 January 2016) District administrator of EWE NETZ GmbH, Remels, Germany

Eckhard Dibke Member of the works council of wesernetz Bremen GmbH/ wesernetz Bremerhaven GmbH/swb Beleuchtung GmbH, Geestland, Germany

Jürgen Humer (until 31 January 2016) General manager of ver.di trade union for the Weser-Ems district, Verden (Aller), Germany

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 141 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

BOARD OF MANAGEMENT

Aloys Kiepe Matthias Brückmann (until 22 February 2017) ver.di trade secretary for the Weser-Ems district, Emden, CEO of EWE AG, Oldenburg, Germany Germany Nikolaus Behr (until 19 September 2016) Heike Klattenhoff (from 28 April 2016) Member of the Board of Management of EWE AG, HR and IT, Managing director of ver.di trade union for the Bremen, Germany Weser-Ems district, Delmenhorst, Germany Ines Kolmsee (until 31 December 2016) Jürgen Krogmann Member of the Board of Management of EWE AG, technology, Mayor of the city of Oldenburg, Oldenburg, Germany Tutzing, Germany

Beatrix Kuhl (from 17 May 2016) Michael Heidkamp Mayor of the town of Leer, Leer, Germany Member of the Board of Management of EWE AG, markets, Bad Zwischenahn, Germany Peter Marrek Chairman of the Group works council of swb AG, Wolfgang Mücher (from 1 March 2016) Wilhelmshaven, Germany Member of the Board of Management of EWE AG, finance, Oldenburg, Germany Peter Meiwald Member of German Bundestag, Westerstede, Germany Total compensation paid to the members of the Board of Manage- ment for their work on the Board of Management and in commit- Immo Schlepper tees of subsidiaries totalled 4.0 million euros in the business year ver.di regional department director, Lower Saxony-Bremen, (previous year: 3.8 million euros). The members of the Supervisory Oldenburg, Germany board received compensation totalling 1.1 million euros (previous year: 1.1 million euros). This total includes 0.6 million euros (previ- Ulrike Schlieper ous year: 0.5 million euros) for their duties as employees. SPD party chairperson on the Friesland district council, Sande, Germany The provision for pension obligations to active members of the Board of Management increased during the business year by Richard Venning 1.7 million euros (previous year: 1.3 million euros). Employee of Field Service EWE TEL GmbH, Spenge, Germany The provision for pension obligations to former members of the Johann Wimberg Board of Management and their surviving dependants totalled District administrator of the district of Cloppenburg, 41.4 million euros (previous year: 33.3 million euros); payments Cloppenburg, Germany totalled 1.5 million euros (previous year: 1.1 million euros).

Thomas Windgassen Head of the Cuxhaven-Delmenhorst region, EWE VERTRIEB GmbH, Cuxhaven, Germany

Dr Hans-Josef Zimmer (until 21 April 2016) Member of the Board of Management of EnBW AG, technology, Steinfeld (Rhineland-Palatinate), Germany

EWE Integrated Report 2016 142 CONSOLIDATED FINANCIAL STATEMENTS

47. AUDITOR’S FEES AND SERVICES RENDERED 49. GROUP RELATIONSHIPS

The companies consolidated within the EWE Group made use EWE AG’s consolidated financial statements are incorporated into of the following services from the auditors of the consolidated the consolidated financial statements of EWE-Verband GmbH. financial statements, Ernst & Young GmbH Wirtschaftsprüfungs- gesellschaft (EY), as well as from companies in the international 50. EVENTS AFTER THE END OF THE REPORTING PERIOD EY network. With the exception of the proposed appropriation of net profit | T 114 (see section 27), no significant events after the end of the in millions of euros 2016 2015 reporting period are known.

Auditing the annual financial Oldenburg, Germany, 3 March 2017 statements 1.8 1.7 Other auditing services 0.1 0.2 Other services 0.7 0.6 Total 2.6 2.5 The Board of Management

Of the fees paid for auditing services, a total of 0.2 million euros is attributable to companies in the international EY network, as in the previous year. Michael Heidkamp Wolfgang Mücher 48. USE OF ARTICLE 264 (3) OF THE HGB

The following subsidiaries made use of the exemption under article 264 (3) of the HGB during the 2016 business year:

»» EWE TEL GmbH, Oldenburg, Germany »» Energieversorgung Weser-Ems GmbH, Oldenburg, Germany »» nordcom Niedersachsen GmbH, Oldenburg, Germany »» Zweite EWE Offshore Beteiligungs GmbH, Oldenburg, Germany

EWE Integrated Report 2016 CONSOLIDATED FINANCIAL STATEMENTS 143 66 CONSOLIDATED INCOME STATEMENT 70 STATEMENT OF CHANGES IN EQUITY 67 CONSOLIDATED STATEMENT 72 CASH FLOW STATEMENT OF COMPREHENSIVE INCOME 73 NOTES TO THE CONSOLIDATED 68 STATEMENT OF FINANCIAL POSITION FINANCIAL STATEMENTS

RESPONSIBILITY STATEMENT

To the best of our knowledge, and in accordance with the appli cable reporting principles, the consolidated financial statements give a true and fair view of the EWE Group’s assets, liabilities, financial position and profit and loss, and the EWE Group’s management report, which is consolidated with the management report of EWE, includes a fair review of the trends and performance of the business and the position of the EWE Group as well as a description of the principal opportunities and risks associated with the EWE Group’s expected performance.

Oldenburg, Germany, 3 March 2017

The Board of Management

Michael Heidkamp Wolfgang Mücher

EWE Integrated Report 2016 144 CONSOLIDATED FINANCIAL STATEMENTS

AUDIT OPINION

We have audited the consolidated financial statements prepared work of the audit. The audit includes assessing the annual by EWE Aktiengesellschaft, Oldenburg, Germany, comprising financial statements of those entities included in consolidation, the income statement, the statement of comprehensive income, the determination of entities to be included in consolidation, the statement of financial position, the statement of changes in the accounting and consolidation principles used and significant equity, the cash flow statement and the notes to the consolidated estimates made by management, as well as evaluating the overall financial statements, together with the group management report presentation of the consolidated financial statements and the for the fiscal year from 1 January to 31 December 2016. The group management report. We believe that our audit provides a preparation of the consolidated financial statements and the reasonable basis for our opinion. group management report in accordance with IFRSs as adopted by the EU, and the additional requirements of German commercial Our audit has not led to any reservations. law pursuant to Sec. 315a (1) HGB (“Handelsgesetzbuch”: German Commercial Code) are the responsibility of the parent company’s In our opinion, based on the findings of our audit, the consolidated management. Our responsibility is to express an opinion on the financial statements comply with IFRSs as adopted by the EU, the consolidated financial statements and on the group management additional requirements of German commercial law pursuant to report based on our audit. Sec. 315a (1) HGB and give a true and fair view of the net assets, financial position and results of operations of the Group in accord- We conducted our audit of the consolidated financial statements ance with these requirements. The group management report is in accordance with Sec. 317 HGB and German generally accepted consistent with the consolidated financial statements, complies standards for the audit of financial statements promulgated by with legal requirements and as a whole provides a suitable view of the Institut der Wirtschaftsprüfer (“Institute of Public Auditors the Group’s position and suitably presents the opportunities and in Germany”: IDW). Those standards require that we plan and risks of future development. perform the audit such that misstatements materially affecting the presentation of the net assets, financial position and results of Bremen, Germany, 3 March 2017 operations in the consolidated financial statements in accordance with the applicable financial reporting framework and in the group Ernst & Young GmbH management report are detected with reasonable assurance. Wirtschaftsprüfungsgesellschaft Knowledge of the business activities and the economic and legal environment of the Group and expectations as to possible mis- Boelsems Eickhoff statements are taken into account in the determination of audit Wirtschaftsprüfer Wirtschaftsprüfer procedures. The effectiveness of the accounting-related internal (German Public Auditor) (German Public Auditor) control system and the evidence supporting the disclosures in the consolidated financial statements and the group management report are examined primarily on a test basis within the frame-

EWE Integrated Report 2016 145

FACTS AND FIGURES 2016

146 ABOUT THIS REPORT 147 APPENDIX OF INDICATORS 152 GRI CONTENT INDEX 156 LIST OF ABBREVIATIONS 156 INDEX 158 LIST OF TABLES 160 FINANCIAL CALENDAR 2017, IMPRINT, DISCLAIMER

EWE Integrated Report 2016 146 FACTS AND FIGURES

ABOUT THIS REPORT

INTEGRATED REPORT REPORTING LIMITS

This Integrated Report 2016 is our first integrated report. It Unless indicated otherwise, all disclosures and statistics in this merges our financial and sustainability reports and shows how report apply to the 2016 business year (1 January to 31 December both our financial and non-financial value drivers contribute to 2016). The financial report encompasses the entire EWE Group, the success of our company. In our Integrated Report 2016, i.e. EWE AG including its subsidiaries and significant interests. we detail the strategic reorientation of our company, our vision, PDF See PDF Integrated Report, page 74 our business performance and our responsibility as a regional energy company. In doing so we hope to better meet the infor The data in the non-financial report are based on the consolidated mation requirements of our stakeholders. data of the key companies1), as defined by their strategic relevance and coverage of at least 95 per cent of the sales generated by the UNDERLYING PRINCIPLES EWE Group.

The report is based on the recommendations of the International The subjects most significant to us are presented in the materia- Integrated Reporting Council (IIRC). We report how we create lity matrix on page 32 of this report. All significant aspects are value for our company, environment and society by the following listed in the GRI Content Index. The relevance of each key issue resources: environment, plants and networks, know-how, emplo- within or outside of EWE is specified in the GRI Content Index. yees, social aspects and relationships and finance. In doing so we » G4-17, G4-19, G4-20, G4-21 tie in our previous sustainability reports. This report has been prepared in accordance with the international G4 Core Guidelines FORMATS of the Global Reporting Initiative (GRI) and includes sector- specific information for energy and telecommunications. Two versions of the Integrated Report 2016 have been published. Both can be downloaded from EWE’s website: The consolidated financial statements have been prepared in line with the International Financial Reporting Standards (IFRS). »» PDF Integrated Report 2016 »» PDF Integrated Report 2016 (condensed version) The report has also been submitted for the GRI Materiality Disclosures Service and the GRI has confirmed the correctness of Hard copies of the condensed version are also available. the position of the G4 Materiality Disclosures (G4-17 to G4-27). EXTERNAL AUDIT AND OPINION

The consolidated financial statements have been audited by Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft pursuant to section 317 of the HGB with consideration for the auditing standards set out by the Institute of Public Auditors in Germany (IDW). No objections were raised during the audit. The non- financial statistics have not been subjected to an external review by an auditor.

1) These are as follows: BTC Business Technology Consulting AG, BTC IT Services GmbH, Bursagaz Bursa Şehiriçi Doğalgaz Dağıtım Ticaret ve Taahhüt A.Ş., EWE AG, EWE VERTRIEB GmbH, EWE energia Sp. z o.o., EWE ERNEUERBARE ENERGIEN GmbH, EWE GASSPEICHER GmbH, EWE NETZ GmbH, EWE Offshore Service & Solutions GmbH, EWE Polska Sp. z o.o., EWE TEL GmbH, EWE TRADING GmbH, EWE WASSER GmbH, Gastransport Nord GmbH, Kayserigaz Kayseri Doğalgaz Dağıtım Pazarlama ve Ticaret A.Ş., swb Abrechnungsservice GmbH, swb AG, swb Bremerhaven GmbH, swb CREA GmbH, swb Entsorgung GmbH & Co. KG, swb Erzeu- gung AG & Co. KG, swb Erzeugung und Entsorgung AG & Co. KG, swb Services AG & Co. KG, swb Vertrieb Bremen GmbH, swb Vertrieb Bremerhaven GmbH & Co. KG, wesernetz Bremen GmbH, wesernetz Bremerhaven GmbH.

EWE Integrated Report 2016 FACTS AND FIGURES 147 146 ABOUT THIS REPORT 156 INDEX 147 APPENDIX OF INDICATORS 158 LIST OF TABLES 152 GRI CONTENT INDEX 160 FINANCIAL CALENDAR 2017, IMPRINT, DISCLAIMER 156 LIST OF ABBREVIATIONS

APPENDIX OF INDICATORS

Number of power connections and electricity customers Installed output (in MW thermal energy)

Change 2016 2015 Number 2016 2015 (in %) Installed thermal output 4) 746 746 Households with electricity 1,001,600 994,300 +0.7 Refined coal 178 178 Households with gas 872,200 862,300 +1.1 Natural gas 445 445 Households with phone Waste to energy 123 123 and Internet 42,200 37,700 +11.9 4) The indicator is recorded at all large-scale combustion and gas turbine power plants (in accordance with the 13th Federal Emission Control Act), as well as in all plants that incinerate or co-incinerate waste (in accordance with the 17th Federal Emission Control Act). Length of electricity grids

Change Energy output broken down by primary energy source km 2016 2015 (in %) (in GWh) 2016 2015 Grid length Electricity (Ems-Weser-Elbe Total 5) 3,673 4,193 and Bremen regions) 93,300 92,800 +0.5 Refined coal 2,382 2,482 Grid length Gas Blast furnace gas 6) 0 0 (Germany, Turkey, Poland) 72,000 70,700 +1.8 Wind 660 862 Network length Telecoms 39,000 38,000 +2.6 Waste to energy 558 593 of which copper cable 15,200 15,200 – Other (biogas, natural biogas, natural gas, of which fibre-optic cable 23,900 22,800 +4.8 refuse-derived fuels, heating oil, sewage biogas, solar, water) 74 256 5) In contrast to Indicator G4-EU1, this also comprises electricity generated by cogeneration plants. 6) Since 2015, swb has been the operations manager of the blast furnace gas-fired power station as Losses on the electricity grid part of a leasing model, but no longer the plant operator. The energy generated there is shown on the leaseholder’s balance sheet. 2016 2015

Losses on the German medium Heat generation broken down by primary fuel source and low-voltage grid (in %) 2.17 2.16 (in GWh) 2016 2015

Total 7) 1,430.9 1,344.0 Installed electrical output Refined coal 578.3 523.3 Natural gas 396.8 356.0 as at 31.12. (in MW) 2016 2015 Waste to energy 290.8 279.0

Total 1) 1,575 1,367 Biomethane 132.7 145.2 Renewables 2) 374 322 Other (biogas, refuse-derived fuels, heating oil, sewage biogas) 32.3 40.5 Wind, onshore 220 168 7) Wind, offshore 142 142 This also comprises heat generated by cogeneration plants. Other (biogas, photovoltaics, hydroelectric power) 12 12 Conventional 3) 1,221 1,045 Refined coal 553 553 Blast furnace and converter gas 200 176 Natural gas 307 155 Light oil 86 86 Waste to energy 75 75

1) In this figure, waste-to-energy is fully assigned to conventional generation, even if around half of the energy generated from waste can be classed as renewable according to the EEC, because a portion of the waste comes from vegetable sources and are thus CO2-neutral in combustion. 2) Incl. pro rata capacity from at-equity holdings 3) Major swb facilities for generation and waste disposal; includes units in cold standby

EWE Integrated Report 2016 148 FACTS AND FIGURES

Generation efficiency of thermal power plants (in %)1) Results of surveys on 6) 2016 2015 customer satisfaction (index value) 2016 2015 Utilisation rate (total efficiency) of thermal power plants Brand level Refined coal 44 44 Energy 71.9 70.3 2) Blast furnace gas – – Telecommunications 74.1 76.6 Waste 31 30 Main business region Light oil 13 16 Energy 73.8 71.3 Power efficiency of thermal power plants Telecommunications 74.0 77.0 Refined coal 37 36 6) The index values comprise two metrics: customer satisfaction and willingness to recommend. Blast furnace gas – – 2) Customer surveys are based on the calculations. Due to a change in the way surveys are carried Light oil 11 16 out in 2016, the values can only be compared with those of the previous year to a limited extent. 1) Indicator is recorded in all plants that incinerate or co-incinerate waste (in accordance with the 17th Federal Emission Control Act), as well as in all large-scale combustion and gas turbine power plants (in accordance with the 13th Federal Emission Control Act). The conversion of Information and training on blast furnace gas into electricity was not evaluated. 2) Since 2015, swb has been the operations manager of the blast furnace gas-fired power station guidelines and procedures for fighting corruption as part of a leasing model, but no longer the plant operator. The energy generated there is shown on the leaseholder’s balance sheet. 2016 2015

Total number of members of the Direct CO2 emissions 3) controlling body having received information 5 5 Change Percentage of members of the 2016 2015 in % controlling body having received information 100 100 Direct CO2 emissions ~4,000 1,105 (in Mg) 2,354,271 2,386,506 -1.4 (rounded and (rounded and 3) Direct emissions from electricity and heat generation plants; not including taking double- taking double- CO2 emissions from blast furnace gas. Total number of staff clicks into clicks into having received information account) account)

Percentage of staff having received information ~46 13 Regional focus index 4) Suppliers’ code 2016 2015 Total number of business partners introduced having received information – from 2015

Total number of training sessions 78.1 76.0 Staff in controlling body 5 5 4) The regionality index shows the significance of EWE and swb to people in the region on a Percentage of training sessions scale of 0 (low significance) to 100 (high significance). It is based on annual customer surveys. Due to a change in the way surveys were carried out in 2016, the values can only be compared Staff in controlling body 100 100 with the previous year on a limited basis. Total number of training sessions Staff Training of new staff 69 67 Customer loyalty index 5) Percentage of training sessions Staff 2016 2015 Training of new staff 11 68

Energy 77.0 75.0 Queries Telecommunications 74.0 75.6 Queries for the Compliance Officer 184 168 5) The customer retention index is based on customer surveys and reveals how customers rate Queries for the Compliance team 129 65 EWE as a service provider and partner. The indicators are customer satisfaction, willingness to recommend, probability of retention and competitive comparison. Due to a change in the way surveys were carried out in 2016, the values can only be compared with the previous year on a limited basis. Total value of political contributions

In line with its internal Group policy, EWE does not make any political donations.

EWE Integrated Report 2016 FACTS AND FIGURES 149 146 ABOUT THIS REPORT 156 INDEX 147 APPENDIX OF INDICATORS 158 LIST OF TABLES 152 GRI CONTENT INDEX 160 FINANCIAL CALENDAR 2017, IMPRINT, DISCLAIMER 156 LIST OF ABBREVIATIONS

Absences due to illness, injury and work-related deaths 1)

2016 2015 2016 2015

Work-related deaths Special groups of employees (number of deaths) 0 0 (trainees, support staff, work experience Germany 0 0 placements, apprentices) 626 623 International 0 0 of which female 194 184 Injury rate 2) (number of injuries/ of which male 432 439 1,000,000 working hours) 6.93 5.57 Inactive (passive part-time retirement, Germany 7.16 5.88 early retirements, parental leave, national service, alternative service) 339 378 International 3.44 1.13 of which female 185 184 Days lost 2) (number of days lost/ 1,000,000 working hours) 136.22 95.78 of which male 154 194 Germany 139.50 102.02 Total number of employees by International 88.36 5.66 type of employment and gender 5) 9,205 9,217 1) Not including subcontractors and staff bound by instruction (external temp staff); information Full-time 7,175 7,234 on workplace accidents not broken down by gender. In addition to the companies stated as the boundary of the report, BIBER GmbH, EnergieCampus GmbH, GSN Gebäudesicherheit Nord of which female 1,419 1,457 GmbH and EWE Biogas GmbH & Co. KG, with a total of around 160 staff, are also taken into of which male 5,756 5,777 account for accident statistics (Indicator G4-LA6). 2) The number of working hours make up the total working time. The total working time is either Part-time 1,065 982 calculated as hours worked, or as planned hours minus public holidays, holidays and statistical of which female 876 819 health-related absences. of which male 189 163

Accidents subject to compulsory reporting, including Total number of employees by region and gender 5) 9,205 9,217 commute-related accidents (rate per 1,000 employees) 3) Germany 8,700 8,687 2016 2015 of which female 2,509 2,478 of which male 6,191 6,209 EWE total 10.36 8.41 International 505 530 Germany 10.58 8.78 of which female 165 166 International 6.41 2.02 of which male 340 364

Benchmark 5) The total number of staff given here is based on the number of contractual relationships at the “5-year average of EWE” 8.64 9.45 cut-off date of 31.12.2016. This includes dormant contracts. As a result of this, as well as due Benchmark to the accounting boundaries of non-financial information, there is a discrepancy to the total “5-year average of BG ETEM” 4) 19.02 19.75 number of staff stated in other sections of the report.

3) In addition to the companies stated as the boundary of the report, BIBER GmbH, EnergieCampus GmbH, GSN Gebäudesicherheit Nord GmbH and EWE Biogas GmbH & Co. KG, with a total of around 160 staff, are also taken into account for accident statistics. Staff under collective labour agreements 4) Berufsgenossenschaft Energie Textil Elektro Medienerzeugnisse (Professional Association for Energy, Textiles, Electricity, Media) 2016 2015

Staff under collective labour agreements 9,026 8,489

Staff structure 2016 2015

Total number of employees by contract and gender 5) 9,205 9,217 Permanent 7,834 7,792 of which female 2,142 2,120 of which male 5,692 5,672 Temporary 395 412 of which female 149 156 of which male 246 256 Partial retirement, active 11 12 of which female 4 0 of which male 7 12

EWE Integrated Report 2016 150 FACTS AND FIGURES

Number and rate of new employees, staff fluctuation by age, gender and region

2016 2015 2016 2015

Number % Number % (in years) (in years)

Total number of employees Average length of service of by age group and gender 702 7.6 712 7.7 ex-employees by age group 9.9 11.6 ≤30 years 447 4.9 455 4.9 ≤30 years 1.7 1.5 of which female 155 1.7 169 1.8 of which female 1.7 0.6 of which male 292 3.2 286 3.1 of which male 2.0 2.0 31–50 years 219 2.4 240 2.6 31–50 years 8.4 7.3 of which female 54 0.6 71 0.8 of which female 6.4 6.8 of which male 165 1.8 169 1.8 of which male 11.4 7.8 >50 years 35 0.4 17 0.2 >50 years 17.1 23.3 of which female 7 0.1 6 0.1 of which female 21.1 24.6 of which male 28 0.3 11 0.1 of which male 19.1 23.9

Total number of employees by region and gender 702 7.6 712 7.7 Germany 639 6.9 646 7.0 Programmes for knowledge management and of which female 201 2.2 223 2.4 lifelong learning of which male 437 4.7 423 4.6 International 63 0.7 66 0.7 EWE offers its staff regular training sessions in the Group’s own of which female 15 0.2 23 0.2 Training Centre. We train management staff and young executives of which male 48 0.5 43 0.4 in the EWE Academy. The management programmes’ strong focus

Total number of ex-employees on strategy and entrepreneurial behaviour helps the participants by age group and gender 708 7.7 715 7.8 to develop new approaches and integrate this new impetus into ≤30 years 285 3.1 334 3.6 their own company. of which female 85 0.9 129 1.8 of which male 200 2.2 205 2.2 31–50 years 240 2.6 230 2.5 of which female 83 0.9 66 0.7 of which male 157 1.7 164 1.8 >50 years 183 2.0 151 1.6 of which female 42 0.5 29 0.3 of which male 141 1.5 122 1.3

Total number of ex-employees by region and gender 708 7.7 715 7.8 Germany 641 7.0 657 7.1 of which female 187 2.0 201 2.6 of which male 454 4.9 456 4.9 International 67 7.0 58 0.1 of which female 23 0.2 23 0.2 of which male 44 0.5 35 0.4

EWE Integrated Report 2016 FACTS AND FIGURES 151 146 ABOUT THIS REPORT 156 INDEX 147 APPENDIX OF INDICATORS 158 LIST OF TABLES 152 GRI CONTENT INDEX 160 FINANCIAL CALENDAR 2017, IMPRINT, DISCLAIMER 156 LIST OF ABBREVIATIONS

Composition of the controlling body and employees by employee category, gender and age group (in %)

2016 2015

Executives 1.9 2.1 of which male 1.7 1.9 ≤30 years 0.0 0.0 31–50 years 0.9 1.1 >50 years 0.8 0.8 of which female 0.2 0.2 ≤30 years 0.0 0.0 31–50 years 0.2 0.1 >50 years 0.0 0.1 Staff paid in excess of tariff agreements 7.6 7.4 of which male 6.3 6.1 ≤30 years 0.1 0.1 31–50 years 4.0 3.5 >50 years 2.2 2.6 of which female 1.3 1.3 ≤30 years 0.0 0.0 31–50 years 1.0 1.0 >50 years 0.3 0.3 Staff paid according to tariff agreements 56.7 57.5 of which male 40.0 40.9 ≤30 years 7.6 7.9 31–50 years 18.3 19.3 >50 years 14.2 13.7 of which female 16.7 16.6 ≤30 years 3.2 3.2 31–50 years 9.2 9.4 >50 years 4.3 4.0 Staff not subject to tariff agreements 33.7 32.9 of which male 22.9 22.2 ≤30 years 4.0 2.9 31–50 years 14.9 15.6 >50 years 4.0 3.7 of which female 10.8 10.7 ≤30 years 2.5 2.1 31–50 years 7.1 7.4 >50 years 1.2 1.2 Proportion of Supervisory Board members by age groups and gender of which ≤30 years old 0.0 0.0 female 0.0 0.0 male 0.0 0.0 of which 31–50 years old 10.0 15.0 female 0.0 0.0 male 10.0 15.0 of which >50 years old 91.0 85.0 female 14.0 5.0 male 76.0 80.0

EWE Integrated Report 2016 152 FACTS AND FIGURES

GRI CONTENT INDEX

The report was submitted for the GRI Materiality Disclosures Service. The GRI has confirmed the correctness of the position of the G4 Materiality Disclosures G4-17 to G4-27. Page references refer to the PDF version of the Integrated Report 2016 which can be downloaded from report.ewe.com/ir2016/

GENERAL STANDARD DISCLOSURES Indicator Indicator abbreviation Reference/comment

G4-1 Foreword by the Group’s Board of Management 2 – 5 G4-3 Company name EWE AG G4-4 Major brands, products, services Report Entry (front flap 2), U2 G4-5 Company headquarters Oldenburg, Germany Number and names of countries in which G4-6 the company is active Report Entry (front flap 2) G4-7 Ownership structure and legal form U2 G4-8 Markets served Report Entry (front flap 2) G4-9 Size of the company Report Entry (front flap 1), U2, 69 G4-10 Staff structure 149 G4-11 Staff under collective labour agreements 149 G4-12 Description of the supply chain 28 – 29 Significant changes to the ownership structure G4-13 of the company during the reporting period 74 G4-14 Precautionary approach 22 – 23, 35, 55 G4-15 Support of external initiatives 35 G4-16 Membership of associations and interest groups 35 G4-EU11) Installed output 147 G4-EU2 Net energy production 147 Number of power connections and G4-EU3 electricity customers 2) 147 G4-EU4 Length of electricity grids 3) 147 G4-EU5 Number of CO2 emissions allowances 147 G4-17 Reporting boundaries 146 G4-18 Processes for determining the content of the report 33 G4-19 Major aspects of the report 32, 146 146, Aspects that have an significant economic, environmental or social impact within the organisation and are listed in the GRI Content Index, are always deemed relevant to the companies defined in G4-20 Aspect boundaries within the company G4-17 (Reporting boundaries). Any discrepancies for individual companies are highlighted in the report. 146, Relevant aspects within the organisation that are addressed and managed outside of EWE G4-21 Aspect boundaries outside of the company with external stakeholders are highlighted in the GRI Content Index. 1) Indicators with the abbreviation EU (in accordance with GRI G4 Sector Disclosures Electric Utilities) apply for the energy sector. 2) Now includes homes connected to gas supply and number of gas and telecommunications customers; the German Energy Management Act (Energiewirtschaftsgesetz) regulates the separation of grid operations and sales for power and gas. 3) Now includes network lengths for gas and telecoms.

EWE Integrated Report 2016 FACTS AND FIGURES 153 146 ABOUT THIS REPORT 156 INDEX 147 APPENDIX OF INDICATORS 158 LIST OF TABLES 152 GRI CONTENT INDEX 160 FINANCIAL CALENDAR 2017, IMPRINT, DISCLAIMER 156 LIST OF ABBREVIATIONS

GENERAL STANDARD DISCLOSURES Indicator Indicator abbreviation Reference/comment

G4-22 Reformulation of information from previous reports No reformulations were made. G4-23 Changes to aspect boundaries in previous reports There were no changes. G4-24 Stakeholders engaged 32 G4-25 Selection of stakeholders 32 G4-26 Integration of stakeholders 33 G4-27 Stakeholder issues 33 G4-28 Reporting period 146 G4-29 Publication of the previous report September 2016 G4-30 Reporting cycle Anually G4-31 Representative Imprint, 160 G4-32 Chosen “In Accordance”-option Core option G4-33 External audit review 144 Governance structure, including G4-34 responsibility for sustainability 6 – 7, 34 – 35 Mission statement, corporate values G4-56 and codes of conduct 27, 29, 34

SPECIFIC STANDARD DISCLOSURES Indicator Indicator abbreviation Reference Omission/comment Reason for omission

ECONOMIC PERFORMANCE INDICATORS 2 – 5, 9, 11, DMA 13, 15 Economic performance (aspect boundary within EWE) Economic value generated G4-EC1 and distributed 30 Procurement (aspect boundary within EWE) G4-EC9 Proportion of regional procurement 29 GRI term “local” replaced by “regional” EWE Group wording System efficiency (aspect boundary within EWE) Generation efficiency G4-EU11 of thermal power plants 148 G4-EU12 Losses on the electricity grid 147

ENVIRONMENTAL PERFORMANCE INDICATORS 2 – 5, 11, 13, DMA 17 Energy (aspect boundary within EWE) The energy consumption of the fleet (2,092 vehicles) was 123,857 terajoules. As metering for buildings has been modified, only infor mation on the vehicle fleet can be provided for the reporting year. Next year it will likely be possible to report the level of consumption in G4-EN3 Internal energy consumption buildings again.

EWE Integrated Report 2016 154 FACTS AND FIGURES

SPECIFIC STANDARD DISCLOSURES Indicator Indicator abbreviation Reference Omission/comment Reason for omission Emissions (aspect boundary within and outside of EWE) Limited to power plants generating Other plants and emissions are of G4-EN15 Direct CO2 emissions 148 electricity and heat secondary importance. Other power plants and emissions are of CO2 emissions in grams per secondary importance and/or reporting is still kilowatt-hour of electricity generated Limited to power plants generating being established (Scope 2), or the data is not G4-EN18 (intensity of CO2 emissions) 21 electricity and heat currently being collected (Scope 3). Other power plants and emissions are of secondary importance and/or reporting is still Limited to power plants generating being established (Scope 2), or the data is not G4-EN19 Reduction of CO2 emissions 20 – 23 electricity and heat currently being collected (Scope 3). Evaluation of suppliers with regard to environmental aspects (aspect boundary within and outside of EWE) Assessing new suppliers with The management and reporting process is G4-EN32 regard to environmental aspects 29 No details available for suppliers in 2016 still being established.

LABOUR PRACTICES AND DECENT EMPLOYMENT 2 – 5, 6 – 7, DMA 26 – 27 Employment (aspect boundary within and outside of EWE) Number and rate of new employees, staff G4-LA1 fluctuation by age, gender and region 150 Occupational health and safety (aspect boundary within and outside of EWE) Not including occupational illnesses; not The management and reporting process is including subcontractors and staff bound by still being established. Not broken down by Absences due to illness, injury instruction; information on workplace gender in order to avoid cases being linked G4-LA6 and work-related deaths 149 accidents not broken down by gender with specific individuals. Training (aspect boundary within EWE) Programmes for knowledge G4-LA10 management and lifelong learning 150 Diversity and equal opportunities (aspect boundary within EWE) Composition of the controlling body and employees by employee category, G4-LA12 gender and age group 151 Evaluation of suppliers with regard to labour practices (aspect boundary within and outside of EWE) Assessing new suppliers with The management and reporting process G4-LA14 regard to social aspects 29 No details available for suppliers in 2016 is still being established.

HUMAN RIGHTS

DMA 6 – 7 Evaluation of suppliers with regard to human rights (aspect boundary within and outside of EWE) Assessing new suppliers with G4-HR10 regard to human rights criteria 29 see LA14 see LA14

EWE Integrated Report 2016 FACTS AND FIGURES 155 146 ABOUT THIS REPORT 156 INDEX 147 APPENDIX OF INDICATORS 158 LIST OF TABLES 152 GRI CONTENT INDEX 160 FINANCIAL CALENDAR 2017, IMPRINT, DISCLAIMER 156 LIST OF ABBREVIATIONS

SPECIFIC STANDARD DISCLOSURES Indicator Indicator abbreviation Reference Omission/comment Reason for omission

COMPANY 2 – 5, DMA 28 – 29 Anti-corruption (aspect boundary within EWE) Anti-corruption information G4-SO4 and training measures 148 Politics (aspect boundary within and outside of EWE) G4-SO6 Total value of political contributions 148 Compliance (company) (aspect boundary within EWE) Fees and fines resulting from non-compliance with laws and EWE was not obliged to pay any fines or G4-SO8 regulations penalties in the reporting year.

PRODUCT RESPONSIBILITY 2 – 5, 11, 13, DMA 15, 17 Labelling of products and services (aspect boundary within and outside of EWE) Results of surveys on G4-PR5 customer satisfaction 148 Protection of customer privacy (aspect boundary within EWE) Total number of justified complaints No justified lawsuits were filed against G4-PR8 related to data privacy infringements EWE in the reporting year. Access (telecommunication sector) (aspect boundary within and outside of EWE ) TK-IO1 Investments in the telecoms network 22 – 23, 54

EWE Integrated Report 2016 156 FACTS AND FIGURES

LIST OF ABBREVIATIONS

AfS Available-for-Sale FLHfT Financial Liabilities Held for Trading AGEB Working Group for Energy Balances GKB Gemeinschaftskraftwerk Bremen GmbH & Co. KG (Arbeitsgemeinschaft Energiebilanzen e. V.) HGB German Commercial Code (Handelsgesetzbuch) AktG German Stock Corporation Act (Aktiengesetz) HVE Hansewasser Ver- und Entsorgungs-GmbH BDEW German Association of Energy and Water Industries IAS International Accounting Standards (Bundesverband der Energie- und Wasserwirtschaft) IASB International Accounting Standards Board BMWi Bundeswirtschaftsministerium IDW German Institute of Public Auditors bp Base points (Basispunkte) (Institut der Wirtschaftsprüfer) BSA Broadband Service Analyzer IFRS International Financial Reporting Standards CER future contracts Certified Emission Reduction IFRS IC IFRS Interpretations Committee CO2 Carbon dioxide IT Information Technology CVA Credit Value Adjustment kWh Kilowatt-hours (Kilowattstunden) DBO Defined Benefit Obligation KWKG Combined heat and power act DRV “German framework agreement for financial futures (Kraft-Wärme-Kopplungsgesetz) (Deutscher Rahmenvertrag für Finanztermingeschäfte)” LaR Loans and Receivables DVA Debit Value Adjustment MW Megawatts (Megawatt) EBIT Earnings before interest and taxes MWh Megawatt-hour (Megawattstunde) EBT Earnings before taxes NCG Net Connect Germany EEG Renewable Energy Act (Erneuerbare-Energien-Gesetz) PLN Polish złoty EEW Energieverband Elbe-Weser Beteiligungsholding GmbH TDG Telekom Deutschland GmbH EFET European Federation of Energy Traders TRY Turkish lira EnBW AG EnBW Energie Baden-Württemberg AG TTF Title Transfer Facility (TTF Cal 16) EU European Union USD US dollar EUA future contracts European Union Allowance VBL State insurance agency EWE TEL Group-owned Telecommunications Company (Versicherungsanstalt des Bundes und der Länder) EY Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft VNG AG Verbundnetz Gas Aktiengesellschaft FAHfT Financial Assets Held for Trading WACC Weighted Average Cost of Capital FLAC Financial Liabilities Measured at Amortised Cost WEE Weser-Ems-Energiebeteiligungen GmbH

INDEX

Accounting methods K1, 73, 74, 75, U3 Cash flow K1, 30, 48, 49, 61, 62, 65, 67, 70, 72, 82, 83, 84, 85, 86, 88, 89, Annual General Meeting 7, 34 104, 114, 115, 120, 122, 124, 125, 126, 127, 130, 135, 144, U3 Appropriation of net profit 7, 142 Cash flow hedges 67, 70, 84, 114, 115 Assets position 130 Cash and cash equivalents 30, 48, 62, 72, 74, 82, 86, 102, 104, 107, 120, 127, 135 Associated companies 93, 113 Cash flow statement 72 Capital expenditure K1, 134, U3 Balance sheet total K1, 48, 61, U3 Capital management 113 Boards 22, 33, 35, 50, 57, 59, 140 CO2 certificate 40, 81, 115, 129 Bonds 31, 35, 45, 48, 49, 60, 61, 62, 63, 69, 89, 98, 110, 118, 120, 125, 132, 133 Company management 160 Borrowing costs 80 Compliance 3, 29, 33, 34, 57, 58, 127, 148, 155 Credit facility 30, 31, 49, 124 Currency futures 130

EWE Integrated Report 2016 FACTS AND FIGURES 157 146 ABOUT THIS REPORT 156 INDEX 147 APPENDIX OF INDICATORS 158 LIST OF TABLES 152 GRI CONTENT INDEX 160 FINANCIAL CALENDAR 2017, IMPRINT, DISCLAIMER 156 LIST OF ABBREVIATIONS

Default risks 126 Market price risks 56, 58, 84, 127 Deferred taxes 67, 68, 69, 73, 78, 79, 89, 94, 112, 132, 133 Depreciation, amortisation and impairment 96 Non-financial liabilities 69, 111 Derivatives 44, 46, 47, 72, 75, 81, 82, 83, 85, 114, 115, 116, 118, 120, 123, 125, 126, Non-financial receivables 68, 81, 104 127, 130, 135 Derivative financial instruments 39, 44, 45, 47, 48, 58, 73, 81, 82, 84, 85, 91, 93, Operating leases 80, 91, 113 102, 103, 111, 114, 120, 121, 122 Discount rates 97, 98 Other income 45, 67, 93 Dividend 4, 30, 49, 60, 62, 70, 72, 73, 78, 101, 105, 111, 124, 125, 135 Pension provision 44, 45, 48, 63, 91, 94, 112 Earnings position 6, 98 Personnel expenses 45, 60, 63, 66, 92, 107, 132, 133 Easements 33, 135 EBT 135 Rating 30, 39, 57, 89, 113, 126, 127 EBIT, operating EBIT K1, 39, 44, 45, 46, 47, 53, 54, 55, 66, 72, 107, 122, 132, 133, Renewable energy K2, 3, 4, 9, 15, 20, 22, 23, 30, 38, 40, 49, 51, 52, 53, 55, 56, 78, 135, U3 89, 131 EBITDA U3 Renewable energy sources act (EEG) 52 Emissions rights 127 Research and development 24, 29, 39, 81, 111 Employees K1, 3, 5, 7, 17, 18, 20, 24, 26, 27, 32, 34, 38, 45, 49, 50, 57, 87, 89, 92, Result for the period K1, 74, U3 106, 107, 132, 133, 141, 146, 149, 150, 151, 154, U3 Risks and opportunities (management) 35, 55, 56, 57 Equity K1, 38, 43, 48, 61, 66, 67, 68, 69, 70, 71, 72, 73, 74, 75, 76, 78, 79, 82, 83, 85, 88, 89, 90, 93, 94, 98, 101, 105, 111, 113, 114, 120, 122, 127, 132, 133, 135, 136, 137, Sales K1, U2, 34, 38, 39, 44, 46, 49, 51, 53, 54, 55, 56, 63, 73, 79, 81, 88, 92, 96, 97, 138, 144, 147, U3 98, 101, 122, 125, 126, 131, 132, 133, 134, 146, 152, U3 Equity method 38, 66 – 68, 71 – 76, 88, 93, 94, 101, 132, 133, 137, 138, 139 Segment reporting 39, 91, 92, 131, 132, 133 Equity ratio K1, 48, 61, 114, U3 Sensitivity analysis 98 Strategy 4, 5, 9, 17, 25, 27, 28, 29, 30, 33, 51, 55, 92, 107, 114, 150 Fair value 67, 73 – 90, 93, 97, 101, 107, 114 – 127, 130 Subscribed capital 69, 70, 105 Fair value hedges 73, 84, 115 Subsidiaries 34, 38, 39, 59, 60, 62, 67, 73, 75, 78, 79, 86, 113, 141, 142, 146 Financial instruments 39, 44, 45, 47, 48, 58, 70, 73, 76, 78, 81, 82, 83, 84, 85, 89, Supervisory Board 3, 6, 7, 34, 35, 50, 59, 73, 139, 140, 141, 151 91, 93, 101, 102, 103, 111, 114, 115, 120 – 127, 130 Financial investments 60, 62, 66, 93, 101, 124, 132, 133 Transaction costs 51, 74, 81, 83 Financial liabilities 30, 31, 69, 72, 75, 83, 84, 111, 113, 118, 121, 123, 124, 125, 130, Transparency 27, 28, 32, 35, 38, 39, 51, 55 132, 133 Financial position K1, 3, 35, 48, 55, 58, 59, 62, 68, 73, 78, 80, 82, 89, 91, 95, 102, Value in use 85, 86 112, 114, 120, 130, 135, 143, 144, 160, U3 Financial risks 57, 58, 114 WACC 97, 98, 122 Financing 6, 30, 31, 39, 48, 49, 60, 61, 62, 72, 87, 98, 113, 124, 135, 139 Write-downs 45, 60, 62, 72, 85, 93, 95, 96, 99, 100, 101 Forecast 42, 44, 51, 53, 54, 55, 56, 59, 62, 63, 84, 85 Foreign currency risk 115

Goodwill 39, 44, 59, 74, 75, 77, 78, 79, 85, 86, 88, 92, 95, 96, 97, 101 Guarantees 52, 57, 83, 106, 113, 124, 139, 160

Hedge accounting 84, 85, 89, 114, 127, 128, 129, 130, 131 Hedges 45, 58, 67, 70, 73, 84, 90, 114, 115, 128, 130

Impairment losses 75, 79, 80, 82, 83, 86, 102 Intangible assets 60, 62, 68, 74, 80, 81, 85, 88, 92, 93, 95, 96, 97, 112, 113 Interest rate risk 130, 131 Interest rate swaps 84, 85, 120 Inventories 68, 72, 85, 86, 102, 112

Leases 80, 91, 93, 113 Legal and compliance risks 57, 58 Liquidity risk 57, 124

EWE Integrated Report 2016 158 FACTS AND FIGURES

LIST OF TABLES

PAGE PAGE PAGE

OVERVIEW Current situation of EWE AG T043 Income taxes 94 T044 Effective tax expense 94 T001 Our Group figures K1 T019 Earnings performance 60 T045 Intangible assets 95 T020 Asset position 61 T046 Development of intangible assets 2016 95 T021 Finacial position 62 T047 Development of intangible assets 2015 96 RESPONSIBLE MANAGEMENT T022 Investments 62 T048 Major goodwill and intangible assets with an indefinite useful life attributed to CGUs in 2016 97 T002 Target percentages for the CONSOLIDATED FINANCIAL STATEMENTS T049 Major goodwill and intangible assets Supervisory Board and with an indefinite useful life attributed Board of Management of EWE AG 35 to CGUs in 2015 97 T023 Consolidated income statement T003 Target percentages for the top two T050 Property, plant and equipment 98 of the EWE Group 66 levels of management of EWE AG 35 T051 Development of property, T024 Consolidated statement of plant and equipment 2016 99 comprehensive income of the EWE Group 67 T052 Development of property, COMBINED MANAGEMENT REPORT 2016 T025 Statement of financial position of plant and equipment 2015 100 the EWE Group | Assets 68 T053 Changes to investment property 101 T026 Statement of financial position of Current situation of the EWE Group T054 Composition of profit/loss in the the EWE Group | Equity and liabilities 69 period from financial investments 101 T027 Statement of changes in equity T055 Investments accounted for using T004 Forecast deviations 44 of the EWE Group 70 the equity method 101 T005 Group’s net income for the period 44 T028 Cash flow statement of the EWE Group 72 T006 Significant changes to the T056 Investments accounted for consolidated income statement 45 using the equity method | T007 Segment performance | NOTES TO THE CONSOLIDATED Statement of financial position 102 Operating EBIT and external sales 46 FINANCIAL STATEMENTS T057 Investments accounted for T008 Renewables, Grids and using the equity method | Gas Storage segment 46 Comprehensive income statement 102 T029 Changes to the basis of consolidation T009 Sales, Services and Trading segment 46 T058 Other non-current financial assets 102 during the 2016 business year 74 T010 International segment 47 T059 Inventories 102 T030 Corporate acquisitions in 2016 74 T011 swb segment 47 T060 Trade receivables 103 T031 Exchange rates used for the foreign T012 Group Central Division segment 47 T061 Changes to impairments of currency translation of individual T013 Asset position 48 trade receivables 103 financial statements 77 T014 Financial position 48 T062 Other financial receivables and assets 103 T032 Property, plant and equipment | T015 Number of employees by segment 49 T063 Maturities of other financial receivables Scheduled depreciation using the T016 Target percentages for the and assets 104 straight-line method 80 Supervisory Board and T064 Valuation allowances for other financial T033 Intangible assets | Scheduled depreciation Board of Management of EWE AG 50 receivables and assets 104 using the straight-line method 81 T017 Target percentages for the top two T065 Other non-financial receivables T034 Other operating income 91 levels of management of EWE AG 50 and assets 104 T035 Material expenses 92 Report on expected developments and T036 Personnel expenses 92 their key opportunities and risks T037 Number of employees 92 T038 Other operating expenses 93 T039 Profit/loss from financial investments T018 Expected performance of the EWE Group 53 accounted for using the equity method 93 T040 Current profit/loss from financial assets measured at equity 93 T041 Other income from investments 93 T042 Net interest 94

EWE Integrated Report 2016 FACTS AND FIGURES 159 146 ABOUT THIS REPORT 156 INDEX 147 APPENDIX OF INDICATORS 158 LIST OF TABLES 152 GRI CONTENT INDEX 160 FINANCIAL CALENDAR 2017, IMPRINT, DISCLAIMER 156 LIST OF ABBREVIATIONS

PAGE PAGE

T066 Construction subsidies 105 T091 Offsetting of financial assets and T067 Provisions 106 financial liabilities 2016 123 T068 Line items for the defined benefit and T092 Offsetting of financial assets and defined contribution pension obligations 107 financial liabilities 2015 123 T069 Values that have been recognised T093 Net profit/loss by measurement in profit and loss 107 category 124 T070 Change in the present value of T094 Future repayments on the primary the obligations 107 financial liabilities 2016 125 T071 Performance of plan assets 107 T095 Future repayments on the primary T072 Change in the present value of financial liabilities 2015 125 the obligation 108 T096 Cash flows from power derivatives T073 Pension obligations calculation (not own use) 125 using the 2005 G Klaus Heubeck T097 Gas derivative cash flows (not own use) 126 actuarial tables 108 T098 Overview of market price risk | Power 127 T074 Effects of changes to the applicable T099 Overview of market price risk | Gas 128 actuarial assumptions on the defined T100 Overview of market price risk | Coal 129 benefit pension obligation 108 T101 Overview of market price risk | T075 Statement of provisions 109 CO2 certificates 129 T076 Outstanding bonds 110 T102 Overview of foreign exchange risk 130 T077 Liabilities to financial institutions 110 T103 Overview of interest rate risks 131 T078 Other financial liabilities 111 T104 Segment reporting T079 Other non-financial liabilities 111 31 December 2016 (I/II) 132 T080 Deferred taxes | Deferred tax assets T105 Segment reporting and liabilities 112 31 December 2016 (II/II) 133 T081 Deferred taxes | Temporary differences 112 T106 External sales by T082 Leases 113 product and service 2016 134 T083 Equity ratio 114 T107 External sales by T084 Derivatives without a hedging product and service 2015 134 relationship 114 T108 External sales, assets and capital T085 Derivatives in connection with expenditure by region 134 cash flow hedges 115 T109 Operating EBIT 135 T086 Carrying amounts, bases of T110 Selection of significant shareholdings recognition and fair values by pursuant to article 313, section 2 measurement category | Assets, of the HGB 136 – 138 equity and liabilities 116 – 119 T111 Shareholders/investors in EWE AG 139 T087 Allocation of financial instruments T112 Associates accounted for using measured at fair value 2016 121 the equity method and assets measured T088 Allocation of financial instruments pursuant to IFRS 5 139 measured at fair value 2015 121 T113 Non-consolidated affiliated companies 140 T089 Changes to fair values in level 3, 2016 122 T114 Auditor̕s fees and services rendered 142 T090 Changes to fair values in level 3, 2015 122 T115 5-year financial summary EWE Group U3

EWE Integrated Report 2016 160 FACTS AND FIGURES

FINANCIAL CALENDAR 2017

27.04.2017 Annual Report 2016 – Press conference of financial statements

29.08.2017 Interim Report 2017

IMPRINT DISCLAIMER

This Integrated Report contains forward-looking statements based on assumptions Published by and estimates by the management of EWE AG. Although company management EWE Aktiengesellschaft believes that these assumptions and estimates are accurate, actual future developments and results may differ considerably from these assumptions and estimates due Tirpitzstrasse 39 to a wide variety of factors. These factors may include changes in the general econo- 26122 Oldenburg, Germany mic situation, in the statutory and regulatory framework for Germany and the EU, and in the sector. EWE AG is neither liable for, nor guarantees that future developments and the actual results achieved in future will coincide with the assumptions Team editorial and text and estimates made in this Integrated Report . EWE AG neither intends nor assumes any obligation to update forward-looking statements to reflect events or develop- EWE Aktiengesellschaft ments after the date of this report. Corporate Communication This document contains supplementary financial performance indicators not descri- Phone: +49 (04 41) 48 05-18 30 bed exactly in IFRS that are or can be non-GAAP measures. Isolated, these should E-mail: [email protected] not be used to assess the net assets, financial position and results of operations of the EWE Group, or as an alternative to the financial indicators calculated in line with IFRS and presented in the consolidated financial statements. Other companies that Kirchhoff Consult AG, Hamburg, Germany present or report on financial performance indicators with a similar designation might calculate them differently.

Wolfgang Witte, Aurich, Germany Due to rounding, it is possible that certain figures in this and other documents do not add up to the exact reported total and that percentages do not exactly reflect the absolute values to which they relate. Concept and design Kirchhoff Consult AG, Hamburg, Germany This Integrated Report also exists in German; in the event of any divergences, the German version of the Integrated Report takes precedence over the English version. www.kirchhoff.com Both language versions are available to download from www.ewe.com

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EWE Integrated Report 2016 U3

5-YEAR FINANCIAL SUMMARY EWE GROUP

| T 115

in millions of euros 2016 2015 2014 2013 2012

Sales 7,566.3 7,819.3 8,134.2 8,862.6 8,587.7 Operating EBITDA 969.9 864.0 847.1 983.2 954.6 Operating EBIT 534.6 428.1 425.4 497.9 512.7 EBIT 649.2 212.0 357.7 410.9 404.3 Result for the period 332.9 -9.4 146.3 57.2 138.8

Cash outflows for capital expenditure (total) 469.2 666.9 721.3 573.5 615.2 Cash flow from operating activities 471.6 708.2 770.3 406.4 658.8

Balance sheet total 8,435.2 9,744.3 9,800.9 10,370.4 10,469.4 Equity ratio in % 23.0 18.0 23.3 23.1 23.6 Net financial position 3,399.7 4,237.1 4,120.7 3,832.7 3,781.4

Employees (on average) 9,048 8,855 9,154 9,163 9,049 Full time employees (FTE) 8,607 8,465 8,538 8,813 8,703

The accounting methods applied may result in rounding differences of +/- one unit (euro, per cent, etc.).

EWE Integrated Report 2016 EWE Aktiengesellschaft Tirpitzstrasse 39 26122 Oldenburg, Germany www.ewe.com